Intangible asset - intellectual property (restated)

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

Note 7: Intangible asset – intellectual property (restated)

On May 11, 2012, the Company entered into a Contribution and Sale Agreement (the “Sale Agreement”) with J&S Gaming, Inc. (“J&S”), and MGT Gaming, Inc. (“MGT Gaming”) for the acquisition of U.S. Patent #7,892,088, entitled “Gaming Device Having a Second Separate Bonusing Event” (“The Patent”). The Patent acquired was recorded at its estimated fair value of $1,913 at the date of closing. Pursuant to the Sale Agreement, (i) J&S sold certain patents to MGT Gaming in exchange for 1,000 shares (constituting 100% ownership) of MGT Gaming Common stock, par value $0.001; (ii) the Company purchased from J&S 550 MGT Gaming Shares constituting 55% ownership in exchange for $200 cash and a four (4) year warrant to purchase 350,000 shares of the Company’s Common stock at an exercise price of $4.00 per share, subject to certain anti-dilution provisions (the “Warrants”); (iii) the Company and J&S agreed to grant rights of first refusal, “tag-along” and “drag-along” rights to one another with respect to their respective MGT Gaming Shares.

The intellectual property is subject to amortization and will be expensed using the straight-line method, over the nine year remaining life of the patent. Based on the Company’s amortizable intangible assets as of September 2012, amortization expense is expected to be approximately $50 for the remainder of 2012 and be approximately $204 for each of the next five fiscal years.

Amortization expense on intangible assets for the three months and nine month ended September 30, 2012 was $51 and $68

The warrants were fair-valued as of the issuance date of June 1, 2012 at $851 based upon the following Binomial Lattice Pricing Model (“BLPM”) to value its warrants containing anti-dilution provision: risk free rate 0.340%; expected term four (4) years; annual volatility 75.0%; exercise price $4.00.

For purposes of determining expected volatility, since the Company does not have representative historical data to determine volatility based upon its own information, the Company used significant judgment to identify a peer group and determine the appropriate weighting in order to estimate the volatility rate for use in the BLPM.

ASC 350 “Intangible Assets”, establishes Accounting and Measurement guidance for the acquisition of the intellectual property asset from J&S. The Company determined that the consideration given for 55% of the patent was the best indication of the fair value of the patent, as such; the 45% of the patent contributed by the non-controlling shareholders was valued at $862.

The fair value was determined as follows:

Cash	$	200
Fair value of warrants		851
Fair value of intangible asset contributed by non-controlling interest		862
Total	$	1,913

Additionally, the Company has the right to purchase an additional 250 MGT Gaming Shares from J&S in exchange for a cash payment of $1,000 and a four (4) year warrant to purchase 250,000 shares of the Company’s common stock for an exercise price of the lower of (i) $6.00 per share and (ii) 110% of the closing price of the common stock on the date of issuance. This option expired on August 31, 2012 due to the qualified financing, as defined in the Agreement that the Company entered into with Hudson Bay Fund Ltd. Due to the high exercise price of this option and its very short term nature its fair value was determined to be de minimis.