2013-05-15 Rapport De Gestion Annuel
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Independent Auditors Report ................................................ 1Consolidated Financial Statements (Audited) ........................ 2
Consolidated Statements of Financial Position ........................................ 2Consolidated Statements of Changes in Equity ........................................ 3Consolidated Statements of Comprehensive Loss ................................... 4Consolidated Statements of Cash Flows ................................................... 5
Notes to Consolidated Financial Statements........................... 61. Nature of business ............................................................................. 62. Private Placement .............................................................................. 63. Summary of significant accounting policies ..................................... 74. Recent Accounting Pronouncements .............................................. 215. Cash and cash equivalents............................................................... 226. Investment tax credits receivable ................................................... 227. Accounts receivable ......................................................................... 238. Investment in marketable securities ............................................... 239. Inventories ....................................................................................... 2310. Receivable under finance lease ....................................................... 2311. Restricted cash................................................................................. 2412. Goodwill and intangible assets ....................................................... 2513. Property and equipment ................................................................. 2614. Income taxes .................................................................................... 2715. Bank indebtedness .......................................................................... 2816. Accounts payable and accrued liabilities ........................................2817. Provisions ........................................................................................ 2818. Long-term debt ................................................................................ 2919.
Equipment Financing ...................................................................... 31
20. Convertible Debentures ................................................................... 3121. Commitments .................................................................................. 3222. Share capital .................................................................................... 3323. Contributed surplus ......................................................................... 3424. Major customers .............................................................................. 3625. Financial instruments ..................................................................... 3626. Fair value ......................................................................................... 3927. Capital management........................................................................ 3928. Geographic information ................................................................. 4029. Statement of cash-flows ................................................................. 4030. Related party transactions .............................................................. 4131. Contingency ..................................................................................... 4132. Subsequent Events .......................................................................... 4133. Revenues .......................................................................................... 4234. Business Combination ..................................................................... 4235. Expenses Classified By Nature ........................................................ 4536. Net earnings per share .................................................................... 46
TABLEOFCONTENTS
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AmayaGamingGroupInc.
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2012
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Independent Auditors Report
TO THE SHAREHOLDERS OF AMAYA GAMING GROUP INC.
We have audited the accompanying consolidated financial statements of Amaya Gaming Group Inc. and its subsidiaries, which
comprise the consolidated statements of financial position as at December 31, 2012 and December 31, 2011 and the consolidated
statements of comprehensive loss, changes in equity and cash flows for the years ended December 31, 2012 and December 31,
2011, and a summary of significant accounting policies and other explanatory information.
Management's Responsib ility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Audi tor's Responsibil ity
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Amaya
Gaming Group Inc. and its subsidiaries as at December 31, 2012 and December 31, 2011 and their financial performance and their
cash flows for the years ended December 31, 2012 and December 31, 2011 in accordance with International Financial Reporting
Standards.
Signed Richter LLP1
Chartered Professional Accountants
Montral, Qubec
April 29, 2013
1CPAauditor,CApermitnoA112505
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|AnnualFinancialS
tatements
|FortheyearEndedDecember31,2012
|AmayaGamingGroupInc.
