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Managements Discussion and Analysis .................................. 1Overview ..................................................................................................... 1Highlights .................................................................................................. 2Outlook ...................................................................................................... 3Basis of Presentation ................................................................................ 3Forward-looking Statements .................................................................... 3Selected Annual Financial Information ................................................... 4Financial Condition .................................................................................. 4Revenue and Expenses ............................................................................. 4Summary of Quarterly Results ................................................................. 5Comparison of Quarterly Results ............................................................. 5Comparison of the Three-Month and Year Ended December 31, 2012and December 31, 2011 ............................................................................. 5Comparison of the Three-Month Period Ended December 31, 2012and September 30, 2012 ............................................................................7Liquidity and Capital Resources ............................................................... 8Significant Projects .................................................................................. 12Summary of Significant Accounting Policies .......................................... 12Recent Accounting Pronouncements ..................................................... 26Off Balance Sheet Arrangements............................................................ 28
Cautionary Note Regarding Forward Looking Statements .... 31Further Information ............................................................................... 32
TABLEOF
CONTENTS
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2012
|ManagementsDiscussionandAnalysis
|1
Managements Discussion and Analysis
The following discussion and analysis provides a review of the Corporations results of operations, financial condition and
cash flows for the three and twelve month periods ended December 31, 2012. This document should be read in conjunctionwith the information contained in the Corporations consolidated financial statements and related notes for the three and
twelve month periods ended December 31, 2012, which were prepared in accordance with International Financial
Reporting Standards. The consolidated financial statements and additional information regarding the business of the
Corporation are available at www.sedar.com
For reporting purposes, the Corporation prepares consolidated financial statements in Canadian dollars and in
conformity with International Financial Reporting Standards. Unless otherwise indicated, all dollar ($) amounts in this
Management Discussion and Analysis are expressed in Canadian dollars. References to EUR are to Euros, references to
GBP are to Pounds Sterling, references to USD are to U.S. dollars, references to KES are to Kenyan Shillings,
references to UGX are to Ugandan Shillings, references to AMD are to Armenian Drams, references to MDL are to
Moldovan Leu, references to DOP are to Dominican Pesos, references to AUS are to Australian dollars, references to
CHF are to Swiss Francs, references to DKK are to Danish Kroner, references to JPY are to Japanese Yen, references
to NOK are to Norwegian Kroner, references to MXN are to Mexican Peso and references to SEK are to Swedish
Kronor.
This Management Discussion and Analysis (MD&A) is dated April 29, 2013 for the year ended December 31, 2012.
Overview
Founded in 2004, Amaya Gaming Group Inc. (Amaya or Corporation) is engaged in the design, development and
distribution of technology-based gaming solutions for the regulated gaming industry worldwide. Amayas solutions include a
lottery system, interactive gaming solutions (online and mobile), a hospitality entertainment system, and land-based gamingsolutions.
Amayas solutions are aimed at improving gaming operator profitability and government tax efficiency while providing
players with popular and cutting-edge gaming entertainment content deployed from a secure technology environment,
which optimizes the player experience.
Amaya continues to develop gaming solutions and grow its gaming asset base as it addresses new domestic and international
opportunities.
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Highlights
On November 27, 2012 the Corporation announced that it was selected by the Mohegan Sun Casino to power its online poker
offering. Mohegan Sun will enter the online gambling market in early 2013 by launching play money poker at
www.mohegansun.com for PCs, Macs, smart phones and tablets.
On December 3, 2012 The Corporation announced the appointment of Dr. Aubrey Zidenberg and Ben Soave as advisors to its
board of directors. Mr. Soave is a retired Chief Superintendent of the RCMP and internationally recognized innovator in the
field of law enforcement, decorated by Canadian and foreign governments for his achievements combating organized crime
and terrorism. Dr. Zidenberg is a gaming industry specialist with extensive experience in the development, implementation
and operation of international gaming, tourism and entertainment projects since 1974.
On December 6, 2012 Amaya announced that Belgian casino operator Golden Palace chose Amaya's poker platform to power
its mobile poker offering for its online casino goldenpalace.be. The poker application can be found in the Belgian iTunes
Store by using the search term 'Golden Palace'. Android users can download the poker application link on goldenpalace.be.
On December 13, 2012 Amaya announced that it signed a global licensing agreement with Playboy Enterprises ("Playboy")
through which it and Playboy will collaborate and develop online gaming initiatives in poker and lottery featuring the iconicPlayboy brand in selected territories where permitted around the world. The Corporation also announced that the Socit
des Casinos du Qubec officially launched its virtual horse racing system at the Casino de Montral and the Casino du Lac-
Leamy in Gatineau.
On December 17, 2012 the Corporation announced that it appointed SHFL Entertainment Inc. as its exclusive distributor for
its online poker platform in the United States. The term of appointment is for a period of 10 years commencing as of the
signing of the definitive agreement.
On December 18, 2012 Amaya announced that Redbet Gaming Ltd (Redbet) chose its Ongame poker platform to power
Redbets company-wide poker business.
On December 21, 2012 Amaya announced that its board of directors has authorized Management to assess alternatives with
respect to retiring the outstanding 10.5% convertible debentures due April 30, 2014 (the Convertible Debentures).
Subsequently, on January 8, 2013 the Corporation announced that its board of directors assessed all alternatives and
authorized the redemption of the listed Convertible Debentures for cash, effective as of February 7, 2013.
On January 14, 2013 Amaya was honoured by the TSXV as the TSX Venture Tech Stock of the Year and Amaya's CEO David
Baazov was awarded with the TSX Venture Tech Executive of the Year in the third annual Cantech Letter Awards.
On January 17, 2013 the Corporation announced that it has entered into a private placement agreement to sell to a syndicate
of underwriters led by Canaccord Genuity Corp., 20,000 units (the "Units") at a price of $1,000 per Unit, to raise gross
proceeds of $20,000,000 (the "Base Offering") (the Private Placement). The Corporation also granted the Underwriters an
option (the "Underwriters' Option") to purchase up to 10,000 Units exercisable at any time, in whole or in part, 48 hours
prior to the closing date of the Base Offering (together with the Base Offering, the "Offering"). If the Underwriters' Option is
exercised in full, the total gross proceeds to Amaya will be $30,000,000. The Corporation announced the closing of the
Private Placement on February 7, 2013 for aggregate gross proceeds of $30,000,000 which includes the base amount of
$20,000,000 plus the fully exercised Underwriters Options of $10,000,000.
On February 7, 2013 the Corporation announced that it has extended its agreement with Warner Bros. Consumer Products
(WBCP), on behalf of DC Entertainment, to be the exclusive provider of DC Comics comic book-inspired pay-to-play online
casino games, including legendary Super Heroes Superman, Batman, Wonder Woman, Green Lantern, and The Flash.
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On February 20, 2013 the Corporation entered into an agreement with ACEP Interactive, LLC, the interactive gaming arm of
American Casino & Entertainment Properties LLC (ACEP) whereby ACEP has chosen Amaya's Ongamepoker network to
power its online poker offering at acePLAYpoker.com, which launched February 12, 2013.
On February 21, 2013 Amaya announced the launch of its full suite of proprietary and branded games on Casino777.be
owned by Circus Group. Casino777.be, launched in late 2011, is one of Belgium's first regulated online gaming sites and has
quickly become the country's premier online gaming destination.
