INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Three- and six-month periods ended June 30, 2022 and June 30, 2021
Presented in Euros (Thousands)
TABLE OF CONTENTS | |
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (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 | 7 |
3 | INCOME (LOSS) BEFORE INCOME TAXES CLASSIFIED BY NATURE | 18 |
4 | ACQUISITION OF WILD STREAK LLC | 19 |
5 | ACQUISITION OF SPIN GAMES LLC | 20 |
6 | SHARE CAPITAL | 22 |
7 | WARRANTS | 23 |
8 | SHARE BASED COMPENSATION | 24 |
9 | GOODWILL | 28 |
10 | DEFERRED AND CONTINGENT CONSIDERATION | 29 |
11 | INTANGIBLE ASSETS | 30 |
12 | CASH AND CASH EQUIVALENTS | 31 |
13 | TRADE AND OTHER RECEIVABLES | 31 |
14 | PREPAID EXPENSES AND OTHER ASSETS | 32 |
15 | TRADE PAYABLES AND OTHER LIABILITIES | 32 |
16 | RELATED PARTY TRANSACTIONS | 32 |
17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT | 35 |
18 | SUPPLEMENTARY CASHFLOW INFORMATION | 38 |
19 | SEGMENT INFORMATION | 39 |
20 | INCOME TAXES | 40 |
21 | CONTINGENT LIABILITIES | 41 |
1
BRAGG GAMING GROUP INC. |
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Revenue | 3 | 20,794 | 15,491 | 40,154 | 29,687 | |||||||||||||||
Cost of revenue | (9,167 | ) | (8,466 | ) | (18,507 | ) | (16,013 | ) | ||||||||||||
Gross Profit | 11,627 | 7,025 | 21,647 | 13,674 | ||||||||||||||||
Selling, general and administrative expenses | 3 | (11,344 | ) | (8,856 | ) | (21,629 | ) | (16,010 | ) | |||||||||||
Gain on remeasurement of consideration receivable | 3 | - | 6 | 37 | 12 | |||||||||||||||
Gain on remeasurement of deferred consideration | 5, 10 | 469 | - | 469 | - | |||||||||||||||
Operating Income (Loss) | 752 | (1,825 | ) | 524 | (2,324 | ) | ||||||||||||||
Net interest expense and other financing charges | 3 | (87 | ) | (24 | ) | (154 | ) | (92 | ) | |||||||||||
Income (Loss) Before Income Taxes | 3 | 665 | (1,849 | ) | 370 | (2,416 | ) | |||||||||||||
Income taxes | 20 | (575 | ) | (482 | ) | (1,000 | ) | (989 | ) | |||||||||||
Net Income (Loss) | 90 | (2,331 | ) | (630 | ) | (3,405 | ) | |||||||||||||
Items to be reclassified to net loss: | ||||||||||||||||||||
Cumulative translation adjustment | 1,601 | 424 | 2,185 | 1,549 | ||||||||||||||||
Net Comprehensive Income (Loss) | 1,691 | (1,907 | ) | 1,555 | (1,856 | ) | ||||||||||||||
Basic Income (Loss) Per Share | 0.00 | (0.11 | ) | (0.03 | ) | (0.17 | ) | |||||||||||||
Diluted Income (Loss) Per Share | 0.00 | (0.11 | ) | (0.03 | ) | (0.17 | ) | |||||||||||||
Millions | Millions | Millions | Millions | |||||||||||||||||
Weighted average number of shares - basic | 21.0 | 21.4 | 20.9 | 20.5 | ||||||||||||||||
Weighted average number of shares - diluted | 21.8 | 21.4 | 20.9 | 20.5 |
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 | |||||||||||
June 30, | December 31, | |||||||||||
Note | 2022 | 2021 | ||||||||||
Cash and cash equivalents | 12 | 11,046 | 16,006 | |||||||||
Trade and other receivables | 13 | 10,455 | 8,454 | |||||||||
Prepaid expenses and other assets | 14 | 1,764 | 2,442 | |||||||||
Consideration receivable | - | 56 | ||||||||||
Total Current Assets | 23,265 | 26,958 | ||||||||||
Property and equipment | 495 | 252 | ||||||||||
Right-of-use assets | 620 | 579 | ||||||||||
Intangible assets | 11 | 46,827 | 30,845 | |||||||||
Goodwill | 4, 5, 9 | 28,432 | 24,728 | |||||||||
Other assets | 30 | 28 | ||||||||||
Total Assets | 99,669 | 83,390 | ||||||||||
Trade payables and other liabilities | 15 | 19,554 | 14,357 | |||||||||
Deferred revenue | 1,200 | 27 | ||||||||||
Income taxes payable | 20 | 1,224 | 784 | |||||||||
Lease obligations on right of use assets - current | 231 | 149 | ||||||||||
Deferred consideration - current | 5, 10 | 1,378 | - | |||||||||
Loans payable | 112 | - | ||||||||||
Total Current Liabilities | 23,699 | 15,317 | ||||||||||
Deferred income tax liabilities | 20 | 1,131 | 1,243 | |||||||||
Non-current lease obligations on right of use assets | 431 | 451 | ||||||||||
Deferred consideration | 5, 10 | 2,570 | - | |||||||||
Other non-current liabilities | 555 | 184 | ||||||||||
Total Liabilities | 28,386 | 17,195 | ||||||||||
Share capital | 6 | 109,897 | 100,285 | |||||||||
Broker warrants | 7 | 38 | 38 | |||||||||
Shares to be issued | 4, 6 | 6,982 | 13,746 | |||||||||
Contributed surplus | 19,070 | 18,385 | ||||||||||
Deficit | (69,373 | ) | (68,743 | ) | ||||||||
Accumulated other comprehensive income | 4,669 | 2,484 | ||||||||||
Total Equity | 71,283 | 66,195 | ||||||||||
Total Liabilities and Equity | 99,669 | 83,390 | ||||||||||
Going Concern | 1 |
See accompanying notes to the interim unaudited condensed consolidated financial statements. | |
Approved on behalf of the Board | |
Yaniv Sherman | Paul Pathak |
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 PER SHARE AMOUNTS)
