Bragg Gaming Group Inc 6-K, filed Nov 8, 2021
Bragg Gaming Group Inc. (BRAG)
About this 6-K
Bragg Gaming Group Inc filed this 6-K on November 8, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2021
Commission File Number: 001-40759
Bragg Gaming Group Inc.
(Translation of registrant's name into English)
130 King Street West, Suite 1955
Toronto, Ontario M5X 1E3
Canada
(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 x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7) ¨
INCORPORATION BY REFERENCE
Exhibits 99.1 and 99.2 to this Report on Form 6-K are hereby incorporated by reference as exhibits to the Registration Statement on Form F-10 of Bragg Gaming Group Inc. (File No. 333-259004).
DOCUMENTS FILED AS PART OF THIS FORM 6-K
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.
| BRAGG GAMING GROUP INC. | ||
| Date: November 8, 2021 | ||
| By: | /s/ Yaniv Spielberg | |
| Name: | Yaniv Spielberg | |
| Title: | Chief Strategy Officer | |
2
Exhibit 99.1
BRAGG GAMING GROUP INC.
BRAGG GAMING GROUP INC.
INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Three- and nine-month periods ended September 30, 2021
and September 30, 2020
Presented in Euros (Thousands)
BRAGG GAMING GROUP INC.
TABLE OF CONTENTS
| INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS | 1 |
| INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | 2 |
| INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | 3 |
| INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 4 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 1 | BASIS OF PRESENTATION AND GOING CONCERN | 5 |
| 2 | SIGNIFICANT ACCOUNTING POLICIES | 8 |
| 3 | LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE | 19 |
| 4 | ACQUISITION OF WILD STREAK LLC | 20 |
| 5 | DISCONTINUED OPERATIONS | 21 |
| 6 | SHARE CAPITAL | 23 |
| 7 | PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020 | 24 |
| 8 | WARRANTS | 25 |
| 9 | SHARE BASED COMPENSATION | 28 |
| 10 | DEFERRED AND CONTINGENT CONSIDERATION | 31 |
| 11 | INTANGIBLE ASSETS | 32 |
| 12 | CASH AND CASH EQUIVALENTS | 33 |
| 13 | TRADE AND OTHER RECEIVABLES | 33 |
| 14 | PREPAID EXPENSES AND OTHER ASSETS | 34 |
| 15 | TRADE PAYABLES AND OTHER LIABILITIES | 34 |
| 16 | RELATED PARTY TRANSACTIONS | 35 |
| 17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT | 37 |
| 18 | SUPPLEMENTARY CASHFLOW INFORMATION | 41 |
| 19 | SEGMENT INFORMATION | 42 |
| 20 | INCOME TAXES | 43 |
| 21 | CONTINGENT LIABILITIES | 45 |
1
BRAGG GAMING GROUP INC.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| Note | 2021 | 2020 | 2021 | 2020 | ||||||||||||||
| Revenue | 3 | 12,874 | 11,714 | 42,561 | 32,643 | |||||||||||||
| Cost of revenue | (6,263 | ) | (6,632 | ) | (22,276 | ) | (18,484 | ) | ||||||||||
| Gross Profit | 6,611 | 5,082 | 20,285 | 14,159 | ||||||||||||||
| Selling, general and administrative expenses | 3 | (8,923 | ) | (4,204 | ) | (24,933 | ) | (12,412 | ) | |||||||||
| (Loss)/gain on remeasurement of consideration receivable | 36 | (18 | ) | 48 | (18 | ) | ||||||||||||
| Loss on remeasurement of deferred and contingent consideration | 3, 10 | - | (3,142 | ) | - | (8,329 | ) | |||||||||||
| Operating Loss | (2,276 | ) | (2,282 | ) | (4,600 | ) | (6,600 | ) | ||||||||||
| Net interest expense and other financing charges | 3 | (40 | ) | (330 | ) | (132 | ) | (1,275 | ) | |||||||||
| Loss Before Income Taxes | 3 | (2,316 | ) | (2,612 | ) | (4,732 | ) | (7,875 | ) | |||||||||
| Income taxes | 20 | (161 | ) | (544 | ) | (1,150 | ) | (1,285 | ) | |||||||||
| Net Loss from Continuing Operations | (2,477 | ) | (3,156 | ) | (5,882 | ) | (9,160 | ) | ||||||||||
| Net loss from discontinued operations after tax | 5 | - | - | - | (88 | ) | ||||||||||||
| Net Loss | (2,477 | ) | (3,156 | ) | (5,882 | ) | (9,248 | ) | ||||||||||
| Items to be reclassified to net loss: | ||||||||||||||||||
| Cumulative translation adjustment - continuing operations | 364 | 125 | 1,913 | 286 | ||||||||||||||
| Cumulative translation adjustment - discontinued operations | - | - | - | (15 | ) | |||||||||||||
| Net Comprehensive Loss | (2,113 | ) | (3,031 | ) | (3,969 | ) | (8,977 | ) | ||||||||||
| Basic and Diluted Loss Per Share | ||||||||||||||||||
| Continuing operations | (0.12 | ) | (0.39 | ) | (0.30 | ) | (1.14 | ) | ||||||||||
| Discontinued operations | 0.00 | 0.00 | 0.00 | (0.01 | ) | |||||||||||||
| (0.12 | ) | (0.39 | ) | (0.30 | ) | (1.15 | ) | |||||||||||
| Millions | Millions | Millions | Millions | |||||||||||||||
| Weighted average number of shares - basic and diluted | 20.0 | 8.0 | 19.3 | 8.0 | ||||||||||||||
See accompanying notes to the interim unaudited condensed consolidated financial statements.
2
BRAGG GAMING GROUP INC.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| As at | As at | ||||||||||
| September 30, | December 31, | ||||||||||
| Note | 2021 | 2020 | |||||||||
| Cash and cash equivalents | 12 | 20,305 | 26,102 | ||||||||
| Trade and other receivables | 13 | 7,691 | 10,297 | ||||||||
| Prepaid expenses and other assets | 14 | 1,991 | 263 | ||||||||
| Consideration receivable | 5 | 92 | 148 | ||||||||
| Total Current Assets | 30,079 | 36,810 | |||||||||
| Property and equipment | 234 | 272 | |||||||||
| Right-of-use assets | 619 | 708 | |||||||||
| Consideration receivable | 5 | - | 44 | ||||||||
| Intangible assets | 11 | 29,249 | 14,279 | ||||||||
| Goodwill | 4 | 26,413 | 19,938 | ||||||||
| Other assets | 28 | 43 | |||||||||
| Total Assets | 86,622 | 72,094 | |||||||||
| Trade payables and other liabilities | 15 | 16,462 | 16,968 | ||||||||
| Deferred revenue | 678 | 102 | |||||||||
| Income taxes payable | 20 | 1,388 | 1,318 | ||||||||
| Lease obligations on right of use assets - current | 165 | 133 | |||||||||
| Deferred and contingent consideration | 10 | - | 11,521 | ||||||||
| Total Current Liabilities | 18,693 | 30,042 | |||||||||
| Deferred income tax liability | 20 | 1,140 | 1,415 | ||||||||
| Non-current lease obligations on right of use assets | 487 | 593 | |||||||||
| Other non-current liabilities | 185 | 147 | |||||||||
| Total Liabilities | 20,505 | 32,197 | |||||||||
| Share capital | 6 | 100,285 | 62,304 | ||||||||
| Warrants | 8 | - | 1,642 | ||||||||
| Broker warrants | 8 | 38 | 399 | ||||||||
| Shares to be issued | 4, 6, 12 | 13,746 | 22,608 | ||||||||
| Contributed surplus | 17,398 | 14,325 | |||||||||
| Deficit | (67,113 | ) | (61,231 | ) | |||||||
| Accumulated other comprehensive income (loss) | 1,763 | (150 | ) | ||||||||
| Total Equity | 66,117 | 39,897 | |||||||||
| Total Liabilities and Equity | 86,622 | 72,094 | |||||||||
| Going Concern | 1 | ||||||||||
See accompanying notes to the interim unaudited condensed consolidated financial statements.
Approved on behalf of the Board
| Richard Carter | Lara Falzon |
| Chief Executive Officer | Non Executive Director |
3
BRAGG GAMING GROUP INC.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
PRESENTED IN EUROS (THOUSANDS, EXCEPT SHARE AMOUNTS)
| Special | Accumulated | |||||||||||||||||||||||||||||
| warrants - | other | |||||||||||||||||||||||||||||
| Share | Shares to | compensation | Broker | Contributed | comprehensive | Total | ||||||||||||||||||||||||
| Note | capital | be issued | Warrants | options | warrants | surplus | Deficit | income (loss) | Equity | |||||||||||||||||||||
| Balance as at January 1, 2020 | 40,204 | - | 1,565 | 660 | - | 11,064 | (46,665 | ) | (212 | ) | 6,616 | |||||||||||||||||||
| Exercise of DSUs | 6, 9 | 219 | - | - | - | - | (219 | ) | - | - | - | |||||||||||||||||||
| Share-based compensation | 9 | - | - | - | - | - | (3 | ) | - | - | (3 | ) | ||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | (9,248 | ) | - | (9,248 | ) | |||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | 271 | 271 | |||||||||||||||||||||
| Balance as at September 30, 2020 | 40,423 | - | 1,565 | 660 | - | 10,842 | (55,913 | ) | 59 | (2,364 | ) | |||||||||||||||||||
| Balance as at January 1, 2021 | 62,304 | 22,608 | 1,642 | - | 399 | 14,325 | (61,231 | ) | (150 | ) | 39,897 | |||||||||||||||||||
| Shares issued upon completion of Oryx earn-out | 6 | 22,000 | (22,000 | ) | - | - | - | - | - | - | - | |||||||||||||||||||
| Shares issued upon completion of private placement, net of issuance costs | 6 | 1,918 | (608 | ) | - | - | - | - | - | - | 1,310 | |||||||||||||||||||
| Shares to be issued as deferred consideration | 4 | - | 13,746 | - | - | - | - | - | - | 13,746 | ||||||||||||||||||||
| Exercise of RSUs | 6, 9 | 267 | - | - | - | - | (267 | ) | - | - | - | |||||||||||||||||||
| Exercise of options | 6, 9 | 983 | - | - | - | - | (347 | ) | - | - | 636 | |||||||||||||||||||
| Exercise of warrants | 8 | 11,916 | - | (1,831 | ) | - | - | - | - | - | 10,085 | |||||||||||||||||||
| Expiry of warrants | 8 | - | - | (7 | ) | - | - | 7 | - | - | - | |||||||||||||||||||
| Exercise of broker warrants | 8 | 897 | - | 196 | - | (361 | ) | - | - | - | 732 | |||||||||||||||||||
| Share-based compensation | 9 | - | - | - | - | - | 3,680 | - | - | 3,680 | ||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | (5,882 | ) | - | (5,882 | ) | |||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | 1,913 | 1,913 | |||||||||||||||||||||
| Balance as at September 30, 2021 | 100,285 | 13,746 | - | - | 38 | 17,398 | (67,113 | ) | 1,763 | 66,117 | ||||||||||||||||||||
See accompanying notes to the interim unaudited condensed consolidated financial statements.
4
BRAGG GAMING GROUP INC.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Nine Months Ended September 30, | |||||||||||
| Note | 2021 | 2020 | |||||||||
| Operating Activities | |||||||||||
| Net loss from continuing operations | (5,882 | ) | (9,160 | ) | |||||||
| Add: | |||||||||||
| Net interest expense and other financing charges | 132 | 1,275 | |||||||||
| Depreciation and amortization | 3 | 3,220 | 2,200 | ||||||||
| Share based compensation | 3, 9 | 3,680 | (3 | ) | |||||||
| (Gain)/loss on remeasurement of consideration receivable | 5 | (48 | ) | 18 | |||||||
| Loss on remeasurement of deferred and contingent consideration | 10 | - | 8,329 | ||||||||
| Deferred income tax recovery | 20 | (274 | ) | (84 | ) | ||||||
| 828 | 2,575 | ||||||||||
| Change in non-cash working capital | 18 | 1,322 | 3,165 | ||||||||
| Change in income taxes payable | 70 | 964 | |||||||||
| Cash Flows From Operating Activities | 2,220 | 6,704 | |||||||||
| Investing Activities | |||||||||||
| Purchases of property and equipment | (72 | ) | (161 | ) | |||||||
| Additions of intangible assets | 11 | (2,091 | ) | (1,642 | ) | ||||||
| Proceeds from sale of discontinued operations | 5 | 148 | 31 | ||||||||
| Consideration paid upon business combination | 4 | (8,268 | ) | - | |||||||
| Cash acquired from business combination | 4 | 124 | - | ||||||||
| Deferred and contingent consideration payments | 10 | (11,521 | ) | - | |||||||
| Cash Flows Used In Investing Activities | (21,680 | ) | (1,772 | ) | |||||||
| Financing Activities | |||||||||||
| Proceeds from exercise of warrants and broker warrants | 8 | 10,817 | - | ||||||||
| Proceeds from exercise of stock options | 9 | 636 | - | ||||||||
| Proceeds from shares issued upon private placement, net of issuance costs | 6 | 1,310 | - | ||||||||
| Repayment of lease liability | (110 | ) | (160 | ) | |||||||
| Interest income | 54 | 8 | |||||||||
| Interest and financing fees | (186 | ) | (36 | ) | |||||||
| Cash Flows From (Used In) Financing Activities | 12,521 | (188 | ) | ||||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents | 1,142 | - | |||||||||
| Net cash flow used in discontinued operations | 5 | - | (254 | ) | |||||||
| Change in Cash and Cash Equivalents | (5,797 | ) | 4,490 | ||||||||
| Cash and cash equivalents at beginning of period | 26,102 | 682 | |||||||||
| Cash and Cash Equivalents at end of period | 20,305 | 5,172 | |||||||||
See accompanying notes to the interim unaudited condensed consolidated financial statements.
5
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 1 | BASIS OF PRESENTATION AND GOING CONCERN |
Nature of operations
Bragg Gaming Group Inc. and its subsidiaries ("Bragg", "BGG", the "Company" or the "Group") is primarily a B2B online gaming technology platform and casino content aggregator through its acquisition of Oryx Gaming International LLC ("Oryx" or "Oryx Gaming") in 2018.
The registered and head office of the Company is located at 130 King Street West, Suite 1955, Toronto, Ontario, Canada M5X 1E3.
Oryx Gaming
Oryx Gaming is a B2B gaming solution provider. Oryx offers a turnkey solution, including an omni-channel retail, online and mobile iGaming platform, as well as an advanced content aggregator, sportsbook, lottery, marketing, and operational services. Oryx is incorporated in the State of Delaware and headquartered in Las Vegas. Its primary operations are provided through its wholly owned subsidiaries in Malta, Cyprus, and Slovenia.
Classification of online media business unit as held for sale and discontinued operations
During the year ended December 31, 2019, the Company decided to discontinue its online media business unit. The associated assets and liabilities within the disposal group are presented as held for sale and the net loss attributable as discontinued operations in the interim unaudited condensed consolidated financial statements ("interim financial statements"). The Company completed the sale of the majority of its online media business unit on May 7, 2020 (Note 5).
Statement of compliance and basis of presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting and do not include all of the information required for annual consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020.
These interim unaudited condensed consolidated financial statements are prepared on a historical cost basis except for financial instruments classified at fair value through profit or loss (“FVTPL”) which are measured at fair value. The significant accounting policies set out below have been applied consistently in the preparation of the interim financial statements for all periods presented.
These interim financial statements were, at the recommendation of the audit committee, approved and authorized for issuance by the Company’s Board of Directors on November 8, 2021.
Going concern
These interim unaudited condensed consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will be able to continue as a going concern and realize its assets and discharge its liabilities in the normal course of business, and do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the interim financial statements. If the going concern assumption is not appropriate, material adjustments to the interim financial statements could be required.
As at September 30, 2021, the Company had current assets of EUR 30,079 (December 31, 2020: EUR 36,810) and current liabilities of EUR 18,693 (December 31, 2020: EUR 30,042). As of September 30, 2021, the Company has a cumulative deficit of EUR 67,113 (December 31, 2020: EUR 61,231). These conditions, along with the continued generation of positive cash flows from operations indicates that the Company will be able to continue on a going concern basis.
6
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 1 | BASIS OF PRESENTATION AND GOING CONCERN (CONTINUED) |
COVID-19
In December 2019, there was a global outbreak of COVID-19 (coronavirus), which continued to have a significant impact on businesses through the restrictions put in place by the national, provincial and municipal governments around the world regarding travel, business operations and isolation and quarantine orders.
At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Company in the long term as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, quarantine and isolation measures that are currently, or may be put, in place by Canada and other countries to fight the virus.
However, the Company derives the majority of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”, requiring people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses such as Netflix. Furthermore, the Company has limited exposure to sports betting revenues that have been impacted by the lack of professional sports.
As at the time of release of these interim financial statements, the Company’s financial performance, financial position and cash flow had not been adversely impacted by COVID-19 and the Company has determined no impairment of its goodwill is required.
Graduation to the Toronto Stock Exchange (“TSX”)
On January 27, 2021, the Company began trading on TSX under the symbol “BRAG”. Concurrent with the TSX listing, the Company’s Common Shares were delisted from the TSX Venture Exchange.
Trading on the Nasdaq Global Select Market (“Nasdaq”)
On August 27, 2021, the Company began trading on Nasdaq under the symbol “BRAG”. The Company’s shares also continue to trade on the Toronto Stock Exchange.
Reverse Stock Split
On April 30, 2021, the Company announced a one-for-ten share consolidation (the “reverse stock split”). At the annual and special meeting of the Company’s shareholders held on April 28, 2021, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to implement a consolidation of the issued and outstanding Common Shares of the Company on the basis of a consolidation ratio of up to 15 pre-consolidation Common Shares for one post-consolidation Common Share. The Board of Directors selected a share consolidation ratio of ten pre-consolidation Common Shares for one post-consolidation Common Share. The Company’s Common Shares began trading on TSX on a post-consolidation basis under the Company’s existing trade symbol "BRAG" on May 5, 2021. In accordance with International Financial Reporting Standards (“IFRS”), the change has been applied retroactively.
Acquisition of Spin Games LLC
On May 12, 2021, the Company announced it had entered into an agreement to acquire Spin Games LLC (“Spin”) in a cash and stock transaction for a purchase price of approximately USD 30 million. Under the deal the sellers of Spin will receive USD 10 million in cash and USD 20 million in Common Shares of the Company of which USD 5 million in Common Shares will be issued on closing and the balance over the next three years. The transaction is expected to close following final approval from state gaming regulators and satisfaction of other customary closing conditions.
7
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 1 | BASIS OF PRESENTATION AND GOING CONCERN (CONTINUED) |
Acquisition of Wild Streak LLC
On June 2, 2021, the Company announced that it had acquired Wild Streak LLC doing business as Wild Streak Gaming ("Wild Streak"), a Las Vegas, Nevada based content creation studio with a portfolio of 39 premium casino slot titles supported across online and land-based applications.
The Company signed a purchase agreement to acquire all of the outstanding membership interests of Wild Streak in a cash and stock transaction for a purchase price of USD 30,000. Pursuant to the transaction, which closed simultaneously with the signing of the purchase agreement, the sellers of Wild Streak received USD 10,000 in cash at closing and will receive USD 20,000 worth of common shares of the Company over the next three years, subject to acceleration in the event of a change of control.
8
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES |
The interim unaudited condensed consolidated financial statements were prepared using the same basis of presentation, accounting policies and methods of computation as those of the audited consolidated financial statements for the year ended December 31, 2020, which are available at www.sedar.com. They were prepared using the same significant estimates and judgments in applying the accounting policies as those of the audited consolidated financial statements for the year ended December 31, 2020.
Basis of consolidation
The interim unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries when the Company controls them. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. The Company assesses control on an ongoing basis. The Company’s interest in the voting share capital of all its subsidiaries is 100%.
Transactions and balances between the Company and its consolidated entities have been eliminated on consolidation.