On March 7, 2013 Amaya announced the launch of some of its most popular online casino slot games by Microgame S.p.A.
Microgame is the leading service provider for the remote gaming market in Italy, where online casino slot games were
recently regulated. The company successfully powers nearly 50 of the most successful gaming companies in the Italian
market with over 160 online brands represented.
Outlook
Amaya's corporate strategy consists of extending its market footprint by facilitating the delivery of gaming content across
physical and interactive media. Amayas strategy is reinforced by its existing portfolio of developed and acquired
technologies. Amaya continues to focus on the creation of long-term shareholder value and its core strength as a gaming
technology provider.
The fourth quarter of 2012 was highlighted by the closing of two strategic acquisitions of emerging gaming technology
providers, Cadillac Jack Inc and Ongame Networks Ltd. Management will maintain its focus on completing the integration
of these two acquisitions, including new client relationships and technologies in order to further consolidate and strengthen
Amayas market position.
As the Corporation ushers in 2013 Management believes that it is well positioned to respond to changes in the gaming
industry as its solutions become more scalable and integrated. Gaming jurisdictions are moving towards regulatory
frameworks that are evolving to adapt to the convergence of both interactive and land-based gaming operations. Particular
emphasis is placed on the United States as various states have recently passed legislation regulating online gaming activitywhile many others have tabled proposed legislation. Management believes that Amaya is well positioned to capitalize on this
evolving regulatory framework by leveraging its cutting-edge technology and its regulatory status to gain significant traction
with a number of gaming operators, governments and participants in the hospitality industry.
Basis of Presentation
The following information and comments are intended to provide a review and analysis of the Corporations operational
results and financial position for the three and twelve month periods ended December 31, 2012 as compared to the
corresponding periods ended on December 31, 2011. This MD&A should be read in conjunction with the consolidated
financial statements and related notes for the year ended December 31, 2012. Such consolidated financial statements, and
the respective notes thereto have been prepared in accordance with International Financial Reporting Standards (IFRS).Unless otherwise indicated, the information contained herein is stated as of December 31, 2012.
Forward-looking Statements
This MD&A may contain statements that are forward-looking in nature. These forward-looking statements may involve, but
are not limited to, comments with respect to the Corporations business or financial objectives, its strategies or future
actions, its targets, expectations for financial condition or outlook on operations. Forward-looking statements are not
guarantees of future performance and actual results may differ materially from those in the forward-looking statements as
a result of various factors, including commercialization, economic dependence, certification and product approvals,
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regulatory environment, product defects, strategic alliances, capital requirements, intellectual property protection, litigation,
as more fully described in the business risk and uncertainties section hereinafter. Assumptions relating to the foregoing
involve judgments and risks, all of which are difficult or impossible to predict accurately and many of which are beyond the
control of the Corporation. Although management believes that the expectations reflected in the forward-looking statements
are reasonable based on information currently available, it cannot assure that the expectations will prove to have been
correct. Accordingly, one should not place undue reliance on forward-looking statements.
Selected Annual Financial Information
For the year endedDecember 31,
2012$
December 31,2011
$
Total Revenue 76,435,009 18,375,249
Net Loss (7,112,352) (1,926,025)
Loss Per Share (0.11) (0.04)
Diluted Loss Per Share (0.11) (0.04)
Total Assets 349,074,604 47,201,473
Total Long Term Financial Liabilities 133,984,410 725,000
Cash Dividends Declared Per Share
Financial Condition
The Corporation's asset base increase of approximately $ 302,000,000 was driven by (i) the private placement of common
shares in the amount of $103,550,000; (ii) acquisition of CryptoLogic Limited, Cadillac Jack Inc., and OnGame Networks
Ltd; and (iii) the private placement of special warrants in the amount of $28,750,000, consisting of a bought deal offering of
$25,000,000 which closed on January 18, 2012. The underwriters of the bought deal offering were also granted an over-
allotment option of $3,750,000 which was exercised on January 31, 2012 to acquire additional special warrants.
Based on the Corporations current revenue expectations, expected proceeds from the exercise of outstanding warrants, the
funds available from the Corporations private placement of common shares, Management believes the Corporation will have
the cash resources to satisfy current working capital needs for at least the next 12 months.
Revenue and Expenses
The Corporation distributes and licenses its solutions through direct and indirect sales channels. The Corporations direct
customers are governments and other licensed land-based or online casinos, arcades, gaming halls, card rooms and hotels
that operate in regulated gaming jurisdictions as well as cruise ships and other legal gaming operations. Commercialization
is typically preceded by securing a suppliers/manufacturers license from the gaming jurisdiction as well as technical
product approval from independent testing laboratories or the jurisdictions testing laboratories. Once the order stage is
reached, a supply or licensing agreement is usually established and one or multiple deliveries are processed under the supply
or licensing agreement. The Corporations indirect channel partners are distributors in jurisdictions where the Corporation
seeks a first mover advantage in a specific geographical area. The Corporation evaluates revenue performance by both
geographic area and product. The following table sets out the proportion of revenue attributable to each of the legal gaming
jurisdictions in which it sells its solutions for the period noted hereunder.
Year Ending December 31
2012$
2011$
Revenues by Geographic Area
Caribbean 12,680,998 9,930,485
North America 11,666,835
Africa 1,185,614 2,439,145
Europe 50,341,748 5,806,456
Other 559,814 199,163
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The revenue increase in the Caribbean for the year ended December 31, 2012 is primarily attributable to the Corporation's
placements of its proprietary gaming stations.
The revenue increase in North America for the year ended December 31, 2012 is primarily attributable to the acquisition of
Cadillac Jack whose customer base is predominantly North American.
The revenue decrease in Africa for the year ended December 31, 2012 is primarily attributable to a shift away from Africa, to
more profitable markets in North America, Europe, and the Caribbean.
The revenue increase in Europe for the year ended December 31, 2012 is primarily attributable to the acquisition of
Chartwell Technology Inc. and CryptoLogic Limited whose customer base is predominantly European.
Summary of Quarterly Results
Comparison of Quarterly Results
Comparison of the Three-Month and Year Ended December 31, 2012and December 31, 2011
REVENUE
Revenue for the three month period ended December 31, 2012 was $37.19 million compared to $9.49 million for the three
month period ended December 31, 2011, representing an increase of 292%. This revenue increase is primarily attributable to
the Corporation's licensing of its proprietary online and mobile technology, consolidating CryptoLogic's software licensing
and hosted casino revenue, consolidating Ongame's software licensing revenue, and consolidating Cadillac Jack's
participation agreement revenue. The revenue for the three month period ended December 31, 2012 was generated from
financing income, financing leases, participation leases, outright sales, hosted casino, and software licensing of the
Corporations solutions in the amounts of $0.15 million, $0.11 million, $10.79 million, $1.06 million, $4.68 million, and
$20.39 million respectively (2011 $0.01 million, $5.73 million, $0.03 million, $2.82 million, nil, $0.89 million).