Consolidated Financial Statements (Audited)
Consolidated Statements of Financial PositionDecember 31,
2012$
December 31,2011
$
ASSETSCurrent
Cash and cash equivalents (note 5) 31,327,745 3,049,387Investment tax credits receivable (note 6) 787,449 433,595Accounts receivable (note 7) 45,235,016 4,732,500Investment in marketable securities (note 8) 2,331,999Income tax receivable 422,368 178,704Inventories (note 9) 7,530,793 983,246Current maturity of receivable under finance lease (note 10) 3,611,295 2,269,924Prepaid expenses and deposits 8,809,827 2,348,144
97,724,493 16,327,499Restricted cash (note 11) 5,093,108 118,585Goodwill and intangible assets (note 12) 180,732,715 10,370,957Property and equipment (note 13) 36,674,350 6,779,715Deferred development costs (net of accumulated
amortization of $1,314,318 ; 2011 - $1,036,521)1,485,824 668,943
Receivable under finance lease (note 10) 10,764,292 8,292,839Investment tax credit receivable long-term (note 6) 2,350,386 1,215,487Deferred income taxes (note 14) 14,249,436 3,427,448
349,074,604 47,201,473
LIABILITIESCurrentBank indebtedness (note 15) 2,096,656Accounts payable and accrued liabilities (note 16) 32,451,222 2,403,427Provisions (note 17) 7,539,742 Customer deposits 13,902,892 Income tax payable 1,498,596 Current maturity of long-term debt (note 18) 6,133,862 300,000Current maturity of equipment financing (note 19) 1,019,985
62,546,299 4,800,083
Deferred revenue 149,320 46,719Convertible debentures (note 20) 23,118,845 Long-term debt (note 18) 99,366,585 725,000Equipment financing (note 19) 1,114,925 Provisions (note 17) 5,260,235 Holdback of purchase price (note 34) 4,974,500 Deferred income taxes (note 14) 6,964,418
203,495,127 5,571,802Commitments (note 21) and contingency (note 31)SHAREHOLDERS EQUITYShare capital (note 22) 154,771,764 42,921,994Contributed surplus (note 23) 2,351,415 1,814,990Accumulated other comprehensive income (loss) (835,371) 363,021Deficit (10,708,331) (3,470,334)
145,579,477 41,629,671349,074,604 47,201,473
See accompanying notes
Approved and authorized for issue on behalf of the Board on April 29, 2013
(Signed) Daniel Sebag, Director (Signed) David Baazov, Director
Daniel Sebag, CFO David Baazov, CEO
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AmayaGamingGroupInc.
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Consolidated Statements of Changes in Equity
For the year ended December 31, 2012
Share capital ContributedSurplus
$Deficit
$
AccumulatedOther
ComprehensiveIncome (loss)
$
TotalShareholders
Equity$Number
Amount$
Balance January 1, 2011 39,544,923 18,743,763 1,261,344 (1,544,309) 18,460,798
Issue of common shares in relationto private placement 3,300,000 10,230,000 10,230,000
Issue of common shares in relationto Chartwell Technologiespurchase 2,779,356 7,921,165 7,921,165
Transaction costs relating to theissue of units (947,930) (947,930)
Deferred income taxes in relation totransaction costs 500 500
Issue of warrants in relation toprivate placement (132,858) 132,858
Issue of common shares in relationto exercised warrants 4,321,668 6,890,092 (522,960) 6,367,132
Issue of common shares in relationto exercised employee stockoptions 172,000 217,262 (45,262) 172,000
Stock based compensation 989,010 989,010
Net loss (1,926,025) (1,926,025)
Other comprehensive income (loss) 363,021 363,021
Balance December 31, 2011 50,117,947 42,921,994 1,814,990 (3,470,334) 363,021 41,629,671
Balance January 1, 2012 50,117,947 42,921,994 1,814,990 (3,470,334) 363,021 41,629,671
Deferred income taxes in relation totransaction costs 490,000 (384,000) 106,000
Issue of equity component ofconvertible debentures andwarrants, net of transactioncosts 685,925 685,925
Issue of common shares in relationto exercised warrants 717,534 1,411,107 (270,603) 1,140,504
Issue of common shares in relationto exercised employee stockoptions 730,450 1,321,206 (292,806) 1,028,400
Stock based compensation 880,825 880,825
Issue of common shares in relationto conversion of convertibledebentures 1,273,228 4,137,999 (82,916) (77,041) 3,978,042
Issue of equity in relation to privateplacement 26,520,600 107,408,430 107,408,430
Transaction costs in relation toprivate placement (2,918,972) (2,918,972)
Net effect of transactions with non-controlling interest (note 34) (48,604) (48,604)
Net loss (7,112,352) (7,112,352)
Other comprehensive income (loss) (1,198,392) (1,198,392)
Balance December 31, 2012 79,359,759 154,771,764 2,351,415 (10,708,331) (835,371) 145,579,477
See accompanying notes
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|AmayaGamingGroupInc.
