UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K/A
(Amendment No. 1)
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE
13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of, 2023
Commission File Number
001-39349
(Translation of registrant’s name into English)
Joseph A. Sigrist, Chief Financial Officer
c/o DoubleDown Interactive, LLC
605 5
th
Avenue, Suite 300 Seattle, WA 98104
+1-206-408-4545
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form
20-F
or Form 40-F.
☒ Form 20-F
☐ Form 40-F
EXPLANATORY NOTE
This report on Form
6-K/A
(this “Amendment
”) amends the report on Form 6-K
previously filed on May 10, 2023 (the “Original
”) to provide the unaudited consolidated financial statements for the three months ended March 31, 2023 of DoubleDown Interactive Co., Ltd. (the “6-K
Interim Financial Statements
”) set forth on Exhibit 99.1 to this Amendment using Inline eXtensible Business Reporting Language (“iXBRL
”), in accordance with Section 405 of Regulation S-T
and Paragraph C.(6)(b) of the General Instructions to Form 6-K.
The Interim Financial Statements were previously furnished without iXBRL as Exhibit 99.2 to the Original
6-K.
Except as described above, this Amendment does not amend, update or restate any information set forth in the Original 6-K
or reflect any events that occurred subsequent to the original date of the Original 6-K.
EXHIBIT INDEX
Exhibit No. |
Description | |
| 99.1 | Unaudited consolidated financial statements of the Company for the three months ended March 31, 2023 | |
101.SCH |
XBRL Taxonomy Extension Schema Document | |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document | |
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DOUBLEDOWN INTERACTIVE CO., LTD. | ||||||
| Date: May 19, 2023 | ||||||
By: |
/s/ Joseph A. Sigrist | |||||
Name: Joseph A. Sigrist | ||||||
Title: Chief Financial Officer | ||||||
Exhibit 99.1
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Financial Statements (unaudited)
March 31, 2023 and March 31, 2022
Contents
Consolidated Financial Statements as of and for the three months ended March 31, 2023 and 2022 |
||||
Condensed Consolidated Statements of Income and Comprehensive Income |
F-2 |
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Condensed Consolidated Balance Sheets |
F-3 |
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Condensed Consolidated Statements of Changes in Shareholders’ Equity |
F-4 |
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Condensed Consolidated Statements of Cash Flows |
F-5 |
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Notes to Condensed Consolidated Financial Statements |
F-6 |
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F-1
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statements of Income and Comprehensive Income
(unaudited, in thousands of U.S. Dollars, except share and per share amounts)
Three months ended March 31 , |
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2023 |
2022 |
|||||||
Revenue |
$ | $ | ||||||
Operating expenses: |
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Cost of revenue (1) |
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Sales and marketing (1) |
||||||||
Research and development (1) |
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General and administrative (1) |
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Depreciation and amortization |
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Total operating expenses |
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Operating income |
$ | $ | ||||||
Other income (expense): |
||||||||
Interest expense |
( |
) | ( |
) | ||||
Interest income |
||||||||
Gain on foreign currency transactions |
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Gain (loss) on foreign currency remeasurement |
||||||||
Gain (loss) on short-term investments |
( |
) | ||||||
Other, net |
( |
) | ( |
) | ||||
Total other income (expense), net |
$ | $ | ( |
) | ||||
Income before income tax |
$ | $ | ||||||
Income tax (expense) benefit |
( |
) | ( |
) | ||||
Net income (loss) |
$ | $ | ||||||
Other comprehensive income (expense): |
||||||||
Pension adjustments, net of tax |
( |
) | ( |
) | ||||
Gain (loss) on foreign currency translation |
( |
) | ( |
) | ||||
Comprehensive income (loss) |
$ | $ | ||||||
Earnings per share: |
||||||||
Basic |
$ | $ | ||||||
Diluted |
$ | $ | ||||||
Weighted average shares outstanding: |
||||||||
Basic |
||||||||
Diluted |
||||||||
| (1) | Excluding depreciation and amortization |
See accompanying notes to consolidated financial statements
F-2
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Balance Sheets
(in thousands of U.S. Dollars, except share and per share amounts)
March 31, |
December 31, |
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2023 |
2022 |
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| (unaudited) | ||||||||
Assets |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
Short-term investments |
||||||||
Accounts receivable, net |
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Prepaid expenses, and other assets |
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Total current assets |
$ | $ | ||||||
Property and equipment, net |
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Operating lease right-of-use |
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Intangible assets, net |