The table below summarizes the Company’s operating subsidiaries and the functional currency for each operating subsidiary:
| Place of incorporation |
Functional | ||
| / operation | Principal activity | currency | |
| Bragg Gaming Group - Group Services Ltd. | United Kingdom | Corporate activities | GBP |
| Bragg Gaming Group - Parent Services Ltd. | United Kingdom | Corporate activities | GBP |
| Bragg Oryx Holdings Inc. | Canada | Intermediate holding company | CAD |
| Bragg USA, Inc. | United States | Intermediate holding company | USD |
| Oryx Sales Distribution Ltd. | Cyprus | Distribution | EUR |
| Oryx Gaming International LLC | United States | Gaming solution provider | EUR |
| Oryx Gaming Ltd. | Malta | Gaming solution provider | EUR |
| Oryx Marketing Poslovne Storitve D.o.o. | Slovenia | Marketing | EUR |
| Oryx Podpora D.o.o. | Slovenia | B2B support services | EUR |
| Oryx Razyojne-Storitve D.o.o. | Slovenia | Gaming solution developer | EUR |
| Poynt Inc. | Canada | Distribution | CAD |
| Wild Streak LLC | United States | Content creation studio | USD |
| Win Gaming Ltd. | Malta | Gaming licence holder | EUR |
9
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Presentation currency
The presentation currency of the Company is the Euro, whilst the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British pound sterling due to primary location of individual entities within the Group. The presentation currency of the Euro has been selected as it best represents the majority of the Company’s economic inflows, outflows as well as its assets and liabilities.
The assets and liabilities of operations that have a functional currency different from that of the Company’s reporting currency are translated into Euros at the foreign currency exchange rate in effect at the reporting date. The resulting foreign currency exchange gains or losses are recognized in the foreign currency translation adjustment as part of other comprehensive income. When such foreign operations are disposed of, the related foreign currency translation reserve is recognized in net earnings as part of the gain or loss on disposal.
Revenues and expenses of foreign operations are translated into Euros at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are transacted.
Business combinations
Business combinations are accounted for using the acquisition method as of the date when control is transferred to the Company. The Company measures goodwill as the excess of the sum of the fair value of the consideration transferred over the net identifiable assets acquired and liabilities assumed, all measured as at the acquisition date. Transaction costs that the Company incurs in connection with a business combination, other than those associated with the issuance of debt or equity securities, are expensed as incurred.
Net earnings (loss) per share (“EPS”)
Basic EPS is calculated by dividing the net earnings (loss) available to shareholders by the weighted average number of shares outstanding during the period. Diluted EPS is calculated by adjusting the net earnings available to shareholders and the weighted average number of shares outstanding for the effects of all potential dilutive instruments.
Diluted loss per share is equal to basic loss per share when the effect of dilutive securities is anti-dilutive.
Cash and cash equivalents
Cash equivalents consist of highly liquid marketable investments with an original maturity date of 90 days or less from the date of acquisition and prepaid credit cards. Cash and cash equivalents also include any cash held in trust as proceeds from future private placement.
Trade and other receivables
Trade and other receivables consist primarily of trade receivables from customers for which Oryx Gaming and Wild Streak provides services during the period and accrued income in relation to receivables from customers that have yet to be invoiced, for services provided during the three and nine months ended September 30, 2021, and 2020. Upon invoicing, amounts are transferred from accrued income to trade receivables and any differences between the accrued and invoiced values are recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
10
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Revenue recognition
The Company recognizes revenue when control of the goods or services has been transferred. Revenue is measured at the amount of consideration to which the Company expects to be entitled, including variable consideration to the extent that it is highly probable that a significant reversal will not occur. Revenue from continuing operations is derived from software platform licensing, maintenance of source code, bespoke development, management service fees, marketing fees, content and hosting fees. Revenue is recognized when the service provided to the customer is complete. Specifically:
- Games and content: revenues from content and platform licensing are derived from revenues a customer earns from utilizing the Company’s software platform and aggregated content in that period. The Company’s revenue is therefore linked to the revenue of the end user, i.e., the subsequent sale. The Company recognizes revenue once the customer has earned the revenue from the subsequent sale/services as this is the point where the performance obligation is satisfied.
- iGaming and turnkey projects: the Company charges a fixed monthly management and marketing fee for its services in the month in which the services are provided, and performance obligations are met. Charges for development projects are charged on a time and materials basis upon delivery at agreed milestones. Revenue is recognized as it is billed unless services and performance obligations are provided in a future period. If services and performance obligations are not provided in the reporting period, then revenue is not recognized.
Revenue from discontinued operations is derived from programmatic advertising, branded content and social media management, sales of software maintenance agreements, software customization services, technical support services and consulting services. Revenue from discontinued operations is recognized on a monthly basis as it is billed.
Consideration receivable
Consideration receivable consists of cash receivables due as a result of the sale of discontinued operations. The fair value of the consideration receivable is determined by calculating the present value of expected future cashflows relating to the consideration receivable, applying the Company’s discount rate.
Income taxes
Current and deferred taxes are recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss, except for current and deferred taxes related to a business combination, or amounts charged directly to equity or other comprehensive loss, which are recognized in the interim unaudited condensed consolidated statements of financial position.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.
11
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Income taxes (continued)
Deferred tax is recognized using the asset and liability method of accounting on temporary differences arising between the financial statement carrying values of existing assets and liabilities and their respective income tax bases. Deferred tax is measured using enacted or substantively enacted income tax rates expected to apply in the periods in which those temporary differences are expected to be recovered or settled. A deferred tax asset is recognized for temporary differences as well as unused tax losses and credits to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different taxable entities where the Company intends to settle its current tax assets and liabilities on a net basis.
Deferred tax is recorded on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Company, and it is probable that the temporary difference will not reverse in the foreseeable future.
Property and equipment
Property and equipment are recognized and subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset, including costs incurred to prepare the asset for its intended use and capitalized borrowing costs. The commencement date for capitalization of costs occurs when the Company first incurs expenditures for the qualifying assets and undertakes the required activities to prepare the assets for their intended use.
Borrowing costs directly attributable to the acquisition, construction or production of property and equipment, that necessarily take a substantial period of time to prepare for their intended use and a proportionate share of general borrowings, are capitalized to the cost of those assets, based on a quarterly weighted average cost of borrowing. All other borrowing costs are expensed as incurred and recognized in net interest expense and other financing charges.
The cost of replacing a component of property and equipment is recognized in the carrying amount if it is probable that the future economic benefits embodied within the component will flow to the Company and the cost can be measured reliably. The carrying amount of the replaced component is derecognized. The cost of repairs and maintenance of property and equipment is expensed as incurred and recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
Gains and losses on disposal of property and equipment are determined by comparing the fair value of proceeds from disposal with the net book value of the assets and are recognized on a net basis in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
Property and equipment are depreciated on a straight-line basis over their estimated useful lives of three years to their estimated residual value when the assets are available for use. When significant parts of a property and equipment have different useful lives, they are accounted for as separate components and depreciated separately. Depreciation methods, useful lives and residual values are reviewed annually and are adjusted for prospectively, if appropriate.
12
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Leases
The Company assesses whether a contract is, or contains, a lease. If a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration, then the contract may contain a lease. The Company assesses whether a contract conveys the right to control the use of an asset by performing the following tests:
| - | assess whether the contract involves the use of an identified asset and may be specified explicitly or implicitly. It should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a significant right to substitution, then the asset is not identified; |
| - | assess whether the Company has the right to obtain substantially all of the economic benefits arising from the use of the asset throughout the period of use; and |
| - | assess that the Company has the right to direct enjoyment of the asset. This right is identified when the Company has the decision-making rights in how and for what purpose the asset is used. In cases where the decision on how and for what purpose to use the asset has been predetermined, the Company has the right to direct the use of the asset if either it has the right to operate the asset, or the Company has designed the asset in a manner that predetermines how and for what purpose the asset will be used. |
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
| - | fixed payments, including in-substance fixed payments; |
| - | variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; |
| - | amounts expected to be payable under a residual value guarantee; and |
| - | the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early. |
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option.
13
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Leases (continued)
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of equipment that have a lease term of twelve months or less and leases of low-value assets, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Intangible assets
Intangible assets are measured at cost less any amortization and accumulated impairment losses. These intangible assets are tested for impairment on an annual basis or more frequently if there are indicators that intangible assets may be impaired as described in the Impairment of non-financial assets policy.
Intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
| Intellectual property identified upon business combination | 8 years / 10 years |
| Intellectual property acquired from third-parties | 3 years |
| Customer relationships | 10 years |
| Brands | 10 years |
| Deferred development costs | 3 years |
| Trademarks | 3 years |
| Gaming licences | over the term of the licence |
Trademarks and gaming licences are classified under “Other” in the intangible assets disclosure note (Note 11).
The Company capitalizes the costs of intangible assets if and only if:
| - | it is probable that the expected future economic benefits attributable to the asset will flow to the entity; and |
| - | the cost of the asset can be measured reliably. |
Certain costs incurred in connection with the development of intellectual property relating to proprietary technology are capitalized to intangible assets as development costs. Intangible assets are recorded at cost, which consists of directly attributable costs necessary to create such intangible assets, less accumulated amortization and accumulated impairment losses, if any. The costs mainly include the salaries paid to the software developers and consulting fees.
These costs are recognized as development costs assets when the following criteria are met:
| - | it is technically feasible to complete the software product so that it will be available for use; |
| - | management intends to complete the software product; |
| - | it can be demonstrated how the software product will generate future economic benefits; |
| - | adequate technical, financial, and other resources to complete the development and to use or sell the products are available; and |
| - | the expenditure attributable to the software product during its development can be reliably measured. |
14
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Goodwill
Goodwill arising in a business combination is recognized as an asset at the date that control is acquired. Goodwill is subsequently measured at cost less accumulated impairment losses. Goodwill is not amortized but is tested for impairment on an annual basis or more frequently if there are indicators that goodwill may be impaired as described in the Impairment of non-financial assets policy.
Impairment of non-financial assets
At each statement of financial position date, the Company reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, the asset is then tested for impairment by comparing its recoverable amount to its carrying value. Goodwill is tested for impairment at least annually.
For the purpose of impairment testing, assets, including right-of-use assets, are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of cash inflows of other assets or groups of assets. This grouping is referred to as a cash generating unit ("CGU").
Corporate assets, which include head office facilities and distribution centres, do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum grouping of CGUs to which the corporate assets can be reasonably and consistently allocated. Goodwill arising from a business combination is tested for impairment at the minimum grouping of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of a CGU or CGU grouping is the higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows from the CGU or CGU grouping, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU or CGU grouping. If the CGU or CGU grouping includes right-of-use assets in its carrying amount, the pre-tax discount rate reflects the risks associated with the exclusion of lease payments from the estimated future cash flows. The fair value less costs to sell is based on the best information available to reflect the amount that could be obtained from the disposal of the CGU or CGU grouping in an arm’s length transaction between knowledgeable and willing parties, net of estimates of the costs of disposal.
An impairment loss is recognized if the carrying amount of a CGU or CGU grouping exceeds its recoverable amount. For asset impairments other than goodwill, the impairment loss reduces the carrying amounts of the non-financial assets in the CGU on a pro-rata basis, up to an asset’s individual recoverable amount. Any loss identified from goodwill impairment testing is first applied to reduce the carrying amount of goodwill allocated to the CGU grouping, and then to reduce the carrying amounts of the other non-financial assets in the CGU or CGU grouping on a pro-rata basis.
For assets other than goodwill, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.
15
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Financial instruments
Financial assets and liabilities are recognized when the Company becomes party to the contractual provisions of the financial instrument. Upon initial recognition, financial instruments are measured at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of financial instruments that are not classified as fair value through profit or loss.
Financial instruments – classification and measurement
The classification and measurement approach for financial assets reflect the business model in which assets are managed and their cash flow characteristics. Financial assets are classified and measured based on these categories: amortized cost, fair value through other comprehensive income ("FVOCI"), or fair value through profit and loss ("FVTPL"). A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVTPL:
| - | the financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and |
| - | the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
| - | the financial asset is held within a business model in which assets are managed to achieve a particular objective by both collecting contractual cash flows and selling financial assets; and |
| - | the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
A financial asset shall be measured at FVTPL unless it is measured at amortized cost or at FVOCI.
Financial assets are not reclassified subsequent to their initial recognition unless the Company identifies changes in its business model in managing financial assets.
Financial liabilities are classified and measured based on two categories: amortized cost or FVTPL.
Fair values are based on quoted market prices where available from active markets, otherwise fair values are estimated using valuation methodologies, primarily discounted cash flows taking into account external market inputs where possible.
The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal payments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.
The following table summarizes the classification and measurement of the Company’s financial assets and liabilities:
| Asset / Liability | Classification / Measurement |
| Cash and cash equivalents | FVTPL |
| Trade and other receivables | Amortized cost |
| Consideration receivable | FVTPL |
| Other assets | Amortized cost |
| Trade payables and other liabilities | Amortized cost |
| Deferred and contingent consideration | FVTPL |
| Lease obligations on right of use assets | Amortized cost |
16
| BRAGG GAMING GROUP INC. |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Financial instruments – valuation
The determination of the fair value of financial instruments is performed by the Company’s treasury and financial reporting departments on a quarterly basis. There was no change in the valuation techniques applied to financial instruments during the current period.
The carrying amounts reported for cash and cash equivalents, trade and other receivables, consideration receivable, trade payables and other liabilities, and deferred and contingent consideration approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of lease obligations on right of use assets approximates the fair value based on rates currently available from financial institutions and various lenders.
Gains and losses on FVTPL financial assets and financial liabilities are recognized in net earnings in the period in which they are incurred. Settlement date accounting is used to account for the purchase and sale of financial assets. Gains or losses between the trade date and settlement date on FVTPL financial assets are recorded in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
Financial instruments – derecognition
Financial assets are derecognized when the contractual rights to receive cash flows and benefits from the financial asset expire, or if the Company transfers the control or substantially all the risks and rewards of ownership of the financial asset to another party. The difference between the carrying amount of the financial asset and the sum of the consideration received and receivable is recognized in earnings before income taxes.
Financial liabilities are derecognized when obligations under the contract expire, are discharged, or cancelled. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in earnings before income taxes.
Financial instruments – impairment
The Company applies a forward-looking expected credit loss ("ECL") model at each reporting date to financial assets measured at amortized cost or those measured at FVOCI, except for investments in equity instruments. The ECL model outlines a three-stage approach to reflect the increase in credit risks of a financial instrument:
| - | Stage 1 is comprised of all financial instruments that have not had a significant increase in credit risks since initial recognition or that have low credit risk at the reporting date. The Company is required to recognize impairment for Stage 1 financial instruments based on the expected losses over the expected life of the instrument arising from loss events that could occur during the 12 months following the reporting date. |
| - | Stage 2 is comprised of all financial instruments that have had a significant increase in credit risks since initial recognition but that do not have objective evidence of a credit loss event. For Stage 2 financial instruments the impairment is recognized based on the expected losses over the expected life of the instrument arising from loss events that could occur over the expected life. The Company is required to recognize a lifetime ECL for Stage 2 financial instruments. |
| - | Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting date. The Company is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments. The ECL model applied to financial assets require judgment, assumptions, and estimations on changes in credit risks, forecasts of future economic conditions and historical information on the credit quality of the financial asset. Consideration of how changes in economic factors affect ECLs are determined on a probability-weighted basis. |
17
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Financial instruments – impairment (continued)
The carrying amount of the financial asset or group of financial assets are reduced through the use of impairment allowance accounts. In periods subsequent to the impairment where the impairment loss has decreased, and such decrease can be related objectively to conditions and changes in factors occurring after the impairment was initially recognized, the previously recognized impairment loss is reversed. The impairment reversal is limited to the lesser of the decrease in impairment or the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Deferred and contingent consideration
Prior to January 18, 2021, the Company had deferred and contingent consideration payable to the vendor of Oryx Gaming. Between December 20, 2018 and November 13, 2020 earnout payments were agreed based upon a multiple of EBITDA in financial years ended December 31, 2019 and December 31, 2020 with a minimum amount payable in each twelve-month period. In each reporting period the present value of the deferred and contingent consideration payable was measured by discounting achieved and forecasted EBITDA by applying the Company’s weighted average cost of capital. A Black-Scholes calculation was then applied to account for probability of payout and to determine present value of payout after counter-party risk.
Prior to the next remeasurement period an accretion expense was recorded in the interim unaudited condensed consolidated statements of loss and comprehensive loss as the discount was unwound towards the reporting date. Upon remeasurement, any gain or loss on remeasurement was also recorded in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
On November 13, 2020, the Company entered into an amending agreement with the vendor of Oryx Gaming whereby the second payment of deferred and contingent consideration was agreed at a fixed cash value and, following shareholder agreement on November 27, 2020, could be settled in fixed amount of Common Shares. As the payment can only be settled by way of Common Shares, there is no obligation of the Company to deliver cash or cash equivalents, and the underlying fair value of the liability and number of Common Shares is fixed, the payment qualifies as an equity instrument and was recorded as shares to be issued in the interim unaudited condensed consolidated statements of changes in equity. On January 18, 2021, the agreed fixed number of Common Shares was issued from treasury to the vendor and the balance recorded in shares to be issued was transferred to the share capital account.
Short term employee benefits
Short term employee benefits include wages, salaries, compensated absences, and bonuses. Short term employee benefit obligations are measured on an undiscounted basis and are recognized in operating income as the related service is provided or capitalized if the service rendered is in connection with the creation of an intangible asset. A liability is recognized for the amount expected to be paid under short term cash bonus plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
18
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Share based payments
The Company has stock option plans for directors, officers, employees, and consultants. Each tranche of an award is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. In addition, the Company also has deferred share unit (“DSU”), restricted share unit (“RSU”) and performance share unit (“PSU”) plans for directors, officers, employees, and consultants. The fair value of each unit is measured as the share price on date of grant with nil exercise price.
Compensation expense is recognized over each tranche’s vesting period, based on the number of awards expected to vest, with the offset credited to contributed surplus. The number of awards expected to vest is reviewed quarterly, with any impact being recognized immediately. When options are exercised, the amount received is credited to share capital and the fair value attributed to these options is transferred from contributed surplus to share capital. In the case of DSUs, RSUs or PSUs, only the fair value attributed to these options is transferred from contributed surplus to share capital.
Equity
Shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Contributed surplus includes amounts in connection with conversion options embedded in compound financial instruments, share based payments and the value of expired options and warrants. Deficit includes all current and prior period income and losses.
Warrants
The Company accounts for warrants using the Black-Scholes option pricing model at the date of issuance. If and when warrants ultimately expire, the applicable amounts are transferred to contributed surplus.
19
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 3 | LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE |
The loss before income taxes is classified as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| Note | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
| Revenue | 12,874 | 11,714 | 42,561 | 32,643 | ||||||||||||||||
| Third-party content | (6,263 | ) | (6,632 | ) | (22,276 | ) | (18,484 | ) | ||||||||||||
| Gross Profit | 6,611 | 5,082 | 20,285 | 14,159 | ||||||||||||||||
| Salaries and subcontractors | (3,698 | ) | (1,774 | ) | (9,985 | ) | (5,939 | ) | ||||||||||||
| Share based payments | 9 | (1,480 | ) | (91 | ) | (3,680 | ) | 3 | ||||||||||||
| Total employee costs | (5,178 | ) | (1,865 | ) | (13,665 | ) | (5,936 | ) | ||||||||||||
| Depreciation and amortization | (1,333 | ) | (749 | ) | (3,220 | ) | (2,200 | ) | ||||||||||||
| IT and hosting | (534 | ) | (385 | ) | (1,307 | ) | (1,056 | ) | ||||||||||||
| Professional fees | (715 | ) | (250 | ) | (2,300 | ) | (764 | ) | ||||||||||||
| Corporate costs | (300 | ) | (76 | ) | (1,010 | ) | (257 | ) | ||||||||||||
| Sales and marketing | (116 | ) | (4 | ) | (334 | ) | (112 | ) | ||||||||||||
| Bad debt expense | 13 | 125 | (480 | ) | (195 | ) | (933 | ) | ||||||||||||
| Travel and entertainment | (62 | ) | (7 | ) | (90 | ) | (128 | ) | ||||||||||||
| Transaction and acquisition costs | (204 | ) | (188 | ) | (1,340 | ) | (532 | ) | ||||||||||||
| Other operational costs | (606 | ) | (200 | ) | (1,472 | ) | (494 | ) | ||||||||||||
| Selling, General and Administrative Expenses | (8,923 | ) | (4,204 | ) | (24,933 | ) | (12,412 | ) | ||||||||||||
| Gain/(loss) on remeasurement of consideration receivable | 5 | 36 | (18 | ) | 48 | (18 | ) | |||||||||||||
| Loss on remeasurement of deferred and contingent consideration | 10 | - | (3,142 | ) | - | (8,329 | ) | |||||||||||||
| Operating Loss | (2,276 | ) | (2,282 | ) | (4,600 | ) | (6,600 | ) | ||||||||||||
| Interest income | 16 | - | 54 | 8 | ||||||||||||||||
| Accretion on liabilities | 10 | - | (312 | ) | - | (1,229 | ) | |||||||||||||
| Interest and financing fees | (56 | ) | (18 | ) | (186 | ) | (54 | ) | ||||||||||||
| Net Interest Expense and Other Financing Charges | (40 | ) | (330 | ) | (132 | ) | (1,275 | ) | ||||||||||||
| Loss Before Income Taxes | (2,316 | ) | (2,612 | ) | (4,732 | ) | (7,875 | ) | ||||||||||||
20
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 4 | ACQUISITION OF WILD STREAK LLC |
On June 2, 2021, the Company announced that it had acquired Wild Streak LLC ("Wild Streak").
