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VGW HOLDINGS LIMITED
AND CONTROLLED ENTITIES
ABN 36 147 193 511
ANNUAL REPORT 2017
1
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Contents
Corporate directory 2
Directors’ report 3
Auditors independence declaration 11
Financial report
Statement of profit and loss and other comprehensive income 12
Statement of financial position 13
Statement of changes in equity 14
Statement of cash flows 15
Notes to the financial statements 16
Directors’ declaration 39
Independent auditor’s report to the members of VGW Holdings Limited 40
2
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Corporate Directory
Directors Nigel Blythe-Tinker – Executive Chairman
Laurence Escalante – Executive Director
Mats Johnson – Executive Director
Lorenzo Escalante – Non-executive Director
Kenneth Alexander – Non-executive Director,
appointed 1 January 2017
Mark Potts – Non-executive Director,
appointed 19 July 2017
Company secretary Rointon Nugara
Registered office & principal place
of business
Level 8
191 St Georges Terrace
Perth, WA 6000
Telephone: +61 2 8599 2507
Share register Advanced Share Registry Services
110 Stirling Hwy, Nedlands WA 6009
Auditor Grant Thornton
Level 17, 383 Kent Street, Sydney, NSW 2000
Solicitors DLA Piper Australia
Level 22 No.1 Martin Place
Sydney NSW 2000
Bankers Commonwealth Bank of Australia
150 St Georges Terrace
Perth, WA 6000
Website http://www.vgw.co
3
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Directors’ Report
The directors present their report, together with the financial statements, on the consolidated entity (referred to
hereafter as the “consolidated entity” or “Group”) consisting of VGW Holdings Limited (referred to as the
“company” or “parent entity”) and the entities it controlled at the end of, or during, the year ended 30 June 2017.
Principal Activities
The principal activity of the Group during the financial year was the development and distribution of social casino
games offering virtual currency gaming and cash prize contests.
The majority of the Group’s customers are based in North America.
As of reporting date the majority of operations were conducted in Australia.
The following significant changes in the nature of the principal activities occurred during the financial year:
- The Company continued to develop its Maltese operations in preparation for transfer of its social gaming
operations to Malta in anticipation of the granting of Malta gaming licenses; and
- The Group launched its Poker product line in December 2016. Development of other new product lines
commenced during the year.
There were no other significant changes in the nature of the consolidated entity’s principal activities during the
financial year.
Operating Results and Review of Operations for the year
Key Operating Results
The Group recorded consolidated revenue of $113.9m (2016: $38.3m).
Review of operations
The Company recorded significant growth in revenues, up $75.6 million to $113.9 million (2016: $38.3m). Its flagship
Chumba Casino grew 148% to $95.1 million; whilst its Global Poker product, launched only in December 2016,
contributed $18.9 million. Active playing customers grew from 89,402 to 233,292 over the period. These strong results
were largely attributable to the significant increase and effectiveness of targeted marketing spend, which totaled
$30.4 million (2016: $9.8m), the majority spent on Facebook advertising.
Cost of sales increased in line with revenues, with sweepstakes paid of $62.3 million (2016: $20.4m), or 55% of revenue
(2016: 53%). Merchant fees also increased in line with revenues; whilst revenue share associated with Global Poker
were recorded. The Company continued its conservative approach to fully provisioning for cashable sweeps.
Operating cost growth reflected the necessary expansion to support revenue growth. Employee costs grew
significantly on the back of a large increase in headcount in both the Perth and Sydney offices. Key areas to benefit
from this increase included technical operations and infrastructure, data and analytics, marketing and product
development. Customer service headcount also grew to appropriately service the large increase in customers. In
January 2017, the Company introduced a Long-Term Incentive Plan with the issue of options to directors and staff.
The first tranche, valued at $2.8 million, was charged in full to the P&L. Costs associated with the Company's Malta
expansion strategy, together with its plan to list on the Main Board of the Australian Securities Exchange, accounted
for the increase in professional, consulting and compliance costs.
The consolidated loss of the Group amounted to $8.7m (2016: $2.7m).
4
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Directors’ Report
Financial Position
The net assets of the Group were $2.6m at 30 June 2017 (2016: $7.0m). The reduction is largely attributable to costs
associated with the significant ramp up in operations as outlined in the Review of Operations section above.
A small capital raising was completed in December 2016, and raised $1.3m to help fund operations.
Despite the reduced net assets at the reporting date, the Directors believe the Company remains in a strong
position to finance the expected expansion of its operations. Revenue and margin growth, together with a
measured growth in operating costs, are in line with the Group's strategic goals and deliverables.
Significant Changes in State of Affairs
The following significant changes in the state of affairs of the Group occurred during the financial year:
i. On 27 October 2016, 360 million Performance Shares (being the first three tranches as outlined in the terms of the
Performance Shares Issue Agreement between the Group and Lance East Corporation Inc.) were converted to 360
million Ordinary Shares and issued to Lance East Corporation Inc., a related entity of Mr Laurence Escalante.
ii. The Group established a subsidiary corporate Group in Malta as part of a strategic initiative to de-risk its current
operations, and expand internationally. The Maltese Group applied for a number of remote gaming licences,
which if granted, would enable the transfer of the parent entity's gold coin and sweepstakes operations to Malta.
iii. In corollary to the establishment of the Malta corporate group, the Group is in the process of seeking to list on
the Main Board of the Australian Securities Exchange.
Events after the Reporting Period
i. On 19 July 2017, Mr. Mark Potts was appointed to the Board as Non-executive Director.
ii. On 16 August 2017, the Malta Gaming Authority granted the VGW Group, the Class 1 and Class 3 remote gaming
licenses which the Group had applied for. This paves the way for the Maltese subsidiary corporate Group to
become fully operational.
iii. On 14 August 2017, the Group acquired certain assets of Open Wager, Inc. (OW), an entity incorporated in
Nevada, USA but with principal operations in California and Colorado, providing social casino platform and content
licensing, for a consideration of USD$0.53m. The asset purchase was as a result of OW's decision to terminate its
operations. Further to the asset purchase, the Company then considered the possibility of engaging a number of
OW's employees given their detailed knowledge of the acquired assets. All OW's employees were to be terminated
as a result of its cessation of operations. Accordingly, the Company incorporated VGW US, Inc., a wholly owned
subsidiary, on 28 August 2017, and on 1 September 2017, VGW US, Inc. employed the employees. The initial
accounting for this asset acquisition is incomplete at the time the financial statements are authorized for issue. NB:
in relation to both the terms of the Asset Purchase Agreement and the engagement of ex-OW employees, no
liabilities, provisions or other obligations that may have been owed by OW, would be transferred or assumed by the
Company.
iv. From the Balance Sheet date to date of this report, the Company received $1.2m from the exercise of options
which were issued between 23 June 2015 to 14 August 2015.
5
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Directors’ Report
Events after the Reporting Period (continued)
Apart from the matters disclosed above, there are no other matters or circumstances that have arisen since the
end of the year that have significantly affected or may significantly affect either:
• the entity’s operations in the future financial years,
• the results of those operations in future financial years; or
• the entity’s state of affairs in future financial years.
Likely Future Developments
Current areas of strategic focus of the Group include the following:
• Migrating current gaming operations to Malta and expand internationally;
• Monetizing the assets purchased from Open Wager, Inc.;
• Expanding product offering; and
• Listing on the Main Board of the Australian Securities Exchange
The above are expected to assist in the achievement of the Group’s long-term goals and development of new
business opportunities.