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Goodwill |
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Deferred tax asset |
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Other non-current assets |
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Total assets |
$ | $ | ||||||
Liabilities and Shareholders’ Equity |
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Accounts payable and accrued expenses |
$ | $ | ||||||
Short-term operating lease liabilities |
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Income taxes payable |
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Contract liabilities |
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Loss contingency |
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Other current liabilities |
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Total current liabilities |
$ | $ | ||||||
Long-term borrowings with related party |
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Long-term operating lease liabilities |
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Other non-current liabilities |
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Total liabilities |
$ | $ | ||||||
Shareholders’ equity |
||||||||
Common stock, KRW |
||||||||
Additional paid-in-capital |
||||||||
Accumulated other comprehensive income |
||||||||
Retained earnings |
||||||||
Total shareholders’ equity |
$ | $ | ||||||
Total liabilities and shareholders’ equity |
$ | $ | ||||||
See accompanying notes to consolidated financial statements
F-3
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(unaudited, in thousands of U.S. Dollars, except share amounts)
Common shares |
Common stock |
Additional paid-in- capital |
Accumulated other comprehensive income/(loss) |
Retained earnings (deficit) |
Total shareholders’ equity |
|||||||||||||||||||
Three months ended March 31, 2022 |
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As of January 1, 2022 |
||||||||||||||||||||||||
Net Income |
— | — | — | — | ||||||||||||||||||||
Pension adjustments, net of tax |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
Gain(loss) on foreign currency translation, net of tax |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
As of March 31, 2022 |
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Three months ended March 31, 2023 |
||||||||||||||||||||||||
As of January 1, 2023 |
||||||||||||||||||||||||
Net Income |
— | — | — | — | ||||||||||||||||||||
Pension adjustments, net of tax |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
Gain(loss) on foreign currency translation, net of tax |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
As of March 31, 2023 |
||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
F-4
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands of U.S. Dollars)
Three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
| Cash flow from (used in) operating activities: |
||||||||
| Net Income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash from operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| (Gain)Loss on foreign currency remeasurement |
( |
) | ( |
) | ||||
| (Gain)Loss on short-term investments |
||||||||
| Deferred taxes |
||||||||
| Working capital adjustments: |
||||||||
| Accounts receivable |
( |
) | ( |
) | ||||
| Prepaid expenses, other current and non-current assets |
||||||||
| Accounts payable, accrued expenses and other payables |
( |
) | ( |
) | ||||
| Contract liabilities |
( |
) | ( |
) | ||||
| Income tax payable |
||||||||
| Other current and non-current liabilities |
||||||||
| |
|
|
|
|||||
| Net cash flows from (used in) operating activities |
$ | $ | ||||||
| Cash flow from (used in) investing activities: |
||||||||
| Purchases of intangible assets |
( |
) | ( |
) | ||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Purchases of short-term investments |
( |
) | ( |
) | ||||
| Sales of short-term investments |
||||||||
| |
|
|
|
|||||
| Net cash flows from (used in) investing activities |
$ | $ | ( |
) | ||||
| Cash flow from (used in) financing activities: |
||||||||
| |
|
|
|
|||||
| Net cash flows from (used in) financing activities: |
$ | $ | ||||||
| Net foreign exchange difference on cash and cash equivalents |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
$ | $ | ( |
) | ||||
| |
|
|
|
|||||
| Cash and cash equivalents at beginning of period |
$ | $ | ||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Cash paid during year for: |
||||||||
| Interest |
||||||||
| Income taxes |
$ | $ | ||||||
See accompanying notes to consolidated financial statements
F-5
DoubleDown Interactive Co., Ltd.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1: Description of business
Background and nature of operations
DoubleDown Interactive Co., Ltd. (“DDI,” “we,” “us,” “our” or the “Company,” formerly known as The8Games Co., Ltd.) was incorporated in 2008 in Seoul, Korea as an interactive entertainment studio, focused on the development and publishing of casual games and mobile applications. DDI is a subsidiary of DoubleU Games Co., Ltd. (“DUG” or “DoubleU Games”), a Korean company and our controlling shareholder holding 67.1 % of our outstanding shares. The remaining 32.9 % of our outstanding shares are held by STIC Special Situation Private Equity Fund (“STIC”, 20.2 %) and the remainder by participants in our IPO (12.7 %). In 2017, DDI acquired DoubleDown Interactive, LLC 825 million.