Consolidated Statements of Comprehensive Loss
For the yearended December 31,
2012$
2011$
Revenues (note 33) 76,435,009 18,375,249
Cost of products (note 35) 1,224,795 1,357,225
Gross profit 75,210,214 17,018,024
ExpensesSelling (note 35) 11,683,890 6,481,209
General and administrative (note 35) 61,676,556 13,743,139
Financial (note 35) 6,816,527 679,820
Acquisition-related costs (note 34) 6,028,339
86,205,312 20,904,168
Realized gain on sale of marketable securities (913,352)
Loss before income taxes (10,081,746) (3,886,144)
Current income taxes (note 14) 807,336 42,833
Deferred income taxes (note 14) (3,776,730) (2,002,952)
Net loss (7,112,352) (1,926,025)
Other Comprehensive income (loss), net of tax
Unrealized gain on marketable securities 596,189
Foreign currency translation loss (1,198,392) (233,168)(1,198,392) 363,021
Total Comprehensive Loss (8,310,744) (1,563,004)
Basic and diluted earnings per common share (note 36) $(0.11) $ (0.04)
See accompanying notes
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Consolidated Statements of Cash Flows
For the yearended December 31,
2012$
2011$
Operating activities
Net loss (7,112,352) (1,926,025)Interest accretion on promissory notes 9,280
Interest accretion on convertible debentures 1,185,219
Interest accretion on long term debt 274,937
Gain on sale of property and equipment (87,597)
Unrealised loss on foreign exchange (319,659) (262,633)
Unrealised gain on marketable securities (913,352)
Depreciation of property and equipment 3,486,934 797,804
Amortization of intangible assets 6,156,877 978,696
Amortization of deferred development costs 314,967 383,504
Transfer of inventory to property and equipment (1,710,701)
Deferred income taxes (3,776,730) (2,002,952)
Stock-based compensation 880,825 989,009
Finance lease (3,812,824) (7,783,408)
Accrued acquisition-related costs 800,000
Accrued transaction costs (118,137)
Research and development tax credits 441,031 579,517
(4,310,562) (8,237,208)
Changes in non-cash operating elements of working capital (note 29) (22,105,906) (2,960,495)
(26,416,468) (11,197,703)
Financing activities
Bank indebtedness (2,096,656) (250,008)
Repayment of promissory notes (460,443)
Proceeds from special warrants 26,597,603
Issuance of capital stock 107,408,430 10,230,000
Transaction costs relating to the issuance of capital stock (2,918,972) (947,930)
Issuance of capital stock in relation with exercised warrants 1,140,504 6,367,132
Issuance of capital stock in relation with exercised ESOP 1,028,400 172,000Repayment of long-term debt (300,000) (300,000)
130,859,309 14,810,751
Investing activities
Deferred development costs (1,572,361) (960,246)
Additions to property and equipment (6,685,044) (2,323,390)
Acquired intangible assets (2,659,425) (3,810,702)
Disposal of license and software 1,004,940
Proceeds from sale of property and equipment 352,668
Proceeds from sale of marketable securities 12,204,566
Investment in marketable securities (1,166,424)
Investment in subsidiaries (net of cash acquired) (note 29) (66,415,043) (13,737,675)
(75,974,265) (9,793,871)
Increase (decrease) in cash and cash equivalents 28,468,576 (6,180,823)
Cash and cash equivalents beginning of year 3,049,387 9,260,960
Unrealized foreign exchange difference in cash and cash equivalents (190,218) (30,750)
Cash and cash equivalents end of year 31,327,745 3,049,387
See accompanying notes
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AmayaGamingGroupInc.
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|AnnualFinancialStatements
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On June 27, 2012, the Corporation completed a private placement offering of 25,568,400 common shares at a price of $4.05
per common share for aggregate gross proceeds of $103,552,020. On July 12, 2012 the Corporation completed the final
closing under its private placement financing issuing 952,200 additional common shares at $4.05 per common share, for
additional gross proceeds of $3,856,410. Gross proceeds raised under the Private Placement, including proceeds raised under
the first closing, is $107,408,430. The total transaction costs of the offering, including underwriters compensation, amounted
to $2,918,972.
3. 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).
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.
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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 support
services 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.
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.
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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 newfunctional 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
of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated inforeign 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:
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|AnnualFinancialS
tatements
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2012
|AmayaGamingGroupInc.
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 Dollar
CHF 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 of
the 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, 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.
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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-for-sale
Available-for-sale assets are non-derivative financial assets that are either designated in this category or not classified in any
of 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-
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.
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|AmayaGamingGroupInc.
Transaction cost s
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
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 f air value
The fair value of a financial instrument on initial recognition is the transaction price, which is the fair value of the
consideration 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.
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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). Othercomprehensive 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 orservices within the next normal operating cycle.
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
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ACQUISITION-RELATED INTANGIBLES
Software Technology Straight-line 5 years
Customer 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
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, sothat 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.