Environmental Legislation
The Group’s operations are not regulated by any significant environmental regulation under a law of the
Commonwealth or of a State or Territory in Australia.
6
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Directors’ Report
Directors
The directors of the Company at any time during or since the end of the financial year are:
Name, qualifications and
independence status Experience, special responsibilities and other directorships
Nigel BLYTHE-TINKER
Executive Chairman VGW
Holdings Limited
• Nigel holds a Bachelor of Laws degree (LL.B) and is a Fellow of the
Institute of Chartered Secretaries and Administrators (FCIS) of the United
Kingdom.
• He has extensive UK and international corporate experience over thirty
years covering M&A, corporate finance, restructuring, AIM and FTSE 100
flotations, and corporate governance.
• Nigel has held senior executive/legal and board positions within
companies in the financial services, insurance, industrial and leisure and
gaming sectors in mainly public listed companies. He was Group
Company Secretary & Head of Legal at William Hill PLC. He was also
Non-executive Chairman of Gaming VC Plc, a FTSE 100 listed company.
• Prior to joining VGW, Nigel held the role of Executive Chairman of
Pentasia Limited, an i-Gaming recruitment business.
• Director from 15 August 2015.
Laurence ESCALANTE
Executive Director VGW
Holdings Limited
• Laurence is an entrepreneur in the gaming sector with financial planning
and advisory experience.
• He studied Economics and Actuarial Studies at Macquarie University in
Sydney and has 10 years financial planning experience as a technical and
investment specialist, working as an advisor with AMP, ANZ, and boutique
financial advisory firms.
• Laurence also has 12 years executive game development experience,
founding Anino Mobile, the first independent game development studio
in the Philippines.
• He is the founder and managing director of Lance East Corporation, an
international investment company with a controlling interest in VGW
Holdings Limited and business ventures in the Philippines.
• Director from 4 November 2010.
Mats JOHNSON
Executive Director VGW
Holdings Limited
• Mats is a senior technology and online gaming executive with significant
experience in establishing and growing both public and private online
business globally.
• He has previously held roles as a Director at Coral Eurobet, General
Manager at Centrebet and CEO at Playsafe.
• Mats has 15 years of digital and gaming sector expertise, alongside
comprehensive M&A experience, having been actively involved in
several successful exits of online gaming companies, including the £2.18Bn
sale of Coral Eurobet to Gala Group.
• Director from 1 November 2015.
7
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Directors’ Report
Directors (continued)
Name, qualifications and
independence status Experience, special responsibilities and other directorships
Lorenzo ESCALANTE
Non-executive Director VGW
Holdings Limited
• Lorenzo is an IT Business Intelligence specialist, with over 30 years
experience in the corporate IT sector.
• He has a particular specialty in Business Objects business intelligence
platform, having worked with BHP, AAPT, ING Australia, ANZ Wealth and
LandCorp in their BI systems.
• Director from 5 August 2014.
Kenneth ALEXANDER
Non-executive Director VGW
Holdings Limited
• Kenneth has extensive experience in the online real money gaming sector
having served as Chief Executive of GVC Holdings PLC, a London Stock
Exchange listed entity, since March 2007
• He holds a Bachelor’s degree in accountancy from Glasgow University
and is a Chartered Accountant with the Institute Chartered Accountants
of Scotland.
• Director from 1 January 2017
Mark POTTS
Non-executive Director VGW
Holdings Limited
• Mark is an experienced and leading global technology executive with
more than 30 years’ experience in large corporations and start-ups. • Mark is currently the Chief Technology Officer (CTO) at Advara and was
the world-wide CTO and VP for Corporate Strategy at Hewlett-Packard
Enterprise in the US. • He currently holds numerous board positions including Resolute Mining,
Decimal Software Ltd. and Ajilon Australia.
• Director from 19 July 2017
Company Secretary
Mr Rointon Nugara continues as company secretary, a position held since 2015.
Meetings of Directors
Full Board Remuneration Committee Audit Committee
Attended Held Attended Held Attended Held
Nigel Blythe-Tinker 14 14 2 2 1 1
Laurence Escalante 14 14 2 2 1 1
Mats Johnson 14 14 - - - -
Lorenzo Escalante 13 14 2 2 1 1
Kenneth Alexander 6 8 2 2 1 1
Held represents the number of meetings held during the time the director held office or was a member of the
relevant committee.
Dividends
No dividends were paid during the financial year (2016: nil).
8
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Directors’ Report
Options
1. Long-term Incentive Plan (LTIP)
In January 2017, VGW established a Long-Term Incentive Plan (LTIP) which is part of VGW's reward strategy in
support of the achievement of the Company’s business strategy. In January and April 2017, 41,551,257 options were
granted as Tranche 1 with an exercise price of $0.20. These options vests immediately, therefore, there were no
vesting conditions. Majority of the options have a two-year expiry period.
6,667,695 options representing Tranche 2 and 6,667,696 options representing Tranche 3 have been offered,
conditional upon the approval of VGW’s shareholders in its next annual meeting in November 2017. Tranches 2
and 3 are subject to the achievement of vesting conditions and performance hurdles.
2. Free-attaching options on the Pre-IPO Capital Raise
In December 2016, VGW undertook a Pre-IPO capital raise. This involved the issue of shares at 16.2 cents per share
together with one free-attaching option for every three pre-IPO shares issued at an exercise price of 20 cents per
share. These options expire within two years from grant date. The Pre-IPO raise has generated a total of $1.3m.
3. Free-attaching options on Previous Capital Raise
In the period between 23 June 2015 to 14 August 2015, VGW issued a combination of one share and one option for
a total price of $0.05 (pre-consolidation), to unrelated parties on an arm’s length basis. A total of 97,362,112 options
over issued shares or interest in the Company were issued. The options were standard call options exercisable at
$0.05 (pre-consolidation) per share over a two-year period
Post consolidation, there were 299,999 options and 32,153,991 options with an exercise price of $0.15 which expires
on 23 June 2017 and 24 August 2017. As of reporting date, under half of these options have not been exercised,
therefore, have been forfeited.
Directors Interest
The relevant interest of each director or their associated entities in the share capital of the Company as at 30
June 2017 is as follows:
VGW Holdings Limited
Mr Nigel Blythe-Tinker 6,535,802 ordinary shares
Mr Laurence Escalante 266,666,666 ordinary shares and 96,666,666 performance shares
Mr Mats Johnson 308,643 ordinary shares
Mr Kenneth Alexander 375,000 ordinary shares
As at end of the financial year, 96,666,666 Performance Shares were on issue to Lance East Corporation, a related
entity of Mr Laurence Escalante. These shares represent the final three (of six) tranches (Tranche D: 40,000,000;
Tranche E: 40,000,000 and Tranche F: 16,666,666) issued to Lance East in August 2015. Subject to audit clearance
of the 30 June 2017 Accounts, all three Tranches will be converted to an equal number of Ordinary Shares, as the
relevant performance hurdles as outlined in the original Performance Shares Agreement, will have been met in the
2016/17 financial year.