Revenue for the twelve month period ended December 31, 2012 was $76.43 million compared to $18.38 million for thetwelve month period ended December 31, 2011, representing an increase of 316%. This revenue is primarily attributable to
the Corporation's placements of its gaming stations, licensing of its proprietary online and mobile technology, consolidating
Chartwell's software licensing revenue and consolidating CryptoLogic's software licensing and hosted casino revenue,
consolidating Ongame's software licensing revenue, and consolidating Cadillac Jack's participation agreement revenue. The
revenue for the twelve month period ended December 31, 2012 was generated from financing income, financing leases,
participation leases, outright sales, hosted casino, and software licensing of the Corporations solutions in the amounts of
$0.37 million, $8.04 million, $10.92 million, $4.52 million, $12.48 million, and $40.12 million respectively (2011 $0.06
million, $8.58 million, $0.17 million, $2.90 million, nil, $6.67 million).
31-Mar-11$
30-Jun-11$
30-Sep-11$
31-Dec-11$
31-Mar-12$
30-Jun-12$
30-Sep-12$
31-Dec-12$
Revenue 1,138,074 3,773,542 3,973,552 9,490,081 6,384,038 14,539,519 18,317,140 37,194,312
Net income (loss) (1,821,662) (1,108,123) (1,883,553) 2,887,313 (4,558,054) (2,724,440) 881,451 (711,309)
Basic earnings (loss)per Commonshare (0.05) (0.03) (0.04) 0.06 (0.09) (0.05) 0.01 (0.01)
Diluted earnings (loss)per Commonshare (0.05) (0.03) (0.04) 0.05 (0.09) (0.05) 0.01 (0.01)
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GROSS PROFIT
Gross profit percentage was 99% for the three months ended December 31, 2012 and 90% for the three month period ended
December 31, 2011. The increase in gross profit percentage for the three month period ended December 31, 2012 is primarily
attributable to the Corporation's licensing of its proprietary online and mobile technology, consolidating CryptoLogic's
software licensing and hosted casino revenue, consolidating Ongame's software licensing revenue, and consolidating Cadillac
Jack's participation agreement revenue.
Gross profit percentage was 98% for the twelve months ended December 31, 2012 and 93% for the twelve month period
ended December 31, 2011. The increase in gross profit percentage for the twelve month period ended December 31, 2012 is
primarily attributable to the Corporation's placements of its proprietary gaming stations, licensing of its proprietary online
and mobile technology, consolidating Chartwell's software licensing revenue and consolidating CryptoLogic's software
licensing and hosted casino revenue, consolidating Ongame's software licensing revenue, and consolidating Cadillac Jack's
participation agreement revenue.
SELLING
Sales and marketing expenses increased from $0.96 million for the three month period ended December 31, 2011 to
$3.71 million for the three month period ended December 31, 2012, representing an increase of 286%. The $2.75 million
increase was driven by (i) consolidating royalty expenses incurred by Chartwell and CryptoLogic in connection with
generating software licensing revenue; (ii) consolidating royalty expenses incurred by CryptoLogic in connection with
generating Hosted Casino revenue (iii) consolidating advertising and promotion expenses incurred by CryptoLogic in
connection with generating Hosted Casino revenue.
Sales and marketing expenses increased from $6.48 million for the twelve month period ended December 31, 2011 to
$11.68 million for the twelve month period ended December 31, 2012, representing an increase of 80%. The $5.2 million
increase was driven by (i) consolidating royalty expenses incurred by Chartwell and CryptoLogic in connection with
generating software licensing revenue; (ii) consolidating royalty expenses incurred by CryptoLogic in connection with
generating Hosted Casino revenue (iii) consolidating advertising and promotion expenses incurred by CryptoLogic in
connection with generating Hosted Casino revenue.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $5.6 million for the three month period ended December 31, 2011, to
$29.77 million for the three month period ended December 31, 2012, representing an increase of 431%. The increase was
driven by (i) a growing employee base due to the CryptoLogic, Cadillac Jack, and OnGame acquisitions; (ii) fully staffed
operations in Moldova, Armenia, and the Dominican Republic; (iii) consulting fees incurred in connection with the
operation of foreign subsidiaries (iv) amortization of intangibles and property and equipment; (v) communications expense
in connection with generating CryptoLogic's Hosted Casino revenue; and (vi) costs incurred in connection with termination
of employment agreements.
General and administrative expenses increased from $13.74 million for the twelve month period ended December 31, 2011,
to $61.68 million for the twelve month period ended December 31, 2012, representing an increase of349%. The increase was
driven by (i) a growing employee base due to the CryptoLogic, Cadillac Jack, and OnGame acquisitions; (ii) fully staffed
operations in Moldova, Armenia, and the Dominican Republic; (iii) consulting fees incurred in connection with the
operation of foreign subsidiaries (iv) amortization of intangibles and property and equipment; (v) fees incurred in
connection with the termination of agency agreements; and (vi) costs incurred in connection with the termination of
employment agreements.
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FINANCIAL
Financial expenses were $0.14 million for the three month period ended December 31, 2011 and $3.64million for the three
month period ended December 31, 2012. The increase for the three month period ended December 31, 2012 is primarily
attributable to interest on the (i) convertible debentures in connection with the Offer to buy all of the outstanding shares of
CryptoLogic Limited; and (ii) Facility in connection with the agreement and plan of merger to acquire Cadillac Jack.
Financial expenses were $0.68 million for the twelve month period ended December 31, 2011 and $6.82 million for the
twelve month period ended December 31, 2012. The increase for the twelve month period ended December 31, 2012 is
primarily attributable to interest on the (i) convertible debentures in connection with the Offer to buy all of the outstanding
shares of CryptoLogic Limited; and (ii) Facility in connection with the agreement and plan of merger to acquire Cadillac
Jack.
ACQUISITION RELATED EXPENSES
Acquisition related expenses increased from nil for the three month period ended December 31, 2011, to $3.2 million for the
three month period ended December 31, 2012. The increase was driven by (i) underwriter fees, and (ii) professional fees
incurred in connection with the acquisitions of Cadillac Jack and OnGame.
Acquisition related expenses increased from nil for the twelve month period ended December 31, 2011, to $6.03 million for
the twelve month period ended December 31, 2012. The increase was driven by (i) underwriter fees, and (ii) professional fees
incurred in connection with the acquisitions of CryptoLogic, Cadillac Jack, and OnGame.
DEFERRED INCOME TAX
For the three month period ended December 31, 2012 the Corporation recognized an increase in deferred income tax assets
driven primarily by (i) loss carry forwards and foreign tax credits obtained in connection with the Cadillac Jack acquisition;
and (ii) acquisition-related intangibles which were offset by (i) temporary differences arising from benefit of loss carry for-
wards being offset by taxable income; (ii) differences between accounting and tax treatment of convertible debentures.
For the twelvemonth period ended December 31, 2012 the Corporation recognized an increase in deferred income tax assets
driven primarily by (i) loss carry forwards and foreign tax credits obtained in connection with the Cadillac Jack acquisition;
and (ii) acquisition-related intangibles which were offset by (i) temporary differences arising from benefit of loss carry
forwards being offset by taxable income; (ii) differences between accounting and tax treatment of convertible debentures.