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Impairment losses recognized for a CGU (or group of CGU) first reduce the carrying amount of any goodwill allocated to that
CGU 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 theconsolidated 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.
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.
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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 surplus when 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.
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 t he 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.
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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 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.
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The key assumptions utilized in the determination of future cash flows represent managements best estimate of the range of
economic conditions relating to the CGU, and are based on historical experience, economic trends, and communications with
other key stakeholders of the Corporation. These key assumptions include the revenue growth rate, EBITDA1
margin as a
percentage of revenues, capital expenditures as a percentage of revenues, and the inflation growth rate. Significant changes in
the key assumptions utilized in the determination of future cash flows could result in an impairment charge or reversal of an
impairment loss. As at December 31, 2012 and 2011, there was no need for an impairment charge.
Stock-based compensation and warrants
The Corporation estimates the expense related to stock-based compensation and the value of warrants using the Black-
Scholes valuation model. The model takes into account Managements best estimate of the exercise price of the stock
option/warrant, an estimate of the expected life of the option/warrant, the current price of the underlying stock, an estimate
of the stocks/warrants volatility, an estimate of future dividends on the underlying stock/warrant, the risk-free rate of return
expected for an instrument with a term equal to the expected life of the option/warrant, and the expected forfeiture rate of
stock options granted (see Note 23).
Inventory write-down
Periodical reviews of the inventory are performed for excess inventory, obsolescence and declines in net realizable valuebelow cost and allowances are recorded against the inventory balance for any such declines. The Corporation writes down the
value of ending inventory for obsolete and unmarketable inventory equal to the difference between the cost of inventory and
the net realizable value. These reviews require Management to estimate future demand for products and evaluate market
conditions. Possible changes in these estimates could result in a write-down of inventory. If actual market conditions are less
favourable than those projected, additional inventory write-downs may be required.
Research and development investment tax c redits
Management has made a number of estimates and assumptions in determining the expenditures eligible for the research and
development investment tax credit claim. Tax credits are available based on eligible research and development expenses
consisting of direct expenditures and including a reasonable allocation of overhead expenses. It is possible that the allowed
amount of the research and development investment tax credit claim could be materially different from the recorded amount
upon assessment by the Canada Revenue Agency and the Minister of Revenue of Quebec and Alberta Finance.
Income taxes
Deferred tax assets and liabilities are due to temporary differences between the carrying amount for accounting purposes and
the tax basis of certain assets and liabilities, as well as undeducted tax losses. Estimation is required for the timing of the
reversal of these temporary differences and the tax rate applied. The carrying amounts of assets and liabilities are based on
amounts recorded in the financial statements and are subject to the accounting estimates inherent in those balances. The tax
basis of assets and liabilities and the amount of undeducted tax losses are based on the applicable income tax legislation,
regulations and interpretations. The timing of the reversal of the temporary differences and the timing of deduction of tax
losses are based on estimations of the Corporations future financial results.
1 EBITDA as defined by the Corporation means earnings before interest and financing costs (net of interest income), income taxes, depreciation
and amortization, stock-based compensation, restructuring and other non-recurring costs, and non-controlling interests. EBITDA is a non-
IFRS measure.
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The Corporation recognizes an income tax expense in each of the jurisdictions in which it operates. However, actual amounts
of income tax expense only become final upon filing and acceptance of the tax return by the relevant authorities, which occur
subsequent to the issuance of the financial statements. Additionally, estimation of income taxes includes evaluating the
recoverability of deferred tax assets based on an assessment of the ability to use the underlying future tax deductions before
they expire against future taxable income.
The assessment is based upon enacted or substantively enacted tax laws and estimates of future taxable income. To the extent
estimates differ from the actual amounts determined when preparing the final tax returns, earnings would be affected in a
subsequent period. As at December31, 2012 and 2011, it was determined that no valuation allowance was necessary.
Changes in the expected operating results, enacted tax rates, legislation or regulations, and the Corporations interpretations
of income tax legislation, will result in adjustments to the expectations of future timing difference reversals, and may require
material deferred tax adjustments. To the extent that forecasts differ from actual results, adjustments are recognized in
subsequent periods.
J UDGMENTS
Finance leases
Judgement is required in the initial classification of leases as either operating leases or finance leases and, in respect of
finance leases, determining the appropriate discount rate implicit in the lease to discount minimum lease payments. The
useful life of the leased property is determined by Management at the inception of the lease. The useful life is based on
historical experience with similar products as well as anticipation of future events, which may impact their useful economic
life, such as changes in technology. The estimated fair values established at lease inception is periodically reviewed to
determine if values are realizable, which depends on the credit risk of the lessee, market conditions and other subjective and
qualitative factors.