The Company signed a purchase agreement to acquire all of the outstanding membership interests of Wild Streak in a cash and stock transaction for a purchase price of EUR 24,618 (USD 30,000). Pursuant to the transaction, the sellers of Wild Streak received EUR 8,206 (USD 10,000) in cash at closing and will receive EUR 16,412 (USD 20,000) worth of common shares of the Company over the next three years, subject to acceleration in the event of a change of control.
The fair value allocations which follow are based on preliminary purchase price allocations conducted by management. As the acquisition is within the measurement period under IFRS 3, it continues to be refined. The Company is gathering information to finalize the fair value of intangible assets and goodwill acquired.
| Preliminary balances | ||||
| Purchase price: | ||||
| Cash | 8,206 | |||
| Shares to be issued | 13,746 | |||
| Deferred consideration | 62 | |||
| Total purchase price | 22,014 | |||
| Fair value of assets acquired, and liabilities assumed: | ||||
| Cash and cash equivalents | 124 | |||
| Accounts receivable | 408 | |||
| Trade payables and other liabilities | (87 | ) | ||
| Net assets acquired and liabilities assumed | 445 | |||
| Fair value of intangible assets: | ||||
| Brands | 283 | |||
| Customer relationships | 9,669 | |||
| Intellectual property | 5,141 | |||
| Goodwill | 6,476 | |||
21
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 4 | ACQUISITION OF WILD STREAK LLC (CONTINUED) |
Wild Streak revenues and net profit for the period
From the acquisition date of June 2, 2021 to September 30, 2021 Wild Streak generated revenue of EUR 1,159 and net profit of EUR 701. For the three months ended September 30, 2021, Wild Streak generated revenue of EUR 907 and net profit of EUR 570.
Pro-forma revenues and net profit (loss) for the period
On a pro-forma basis Wild Streak generated revenue of EUR 907 and EUR 2,169 for the three and nine months ended September 30, 2021, respectively. This would have resulted in consolidated revenues of EUR 12,874 and EUR 43,570 for three and nine months ended September 30, 2021, respectively.
On a pro-forma basis Wild Streak generated net profit of EUR 570 and EUR 1,230 for the three and nine months ended September 30, 2021, respectively. This would have resulted in consolidated net loss of EUR 2,477 and EUR 5,353 for the three and nine months ended September 30, 2021, respectively.
| 5 | DISCONTINUED OPERATIONS |
During the year ended December 31, 2019, the Company decided to discontinue its online media business unit.
On April 30, 2020, the Company discontinued its GIVEMEBET operation and as of September 30, 2021, this subsidiary is considered dormant with no remaining assets and liabilities. Any associated net loss for this subsidiary continues to be presented as discontinued operations in the interim unaudited condensed consolidated financial statements.
On May 7, 2020, the Company completed the sale of its GIVEMESPORT operation for cash consideration of GBP 50 (EUR 56) plus additional consideration equivalent to the net current assets disposed plus consideration receivable of 10% of GIVEMESPORT aggregate revenues for a period of twenty-one months from date of completion. As of September 30, 2021, consideration receivable has been recognized at a present value of EUR 92, all of which is due within twelve months of the reporting date. Consideration is settled in cash at three-month intervals from the date of sale. As of September 30, 2021, and December 31, 2020, the Company has not identified any assets or liabilities as held for sale.
22
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 5 | DISCONTINUED OPERATIONS (CONTINUED) |
Consolidated statements of cash flows
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | - | (169 | ) | |||||
| Net cash used in investing activities | - | (19 | ) | |||||
| Net cash used in financing activities | - | (66 | ) | |||||
| Net cash flows for the period | - | (254 | ) | |||||
Consolidated statements of loss and comprehensive loss
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | - | - | - | 559 | ||||||||||||
| Cost of revenue | - | - | - | (120 | ) | |||||||||||
| Gross Profit | - | - | - | 439 | ||||||||||||
| Selling, general and administrative expenses | - | - | - | (622 | ) | |||||||||||
| Operating Loss | - | - | - | (183 | ) | |||||||||||
| Net interest expense and other financing charges | - | - | - | (41 | ) | |||||||||||
| Gain on disposal of discontinued operations | - | - | - | 136 | ||||||||||||
| Loss Before Income Taxes | - | - | - | (88 | ) | |||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net Loss | - | - | - | (88 | ) | |||||||||||
| Cumulative translation adjustment | - | - | - | (15 | ) | |||||||||||
| Net Comprehensive Loss | - | - | - | (103 | ) | |||||||||||
In the three and nine months ended September 30, 2021, remeasurement of the present value of the consideration receivable resulted in a gain on remeasurement of consideration receivable of EUR 36 and EUR 48, respectively (three and nine months ended September 30, 2020: loss EUR 18).
23
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 6 | SHARE CAPITAL |
Authorized - Unlimited Common Shares, fully paid
The following is a continuity of the Company’s share capital:
| Note | Number | Value | |||||||||||||||
| January 1, 2020 | Balance | 7,986,385 | 40,204 | ||||||||||||||
| June 2, 2020 | Issuance of share capital upon exercise of DSUs | 9 | 50,000 | 219 | |||||||||||||
| September 30, 2020 | Balance | 8,036,385 | 40,423 | ||||||||||||||
| January 1, 2021 | Balance | 13,111,248 | 62,304 | ||||||||||||||
| January 11,
2021, to February 22, 2021 | Exercise of warrants | 8 | 1,554,082 | 11,916 | |||||||||||||
| January 21,
2021, to February 18, 2021 | Exercise of broker warrants | 8 | 160,548 | 897 | |||||||||||||
| January 13, 2021 | Shares issued on completion of private placement | 247,934 | 1,918 | ||||||||||||||
| January 18, 2021 | Shares issued upon completion of Oryx earn-out | 4,700,000 | 22,000 | ||||||||||||||
| March 12,
2021, to March 17, 2021 | Issuance of share capital upon exercise of RSUs | 9 | 50,000 | 267 | |||||||||||||
| June 9,
2021, to September 20, 2021 | Issuance of share capital upon exercise of stock options | 9 | 132,220 | 983 | |||||||||||||
| Rounding of fractional shares after consolidation | 2 | - | |||||||||||||||
| September 30, 2021 | Balance | 19,956,034 | 100,285 | ||||||||||||||
The Company’s Common Shares have no par value.
24
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 6 | SHARE CAPITAL (CONTINUED) |
Effective as of April 30, 2021, the Company underwent a reverse stock split on the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares (1-for-10). The share capital has been reported on a post-consolidation basis (Note 1).
Private placement
On January 13, 2021, the Company completed a non-brokered private placement offering comprised of 247,934 Common Shares at a price of CAD 12.10 per share for aggregate gross proceeds of EUR 1,937 less EUR 19 in issuance costs resulting in net proceeds of EUR 1,918. This offering was exclusively taken up by Company employees and Board members and is subject to a hold period expiring May 14, 2021. No commission or finder's fee was paid in connection with the offering.
As at September 30, 2021, EUR nil (December 31, 2020: EUR 608) was held in trust on behalf of the Company for subscription receipts related to the private placement offering. This amount was recorded in cash and cash equivalents.
Completion of Oryx earn-out
On January 18, 2021, the Company satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares of the Company. A total of 4,700,000 Common Shares of the Company were issued to the vendor with a recorded fair-value of EUR 22,000. The Common Shares are subject to a hold period expiring May 19, 2021.
In connection with this transaction Matevž Mazij became a “control person” of the Company, in accordance with section 1(1) of the Ontario Securities Act, with a total shareholding through K.A.V.O. Holdings Limited of 4,900,000 Common Shares representing over 27% of the outstanding Common Shares of the Company as of the settlement date.
| 7 | PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020 |
On October 26, 2020, the Company announced that it had entered into an agreement with a syndicate of underwriters pursuant to which the underwriters agreed to purchase 1,786,000 units (the "Units") from the treasury of the Company, at a price of CAD 7.00 per Unit and offer them to the public by way of short form prospectus for total gross proceeds of approximately CAD 12,500 (the "Offering"). On October 27, 2020, the Company agreed to increase the size of the Offering whereby the Underwriters agreed to purchase 2,571,500 Units for aggregate gross proceeds of CAD 18,001.
The Company granted the underwriters an option (the "Over-Allotment Option") to purchase up to an additional 15% of the Units of the Offering on the same terms exercisable at any time up to 30 days following the closing of the Offering. The underwriters exercised the Over-Allotment Option in full and, together with the base offering, purchased 2,957,225 Units in total for aggregate gross proceeds of EUR 13,343 (CAD 20,701). Issuance costs directly associated with raise of funds amounted to EUR 1,216 (CAD 1,887) resulting in cash proceeds, net of issuance costs, of EUR 12,127 (CAD 18,814). Closing of the Offering occurred on November 18, 2020, with net proceeds to be used for growth initiatives, working capital and general corporate purposes.
Each Unit consists of one Common Share and one half of one warrant (each whole warrant, a "Public Offering Warrant") of the Company. Each Public Offering Warrant entitled the holder thereof to purchase one Common Share at a price equal to CAD 10.00 for a period of 36 months following the closing of the Offering (Note 8).
25
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 7 | PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020 (CONTINUED) |
The Public Offering Warrants included an acceleration provision, exercisable at the Company's option, if the Company's daily volume weighted average share price is greater than CAD 15.00 for at least ten consecutive trading days. On January 21, 2021, the Company announced that it elected to exercise its right under the terms of the warrant indenture to accelerate the expiry date of the warrants. Accordingly, the Company gave notice to all registered warrant holders that the expiry date for the Warrants was accelerated to February 22, 2021. As of September 30, 2021, all such warrants have been exercised or have expired.
In addition to the Units, the Company granted 177,434 broker warrants (“Broker Warrants”), each convertible to one Common Share and half of one Public Offering Warrant at a price equal to CAD 7.00 (Note 8).
| 8 | WARRANTS |
The following are continuities of the Company’s warrants:
| Special | |||||||||||||||||||||
| Warrants | warrants - | ||||||||||||||||||||
| issued upon | compensation | Broker | |||||||||||||||||||
| Number of Warrants | Warrants | Public Offering | options | warrants | |||||||||||||||||
| January 1,
2020 and September 30, 2020 | Balance | 2,705,880 | - | 160,178 | - | ||||||||||||||||
| January 1, 2021 | Balance | - | 1,478,512 | - | 177,434 | ||||||||||||||||
| January 11,
2021 to February 22, 2021 | Exercise of warrants | - | (1,554,082 | ) | - | - | |||||||||||||||
| January 21,
2021 to February 18, 2021 | Exercise of broker warrants | - | 80,274 | - | (160,548 | ) | |||||||||||||||
| February 22, 2021 | Expiry of warrants | - | (4,704 | ) | - | - | |||||||||||||||
| September 30, 2021 | Balance | - | - | - | 16,886 | ||||||||||||||||
26
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 8 | WARRANTS (CONTINUED) |
Each unit consists of the following characteristics:
| Special | |||||||||||||||||
| Warrants | Warrants | warrants - | |||||||||||||||
| issued | issued upon | compensation | Broker | ||||||||||||||
| March 14, 2019 | Public Offering | options | warrants | ||||||||||||||
| Number of shares | 1 | 1 | 1 | 1 | |||||||||||||
| Number of Warrants | - | - | 1 | 0.5 | |||||||||||||
| Exercise price of unit (CAD) | 7.60 | 10.00 | 5.10 | 7.00 | |||||||||||||
Warrants issued upon completion of Public Offering
Upon completion of the Public Offering on November 18, 2020 (Note 7) 1,478,612 Public Offering Warrants were issued resulting in an increase in the fair value of Public Offering Warrants of EUR 1,887, before issuance costs. The assumptions used to measure the fair value of the Public Offering Warrants under the Black-Scholes valuation model were as follows:
| Expected dividend yield (%) | 0.0 | |||
| Expected share price volatility (%) | 103.5 | |||
| Risk-free interest rate (%) | 0.11 | |||
| Expected life of warrants (years) | 1.0 | |||
| Underlying share price (CAD) | 8.00 |
The Public Offering Warrants were issued with an exercise price of CAD 10.00 and were convertible to one Common Share per Public Offering Warrant initially expiring November 18, 2023. The Public Offering Warrant indenture included an acceleration provision, exercisable at the Company's option, if the Company's daily volume weighted average Common Share price is greater than CAD 15.00 for at least ten consecutive trading days. The Company had the option to accelerate the exercise period of the Public Offering Warrants to a period ending at least 30 days from the date notice of such acceleration is provided to the holders of the Public Offering Warrants. On January 21, 2021, the Company announced that it elected to exercise its right under the terms of a warrant indenture to accelerate the expiry date of the warrants. Accordingly, the Company gave notice to all registered warrant holders that the expiry date for the Warrants was accelerated to February 22, 2021.
Between January 1, 2021, and February 22, 2021, 1,554,082 Public Offering Warrants were exercised resulting in issuance of 1,554,082 shares and cash receipt of EUR 10,085. An increase in share capital of EUR 11,916 and decrease in fair value of warrants of EUR 1,831 was recognized in the interim unaudited condensed consolidated statements of changes in equity. On February 22, 2021, 4,704 Public Offering Warrants expired resulting in a decrease in fair value of warrants and corresponding increase in contributed surplus of EUR 7.
27
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 8 | WARRANTS (CONTINUED) |
Broker Warrants issued upon completion of Public Offering
Upon completion of the Public Offering on November 18, 2020 (Note 7), 177,434 broker warrants (“Broker Warrants”) were issued resulting in an increase in the fair value of warrants of EUR 399, a decrease in share capital of EUR 331 and decrease in fair value of warrants of EUR 68. The Broker Warrants were issued with an exercise price of CAD 7.00 and are convertible to one Common Share plus one-half of a Public Offering Warrant per Broker Warrant expiring November 18, 2023. The assumptions used to measure the fair value of the Broker Warrants under the Black-Scholes valuation model were as follows:
| Expected dividend yield (%) | 0.0 | |||
| Expected share price volatility (%) | 103.5 | |||
| Risk-free interest rate (%) | 0.11 | |||
| Expected life of warrants (years) | 1.0 | |||
| Underlying share price (CAD) | 8.00 |
The underlying Public Offering Warrants were
subject to the same acceleration provision and notice of acceleration that was given on January 21, 2021. Between January 21,
2021 and February 18, 2021, 160,548 Broker Warrants were exercised for 160,548 Common Shares and 80,274 Public Offering Warrants
resulting in an increase in share capital of EUR 897, an increase in fair value of warrants of EUR 196 and decrease in fair value of
Broker Warrants of EUR 361. Broker Warrants may still be exercised for Common Shares until date of expiry.
28
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 9 | SHARE BASED COMPENSATION |
The Company maintains an Omnibus Incentive Equity Plan ("OEIP") for certain employees and consultants. The plan was approved at an annual and special meeting of shareholders on November 27, 2020. At the annual and special meeting of shareholders of the Company held on April 28, 2021, the shareholders approved the increase in the number of Common Shares available for issuance as awards under the plan from 3,180,000 to 3,965,000.
The following is a continuity of the Company’s equity incentive plans:
| DSU | RSU | FSO | ||||||||||||||
| Weighted | ||||||||||||||||
| Outstanding | Outstanding | Outstanding | Average | |||||||||||||
| DSU Units | RSU Units | FSO Options | Exercise | |||||||||||||
| (Number of | (Number of | (Number | Price / Share | |||||||||||||
| of shares) | of shares) | of shares) | CAD | |||||||||||||
| As at January 1, 2020 | 408,000 | - | 745,576 | 6.02 | ||||||||||||
| Granted | - | - | 76,000 | 2.94 | ||||||||||||
| Exercised | (50,000 | ) | - | - | - | |||||||||||
| Expired | - | - | (750 | ) | 44.86 | |||||||||||
| Forfeited / Cancelled | - | - | (185,329 | ) | 8.14 | |||||||||||
| As at September 30, 2020 | 358,000 | - | 635,497 | 4.99 | ||||||||||||
| As at January 1, 2021 | 120,000 | 210,000 | 1,228,410 | 6.37 | ||||||||||||
| Granted | 158,800 | 75,000 | 1,032,512 | 13.98 | ||||||||||||
| Exercised | - | (50,000 | ) | (132,220 | ) | 7.08 | ||||||||||
| Forfeited / Cancelled | - | - | (4,629 | ) | 2.30 | |||||||||||
| As at September 30, 2021 | 278,800 | 235,000 | 2,124,073 | 10.04 | ||||||||||||
The following table summarizes information about the outstanding share options as at September 30, 2021:
| Outstanding | Exercisable | |||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||
| Options | Remaining | Exercise | Options | Exercise | ||||||||||||||||
| Range of exercise | (Number | Contractual | Price / Share | (Number | Price / Share | |||||||||||||||
| prices (CAD) | of shares) | Life (Years) | CAD | of shares) | CAD | |||||||||||||||
| 2.30 - 5.00 | 257,151 | 3 | 3.02 | 174,916 | 3.19 | |||||||||||||||
| 5.01 - 5.60 | 200,000 | 2 | 5.60 | 185,417 | 5.60 | |||||||||||||||
| 5.61 - 7.80 | 632,858 | 4 | 7.80 | 632,858 | 7.80 | |||||||||||||||
| 7.81 - 33.30 | 1,034,064 | 9 | 14.01 | 47,143 | 13.91 | |||||||||||||||
| 2,124,073 | 6 | 10.04 | 1,040,334 | 6.91 | ||||||||||||||||
29
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 9 | SHARE BASED COMPENSATION (CONTINUED) |
The following table summarizes information about the outstanding share options as at September 30, 2020:
| Outstanding | Exercisable | |||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||
| Options | Remaining | Exercise | Options | Exercise | ||||||||||||||||
| Range of exercise | (Number | Contractual | Price / Share | (Number | Price / Share | |||||||||||||||
| prices (CAD) | of shares) | Life (Years) | CAD | of shares) | CAD | |||||||||||||||
| 2.30 - 5.00 | 292,695 | 4 | 3.06 | 135,111 | 3.61 | |||||||||||||||
| 5.01 - 5.60 | 325,000 | 3 | 5.60 | 181,250 | 5.60 | |||||||||||||||
| 5.61 - 33.30 | 17,802 | 1 | 25.55 | 17,802 | 25.55 | |||||||||||||||
| 635,497 | 4 | 4.99 | 334,163 | 5.86 | ||||||||||||||||
During the three and nine months ended September 30, 2021, a share based payment charge of EUR 832 and EUR 916, respectively has been recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss (three months and nine months ended September 30, 2020: EUR 91 and negative EUR 3, respectively) in relation to the fixed stock options.
During the three and nine months ended September 30, 2021, the Company granted 1,027,512 and 1,032,512 share options, respectively (three and nine months ended September 30, 2020: 6,000 and 76,000 share options, respectively) with a weighted average exercise price of CAD 13.99 and CAD 13.98 per share, respectively (three and nine months ended September 30, 2020: CAD 2.30 and CAD 2.94 per share, respectively) and a fair value of EUR 5,150 and 5,182, respectively (three and nine months ended September 30, 2020: EUR 3 and EUR 78, respectively).
During the three and nine months ended September 30, 2021, 7,220 and 132,220 Common Shares, respectively, were issued upon exercise of fixed stock options (three and nine months ended September 30, 2021: nil). Upon exercise of fixed stock options, for the three and nine months ended September 30, 2021 EUR 6 and EUR 347 (three and nine months ended September 30, 2021: nil) was transferred from contributed surplus to share capital in the interim unaudited condensed consolidated statement of changes in equity. Cash proceeds upon exercise of fixed stock options during the three and nine months ended September 30, 2021 totalled EUR 11 and EUR 636, respectively (three and nine months ended September 30, 2021: nil).