9
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
Directors’ Report
Directors Interest (continued)
The relevant interest of each director or their associate entities in unissued ordinary shares of VGW Holdings Limited
under option as at 30 June 2017 are:
Date options granted
Expiry date
Exercise price
Number of options
Mr Nigel Blythe-Tinker 31 Jan 2017 31 Jan 2022 0.20 7,000,200
Mr Nigel Blythe-Tinker
Mr Nigel Blythe-Tinker
31 Jan 2017
14 Aug 2015
31 Jan 2019
14 Aug 2017
0.20
0.15
823,045
416,666
Mr Laurence Escalante
Mr Mats Johnson
Mr Mats Johnson
31 Jan 2017
31 Jan 2017
30 Dec 2016
31 Jan 2022
31 Jan 2022
30 Dec 2018
0.20
0.20
0.20
10,328,720
4,169,124
102,880
Mr Lorenzo Escalante
31 Jan 2017 31 Jan 2022
0.20 425,846
Mr Kenneth Alexander
1 Jan 2017
31 Jan 2021
0.20
333,333
Auditor’s Independence Declaration
The lead auditor’s independence declaration for the year ended 30 June 2017 has been received and can be
found on page 11 of the financial report.
Insurance of officers
During the year, the Company paid a premium to insure officers of the Group. The officers of the Group covered
by the insurance policy include all Directors.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be
brought against the officers in their capacity as officers of the Group, and any other payments arising from liabilities
incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct
involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information
to gain advantage for themselves or someone else to cause detriment to the Group.
Details of the amount of the premium paid in respect of insurance policies are not disclosed as such disclosure is
prohibited under the terms of the contract.
The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law,
indemnified or agreed to indemnify any current or former officer of the Group against a liability incurred as such by
an officer.
Indemnity of auditors
The Group has agreed to indemnify its auditors, Grant Thornton, to the extent permitted by law, against any claim
by a third party arising from the Group’s breach of its agreement. The indemnity requires the Group to meet the
full amount of any such liabilities including a reasonable amount of legal costs.
A copy of the Auditor’s Independence Declaration as required under s307C of the Corporations Act 2001 is
included on page 11 of this financial report and forms part of this Directors’ Report.
Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the
context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm
is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and
are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its
Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.
Liability limited by a scheme approved under Professional Standards Legislation.
11
Level 17, 383 Kent Street
Sydney NSW 2000
Correspondence to:
Locked Bag Q800
QVB Post Office
Sydney NSW 1230
T +61 2 8297 2400
F +61 2 9299 4445
W www.grantthornton.com.au
Auditor’s Independence Declaration To the Directors of VGW Holdings Limited
In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor
for the audit of VGW Holdings Limited for the year ended 30 June 2017, I declare that, to the best
of my knowledge and belief, there have been:
a no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b no contraventions of any applicable code of professional conduct in relation to the audit.
GRANT THORNTON AUDIT PTY LTD Chartered Accountants
R J Isbell
Partner - Audit & Assurance
Sydney, 4 October 2017
12
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
Consolidated entity
2017 2016
From continuing operations Note $’000 $’000
Revenue 3 113,934 38,299
Cost of Sales 3 (72,941) (23,359)
Gross Profit 40,993 14,940
Finance income 4 87 20
Finance costs 4 (61) (66)
Other financial items 4 (1,180) (276)
Other income 4 209 -
Marketing and advertising fees 4 (30,394) (9,753)
Legal and professional fees (5,049) (3,521)
Employee benefits expense (6,819) (1,869)
Share-based payments expense (2,794) -
Depreciation and amortisation expense (1,065) (1,018)
Technology and other communication expense (987) (383)
Property and occupancy expense (473) (156)
General and administration expense (1,200) (622)
Total Expenses (49,726) (17,644)
Loss before income tax (8,733) (2,704)
Income tax (expense)/benefit 5 - -
Loss for the year attributable to members of the Group (8,733) (2,704)
Other comprehensive income/(loss), net of income
tax - -
Total comprehensive income/(loss) for the year
attributable to the owners of VGW Holdings Limited (8,733) (2,704)
Earnings per share Cents Cents
From continuing operations:
- Basic loss per share 20 (2.15) (0.78)
- Diluted loss per share 20 (2.15) (0.78)
This Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying
notes to the financial statements.
13
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
STATEMENT OF FINANCIAL POSITION
AS OF 30 JUNE 2017
Consolidated entity
Note 2017 2016
$’000 $’000
Assets
Current assets
Cash and cash equivalents 7 7,433 4,489
Trade and other receivables 8 1,901 565
Other current assets 9 2,182 122
Total current assets 11,516 5,176
Non-current assets
Property, plant and equipment 11 177 39
Intangible assets 12 5,247 5,627
Total non-current assets 5,424 5,666
Total assets 16,940 10,842
Liabilities
Current liabilities
Trade and other payables 13 9,861 2,901
Provisions 14 4,396 674
Borrowings 15 60 104
Total current liabilities 14,317 3,679
Non-current liabilities
Convertible notes - 150
Total non-current liabilities - 150
Total liabilities 14,317 3,829
NET ASSETS 2,623 7,013
Equity
Share capital 17 20,672 19,123
Convertible notes 17 250 250
Reserves 19 2,794 -
Accumulated losses (21,093) (12,360)
TOTAL EQUITY 2,623 7,013
This Statement of Financial Position is to be read in conjunction with the accompanying notes to the financial statements.
14
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2017
Consolidated entity
Share
Capital
Convertible
Notes
Share Option
Reserve
Accumulated
Losses
Total
Equity
$’000 $’000 $’000 $’000 $’000
Balance at 1 July 2015 14,058 250 694 (9,656) 5,346
Issue of share capital 4,771 - - - 4,771
Employee shares exercised 694 - (694) - -
Transaction cash on share issue (400) - - - (400)
Loss for the year - - - (2,704) (2,704)
Balance as at 30 June 2016 19,123 250 - (12,360) 7,013
Balance at 1 July 2016 19,123 250 - (12,360) 7,013
Issue of share capital 1,567 - - - 1,567
Employees’ Long-Term Incentive
Plan Share Options -
- 2,794 - 2,794
Transaction costs on share issue (18) - - - (18)
Loss for the year - - - (8,733) (8,733)
Balance as at 30 June 2017 20,672 250 2,794 (21, 093) 2,623
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the financial
statements.
15
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
Consolidated entity
Note
2017 2016
Cash flows from operating activities $’000 $’000
Receipts from customers 114,000 36,980
Payment to suppliers and employees (110,289) (35,736)
Interest received 87 20
Government grants received 202 426
Net cash from operating activities 23 4,000 1,690
Cash flows from investing activities
Payments for property, plant and equipment (178) (47)
Payment for intangibles and development
expenditure (513) (1,012)
Investment in term deposit (1,507) -
Net cash from investing activities (2,198) (1,059)
Cash flows from financing activities
Proceeds from issue of shares 1,362 3,834
Capital raising costs (18) (888)
Redemption of convertible notes (150) -
Net (repayments)/proceeds from borrowings (52) 104
Net cash from financing activities 1,142 3,050
Net increase in cash and cash equivalents 2,944 3,681
Cash and cash equivalents at beginning of year 4,489 808
Cash and cash equivalents at end of year 7,433 4,489
The Statements of Cash Flows are to be read in conjunction with the notes to the financial statements.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
16
Note 1: Summary of Significant Accounting Policies
Basis of Preparation
The financial report includes the consolidated financial statements and notes of VGW Holdings Limited and
controlled entities (“Group”).
The Group has elected to adopt the Australian Accounting Standards – Reduced Disclosure Requirements
(established by AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2
Amendments to Australian Accounting arising from Reduced Disclosure Requirements).
These financial statements are general purpose financial statements that have been prepared in accordance
with Australian Accounting Standards – Reduced Disclosure Requirements and the Corporations Act 2001.
VGW Holdings Limited is a for-profit entity for the purpose of preparing financial statements.
The consolidated financial statements for the year ended 30 June 2017 were approved and authorised for issue
by the Board of Directors on 20 September 2017.