Deferred Development Costs
Amounts capitalized include the total cost of any external products or services and labour costs directly attributable to
development. Managements judgement is involved in determining the appropriate internal costs to capitalise. The useful life
represents managements view of the expected period over which the Corporation will receive benefits from the software
based on historical experience with similar products as well as anticipation of future events, which may impact their useful
economic life, such as changes in technology.
Estimated useful lives of long-lived assets
Judgment is used to estimate each component of an assets useful life and is based on an analysis of all pertinent factors
including, but not limited to, the expected use of the asset and in the case of an intangible asset, contractual provisions that
enable renewal or extension of the assets legal or contractual life without substantial cost, and renewal history. If the
estimated useful lives were incorrect, this could result in an increase or decrease in the annual amortization expense, and
future impairment charges.
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4. Recent Accounting Pronouncements
FINANCIAL INSTRUMENTS
In October 2010, the IASB issued IFRS 9, Financial Instruments (IFRS 9), which is the result of the first phase of the IASBs
project to replace IAS 39, Financial Instruments: Recognition and measurement (IAS 39). IFRS 9 uses a single model
approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple
classification and measurement models in IAS 39. In December 2011, the IASB amended the transition date of IFRS 9, whichrequires the application of IFRS 9 for periods beginning on or after January 1, 2015. The previous transition date was January
1st, 2013. The Corporation has not yet assessed the impact of the adoption of this standard on its consolidated financial
statements
CONSOLIDATION
In May 2011, the IASB released IFRS 10, Consolidated Financial Statements, which replaces SIC-12, Consolidation Special
Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. The new standard builds on existing
principles by identifying the concept of control as the determining factor in whether an entity should be included in a
Corporations consolidated financial statements. The standard provides additional guidance to assist in the determination of
control where it is difficult to assess. IFRS 10 will be effective for the Corporations fiscal years beginning on January 1, 2013,
with earlier application permitted. The Corporation is currently assessing the impact of the adoption of this standard, and
does not expect material changes on its consolidated financial statements.
J OINT ARRANGEMENTS
In May 2011, the IASB released IFRS 11, Joint Arrangements, which supersedes IAS 31, Interests in Joint Ventures, and
SIC-13, Jointly Controlled Entities Non-monetary Contributions by Venturers. IFRS 11 focuses on the rights and obligations
of a joint arrangement, rather than its legal form as is currently the case under IAS 31. The standard addresses inconsistencies
in the reporting of joint arrangements by requiring the equity method to account for interests in joint ventures. IFRS 11 will
be effective for the Corporations fiscal years beginning on January 1, 2013, with earlier application permitted. The
Corporation currently uses proportionate consolidation to account for its interests in a joint venture, but may have to apply
the equity method under IFRS 11. The Corporation is currently assessing the impact of the adoption of this standard on its
consolidated financial statements.
DISCLOSURE OF INTERESTS IN OTHER ENTITIES
In May 2011, the IASB released IFRS 12, Disclosure of Interests in Other Entities. IFRS 12 is a new and comprehensive
standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates,
special purpose vehicles and other off-balance sheet vehicles. The standard requires an entity to disclose information
regarding the nature and risks associated with its interests in other entities and the effects of those interests on its financial
position, financial performance and cash flows. IFRS 12 will be effective for the Corporations fiscal years beginning on
January 1, 2013, with earlier application permitted. The Corporation is currently assessing the impact of the adoption of this
standard on its consolidated financial statements.
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FAIR VALUE MEASUREMENT
In May 2011, the IASB released IFRS 13, Fair Value Measurement. IFRS 13 will improve consistency and reduce complexity
by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for
use across IFRS. The standard will be effective for the Corporations fiscal years beginning on January 1, 2013, with earlier
application permitted. The Corporation is currently assessing the impact of the adoption of this standard on its consolidated
financial statements.