30
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 9 | SHARE BASED COMPENSATION (CONTINUED) |
Deferred Share Units
Exercises of grants may only be settled in shares, and only when the employee or consultant has left the Company. Under the plan, the Company may grant options of its shares at nil cost that vest immediately.
During the three and nine months ended September 30, 2021, 25,000 and 158,800 DSUs, respectively (three and nine months ended September 30, 2020: nil DSUs), were granted with a fair value of between CAD 10.96 and CAD 21.80 per unit (three and nine months ended September 30, 2020: nil) determined as the share price on the date of grant.
During the three and nine months ended September 30, 2021, a share based payment charge of EUR 306 and EUR 1,580, respectively, has been recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss (three and nine months ended September 30, 2020: EUR nil) in relation to the deferred share units.
During the three and nine months ended September 30, 2020, nil and 50,000 Common Shares were issued upon exercise of nil and 50,000 DSUs. Upon exercise of DSUs, EUR 219 was transferred from contributed surplus to share capital in the interim unaudited condensed consolidated statement of changes in equity.
Restricted Share Units
During the three and nine months ended September 30, 2021, nil and 75,000 RSUs, respectively (three and nine months ended September 30, 2020: nil), were granted with a fair value of CAD 21.80 per unit (three and nine months ended September 30, 2020: nil) determined as the share price on the date of grant.
During the three and nine months ended September 30, 2021, a share based payment charge of EUR 342 and EUR 1,184, respectively, has been recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss (three and nine months ended September 30, 2020: EUR nil) in relation to the RSUs.
During the nine months ended September 30, 2021, 50,000 Common Shares were issued upon exercise of 50,000 RSUs (nine months ended September 30, 2020: nil). Upon exercise of RSUs, EUR 267 was transferred from contributed surplus to share capital in the interim unaudited condensed consolidated statement of changes in equity.
31
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 10 | DEFERRED AND CONTINGENT CONSIDERATION |
The Company completed the acquisition of Oryx Gaming International LLC together with its subsidiaries on December 20, 2018. The vendor is now part of the Company’s key management, though was not at the time of the acquisition. Deferred and contingent consideration on December 31, 2020, related to two earnout payments due, comprised of both cash and shares to be issued.
The Company completed the acquisition of Wild Streak LLC effective on June 2, 2021. The Company agreed a cash payment of USD 75 (EUR 62) to the vendor in relation to working capital provided prior to completion to be settled on or about the sixtieth day following closing of the transaction. This amount was subsequently settled with the vendor on September 3, 2021.
The following is a continuity of the Company’s deferred and contingent consideration:
| As at January 1, 2020 | 23,732 | |||
| Cash paid on settlement of deferred and contingent consideration | (527 | ) | ||
| Accretion expense | 1,037 | |||
| Shares to be issued | (22,000 | ) | ||
| Loss on remeasurement of deferred and contingent consideration | 9,276 | |||
| Effect of movements in exchange rates | 3 | |||
| As at December 31, 2020 | 11,521 | |||
| Deferred consideration payable upon business combination (Note 4) | 62 | |||
| Cash paid on settlement of deferred and contingent consideration | (11,583 | ) | ||
| As at September 30, 2021 | - |
In the three- and nine-month period ended September 30, 2021, EUR nil (three- and nine-month period ended September 30, 2020: EUR 3,142 and EUR 8,329, respectively) of loss on remeasurement of deferred and contingent consideration and EUR nil (three- and nine-month period ended September 30, 2020: EUR 312 and EUR 1,229, respectively) of accretion expense was recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
Deferred and contingent consideration is disclosed in the interim unaudited condensed consolidated statement of financial position as follows:
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Deferred and Contingent Consideration | - | 11,521 | ||||||
All contingent liabilities in relation to the
acquisition of Oryx were settled in full to the Oryx vendor on January 18, 2021, following shareholder approval on November 27,
2020. On January 18, 2021, the Company satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash
and Common Shares (Note 6) of the Company. Cash paid totalled EUR 11,598, of which EUR 11,521 fully settled deferred and contingent consideration
payable, EUR 52 settled interest payable and EUR 25 settled legal fees.
32
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 11 | INTANGIBLE ASSETS |
| Deferred | ||||||||||||||||||||||||
| Intellectual | Development | Customer | ||||||||||||||||||||||
| Property | Costs | Relationships | Brands | Other | Total | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| As at December 31, 2019 | 8,801 | 1,222 | 4,903 | 1,357 | 128 | 16,411 | ||||||||||||||||||
| Additions | 165 | 2,075 | - | - | 46 | 2,286 | ||||||||||||||||||
| As at December 31, 2020 | 8,966 | 3,297 | 4,903 | 1,357 | 174 | 18,697 | ||||||||||||||||||
| Additions | 77 | 2,012 | - | - | 2 | 2,091 | ||||||||||||||||||
| Acquired through business combination (Note 4) | 5,141 | - | 9,669 | 283 | - | 15,093 | ||||||||||||||||||
| Effect of movement in exchange rates | 270 | - | 507 | 15 | - | 792 | ||||||||||||||||||
| As at September 30, 2021 | 14,454 | 5,309 | 15,079 | 1,655 | 176 | 36,673 | ||||||||||||||||||
| Accumulated Amortization | ||||||||||||||||||||||||
| As at December 31, 2019 | 1,119 | 76 | 504 | 140 | 11 | 1,850 | ||||||||||||||||||
| Amortization | 1,169 | 754 | 490 | 136 | 19 | 2,568 | ||||||||||||||||||
| As at December 31, 2020 | 2,288 | 830 | 994 | 276 | 30 | 4,418 | ||||||||||||||||||
| Amortization | 1,096 | 1,076 | 700 | 112 | 12 | 2,996 | ||||||||||||||||||
| Effect of movement in exchange rates | 3 | - | 7 | - | - | 10 | ||||||||||||||||||
| As at September 30, 2021 | 3,387 | 1,906 | 1,701 | 388 | 42 | 7,424 | ||||||||||||||||||
| Carrying Amount | ||||||||||||||||||||||||
| As at December 31, 2020 | 6,678 | 2,467 | 3,909 | 1,081 | 144 | 14,279 | ||||||||||||||||||
| As at September 30, 2021 | 11,067 | 3,403 | 13,378 | 1,267 | 134 | 29,249 | ||||||||||||||||||
In the three- and nine-month periods ended September 30, 2021, amortization expense of EUR 1,255 and EUR 2,996, respectively, was recognized within selling, general and administrative expenses (three- and nine-month periods ended September 30, 2020: EUR 672 and EUR 1,968, respectively).
33
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 12 | CASH AND CASH EQUIVALENTS |
As at September 30, 2021 and December 31, 2020, cash and cash equivalents consisted of cash held in banks, marketable investments with an original maturity date of 90 days or less from the date of acquisition, and prepaid credit cards.
As at September 30, 2021, EUR nil (December 31, 2020: EUR 608) was held in trust on behalf of the Company for subscription receipts related to a non-brokered private placement offering that completed on January 13, 2021 (Note 6). This amount was recorded in cash and cash equivalents.
| 13 | TRADE AND OTHER RECEIVABLES |
The following is an aging of the Company’s trade and other receivables:
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Less than one month | 7,952 | 9,563 | ||||||
| Between two and three months | 391 | 1,193 | ||||||
| Greater than three months | 1,355 | 1,296 | ||||||
| 9,698 | 12,052 | |||||||
| Provision for expected credit losses | (2,007 | ) | (1,755 | ) | ||||
| Trade and Other Receivables | 7,691 | 10,297 | ||||||
The balance of accrued income is included in receivables aged less than one month as this balance will be converted to accounts receivable upon issuance of sales invoices.
The following is a continuity of the Company’s provision for expected credit losses related to trade and other receivables:
| As at December 31, 2019 | 941 | |||
| Bad debt written-off | (419 | ) | ||
| Net additional provision for doubtful debts | 1,076 | |||
| Provision for late interest receivable | 157 | |||
| As at December 31, 2020 | 1,755 | |||
| Net additional provision for doubtful debts | 195 | |||
| Provision for late interest receivable | 57 | |||
| As at September 30, 2021 | 2,007 |
34
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 14 | PREPAID EXPENSES AND OTHER ASSETS |
Prepaid expenses and other assets comprises:
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Prepayments | 1,807 | 249 | ||||||
| Deposits | 19 | - | ||||||
| Other assets | 165 | 14 | ||||||
| Prepaid Expenses and Other Assets | 1,991 | 263 | ||||||
| 15 | TRADE PAYABLES AND OTHER LIABILITIES |
Trade payables and other liabilities comprises:
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Trade payables | 2,545 | 6,406 | ||||||
| Accrued liabilities | 12,373 | 6,099 | ||||||
| Sales tax payable | 1,496 | 4,356 | ||||||
| Other payables | 48 | 107 | ||||||
| Trade Payables and Other Liabilities | 16,462 | 16,968 | ||||||
35
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 16 | RELATED PARTY TRANSACTIONS |
The Company’s policy is to conduct all transactions and settle all balances with related parties on market terms and conditions for those in the normal course of business. Transactions between the Company and its consolidated entities have been eliminated on consolidation and are not disclosed in this note.
Key Management Personnel
The Company’s key management personnel are comprised of members of the Board and the executive team which consists of the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief Strategy Officer (“CSO”) and Chief Technology Officer (“CTO”). Three key management employees are also shareholders in the Company. Transactions and balances between the Company and its key management personnel are as follows:
Interim Unaudited Condensed Consolidated Statements of Loss and Comprehensive Loss
| · | Revenues for the three and nine months ended September 30, 2021, to a shareholder of the Company totalled EUR 44 and EUR 93 (three and nine months ended September 30, 2020: EUR 105 and EUR 115), respectively. |
| · | Total compensation for salaries, director fees, share-based payments, and short-term employee benefits of key management personnel of the Company for the three and nine months ended September 30, 2021, totalled EUR 2,136 and EUR 6,480 (three and nine months ended September 30, 2020: EUR 288 and EUR 1,262), respectively. |
| · | Total compensation for salaries and short-term employee benefits of vendors of the sale of Wild Streak and subsequently employees of the Company for the three and nine months ended September 30, 2021, totalled EUR 151 and EUR 188, respectively (three and nine months ended September 30, 2020: EUR nil). |
| · | Loss on remeasurement of deferred and contingent consideration payable to the former Managing Director of Oryx for the three and nine months ended September 30, 2021, was nil (three and nine months ended September 30, 2020: EUR 3,142 and EUR 8,329, respectively). While the key management employee is no longer Managing Director of Oryx, they remain a director of the Company. |
| · | Interest expense on deferred and contingent consideration payable to the former Managing Director of Oryx for the three and nine months ended September 30, 2021, totalled EUR nil and EUR 52, respectively (three and nine months ended September 30, 2020: EUR nil). |
| · | During the three and nine months ended September 30, 2021, legal fees of EUR nil and EUR 25 payable to the former Managing Director of Oryx in relation to the Oryx earn-out was recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss (three and nine months ended September 30, 2020: EUR nil). |
| · | During the three and nine months ended September 30, 2021, professional fees of EUR 2 and EUR 87, respectively payable to a related business of a non-executive director of the Company was recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss (three and nine months ended September 30, 2020: EUR nil). |
36
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 16 | RELATED PARTY TRANSACTIONS (CONTINUED) |
Interim Unaudited Condensed Consolidated Statements of Financial Position
| · | As at September 30, 2021, EUR 78 of trade and other receivables was receivable from the former Managing Director of Oryx and other shareholders (December 31, 2020: EUR 4). |
| · | As at September 30, 2021, EUR 69 of prepaid expenses and other assets was receivable from a related business of a non-executive director of the Company (December 31, 2020: EUR nil). |
| · | As at September 30, 2021, EUR 172 of trade payables and other liabilities was due to the Company’s key management personnel (December 31, 2020: EUR 166). |
| · | As at September 30, 2021, EUR 75 of trade payables and other liabilities was due to the vendors of the sale of Wild Streak and subsequently employees of the Company (December 31, 2020: EUR nil). |
| · | As at September 30, 2021, EUR nil of deferred and contingent consideration (Note 10) was payable to the former Managing Director of Oryx (December 31, 2020: EUR 11,521). |
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
| · | During the three and nine months ended September 30, 2021, EUR nil and 22,000, respectively of share capital (three and nine months ended September 30, 2020: EUR nil) was issued to the former Managing Director of Oryx upon completion of the earn-out (Note 10). A corresponding decrease in shares to be issued was recognized in the interim unaudited condensed consolidated statements of changes in equity. |
| · | During the three and nine months ended September 30, 2021, EUR 13,746 of shares to be issued (three and nine months ended September 30, 2020: EUR nil) to the vendors for the sale of Wild Streak (Note 4) and subsequently employees of the Company was recognized in the interim unaudited condensed consolidated statements of changes in equity. |
| · | During the three and nine months ended September 30, 2021, EUR nil and EUR 1,918, respectively of additional share capital was recognized in the interim unaudited condensed consolidated statements of changes in equity in relation to the private placement by key management personnel of the Company (Note 6) (three and nine months ended September 30, 2020: EUR nil). |
| · | During the three and nine months ended September 30, 2021, EUR nil and EUR 410 additional share capital, respectively, was recognized in the interim unaudited condensed consolidated statements of changes in equity for exercise of DSUs, RSUs and FSOs by key management personnel of the Company (Note 9) (three and nine months ended September 30, 2020: EUR 219). |
Interim Unaudited Condensed Consolidated Statements of Cash Flows
| · | During the nine months ended September 30, 2021, a total of EUR 11,521 in payments were made to the former Managing Director of Oryx for deferred consideration (nine months ended September 30, 2020: EUR nil). |
| · | During the nine months ended September 30, 2021, a total of EUR 140 in payments were made to the former Managing Director of Oryx for interest on deferred and contingent consideration payable (nine months ended September 30, 2020: EUR nil). |
| · | During the nine months ended September 30, 2021, a total of EUR 8,271 in cash consideration payments were made to the vendors of the sale of Wild Streak (nine months ended September 30, 2020: EUR nil). |
37
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT |
The financial instruments measured at amortized cost are summarised below:
Financial Assets
| Financial assets as subsequently | ||||||||
| measured at amortized cost | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Trade and other receivables | 7,691 | 10,297 | ||||||
Financial Liabilities
| Financial liabilities as subsequently | ||||||||
| measured at amortized cost | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Trade payables | 2,545 | 6,406 | ||||||
| Accrued liabilities | 12,373 | 6,099 | ||||||
| Other liabilities | 48 | 107 | ||||||
| Lease obligations on right of use assets | 652 | 726 | ||||||
| 15,618 | 13,338 | |||||||
The carrying values of the financial instruments approximate their fair values.
38
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) |
Fair Value Hierarchy
The following table presents the fair values and fair value hierarchy of the Company’s financial instruments.
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Level 1 | Level 3 | Total | Level 1 | Level 3 | Total | |||||||||||||||||||
| Financial assets | ||||||||||||||||||||||||
| Fair value through profit and loss: | ||||||||||||||||||||||||
| Cash and cash equivalents | 20,305 | - | 20,305 | 26,102 | - | 26,102 | ||||||||||||||||||
| Consideration receivable | - | 92 | 92 | - | 192 | 192 | ||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||||||
| Fair value through profit and loss: | ||||||||||||||||||||||||
| Deferred and contingent consideration | - | - | - | 11,521 | - | 11,521 | ||||||||||||||||||
There were no transfers between the levels of the fair value hierarchy during the periods.
During the three and nine months ended September 30, 2021, a loss of EUR nil (three and nine months ended September 30, 2020: EUR 3,142 and EUR 8,329, respectively), was recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss as loss on remeasurement of deferred and contingent consideration (Note 10) for financial instruments designated as FVTPL.
39
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) |
As a result of holding and issuing financial instruments, the Company is exposed to certain risks. The following is a description of those risks and how the exposures are managed.
Liquidity risk
Liquidity risk is the risk that the Company is unable to generate or obtain sufficient cash and cash equivalents in a cost-effective manner to fund its obligations as they come due. The Company will experience liquidity risks if it fails to maintain appropriate levels of cash and cash equivalents, is unable to access sources of funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could adversely affect the financial performance of the Company.
The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements. The Company coordinates this planning and budgeting process with its financing activities through its capital management process. The Company holds sufficient cash and cash equivalents and working capital, maintained through stringent cash flow management, to ensure sufficient liquidity is maintained. The Company is not subject to any externally imposed capital requirements.
The following are the undiscounted contractual maturities of significant financial liabilities and the total contractual obligations of the Company as at September 30, 2021:
| 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||
| Trade payables and other liabilities | 16,462 | - | - | - | - | 16,462 | ||||||||||||||||||
| Lease obligations on right of use assets | 44 | 172 | 157 | 157 | 157 | 687 | ||||||||||||||||||
| 16,506 | 172 | 157 | 157 | 157 | 17,149 | |||||||||||||||||||
Foreign currency exchange risk
The Company’s financial statements are presented in EUR, however a portion of the Company’s net assets and operations are denominated in other currencies, particularly the Canadian dollar. Such net assets are translated into EUR at the foreign currency exchange rate in effect at the reporting date, and operations at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are recognized. As a result, the Company is exposed to foreign currency translation gains and losses, which are recorded in accumulated other comprehensive loss.
The Company is also exposed to risk on transaction in currencies other than its functional currency resulting in realized and unrealized foreign currency gains and loss which are recorded in other operational costs. The Company estimates that an appreciation of the EUR of 10% relative to other currencies would result in a decrease of EUR 1,246 in earnings before income taxes while a depreciating EUR will have the opposite impact.
The Company has no derivative instruments in the form of futures contracts and forward contracts to manage its current and anticipated exposure to fluctuations in EUR exchange rates.
40
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) |
Credit risk
The Company is exposed to credit risk resulting from the possibility that counterparties could default on their financial obligations to the Company including cash and cash equivalents, other assets and accounts receivable. Failure to manage credit risk could adversely affect the financial performance of the Company.
The risk related to cash and cash equivalents is reduced by policies and guidelines that require that the Company enters into transactions only with counterparties or issuers that have a minimum long term “BBB” credit rating from a recognized credit rating agency. The Company mitigates the risk of credit loss relating to accounts receivable by evaluating the creditworthiness of new customers and establishes a provision for expected credit losses. The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS 9, Financial Instruments, which permits the use of the lifetime expected loss provision for all accounts receivable. The expected credit loss provision is based on the Company’s historical collections and loss experience and incorporates forward-looking factors, where appropriate.
The provision matrix below shows the expected credit loss rate for each aging category of accounts receivable as at September 30, 2021:
| Aging (months) | ||||||||||||||||||||
| Note | <1 | 1 - 3 | >3 | Total | ||||||||||||||||
| Gross accounts receivable | 13 | 7,952 | 391 | 1,355 | 9,698 | |||||||||||||||
| Expected loss rate | 7.85 | % | 37.34 | % | 91.29 | % | 20.69 | % | ||||||||||||
| Expected Loss Provision | 13 | 624 | 146 | 1,237 | 2,007 | |||||||||||||||
The provision matrix below shows the expected credit loss rate for each aging category of accounts receivable as at December 31, 2020:
| Aging (months) | ||||||||||||||||||||
| Note | <1 | 1 - 3 | >3 | Total | ||||||||||||||||
| Gross accounts receivable | 13 | 9,563 | 1,193 | 1,296 | 12,052 | |||||||||||||||
| Expected loss rate | 4.51 | % | 14.84 | % | 88.50 | % | 14.56 | % | ||||||||||||
| Expected Loss Provision | 13 | 431 | 177 | 1,147 | 1,755 | |||||||||||||||
Gross accounts receivable includes the balance of accrued income within the aging category of less than one month.
41
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) |
Concentration risk
For the three months ended September 30, 2021, two customers (three months ended September 30, 2020: one customer) contributed more than 10% each to the Company’s revenues. Aggregate revenues from these customers totalled EUR 2,998 (three months ended September 30, 2020: EUR 1,478).
For the nine months ended September 30, 2021, two customers (nine months ended September 30, 2020: one customer) contributed more than 10% each to the Company’s revenues. Aggregate revenues from these customers totalled EUR 10,509 (nine months ended September 30, 2020: EUR 4,290).
