VGW HOLDINGS LIMITED AND CONTROLLED …...2017/06/30 · Pentasia Limited, an i-Gaming recruitment...

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


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


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


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


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


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


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


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


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


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


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


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

E [email protected]

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


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


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


STATEMENT OF CHANGES IN EQUITY


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


STATEMENT OF CASH FLOWS


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.


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.



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.



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.



19


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.



20


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.



21


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.



22


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.



23


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.



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



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 - -



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.



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.



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



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.



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.



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



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.



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.



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



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



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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.



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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.



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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



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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.

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

E [email protected]

W www.grantthornton.com.au

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.

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

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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

http://www.auasb.gov.au/auditors_responsibilities/ar3.pdf

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