FINANCIAL STATEMENT PRESENTATION
In June 2011, the IASB amended IAS 1, Presentation of Financial Statements. The principal change resulting from the
amendments to IAS 1 is a requirement to group together items within other comprehensive income (loss) that may be
reclassified to the statement of comprehensive income (loss). The amendments also reaffirm existing requirements that items
in OCI and net income should be presented as either a single statement or two consecutive statements. The amendment to
IAS 1 will be effective for the Corporations fiscal years beginning on January 1, 2013, with earlier application permitted. The
Corporation does not expect significant changes to its consolidated financial statement presentation.
REVISED IAS 19, EMPLOYEE BENEFITS
The IASB has issued an amended version of IAS 19, Employee Benefits. The key amendments include elimination of the
option to defer the recognition of actuarial gains and losses, known as the corridor method, modification of accounting for
termination benefits and improvement of the recognition and disclosure requirements for defined benefit plans.
The amendments to IAS 19 are effective for annual periods beginning on or after January 1, 2013. Early adoption is permitted.
The Corporation is currently assessing the impact of the adoption of these amendments on its consolidated financial
statements.
5. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents include the following:
December 31,2012
$
December 31,2011
$
Cash in bank 31,327,745 2,699,600
Guaranteed investment certificate (Yield of 0.9%; maturing January 19, 2012) 349,787
31,327,745 3,049,387
6. Investment tax credits receivable
December 31,2012
$
December 31,2011
$
Research and development investment tax credits
2007 13,274 2008 175,072
2009 345,629 354,456
2010 523,363 619,615
2011 339,685 499,939
2012 1,915,884
3,137,835 1,649,082
Investment tax credit receivable 787,449 433,595
Investment tax credit receivable long-term 2,350,386 1,215,487
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7. Accounts receivable
The Corporations accounts receivable include the following:
December 31, 2012 December 31, 2011
Amount CAD equivalent Amount CAD equivalent
CAD 983,258 983,258 444,732 444,732
USD 34,498,906 34,321,504 2,534,235 2,577,317EUR 4,448,520 5,851,654 870,077 1,149,198
KES 42,120,595 490,566 42,199,028 514,749
GBP 759,513 1,221,191 2,976 4,692
UGX 74,317,796 28,024 100,396,519 41,812
DOP 5,723,818 143,028
MDL 246,492 20,477
AMD 4,480,428 11,069
AUS 25,333 26,147
CHF 7,128 7,765
JYP 478,756 5,525
NOK 229 41
MXN 20,115,421 1,543,510
SEK 6,548,387 581,257
45,235,016 4,732,500
8. Investment in marketable securities
The marketable securities consisted of investments made in the listed securities of CryptoLogic Limited, (see note 34).As a
result of the acquisition of CryptoLogic as described in note 34, the unrealized gain and loss in respect of the previous equity
interest in CryptoLogic recorded in the other comprehensive income (loss) were recycled to the statement of comprehensive
loss at the date of the acquisition, and a realized gain of $913,352 is recorded as of December 31, 2012.
9. Inventories
December 31,
2012$
December 31,
2011$
Raw materials 5,844,219 279,120
Finished goods 1,686,574 704,126
7,530,793 983,246
The cost of inventory recognized as an expense during the year ended December 31, 2012 was approximately $1,224,795 (2011
$1,357,000). The amount of inventory write-downs recognized as an expense in the cost of products for the same period
was $nil (2011 $61,000). In 2012 and 2011 there were no reversals of write-downs from the previous years.
10. Receivable under finance lease
The Corporations receivable under finance lease includes the following:
December 31,2012
$
December 31,2011
$
Total minimum lease payments receivable 19,466,213 13,750,860
Unearned finance income (5,090,626) (3,188,097)
14,375,587 10,562,763
Current maturity of receivable under finance lease 3,611,295 2,269,924
10,764,292 8,292,839
Finance income recognized in revenue for year ended December 31, 2012 amounted to $300,716 (2011 $59,818).
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The present value of minimum lease payments receivable, unearned finance income and future minimum lease payments
receivable under the finance leases are as follows:
Present Valueof Minimum
Lease PaymentsReceivable
$
UnearnedFinanceIncome
$
FutureMinimum Lease
PaymentsReceivable
$
2013 3,611,295 1,295,552 4,906,847
2014 3,611,295 1,295,552 4,906,847
2015 3,555,396 1,270,864 4,826,2602016 2,942,243 1,015,469 3,957,712
2017 655,358 213,189 868,547
14,375,587 5,090,626 19,466,213
11. Restricted cash
(a) An amount of $118,608 (2011 $118,585) is being held by the Courts of Malta pending the outcome of two separate
lawsuits filed by one former client (see note 31).