Accumulated | ||||||||||||||||||||||||||||
other | ||||||||||||||||||||||||||||
Share | Shares to | Broker | Contributed | comprehensive | Total | |||||||||||||||||||||||
Note | capital | be issued | Warrants | warrants | surplus | Deficit | income (loss) | Equity | ||||||||||||||||||||
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 | 6 | - | 15,310 | - | - | - | - | - | 15,310 | |||||||||||||||||||
Exercise of restricted share units | 6, 8 | 267 | - | - | - | (267 | ) | - | - | - | ||||||||||||||||||
Exercise of stock options | 6, 8 | 966 | - | - | - | (341 | ) | - | - | 625 | ||||||||||||||||||
Exercise of warrants | 7 | 11,916 | - | (1,831 | ) | - | - | - | - | 10,085 | ||||||||||||||||||
Expiry of warrants | 7 | - | - | (7 | ) | - | 7 | - | - | - | ||||||||||||||||||
Exercise of broker warrants | 7 | 897 | - | 196 | (361 | ) | - | - | - | 732 | ||||||||||||||||||
Share-based compensation | 8 | - | - | - | - | 2,200 | - | - | 2,200 | |||||||||||||||||||
Net loss for the period | - | - | - | - | - | (3,405 | ) | - | (3,405 | ) | ||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 1,549 | 1,549 | ||||||||||||||||||||
Balance as at June 30, 2021 | 100,268 | 15,310 | - | 38 | 15,924 | (64,636 | ) | 1,399 | 68,303 | |||||||||||||||||||
Balance as at January 1, 2022 | 100,285 | 13,746 | - | 38 | 18,385 | (68,743 | ) | 2,484 | 66,195 | |||||||||||||||||||
Shares issued as consideration | 5, 6 | 1,426 | - | - | - | - | - | - | 1,426 | |||||||||||||||||||
Shares issued as deferred consideration | 4, 6 | 6,764 | (6,764 | ) | - | - | - | - | - | - | ||||||||||||||||||
Exercise of deferred share units | 6, 8 | 1,407 | - | - | - | (1,407 | ) | - | - | - | ||||||||||||||||||
Exercise of stock options | 6, 8 | 15 | - | - | - | (5 | ) | - | - | 10 | ||||||||||||||||||
Share-based compensation | 8 | - | - | - | - | 2,097 | - | - | 2,097 | |||||||||||||||||||
Net loss for the period | - | - | - | - | - | (630 | ) | - | (630 | ) | ||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 2,185 | 2,185 | ||||||||||||||||||||
Balance as at June 30, 2022 | 109,897 | 6,982 | - | 38 | 19,070 | (69,373 | ) | 4,669 | 71,283 |
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)
Six Months Ended June 30, | ||||||||||||
Note | 2022 | 2021 | ||||||||||
Operating Activities | ||||||||||||
Net loss from continuing operations | (630 | ) | (3,405 | ) | ||||||||
Add: | ||||||||||||
Net interest expense and other financing charges | 3 | 154 | 92 | |||||||||
Depreciation and amortization | 3 | 3,459 | 1,887 | |||||||||
Share based compensation | 3, 8 | 2,097 | 2,200 | |||||||||
Gain on remeasurement of consideration receivable | (37 | ) | (12 | ) | ||||||||
Gain on remeasurement of deferred consideration | 5, 10 | (469 | ) | - | ||||||||
Deferred income tax recovery | 20 | (288 | ) | (154 | ) | |||||||
4,286 | 608 | |||||||||||
Change in non-cash working capital | 18 | 2,737 | 1,097 | |||||||||
Change in income taxes payable | 440 | 444 | ||||||||||
Cash Flows From Operating Activities | 7,463 | 2,149 | ||||||||||
Investing Activities | ||||||||||||
Purchases of property and equipment | (153 | ) | (51 | ) | ||||||||
Additions of intangible assets | 11 | (2,744 | ) | (1,426 | ) | |||||||
Proceeds from sale of discontinued operations | 91 | 76 | ||||||||||
Consideration paid upon business combination | 4, 5 | (8,488 | ) | (8,206 | ) | |||||||
Cash acquired from business combination | 4, 5 | 242 | 124 | |||||||||
Prepaid consideration | 5, 14, 18 | (821 | ) | - | ||||||||
Deferred and contingent consideration payments | 10 | - | (11,521 | ) | ||||||||
Cash Flows Used In Investing Activities | (11,873 | ) | (21,004 | ) | ||||||||
Financing Activities | ||||||||||||
Proceeds from exercise of warrants and broker warrants | 7 | - | 10,817 | |||||||||
Proceeds from exercise of stock options | 8 | 10 | 625 | |||||||||
Proceeds from shares issued upon private placement, net of issuance costs | 6 | - | 1,310 | |||||||||
Repayment of lease liability | (64 | ) | (70 | ) | ||||||||
Repayment of loans | 5 | (661 | ) | - | ||||||||
Interest income | 9 | 38 | ||||||||||
Interest and financing fees | 3 | (129 | ) | (130 | ) | |||||||
Cash Flows (Used In) From Financing Activities | (835 | ) | 12,590 | |||||||||
Effect of foreign currency exchange rate changes on cash and cash equivalents | 285 | 1,129 | ||||||||||
Change in Cash and Cash Equivalents | (4,960 | ) | (5,136 | ) | ||||||||
Cash and cash equivalents at beginning of period | 16,006 | 26,102 | ||||||||||
Cash and Cash Equivalents at end of period | 11,046 | 20,966 |
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 SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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, Wild Streak LLC ("Wild Streak") in 2021, and Spin Games LLC ("Spin") in 2022.