1.1 New and revised standards that are effective for these financial statements
A number of new and revised standards became effective for annual periods beginning on or after 1 July 2016.
Information on the more significant standards is presented below.
• AASB 2014-4 Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of
Depreciation and Amortisation.
The amendments to AASB 116 prohibit the use of a revenue-based depreciation method for property,
plant and equipment. Additionally, the amendments provide guidance in the application of the
diminishing balance method for property, plant and equipment.
The amendments to AASB 138 present a rebuttable presumption that a revenue-based amortisation
method for intangible assets is inappropriate. This rebuttable presumption can be overcome (i.e. a
revenue-based amortisation method might be appropriate) only in two (2) limited circumstances:
i. the intangible asset is expressed as a measure of revenue, for example when the predominant
limiting factor inherent in an intangible asset is the achievement of a revenue threshold (for instance,
the right to operate a toll road could be based on a fixed total amount of revenue to be generated
from cumulative tolls charged); or
ii. when it can be demonstrated that revenue and the consumption of the economic benefits of the
intangible asset are highly correlated. AASB 2014-4 is applicable to annual reporting periods
beginning on or after 1 January 2016.
The adoption of these amendments has not had a material impact on the Group.
• AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial
Statements.
The amendments introduce the equity method of accounting as one of the options to account for an
entity’s investments in subsidiaries, joint ventures and associates in the entity’s separate financial
statements.
AASB 2014-9 is applicable to annual reporting periods beginning on or after 1 January 2016. The adoption
of these amendments has not had a material impact on the Group.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
17
1.2 Significant Accounting Policies
1.2.1 Overall considerations
The consolidated financial statements have been prepared using the significant accounting policies and
measurement bases summarised below.
a. Principles of Consolidation
The consolidated financial statements incorporate all of the assets, liabilities and results of the Parent and its
subsidiaries as at 30 June 2017. Subsidiaries are entities the parent controls. The parent controls an entity when
it is exposed to, or has right to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Details for the subsidiaries are provided in Note 10: Controlled
Entities.
The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group
from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from
the date that control ceases. Intercompany transactions, balances, unrealised gains or losses on transactions
between the group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been
changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by
the Group. All subsidiaries have a reporting date of 30 June.
b. Income Tax
The income tax expense/(income) for the year comprises current income tax expense/(income).
Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax
liabilities/(assets) are therefore measured at the amounts expected to be paid to/(received from) the relevant
taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during
the year. Current and deferred income tax expense/(income) is charged or credited outside profit or loss when the
tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income
tax is recognised from the initial recognition of an asset or liability where there is no effect on accounting or taxable
profit or loss.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the
asset is realised or the liability is settled, and their measurement also reflects the manner in which management
expects to recover or settle the carrying amount of the realised asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that
it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be
utilised.
VGW Holdings Limited and its wholly-owned Australian controlled entity have not elected to implement tax
consolidation legislation.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
18
Note 1: Summary of Significant Accounting Policies (continued)
c. Property, Plant and Equipment
Plant and equipment are measured on the cost basis and are therefore carried at cost less accumulated
depreciation and any accumulated impairment losses. In the event the carrying amount of plant and equipment
is greater than its estimated recoverable amount, the carrying amount is written down immediately to its estimated
recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the
impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment
indicators are present (refer to note 1(e) for details of impairment).
The cost of fixed assets includes the expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss
during the financial period in which they are incurred.
The depreciable amount of all fixed assets is depreciated on a straight-line basis over the assets useful life to the
Group commencing from the time the asset is held ready for use. Depreciation is recognised in profit or loss.
The depreciation rate used for the class of depreciable assets are:
- Office Equipment 1 - 5 years
- Computer Equipment and Software 3 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
period.
Operating lease policy
Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-
line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.
d. Financial Instruments
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual
provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to
either purchase or sell the asset (i.e. trade date accounting is adopted).
Financial instruments are initially measured at cost plus transaction costs, except where the instrument is classified
“at fair value through profit or loss” in which case transaction costs are recognised immediately as expenses in profit
or loss. Subsequent to initial recognition these instruments are measured as set out below.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market and are subsequently measured at cost.
Loans and receivables are included in current assets, except for those which are not expected to mature within 12
months after the end of the reporting period, which will be classified as non-current assets.
Financial liabilities
Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
19
Note 1: Summary of Significant Accounting Policies (continued)
d. Financial Instruments (continued)
Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method less
any impairment losses.
Derecognition
Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is
transferred to another party whereby the entity no longer has any significant involvement in the risks and benefits
associated with the asset. Financial liabilities are derecognised when the related obligations are discharged or
cancelled, or have expired. The difference between the carrying amount of the financial liability extinguished or
transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or
liabilities assumed, is recognised in profit or loss.
e. Impairment
All impairment losses are recognised in the statement of profit or loss and other comprehensive income. Any
cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to
the statement of comprehensive income.
f. Intangibles other than Goodwill
Software and website development costs
Software and website development costs are capitalised only when the company identifies that the project will
deliver future economic benefits and these benefits can be measured reliably.
Software development costs and have a finite life and are initially recorded at cost and amortised on a
systematic basis over five to eight years matched to the future economic benefits over the useful life of the
asset.
g. Employee Benefits
Short-term employee benefits
Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are
benefits (other than termination benefits) that are expected to be settled wholly within 12 months after the end
of the annual reporting period in which the employees render the related service, including wages, salaries and
annual leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be
paid when the obligation is settled.
The Group’s obligations for short-term employee benefits such as wages, salaries and annual leave are
recognised as part of current trade and other payables in the statement of financial position.
Equity-settled compensation
The Group operates an employee share and option plan. Share-based payments are amortised over the vesting
periods. The corresponding amount is recorded to the share based payment reserve.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
20
Note 1: Summary of Significant Accounting Policies (continued)
h. Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for
which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the
most reliable evidence available at the reporting date, including the risks and uncertainties associated with the
present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. Provisions are
discounted to their present values, where the time value of money is material.
Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the
obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related
provision.
No liability is recognised if an outflow of economic resources as a result of present obligation is not probable.
Such situations are disclosed as contingent liabilities, unless the outflow of resources is remote in which case no
liability is recognised.
Effective 1 July 2016, the Company has adopted a policy of recognising a potential liability for cashable
sweepstakes.
i. Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and demand deposits held at call with banks and payment
platforms such as Paypal, together with other short term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an insignificant risk of changes in value.
j. Revenue
Facebook Revenue
Revenue from Facebook is recognised on a gross basis before taking into account the service fee on revenue
charged by Facebook.
Chumba and Global Poker Revenue
Revenues from player purchases on the Chumba and Global Poker websites are recognised gross of Paypal
fees. The risks and rewards of the revenue earned lie with the Company and not with Paypal. This is in line with
the ‘agent vs principal’ guidance within AASB 118 – Revenues. Paypal fees are included in cost of sales.
Revenue is recognised when the right to receive the revenue has been established. The right to receive revenue
is determined to be when gold coins are purchased.
Interest income
Interest income is reported on an accrual basis using the effective interest method.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
21
Note 1: Summary of Significant Accounting Policies (continued)
k. Trade and Other Receivables
Current
Trade and other receivables include amounts due from Facebook for player purchases made through
Facebook in the ordinary course of business.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost,
less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Due to
their short-term nature, they are measured at amortised cost and are not discounted.