(b) Of the approximately $137 million consideration paid by Amaya in connection with the acquisition of Cadillac Jack,
there is a holdback of US$5 million (CAD$4,974,500) which is payable on the second anniversary of the closing of
the acquisition (see note 34).
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12. Goodwill and intangible assets
COST
Software$
Licenses$
Acquisition-Related
Intangibles$
Goodwill$
Total$
Balance January 1, 2011 1,440,420 162,355 1,602,775
Additions 49,526 3,761,175 4,532,332 1,401,572 9,744,605Disposals (176,058) (176,058)
Reclassifications 13,703 13,703
Translation (3,910) (3,910)
Balance December 31, 2011 1,489,946 3,757,265 4,532,332 1,401,572 11,181,115
Additions 2,224,496 434,929 - - 2,659,425
Additions from business combinations 165,263 2,531,106 79,373,257 92,286,732 174,356,358
Disposals (952,870) (52,071) (1,004,941)
Reclassifications 109,456 (109,456)
Translation 2,486 (41,058) 273,941 276,171 511,540
Balance December 31, 2012 3,038,777 6,520,715 84,179,530 93,964,475 187,703,497
ACCUMULATED AMORTIZATION AND IMPAIRMENTS
Software$
Licenses$
Acquisition-Related
Intangibles$
Goodwill$
Total$
Balance January 1, 2011 4,042 4,042
Amortization 143,290 428,669 406,737 978,696
Disposals (176,058) (176,058)
Translation 3,478 3,478
Balance December 31, 2011 143,290 260,131 406,737 810,158
Amortization 352,271 1,923,887 3,880,719 6,156,877
Translation (128) (4) 3,879 3,747
Balance December 31, 2012 495,433 2,184,014 4,291,335 6,970,782
CARRYING AMOUNT
Software$
Licenses$
Acquisition-Related
Intangibles$
Goodwill$
Total$
At December 31, 2011 1,346,656 3,497,134 4,125,595 1,401,572 10,370,957
At December 31, 2012 2,543,344 4,336,701 79,888,195 93,964,475 180,732,715
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13. Property and equipment
COST
Revenue-Producing
Assets$
Machineryand
Equipment$
Furnitureand
Fixtures$
ComputerEquipment
$Total
$
Balance January 1, 2011 3,232,247 764,250 92,608 349,399 4,438,504
Additions 1,610,616 160,556 460,015 1,711,343 3,942,530Reclassifications (61,315) (4,042) (65,357)
Translation (15,485) (15,485)
Balance December 31, 2011 4,781,548 905,279 552,623 2,060,742 8,300,192
Additions 4,777,033 533,921 150,352 1,223,738 6,685,044
Additions from business combinations 17,435,604 1,958,690 2,477,242 3,655,535 25,527,071
Additions from inventory 1,710,701 1,710,701
Disposals (170,563) (52,225) (232,316) (455,104)
Reclassifications 169,905 (2,980) 166,925
Translation 671,898 (13,346) 17,425 75,253 751,230
Balance December 31, 2012 29,376,126 3,332,319 3,194,662 6,782,952 42,686,059
ACCUMULATED AMORTIZATION AND IMPAIRMENTS
Revenue-Producing
Assets$
Machineryand
Equipment$
Furnitureand
Fixtures$
ComputerEquipment
$Total
$
Balance January 1, 2011 541,226 79,113 22,550 144,415 787,304
Depreciation 353,407 153,159 62,807 228,431 797,804
Reclassifications (61,315) (61,315)
Translation (3,316) (3,316)
Balance December 31, 2011 833,318 228,956 85,357 372,846 1,520,477
Depreciation 1,673,077 292,038 615,286 906,533 3,486,934
Disposals (77,142) (36,628) (165,452) (279,222)
Reclassifications 131,599 131,599
Translation 1,044,742 3,638 (249) 103,790 1,151,921
Balance December 31, 2012 3,605,594 488,004 700,394 1,217,717 6,011,709
CARRYING AMOUNT
Revenue-Producing
Assets$
Machineryand
Equipment$
Furnitureand
Fixtures$
ComputerEquipment
$Total
$
At December 31, 2011 3,948,230 676,323 467,266 1,687,896 6,779,715
Balance December 31, 2012 25,770,532 2,844,315 2,494,268 5,565,235 36,674,350
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14. Income taxes
Income taxes reported differ from the amount computed by applying the statutory rates to incomes (loss) before income
taxes. The reasons are as follows:
December 31,2012
$
December 31,2011
$
Statutory income taxes (2,756,000) (1,120,500)
Non-taxable income
Non-deductible expenses(273,000)
1,383,000
302,184
Differences in effective income tax rates in foreign jurisdictions (1,414,000) (127,623)
Decrease in valuation allowance (1,009,000)
Acquisition of subsidiaries (245,000) (575,000)
Non-capital losses for which no tax benefit has been recorded 1,345,000
Change in tax rates (245,452)
Other (193,728)
Income taxes (2,969,000) (1,960,119)
Significant components of the Corporations deferred income tax assets at December 31, 2012 were as follows:
As at December 31, 2012, the Corporation had Federal and Provincial non-capital losses of approximately $27,759,378 and
$21,803,836 respectively (December 31, 2011 $19,385,000; $8,847,000) that may be applied against earnings of future years,
not later than 2031. The Corporations foreign subsidiaries have non-capital losses of approximately $26,115,176 (December 31
2011 - $1,578,000) that may be applied against earnings in future years, no later than 2016. The possible income tax benefit of
these losses has been recognized in the accounts.