As at September 30, 2021, one customer (December 31, 2020: one customer) constituted more than 10% each to the Company’s accounts receivable. The balance owed by this customer totalled EUR 1,281 (December 31, 2020: EUR 1,247). The Company continues to expand its customer base to reduce the concentration risk.
| 18 | SUPPLEMENTARY CASHFLOW INFORMATION |
Cash flows arising from changes in non-cash working capital are summarized below:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows arising from movement in: | ||||||||
| Trade and other receivables | 3,014 | (1,559 | ) | |||||
| Prepaid expenses and other assets | (1,713 | ) | (87 | ) | ||||
| Deferred revenue | 576 | - | ||||||
| Trade payables and other liabilities | (593 | ) | 4,811 | |||||
| Other liabilities - non-current | 38 | - | ||||||
| Changes in Non-Cash Working Capital | 1,322 | 3,165 | ||||||
42
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 19 | SEGMENT INFORMATION |
Operating
The Company has one reportable operating segment in its continuing operations, B2B Online Gaming.
The accounting policies of the reportable operating segments are the same as those described in the Company’s summary of significant accounting policies (Note 2). The Company measures each reportable operating segment’s performance based on adjusted EBITDA. No reportable operating segment is reliant on any single external customer.
Intersegment charges have been eliminated on consolidation.
Geography – Revenue
Revenue for continuing operations was generated from the following jurisdictions:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Malta | 6,079 | 7,439 | 24,940 | 21,867 | ||||||||||||
| Curaçao | 4,357 | 2,047 | 10,891 | 6,277 | ||||||||||||
| Croatia | 601 | 457 | 1,739 | 1,106 | ||||||||||||
| Germany | 389 | 330 | 1,219 | 459 | ||||||||||||
| Romania | 340 | 123 | 1,084 | 323 | ||||||||||||
| Serbia | 269 | 142 | 711 | 396 | ||||||||||||
| Other | 839 | 1,176 | 1,977 | 2,215 | ||||||||||||
| Revenue | 12,874 | 11,714 | 42,561 | 32,643 | ||||||||||||
This segmentation is not correlated to the geographical location of the Company’s worldwide end-user base.
Geography – Non-Current Assets
Non-current assets are held in the following jurisdictions:
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| United States | 55,582 | 34,104 | ||||||
| Other | 961 | 1,180 | ||||||
| Non-Current Assets | 56,543 | 35,284 | ||||||
43
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 20 | INCOME TAXES |
The components of income taxes recognized in the interim unaudited condensed consolidated statements of financial position are as follows:
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Income taxes payable | 1,388 | 1,318 | ||||||
| Deferred income tax liabilities | 1,140 | 1,415 | ||||||
The components of income taxes recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Current period | 281 | 572 | 1,424 | 1,369 | ||||||||||||
| Adjustment in respect of prior periods | - | - | - | - | ||||||||||||
| Current Income Taxes | 281 | 572 | 1,424 | 1,369 | ||||||||||||
| Deferred income tax expense (recovery) | (120 | ) | (28 | ) | (274 | ) | (84 | ) | ||||||||
| Deferred Income Tax Expense (Recovery) | (120 | ) | (28 | ) | (274 | ) | (84 | ) | ||||||||
| Income Taxes | 161 | 544 | 1,150 | 1,285 | ||||||||||||
There is no income tax expense recognized in other comprehensive income (loss).
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Intangible assets | 1,239 | 1,415 | ||||||
| Other | (99 | ) | - | |||||
| Deferred tax liability | 1,140 | 1,415 | ||||||
44
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 20 | INCOME TAXES (CONTINUED) |
The effective income tax rates in the interim unaudited condensed consolidated statements of loss and comprehensive loss were reported at rates different than the combined Canadian federal and provincial statutory income tax rates for the following reasons:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| % | % | |||||||
| Canadian statutory tax rate | 26.5 | 26.5 | ||||||
| Effect of tax rate in foreign jurisdictions | 4.1 | 5.2 | ||||||
| Impact of foreign currency translation | (1.6 | ) | ||||||
| Non-deductible and non-taxable items | (13.6 | ) | (10.8 | ) | ||||
| Remeasurement of contingent and deferred consideration | - | (14.2 | ) | |||||
| Accretion expense of contingent consideration | - | (4.5 | ) | |||||
| Change in tax benefits not recognized | (29.8 | ) | (7.2 | ) | ||||
| Adjustments in respect of prior periods | 3.3 | (2.5 | ) | |||||
| Other | (13.2 | ) | (8.8 | ) | ||||
| Effective Income Tax Rate Applicable to Loss Before Income Taxes | (24.3 | ) | (16.3 | ) | ||||
Deferred income tax liabilities recognized in the interim unaudited condensed consolidated statements of financial position were attributable solely to acquired intangible assets (Note 11).
45
BRAGG GAMING GROUP INC.
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND SEPTEMBER 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 20 | INCOME TAXES (CONTINUED) |
The portion of the income tax losses related to Canada which have a limited carry-forward period expire in the years 2026 to 2041 as follows:
| 2026 | 97 | |||
| 2027 | 182 | |||
| 2028 | 170 | |||
| 2029 | 87 | |||
| 2030 | 60 | |||
| 2031 | 60 | |||
| 2032 | 101 | |||
| 2033 | 68 | |||
| 2034 | 126 | |||
| 2035 | 126 | |||
| 2036 | 134 | |||
| 2037 | 279 | |||
| 2038 | 1,897 | |||
| 2039 | 2,001 | |||
| 2040 | 3,100 | |||
| 2041 | 5,151 | |||
| 13,639 |
The United Kingdom losses are carried forward indefinitely unless subject to certain restrictions and are now classified in the current year as discontinued operations as unrecognized deferred income tax assets. The deductible temporary differences do not expire under current income tax legislation. Deferred income tax assets were not recognized in respect of these items because it is not probable that future taxable income will be available to the Company to utilize the benefits.
| 21 | CONTINGENT LIABILITIES |
In the ordinary course of business, the Company is involved in and potentially subject to, legal actions and proceedings. In addition, the Company is subject to tax audits from various tax authorities on an ongoing basis. As a result, from time to time, tax authorities may disagree with the positions and conclusions taken by the Company in its tax filings or legislation could be amended or interpretations of current legislation could change, any of which events could lead to reassessments.
The Company is not aware of any legal, administrative, or other proceedings pending, which would materially affect its financial condition.
Exhibit 99.2
Bragg Gaming Group Inc.
MANAGEMENT DISCUSSION & ANALYSIS FOR THE THREE- AND NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 2021
Table of contents
MANAGEMENT DISCUSSION & ANALYSIS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2021
| 1. | MANAGEMENT DISCUSSION & ANALYSIS | 2 | |
| 2. | CAUTION REGARDING FORWARD-LOOKING STATEMENTS | 3 | |
| 3. | LIMITATIONS OF KEY METRICS AND OTHER DATA | 4 | |
| 4. | OVERVIEW OF Q3 2021 | 6 | |
| 5. | FINANCIAL RESULTS | 16 | |
| 5.1 | Basis of financial discussion | 16 | |
| 5.2 | Selected interim information | 17 | |
| 5.3 | Other financial information | 18 | |
| 5.4 | Selected financial information | 19 | |
| 5.5 | Summary of quarterly results | 21 | |
| 5.6 | Liquidity and capital resources | 21 | |
| 5.7 | Cash flow summary | 23 | |
| 6 | TRANSACTIONS BETWEEN RELATED PARTIES | 25 | |
| 7 | DISCLOSURE OF OUTSTANDING SHARE DATA | 27 | |
| 8 | SIGNIFICANT ACCOUNTING ESTIMATES | 28 | |
| 9 | CHANGES IN ACCOUNTING POLICY | 31 | |
| 10 | RISK FACTORS AND UNCERTAINTIES | 31 | |
| 11 | ADDITIONAL INFORMATION | 33 | |
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
1
| 1. | MANAGEMENT DISCUSSION & ANALYSIS |
This Management Discussion and Analysis (“MD&A”) provides a review of the results of operations, financial condition and cash flows for Bragg Gaming Group Inc on a consolidated basis, for the three and nine months ended September 30, 2021 (“Q3 2021”). References to “Bragg” or the “Corporation” in this MD&A refer to Bragg Gaming Group Inc and its subsidiaries, unless the context requires otherwise. This document should be read in conjunction with the information presented in the interim unaudited condensed consolidated financial statements for the three months and nine months ended September 30, 2021 (the “Interims”).
For reporting purposes, the Corporation prepared the Interims in European Euros (“EUR”) and, unless otherwise indicated, in conformity with International Accounting Standards (“IAS”) 34, Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). The financial information contained in this MD&A was derived from the Interims. Unless otherwise indicated, all references to a specific “note” refer to the notes to the Interims.
This MD&A references non-IFRS financial measures, including those under the headings “Selected Financial Information” and “Key Metrics” below. The Corporation believes these non-IFRS financial measures will provide investors with useful supplemental information about the financial performance of its business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating its business and making decisions. Although management believes these financial measures are important in evaluating the Corporation, they are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS. Non-IFRS measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS financial measures used by other companies, limiting their usefulness for comparison purposes. These non-IFRS measures and metrics are used to provide investors with supplemental measures of our operating performance and liquidity and thus highlight trends in our business that may nor otherwise be apparent when relying solely on IFRS measures.
For purposes of this MD&A, the term “gaming license” refers collectively to all the different licenses, consents, permits, authorizations, and other regulatory approvals that are necessary to be obtained in order for the recipient to lawfully conduct (or be associated with) gaming in a particular jurisdiction.
Unless otherwise stated, in preparing this MD&A the Corporation has considered information available to it up to November 8, 2021, the date the Corporation’s board of directors (the “Board”) approved this MD&A.
On April 30, 2021, the Corporation announced a one-for-ten share consolidation. At the annual and special meeting of the Corporation’s shareholders held on April 28, 2021, the Corporation’s shareholders granted the Board discretionary authority to implement a consolidation of the issued and outstanding common shares of the Corporation (“Common Shares”) on the basis of a consolidation ratio of up to fifteen (15) pre-consolidation Common Shares for one (1) post-consolidation Common Share. The Board selected a share consolidation ratio of ten (10) pre-consolidation Common Shares for one (1) post-consolidation Common Share. The Common Shares began trading on the Toronto Stock Exchange (“TSX”) on a post-consolidation basis under the Corporation’s existing trade symbol "BRAG" on May 5, 2021. In accordance with IFRS accounting principles, the change has been applied retroactively and all balances of Common Shares, warrants and equity-based compensation such as share options, deferred share units and restricted share units have been restated after applying the consolidation ratio.
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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| 2. | CAUTION REGARDING FORWARD-LOOKING STATEMENTS |
This MD&A may contain forward-looking information and statements (collectively, “forward-looking statements”) within the meaning of the Canadian securities legislation and applicable securities laws, including financial and operational expectations and projections. These statements, other than statements of historical fact, are based on management’s current expectations and are subject to a number of risks, uncertainties, and assumptions, including market and economic conditions, business prospects or opportunities, future plans and strategies, projections, technological developments, anticipated events and trends and regulatory changes that affect the Corporation, its subsidiaries and their respective customers and industries. Although the Corporation and management believe the expectations reflected in such forward-looking statements are reasonable and are based on reasonable assumptions and estimates as of the date hereof, there can be no assurance that these assumptions or estimates are accurate or that any of these expectations will prove accurate. Forward-looking statements are inherently subject to significant business, regulatory, economic and competitive risks, uncertainties and contingencies that could cause actual events to differ materially from those expressed or implied in such statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “would”, “should”, “believe”, “objective”, “ongoing”, “imply” or the negative of these words or other variations or synonyms of these words or comparable terminology and similar expressions.
By their nature forward-looking statements are subject to known and unknown risks, uncertainties, and other factors which may cause actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among other things, the Corporation’s stage of development, long-term capital requirements and future ability to fund operations, future developments in the Corporation’s markets and the markets in which it expects to compete, risks associated with its strategic alliances and the impact of entering new markets on the Corporation’s operations. Each factor should be considered carefully, and readers are cautioned not to place undue reliance on such forward-looking statements. See the section, “Risk Factors and Uncertainties”, below noting that these factors are not intended to represent a complete list of the factors that could affect the Corporation.
Shareholders and investors should not place undue reliance on forward-looking statements as the plans, assumptions, intentions or expectations upon which they are based might not occur. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Unless otherwise indicated by the Corporation, forward-looking statements in this MD&A describe the Corporation’s expectations as of November 8, 2021, and, accordingly, are subject to change after such date. The Corporation does not undertake to update or revise any forward-looking statements, except in accordance with applicable securities laws.
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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| 3. | LIMITATIONS OF KEY METRICS AND OTHER DATA |
The Corporation’s key metrics are calculated using internal Corporation data. While these numbers are based on what the Corporation believes to be reasonable judgments and estimates of customer numbers for the applicable period of measurement, there are certain challenges and limitations in measuring the usage of its product offerings across its customer base. In addition, the Corporation’s key metrics and related estimates may differ from estimates published by third parties or from similarly titled metrics of its competitors due to differences in methodology and access to information.
For important information on the Corporation’s non-IFRS measures, see the information presented in “Key metrics” and “Selected financial information” below. The Corporation continually seeks to improve its estimates of its active customer base and the level of customer activity, and such estimates may change due to improvements or changes in the Corporation’s methodology.
Bragg Gaming: Overview and Strategy
Bragg is a growing global gaming content and technology group and owner of well-known business-to-business ("B2B") gaming companies. Its suite of iGaming content and technology, commercial relationships and operational licences allows it to offer a full turnkey gaming solution in regulated online gaming markets internationally. Its premium content catalogue currently includes over 13,000 casino games, including proprietary games developed by its studios, third-party games developed on its remote games server ("RGS") for exclusive distribution, and aggregated, licensed games from top studios around the world.
The Corporation’s wholly owned suite of products includes a state-of-the-art player account management ("PAM") platform, which provides the tools required to operate an online gaming business, including player engagement and data analysis software. The Corporation's technology was developed on a greenfield basis and is not dependent on legacy code. The Corporation’s suite of products and services offers a one-stop solution to its customers that is adaptable to various gaming markets and legislative jurisdictions, including the UK and the emerging United States and Canadian online gaming markets.
The Corporation was incorporated by Articles of Incorporation pursuant to the provisions of the Canada Business Corporations Act on March 17, 2004, and on December 20, 2018, the Corporation completed a business combination transaction to acquire Oryx Gaming International LLC (“Oryx”). The Corporation is dual-listed on the Nasdaq Global Select Market and the Toronto Stock Exchange, both under the symbol BRAG. Oryx has been in operation for over nine years as a full turnkey iGaming solutions provider to the online gaming industry, with an established customer base in Europe and Latin America.
In May 2021, the Corporation entered into a definitive agreement to acquire Spin Games LLC (“Spin”), a Reno, Nevada-based iGaming technology supplier and content provider licensed and active in key regulated North American jurisdictions. The acquisition of Spin is subject to customary closing conditions, including required regulatory approvals. In June 2021, the Corporation acquired Wild Streak LLC doing business as Wild Streak Games (“Wild Streak”), a leading iGaming content studio based in Las Vegas, Nevada with a portfolio of proprietary titles distributed globally, including in regulated markets in the United States and Europe.
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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The Corporation continues to invest in building a strong, experienced management team to drive its strategic initiatives. On May 1, 2021, the Corporation appointed a new Chief Executive Officer, Richard Carter, an industry veteran and previously CEO of SBTech, which was acquired by DraftKings. During the quarter, the Corporation’s management team was further bolstered by the addition of Doug Fallon, founder of Wild Streak, as Managing Director of Group Content and Chris Looney, formerly Commercial Director of online casino games developer Red Tiger Gaming, as Chief Commercial Officer.
With its experienced management team, differentiated content portfolio, software-as-a-service ("SaaS") technology and managed services, the Corporation aims to become a leading vertically integrated gaming content and technology provider in the iGaming industry.
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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| 4. | OVERVIEW OF Q3 2021 |
| 4.1 | Executive summary |
Financial performance in the third quarter of 2021
During the three months ended September 30, 2021, the Corporation has continued to deliver against its strategic objectives by accelerating growth while remaining committed to revenue diversification and geographic expansion.
The Corporation’s revenue1 increased from the same period in the previous year by 9.9% to EUR 12.9m (Q3 2020: EUR 11.7m) while the underlying business revenue (excluding Wild Streak Gaming) was up 2.2% compared to the same period in the previous year. Wild streak Gaming revenue for the period was EUR 0.9m (Q3 2020: EUR Nil). The Corporation’s revenues were down 16.9% from the previous quarter (Q2 2021: 15.5m) mainly attributed the new regulatory changes in the German market introduced on July 1, 2021 imposing restrictions on game play, implementing enhanced responsible gambling initiatives and introducing a new gaming tax based on wagering.
The Corporation’s revenue was mainly derived from the games and content services which accounted for 86.3% (Q3 2020: 89.7%) of total revenues while demand for the Corporation’s unique games and content and technology proposition continues to be strong. The Corporation’s performance has been underpinned by continued investment and innovation in its technology and product offering with the main focus on the Oryx Hub, data analytics and customer engagement platform and new in-house content, demonstrating the potential of the Corporation to further leverage its technology to accelerate growth with the goal of achieving profitability.
The Corporation saw a continued growth in gameplay, unique player numbers and engagement levels throughout its network. Total wagering generated via games and content offered by Oryx and Wild Streak in the period was up by 4.8% from the same period in the previous year to EUR 3.2 billion (Q3 2020: EUR 3.0 billion) while by excluding Wild Streak Gaming the total wagering decreased by 18.3% as the new regulatory changes in the German market had direct effect on end users’ total game play.
The number of unique players2 using Oryx games and content increased by 14.4% to 2.1m (Q3 2020: 1.9m). These solid numbers are a result of significant improvements to our core content offering including the recent technical developments which enhance the user-experience.
Gross profit increased compared to the same period in the previous year by 30.1% to EUR 6.6m (Q3 2020: EUR 5.1m) with gross margins increasing by 8.0% to 51.4% (Q3 2020: 43.4%). This is primarily due to a higher proportion of revenue derived from our platform and managed services alongside Wild Streak Gaming revenue which has no cost of sale compared to games and content which have associated third party costs.
1 Revenue includes the Corporation’s share in game and content, platform fees and management and turnkey solutions.
2 Unique players individuals who made a real money wager at least once during the period
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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Selling, general and administrative expenses increased from the same period in the previous year by 112.3% to EUR 8.9m (Q3 2020: EUR 4.2m) amounting to 69.3% of total revenue (Q3 2020: 35.9%). The increase in expenses is in line with the Corporation’s growth strategy to set up the foundation for a scalable and innovative vertically integrated leading gaming content and technology provider in the iGaming industry. Main movements in the quarter were driven by the following:
| A. | Salaries and subcontractors increased by 108.5% to EUR 3.7m (Q3 2020: EUR 1.8m) as the Corporation continued to invest in expanding its technology and product offering by enhancing the software development and product teams and expanding its commercial, legal, compliance and executive teams to accelerate expansion into new markets and to adjust to new regulatory requirements. |
| B. | Share based payment costs increased by EUR 1.4m to EUR 1.5m (Q3 2020: EUR 0.1m) predominantly due to vesting related to the share-based incentive plan awards granted to new directors and senior management in Q1 and Q3 2021 and composed of DSUs, RSUs and share options. |
Total employee costs (including share-based payments charge) increased by 177.6% to EUR 5.2m (Q3 2020: EUR 1.9m) due to increased headcount in technology, product and senior management teams, increased overhead costs and share based payment costs.
| C. | IT hosting cost increased by 38.7% to EUR 0.5m (Q3 2020: EUR 0.4m) due to increase in servers cost acquired during the quarter in the sum of EUR 0.2m (Q3 2020: Nil) as part of the enhancement of the corporation hosting environment. |
| D. | Professional fees increased by EUR 0.4m to EUR 0.7m (Q3 2020: EUR 0.3m). This is due to an increase in audit, legal and corporate costs to comply with quarterly reviews and additional filings as well as corporate governance requirements to support the Corporation trading on TSX, amounting to EUR 0.3m. In addition, an exceptional amount of EUR 0.4m (Q3 2020: Nil) incurred in relation to legal and professional fees on the Nasdaq listing, base shelf prospectus and other non-recurring regularity and legal matters. |
| E. | Corporate costs increased by EUR 0.2m to EUR 0.3m (Q3 2020: EUR 0.1m) as a result of the Corporation’s increased investment in corporate marketing and investor relation activities. |
| F. | Bad debt expense decreased by EUR 0.6m to a recovery of EUR 0.1m (Q3 2020: expense of EUR 0.5m) as a result of reduction in expectancy of the risk of the aging and liquidity of trade receivables due to improvement in billing processes and collection of customer funds. |
| G. | Transaction and acquisition costs amounted to EUR 0.2m (Q3 2020: EUR 0.2m) relating to the deployment of the Corporation’s M&A strategy which includes legal, financial, tax and technical processes. |
| H. | Other operational costs amounted to EUR 0.6m (Q3 2020: EUR 0.2m) and relate predominantly to an increase in the premium in relation to the Corporation’s directors’ and officers’ insurance of EUR 0.2m (Q3 2020: EUR 0.0m). |
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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Total net loss from continuing operations for the period amounted to EUR 2.5m (Q3 2020: EUR 3.2m) a movement predominantly driven by the incremental increase in total employee costs (including share based payment) of EUR 3.3m, professional fees of EUR 0.4m other operational costs EUR 0.4m and depreciation and amortisation in the sum of EUR 0.6m, offset by increased gross profit of EUR 1.5m, reduction in remeasurement of deferred consideration payable of EUR 3.1m and reduction in income tax expense of EUR 0.4m.