Other receivables are recognised at amortised cost, less any provision for impairment.
l. Trade and Other Payables
Trade and other payables represent the liabilities for goods and services received by the Group during the
reporting period that remain unpaid at the end of the reporting period. The balance is recognised as a current
liability with the amounts normally paid within 30 days of recognition of the liability.
m. Goods and Services Tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where
the amount of GST incurred is not recoverable from the taxation authority.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable
from, or payable to, the ATO is included as a current asset or liability in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows
arising from investing or financing activities which are recoverable from the ATO are presented as operating
cash flows included in payment to suppliers.
n. Critical Accounting Estimates and Judgements
The preparation of the financial statement requires management to make judgements, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually evaluates
its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgements, estimates and assumptions on historical experience and on other various
factors, including expectations of future events, management believes to be reasonable under the
circumstances. The resulting accounting judgements and estimates may differ to actual results.
In preparing this consolidated interim financial statement, the significant judgements made by management in
applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statement as at and for the year ended 30 June 2016. The policy on
Cashable sweepstakes has been retrospectively applied for the financial year commencing 1 July 2015.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
22
Note 1: Summary of Significant Accounting Policies (continued)
n. Critical Accounting Estimates and Judgements (continued)
(i) Capitalisation of Software Development Costs
Distinguishing the research and development phases of a new customised software project and determining
whether the recognition requirements for the capitalisation of development costs are met requires judgement.
After capitalisation, management monitors whether the recognition requirements continue to be met and
whether there are any indicators that capitalised costs may be impaired.
(ii) Business combinations
Management uses valuation techniques in determining the fair values of the various elements of a business
combination. Particularly, the fair value of contingent consideration is dependent on the outcome of many
variables that affect future profitability.
(iii) Useful lives of depreciable assets
Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the
expected utility of the assets. Uncertainties in these estimates relate to technical obsolescence that may
change the utility of certain software and IT equipment.
o. Going Concern
The consolidated financial statements have been prepared on a going concern basis, notwithstanding the loss
for the year, accumulated losses to date and its net current liability position at 30 June 2017.
A fundamental component of the ability to continue as a going concern is the Group’s ability to achieve
budgeted revenue growth whilst controlling expenditure. The Directors have prepared cash flow projections
that support the ability of the Group to continue as a going concern, based on the following considerations:
• continued significant revenue growth as that experienced from FY2016 to FY2017 from the Group’s
existing products as well as new product launches; and
• expected net cash inflows from operations.
In the event that the cash flow forecasts are not met, then this would place strain on cash reserves and the
Group may need to consider mitigating actions to support ongoing operations. This gives rise to material
uncertainty that may cast significant doubt upon the Group’s ability to continue as a going concern.
The Directors believe that the Group will be able to continue as a going concern and accordingly, the financial
statements have been prepared on a going concern basis.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
23
Note 1: Summary of Significant Accounting Policies (continued)
p. Foreign Currency Transactions and Balances
The consolidated financial statements are presented in Australian dollars ($AUD), which is also the functional
currency of the Group.
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the
date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-
monetary items measured at historical cost continue to be carried at the exchange rate at the date of the
transaction.
Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where
deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognised directly in other
comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive
income; otherwise the exchange difference is recognised in profit or loss.
q. New, revised or amended Accounting Standards and Interpretations Adopted
A number of new standards. amendments to standards and interpretations are effective for annual periods
beginning after 1 July 2016, and have not been applied in preparing these consolidated financial statements.
Those which may be relevant to the Group are set out below:
• AASB 15 Revenue from Contracts with Customers,
• AASB 16 Leases; and
• AASB 9 Financial Instruments
The entity is yet to undertake a detailed assessment of the impact of AASB 9, AASB 15 and AASB 16. However,
based on the entity’s preliminary assessment, the above Standards are not expected to have a material impact
on the transactions and balances recognised in the financial statements when it is first adopted for the year
ending 30 June 2018, 30 June 2019 and 30 June 2020, respectively.
r. Rounding of Amounts
The Company is a type of Company referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been
rounded to the nearest $1,000, or in certain cases, to the nearest dollar.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
24
Note 2: Operating Segments
As at the reporting date, the Group treats its operations as one business segment and reports accordingly.
Management and the Board of Directors view and assess the Group as one business segment.
Note 3: Revenue from Continuing Operations and Cost of Sales
2017 2016
Revenue from Continuing Operations
From Chumba website 90,620 34,108
From Facebook 4,435 4,191
From Global Poker website 18,879 -
Total revenue 113,934 38,299
Cost of sales
Sweepstakes paid 62,348 20,402
Revenue share 2,752 1,257
Merchant fees 4,454 1,116
Cashable sweepstakes 3,387 584
Total cost of sales 72,941 23,359
Gross Profit 40,993 14,940
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
25
Note 4: Other income (costs) and expenses
2017 2016
$’000 $’000
Finance income
Interest income 87 20
87 20
Finance costs
Interest expense (35) (41)
Bank and other financial intermediary charges (26) (25)
(61) (66)
Other financial items
Foreign currency realised gains/(loss) 34 (77)
Foreign currency unrealised gains/(loss) (1,214) (199)
(1,180) (276)
Other income
-
Export Marketing Development Grant 202 -
Refund of gaming license application 7 -
209 -
Marketing and advertisements
-
Marketing Facebook (29,235) (9,580)
Marketing Non-Facebook (1,159) (173)
(30,394) (9,753)
The Group spends heavily on marketing via Facebook to acquire and retain its customers, which drives
revenue growth.
Note 5: Income Tax Expense
2017 2016
Current tax expense/(benefit) $’000 $’000
Current year (1,391) (689)
Deferred tax expense
Current year (253) (317)
Tax losses recognised - -
Expected income tax expense/(benefit) (1,644) (1,006)
Income tax benefit not brought into account (1,644) 1,006
Actual tax benefit - -
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
26
Note 5: Income Tax Expense (continued)
2017
2016
Numerical reconciliation between tax expense and pre-tax net profit $’000 $’000
Profit/(loss) before tax (8,733) (2,704)
Income tax using the domestic corporation tax rate of 30% (2016:30%) (2,620) (811)
(Decrease)/increase in income tax expense/(benefit) due to:
R&D Tax Rebate - 128
Non-allowable items 1,229 (6)
(1,391) (689)
Deferred Tax Asset not brought to account (253) (317)
Expected income tax expense/(benefit) on pre-tax net profit (1,644) (1,006)
Income tax benefit not brought into account 1,644) 1,006
Actual tax benefit - -
The franking account balance at the end of the year was Nil (2016: Nil). All unused tax losses were incurred by
Australian entities.
Net deferred tax assets have not been brought to account as it is not probable within the immediate future that
tax profits will be available against which deductible temporary differences and tax losses can be utilised.
Note 6: Key Management Personnel Compensation
The totals of remuneration paid to KMP of the company during the year are as follows:
2017 2016
$’000 $’000
Short-term employee benefits 2,299 1,544
Post-employment benefits 119 93
Long Term Incentive Plan 1,800 -
Total KMP compensation 4,218 1,637
Note 7: Cash and Cash Equivalents
2017 2016
$’000 $’000
Cash at bank 5,608 3,945
Paypal account 1,825 208
Paypal bond - 336
7,433 4,489
The Paypal bond was backed by an on-demand guarantee provided through a US Dollar Bank Account into which
US$250,000 has been deposited. The Paypal bond was subsequently released on 4 July 2016. The Paypal account
is immediately accessible and has the same liquidity as cash, therefore classified as cash and cash equivalents.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
27
Note 8: Trade and Other Receivables
2017 2016
$’000 $’000
CURRENT
Trade receivables 179 244
Other receivables
GST receivable 1,651 321
Other 71 -
1,901 565
The trade receivables are current and have been fully paid or settled after balance sheet date. Included in
Other is a receivable from Lance East Corporation, a related party, amounting to $61,000.