(“DDI-US”)
from International Gaming Technologies (“IGT”) for approximately $DDI-US,
with its principal place of business located in Seattle, Washington, is our primary revenue-generating entity. We develop and publish digital gaming content on various mobile and web platforms through our multi-format interactive game experience concept. We host DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox and Undead World within various formats.
all-in-one
Initial Public Offering
On September 2, 2021, DoubleDown Interactive Co., Ltd. filed its initial public offering (the “Offering”) of 6,316,000 American Depositary Shares (the “ADSs”), each representing 0.05 common share, with par value of 10,000 per share, of the Company, at a price to the public of $18.00 per ADS, before underwriting discounts and commissions. The number of ADSs sold by the Company was 5,263,000 , and the number of ADSs sold by STIC Special Situation Diamond Limited, the selling shareholder in the Offering (the “Selling Shareholder”), was 1,053,000 . The net proceeds to us from this offering was approximately $86.5 million, after deducting the underwriting discounts and commissions and the offering expenses in the aggregate of approximately $8.7 million.
W
Prior to this offering, there has been no public market for our common shares or ADSs. Our ADSs trade on the NASDAQ Stock Market (“NASDAQ”) under the symbol “DDI.”
Capital Reserve Reallocation
On August 30, 2022 it was announced that a special board of directors meeting convened on August 26, 2022 which resulted in the approval of the reduction of the Company’s capital reserve in the amount of 70,000,000,000 pursuant to Article
W
461-2
of the Korean Commercial Code. On December 28, 2022 it was announced that a special board of directors meeting convened on December 28, 2022 which resulted in the approval of the reduction of the Company’s capital reserve in the amount of 330,000,000,000 pursuant to Article
W
461-2
of the Korean Commercial Code. Basis of preparation and consolidation
Our unaudited condensed consolidated financial statements include all adjustments of a normal, recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim period presented are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements for the year ended December 31, 2022.
The condensed consolidated financial statements include the balances and accounts of DDI and our controlled subsidiaries. All significant inter-company transactions, balances and unrealized gains or losses have been eliminated. We view our operations and manage our business as one operating segment.
Use of estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures. We regularly evaluate estimates and assumptions related to provisions for income taxes, revenue recognition, expense accruals, deferred income tax asset valuation allowances, valuation of goodwill and intangibles, and legal contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and the actual results, future operating results may be affected.
Functional currency and translation of financial statements
Our functional currency is the Korean Won (“KRW”) and the U.S. Dollar (“dollar,” “USD,” “US$,” or “$”) is the functional currency of our United States subsidiaries. The accompanying consolidated financial statements are presented in USD. The consolidated balance sheets have been translated at the exchange rates prevailing at each balance sheet date. The consolidated statement of comprehensive income and statement of cash flows have been translated using the weighted-average exchange rates prevailing during the periods of each statement. The equity capital is denominated in the functional currency, KRW, and is translated at historical exchange rates. All translation adjustments resulting from translating into the reporting currency are accumulated as a separate component of accumulated other comprehensive income in shareholders’ equity. Gains or losses resulting from foreign currency transactions are included in other income (expense).