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.
Statement of compliance and basis of presentation
The accompanying interim unaudited condensed consolidated financial statements ("interim 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, 2021.
These interim financial statements are prepared on a historical cost basis except for financial instruments classified at fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI") 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 August 9, 2022.
Going concern
These interim 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 June 30, 2022, the Company had current assets of EUR 23,265 (December 31, 2021: EUR 26,958) and current liabilities of EUR 23,699 (December 31, 2021: EUR 15,317). As of June 30, 2022, the Company has a cumulative deficit of EUR 69,373 (December 31, 2021: EUR 68,743). These conditions indicate 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 SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 has 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 remain 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 flows 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
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 and announced the consolidation on April 30, 2021 (the "reverse stock split"). 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 retrospectively.
Acquisition of Spin Games LLC
On May 12, 2021, the Company announced it had entered into an agreement to acquire Spin Games LLC in a cash and stock transaction for a purchase price of approximately USD 30,000 where the sellers of Spin would receive USD 10,000 in cash and USD 20,000 in Common Shares of the Company of which USD 5,000 in Common Shares would be issued on closing and the balance over the next three years. The transaction closed on June 1, 2022 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 SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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, 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.
2 | SIGNIFICANT ACCOUNTING POLICIES |
The interim financial statements were prepared using the same basis of presentation, accounting policies and methods of computation, and 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, 2021, which are available at www.sedar.com.
Basis of consolidation
The interim 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 | |||
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 | |||
Oryx Sales Distribution Ltd. | Cyprus | Distribution | EUR | |||
Poynt Inc. | Canada | Distribution | CAD | |||
Spin Games LLC | United States | Gaming solution provider | USD | |||
Wild Streak LLC | United States | Content creation studio | USD |
8
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Presentation currency
The presentation currency of the Company 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 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 (loss). 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, Spin and Wild Streak provides services and accrued income in relation to receivables from customers that have yet to be invoiced, for services provided during the three and six months ended June 30, 2022 and 2021. 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 income (loss) and comprehensive income (loss).
9
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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, revenue share from licencing of 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 derived from a customer's 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.
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 income (loss) and comprehensive income (loss), except for current and deferred taxes related to a business combination, or amounts charged directly to equity or other comprehensive income (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.
10
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 income (loss) and comprehensive income (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 income (loss) and comprehensive income (loss).
Property and equipment are depreciated on a straight-line basis over their estimated useful lives of up to five 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.
11
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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.
12
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 | 5 - 10 years |
Intellectual property acquired from third-parties | 3 years |
Customer relationships | 10 - 13 years |
Brands | 10 years |
Deferred development costs | 3 years |
Trademarks and patents | 3 - 15 years |
Gaming licences | Over the term of the licence |
Trademarks, patents 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. |
13
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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.
14
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 | |
Other non-current liabilities | FVTPL / FVOCI |
15
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 and trade payables and other liabilities 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 income (loss) and comprehensive income (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. |
16
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 consideration
On June 1, 2022, the Company acquired Spin and agreed payment of deferred consideration in shares over three years from the anniversary date of the acquisition date. In each reporting period the fair value of the deferred consideration payable was measured by determining the period-end share price and the discount for lack of marketability (DLOM) applying Finnerty's average-strike put option model (2012).
Prior to the next remeasurement period an accretion expense is recorded in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) as the discount is unwound towards the reporting date. Upon remeasurement, any gain or loss on remeasurement is also recorded in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
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.
Long term employee benefits
Long term employee benefits include severance pay upon retirement and awards for years of service for certain employees. Liabilities towards severance pay and awards for years of service are determined via actuarial valuation using the Projected Unit Credit Method at the reporting date with liabilities towards severance pay being recognised at FVTPL and liabilities towards awards of years of service being recognised at FVOCI. Actuarial gains and losses in service awards are recognised immediately in Net Loss while actuarial gains and losses in severance pay are recognised in Other Comprehensive Income (Loss).
17
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
2 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Share based compensation
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 compensation 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.