Comparison of the Three-Month Period Ended December 31, 2012 and September 30,2012
REVENUE
Revenue for the three month period ended December 31, 2012 was $37.19 million compared to $18.32 million for the three
month period ended September 30, 2012, representing an increase of 103%. This revenue increase is primarily attributableto the Corporation's licensing of its proprietary online and mobile technology and consolidating Cadillac Jack's participation
agreement revenue. The revenues for the three month period ended December 31, 2012 were generated from financing
income, financing leases, participation leases, outright sales, hosted casino and software licensing of the Corporations
solutions in the amounts of $0.15 million, $0.11 million, $10.79 million, $1.06 million, $4.68 million, and $20.39 million
respectively (September 30, 2012 $0.21 million, $0.09 million, $0.04 million, $2.19 million, $3.3 million, $12.5 million).
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GROSS PROFIT
Gross profit percentage was 99% for the three months ended December 31, 2012 and 99% for the three month period ended
September 30, 2012.
SELLING
Sales and marketing expenses increased from $2.64 million for the three month period ended September 30, 2012 to
$3.71 million for the three month period ended December 31, 2012, representing an increase of 40%. The $1.07 million
increase was driven by (i) consolidating Cadillac Jack's selling expenses and (ii) higher royalty expenses incurred by
CryptoLogic in connection with generating higher Hosted Casino revenue.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $11.8 million for the three month period ended September 30, 2012, to
$29.77 million for the three month period ended December 31, 2012, representing an increase of 152%. The increase was
driven by a growing employee base due to the Cadillac Jack, and OnGame acquisitions.
FINANCIAL
Financial expenses were $1.41 million for the three month period ended September 30, 2012 and $3.64 million for the three
month period ended December 31, 2012. The increase is primarily attributable to interest on the Facility in connection with
the agreement and plan of merger to acquire Cadillac Jack.
ACQUISITION RELATED EXPENSES
Acquisition related expenses increased from $0.36 million for the three month period ended September 30, 2012, to $3.2
million for the three month period ended December 31, 2012. The increase was driven by (i) underwriter fees, and (ii)
professional fees incurred in connection with the acquisitions of Cadillac Jack and OnGame.
Liquidity and Capital ResourcesBased on the Corporations current revenue expectations, expected proceeds from the exercise of outstanding warrants, the
funds available from the Corporations private placement of common shares, Management believes the Corporation will have
the cash resources to satisfy current working capital needs for at least the next 12 months. Moreover, Management is of the
opinion that investing is a key element necessary for the continued growth of the Corporations clientele and the future
development of new and innovative products and solutions. The state of capital markets may influence the Corporations
ability to secure the capital resources required to fund future projects.
The Corporation has entered into financing lease agreements involving extended payment terms. The terms of these
financing lease agreements permit the customer to make recurring, fixed monthly payments over the 5-year lease term. The
Corporation believes these agreements will not impair its ability to meet its short-term liabilities.
Liquidity risk is the Corporations ability to meet its financial obligations when they come due. The Corporation is exposed to
liquidity risk with respect to its contractual obligations and financial liabilities. The Corporation manages liquidity risk by
continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets and liabilities.
The Corporations objective is to maintain a balance between continuity of funding and flexibility through borrowing
facilities available through the Corporations bank and other lenders. The Corporations policy is to ensure adequate funding
is available from operations, established lending facilities and other sources as required.
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On Demand
$
Less Than1 year
$
1-3years
$
4-5years
$
More Than5 years
$
December 31, 2012
Accounts payable and accrued liabilities 32,451,222
Provisions 7,539,742 5,260,235
Customer deposits 13,902,892
Income taxes payable 1,498,596
Holdback on purchase price 4,974,500
Convertible debentures* 2,584,260 25,904,130
Equipment financing* 1,125,394 1,159,979
Long-term debt* 15,723,717 121,765,302
Commitments 6,410,610 10,047,277 4,010,705 300,974
Total 55,392,452 25,843,981 163,851,188 9,270,940 300,974
*includescapitalandinterestCREDIT FACILITY
The Corporations credit facility includes a revolving demand credit facility of $3,000,000 and a demand export loan facility
of $2,000,000. The revolving demand credit facility can be used for general working capital purposes and the demand
export loan facility can be used to finance specific export contracts. The facilities bear interest at the Banks prime rate plus
between 1.25% and 2% depending on the Corporations fixed charge coverage ratio. To secure the full repayment of advances
(December 31, 2012 - $nil), the Corporation has provided the Bank a first ranking security interest over all of the
movable/personal property of the Corporation.
As at December 31, 2012, the outstanding amount of the revolving demand credit facility is $nil (December 31, 2011- $nil)
and the demand export loan facility is $nil (December 31, 2011 - $1,680,000).
Under the terms of the credit facility arrangement with the Bank, the Corporation is required amongst other conditions, to
maintain at all times certain ratios and a minimum level of net worth. As at December 31, 2012 and 2011, the Corporation
was not in breach of the terms of the credit facility agreement.
LONG-TERM DEBT
The following is a summary of long-term debt outstanding at December 31, 2012 and 2011
December 31,2012
$
December 31,2011
$
Current maturity 6,133,862 300,000
Long-term debt 99,366,585 725,000
105,500,447 1,025,000
(a) Subordinated Debt
On April 29, 2010 the Corporation entered into a subordinated debt agreement in the amount of $3,000,000 which is
disbursable in two tranches of $1,500,000 each, closing no later than April 30, 2010 and twelve months after the first
drawing respectively, pursuant to the conditions of the related loan agreement. On April 30, 2010 the first tranche
amounting to $1,500,000 was disbursed. The Corporation did not draw on the second $1,500,000 tranche and has waived
its rights to draw on the second tranche. The subordinated debt is repayable in equal monthly instalments over a five-year
period. The loan bears interest at the annual rate of 14% plus an additional interest representing 1% of yearly gross sales of
the Corporation for the first $25,000,000 of sales and an additional 0.20% for sales over $25,000,000. In the event that
only the first drawing is disbursed by the lender, the calculation of the additional interest shall be adjusted to 0.5% of the
first $25,000,000 of the Corporations gross sales for a given year, and to 0.1% of the Corporations gross sales exceeding
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$25,000,000 for a given year. Any amount, principal or interest, which is not paid when due will bear interest at the annual
rate of 25% until it is paid in full.
Under the terms of the subordinated debt agreement with the lender, the Corporation is required, amongst other conditions,
to maintain at all times certain ratios. As at December 31, 2012, the Corporation was in breach of the Fixed Charge Coverage
ratio but had previously received a waiver from the lender that the breach of the ratio will not result in default. Subsequent
to year end, the Corporation received a waiver from the lender that a breach of the ratio in 2013 will not result in default.
The subordinated debt is convertible into voting and participating shares of the Corporation upon an event of default by the
Corporation under the terms of the related loan agreement, at the discretion of the lender. In the event the lender exercises
the conversion privilege as a result of an event of default, the conversion is based on the greater of (i) the book value of the
common shares of the Corporation on the basis of the most recent audited consolidated financial statements or, at the
lenders sole discretion, the most recent unaudited consolidated quarterly financial statements of the Corporation, provided
that such book value shall not be less than one cent per share, and (ii) the minimum price authorized by the applicable
policies of the TSX Venture Exchange if the Corporation is listed on such Exchange. The fair value of the long-term debt was
established using information for comparative debt instruments and the Corporation concluded that there was no significant
equity component.
During the year ended December 31, 2012, the Corporation incurred $121,033 (2011 $162,659) in interest.
