Asset purchase and acquisition of a business

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 4: Asset purchase and acquisition of a business

Asset purchase – mobile gaming

On May 2, 2013, the Company purchased certain mobile game application assets from Digital Angel Corporation. The purchase price consisted of a cash payment in the amount of $136 and 50,000 restricted shares of the Company’s common stock with an aggregate fair value of $203 as of the date this transaction was completed. The Company determined the acquisition constitutes a purchase of assets in accordance with the guidance of ASC 805 Business combinations.

The following table summarizes the Company’s allocation of the purchase price to the separable components of the mobile applications based on their relative fair values at the date the purchase was completed.

Purchase price allocation
Software and hardware	$	28
Trademark		6
Intangible assets – mobile gaming application		305
Net assets acquired	$	339

Acquisition of FanTD

On May 20, 2013, the Company acquired 63.12% of the outstanding membership interests of FanTD in exchange for an aggregate purchase of $3,220 consisting of 600,000 shares of MGT common stock at a fair value of $5.03 per share for a total of $3,018 and a cash payment of $202. The fair value of the 36.88% non-controlling interest retained by the sellers in this transaction amounted to $1,882. The Company’s acquisition of FanTD is the Company’s initial venture in the online and mobile gaming space.

The Company recorded the purchase of FanTD using the acquisition method of accounting as specified in ASC 805 “Business Combinations.” This method of accounting requires the acquirer to (i) record purchase consideration issued to sellers in a business combination at fair value on the date control is obtained, (ii) determine the fair value of any non-controlling interest, and (iii) allocate the purchase consideration to all tangible and intangible assets acquired and liabilities assumed based on their acquisition date fair values. Further, the Company commenced reporting the results of FanTD on a consolidated basis with those of the Company effective upon the date of the acquisition.

The following tables summarizes the preliminary estimated fair values of the net liabilities assumed and the allocation of the aggregate fair value of the purchase consideration, non-controlling interest and net liabilities to assumed identifiable and unidentifiable intangible assets:

Purchase consideration
Common stock (600,000 shares at the transaction date fair value of $5.03 per share)	$	3,018
Cash		202
Aggregate purchase consideration		3,220
Fair value of non-controlling interest		1,882
Aggregate fair value of enterprise		5,102
Purchase price allocation
Net current liabilities assumed		(69)
Property and equipment		4
Net liabilities assumed assets		(65)
Aggregate fair value of purchase consideration, non-controlling interest and net liabilities assumed allocated to intangible assets as follows:
Developed software		186
Customer list		33
Goodwill		4,948
Total purchase price allocation	$	5,102

The following table summarizes, on an unaudited pro forma basis, the results of operations of the Company as though the acquisition had occurred as of January 1, 2012. The pro forma amounts give effect to appropriate adjustments of amortization of intangible assets and interest expense associated with the financing of the acquisition. The pro forma amounts presented are not necessarily indicative of the actual results of operations had the acquisition transaction occurred as of January 1, 2012.

	For the nine months ended
	September 30, 2013		September 30, 2012
Revenues	$	255	$	336
Net loss		(8,526)		(2,471)
Loss per share of common stock		(1.56)		(1.16)
Basic and diluted		5,453,049		2,128,891

Fantasy Sports Live

On June 25, 2013, MGT Sports acquired Fantasy Sports Live, which was effectively a customer list associated with a specific gaming application for $30 in cash and the assumption of a $46 customer deposit liability.

Daily Joust, Inc.

On July 23, 2013, MGT Sports acquired certain assets from Daily Joust, Inc. The purchase price consisted of a cash payment of $50 for $136 in customer deposits and assumption of a $136 customer liability.

Real Deal Poker

On September 3, 2013, the Company entered into a Contribution and Sale Agreement (the “Contribution Agreement”) by and among the Company, Gioia Systems, LLC. (“Gioia”) and MGT Interactive whereby MGT Interactive acquired certain assets from Gioia, the inventor and owner of a proprietary method of card shuffling for the online poker market. Trademarked under the name Real Deal Poker, the technology uses patented shuffling machines, along with permutation re-sequencing, allowing for the creation of up to 16,000 decks per minute in real time. The acquisition includes seven (7) U.S. Patents and several Internet URL addresses, including www.RealDealPoker.com. Pursuant to the Contribution Agreement, Gioia contributed the assets to MGT Interactive in exchange for a 49% interest in MGT Interactive and MGT contributed $200,000 to MGT Interactive in exchange for a 51% interest in MGT Interactive. The $200,000 contributed by the Company swill be utilized as working capital to cover the direct and associated costs relating to the achievement of a certification from Gaming Laboratories International (“GLI”). The Company has the right to acquire an additional 14% ownership interest in MGT Interactive from Gioia in exchange for a purchase price of $300,000 after GLI certification is obtained. Gioia, in turn, will have the right to re-acquire the 14% interest for a period of three years at a purchase price of $500,000. Gioia has the right to certain royalty payments from the gross rake payments, and any licensing or royalty income received by MGT Interactive.

Simultaneously with the entry into the Contribution Agreement, the Company and Gioa entered into a Limited Liability Company Agreement which serves as the operating agreement for MGT Interactive, and a consulting agreement (the “Consulting Agreement”) whereby Gioia will provide services to the Company primarily related to obtaining GLI Certification. The Consulting Agreement terminates on the earlier of January 31, 2014 or the date on which GLI Certification is obtained. In the event that GLI Certification is obtained prior to January 31, 2013, the Consulting Agreement will be extended for an additional year. Pursuant to the Consulting Agreement, Gioia will receive a monthly consulting fee of $10,000 of which $5,000 is paid in cash per month and $5,000 is deferred until GLI certification is obtained. The Company expensed $75 for the period ended September 30, 2013.