As at December 31, 2012, the Corporation had undeducted research and development expenses of approximately $1,156,500
federally and $2,898,670 provincially (December 31, 2011 $656,518; $2,807,307) with no expiration date. The deferred income
tax benefits of these deductions are recognized in the accounts.
Deferreddevelopment
costs$
Property &Equipment
$
Shareissuance
costs$
FinanceLease
$Intangibles
$
TaxLosses
$
Investmentin marketable
securities$
Investmenttax credits
$
Foreigntax credits
$Other
$Total
$
At January 1, 2011 100,000 533,000 (568,000) 1,115,000 1,180,000
Charged / (credited)to the income statement 59,000 470,500 (1,792,000) 52,000 2,968,000 1,757,500
Charged / (credited)to other comprehensiveincome (219,000) (219,000
Charged / (credited) directly
to equity 134,000 134,000
Acquisition ofsubsidiary 27,000 (138,000) (1,031,000) 1,872,000 (155,000) 575,000
At December 31, 2011 186,000 332,500 667,000 (2,360,000) (979,000) 5,955,000 (219,000) (155,000) 3,427,500
Charged / (credited) to theincome statement 165,000 2,530,000 473,500 (1,664,000) 723,000 2,794,500 154,000 317,500 (1,717,000) 3,776,500
Charged / (credited) to othercomprehensive income 219,000 219,000
Charged / (credited) directlyto equity 106,500 106,500
Acquisition of subsidiary 1,579,000 (19,700,000) 5,352,500 10,455,000 2,069,000 (244,500
At December 31, 2012 351,000 4,441,500 1,247,000 (4,024,000) (19,956,000) 14,102,000 (1,000) 10,772,500 352,000 7,285,000
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15. Bank indebtedness
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.
16. Accounts payable and accrued liabilities
The Corporations accounts payable include the following:
December 31, 2012 December 31, 2011
Amount CAD equivalent Amount CAD equivalent
CAD 3,646,172 3,646,172 1,283,934 1,283,934
USD 13,902,136 13,831,439 94,798 96,410
EURO 6,405,161 8,424,696 655,936 866,212
KES 12,721,417 148,162 8,160,874 99,547
UGX 47,484,212 17,906 39,972,320 16,647
GBP 828,516 1,333,163 25,804 40,677
AMD 19,205,345 47,445
MDL 688,294 57,180
DOP 906,696 22,604
SEK 31,961,465 4,883,040
MXN 449,575 34,497
DKK 27,882 4,918
TOTAL 32,451,222 2,403,427
17. Provisions
The provision in the statement of financial position is for the provision for jackpots and estimate of contingent consideration
in connection with the acquisition of OnGame (see note 34). The carrying amounts and the movements in the provision are as
follows:
December 31,
2012Balance January 1, 2012
Additional provision for jackpots 8,037,725
Contingent consideration in connection with OnGame acquisition 5,260,235
Jackpot provision amounts utilised (497,983)
Balance December 31, 2012 12,799,977
Short-term portion (7,539,742)
Long-term portion 5,260,235
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18. 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 99,366,585 725,000105,500,447 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
$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