Intercompany monetary items denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date with the gain or loss arising on translation recorded to other income (expense). Intercompany
non-monetary
items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Cash and cash equivalents
We consider all money market funds and short-term investments with a maturity of three months or less when acquired to be cash and cash equivalents. Cash and cash equivalents are held by high credit quality financial institutions and balances may exceed limits of federal insurance. We have not experienced any losses resulting from these excess deposits.
Financial instruments and concentration of credit risk
Financial instruments, which potentially expose us to concentrations of credit risk, consist primarily of cash and cash equivalents, accounts receivable and short-term investments.
Accounts receivable are recorded and carried at the net invoiced amount, which is net of platform payment processing fees, unsecured, and represent amounts due to us based on contractual obligations where an executed contract exists. We do not require collateral and have not recognized an allowance as management estimates the net receivable is fully collectible. Apple, Inc. (“Apple”), Facebook, Inc. (“Facebook”), and Google, LLC (“Google”) represent significant distribution, marketing, and payment platforms for our games. A substantial portion of our revenue was generated from players who accessed our games through these platforms and a significant concentration of our accounts receivable balance is comprised of balances owed to us by these platforms.
The following table summarizes the percentage of revenues and accounts receivable generated via our platform providers in excess of 10% of our total revenues and total accounts receivable:
Revenue Concentration |
||||||||
Three months ended March 31, |
||||||||
2023 |
2022 |
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| Apple |
% | % | ||||||
| Facebook |
% | % | ||||||
| Google |
% | % | ||||||
Accounts Receivable Concentration |
||||||||
As of March 31, |
As of December 31, |
|||||||
2023 |
2022 |
|||||||
| Apple |
% | % | ||||||
| Facebook |
% | % | ||||||
| Google |
% | % | ||||||
Note 2: Revenue from Contracts with Customers
Our social and mobile apps operate on a model, whereby game players may collect virtual currency free of charge through the passage of time or through targeted marketing promotions. If a game player wishes to obtain virtual currency above and beyond the level of free virtual currency available to that player, the player may purchase additional virtual currency. Once a purchase is completed, the virtual currency is deposited into the player’s account and is not separately identifiable from previously purchased virtual currency or virtual currency obtained by the game player for free.
free-to-play
Once obtained, virtual currency (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than gameplay within our apps. When virtual currency is played on any of our games, the game player could “win” and would be awarded additional virtual currency or could “lose” and lose the future use of that virtual currency. We have concluded that our virtual currency represents consumable goods, because the game player does not receive any additional benefit from the games and is not entitled to any additional rights once the virtual currency is substantially consumed.
Control transfers when the virtual currency is consumed for gameplay. We recognize revenue from player purchases of virtual currency based on the consumption of this currency. We determined through a review of play behavior that game players generally do not purchase additional virtual currency until their existing virtual currency balances, regardless of source (e.g., bonus currency, gifted currency through social media channels, daily free chips, etc.), have been substantially consumed.
Based on an analysis of customers’ historical play behavior, purchase behavior, and the amount of virtual currency outstanding, we are able to estimate the rate that virtual currency is consumed during gameplay. Accordingly, revenue is recognized using a user-based revenue model with the period between purchases representing the timing difference between virtual currency purchase and consumption. This timing difference is relatively short.
We continuously gather and analyze detailed customer play behavior and assess this data in relation to our judgments used for revenue recognition.