Note 9: Other Current Assets
2017 2016
$’000 $’000
Prepayments 592 73
Rental bond 83 49
Term deposits 1,507 -
2,182 122
The above term deposits have a contractual maturity of 3 months or more.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
28
Note 10: Controlled Entities
The subsidiaries listed below have share capital consisting solely of ordinary shares which are held directly by the parent
entity. The assets of the subsidiaries have been consolidated on a line-by-line basis in the consolidated financial
statements of the Group. Financial statements have not been prepared for the subsidiary as it has not traded since
incorporation.
The proportion of ownership interests held equals the voting rights held by the Group.
Ownership Interest
Name
Incorporation/
Registration Date
Country of
incorporation
30 June
2017
30 June
2016
Virtual Gaming Worlds Inc. 8 Nov 2010 Belize 100.00% 100.00%
VGW Malta Holding Limited 19 Apr 2016 Malta 99.93% 99.93%
Wholly owned subsidiaries of VGW Malta Holding Limited:
VGW Malta Limited
VGW Administration Malta Limited
VGW RMG Limited
VGW Sports Limited
VGW GP Limited
9 Mar 2016
7 Oct 2016
10 Aug 2016
5 Oct 2016
23 Nov 2016
Malta
Malta
Malta
Malta
Malta
99.93%
99.93%
100.00%
99.93%
99.93%
99.93%
-
-
-
-
Note 11: Property, Plant and Equipment-
Details of the Group’s property, plant and equipment and their carrying amount are as follows:
Furniture &
Fittings
Software
Office and Computer
Equipment
TOTAL
Cost
Balance, 1 July 2016 1 - 49 50
Additions 4 5 169 178
Disposals - - (3) (3)
Balance, 30 June 2017 5 5 215 225
Accumulated Depreciation
Balance, 1 July 2016 - - (11) (11)
Depreciation (2) (1) (34) (37)
Disposals - - - -
Balance, 30 June 2017 (2) (1) (45) (48)
Net book value, 30 June 2017 3 4 170 177
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
29
Note 12: Intangible Assets
Summary of license capitalisation and software development costs
Gaming Software
and Licenses
Cost
Balance, 1 July 2016 8,304
Additions 648
Balance, 30 June 2017 8,952
Accumulated Amortisation
Balance, 1 July 2016 (2,677)
Amortisation (1,028)
Balance, 30 June 2017 (3,705)
Net book value, 30 June 2017 5,247
Note 13: Trade and Other Payables
2017 2016
CURRENT $’000 $’000
Trade payable 9,214 2,224
Other payables and accruals 647 677
9,861 2,901
All amounts are short term. The carrying value of trade payables, other payables and accruals are considered
to be a reasonable approximation of fair value.
Note 14: Provisions
All provisions are considered current. The carrying amounts and movements in the provisions are as follows:
Sweepstakes Annual Leave TOTAL
Balance, 30 June 2016 584 90 674
Additions 3,386 532 3,918
Amount utilised - (196) (196)
Balance, 30 June 2017 3,970 426 4,396
The provision for Sweepstakes Liability represents cashable sweepstakes of players that are active within sixty
days. Under the Sweepstakes rules, the cashable sweepstakes of players not active within sixty days expire. The
cancellation of sweepstakes of players not active within sixty days was adopted from 1 July 2015 for Chumba.
However, the cancellation of sweepstakes of players not active within sixty days for Global Player has not been
applied. As at 30 June 2017, Global Poker cashable sweeps amounting to $3.1m were fully provided for.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
30
Note 15: Borrowings
The Company obtained a short-term loan from Spotcap to the amount of $250,000 in November 2015. The loan
bears a variable interest rate and is repayable within one year. The proceeds of the loan were used to bolster
the cash position and meet short-term expenditure needs.
As at balance sheet date, the outstanding balance amounted to $60,000 (2016: $104,000), which has been fully
repaid in August 2017.
Note 16: Financial Instruments
Accounting classification and fair values
The following table shows the carrying amount and fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy. It does not include fair value information for financial assets and
financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value
Carrying amount
Note
Fair
Value
Amortised
Cost
Other
Financial
Liabilities
30 June 2017
Financial assets not measured at fair value
Cash and cash equivalents 7 7,433
Trade and other receivable
Term deposits
8
9
1,901
1,507
10,841
Financial liabilities not measured at fair value
Trade and other payables 13 9,861
Loans payable 15 60
9,921
Carrying amount
Note
Fair
Value
Amortised
Cost
Other
Financial
Liabilities
30 June 2016
Financial assets not measured at fair value
Cash and cash equivalents 7 4,489
Trade and other receivable 8 565
5,054
Financial liabilities not measured at fair value
Trade and other payables 13 2,901
Loans payable 104
Convertible note 150
3,155
There were no transfers between Level 1 and level 2 during the period. There were also no changes during the
period in the valuation techniques used by the Group to determine Level 2 fair values.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
31
Note 16: Financial Instruments (continued)
Financial management policies
The directors' overall risk management strategy seeks to assist the Company in meeting its financial targets,
whilst minimising potential adverse effects on financial performance. Risk management policies are approved
and reviewed by the Board of Directors on an annual basis.
Specific financial risk exposure and management
The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency
risk through foreign exchange risk fluctuations. The biggest exposure is in United States Dollar (USD) as the
Group’s revenue is one hundred percent generated in USD. This is however minimised as the Group’s largest
service provider also bills in USD. The Group also enters into forward contracts to hedge its foreign currency risk.
Foreign exchange risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates. The source and nature of this risk arise from operations, capital
expenditures and translation risks.
The carrying amount of the Company’s foreign currency denominated financial assets and financial liabilities
at the reporting date was as follows:
Assets Liabilities
2017 2016 2017 2016
$’000 $’000 $’000 $’000
US dollars 3,750 885 8,048 1,944
Pounds Sterling - - 35 22
Euro 341 - 691 16
4,091 885 8,774 1,982
The following significant exchange rates have been applied during the year.
Base currency (AUD)
Year-end spot rates
2017 2016
US dollars 0.768 0.743
Pounds Sterling 0.592 0.552
Euro 0.673 0.669
The Company is also exposed to interest rate risk. As of reporting date, the following variable rate deposits and
borrowings are outstanding:
2017 2016
Weighted average
interest rate
Balance
$’000
Weighted average
interest rate
Balance
$’000
Interest bearing cash 1.72% 5,029 0.75% 3,848
Loans payable 15.60% 60 15.6% 104
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
32
Note 17: Issued Capital
Consolidated entity
2017 2016 2017 2016
Shares Shares $’000 $’000
Fully paid ordinary shares, net of share issue cost 450,331,892 962,141,464 20,672 19,123
Movements in ordinary share capital
Number Value
($’000)
Opening balance, 1 July 2015, net of share issue cost 1,499,922,910
14,058
Issuance of shares to external parties as part of capital raise 89,168,778 4,425
Issuance of shares to employees and contractors as part of
share based payment and cost savings initiatives 23,049,776 1,040
Cancellation of shares (650,000,000) -
Share issue cost - (400)
Closing balance, 30 June 2016 962,141,464 19,123
Opening balance, 1 July 2016, net of share issue cost 962,141,464 19,123
Conversion of performance shares 360,000,000 -
Total no. of shares prior to consolidation 1,322,141,464
Effect of consolidation of shares on 3:1 basis 440,713,653 19,123
Issuance of shares to Cubeia 818,506 129
Issuance of shares as payment of director’s fees 375,000 75
Issuance of pre -IPO shares 8,271,493 1,340
Conversion of share options 153,240 23
Share issue cost - (18)
Closing balance, 30 June 2017 450,331,892 20,672
On 3 November 2016, the Company sought and received shareholder approval for a 1-for-3 consolidation of
its shares and other equities on issue. At that date, the Company had 1,322,141,464 ordinary shares on issue
converted to 440,713,653 ordinary shares on issue.