December 31,2012
$
December 31,2011
$
Subordinated loan bearing interest at 14% per annum plus additionalinterest, maturing in 2015 and payable in monthly instalmentsof $25,000 plus interest 725,000 1,025,000
Current maturity (300,000) (300,000)
425,000 725,000
Long-term debt principal repayments over the next three years amount to the following:
$
2013 300,000
2014 300,000
2015 125,000
(b) Senior secured term loan
On November 5, 2012, in connection with the agreement and plan of merger dated September 25, 2012 to acquire Cadillac
Jack, the Corporation entered into a credit agreement with a syndicate of lenders securing a USD$110.0 million non-
convertible senior secured term loan secured by Cadillac Jacks assets and guaranteed by the Corporation. The term loan is
amortized over the three-year term as follows: 5% in year one, 10% in year two, 15% in year three with the balance payable at
maturity. The term loan bears interest at the annual rate of LIBOR plus a margin of 7.75%, with a LIBOR floor of 1.25%. The
term loan has maintenance covenants based on maximum leverage and minimum coverage, for which the Corporation was
in compliance with as of December 31, 2012
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During the year ended December 31, 2012, the Corporation incurred $1,807,624 (2011 $nil) in interest.
December 31,2012
$
December 31,2011
$
Principal 109,439,000
Transaction costs (5,685,053)
Accretion (effective interest rate of 11.21%) 275,325 Current maturity (5,471,950)
98,557,322
Term loan principal repayments over the next three years amount to the following:
$
2013 5,471,950
2014 10,943,900
2015 93,023,150
(c) Other long-term debt
Other long-term debt is comprised of a long-term debt in the amount of USD$750,000 bearing interest at 6.0% per annum,repayable in equal semi-annual instalments over a two-year term.
During the year ended December 31, 2012, the Corporation incurred $6,859 (2011 $nil) in interest.
December 31,2012
$
December 31,2011
$
Loan bearing interest at 6% per annum repayable in equal semi-annual instalments over atwo year term 746,175
Current maturity (361,912)
384,263
Long-term debt principal repayments over the next two years amount to the following:
$
2013 361,9122014 384,263
CASH FLOWS BY ACTIVITY
The table below outlines a summary of cash inflows and outflows by activity.
Cash Inflows and (Outflows) by Activity:
For the Twelve MonthPeriod Ended
For the Three MonthPeriod Ended
December 31,2012
$
December 31,2011
$
December 31,2012
$
December 31,2011
$
Operating activities (26,416,468) (11,197,703) (12,315,352) (2,110,917)
Financing activities 130,859,309 14,810,751 1,171,436 (106,252)
Investing activities (75,974,265) (9,793,871) (57,564,257) (612,714)
CASH PROVIDED BY (USED IN) OPERATIONS
The Corporation generated negative cash flows from operating activities for the three-month period ended December 31,
2012. This is primarily attributable to non-recurring bonuses paid to employees and settlement of acquisition-related
expenses. Cash provided from (used for) operating activities for the three-month period ended December 31, 2012 was
$(12.32) million as compared to $(2.11) million for the three-month period ended December 31, 2011.
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The Corporation generated negative cash flows from operating activities for the year ended December 31, 2012. This is
primarily attributable to (i) payments made in connection with termination of agency and employment agreements; (ii)
prepayment for a significant purchase order; (iii) settlement of acquisition-related expenses; (iv) non-recurring bonuses paid
to employees. Cash provided from (used for) operating activities for the year ended December 31, 2012 was $(26.42) million
as compared to $(11.20) million for the year ended December 31, 2011.
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
The use of cash for investing activities for the three-month period ended December 31, 2012 was $(57.56) million as
compared to $(0.61) million for the three-month period ended December 31, 2011. During the three-month period ended
December 31, 2012, the key expenditure driving the Corporations use of cash for investing activities were the acquisitions of
Cadillac Jack and OnGame. During the three-month period ended December 31, 2011, the key expenditure driving the
Corporations use of cash for investing activities was costs incurred in securing government issued gaming licenses.
The use of cash for investing activities for the year ended December 31, 2012 was $(75.97) million as compared to $(9.79)
million for the year ended December 31, 2011. During the year ended December 31, 2012, the key expenditures driving the
Corporations use of cash for investing activities were the acquisitions of CryptoLogic, Cadillac Jack and OnGame.
During the year ended December 31, 2011, the key expenditures driving the Corporations use of cash for investing activities
was the acquisition of Chartwell as well as the costs incurred in securing government issued gaming licenses.
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
The cash provided from (used in) financing activities for the three-month period ended December 31, 2012 and December
31, 2011 was $1.17 million and $(0.11) million respectively. During the three-month period ended December 31, 2012, cash
from financing activities was primarily derived from issuance of capital stock in relation to the exercise of broker warrants.
The cash provided from (used in) financing activities for the year ended December 31, 2012 and December 31, 2011 was
$130.86 million and $14.81 million respectively. During the year ended December 31, 2012, cash from financing activities
was primarily derived from issuance of capital stock in relation to the two closings of the June 27, 2012 private placement
and the private placement of special warrants. During the year ended December 31, 2011, cash generated from financing
activated was primarily derived from (i) issuance of capital stock in relation to private placement and the acquisition of
Chartwell; (ii) the exercise of IPO warrants.
Significant Projects
Only the mobile lottery component of the project has been deployed to date for the previously disclosed project with the
National Lottery of Moldova.
As of December 31, 2012 the Corporation has incurred approximately $2.55 million in expenditures relative to the mobilecomponent of the project, representing substantially less than the planned expenditures for the project as a whole.
Summary of Significant Accounting Policies
BASIS OF PRESENTATION
These consolidated financial statements, including comparatives, have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and
interpretations of the International Financial Reporting Standards Interpretations Committee (IFRIC).
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These consolidated financial statements were prepared on a going concern basis, under the historical cost convention, except
for the revaluation of certain financial instruments.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries. A wholly
owned subsidiary is an entity over which the Corporation has control, where control is defined as the power to govern
financial and operating policies. On consolidation, all significant inter-entity transactions and balances have been
eliminated. As at December31, 2012, the consolidated financial statements included fifty-three wholly owned subsidiaries.
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity which is subject to
joint control. The Corporations interests in jointly controlled entities are accounted for by proportionate consolidation. The
Corporation combines its share of the joint ventures individual income and expenses, assets and liabilities and cash flows on
a line-by-line basis with similar items in the Corporations financial statements. At December 31, 2012, the joint-venture has
no significant impact on the Corporations consolidated financial statements.
REVENUE RECOGNITION
Revenue is recognized when all the following criteria are met:
the Corporation has transferred to the buyer the significant risks and rewards;
the amount of revenue can be reliably measured;
it is probable that the economic benefits associated with the transaction will flow to the Corporation; and
the costs incurred or to be incurred in respect of the transaction can be reliably measured.
Multiple-element revenue arrangements
Certain of the Corporations contracts include license fees, training, installation, consulting, maintenance, product supportservices and periodic upgrades.
Where such agreements exist, the amount of revenue allocated to each element is based upon the relative fair values of the
various elements. The fair values of each element are determined based on current market price of each of the elements
when sold separately. Revenue is only recognized when, in managements judgment, the significant risks and rewards of
ownership have been transferred or when the obligation has been fulfilled.