18
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
3 | INCOME (LOSS) BEFORE INCOME TAXES CLASSIFIED BY NATURE |
The income (loss) before income taxes is classified as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Revenue | 20,794 | 15,491 | 40,154 | 29,687 | ||||||||||||||||
Third-party content | (9,167 | ) | (8,466 | ) | (18,507 | ) | (16,013 | ) | ||||||||||||
Gross Profit | 11,627 | 7,025 | 21,647 | 13,674 | ||||||||||||||||
Salaries and subcontractors | (4,975 | ) | (3,651 | ) | (8,955 | ) | (6,287 | ) | ||||||||||||
Share based compensation | 8 | (797 | ) | (891 | ) | (2,097 | ) | (2,200 | ) | |||||||||||
Total employee costs | (5,772 | ) | (4,542 | ) | (11,052 | ) | (8,487 | ) | ||||||||||||
Depreciation and amortization | (1,883 | ) | (1,051 | ) | (3,459 | ) | (1,887 | ) | ||||||||||||
IT and hosting | (610 | ) | (386 | ) | (1,058 | ) | (773 | ) | ||||||||||||
Professional fees | (895 | ) | (1,090 | ) | (1,748 | ) | (1,585 | ) | ||||||||||||
Corporate costs | (262 | ) | (525 | ) | (769 | ) | (710 | ) | ||||||||||||
Sales and marketing | (607 | ) | (155 | ) | (1,270 | ) | (218 | ) | ||||||||||||
Bad debt expense | 13 | (313 | ) | (78 | ) | (417 | ) | (320 | ) | |||||||||||
Travel and entertainment | (184 | ) | (28 | ) | (265 | ) | (28 | ) | ||||||||||||
Transaction and acquisition costs | (146 | ) | (573 | ) | (346 | ) | (1,136 | ) | ||||||||||||
Other operational costs | (672 | ) | (428 | ) | (1,245 | ) | (866 | ) | ||||||||||||
Selling, General and Administrative Expenses | (11,344 | ) | (8,856 | ) | (21,629 | ) | (16,010 | ) | ||||||||||||
Gain on remeasurement of consideration receivable | - | 6 | 37 | 12 | ||||||||||||||||
Gain on remeasurement of deferred consideration | 5, 10 | 469 | - | 469 | - | |||||||||||||||
Operating Income (Loss) | 752 | (1,825 | ) | 524 | (2,324 | ) | ||||||||||||||
- | ||||||||||||||||||||
Interest income | 4 | 23 | 9 | 38 | ||||||||||||||||
Accretion on liabilities | 5, 10 | (34 | ) | - | (34 | ) | - | |||||||||||||
Interest and financing fees | (57 | ) | (47 | ) | (129 | ) | (130 | ) | ||||||||||||
Net Interest Expense and Other Financing Charges | (87 | ) | (24 | ) | (154 | ) | (92 | ) | ||||||||||||
Income (Loss) Before Income Taxes | 665 | (1,849 | ) | 370 | (2,416 | ) |
19
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 an undiscounted purchase price of EUR 24,680 (USD 30,075). Pursuant to the transaction, the sellers of Wild Streak received EUR 8,268 (USD 10,075) in cash at closing and should 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 of the share consideration is determined using a put option pricing model with volatility of 57.5%, annual dividend rate of 0%, and time to maturity of 1-3 years.
The fair value allocations which follow are based on the purchase price allocations conducted by management.
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 | 311 | |||
Customer relationships | 10,857 | |||
Intellectual property | 5,611 | |||
Goodwill | 4,790 |
In the three and six months ended June 30, 2022, the Company issued 761,754 common shares of the Company as deferred consideration upon the first anniversary of the acquisition of Wild Streak (three and six months ended June 30, 2021: nil). Subsequently a transfer of EUR 6,764 from shares to be issued to share capital was recorded in the interim unaudited condensed consolidated statements of changes in equity.
Pro-forma revenues and net profit (loss) for the comparative period in 2021
On a pro-forma basis Wild Streak generated revenue of EUR 844 and EUR 1,262 for the three and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2021, this would have resulted in consolidated revenues of EUR 16,082 and EUR 30,696, respectively.
On a pro-forma basis Wild Streak generated net profit of EUR 412 and EUR 660 for the three and six months ended June 30, 2021, respectively. This would have resulted in consolidated net loss of EUR 2,051 and EUR 2,876 for the three and six months ended June 30, 2021, respectively.
20
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
5 | ACQUISITION OF SPIN GAMES LLC |
On June 1, 2022, the Company announced that it had acquired Spin Games LLC ("Spin").
The Company signed a purchase agreement to acquire all of the outstanding membership interests of Spin in a cash and stock transaction for an undiscounted purchase price of EUR 17,179 (USD 18,402 ). Pursuant to the transaction, the sellers of Spin received EUR 10,626 (USD 11,383) in cash, EUR 1,426 (USD 1,528) in common shares of the Company and is expected to receive EUR 4,347 (USD 4,657) 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 of the deferred consideration is determined using a put option pricing model with volatility of 50.5%, annual dividend rate of 0%, and time to maturity of 1-3 years.
The fair value allocations which follow are based on the preliminary purchase price allocations conducted by management.
Balances | ||||
Purchase price: | ||||
Prepaid consideration | 2,138 | |||
Cash paid upon business combination | 8,488 | |||
Shares | 1,426 | |||
Deferred consideration | 4,347 | |||
Total purchase price | 16,399 | |||
Fair value of assets acquired, and liabilities assumed: | ||||
Property and equipment | 173 | |||
Right-of-use assets | 104 | |||
Cash and cash equivalents | 242 | |||
Trade and other receivables | 378 | |||
Prepaid expenses and other assets | 95 | |||
Trade payables and other liabilities | (981 | ) | ||
Deferred revenue | (492 | ) | ||
Loans payable | (773 | ) | ||
Lease obligations on right of use assets - current | (51 | ) | ||
Non-current lease obligations on right of use assets | (45 | ) | ||
Non-current liabilities | (360 | ) | ||
Deferred tax liabilities | (171 | ) | ||
Net assets acquired and liabilities assumed | (1,881 | ) | ||
Fair value of intangible assets: | ||||
Intellectual property | 3,397 | |||
Customer relationships | 9,993 | |||
Gaming licences | 164 | |||
Brand | 952 | |||
Trademarks | 70 | |||
Goodwill | 3,704 |
21
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
5 | ACQUISITION OF SPIN GAMES LLC (CONTINUED) |
On June 1, 2022, the Company measured the present value of deferred consideration to be paid in common shares as EUR 4,347 and subsequently recorded an accretion expense of EUR 34 in the three and six months ended June 30, 2022 (three and six months ended June 30, 2021: EUR nil) and a gain on remeasurement of deferred consideration of EUR 469 (three and six months ended June 30, 2021: EUR nil).
