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TABLE OF CONTENTS
Overview..................................................................................................... 1 Highlights .................................................................................................. 2 Outlook ...................................................................................................... 3 Basis of Presentation ................................................................................ 3 Forward-looking Statements .................................................................... 3 Selected Annual Financial Information ................................................... 4 Financial Condition .................................................................................. 4 Revenue and Expenses ............................................................................. 4 Summary of Quarterly Results ................................................................. 5 Comparison of Quarterly Results ............................................................. 5 Comparison of the Three-Month and Year Ended December 31, 2012 and December 31, 2011 ............................................................................. 5 Comparison of the Three-Month Period Ended December 31, 2012 and September 30, 2012 ............................................................................7 Liquidity and Capital Resources............................................................... 8 Significant Projects .................................................................................. 12 Summary of Significant Accounting Policies .......................................... 12 Recent Accounting Pronouncements ..................................................... 26 Off Balance Sheet Arrangements............................................................ 28
Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 1
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 gaming solutions. 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.
Highlights
2 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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 iconic Playboy 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 LacLeamy 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.
On February 20, 2013 the Corporation entered into an agreement with ACEP Interactive, LLC, the interactive gaming arm of Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 3 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 activity while 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,
regulatory environment, product defects, strategic alliances, capital requirements, intellectual property protection, litigation,
4 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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.
Total Revenue Net Loss Loss Per Share Diluted Loss Per Share Total Assets Total Long Term Financial Liabilities 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 overallotment 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.
The revenue increase in the Caribbean for the year ended December 31, 2012 is primarily attributable to the Corporation's Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 5 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.
Revenue 1,138,074 Net income (loss) (1,821,662) Basic earnings (loss) per Common share (0.05) Diluted earnings (loss) per Common share (0.05)
3,773,542 (1,108,123)
3,973,552 (1,883,553)
9,490,081 2,887,313
18,317,140 881,451
37,194,312 (711,309)
(0.03)
(0.04)
0.06
(0.09)
(0.05)
0.01
(0.01)
(0.03)
(0.04)
0.05
(0.09)
(0.05)
0.01
(0.01)
Comparison of Quarterly Results Comparison of the Three-Month and Year Ended December 31, 2012 and 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 the twelve 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).
GROSS PROFIT
6 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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.
FINANCIAL
Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 7 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.
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 attributable to 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).
GROSS PROFIT
8 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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.
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.
On Demand
Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 9
1-3 years $
4-5 years $
December 31, 2012 Accounts payable and accrued liabilities Provisions Customer deposits Income taxes payable Holdback on purchase price Convertible debentures* Equipment financing* Long-term debt* Commitments Total
*includescapitalandinterest
4,974,500 2,584,260 25,904,130 1,125,394 1,159,979 15,723,717 121,765,302 6,410,610 10,047,277 25,843,981 163,851,188
300,974 300,974
CREDIT 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 $
(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
10 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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 additional interest, maturing in 2015 and payable in monthly instalments of $25,000 plus interest Current maturity
Long-term debt principal repayments over the next three years amount to the following:
$
(b)
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 nonconvertible 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
During the year ended December 31, 2012, the Corporation incurred $1,807,624 (2011 $nil) in interest. Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 11
December 31, 2012 $ December 31, 2011 $
Principal Transaction costs Accretion (effective interest rate of 11.21%) Current maturity
Term loan principal repayments over the next three years amount to the following:
$
(c)
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 a two year term Current maturity
Long-term debt principal repayments over the next two years amount to the following:
$
2013 2014
361,912 384,263
The Corporation generated negative cash flows from operating activities for the year ended December 31, 2012. This is
12 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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.
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 mobile component of the project, representing substantially less than the planned expenditures for the project as a whole.
These consolidated financial statements were prepared on a going concern basis, under the historical cost convention, except Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 13 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.
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
14 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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).
of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 15 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 USD EUR KES UGX GBP AMD MDL DOP AUS CHF DKK JPY NOK MXN SEK
Canadian Dollar United States Dollar Euro Kenyan shilling Ugandan shilling Pound Sterling Armenian Dram Moldovan Leu Dominican Peso Australian Dollar Swiss Franc Danish Krone Japanese Yen Norwegian Kroner Mexican Pesos 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
16 | Managements Discussion and Analysis | For the year Ended December 31, 2012 | Amaya Gaming Group Inc
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 decisionmaker. 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.
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.
maturity. Cash and cash equivalents, restricted cash, receivable under finance lease, accounts receivable are classified as Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 17 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.
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
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with subsequent changes recognized in the consolidated statement of comprehensive income (loss). The Corporation has no embedded derivatives.
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.
INTANGIBLE ASSETS
Software Licenses Declining balance Straight-line 20% Over the term of licenses
ACQUISITION-RELATED INTANGIBLES
Software Technology Customer Relationships Straight-line Straight-line 5 years 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.
recoverable amount of the asset is estimated. The recoverable amount of intangible assets with indefinite useful lives or
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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 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 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.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 21 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 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 equitysettled 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.