In addition to the aforementioned general policies, the following are the specific revenue recognition policies for each major
category of revenue:
Product Sales
Revenue from product sales is generally recognized when the product is shipped to the customer and when there are no
unfulfilled Corporation obligations that affect the customers final acceptance of the arrangement. Any cost of warranties and
remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized.
Participation arrangements
In contracts that stipulate profit sharing arrangements, revenues are earned based on revenue splits established in the
contracts and can vary depending on the contracts. Revenues are recognized when performance has been achieved and
collectability is reasonably assured.
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Service fees
Service fees are made up of network administration and hosting. The Corporation provides continuing services for a fixed
monthly rate and fees are reported on an accrual basis during the period of service.
Software Licensing
License fees, including fees from master license agreements, most of which are contingent upon licensees customer usage,
are calculated as a percentage of each licensees level of activity. The license fees are recognized on an accrual basis as
earned.
Hosted Casino
Revenues from Hosted Casino are recognized as the services are performed, on a daily basis, at the time of the gambling
transactions.
Lease revenues
In the course of its normal business the Corporation enters into lease agreements for its gaming equipment.
Assets subject to finance leases are initially recognized at an amount equal to the net investment in the lease, which is the
fair value of the asset, or, if lower, the present value of the minimum lease payments. Revenue is recognized on the basis of
policy for product sales. Interest income is subsequently recognized over the term of the applicable leases based on the
effective interest rate method. Interest income is grouped with the revenues, in the statement of comprehensive income
(loss).
Assets under operating leases are included in property and equipment. Lease income from operating leases is recognized on
a straight-line basis over the term of the lease and is included in revenues, in the statement of comprehensive income (loss).
TRANSLATION OF FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSACTIONS
Functional and presentation currency
IAS 21 (Effects of Changes in Foreign Currency Rates) requires entities to consider primary and secondary indicators when
determining the functional currency. Primary indicators are closely linked to the primary economic environment in which
the entity operates and are given more weight. Secondary indicators provide supporting evidence to determine an entitys
functional currency. Once the functional currency of an entity is determined, it should be used consistently, unless
significant changes in economic facts, events and conditions indicate that the functional currency has changed.
A change in functional currency is accounted for prospectively from the date of change by translating all items into the new
functional currency using the exchange rate at the date of change.
Based on an analysis of the primary and secondary indicators, the functional currency of each of the groups entities have
been determined. These consolidated financial statements are presented in Canadian dollars, which in the opinion of
management is the most appropriate presentation currency in view of its operations in the global marketplace, user needs
and a comparison with its major competitors.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of
the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement
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of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the statement of comprehensive income (loss).
Group companies
Each foreign operation determines its own functional currency and items included in the financial statements of each foreign
operation are measured using that functional currency.
The results and financial position of all the group entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each statement of comprehensive income (loss)are translated at average exchange rates
(unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(iii) all resulting exchange differences are recognized in other comprehensive income (loss).
The following functional currencies are referred to herein below:
Currency Symbol Currency Description
CAD Canadian Dollar
USD United States Dollar
EUR Euro
KES Kenyan shilling
UGX Ugandan shilling
GBP Pound Sterling
AMD Armenian Dram
MDL Moldovan Leu
DOP Dominican Peso
AUS Australian DollarCHF Swiss Franc
DKK Danish Krone
JPY Japanese Yen
NOK Norwegian Kroner
MXN Mexican Pesos
SEK Swedish Krona
BUSINESS COMBINATION
Business combinations are accounted for using the acquisition method. Under this method, the identifiable assets acquired
and liabilities assumed, including contingent liabilities, are recognized, regardless of whether they have been previously
recognized in the acquirees financial statements prior to the acquisition. On initial recognition, the assets and liabilities ofthe acquired subsidiary are included in the consolidated statement of financial position at their fair values. Goodwill is
recorded when the identifiable intangible assets have been determined. Goodwill is the excess of the fair value of the
consideration transferred over the fair value of the Corporations share in the acquirees net identifiable assets on the date of
acquisition. Any excess of the identifiable net assets over the consideration transferred is recognized in income immediately.
The consideration transferred by the Corporation to acquire control of a subsidiary is calculated as the sum of the
acquisition-date fair values of the assets transferred, liabilities incurred and equity interests issued by the Corporation,
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including the fair value of all the assets and liabilities resulting from a contingent consideration arrangement. Acquisition
related costs are expensed as incurred.
OPERATING SEGMENTS
The Corporations operating segments are organized around the markets it serves and are reported in a manner consistent
with the internal reporting provided to the Chairman and Chief Executive Officer, the Corporations chief operating decision-
maker. An operating segment is a component of the Corporation that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses relating to transactions with other components of the
Corporation. Currently the Corporation has only one operating segment, Diversified Gaming Solutions.
FINANCIAL INSTRUMENTS
Financial assets
Financial assets are initially recognized at fair value and are classified either as fair value through profit and loss;
available-for-sale; held-to-maturity; or loans and receivables. The classification depends on the purpose for which the
financial instruments were acquired and their characteristics. Except in very limited circumstances, the classification is not
changed subsequent to initial recognition.
Fair Value through Profit or Loss
Financial assets at fair value through profit or loss are financial assets held-for-trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in the short-term or if so designated by Management. Financial
assets classified at fair value through profit or loss are measured at fair value, with the realized and unrealized changes in fair
value recognized each reporting period on the consolidated statement of comprehensive income (loss). No financial assets
are classified as fair value through profit or loss.
Available-fo r-sale
Available-for-sale assets are non-derivative financial assets that are either designated in this category or not classified in anyof the other categories. They are included in other non-current financial assets unless management intends to dispose of the
investment within twelve months of the consolidated statements of financial position date. Financial assets classified as
available-for-sale are carried at fair value with the changes in fair value recorded in other comprehensive income (loss),
except for investments in equity instruments that do not have a quoted market price in an active market which are measured
at cost. Interest on available-for-sale assets is calculated using the effective interest rate method and is recognized in the net
income (loss). When a decline in fair value is determined to be other-than-temporary, the cumulative loss included in
accumulated other comprehensive income (loss) is removed and recognized in the consolidated statement of comprehensive
income (loss). Gains and losses realized on disposal of available-for-sale securities are recognized in comprehensive income
(loss). Investments in marketable securities were classified as available-for-sale.
Held-to-maturity and loans and receivables
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity
that an entity has the intention and ability to hold to maturity. Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those
with maturities greater than twelve months after the consolidated statements of financial position date, which are classified
as non-current assets. Financial instruments classified as held-to-maturity and loans and receivables are initially recorded at
fair value and subsequently measured at amortized cost using the effective interest method. No financial assets are held-to-
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maturity. Cash and cash equivalents, restricted cash, receivable under finance lease, accounts receivable are classified as
loans and receivables.
Impairment
At the end of each reporting period, the Corporation assesses whether a financial asset or a group of financial assets, other
than those classified as fair value through profit and loss, is impaired. If there is objective evidence that impairment exists,the loss is recognized in the consolidated statements of comprehensive income (loss). The impairment loss is measured as
the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognized in the consolidated statement of comprehensive income (loss).
Financial Liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit or loss, or other financial
liabilities. Financial liabilities are initially measured at fair value and subsequently measured at amortized cost using the
effective interest rate method for liabilities that are not hedged and fair value for liabilities that are hedged. All financial
liabilities are classified as other liabilities.