As at June 30, 2022, deferred consideration of EUR 1,378 and EUR 2,570 has been recorded in current and non-current liabilities, respectively (December 31, 2021: EUR nil in current and non-current liabilities).
Concurrently with the payment of consideration on June 1, 2022, EUR 661 of loans payable to the sellers of Spin were settled in cash.
Pro-forma revenues and net loss for the comparative period
On a pro-forma basis Spin generated revenue of EUR 648 and EUR 1,467 for the three and six months ended June 30, 2022, respectively. This would have resulted in consolidated revenues of EUR 21,179 and EUR 41,357 for three and six months ended June 30, 2022, respectively.
On a pro-forma basis Spin contributed net loss of EUR 659 and EUR 992 for the three and six months ended June 30, 2022, respectively. This would have resulted in consolidated net loss of EUR 405 and EUR 1,458 for the three and six months ended June 30, 2022, respectively.
22
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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, 2021 | Balance | 13,111,248 | 62,304 | ||||||||||||
January 11, 2021, to February 22, 2021 | Exercise of warrants | 7 | 1,554,082 | 11,916 | |||||||||||
January 21, 2021, to February 18, 2021 | Exercise of broker warrants | 7 | 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 | 8 | 50,000 | 267 | |||||||||||
June 9, 2021, to June 17, 2021 | Issuance of share capital upon exercise of stock options | 8 | 125,000 | 966 | |||||||||||
Rounding of fractional shares after consolidation | 2 | - | |||||||||||||
June 30, 2021 | Balance | 19,948,814 | 100,268 | ||||||||||||
January 1, 2022 | Balance | 19,956,034 | 100,285 | ||||||||||||
March 17, 2022, to June 22, 2022 | Issuance of share capital upon exercise of FSOs | 8 | 5,900 | 15 | |||||||||||
March 22, 2022 | Issuance of share capital upon exercise of DSUs | 8 | 97,045 | 1,407 | |||||||||||
June 1, 2022 | Shares issued upon completion of Spin acquisition | 5 | 285,135 | 1,426 | |||||||||||
June 16, 2022 | Shares issued upon settlement of deferred consideration | 4 | 761,754 | 6,764 | |||||||||||
June 30, 2022 | Balance | 21,105,868 | 109,897 |
The Company's Common Shares have no par value.
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).
23
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
6 | SHARE CAPITAL (CONTINUED) |
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 was subject to a hold period expiring May 14, 2021. No commission or finder's fee was paid in connection with the offering.
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 were 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 | WARRANTS |
The following are continuities of the Company's warrants:
Warrants | ||||||||||
issued upon | Broker | |||||||||
Number of Warrants | Public Offering | warrants | ||||||||
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 | ) | - | ||||||
June 30, 2021 | Balance | - | 16,886 | |||||||
January 1, 2022 and June 30, 2022 | Balance | - | 16,886 |
Each unit consists of the following characteristics:
Warrants | |||||||||
issued upon | Broker | ||||||||
Public Offering | warrants | ||||||||
Number of shares | 1 | 1 | |||||||
Number of Warrants | - | 0.5 | |||||||
Exercise price of unit (CAD) | 10.00 | 7.00 |
24
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
7 | WARRANTS (CONTINUED) |
Warrants issued upon completion of Public Offering
Upon completion of the Public Offering on November 18, 2020, 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.
Between January 11, 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.
Broker Warrants issued upon completion of Public Offering
Upon completion of the Public Offering on November 18, 2020, 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.
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.
8 | 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.