The Corporation’s Adjusted EBITDA decreased from the same period in the previous year by EUR 0.4m to EUR 1.4m (Q3 2020: EUR 1.8m) with Adjusted EBITDA margins decreasing by 4.7% to 11.0% (Q3 2020: 15.7%) mainly as a result of the increased salaries and subcontractors costs as part of the Corporation’s strategy of investment in the expansion of its software development, product and senior management functions. A reconciliation between the current quarter’s reported figures and the prior year quarter’s figures to Adjusted EBITDA is shown in Note 5.3.
Cash flow from operating activities for the three months ended September 30, 2021, amounted to EUR 0.1m (Q3 2020: EUR 3.6m). The decrease was primarily due to increase in Selling, General and Administrative Expenses together with the decrease in working capital and paid taxes in the period.
Cash flow used in investing amounted to EUR 0.7m (Q3 2020: EUR 0.9m) and is mainly attributable to the additions of intangible assets in the value of EUR 0.7m (Q3 2020: EUR 0.8m). Cash flow used in financing activities amounted to EUR 0.1m (Q3 2020: EUR 0.0m).
Financial performance in the first nine months of 2021
Revenues
The Corporation’s revenue increased from the same period in the previous year by 30.4% to EUR 42.6m (nine months to September 2020: EUR 32.6m). Excluding the revenue from the acquisition of Wild Streak Gaming in June 2021 to the value of EUR 1.16m, the underlying growth for the period was up by 26.8%. The Corporation’s revenue growth was mainly in the games and content services as demand for the Group’s unique games and content proposition continues to grow. The Corporation’s growth was underpinned by continued investment and innovation in its technology and product offering with the focus on the Oryx Hub, data analytics and customer engagement platform and new in-house content, demonstrating the potential of the Corporation to further leverage its technology to accelerate growth with the goal of achieving profitability.
Expenses
Cost of goods amounted to EUR 22.3m (nine months to September 2020: EUR 18.5m) an increase of 20.5% from the same period in the previous year representing 52.3% of Corporation’s revenue, a decrease of 4.3% (nine months to September 2020: 56.6%) mainly attributable to the shift in proportion of revenue from games and content to owned games and content and iGaming and turnkey services, the latter of which have lower associated cost of sales.
Operating expenses (including the loss on remeasurement of deferred and contingent consideration) amounted to EUR 24.9m an increase of EUR 4.1m from the same period in the previous year (nine months to September 2020: EUR 20.8m).
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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Expenses were mainly driven by EUR 4.0m increase in salaries and subcontractors to support Corporation growth in technology, product, compliance, sales and senior management, an increase of EUR 3.7m in share based payment as part of the directors and management share based award in Q1 and Q3 2021, an increase in professional fees of EUR 1.5m in relation to legal and professional fees incurred on the Nasdaq listing and base shelf prospectus, an increase in transaction and acquisitions costs in the value of EUR 0.8m and a EUR 1.0m increase in other operational costs associated with directors and officers insurance. These adverse movements have been offset by the reduction of loss on remeasurement of deferred and contingent consideration for the period in the value of EUR 8.3m.
Profitability
Adjusted EBITDA amounted to EUR 5.7m (nine months to September 2020: EUR 4.3m) an increase of EUR 1.4m for the period with margins increasing by 0.2% to 13.3% (nine months to September 2020: 13.1%).
Operating loss amounted to EUR 4.6m (nine months to September 2020: EUR 6.6m) a decrease of EUR 2.0m mainly as a result of nil expenses relating to loss of remeasurement of deferred and contingent consideration (nine months to September 2020: EUR 8.3m) offset by increase in selling general and administrative expenses.
Investments
Cash flows used in investing activities amounted to EUR 21.7m (nine months to September 2020: EUR 1.8m) and is mainly attributable to deferred and contingent consideration payments of the Oryx cash earn-out in the value of EUR 11.5m in Q1 2021, (nine months to September 2020: Nil), consideration in connection with the acquisition of Wild Streak in the value of EUR 8.3m (nine months to September 2020: Nil) and additions of intangible assets in the value of EUR 2.1m (nine months to September 2020: EUR 1.6m).
Financing
Financing activities amounted to a net cash inflow of EUR 12.5m (nine months to September 2020: outflow EUR 0.2m) which is predominantly related to the net proceeds from exercise of warrants and broker warrants in the value of EUR 10.8m (nine months to September 2020: Nil) relating to the November 2020 public offering, EUR 1.3m (nine months to September 2020: Nil) relating to the private placement in which members of the Board and management participated in, and which closed on January 13, 2021; and EUR 0.6m in proceeds from exercise of stock options (nine months to September 2020: EUR nil).
Bragg Gaming Group Inc.
Management Discussion & Analysis
September 30, 2021
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Financial position
Cash and cash equivalents as of September 30, 2021, amounted to EUR 20.3m (December 31, 2020: EUR 26.1m), a decrease of 5.8m and decreased by EUR 0.7m in the three months to September 30, 2021. The primarily reason for the decrease in cash position from December 31, 2020 was the EUR 11.5m settlement of deferred and contingent consideration and EUR 8.3m cash investment for the acquisition of Wild Streak in June 2021, offset by proceeds from the exercise of warrants and broker warrants of EUR 10.8m.
Trade and other receivables as of September 30, 2021, totalled EUR 7.7m (December 31, 2020: EUR 10.3m) due to improvements in cash collection.
Prepaid expenses and other assets as of September 30, 2021, increased by EUR 1.7m to EUR 2.0m (December 31, 2020: EUR 0.3m) predominantly due to increase of EUR 0.9m in prepaid expenses in relation to the Corporation’s M&A activities and EUR 0.4m in relation to directors and officers’ insurance.
Trade payables and other liabilities as of September 30, 2021, decreased by EUR 0.5m to EUR 16.5m (December 31, 2020: EUR 17.0m) as result of a EUR 2.4m increase in trade payables and accrued liabilities to EUR 14.9m (December 31, 2020: EUR 12.5m) offset by a decrease in sales tax payable of EUR 2.9m to EUR 1.5m (December 31, 2020: EUR 4.4m).
Deferred and contingent considerations as of September 30, 2021, was EUR Nil (December 31, 2020: EUR 11.5m) due to the full settlement of the Oryx earn-out on January 18, 2021. Upon extinguishment of the Oryx earn-out liability the Corporation is no longer exposed, with the exception of lease commitments, to any long-term cash debts.
Nasdaq listing
On August 27, 2021, the Corporation began trading on Nasdaq under the symbol “BRAG”. The Corporation’s shares also continue to trade on the Toronto Stock Exchange.
Other
| (1) | Share Capital: As at September 30, 2021, the number of issued and outstanding shares was 19,956,034 (September 30, 2020: 8,036,385), the number of outstanding awards from equity incentive plans was 2,637,873 (September 30, 2020: 993,497), and the number of outstanding warrants was 16,886 (September 30, 2020: 2,866,058). |
| (2) | Employees: Excluding discontinued operations, as at September 30, 2021, the Corporation employed 273 employees (December 2020: 241) across Slovenia, UK, USA and Canada. Approximately 166 are part of the product technology team, 38 are part of business development, sales and marketing, 32 are part of the platform service and turnkey solutions and 37 in corporate head-office, management and support services. |
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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Strategic progress
The Corporation’s vision is to become a leading vertically integrated gaming content and technology provider in the iGaming industry, including as an iGaming turnkey solution provider and distributor and provider of online casino games via its in-house studio and via third party content providers, existing and new exclusive studio partnerships, and to capture an increasing proportion of the online gaming value chain. It plans to achieve this through the following:
1. Focus on Core Business Growth:
The Corporation intends to continue growing its core business by both adding new customers and expanding within its existing customer base alongside its customers as they increase their player base through organic growth and entering new jurisdictions.
The Corporation aims to gain new customers and support existing customers by continuing to innovate and allocating resources to drive superior player engagement to provide its customers a competitive advantage. This involves developing and securing exclusive premium content coupled with a focus on developing its platform, data analytics and player engagement tools designed to increase return on investment for Bragg’s customers.
The Corporation’s modern and proprietary technology was developed in-house, with the goal of enhancing the player experience, quickly and seamlessly integrating with customer operations to give immediate access to products and collecting and responding to real time data. The Corporation’s player engagement and data analytics tools are provided alongside its Oryx Hub distribution platform, and work across titles from any game supplier, whether the content is proprietary, exclusive, or licensed and aggregated from third parties.
During the third quarter of 2021, the Corporation rolled out a new version of its proprietary remote games server (RGS), rolled out a new back-office for its Oryx Hub customers, launched new content customers in multiple jurisdictions and invested in platform enhancements and improvements focused on the upcoming Dutch platform customers expected in Q4 this year. In addition, via its Wild Streak Gaming business in Las Vegas, the Corporation extended deals to supply land-based slot titles to International Game Technology (IGT) and Sega Sammy Creation Inc. For the three months ended September 30, 2021, customer concentration from the top 10 customers was 54.3% of total revenues, down by 1.3% compared to 55.6% of total revenues for the same period in the previous year. As of September 30, 2021, the Corporation’s total customer base was 128 customers (Q3 2020: 90), where a customer is a company or group of companies with one or more online casino operating licenses and one or more active online casino brands.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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2. Develop Games through Owned Studios:
The Corporation intends to develop and produce more proprietary casino content, which the Corporation believes offers significant Adjusted EBITDA margin expansion opportunities by capturing a greater share of revenue generated from games. The Corporation aims to capture between 90% and 100% of the revenue from proprietary games, compared to historically capturing approximately only 35% of revenue from the distribution of exclusive and non-exclusive third-party games.
Leveraging its many years of experience in game development and its proprietary player engagement tools, the Corporation plans to design its games to produce an enhanced player experience and increase the life-time-value of players.
The Corporation’s access to data through in-game performance monitoring features also allows it to create and adjust products to better serve players’ continuously shifting preferences. The Corporation is then able to distribute new and improved content to all operators on its network. The recent acquisition of Wild Streak added over 40 premium proprietary casino games to the Corporation’s portfolio, as well as the ideas, designs and skills of Doug Fallon and his experienced studio team.
During Q3 the Corporation launched two new proprietary games developed by its new in-house Oryx studio. The games were deployed across the network, were well received by players and have been producing solid performance metrics.
3. Focus on M&A and Other Strategic Transactions:
The Corporation also intends to continue to grow through non-core business initiatives including through M&A and other strategic transactions. The Corporation will continue to explore and consider various strategic acquisitions, investments, joint ventures, partnerships, and other commercial initiatives. It is expected that as part of the consideration for any such transactions, the Corporation may, subject to any customary approvals, issue additional shares or other securities in the capital of the Corporation.
4. Expand to New Markets:
The Corporation has an established presence in many jurisdictions in the European market, and in Q3 further expanded its regulated market reach by obtaining a license to supply its games and technology in Greece from the Hellenic Gaming Commission. In addition, the Corporation laid the groundwork for entry to the new Dutch regulated market by certifying its iGaming platform, remote games server (RGS) and an initial batch of online casino games in the territory, ready for the market launch in the Netherlands in October 2021.
As other geographies continue to adopt regulations in favour of online gaming, the Corporation believes it is well-positioned to expand into new markets. Bragg’s geographic growth strategy is driven by regulatory approvals and the subsequent creation of a new market. Markets where growth opportunities have been identified include the United States, Canada, Latin America, and the UK. Within Europe, the Corporation’s goal is to further diversify across the region and increase market share through strategic partnerships with suppliers and operators and through acquisitions.
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5. Expanding offering by introducing exclusive content:
The Corporation expects to expand its offering of premium exclusive third-party content. Through new investments and partnerships with more studios, it intends to increase distribution of premium and localized content. It anticipates that these exclusive deals as well as original content will allow the Corporation to create bespoke content adjustable to the markets in which it currently operates or plans to enter. The Corporation released 15 new exclusive games during the third quarter of 2021, and the Corporation is in discussions with several studios for the exclusive rights to further slot titles.
6. Diversify Product Offering:
To enhance its value proposition to existing customers as well as attract new customers, the Corporation actively seeks to diversify its suite of product offerings. This entails enhancing its content base through continued partnerships with leading studios. As the product suite continues to evolve and expand based on demand, the Corporation intends to continue investing in its technology stack.
During the third quarter the Corporation launched the rebrand of its suite of promotional tools, which include free rounds, in-game messaging, and tournaments with real-time leaderboards as the FUZE™ Player Engagement toolset. Furthermore during the quarter it launched additional functionality to FUZE™ in the form of missions and quests, a gamification layer which in a case study resulted in more than double the numbers of players, rounds and wagers seen during a quest (a quest is a series of connected missions) compared to the period before the campaign started.
The full functionality of FUZE™, including missions and quests, was successfully showcased at the iGB Live! iGaming trade show in Amsterdam on September 28-30, 2021, and the Corporation continues to develop further promotional mechanics, including customizable jackpots, to its product suite.
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Updates in various local markets
Germany
The Corporation has exposure to revenues derived from customers who have predominantly German end-users. The Corporation was prepared for the new regulatory regime which was introduced to the German market effective July 1, 2021, certifying its random number generator (RNG) and ensuring its games and technology were compliant with the new regulations. The Corporation anticipated a negative impact on revenue during Q3, 2021, mainly due to the elements of these new regulations relating to restrictions on game play, responsible gambling initiatives and gaming tax.
The final impact of these regulations on revenue in Q3, 2021 was lower than anticipated. During this period operators in the region were still in the process of applying for the new licenses, and as of September 30, 2021, no operator licenses had yet been issued by the German regulator. As a result as at the end of Q3 2021 it remained unclear which of Bragg's customers will be granted a license, and which will leave the market.
The full impact of the regulations – as anticipated in the Corporation’s strategy and growth expectations – is expected to be seen from the fourth quarter, 2021. and the Corporation will continue to monitor how the German market adjusts to the new regulatory framework, is closely working with its German facing customers, and expects to continue to be a major supplier in the jurisdiction.
European regulated countries
The Netherlands
The Corporation certified its iGaming platform, remote games server (RGS) and an initial batch of games with the Dutch regulators in preparation for market launch in October 2021.
The United Kingdom
The Corporation has applied for a game supply and hosting license from the United Kingdom Gambling Commission, which will enable it to extend its offer to the UK market and to some international clients already on board.
Italy
The Corporation is in the process of certifying content which will allow it to supply customers in the Italian market.
The United States
The Corporation has applied for a supplier license in New Jersey, Pennsylvania, and Michigan.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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Other
The Corporation was awarded a Greek B2B license in August 2021, has applied for a B2B license in Belgium and continues to monitor other EU and non-EU markets for regulatory developments.
The Corporation is in the process of applying for a B2B license in Ontario, Canada, has also applied for a Bahamian supplier license.
Outlook
The Corporation continues to invest in new and proprietary content, invest in its leading technology and grow and diversify its global footprint by entering into new markets in Europe and in North America and by winning new customers in new jurisdictions. Reflecting the continued progress being achieved with these and other strategic initiatives, the Corporation expects to be able to grow the Total Addressable Market (“TAM”) of approximately USD $2.8 billion it served at the beginning of 2021 to a TAM of approximately USD $18.4 billion next year.
The Corporation also expects to increase its output of games designed and produced by in-house studios. This year it relaunched its in-house Oryx Gaming studio and it is on track to release a total of five games from the studio by the end of 2021. In 2022, the Corporation expects to further increase its output of games from its in-house studios, with localized versions for both European and North American markets. The increased proportion of in-house games released is expected to benefit the Corporation’s gross profit margin profile.
The Corporation’s North American (U.S. and Canada) market expansion is progressing according to plan and in August 2021, the Corporation listed its shares on the Nasdaq. The global outbreak of COVID-19, has had, and continues to have, a significant impact on the global economy. The Corporation derives the majority of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”, requiring people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses such as Netflix have. Management continues to monitor the effects COVID-19 on the Corporation’s performance and will amend its outlook as, and if, it deems necessary.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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| 5. | FINANCIAL RESULTS |
| 5.1 | Basis of financial discussion |
The financial information presented below has been prepared to examine the results of operations from continuing activities. During the year ended December 31, 2019, the Corporation decided to discontinue its online media business unit. As such, the performance of the online media division has been excluded.
The presentation currency of the Corporation is the Euro, while the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British pound sterling due to primary location of individual entities within our corporate group. The presentation currency of the Euro has been selected as it best represents the majority of the Corporation’s economic inflows, outflows as well as its assets and liabilities.
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| 5.2 | Selected interim information |
The following is selected financial data of the Corporation for the three and nine months ended September 30, 2021, and 2020.
The primary non-IFRS financial measure which the Corporation uses is Adjusted EBITDA3. When internally analyzing underlying operating performance, management excludes certain items from EBITDA (earnings before interest, tax, depreciation, and amortization).
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| EUR 000 | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenue | 12,874 | 11,714 | 42,561 | 32,643 | ||||||||||||
| Net Loss from continuing operations | (2,477 | ) | (3,156 | ) | (5,882 | ) | (9,160 | ) | ||||||||
| EBITDA | (943 | ) | (1,533 | ) | (1,380 | ) | (4,400 | ) | ||||||||
| Adjusted EBITDA | 1,418 | 1,834 | 5,660 | 4,287 | ||||||||||||
| Basic and diluted loss per share | ||||||||||||||||
| - continuing operations | (0.12 | ) | (0.39 | ) | (0.30 | ) | (1.14 | ) | ||||||||
| As at | As at | |||||||||||||||
| September 30, | December 31, | |||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Total assets | 86,622 | 72,094 | ||||||||||||||
| Total non-current financial liabilities | 487 | 593 | ||||||||||||||
| Dividends paid | nil | nil | ||||||||||||||
Non-current financial liabilities consist of lease obligations on right of use assets in relation to office leases.
With the exception of EBITDA and Adjusted EBITDA, the financial data has been prepared to conform with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These accounting principles have been applied consistently across for all reporting periods.
3 Adjusted EBITDA excludes income or expenses that relate to exceptional items and non-cash share-based charges and includes deductions for lease expenses that are recognized as part of depreciation and finance charges under IFRS 16.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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| 5.3 | Other financial information |
To supplement its September 30, 2021 interim financial statements presented in accordance with IAS 34, Interim Financial Reporting, the Corporation considers certain financial measures that are not prepared in accordance with IFRS. The Corporation uses such non-IFRS financial measures in evaluating its operating results and for financial and operational decision-making purposes. The Corporation believes that such measures help identify underlying trends in its business that could otherwise be masked by the effect of the expenses that it excludes in such measures.
The Corporation also believes that such measures provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. However, these measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with IFRS. There are a number of limitations related to the use of such non-IFRS measures as opposed to their nearest IFRS equivalents.