We generate a small portion of our revenue from subscription services. All monthly subscription fees are prepaid and
non-refundable
for a one-month
period and auto-renew until the end customer terminates the service with the platform provider the subscription services originated. The subscription revenue is recognized on a daily basis beginning on the original date of purchase and has no impact on a customer purchased virtual currency. Disaggregation of revenue
We believe disaggregation of our revenue based on platform and geographical location are appropriate categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
The following table represents our disaggregation of revenue between mobile and web platforms (in thousands):
Three months ended March 31, |
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2023 |
2022 |
|||||||
| Mobile |
$ | $ | ||||||
| Web |
||||||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
The following table presents our revenue disaggregated based on the geographical location of our players (in thousands):
Three months ended March 31, |
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2023 |
2022 |
|||||||
| U.S. (1) |
$ | $ | ||||||
| International |
||||||||
| |
|
|
|
|||||
| Total |
$ | $ | ||||||
| |
|
|
|
|||||
(1) |
Geographic location is presented as being derived from the U.S. when data is not available |
Principal-agent considerations
Our revenue contracts are with game players who are our customers. We have exclusive control over all content, pricing, and overall functionality of games accessed by players. Our games are played on various third-party platforms for which the platform providers collect proceeds from our customers and remit us an amount after deducting a fee for processing and other agency services. We record revenue at the gross amount charged to our customers and classify fees paid to platform providers (such as Apple, Facebook, and Google) within cost of revenue, contract assets, contract liabilities and other disclosures.
Contract assets, contract liabilities and other disclosures
Customer payments are based on the payment terms established in our contracts. Payments for purchase of virtual currency are required at time of purchase, are
non-refundable
and relate to non-cancellable
contracts that specify our performance obligations. All payments are initially recorded as revenue, as the player has no right of return after the purchase, consistent with our standard terms and conditions. Based on our analysis, at each period end, we estimate the number of days to consume virtual currency. This represents the revenue amount where the performance obligation has not been met and is deferred as a contract liability until we satisfy the obligation. The contract asset consists of platform fees for which revenue has not been recognized. For subscription revenue, the remaining portion of the daily ratable monthly subscription is recorded as a contract liability and the applicable platform fees as a contract asset. The following table summarized our opening and closing balances in contract assets and contract liabilities (in thousands):
As of March 31, |
As of December 31, |
|||||||
2023 |
2022 |
|||||||
| Contract assets (1) |
$ | $ | ||||||
| Contract liabilities |
||||||||
(1) |
Contract assets are included within prepaid expenses and other assets in our consolidated balance sheet |
Note 3: Short-term investments
The Company holds investments in marketable securities with the intention of selling these investments within a relatively short period of time
(3-6
months). As such, gains or losses from holding or trading these securities were recognized in the Statements of Income. At March 31, 2023, short term investments were comprised of fixed time deposits classified as trading. Note 4: Goodwill and intangible assets
There were no changes to the carrying amount of goodwill in the three months ended March 31, 2023. We recognized a $269.9 million impairment of goodwill and intangibles in 2022. Changes in the carrying amount of intangible assets were as follows (in thousands):
March 31, 2023 |
December 31, 2022 |
|||||||||||||||||||||||||||||||||||
Useful life |
Gross amount |
Accumulated amortization |
Impairment |
Net amount |
Gross amount |
Accumulated amortization |
Impairment |
Net amount |
||||||||||||||||||||||||||||
| Goodwill |
$ | $ | — | $ | ( |
) | $ | $ | $ | — | $ | ( |
) | $ | ||||||||||||||||||||||
| Trademarks |
— | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||
| Customer relationships |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Purchased technology |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Development costs |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Software |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| |
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|
|
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|
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|
|
|
|
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| Total |
$ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
| |
|
|
|
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The following reflects amortization expense related to intangible assets included with depreciation and amortization (in millions):
Three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
| Amortization Expense |
||||||||
F-9
Note 5: Debt
The components of debt at March 31, 2023 and December 31, 2022 are as follows (in thousands):
As of March 31, |
As of December 31, |
|||||||
2023 |
2022 |
|||||||
4.60% Senior Notes due to related party due 2024 |
$ | $ | ||||||
Total debt |
||||||||
Less: Short-term debt |
— | |||||||
Total Long-term debt |
$ | $ | ||||||
4.60% Senior Notes due to related party due 2024
The 4.60 % Senior Notes due to related party, which collectively total KRW100 billion (US$77 million) at inception, accrue 4.60% interest quarterly on the outstanding principal amount until maturity. Interest and principal are due in full at maturity (May 27, 2024 ).