On 14 August 2015 at an extraordinary meeting held by the shareholders, it was approved that the Company
cancel 650,000,000 shares held by its main shareholder, Lance East Corporation, a related entity of Mr. Laurence
Escalante, by way of a selective capital reduction, on the condition that it would be issued 650,000,000
performance shares subject to the Company meeting certain milestones as follows:
Performance Shares Number of shares Performance Milestones
Class A 120,000,000 Achievement of $10m in audited annual revenue
Class B 120,000,000 Achievement of $20m in audited annual revenue
Class C 120,000,000 Achievement of $30m in audited annual revenue
Class D 120,000,000 Achievement of $40m in audited annual revenue
Class E 120,000,000 Achievement of $50m in audited annual revenue
Class F 50,000,000 Achievement of $100m in audited annual revenue
In October 2016, Classes A, B & C totalling 360 million performance shares were converted into ordinary shares,
as milestones were achieved. These shares, along with theCompany’s other securities, were subsequently
consolidated on a 1-for-3 basis as approved by Shareholders at the Company’s Annual General Meeting held
on 3 November 2016.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
33
Note 17: Issued Capital (continued)
Following completion of the audit of the Company’s financial statements for the year ended 30 June 2017, the
performance milestones for Class D, E and F will have been achieved and accordingly 250 million or 96.7 million
(post 1:3 consolidation) Performance Shares will convert to Ordinary Shares.
The three convertible notes issued in November 2010, and classified as equity, are valued at $250,000 (2016:
$250,000), with a conversion price of 6 cents, converting to 4,166,667 Ordinary Shares. These notes bear no
interest and have no maturity date. The Company has received undertakings from the three note holders that
prior to the Company listing on the ASX, the notes would be fully converted.
During the year, the Company issued 818,506 ordinary shares valued at $129,000 to Cubeia Sweden AB, in
accordance with the Poker Software License Agreement signed in August 2016.
As part of the Company’s Pre-IPO capital raise in December 2016 and January 2017, there were 2,757,152 free-
attaching options issued with an exercise price of $0.20. These options have a two-year expiry from date of
issuance.
In an earlier capital raise in the period between June and August 2015, the Company issued a total of 97,362,112
free-attaching options over issued shares or interest in the Company. The options were standard call options
exercisable at $0.05 (pre-consolidation) per share over a two-year period. Post the 1-for-3 consolidation, the
number of options was 32,453,990, with an exercise price of $0.15, and which expired on 23 June 2017 and 24
August 2017. At the date if this report, approximately 8.3 million options had been exercised, with the remainder
cancelled.
Note 18: Related Party Transactions
The group’s main related parties are as follows:
a. Parent entity and controlled entities
VGW Holdings Limited (“the parent”) exercises control over its subsidiaries: Virtual Gaming Worlds Inc., VGW
Malta Holding Ltd., VGW Malta Ltd., VGW Administration Malta Ltd., VGW RMG Ltd., VGW Sports Ltd., and
VGW GP Ltd. The parent and the subsidiaries are collectively referred to as the “consolidated entity” and
are constituent parts of the consolidated financial statements. Accordingly, the subsidiaries are considered
as related parties in the separate financial statements of the parent entity rather than in the consolidated
financial statements.
b. Key management personnel
Any person(s) having authority and responsibility for planning, directing and controlling the activities of the
entity, directly or indirectly, including any director (whether executive or otherwise) of that entity is
considered key management personnel.
For details of disclosures relating to key management personnel, refer to Note 6: Key Management
Personnel Compensation.
c. Other related parties
Other related parties include close family members of key management personnel and entities that are
controlled or jointly controlled by those key management personnel individually or collectively with their
close family members. Refer to Note 8.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
34
Note 18: Related Party Transactions (continued)
Equity interests in VGW Holdings Limited
The following office holders and/or their related entities hold interests in the Company as at 30 June 2017 as
follows:
(1) Shares
Officeholder Interests
Holding
%
2017
No. of shares
Mr Laurence Escalante 59.21 266,666,666
Mr Nigel Blythe-Tinker 1.45 6,535,802
Mr Kevin Brown 1.54 6,914,166
Mr Rointon Nugara 1.49 6,697,531
Mr Kenneth Alexander 0.08 375,000
Mr Mats Johnson 0.07 308,643
(2) Performance Shares
At end of the financial year, 96,666,666 Performance Shares were held by Mr Laurence Escalante.
(3) Options
Date options granted
Expiry date
Exercise price
Number of options
Mr Nigel Blythe-Tinker 31 Jan 2017 31 Jan 2022 0.20 7,000,200
Mr Nigel Blythe-Tinker
Mr Nigel Blythe-Tinker
31 Jan 2017
14 Aug 2015
31 Jan 2019
14 Aug 2017
0.20
0.15
823,045
416,666
Mr Laurence Escalante
Mr Mats Johnson
Mr Mats Johnson
31 Jan 2017
31 Jan 2017
30 Dec 2016
31 Jan 2022
31 Jan 2022
30 Dec 2018
0.20
0.20
0.20
10,328,720
4,169,124
102,880
Mr Lorenzo Escalante
31 Jan 2017 31 Jan 2022
0.20 425,846
Mr Kenneth Alexander
1 Jan 2017
31 Jan 2021
0.20
333,333
Mr Kevin Brown 31 Jan 2017 31 Jan 2020
0.20 1,595,387
Mr Rointon Nugara
Mr Rointon Nugara
31 Jan 2017
30 Dec 2016
31 Jan 2020
30 Dec 2018
0.20
0.20
1,728,720
10,288
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
35
Note 19: Share-based payments
a. Loan Funded Share arrangements
The shares are exercised upon vesting date and are paid for via non-recourse loans. The loans will be repaid
to the Company when the shares are sold. The shares have voting and dividend rights but are not
transferable. Unvested shares are forfeited if the employee is no longer employed by the Company.
As at 30 June 2016 all the shares under the arrangement have been vested. A summary of the movements
of all Company shares issued under the loan funded share arrangement is as follows:
Number Weighted ave exercise price
Shares outstanding as at 1 July 2015 13,875,000 $0.05
Granted - -
Vested (13,875,000) $0.05
Forfeited - -
Shares outstanding as at 30 June 2016 - -
The weighted average share price of shares exercised in FY2016 was $0.05 (FY 2015: $0.05). The weighted
average remaining contractual life of shares outstanding at year-end was NIL (FY 2015: 9.33 months). The
fair value of the shares granted to employees is considered to represent the value of the employee services
received over the vesting period.
b. Share Options
In January 2017, VGW established a Long-Term Incentive Plan (LTIP) which is part of VGW's reward strategy
in support of the achievement of the Company’s business strategy. Tranche 1 options were granted in
January and April 2017. These options vests immediately, therefore, there were no vesting conditions. The
key terms and conditions related to the options issued are disclosed below. The fair value of the share options
has been measured using the Black-Scholes method. The inputs used in the measurement of the fair values
at grant date of the options were as follows:
Grant Date Number of
Options
Contractual
life of option
Fair
value
Share
Price
Exercise
Price
Expected
Volatility
Tranche 1 (a) 1 Jan 2017 333,333 5 years .0613 0.146 0.20 75%
Tranche 1 (b) 31 Jan 2017 11,595,170 5 years .0813 0.146 0.20 75%
Tranche 1 (c) 31 Jan 2017 29,456,088 3 years .0613 0.146 0.20 75%
Tranche 1 (d) 3 Apr 2017 166,666 3 years .0613 0.146 0.20 75%
6,667,695 options representing Tranche 2 and 6,667,696 options representing Tranche 3 have been offered,
conditional upon the approval of VGW’s shareholders in its next annual meeting in November 2017.