Transaction costs
Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other
than financial assets and financial liabilities that are classified as Through Profit or Loss) are added to or deducted from
the fair value of the financial instrument on initial recognition. These costs are expensed to interest on the consolidated
statement of comprehensive income (loss) over the term of the related financial asset or financial liability using the effective
interest method. When a debt facility is retired by the Corporation, any remaining balance of related debt transaction costs is
expensed to interest on the consolidated statement of comprehensive income (loss) in the period that the debt facility is
retired. Transactions costs related to financial instruments at fair value through profit or loss are expensed when incurred.
Compound Financial Instruments
The Corporations compound financial instruments comprise of its special warrants that entitle the holder to receive a unit
composed of one convertible debenture and warrants. The convertible debentures can be converted to common shares at the
option of the holder, and the number of shares to be issued does not vary with changes in fair value. As a result the
instrument is composed of one liability component, one equity component for the conversion option and warrants. The
liability component of the convertible debentures is recognized initially at the fair value of a similar liability that does not
have an equity conversion option. The residual amount between the total fair value of the special warrants and the fair value
of the liability component has been allocated on initial recognition to the equity component for conversion and the warrants.
The allocation between the two equity components was based on a relative fair value method. Any directly attributable
transaction costs are allocated to the liability, the conversion option and the warrants in proportion to their initial carrying
amounts.
Subsequent to initial recognition, the liability component of the convertible debentures is measured at
amortized cost using the effective interest method. The equity components of the convertible debentures are not
re-measured subsequent to initial recognition.
Embedded derivatives
Derivatives may be embedded in other financial and non-financial instruments (the host instrument). Embedded
derivatives are treated as separate derivatives when their economic characteristics and risks are not closely related to those
of the host instrument, the terms of the embedded derivative are the same as those of a stand-alone derivative, and the
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combined contract is not held-for-trading or designated at fair value. These embedded derivatives are measured at fair value
with subsequent changes recognized in the consolidated statement of comprehensive income (loss). The Corporation has no
embedded derivatives.
Determination of fair value
The fair value of a financial instrument on initial recognition is the transaction price, which is the fair value of theconsideration given or received. Subsequent to initial recognition, fair value is determined by management using available
market information or other valuation methodologies.
For the Corporations financial instruments which are recognized in the statement of financial position at fair value, the
inputs used in measuring fair values are classified in the following levels in the fair value hierarchy:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly; and
Level 3 Inputs for the asset or liability that are not based on observable market data.
The Corporation estimates the fair value of its financial instruments based on current interest rates, market values and
pricing of financial instruments with comparable terms. Fair value estimates are made as of a specific point in time, using
available information about the financial instrument. These estimates are subjective in nature and may not be determined
with precision.
Comprehensive income (loss)
Comprehensive income (loss) is composed of the Corporations net earnings and other comprehensive income (loss). Other
comprehensive income (loss) includes unrealized effect of (i) foreign currency translation of foreign operations; and (ii) gain
or loss on investment in marketable securities, all net of income taxes. The components of comprehensive income (loss) are
presented in the consolidated statements of changes in equity.
RESEARCH AND DEVELOPMENT INVESTMENT TAX CREDITS
The Corporation claims research and development investment tax credits as a result of incurring scientific research and
experimental development expenditures. Research and development investment tax credits are recognized when the related
expenditures are incurred, and there is reasonable assurance of their realization. Investment tax credits are accounted for by
the cost reduction method, whereby the amounts of tax credits are applied as a reduction of the cost of the deferred
development costs.
INVENTORY VALUATION
Inventories are priced at the lower of cost or net realizable value. Cost is determined on a weighted average basis. The cost of
inventories comprises all costs of purchase and other costs incurred in bringing the inventory to its present location and
condition. Raw materials and purchased finished goods are valued at purchase cost. Net realizable value represents the
estimated selling price for inventory less all estimated costs necessary to make the sale.
PREPAID EXPENSES
Prepaid expenses consist of amounts paid in advance or deposits made for which the Corporation will receive goods or
services within the next normal operating cycle.
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PROPERTY AND EQUIPMENT
Property and equipment which have a finite life are recorded at cost less accumulated depreciation and impairment losses.
Depreciation is expensed from the month the corresponding assets are available for use over the estimated useful lives at the
following rates, which are intended to reduce the carrying value to the estimated residual value:
Revenue-producing assets Declining balance 20%Machinery and equipment Declining balance 20%
Furniture and fixtures Declining balance 20%
Computer equipment Declining balance 20%
INTANGIBLE ASSETS
Software Declining balance 20%
Licenses Straight-line Over the term of licenses
ACQUISITION-RELATED INTANGIBLES
Software Technology Straight-line 5 yearsCustomer Relationships Straight-line 15 years
The depreciation method, useful life and residual values are assessed annually and the assets are tested for impairment,
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Upon retirement or disposal, the cost of the asset disposed of and the related accumulated amortization are removed from
the accounts and any gain or loss is reflected in earnings. Expenditures for repairs and maintenance are expensed
as incurred.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business
acquisition. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is reviewed for impairment at least annually or more frequently if circumstances such as significant declines in
expected sales, earnings or cash flows indicate that it is more likely than not that the asset might be impaired.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed except in cases where development costs meet certain identifiable criteria for
deferral. Development costs, which have probable future economic benefit, can be clearly defined and measured, and are
incurred for the development of new products or technologies, are capitalized. These development costs net of related
research and development investment tax credits are not amortized until the products or technologies are commercialized, at
which time, they are amortized over the estimated life of the commercial production.
The amortization method and the life of the commercial production are assessed annually and the assets are tested for
impairment.
IMPAIRMENT OF NON-CURRENT ASSETS
At the end of each reporting period, the carrying amounts of property, plant and equipment and intangible assets with finite
useful lives are assessed to determine if there is any evidence that an asset is impaired. If there is such evidence, the
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recoverable amount of the asset is estimated. The recoverable amount of intangible assets with indefinite useful lives or
those are not ready for use is estimated on the same date each year.
The recoverable amount of an asset or a cash generating unit is the higher of value-in-use and fair value less costs to sell.
Assets that cannot be tested individually for the impairment test are grouped into the smallest group of assets that generates
cash inflows through continued use that are largely independent of the cash inflows from other assets or groups of assets
(cash-generating unit or CGU). For the impairment test of goodwill, goodwill has been allocated to one group of CGUs, so
that the level at which the impairment is tested represents the lowest level at which management monitors goodwill for
internal management purposes, in accordance with operating segment. Goodwill acquired in a business combination is
allocated to the group of CGUs that is expected to benefit from synergies of the related business combination.
The Corporations corporate assets do not generate separate cash flows. If there is evidence that a corporate asset is
impaired, the recoverable amount is determined for the CGU to which the corporate asset belongs. Impairments are
recorded when the carrying amount of an asset or its CGU is higher than its recoverable amount. Impairment charges are
recognized in income or loss.
Impairment losses recognized for a CGU (or group of CGU) first reduce the carrying amount of any goodwill allocated to thatCGU and then reduce the carrying amounts of the other assets of the CGU (or group of CGU) pro rata on the basis of the
carrying amount of each asset in the CGU (or group of CGU).