25
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
8 | SHARE BASED COMPENSATION (CONTINUED) |
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 | |||||||||||||
Balance as at January 1, 2021 | 120,000 | 210,000 | 1,228,410 | 6.37 | ||||||||||||
Granted | 133,800 | 75,000 | 5,000 | 12.10 | ||||||||||||
Exercised | - | (50,000 | ) | (125,000 | ) | 7.36 | ||||||||||
Forfeited / Cancelled | - | - | (3,139 | ) | 2.30 | |||||||||||
Balance as at June 30, 2021 | 253,800 | 235,000 | 1,105,271 | 6.30 | ||||||||||||
Balance as at January 1, 2022 | 246,945 | 235,000 | 1,816,302 | 8.95 | ||||||||||||
Granted | 125,000 | 80,000 | 273,000 | 8.62 | ||||||||||||
Exercised | (97,045 | ) | - | (5,900 | ) | 2.30 | ||||||||||
Forfeited / Cancelled | - | - | (142,466 | ) | 14.78 | |||||||||||
Balance as at June 30, 2022 | 274,900 | 315,000 | 1,940,936 | 8.50 |
The following table summarizes information about the outstanding share options as at June 30, 2022:
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 | 249,025 | 2 | 3.04 | 220,893 | 3.06 | |||||||||||||||
5.01 - 5.60 | 200,000 | 2 | 5.60 | 200,000 | 5.60 | |||||||||||||||
5.61 - 8.62 | 905,858 | 5 | 8.05 | 729,610 | 7.91 | |||||||||||||||
8.63 - 33.30 | 586,053 | 8 | 12.50 | 172,752 | 13.18 | |||||||||||||||
1,940,936 | 5 | 8.50 | 1,323,255 | 7.44 |
26
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
8 | SHARE BASED COMPENSATION (CONTINUED) |
The following table summarizes information about the outstanding share options as at June 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 | 265,861 | 3 | 2.99 | 173,528 | 3.17 | |||||||||||||||
5.01 - 5.60 | 200,000 | 3 | 5.60 | 170,834 | 5.60 | |||||||||||||||
5.61 - 8.62 | 632,858 | 4 | 7.80 | 632,858 | 7.80 | |||||||||||||||
8.63 - 33.30 | 6,552 | 5 | 17.12 | 2,386 | 25.89 | |||||||||||||||
1,105,271 | 4 | 6.30 | 979,606 | 6.64 |
During the three and six months ended June 30, 2022, a share-based compensation charge of EUR 459 and EUR 1,238, respectively, has been recognized in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) (three months and six months ended June 30, 2021: EUR 44 and EUR 84, respectively) in relation to the fixed stock options.
During the three and six months ended June 30, 2022, the Company granted 273,000 share options, (three and six months ended June 30, 2021: 5,000 share options) with a weighted average exercise price of CAD 8.62 and a fair value of EUR 874.
The assumptions used to measure the grant date fair value of FSO options under the Black-Scholes valuation model for the three and six months ended June 30, 2022 were as follows:
Expected dividend yield (%) | 0.0 | |||
Expected share price volatility (%) | 64.7 | |||
Risk-free interest rate (%) | 2.2 | |||
Expected life of options (years) | 5.0 | |||
Share price (CAD) | 8.18 | |||
Forfeiture rate (%) | 0.0 |
The assumptions used to measure the grant date fair value of FSO options under the Black-Scholes valuation model for the three and six months ended June 30, 2021 were as follows:
Expected dividend yield (%) | 0.0 | |||
Expected share price volatility (%) | 65.3 | |||
Risk-free interest rate (%) | 0.4 | |||
Expected life of options (years) | 5.0 | |||
Share price (CAD) | 15.80 | |||
Forfeiture rate (%) | 0.0 |
27
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
8 | SHARE BASED COMPENSATION (CONTINUED) |
During the three and six months ended June 30, 2022, 5,400 and 5,900 common shares, respectively, were issued upon exercise of fixed stock options (three and six months ended June, 2021: 125,000). Upon exercise of fixed stock options, for the three and six months ended June 30, 2022, EUR 5 (three and six months ended June 30, 2021: EUR 341) was transferred from contributed surplus to share capital in the interim unaudited condensed consolidated statements of changes in equity. Cash proceeds upon exercise of fixed stock options during the three and six months ended June 30, 2022, totalled EUR 9 and EUR 10, respectively (three and six months ended June 30, 2021: EUR 625).
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 six months ended June 30, 2022, 125,000 DSUs (three and six months ended June 30, 2021: 133,800 DSUs) were granted with a fair value of CAD 8.18 per unit (three and six months ended June 30, 2021: CAD 21.80) determined as the share price on the date of grant.
During the three and six months ended June 30, 2022, a share-based compensation charge of EUR 198 and EUR 374, respectively, has been recognized in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) (three and six months ended June 30, 2021: EUR 413 and EUR 1,274, respectively) in relation to the deferred share units.
During the three and six months ended June 30, 2022, 97,045 common shares were issued upon exercise of DSUs (three and six months ended June 30, 2021: 50,000). For the three and six months ended June 30, 2022, upon exercise of DSUs, EUR 1,407 (three and six months ended June 30, 2021: EUR 219) was transferred from contributed surplus to share capital in the interim unaudited condensed consolidated statements of changes in equity.
Restricted Share Units
During the three and six months ended June 30, 2022, 80,000 RSUs, were granted (three and six months ended June 30, 2021: 75,000), with a fair value of CAD 8.18 per unit (three and six months ended June 30, 2021: CAD 21.80 per unit) determined as the share price on the date of grant.
During the three and six months ended June 30, 2022, a share-based compensation charge of EUR 140 and EUR 485, respectively, has been recognized in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) (three and six months ended June 30, 2021: EUR 434 and EUR 842, respectively) in relation to the RSUs.
During the three and six months ended June 30, 2022, nil Common Shares were issued upon exercise of nil RSUs (three months and six months ended June 30, 2021: 50,000 Common Shares were issued upon exercise of 50,000 RSUs). During the three months and six months ended June 30, 2021, upon exercise of RSUs, EUR 267 was transferred from contributed surplus to share capital in the interim unaudited condensed consolidated statements of changes in equity.
28
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
9 | GOODWILL |
The following is a continuity of the Company's goodwill:
As at January 1, 2021 | 19,938 | |||
Goodwill recognised upon acquisition of Wild Streak LLC (Note 4) | 4,790 | |||
As at December 31, 2021 | 24,728 | |||
Goodwill recognised upon acquisition of Spin Games LLC (Note 5) | 3,704 | |||
As at June 30, 2022 | 28,432 |
The carrying amount of goodwill is attributed to the Oryx Gaming, Wild Streak and Spin CGUs. The Company completed its annual impairment tests for goodwill of Oryx Gaming and Wild Streak as at December 31, 2021 and concluded that there was no impairment.