Note 6: Fair value measurements
The carrying values of our accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities and short-term borrowings approximate their fair values due to the short-term nature of these instruments.
Our cash equivalents (Level 1 of fair value hierarchy) consist of money market funds and Korean government bonds totaling $250.9 million, and short-term investments (Level 2 of fair value hierarchy) comprised of fixed time or certificates of deposit with maturity periods greater than 90 days totaling $53.8 million as of March 31, 2023. As of December 31, 2022 our cash equivalents (Level 1 of fair value hierarchy) consisted of money market funds and Korean government bonds totaling $217.4 million, and short-term investments (Level 2 of fair value hierarchy) comprised of fixed time or certificates of deposit with maturity periods greater than 90 days totaling $67.9 million. We rely on credit market data to track interest rates for other entities with similar risk profiles.
We record all debt at inception at fair value. We perform subsequent analysis on available data to evaluate the fair value of our borrowing as of the balance sheet date. We rely on credit market data to track interest rates for other entities with similar risk profiles. As of March 31, 2023, we believe the fair value of our senior notes (a Level 3 estimate) would be $1.8 million lower than face value due to the overall increase in interest rates during the past year. We do not believe the difference between carrying value and fair value has changed materially due to foreign exchange exposure or our credit worthiness.
Note 7: Income taxes
We are subject to federal and state income taxes in Korea and the United States. We account for our provision for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into and projected results for the full year.
account year-to-date amounts
Our effective tax rate varies from the statutory Korean income tax rate due to the effect of foreign rate differential, withholding taxes, state and local income taxes, foreign derived intangible income (FDII) deduction, research and development credits, and a valuation allowance on Korean deferred tax assets. Our effective tax rate could fluctuate significantly from quarter to quarter based on variations in the estimated and actual level
of pre-tax income
or loss by jurisdiction, changes in enacted tax laws and regulations, and changes in estimates regarding non-deductible expenses
and tax credits. As of March 31, 2023, and December 31, 2022, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are more likely than not to be realized. The income tax expense of $6.8 million for the three months ended March 31, 2023, reflects an effective tax rate of 22.2 % which is lower than the effective tax rate of 24.6 % for the three months ended March 31, 2022. The decrease in rate from 2022 to 2023 is primarily due to a reduction in the Korean tax rate and changes in the valuation allowance offset by a reduction in the FDII benefit.
The effective tax rate of 22.2 % for the three months ended March 31, 2023, is higher than the Korean statutory rate of 19 %, primarily due to foreign rate differential and state taxes. The effective rate of 22.2 % includes a discrete tax provision and offsetting valuation allowance release of $411 thousand related to a significant foreign currency exchange gain in the three months ended March 31, 2023, as well as a $161 thousand discrete provision related to a change in the state tax rate.
F-10
Note 8: Net income per share
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net income per share is computed by dividing net income by the weighted-average number of common shares and dilutive common share equivalents outstanding for the period determined using the treasury-stock no potentially dilutive securities outstanding in either period presented.
and if-converted methods.
There were Note 9: Leases
We are lessee for corporate office space in Seattle, Washington and Seoul, Korea. The lessor for our Seoul, Korea leases is our parent, DoubleU Games (see Note 11). Our leases have remaining terms of five to nineteen months. We do not have any finance leases. Our total variable and short-term lease payments are immaterial for all periods presented.