A reconciliation of operating loss to EBITDA and Adjusted EBITDA is as follows:
| Three Months
Ended September 30, | Nine Months
Ended September 30, | |||||||||||||||
| EUR 000 | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Operating loss | (2,276 | ) | (2,282 | ) | (4,600 | ) | (6,600 | ) | ||||||||
| Depreciation and amortization | 1,333 | 749 | 3,220 | 2,200 | ||||||||||||
| EBITDA | (943 | ) | (1,533 | ) | (1,380 | ) | (4,400 | ) | ||||||||
| Depreciation of right-of-use assets | (40 | ) | (48 | ) | (115 | ) | (153 | ) | ||||||||
| Lease interest expense | (5 | ) | (6 | ) | (15 | ) | (18 | ) | ||||||||
| Share based payments | 1,480 | 91 | 3,680 | (3 | ) | |||||||||||
| Transaction and acquisition costs | 204 | 188 | 1,340 | 532 | ||||||||||||
| Exceptional costs | 722 | - | 2,150 | - | ||||||||||||
| Loss on remeasurement of contingent consideration | - | 3,142 | - | 8,329 | ||||||||||||
| Adjusted EBITDA | 1,418 | 1,834 | 5,660 | 4,287 | ||||||||||||
Exceptional costs in the nine months to September 30, 2021, include one-time costs for the Corporation, of which EUR 1.4m is in relation to legal and professional fees on the Nasdaq listing, base shelf prospectus and other non-recurring regulatory and legal matters (Q3 2020: Nil) and EUR 0.7m (Q3 2020: Nil) is relating to the termination of the employment contract of the previous interim CEO in June 2021.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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| 5.4 | Selected financial information |
Selected financial information is as follows:
| Three Months
Ended September 30, | Nine Months
Ended September 30, | |||||||||||||||
| EUR 000 | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenue | 12,874 | 11,714 | 42,561 | 32,643 | ||||||||||||
| Operating loss | (2,276 | ) | (2,282 | ) | (4,600 | ) | (6,600 | ) | ||||||||
| EBITDA | (943 | ) | (1,533 | ) | (1,380 | ) | (4,400 | ) | ||||||||
| Adjusted EBITDA | 1,418 | 1,834 | 5,660 | 4,287 | ||||||||||||
| As at | As at | |||||||||||||||
| September 30, | December 31, | |||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Total assets | 86,622 | 72,094 | ||||||||||||||
| Total liabilities | 20,505 | 32,197 | ||||||||||||||
TRADE AND OTHER RECEIVABLES
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| EUR 000 | 2021 | 2020 | ||||||
| Less than one month | 7,952 | 9,563 | ||||||
| Between two and three months | 391 | 1,193 | ||||||
| Greater than three months | 1,355 | 1,296 | ||||||
| 9,698 | 12,052 | |||||||
| Provision for expected credit losses | (2,007 | ) | (1,755 | ) | ||||
| Trade and Other Receivables | 7,691 | 10,297 | ||||||
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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TRADE PAYABLES AND OTHER LIABILITIES
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Trade payables | 2,545 | 6,406 | ||||||
| Accrued liabilities | 12,373 | 6,099 | ||||||
| Sales tax payable | 1,496 | 4,356 | ||||||
| Other payables | 48 | 107 | ||||||
| Trade Payables and Other Liabilities | 16,462 | 16,968 | ||||||
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| 5.5 | Summary of quarterly results |
The following table presents the selected financial data for continuing operations for each of the past eight quarters of the Corporation.
| 4Q19 | 1Q20 | 2Q20 | 3Q20 | 4Q20 | 1Q21 | 2Q21 | 3Q21 | |||||||||||||||||||||||||
| 2019 | 2020 | 2021 | ||||||||||||||||||||||||||||||
| EUR 000 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | ||||||||||||||||||||||||
| Revenue | 7,841 | 8,784 | 12,145 | 11,714 | 13,778 | 14,196 | 15,491 | 12,874 | ||||||||||||||||||||||||
| Operating income (loss) | (2,895 | ) | (5,080 | ) | 762 | (2,282 | ) | (5,296 | ) | (499 | ) | (1,825 | ) | (2,276 | ) | |||||||||||||||||
| EBITDA | (2,376 | ) | (4,296 | ) | 1,429 | (1,533 | ) | (4,623 | ) | 337 | (774 | ) | (943 | ) | ||||||||||||||||||
| Adjusted EBITDA | 737 | 702 | 1,751 | 1,834 | 1,259 | 2,342 | 1,900 | 1,418 | ||||||||||||||||||||||||
| Loss per share (EUR) | ||||||||||||||||||||||||||||||||
| - Basic and diluted | (0.70 | ) | (0.67 | ) | (0.08 | ) | (0.39 | ) | (0.52 | ) | (0.06 | ) | (0.12 | ) | (0.12 | ) | ||||||||||||||||
| 5.6 | Liquidity and capital resources |
The Corporation’s principal sources of liquidity are its cash generated from operations. Currently available funds consist primarily of cash on deposit with banks. The Corporation calculates its working capital requirements from continuing operations as follows:
| As at | As at | |||||||
| September 30, | December 31, | |||||||
| EUR 000 | 2021 | 2020 | ||||||
| Cash and cash equivalents | 20,305 | 26,102 | ||||||
| Trade and other receivables | 7,691 | 10,297 | ||||||
| Prepaid expenses and other assets | 1,991 | 263 | ||||||
| Consideration receivable | 92 | 148 | ||||||
| Current liabilities excluding deferred and contingent consideration | (18,693 | ) | (18,521 | ) | ||||
| Net working capital | 11,386 | 18,289 | ||||||
| Deferred and contingent consideration | - | (11,521 | ) | |||||
| Net current assets from continuing operations | 11,386 | 6,768 | ||||||
All contingent liabilities in relation to the Oryx earn-out were settled in full to the Oryx vendor on January 18, 2021, following shareholder approval on November 27, 2020. On January 18, 2021, the Corporation satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares. Cash paid totaled EUR 11.6m, of which EUR 11.5m fully settled deferred and contingent consideration payable and EUR 0.1m settled interest payable and legal fees.
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The undiscounted contractual maturities of significant financial liabilities and the total contractual obligations of the Corporation as at September 30, 2021 are below:
| 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||
| Trade payables and other liabilities | 16,462 | - | - | - | - | 16,462 | ||||||||||||||||||
| Lease obligations on right of use assets | 44 | 172 | 157 | 157 | 157 | 687 | ||||||||||||||||||
| 16,506 | 172 | 157 | 157 | 157 | 17,149 | |||||||||||||||||||
MARKET RISK
The Corporation is exposed to market risks, including changes to foreign currency exchange rates and interest rates.
FOREIGN CURRENCY EXCHANGE RISK
The Corporation is exposed to foreign currency risk, which includes risks related to its revenue and operating expenses denominated in currencies other than EUR, which is both the reporting currency and primary contracting currency of the Corporation’s customers. Accordingly, changes in exchange rates may in the future reduce the purchasing power of the Corporation’s customers thereby potentially negatively affecting the Corporation’s revenue and other operating results.
The Corporation has experienced and will continue to experience fluctuations in its net income (loss) as a result of translation gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded.
LIQUIDITY RISK
The Corporation is also exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Corporation manages liquidity risk by continuously monitoring its forecasted and actual cash flows, and matching maturity profiles of financial assets and liabilities.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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| 5.7 | Cash flow summary |
The cash flow from continuing operations may be summarized as follows:
| Nine Months Ended September 30, | ||||||||
| EUR 000 | 2021 | 2020 | ||||||
| Operating activities | 2,220 | 6,704 | ||||||
| Investing activities | (21,680 | ) | (1,772 | ) | ||||
| Financing activities | 12,521 | (188 | ) | |||||
| Effect of foreign exchange | 1,142 | - | ||||||
| Net cash flow (used in) from continuing operations | (5,797 | ) | 4,744 | |||||
Cash flows used in investing activities is primarily due to final settlement of the Oryx earn out on January 18, 2021, of EUR 11.5m (nine months ended September 30, 2020: Nil), cash consideration paid in relation to acquisition of Wild Streak of EUR 8.3m (nine months ended September 30, 2020: Nil), and additions to intangible assets of EUR 2.1m (nine months ended September 30, 2020: EUR 1.6m):
| Nine Months Ended September 30, | ||||||||
| EUR 000 | 2021 | 2020 | ||||||
| Purchases of property and equipment | (72 | ) | (161 | ) | ||||
| Additions in intangible assets | (2,091 | ) | (1,642 | ) | ||||
| Proceeds from sale of discontinued operations | 148 | 31 | ||||||
| Consideration paid upon business combination | (8,268 | ) | - | |||||
| Cash acquired from business combination | 124 | - | ||||||
| Deferred and contingent consideration payments | (11,521 | ) | - | |||||
| Cash Flows Used in Investing Activities | (21,680 | ) | (1,772 | ) | ||||
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Cash flows from (used in) financing activities comprise EUR 10.8m of net proceeds from the exercise of warrants and broker warrants issued as part of the November 2020 equity raise, EUR 1.3m of net proceeds from shares issued to directors and officers of the Corporation in connection with a private placement (nine months ended September 30, 2020: Nil) and EUR 0.6m of proceeds from exercise of stock options (nine months ended September 30, 2020: Nil):
| Nine Months Ended September 30, | ||||||||
| EUR 000 | 2021 | 2020 | ||||||
| Proceeds from exercise of warrants and broker warrants | 10,817 | - | ||||||
| Proceeds from exercise of stock options | 636 | - | ||||||
| Proceeds from shares to be issued upon private placement, net of issuance costs | 1,310 | - | ||||||
| Repayment of lease liability | (110 | ) | (160 | ) | ||||
| Interest income | 54 | 8 | ||||||
| Interest and financing fees | (186 | ) | (36 | ) | ||||
| Cash Flows From (Used in) Financing Activities | 12,521 | (188 | ) | |||||
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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| 6 | TRANSACTIONS BETWEEN RELATED PARTIES |
The Corporation’s policy is to conduct all transactions and settle all balances with related parties on market terms and conditions for those in the normal course of business. Transactions between the Corporation and its consolidated entities have been eliminated on consolidation and are not disclosed in this note.
Key Management Personnel
The Corporation’s key management personnel are comprised of members of the Board and the executive team which consists of the Chief Executive Officer, Chief Financial Officer, Chief Strategy Officer and Chief Technology Officer. Three key management employees are also shareholders in the Corporation. Transactions and balances between the Corporation and its key management personnel are as follows:
| · | Revenues for the three and nine months ended September 30, 2021, to a shareholder of the Corporation totalled EUR 44 and EUR 93 (three and nine months ended September 30, 2020: EUR 105 and EUR 115), respectively. |
| · | Total compensation for salaries, director fees, share-based payments, and short-term employee benefits of key management personnel of the Corporation for the three and nine months ended September 30, 2021, totalled EUR 2,136 and EUR 6,480 (three and nine months ended September 30, 2020: EUR 288 and EUR 1,262), respectively. |
| · | Total compensation for salaries and short-term employee benefits of vendors of the sale of Wild Streak and subsequently employees of the Corporation for the three and nine months ended September 30, 2021, totalled EUR 151 and EUR 188, respectively (three and nine months ended September 30, 2020: EUR nil). |
| · | Loss on remeasurement of deferred and contingent consideration payable to the former Managing Director of Oryx for the three and nine months ended September 30, 2021, was nil (three and nine months ended September 30, 2020: EUR 3,142 and EUR 8,329, respectively). While the key management employee is no longer Managing Director of Oryx, they remain a director of the Corporation. |
| · | Interest expense on deferred and contingent consideration payable to the former Managing Director of Oryx for the three and nine months ended September 30, 2021, totalled EUR nil and EUR 52, respectively (three and nine months ended September 30, 2020: EUR nil). |
| · | During the three and nine months ended September 30, 2021, legal fees of EUR nil and EUR 25 payable to the former Managing Director of Oryx in relation to the Oryx earn-out was recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss (three and nine months ended September 30, 2020: EUR nil). |
| · | During the three and nine months ended September 30, 2021, professional fees of EUR 2 and EUR 87, respectively payable to a related business of a non-executive director of the Corporation was recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss (three and nine months ended September 30, 2020: EUR nil). |
| · | As at September 30, 2021, EUR 78 of trade and other receivables was receivable from the former Managing Director of Oryx and other shareholders (December 31, 2020: EUR 4). |
| · | As at September 30, 2021, EUR 69 of prepaid expenses and other assets was receivable from a related business of a non-executive director of the Corporation (December 31, 2020: EUR nil). |
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| · | As at September 30, 2021, EUR 172 of trade payables and other liabilities was due to the Corporation’s key management personnel (December 31, 2020: EUR 166). |
| · | As at September 30, 2021, EUR 75 of trade payables and other liabilities was due to the vendors of the sale of Wild Streak and subsequently employees of the Corporation (December 31, 2020: EUR nil). |
| · | As at September 30, 2021, EUR nil of deferred and contingent consideration was payable to the former Managing Director of Oryx (December 31, 2020: EUR 11,521). |
| · | During the three and nine months ended September 30, 2021, EUR nil and 22,000, respectively of share capital (three and nine months ended September 30, 2020: EUR nil) was issued to the former Managing Director of Oryx upon completion of the earn-out. A corresponding decrease in shares to be issued was recognized in the interim unaudited condensed consolidated statements of changes in equity. |
| · | During the three and nine months ended September 30, 2021, EUR 13,746 of shares to be issued (three and nine months ended September 30, 2020: EUR nil) to the vendors for the sale of Wild Streak and subsequently employees of the Corporation was recognized in the interim unaudited condensed consolidated statements of changes in equity. |
| · | During the three and nine months ended September 30, 2021, EUR nil and EUR 1,918, respectively of additional share capital was recognized in the interim unaudited condensed consolidated statements of changes in equity in relation to the private placement by key management personnel of the Corporation (three and nine months ended September 30, 2020: EUR nil). |
| · | During the three and nine months ended September 30, 2021, EUR nil and EUR 410 additional share capital, respectively, was recognized in the interim unaudited condensed consolidated statements of changes in equity for exercise of DSUs, RSUs and FSOs by key management personnel of the Corporation (three and nine months ended September 30, 2020: EUR 219). |
| · | During the nine months ended September 30, 2021, a total of EUR 11,521 in payments were made to the former Managing Director of Oryx for deferred consideration (nine months ended September 30, 2020: EUR nil). |
| · | During the nine months ended September 30, 2021, a total of EUR 140 in payments were made to the former Managing Director of Oryx for interest on deferred and contingent consideration payable (nine months ended September 30, 2020: EUR nil). |
| · | During the nine months ended September 30, 2021, a total of EUR 8,271 in cash consideration payments were made to the vendors of the sale of Wild Streak (nine months ended September 30, 2020: EUR nil). |
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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| 7 | DISCLOSURE OF OUTSTANDING SHARE DATA |
The number of equity-based instruments granted or issued may be summarized as follows:
| September 30, | November 8, | |||||||
| 2021 | 2021 | |||||||
| Common Shares | 19,956,034 | 19,956,034 | ||||||
| Broker Warrants | 16,886 | 16,886 | ||||||
| Fixed Stock Options | 2,124,073 | 2,124,073 | ||||||
| Restricted Share Units | 235,000 | 235,000 | ||||||
| Deferred Share Units | 278,800 | 278,800 | ||||||
| 22,610,793 | 22,610,793 | |||||||
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| 8 | SIGNIFICANT ACCOUNTING ESTIMATES |
The preparation of the interim unaudited condensed consolidated financial statements requires management to make estimates and judgments in applying the Corporation’s accounting policies that affect the reported amounts and disclosures made in the consolidated financial statements and accompanying notes.
Within the context of the interim unaudited condensed consolidated financial statements, a judgment is a decision made by management in respect of the application of an accounting policy, a recognized or unrecognized financial statement amount and/or note disclosure, following an analysis of relevant information that may include estimates and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances recognized or disclosed in the consolidated financial statements and are based on a set of underlying data that may include management’s historical experience, knowledge of current events and conditions and other factors that are believed to be reasonable under the circumstances.
Management continually evaluates the estimates and judgments it uses.
The following are the accounting policies subject to judgments and key sources of estimation uncertainty that the Corporation believes could have the most significant impact on the amounts recognized in the interim unaudited condensed consolidated financial statements.
Impairment of non-financial assets (property and equipment, right-of-use assets, intangible assets and goodwill)
| - | Judgments made in relation to accounting policies applied |
Management is required to use judgment in determining the grouping of assets to identify their CGUs for the purposes of testing property and equipment, intangible assets and right-of-use assets for impairment. Judgment is further required to determine appropriate groupings of CGUs for the level at which goodwill and intangible assets are tested for impairment.
The Corporation has determined that B2B Online Gaming and Online Media, part of discontinued operations, are two separate CGUs for the purposes of property and equipment, intangible assets and right-of-use asset impairment testing. For the purpose of goodwill impairment testing, CGUs are grouped at the lowest level at which goodwill is monitored for internal management purposes. In addition, judgment is used to determine whether a triggering event has occurred requiring an impairment test to be completed.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
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| - | Key sources of estimation |
In determining the recoverable amount of a CGU or a group of CGUs, various estimates are employed. The Corporation determines fair value less costs to sell using such estimates as market rental rates for comparable properties, recoverable operating costs for leases with tenants, non-recoverable operating costs, discount rates, capitalization rates and terminal capitalization rates. The Corporation determines value in use by using estimates including projected future revenues, earnings and capital investment consistent with strategic plans presented to the Board. Discount rates are consistent with external industry information reflecting the risk associated with the specific cash flows.
Impairment of accounts receivable
In each stage of the expected credit loss (“ECL”) impairment model, impairment is determined based on the probability of default, loss given default, and expected exposures at default. The application of the ECL model requires management to apply the following significant judgments, assumptions, and estimations:
| - | movement of impairment measurement between the three stages of the ECL model, based on the assessment of the increase in credit risks on accounts receivables. The assessment of changes in credit risks includes qualitative and quantitative factors of the accounts, such as historical credit loss experience and external credit scores; |
| - | thresholds for significant increase in credit risks based on changes in probability of default over the expected life of the instrument relative to initial recognition; and |
| - | forecasts of future economic conditions. |
Leases
| - | Judgments made in relation to accounting policies applied |
Management exercises judgment in determining the appropriate lease term on a lease-by-lease basis. Management considers all facts and circumstances that create an economic incentive to exercise a renewal option or to not exercise a termination option including investments in major leaseholds and past business practice and the length of time remaining before the option is exercisable. The periods covered by renewal options are only included in the lease term if management is reasonably certain to renew. Management considers reasonably certain to be a high threshold. Changes in the economic environment or changes in the office rental industry may impact management’s assessment of lease term, and any changes in management’s estimate of lease terms may have a material impact on the Corporation’s interim unaudited condensed consolidated statements of financial position and interim unaudited condensed consolidated statements of loss and comprehensive income (loss).
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| - | Key sources of estimation |
In determining the carrying amount of right-of-use assets and lease liabilities, the Corporation is required to estimate the incremental borrowing rate specific to each leased asset or portfolio of leased assets if the interest rate implicit in the lease is not readily determined. Management determines the incremental borrowing rate using a base risk-free interest rate estimated by reference to the bond yield with an adjustment that reflects the Corporation’s credit rating, the security, lease term and value of the underlying leased asset, and the economic environment in which the leased asset operates. The incremental borrowing rates are subject to change due to changes in the business and macroeconomic environment.
Warrants and share options
| - | Judgments made in relation to accounting policies applied |
Management exercises judgment in determining the model used and the inputs therein to valuate the value of share option grants and issued warrants. Management considers all facts and circumstances for each grant issuance on an individual basis.
| - | Key sources of estimation |
In determining the fair value of warrants and share options, the Corporation is required to estimate the future volatility of the market value of the Corporation’s shares by reference to its historical volatility or comparable companies over the previous years, a risk-free interest rate estimated by reference to the Government of Canada bond yield, and a dividend yield of nil.
Contingent consideration
| - | Judgments made in relation to accounting policies applied |
Management exercises judgment in determining the appropriate fair value of contingent consideration and considers all facts and circumstances relevant to the acquisition’s future earnings upon which the liability is calculated. Any changes in the economic environment or operational activity of the acquisition may impact management’s assessment of the liability and may have a material impact on the Corporation’s interim unaudited condensed consolidated statements of financial position and interim unaudited condensed consolidated statements of loss and comprehensive income (loss).
| - | Key sources of estimation |
In determining the fair value of contingent consideration, the Corporation is required to estimate the future earnings generated by the acquisition over an agreed period after the acquisition and apply defined and fixed rules in order to calculate the expected future payment. The Corporation determines fair value by using estimates including projected future earnings of the acquisition consistent with strategic plans presented to the Board. Discount rates are consistent with external industry information reflecting the risk associated with the specific cash flows.
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| 9 | CHANGES IN ACCOUNTING POLICY |
There have been no changes in the Corporation’s accounting policies in any of the reporting periods discussed in this MD&A.
| 10 | RISK FACTORS AND UNCERTAINTIES |
Certain factors, listed below, may have a material adverse effect on the Corporation’s business, financial condition, and results of operations. Current and prospective investors should carefully consider the risks and uncertainties and other information contained in this MD&A and the corresponding financial statements.
The risks and uncertainties described herein and therein are not the only ones the Corporation may face. Additional risks and uncertainties that the Corporation is unaware of, or that the Corporation currently believes are not material, may also become important factors that could adversely affect the Corporation’s business. If any of such risks actually occur, the Corporation’s business, financial condition, results of operations, and future prospects could be materially and adversely affected.