An impairment loss recognized for goodwill may not be reversed. On each reporting date, the Corporation assesses if there is
an indication that impairment losses recognized in previous periods for other assets have decreased or no longer exist. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. The
increased carrying amount of an asset attributable to a reversal of an impairment loss shall not exceed the carrying amount
that would have been determined (net of amortization or depreciation) had no impairment loss been recognized.
TAXATION
Income tax expense represents the sum of current and deferred taxes. Current and deferred taxes are recognized in the
consolidated statement of comprehensive income (loss), except to the extent it relates to items recognized in other
comprehensive income (loss) or directly in equity.
Current tax
The tax currently payable is based on taxable income for the year. Taxable income differs from earnings as reported in the
consolidated statements of comprehensive income (loss) because of items of income or expense that are taxable or
deductible in other years and items that are never taxable or deductible. The Corporations liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable income. Deferred tax liabilities are generally
recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences
to the extent that it is probable that taxable income will be available against which those deductible temporary differences
can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or
from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable income nor the accounting earnings.
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Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and
associates, except where the Corporation is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only recognized to the extent that it is probable that there will
be sufficient taxable income against which to utilize the benefits of the temporary differences and they are expected to
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability
is settled or the asset is realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end
of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Corporation expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Corporation intends
to settle its current tax assets and liabilities on a net basis.
STOCK-BASED COMPENSATION
The Corporation has one share option plan and accounts for grants under this plan in accordance with the fair value-based
method of accounting for stock-based compensation. Compensation expense for equity settled stock options awarded to
employees under the plan is measured at the fair value at the grant date using the Black-Scholes valuation model and is
recognized using the graded vesting method over the vesting period of the options granted. Compensation expense
recognized is adjusted to reflect the number of options that has been estimated by management for which conditions
attaching to service will be fulfilled as of the grant date until the vesting date so that the ultimately recognize expense
corresponds to the options that have actually vested. The compensation expense credit is attributed to contributed surpluswhen the expense is recognized in income or loss. When options are exercised or shares are purchased, any consideration
received from employees as well as the related compensation cost recorded as contributed surplus are credited to share
capital.
Non-employee equity-settled share-based payments are measured at the fair value of the goods and services received, except
where that fair value cannot be estimated reliably. If the fair value cannot be measured reliably, non-employee equity-settled
share-based payments are measured at the fair value of the equity instrument granted, measured at the date the entity
obtains the goods or the counterparty renders the service. The Corporation subsequently measures non-employee equity-
settled share-based payments at each vesting period and settlement date, with any changes in fair value recognized in the
consolidated statement of comprehensive income (loss). Stock-based compensation expense is recognized over the contract
life of the options or the option settlement date, whichever is earlier.
EARNINGS PER SHARE
Basic earnings per common share are computed by dividing the earnings for the period by the weighted average number of
common shares outstanding during the period. Diluted earnings per share are computed using the treasury stock method by
dividing the earnings for the period applicable to common shares by the sum of the weighted average number of common
shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common
shares had been issued.
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Dilutive earnings per share comprise of employee share-based compensation and broker warrants and common shares
issuable upon the exercise of the conversion option of the convertible debentures.
LEASES
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and
requires an assessment of whether the arrangement conveys a right to use the asset. When substantially all risks and rewards
of ownership are transferred from the lessor to the lessee, lease transactions are accounted for as finance leases. All other
leases are accounted for as operating leases.
Corporation is the lessee
Leases of assets classified as finance leases are presented in the consolidated statements of financial position according to
their nature. The interest element of the lease payment is recognized over the term of the lease based on the effective interest
rate method and is included in financial expense, in the statement of comprehensive income (loss).
Payments made under operating leases are recognized in the consolidated statement of comprehensive income (loss) on a
straight-line basis over the term of the lease.
PROVISIONS
Provisions represent liabilities to the Corporation for which the amount or timing is uncertain. Provisions are recognized
when the Corporation has a present legal or constructive obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at the
present value of the expected expenditures required to settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. The increase in provisions due to the passage
of time is recognized in interest on the consolidated statement of comprehensive income (loss). Provisions are not
recognized for future operating losses.
The Corporations current product warranty includes a twelve month warranty period for defects in design, materials and
workmanship. Provisions for product warranties are recorded at the time of shipment of products to customers. The
Corporation accrues a provision for estimated future warranty costs based upon the historical relationship of warranty
claims to sales. The Corporation periodically reviews the adequacy of its product warranties and adjusts, if necessary, the
warranty percentage and accrued warranty reserve for actual historical experience. As at December 31, 2012, the Corporation
did not have any significant provision for product warranty (December 31, 2011 $nil).
Provision for jackpot
Several of the Corporations licensees participate in progressive jackpot games. Each time a progressive jackpot game is
played, a preset amount is added to a jackpot for that specific game or group of games. Once a jackpot is won, the progressive
jackpot is reset with a predetermined amount. The Corporation maintains a provision for the reset for each jackpot and the
progressive element added as the jackpot game is played. The provision for jackpots at the reporting date is included in
provisions (see note 17). The provision is sufficient to cover the full amount of any required payout.
ROYALTIES
The Corporation licenses various royalty rights from several owners of intellectual property rights. These rights are used to
produce games for use in Hosted Casino and Branded Games. Generally, the arrangements require material prepayments of
minimum guaranteed amounts which have been recorded as prepayments in the consolidated statements of financial
position. These prepaid amounts are amortized over the life of the arrangement as gross revenue is generated or on a
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straight-line basis if the underlying games are expected to have an effective royalty rate greater than the agreed amount. The
amortization of these amounts is recorded as royalty expense.
The Corporation regularly reviews its estimates of future revenues under its license arrangements.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of financial statements in conformity with IFRS requires Management to make estimates and assumptions
that can have a significant effect on the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period.
Estimates and judgments are significant when:
the outcome is highly uncertain at the time the estimates are made; or
if different estimates or judgments could reasonably have been used that would have had a material impact on the
consolidated financial statements.
The consolidated financial statements include estimates based on currently available information and Managements
judgment as to the outcome of future conditions and circumstances. Management uses historical experience, general
economic conditions and trends, as well as assumptions regarding probable future outcomes as the basis for determining
estimates.
Estimates and their underlying assumptions are reviewed on a regular basis and the effects of any changes are recognized
immediately. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in
the preparation of the financial statements and actual results could differ from the estimates and assumptions.
The following areas require managements most critical estimates and judgments.
ESTIMATES
Identifiable intangible assets and goodwi ll
In the consolidated statement of financial position, the Corporation recorded during the year an additional amount of
$172,010,110 related to identifiable intangible assets and goodwill that arise out of business combinations during the year
(note 34). The Corporation applied the acquisition method of accounting to these transactions. In measuring the fair value of
the assets acquired and the liabilities assumed and estimating their useful lives, Management used significant estimates and
assumptions regarding cash flow projections, economic risk and weighted cost of capital.
These estimates and assumptions determine the amount allocated to identifiable intangible assets and goodwill, as well as
the amortization period for identifiable intangible assets with finite lives. If results differ from estimates, the Corporation
may increase amortization or impairment charges.
Goodwill
The recoverable amount of the operating segment, representing the group of CGUs to which goodwill is allocated, is based on
the higher of fair value less costs to sell and value in use. The recoverable amount was calculated as at December 31, 2012