The Seattle, Washington lease originated in July 2012 and consists of 49,375 square feet. The lease will expire in October 2024 .
In February 2019, we executed new subleases with our parent, DUG, for 21,218 square feet of office space September 2023 .
in Gangnam-gu, Seoul,
Korea. The lease term will expire in Supplemental balance sheet and cash flow information related to operating leases is as follows (in thousands):
As of March 31, 2023 |
As of December 31, 2022 |
|||||||
Operating lease right-of-use |
$ | $ | ||||||
Accrued rent |
||||||||
Total operating lease right-of-use |
$ | $ | ||||||
Short-term operating lease liabilities |
||||||||
Long-term operating lease liabilities |
||||||||
Total operating lease liabilities |
$ | $ | ||||||
Supplemental cash flow information related to leases was as follows (in millions):
Three months ended |
Year ended |
|||||||
March 31, 2023 |
December 31, 2022 |
|||||||
Cash paid for amounts included in the measurement of operating lease liabilities |
||||||||
Note 10: Accumulated other comprehensive income
Changes in accumulated other comprehensive income (AOCI) by component for the three months ended March 31, 2023 and 2022 were as follows (in thousands):
Three months ended March 31, 2023 |
Currency Translation Adjustments |
Defined Benefit Pension Plan |
Total |
|||||||||
Balance at January 1, 2023 |
$ | $ | ( |
) | $ | |||||||
Foreign currency translation gain/(loss) |
( |
) | — | ( |
) | |||||||
Actuarial gain/(loss), net of tax |
— | ( |
) | ( |
) | |||||||
Balance as of March 31, 2023 |
$ | $ | ( |
) | $ | |||||||
Three months ended March 31, 2022 |
Currency Translation Adjustments |
Defined Benefit Pension Plan |
Total |
|||||||||
Balance at January 1, 2022 |
$ | $ | ( |
) | $ | |||||||
Foreign currency translation gain/(loss) |
( |
) | — | ( |
) | |||||||
Actuarial gain/(loss), net of tax |
— | ( |
) | ( |
) | |||||||
Balance as of March 31, 2022 |
$ | $ | ( |
) | $ | |||||||
We do not tax effect foreign currency translation gain/(loss) because we have determined such gain/(loss) is permanently reinvested and actuarial gain/(loss) is not tax effected due to a valuation allowance applied to our deferred tax assets.
Note 11: Commitments and contingencies
Legal contingencies
On April 12, 2018, a class-action lawsuit was filed against
DDI-US
demanding a return of unfair benefit under the pretext that the Company’s social casino games are not legal in the State of Washington, United States. Similar class-action lawsuits were concurrently filed with certain of our competitors, certain of which, announced settlements which the court has recently approved. On April 25, 2021, plaintiffs filed their Second Amended Complaint, changing their allegations to include an additional corporate entity of co-defendant,
IGT. IGT tendered its defense of the lawsuit to
DDI-US
and sought indemnity for any damages from the lawsuit, based on various agreements associated with IGT’s sale of DDI-US.
DDI-US
had previously tendered its defense to IGT and sought indemnity from it. On August 29, 2022, per the parties’ stipulation notifying the court of a proposed class wide settlement for $415,000,000 with both class action and associated proceedings, pursuant to which, among other things, IGT and 269.75 million and $145.25 million, respectively, to the settlement fund. This agreement in principle is pending final court approval to date with final resolution and remaining payment expected in 2023. The Company has an aggregate accrual of $145.25 50 million for payments made in the fourth quarter of 2022. As of March 31, 2023, the Company had a loss contingency of $95.25 95.25 million payment in the second quarter of 2023.