Key Assumptions
The recoverable amount of was determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the Board and covering a five-year period and an after-tax discount rate of 16.0% (pre-tax rate 19.7%) per annum for the Oryx Gaming CGU, an after-tax discount rate of 24.0% (pre-tax rate 30.0%) for the Wild Streak CGU, and an after-tax discount rate of 25.8% (pre-tax rate 32.7%) for the Spin CGU. The cash flows beyond the five-year period for the Oryx and Wild Streak CGUs have been extrapolated using a steady 3.0% per annum growth rate while the cash flows for the Spin CGU has been extrapolated using a steady 2.0% growth rate beyond eight years.
The cash flow projections used in estimating the recoverable amounts are generally consistent with results achieved historically adjusted for anticipated growth. The Company believes that any reasonably possible change in key assumptions on which the recoverable amounts were based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGUs.
29
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
10 | DEFERRED AND CONTINGENT CONSIDERATION |
The following is a continuity of the Company's deferred and contingent consideration:
Balance as at January 1, 2021 | 11,521 | |||
Deferred consideration payable upon business combination (Note 4) | 62 | |||
Cash paid on settlement of deferred and contingent consideration | (11,583 | ) | ||
Balance as at December 31, 2021 | - | |||
Deferred consideration payable upon business combination (Note 5) | 4,347 | |||
Accretion expense | 34 | |||
Gain on remeasurement of deferred consideration | (469 | ) | ||
Effect of movement in exchange rates | 36 | |||
Balance as at June 30, 2022 | 3,948 |
Oryx Gaming International LLC
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 cash earnout payments due in relation to the Oryx acquisition.
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.
Wild Streak LLC
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.
Spin Games LLC
The Company completed the acquisition of Spin Games LLC effective on June 1, 2022. The Company agreed deferred consideration payments in common shares of the Company over three years from the effective date recorded with a present value of EUR 4,347 . The discount for lack of marketability (DLOM) was determined by applying Finnerty's average-strike put option model (2012) with a volatility of 50.5%, an annual dividend rate of 0% and time to maturity of 1-3 years.
In the three and six months ended June 30, 2022, an accretion expense of EUR 34 (three and six months ended June 30, 2021: nil) was recorded in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
In the three and six months ended June 30, 2022, a gain on remeasurement of deferred consideration of EUR 469 (three and six months ended June 30, 2021: nil) was recorded in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
30
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
11 | INTANGIBLE ASSETS |
Deferred | ||||||||||||||||||||||||
Intellectual | Development | Customer | ||||||||||||||||||||||
Property | Costs | Relationships | Brands | Other | Total | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance as at December 31, 2020 | 8,966 | 3,297 | 4,903 | 1,357 | 174 | 18,697 | ||||||||||||||||||
Additions | 237 | 2,889 | - | - | 17 | 3,143 | ||||||||||||||||||
Disposal | - | - | - | - | (128 | ) | (128 | ) | ||||||||||||||||
Acquired through business combination (Note 4) | 5,611 | - | 10,857 | 311 | - | 16,779 | ||||||||||||||||||
Effect of movement in exchange rates | 409 | - | 824 | 24 | 1 | 1,258 | ||||||||||||||||||
Balance as at December 31, 2021 | 15,223 | 6,186 | 16,584 | 1,692 | 64 | 39,749 | ||||||||||||||||||
Additions | 214 | 2,524 | - | - | 6 | 2,744 | ||||||||||||||||||
Acquired through business combination (Note 5) | 3,397 | - | 9,993 | 952 | 234 | 14,576 | ||||||||||||||||||
Effect of movement in exchange rates | 651 | - | 1,368 | 61 | 9 | 2,089 | ||||||||||||||||||
Balance as at June 30, 2022 | 19,485 | 8,710 | 27,945 | 2,705 | 313 | 59,158 | ||||||||||||||||||
Accumulated Amortization | ||||||||||||||||||||||||
Balance as at December 31, 2020 | 2,288 | 830 | 994 | 276 | 30 | 4,418 | ||||||||||||||||||
Amortization | 1,594 | 1,581 | 1,154 | 155 | 15 | 4,499 | ||||||||||||||||||
Disposal | - | - | - | - | (39 | ) | (39 | ) | ||||||||||||||||
Effect of movement in exchange rates | 8 | - | 18 | - | - | 26 | ||||||||||||||||||
Balance as at December 31, 2021 | 3,890 | 2,411 | 2,166 | 431 | 6 | 8,904 | ||||||||||||||||||
Amortization | 1,030 | 1,231 | 924 | 94 | 8 | 3,287 | ||||||||||||||||||
Effect of movement in exchange rates | 50 | - | 88 | 2 | - | 140 | ||||||||||||||||||
Balance as at June 30, 2022 | 4,970 | 3,642 | 3,178 | 527 | 14 | 12,331 | ||||||||||||||||||
Carrying Amount | ||||||||||||||||||||||||
Balance as at December 31, 2021 | 11,333 | 3,775 | 14,418 | 1,261 | 58 | 30,845 | ||||||||||||||||||
Balance as at June 30, 2022 | 14,515 | 5,068 | 24,767 | 2,178 | 299 | 46,827 |
In the three- and six months ended June 30, 2022, amortization expense of EUR 1,787 and EUR 3,287 and was recognized within selling, general and administrative expenses, respectively (three and six months ended June 30, 2021: EUR 979 and EUR 1,741, respectively).