Dilutive earnings per share comprise of employee share-based compensation and broker warrants and common shares
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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.
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).
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 Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 23 amortization of these amounts is recorded as royalty expense. The Corporation regularly reviews its estimates of future revenues under its license arrangements.
ESTIMATES
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 based on fair value less costs to sell. The fair value less cost to sell is the amount for which the CGU could be exchanged between knowledgeable willing parties in an arms length transaction, less cost to sell. Management undertakes an assessment of relevant market data, which is the market capitalization of the Corporation and in addition use a discounted
cash flow model. Estimated future cash flows for the first five years were based on the budget and strategic plans. A growth
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rate of 2.5% was applied to the last year of the strategic plan to derive estimated cash flows beyond the initial five-year period. The post-tax discount rate is also a key estimate in the discounted cash flow model and is based on a representative weighted average cost of capital. The pre-tax discount rate used to calculate the recoverable amount as at December 31, 2012 was 12.00%. As at December 31, 2012 and 2011 there was no need for impairment.
Inventory write-down
Periodical reviews of the inventory are performed for excess inventory, obsolescence and declines in net realizable value below 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.
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.
Income taxes
Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 25 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. 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 December 31, 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.
JUDGMENTS
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.
estimated useful lives were incorrect, this could result in an increase or decrease in the annual amortization expense, and
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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.
JOINT 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.
use across IFRS. The standard will be effective for the Corporations fiscal years beginning on January 1, 2013, with earlier Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 27 application permitted. The Corporation is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
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Within one year Later than one year but not later than 5 years More than 5 years
Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 29
The emergence or evolution of regulations and industry standards for gaming solutions, through official standards committees or widespread use by operators, could require Amaya to modify its systems and solutions;
Our ability to diligently ensure that our customers operate in accordance with the terms of our license agreements that require observation of the laws of Canada and foreign countries;
Amayas intellectual property may be infringed, misappropriated or subject to claims of infringement or invalidity; Amaya operates in foreign jurisdictions and, therefore, Amayas operations may be adversely affected by changes in foreign governmental policies and legislation or social instability and other factors which are beyond the control of Amaya;
Amaya is dependent upon its ability to establish and develop new relationships and to build on existing relationships with distributors, on which it relies on to sell its current and future products and services;
Access to capital and interest rate levels may affect some of Amayas customers buying patterns; It is difficult for Amaya to forecast the timing of revenue from its activities because its customers typically invest substantial time, money and other resources researching their needs and available competitive alternatives before deciding to purchase its solutions;
Amaya depends on the services of its key technical, sales, marketing and management personnel. The loss of any of these key persons could have a material adverse effect on its business, results of operations and financial condition;
Amayas solutions are complex and, accordingly, they may contain defects or errors, particularly when first introduced or as new versions are released;
A substantial portion of the Corporations revenue is earned in foreign currencies, but a substantial portion of the Corporations operating expenses is incurred in Canadian dollars; accordingly, the Corporation is subject to fluctuations in the exchange rate;
Gaming machines and online operations may experience losses due to fraudulent activities, if the Corporations security systems fail to prevent fraud, the Corporations operating results could be adversely affected;
The Corporation has experienced and expects to continue to experience rapid growth in the Corporations headcount and operations, placing significant demands on its operational and financial infrastructure. As such the Corporation must manage its growth effectively and efficiently;
The Corporations ability to make scheduled payments on or to refinance its debt obligations and to make distributions to enable it to service its debt obligations depends on its financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond the Corporations control, including fluctuations in interest rates, market liquidity conditions, collection of receivables, increased operating costs, and trends in its industry;
Contract awards by lottery authorities are sometimes challenged by unsuccessful bidders, which can result in costly and protracted legal proceedings that can result in delayed implementation or cancellation of the award.
Part of Amayas corporate strategy is to continue to pursue expansion and acquisition opportunities. In connection with any such acquisitions, the Corporation could face significant challenges in managing and integrating the expanded or combined operations, including acquired assets, operations and personnel.
The growth of Internet usage has caused frequent interruptions and delays in processing and transmitting data
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over the Internet. There can be no assurance that the Internet infrastructure or the Corporations own network systems will continue to be able to meet the demand placed on it by the continued growth of the Internet, the overall online gaming industry or of the Corporations customers; Any disruption in the Corporations network or telecommunications services could affect the Corporations ability to operate its games or financial systems, which would result in reduced revenues and customer down time.
Amaya Gaming Group Inc. | For the year Ended December 31, 2012 | Managements Discussion and Analysis | 31
Further Information
Additional information on the Corporation, including the Annual Information Form, may be obtained on SEDAR at www.sedar.com. Montreal, Quebec April 29, 2013
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_____________________
Daniel Sebag, CPA, CA Chief Financial Officer