DDI-US
and IGT, the court stayed the case until October 21, 2022, in order to effectuate the proposed settlement. On the same date, DDI-US
entered into an agreement in principle to settle the aforementioned Benson
DDI-US
will contribute $Benson
Publishing and license agreements
DoubleU Games
We entered into the DoubleU Games License Agreement on March 7, 2018, and it was subsequently amended on July 1, 2019 and November 27, 2019. Pursuant to the DoubleU Games License Agreement, DoubleU Games grants us an exclusive license to develop and distribute certain DoubleU Games social casino game titles and sequels thereto in the social online game field of use. We are obligated to pay a royalty license fee to DoubleU Games in connection with these rights, with certain customary terms and conditions. The agreement remains in effect until either DUG no longer holds an interest, directly or indirectly, in DDI, or DDI no longer holds an interest, directly or indirectly, in 49 game titles under the terms of this agreement.
DDI-US.
In such event, the agreement provides that the parties will mutually renegotiate the terms of the agreement. As of March 31, 2023, we licensed approximately International Gaming Technologies (“IGT”)
In 2017, we entered into a Game Development, Distribution, and Services agreement with IGT, and it was subsequently amended on January 1, 2019. Under the terms of the agreement, IGT will deliver game assets so that we can port (a process of converting the assets into functioning slot games by platform) the technology for inclusion in our gaming apps. The agreement includes game assets that are used to create new games. Under the agreement, we pay IGT a royalty rate of 7.5 15 % of revenue for third-party game asset types. We also pay a monthly fee for porting. The initial term of the agreement is ten (10 ) years with up to two additional five-year periods. Costs incurred in connection with this agreement for the three months ended 2.0 million and $2.6 million, respectively, and are recognized as a component of cost of revenue.
M
arch 31, 2023 and 2022 totaled $Note 12: Related party transactions
Our related party transactions comprise of expenses for use of intellectual property, borrowings, and sublease previously described. We may also incur other expenses with related parties in the ordinary course of business, which are included in the consolidated financial statements.
The following is a summary of expenses charged by our parent, DoubleU Games (in thousands):
Three months ended March 31, |
Statement of Income and Comprehensive Income Line Item |
|||||||||||
2023 |
2022 |
|||||||||||
Royalty expense (see Note 11) |
$ | $ | Cost of revenue | |||||||||
Interest expense (see Note 5) |
Interest expense | |||||||||||
Rent expense (see Note 9) |
General and administrative expense | |||||||||||
Other expense |
General and administrative expense | |||||||||||
Amounts due to our parent, DUG, are as follows (in thousands):
At March 31, |
At December 31, |
Statement of Consolidated Balance Sheet Line Item | ||||||||
2023 |
2022 |
|||||||||
4.6% Senior Notes with related party |
$ | $ | Long-Term borrowing with related party | |||||||
Royalties and other expenses |
A/P and accrued expenses | |||||||||
| Short-term operating lease liabilities | ||||||||||
Accrued interest on 4.6% Senior Notes with related party |
Other non-current labilities | |||||||||
| Long-term lease liabilities | ||||||||||
Note 13: Defined benefit pension plan
We operate a defined benefit pension plan under employment regulations in Korea. The plan services the employees located in Seoul and is a final waged-based pension plan, which provides a specified amount of pension benefit based on length of service. The total benefit obligation of $4.0 million and $4.0 million was included in other
non-c
liabilities as of March 31, 2023 and December 31, 2022, respectively, and the change in actuarial gains or losses, which is not u
rrentsi
gnificant, was included in other comprehensive income. The plan is funded. Note 14: Subsequent Event
In January 2023, we entered into a Share Purchase Agreement to acquire SuprNation AB (“SuprNation”), a European-based 33 million, on a cash free and debt free basis and subject to final review of SuprNation’s financial results of 2022. The acquisition is expected to close later this year, subject to satisfaction or waiver of certain customary closing conditions, including without limitation, certain regulatory approvals. Following the closing, SuprNation AB will be a direct, wholly-owned subsidiary of
i-gaming
company, for a cash consideration of approximately €DDI-US.
F-13