Limited operating history
The Corporation has a limited operational history. The Corporation has never paid dividends and has no present intention to pay dividends. The Corporation is subject to the risks including uncertainty of revenues, markets and profitability and the need to obtain additional funding. The Corporation will be committing, and for the foreseeable future will continue to commit, significant financial resources to marketing, product development and research. The Corporation's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. Such risks include the evolving and unpredictable nature of the Corporation's business, the Corporation's ability to anticipate and adapt to a developing market and the ability to identify, attract and retain qualified personnel. There can be no assurance that the Corporation will be successful in doing what is necessary to address these risks.
Key personnel
The success of the Corporation may be dependent on the services of its senior management and consultants. The experience of these individuals may be a factor contributing to the Corporation's continued success and growth. The loss of one or more of its key employees or consultants could have a material adverse effect on the Corporation's operations and business prospects. In addition, the Corporation's future success will depend in large part on its ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. There can be no assurance that the Corporation will be successful in attracting and retaining such personnel and the failure to do so could have a material adverse effect on the Corporation's business, operating results, and financial condition.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
31
Additional financing requirements
In order to accelerate the Corporation's growth objectives, it may need to raise additional funds from lenders and equity markets in the future. There can be no assurance that the Corporation will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The ability of the Corporation to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of the Corporation. There can be no assurance that the Corporation will be successful in its efforts to arrange additional financing on terms satisfactory to the Corporation. If additional financing is raised by the issuance of Common Shares from the treasury of the Corporation, control of the Corporation may change, and shareholders may suffer additional dilution to current levels as a result of shares under option and broker warrants.
Competition
The Corporation may not be able to compete successfully against current and future competitors, and the competitive pressures the Corporation faces could harm its business and prospects. Broadly speaking, the market for gambling businesses and media companies is highly competitive. The level of competition is likely to increase as current competitors improve their product offerings and as new participants enter the market. Some of the Corporation's current and potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater financial, sales, marketing, technical and other resources than the Corporation. Additionally, these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with products the Corporation markets and distributes.
New technologies and the expansion of existing technologies may also increase competitive pressures on the Corporation. Increased competition may result in reduced operating margins as well as loss of market share.
Management of growth
The Corporation may be subject to growth-related risks including capacity constraints and pressure on its operating systems and systems of internal controls. The Corporation's ability to manage its growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base.
The inability of the Corporation to deal with this growth could have a material adverse impact on its business, operations, and prospects. While management believes that it will have made the necessary investments in infrastructure to process anticipated volume increases in the short term, the Corporation may experience growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for the Corporation's personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, the Corporation will also need to continue to implement and improve its operational, financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance that the Corporation will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support the Corporation's operations or that the Corporation will be able to achieve the increased levels of revenue commensurate with the increased levels of operating expenses associated with this growth.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
32
Absence of profits
The Corporation has not earned any profits to date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained. A significant portion of the Corporation's financial resources will continue to be directed to the development of its products and to marketing activities. The success of the Corporation will ultimately depend on its ability to generate revenues such that the business development and marketing activities may be financed by revenues from operations instead of external financing. There is no assurance that future revenues will be sufficient to generate the required funds to continue such business development and marketing activities.
Conflicts of interest
Certain proposed directors and officers of the Corporation may become associated with other reporting issuers or other Companies which may give rise to conflicts of interest. In accordance with the Canada Business Corporations Act, directors who have a material interest or any person who is a party to a material contract or a proposed material contract with the Corporation are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly and in good faith with a view to the best interests of the Corporation, as the case may be. Certain of the directors have either other employment or other business or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time to the affairs of the Corporation.
COVID-19
At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Corporation as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by Canada and other countries to fight the virus.
Our main priorities in dealing with the COVID-19 situation are to minimize the risk of spreading the virus and to create a safe workplace for our employees as well as to maintain the operation for our operators. We continue to comply with all the requirements from the authorities in the countries we operate in, and in many instances, we have taken more far-reaching initiatives. Thanks to the measures that have been implemented in terms of social distancing, changed working processes and routines for our employees, our operations have been able to continue without any large negative effects.
However, the Corporation derives the majority of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”, requiring people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses such as Netflix have. Furthermore, the Corporation has limited exposure to sports betting revenues that have obviously been impacted by the lack of professional sports.
As at the time of publishing, the Corporation’s financial performance, financial position and cash flow has been positively impacted as a result of people staying at home. Management will continue to monitor events and effects to the Corporation closely and will amend its forecasts as and when it deems necessary.
| 11 | ADDITIONAL INFORMATION |
Additional information relating to the Corporation, including the Corporation’s annual information form, quarterly and annual reports and supplementary information is available on SEDAR at www.sedar.com.
Press releases and other information are also available in the Investor section of the Corporation’s website at www.bragg.games.
Bragg Gaming Group Inc. Management Discussion & Analysis September 30, 2021 |
33
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Richard Carter, Chief Executive Officer of Bragg Gaming Group Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Bragg Gaming Group Inc. (the "issuer") for the interim period ended September 30, 2021. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control-Integrated Framework. < |
| 5.2 | ICFR – material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
1
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2021 and ended on September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November 8, 2021
| /s/ Richard Carter | |
| Richard Carter | |
| Chief Executive Officer |
2
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Ronen Kannor, Chief Financial Officer of Bragg Gaming Group Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Bragg Gaming Group Inc. (the "issuer") for the interim period ended September 30, 2021. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control-Integrated Framework. < |
| 5.2 | ICFR – material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2021 and ended on September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November, 8, 2021
| /s/ Ronen Kannor | |
| Ronen Kannor | |
| Chief Financial Officer |
1
Exhibit 99.5
BRAGG GAMING GROUP 2021 THIRD QUARTER REVENUE RISES 9.9%
New Proprietary Online Content, Market Expansion
and Customer Additions
Driving Continued Quarterly Growth and Increased Forward Outlook
Raises Full Year 2021 Revenue Guidance to EUR €55-56 million (USD $65-66 Million1)
and Adjusted EBITDA to EUR €6.6-€6.8 million (USD $7.8-8.0 million); Increases Full Year 2022 Revenue Guidance by 9% to €59-61 million (USD $70-72 Million)
TORONTO, November 8, 2021 – Bragg Gaming Group (NASDAQ: BRAG, TSX: BRAG) ("Bragg" or the "Company"), a global B2B gaming technology and content provider, today reported financial results for the third quarter ended September 30, 2021, provided an update on its strategic growth initiatives and raised its full year 2021 revenue and Adjusted EBITDA and full year 2022 revenue guidance.
Summary of Q3-21 Financial and Operational Highlights
| Euros (Thousands) | Q3-21 | Q3-20 | % Change | |||||||||
| Revenue | € | 12,874 | € | 11,714 | 9.9 | % | ||||||
| Adjusted EBITDA | € | 1,418 | € | 1,834 | -22.7 | % | ||||||
| Adjusted EBITDA margin | 11.0 | % | 15.7 | % | -4.7 | % | ||||||
| Operational | Q3-21 | Q3-20 | % Change | |||||||||
| Wagering revenue (Euros) | € | 3.2 | B | € | 3.0 | B | 4.8 | % | ||||
| Unique players2 | 2.1 | M | 1.9 | M | 14.4 | % | ||||||
| Revenue / top 10 customers | 54.3 | % | 55.6 | % | -1.3 | % | ||||||
Select Recent Strategic Development Progress
| · | On August 27, Bragg’s common shares began trading on the Nasdaq Global Select Market. |
| · | Bragg continues to diversify its European market penetration, including earlier activations in Spain and Denmark followed by Greece in the third quarter. |
| · | In October, the Company entered the newly regulated market in the Netherlands with operators including state-owned Holland Casino, the state-owned Lottery (Nederlandse Loterij) and BetCity.nl. |
1 Bragg’s reporting currency is Euros. The exchange rate provided for U.S. dollars is 1.18. Due to fluctuating currency exchange, this rate is provided for convenience only.
2 “Unique players" are defined as individuals who made a real money wager at least once during the period.
| · | In October, the Company entered into an integration agreement with Playtech that will see the full range of ORYX Hub games become available to operators utilizing the Playtech Games Marketplace™ platform in markets such as Spain, Italy, Switzerland, the Netherlands, the UK, Mexico and Latin America. The Company believes the integration with Playtech offers material medium and long-term growth opportunities for its existing third-party content and for its future in-house developed proprietary content. In addition, the agreement with Playtech will further drive Bragg’s strategic shift into new regulated markets and focus on supplying larger Tier 1 iGaming operators. |
| · | During the third quarter the Company launched nine new customers. |
| · | The Company continues to actively pursue and prepare for entry into new online gaming markets, including Europe’s two largest iGaming markets, the UK and Italy. Contributions from these two markets are expected to begin in 2022. The Company has applied for licenses in New Jersey, Pennsylvania and Michigan, and is in the process of applying for a license in Ontario. |
| · | During the third quarter, the Company launched 13 new exclusive games via its ORYX Hub in partnership with third-party studios, and two new proprietary games from its in-house studio. |
| · | As of September 30, 2021 the Company’s Wild Streak game development studio had nine online casino games live in key iGaming markets such as New Jersey, Michigan, the UK and other regulated European jurisdictions. Wild Streak also recently expanded its relationship with Sega Sammy Creation Inc., whereby Sega Sammy will develop two additional Wild Streak games that are popular in social and online casinos -- Dragon PowerTM and Egyptian MagicTM -- for land-based casinos. |
| · | The Company expects to complete its acquisition of Spin Games LLC (“Spin Games”) in the current quarter, pending final regulatory approvals from various U.S. states’ gaming commissions. Upon completion of the transaction, Bragg will gain access to key strategic operator relationships in the U.S. where Spin Games has over 30 customers, including leading iGaming operators. The Company has completed the technical integration between Spin Games and its ORYX Hub distribution platform. |
CEO Comments
“Bragg’s strong 2021 third quarter financial performance and our increased guidance reflects the contributions from our comprehensive growth initiatives, including the consistent progress we have achieved with new market diversification and our ability to offer more new high-performing propriety and exclusive third-party online content,” said Richard Carter, CEO of Bragg Gaming Group.
“During the third quarter, our newest markets performed above our expectations and this momentum continues in the current quarter to-date. Besides the benefits from new market penetration, our recent proprietary games from our in-house development studios are also driving growth. Third quarter revenue rose 9.9% year over year to EUR €12.9 million (USD $15.2 million) while Adjusted EBITDA decreased by 22.7% to EUR €1.4 million (USD $1.7 million) primarily reflecting our ongoing investments in our development teams and infrastructure to support our growth initiatives.
“Bragg continues its transformation into a leading, content-focused, B2B iGaming provider with a scalable technology stack featuring unique player engagement tools that consistently drive strong game performance. Our technology advantages, combined with our ability to offer an increasing number of high-performing proprietary and third-party exclusive games, are expected to boost our ability to deliver strong financial results as we continue to expand our presence into new North American and European markets. This includes the further penetration of our more recently entered markets such as the Netherlands where we have quickly achieved an attractive double-digit market share. Overall, our market expansion initiatives are expected to increase our total addressable market (“TAM”) six-fold in 2022 to more than USD $18 billion. Our acquisition of Spin Games, which we expect to complete by year end, will also help accelerate our entry into North American iGaming markets driven first by high-performing European online content to be closely followed by proprietary content developed specifically to address the U.S. and Canadian markets.
“We also intend to increase the number of proprietary online games developed by our internal development studios, as well as the number of exclusive third-party games we offer, which will support our focus on growing Adjusted EBITDA margins. From zero in-house developed games in 2020, we have established a strong proprietary new game pipeline and expect that an increasing proportion of our exclusive titles launched next year will be internally developed. Given the significantly better economics associated with the distribution of our proprietary content, leveraging our leading player engagement tools with our proprietary games remains one of our highest priorities as it will lead to consistent top and bottom line growth.”
Mr. Carter concluded, “Our ability to simultaneously generate positive Adjusted EBITDA while investing to grow our scale and technology capabilities enables Bragg to more effectively help online casino operators connect with their players, resulting in consistent market expansion and market share improvement. As a result, we continue to deliver strong near-term financial performance while further establishing the foundation for sustainable Adjusted EBITDA growth, as reflected in our raised full year 2021 outlook as well as the increase in our outlook for 2022 revenue growth. Notably, our updated guidance highlights the underlying momentum we are achieving in our business that is being driven by our growth initiatives that are focused on entering new markets, adding new clients and developing and releasing more proprietary titles.”
Third Quarter 2021 Financial Results and other Key Metrics Highlights
| · | Revenue increased by 9.9% to EUR €12.9 million (USD $15.2 million) in Q3 2021 compared to EUR €11.7 million (USD $13.8 million) in Q3 2020, inclusive of a full quarter of contributions from Wild Streak. |
| · | Wagering revenue generated by customers increased 4.8% to EUR €3.2 billion (USD $3.8 billion) compared to EUR €3.0 billion (USD $3.6 billion) in Q3 2020. |
| · | The number of unique players using Bragg games via its Oryx Hub distribution platform and content increased by 14.4% to 2.1 million, from 1.9 million in Q3 2020. |
| · | Gross profit increased by 30.1% to EUR €6.6 million (USD $7.8 million) from EUR €5.1 million (USD $6.0 million) in Q3 2020, reflecting higher revenue and an 8.0 basis point margin improvement to 51.4%. The margin expansion is primarily the result of the continued shift towards a higher proportion of revenues from iGaming and turnkey services, which have lower associated cost of sales when compared to games and content. |
| · | Net loss for the period was EUR €2.5 million (USD $2.9 million), a decline in the net loss of EUR €0.7 million (USD $0.8 million) from Q3 2020, primarily due to the higher gross profit and a reduction in costs related to deferred consideration payable, partially offset by the incremental increase in employee costs and exceptional professional fees as a result of the Nasdaq listing. |
| · | Adjusted EBITDA was EUR €1.4 million (USD $1.7 million), a decrease of 22.7% compared to EUR €1.8 million (USD $2.2million) in Q3 2020. Adjusted EBITDA margin decreased by 4.7 basis points to 11.0%, reflecting increased salary and subcontractor costs as part of the Company’s investment in the expansion of its software development, product and management functions. |
| · | Cash and cash equivalents as of September 30, 2021 was EUR €20.3 million (USD $24.0 million) |
Raises Full Year 2021 Revenue and Adjusted EBITDA Guidance and Full Year 2022 Revenue Guidance
Reflecting the Company’s operating momentum related to operations in newer markets and an increasing number of customers, Bragg today raised its outlook for 2021 full year expected revenue to EUR €55-56 million (USD $65-66 million) and Adjusted EBITDA to EUR €6.6-6.8 million (USD $7.8-8.0 million), compared to its previously provided revenue and Adjusted EBITDA full year outlook of EUR €49 million (USD $57.8 million) and EUR €5.4 million (USD $6.4 million), respectively. In addition, the Company raised its full year 2022 revenue guidance to a new range of EUR €59-61 million (USD $70-72 million), compared to the initial expected range of EUR €54 million to EUR €56 million (USD $63.7 million to USD $66.1 million) which was provided on August 11, 2021 and provided Adjusted EBITDA guidance of EUR €6-7 million (USD $7.1-8.3 million).
Investor Conference Call
The Company will host a conference call today, November 8, 2021, at 8:00 a.m. Eastern Time, to discuss its third quarter 2021 results. During the call, management will review a presentation that will be made available at http://www.bragg.games/investors a few minutes before the start of the call.
To join the call, please use the below dial-in information:
U.S./Canada: (844) 965-3274
UK: 0203 547 8613 / 0800 376 3133
International: (639) 491-2382
Passcode: 1363318
A replay of the call will be available for seven days following the conclusion of the live call. In order to access the replay, dial (416) 621-4642 / (800) 585-8367 from the U.S., or 0203 107 0235 / 0800 917 2646 from the UK and use the passcode 1363318.
Cautionary Statement Regarding Forward-Looking Information
This news release may contain forward-looking statements or “forward-looking information” within the meaning of applicable Canadian securities laws (“forward-looking statements”), including, without limitation, statements with respect to the following: the Company’s strategic growth initiatives and corporate vision and strategy; financial guidance for 2021 and 2022, expected performance of the Company’s business; expansion into new markets; the impact of the new German regulatory regime, expected future growth and expansion opportunities; expected benefits of transactions, including the acquisition of Wild Streak and Spin; expected future actions and decisions of regulators and the timing and impact thereof. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and allowing readers to get a better understanding of the Company’s anticipated financial position, results of operations, and operating environment. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or describes a “goal”, or variation of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.
All forward-looking statements reflect the Company’s beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Company’s forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions listed below. Although the Company believes that these assumptions are reasonable, this list is not exhaustive of factors that may affect any of the forward-looking statements. The key assumptions that have been made in connection with the forward-looking statements include the following: the impact of COVID-19 on the business of the Company; the closing of the acquisition of Spin; the integration of Wild Streak; the regulatory regime governing the business of the Company; the operations of the Company; the products and services of the Company; the Company’s customers; the growth of Company’s business, the meeting minimum listing requirements of Nasdaq; which may not be achieved or realized within the time frames stated or at all; the integration of technology; and the anticipated size and/or revenue associated with the gaming market globally.
Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, the following: risks related to the Company’s business and financial position; that the Company may not be able to accurately predict its rate of growth and profitability; the risks associated with the completion of the acquisition of Spin and ability to satisfy closing conditions; risks associated with the integration of Wild Streak; risks associated with general economic conditions; adverse industry events; future legislative and regulatory developments; the inability to access sufficient capital from internal and external sources; the inability to access sufficient capital on favorable terms; realization of growth estimates, income tax and regulatory matters; the increased costs associated with meeting the minimum listing requirements on Nasdaq; the ability of the Company to implement its business strategies; competition; economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices; changes in customer demand; disruptions to our technology network including computer systems and software; natural events such as severe weather, fires, floods and earthquakes; and risks related to health pandemics and the outbreak of communicable diseases, such as the current outbreak of COVID-19. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.
Non-IFRS Financial Measures
Statements in this news release make reference to “Adjusted EBITDA”, which is a non-IFRS (as defined herein) financial measure that the Company believes is appropriate to provide meaningful comparison with, and to enhance an overall understanding of, the Company’s past financial performance and prospects for the future. The Company believes that “Adjusted EBITDA” provides useful information to both management and investors by excluding specific expenses and items that management believe are not indicative of the Company’s core operating results. “Adjusted EBITDA” is a financial measure that does not have a standardized meaning under International Financial Reporting Standards (“IFRS”). As there is no standardized method of calculating “Adjusted EBITDA”, it may not be directly comparable with similarly titled measures used by other companies. The Company considers “Adjusted EBITDA” to be a relevant indicator for measuring trends in performance and its ability to generate funds to service its debt and to meet its future working capital and capital expenditure requirements. “Adjusted EBITDA” is not a generally accepted earnings measure and should not be considered in isolation or as an alternative to net income (loss), cash flows or other measures of performance prepared in accordance with IFRS. Adjusted EBITA is more fully defined and discussed, and reconciliation to IFRS financial measures is provided, in Company’s Management’s Discussion and Analysis (“MD&A”) for the third quarter ended September 30, 2021.
About Bragg Gaming Group
Bragg Gaming Group (NASDAQ: BRAG, TSX: BRAG) is a growing global gaming technology and content group and owner of leading B2B companies in the iGaming industry. Since its inception in 2018, Bragg has grown to include operations across Europe, North America and Latin America and is expanding into an international force within the global online gaming market.
Through its wholly-owned subsidiary ORYX Gaming, Bragg delivers proprietary, exclusive and aggregated casino content via its in-house remote games server (RGS) and ORYX Hub distribution platform. ORYX offers a full turnkey iGaming solution, including its Player Account Management (PAM) platform, as well as managed operational and marketing services.
Nevada-based Wild Streak Gaming is Bragg's wholly owned premium US gaming content studio. Wild Streak has a popular portfolio of casino games that are offered across land-based, online and social casino operators in global markets including the U.S. and U.K.
In May 2021, Bragg announced its planned acquisition of Nevada-based Spin Games, B2B gaming technology and content provider currently servicing the U.S. market. Spin holds licenses in key iGaming-regulated U.S. states and supplies Tier 1 operators in the region. Find out more.
Contacts:
| Yaniv Spielberg | Joseph Jaffoni, Richard Land, James Leahy |
| Chief Strategy Officer | JCIR |
| Bragg Gaming Group | 212-835-8500 or bragg@jcir.com |
| info@bragg.games |