Tranches 2 and 3 are subject to the achievement of vesting conditions and performance hurdles.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
36
Note 20: Earnings per Share
30 June 2017 30 June 2016
$’000 $’000
Loss after income tax attributable to the owners of VGW Holdings Limited 8,733 2,704
Number of
shares
Number of
shares
Weighted average number of shares used in calculating basic and
diluted earnings per share 406,919,341 342,852,356
Cents Cents
Basic loss per share 2.15 0.78
Diluted loss per share 2.15 0.78
On 3 November 2016, the shareholders approved the consolidation of its shares on a 3 for 1 basis. As such, The
Company has accounted for the retrospective adjustment to its calculation of the basic and diluted earnings
per share in accordance with AASB 133, Earnings Per Share.
Note 21: Commitments
Lease commitments – operating
2017 2016
Lease Commitments - operating $’000 $’000
Committed at reporting date but not recognized as liabilities
Within one year 801 285
One to five years 148 98
949 383
Operating lease commitments includes contracted amounts for various office space under non-cancellable
operating leases expiring within two years, in some cases, options to extend. The leases have various escalation
clauses. On renewal, the terms of the leases are renegotiated.
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
37
Note 22: Parent entity information
Set out below is the supplementary information about the parent entity.
2017 2016
Statement of profit or loss and other comprehensive income $’000 $’000
Loss for the year (8,109) (2,588)
Total comprehensive income (8,109) (2,588)
Statement of financial position
Total current assets 11,178 5,176
Total assets 17,288 10,958
Total current liabilities 14,317 3,829
Total liabilities 14,317 3,829
Equity 2,971 7,129
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in
Note 1.
Note 23: Cash Flow Information
Reconciliation of Cash Flow from Operations with Profit after Income Tax
2017 2016
$’000 $’000
Profit after income tax (8,733) (2,704)
Non-cash flows in profit:
- Amortisation 1,028 1,009
- Depreciation 37 8
- Share-based payments expense 2,794 -
- Cost relating to share issue cost - 611
- Cost related to borrowings 8 -
- Loss on disposal of assets 3 -
- Write-off of other receivable - 119
Professional fees settled via issuance of shares 75 160
Interest expense settled via issuance of shares - 10
Changes in assets and liabilities, net of the effects of purchase and disposal
of subsidiaries:
- (increase)/decrease in trade and other receivables (1,370) (72)
- (increase)/decrease in prepayments (520) (119)
- increase/(decrease) in trade payables 7,148 1,969
- increase/(decrease) in provisions 3,722 639
- increase/(decrease) in accrued expenses (192) 60
Cash flow from operations 4,000 1,690
VGW HOLDINGS LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS AS AT 30 JUNE 2017
38
Note 24: Auditors Remuneration
Fees paid or payable to the Company’s auditors are as follows:
2017 2016
$’000 $’000
Audit Services
Audit of financial statements – Sothertons LLP Chartered Accountants,
Melbourne (now Hall Chadwick).
-
13
Audit of financial statements – Grant Thornton Audit Pty Ltd 47 37
47 50
Non-Audit Services
Preparation of the Investigating Accountant’s Report - Grant Thornton
Corporate Finance Pty Ltd
194 -
241 50
Note 25: Events After the Reporting Period
a. On 19 July 2017, Mr Mark Potts was appointed to the Board as Non-executive Director (refer the Directors'
Report for details of Mr Potts).
b. On 16 August 2017, the Malta Gaming Authority granted the VGW Group, the Class 1 and Class 3 remote
gaming licences which the Group had applied for. This paves the way for the Maltese subsidiary
corporate group to become fully operational.
c. On 14 August 2017, the Company acquired certain assets of Open Wager, Inc. (OW), an entity
incorporated in Nevada, USA but with principal operations in California and Colorado, providing social
casino platform and content licensing, for a consideration of USD0.53m. The asset purchase was as a
result of OW's decision to terminate its operations. Further to the asset purchase, the Company then
considered the possibility of engaging a number of OW's employees given their detailed knowledge of
the acquired assets. All OW's employees were to be terminated as a result of its cessation of operations.
Accordingly, the Company incorporated. VGW US, Inc., a wholly owned subsidiary, on 28 August 2017,
and on 1 September 2017, VGW US, Inc. employed the employees. The initial accounting for this asset
acquisition is incomplete at the time the financial statements are authorized for issue. NB: in relation to
both the terms of the Asset Purchase Agreement and the engagement of ex-OW employees, no liabilities,
provisions or other obligations that may have been owed by OW, would be transferred or assumed by
the Company.
d. From the Balance Sheet date to date of this report, the Company received $1.2m from the exercise of
options which were issued on 23 June 2015 and 14 August 2015.
Note 26: Contingent Liabilities
In August 2016, the Group entered into a Poker Software License Agreement with Cubeia Sweden AB, a provider
of online poker systems based in Stockholm, Sweden. Amongst the considerations is that the licensee shall pay
Cubeia a sum of fourteen days gross revenue eighteen months after the effective date, which is 11 August 2016.
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40
Independent Auditor’s Report To the Members of VGW Holdings Limited
Auditor’s Opinion
We have audited the financial report of VGW Holdings Limited (the Company) and its subsidiaries
(the Group), which comprises the consolidated statement of financial position as at 30 June 2017,
the consolidated statement of profit or loss and other comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then ended,
and notes to the financial statements, including a summary of significant accounting policies, and
the directors’ declaration.
In our opinion, the accompanying financial report of VGW Holdings Limited is in accordance with
the Corporations Act 2001, including:
a giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
performance for the year ended on that date; and
b complying with Australian Accounting Standards – Reduced Disclosure Requirements and the
Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report. We are independent of the Group in accordance with the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are
relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 1(o) in the financial report which indicates that the Group incurred a net
loss of $8.7 million during the year ended 30 June 2017 and, as of that date, the Group’s current
41
liabilities exceeded its current assets by $2.8 million. These conditions, along with other matters as
set forth in Note 1(o), indicate the existence of a material uncertainty which may cast significant
doubt about the Group’s ability to continue as a going concern. Our opinion is not modified in
respect of this matter.
Information other than the Financial Report and Auditor's Report
The Directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 June 2017, but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The Directors of the Company are responsible for the preparation of the financial report that gives
a true and fair view in accordance with Australian Accounting Standards – Reduced Disclosure
Requirements and the Corporations Act 2001. The Directors responsibility also includes such
internal control as the Directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud
or error.
In preparing the financial report, the Directors are responsible for assessing the Group Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless management either intends to liquidate the
Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with the Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar3.pdf. This description forms part of our
auditor’s report.
GRANT THORNTON AUDIT PTY LTD Chartered Accountants
R J Isbell
Partner - Audit & Assurance
Sydney, 4 October 2017