31
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
12 | CASH AND CASH EQUIVALENTS |
As at June 30, 2022 and 2021, 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.
13 | TRADE AND OTHER RECEIVABLES |
The following is an aging of the Company's trade and other receivables:
As at | As at | |||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Less than one month | 10,779 | 8,717 | ||||||
Between two and three months | 903 | 747 | ||||||
Greater than three months | 1,386 | 1,405 | ||||||
13,068 | 10,869 | |||||||
Provision for expected credit losses | (2,613 | ) | (2,415 | ) | ||||
Trade and Other Receivables | 10,455 | 8,454 |
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:
Balance as at December 31, 2020 | 1,755 | |||
Net additional provision for doubtful debts | 602 | |||
Provision for late interest receivable | 58 | |||
Balance as at December 31, 2021 | 2,415 | |||
Provision for doubtful debts acquired upon business combination | 7 | |||
Bad debt written-off | (226 | ) | ||
Net additional provision for doubtful debts | 417 | |||
Balance as at June 30, 2022 | 2,613 |
32
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
14 | PREPAID EXPENSES AND OTHER ASSETS |
Prepaid expenses and other assets comprises:
As at | As at | |||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Prepayments | 1,288 | 2,372 | ||||||
Deposits | 49 | 50 | ||||||
Other assets | 427 | 20 | ||||||
Prepaid Expenses and Other Assets | 1,764 | 2,442 |
As at June 30, 2022, prepayments include EUR nil in prepaid consideration (Note 1) (December 31, 2021: EUR 1,187).
15 | TRADE PAYABLES AND OTHER LIABILITIES |
Trade payables and other liabilities comprises:
As at | As at | |||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Trade payables | 5,013 | 1,464 | ||||||
Accrued liabilities | 13,962 | 12,380 | ||||||
Sales tax payable | - | 444 | ||||||
Other payables | 579 | 69 | ||||||
Trade Payables and Other Liabilities | 19,554 | 14,357 |
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 Interim Chief Executive Officer ("CEO"), Chief Operating Officer ("COO"), Chief Financial Officer ("CFO"), Chief Strategy Officer ("CSO") and Chief Technology Officer ("CTO"). Three key management employees are also shareholders in the Company.
33
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
16 | RELATED PARTY TRANSACTIONS (CONTINUED) |
Transactions and balances between the Company and its key management personnel are as follows:
Interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss)
· | Revenues for the three and six months ended June 30, 2022, to a shareholder of the Company totalled EUR 31 and EUR 55, respectively (three and six months ended June 30, 2021: EUR 28 and EUR 49, respectively). |
· | Total compensation for salaries, director fees, share-based compensation, and short-term employee benefits of key management personnel of the Company for the three and six months ended June 30, 2022, totalled EUR 1,339 and EUR 2,645, respectively (three and six months ended June 30, 2021: EUR 2,645 and EUR 4,344, respectively). |
· | Total compensation for salaries and short-term employee benefits of vendors of the sale of Wild Streak and Spin and subsequently employees of the Company for the three and six months ended June 30, 2022, totalled EUR 200 and EUR 322, respectively (three and six months ended June 30, 2021: EUR 37). |
· | Gain on remeasurement of deferred consideration payable to the vendors of Spin and subsequently employees of the Company for the three and six months ended June 30, 2022, totalled EUR 469 (three and six months ended June 30, 2021: EUR nil). |
· | Interest expense on deferred consideration payable to the vendors of Spin and subsequently employees of the Company for the three and six months ended June 30, 2022, totalled EUR 34 (three and six months ended June 30, 2021: EUR nil). |
· | Interest expense on deferred and contingent consideration payable to the former Managing Director of Oryx for the three and six months ended June 30, 2022, totalled EUR nil (three and six months ended June 30, 2021: EUR 52). |
· | During the three and six months ended June 30, 2022, legal fees of EUR nil 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 income (loss) and comprehensive income (loss) (three and six months ended June 30, 2021: EUR 25). |
· | During the three and six months ended June 30, 2022, professional fees of EUR 12 and EUR 22, respectively, payable to a related businesses of a member of the Board of the Company was recognized in the consolidated statements of loss and comprehensive income (loss) (three and six months ended June 30, 2021: EUR 64 and EUR 85, respectively). |
Interim Unaudited Condensed Consolidated Statements of Financial Position
· | As at June 30, 2022, EUR 39 of trade and other receivables was receivable from the former Managing Director of Oryx and other shareholders (December 31, 2021: EUR 47). |
· | As at June 30, 2022, EUR 67 of prepaid expenses and other assets was receivable from a related business of a non-executive director of the Company (December 31, 2021: EUR 62). |
· | As at June 30, 2022, EUR 704 of trade payables and other liabilities was due to the Company's key management personnel (December 31, 2021: EUR 1,924). |
· | As at June 30, 2022, EUR 116 of trade payables and other liabilities was due to the vendors of the sale of Wild Streak and Spin and subsequently employees of the Company (December 31, 2021: EUR 62). |
· | As at June 30, 2022, EUR 3,948 of deferred consideration (Note 10) was payable to the vendors of Spin and subsequently employees of the Company (December 31, 2021: EUR nil). |
34
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
16 | RELATED PARTY TRANSACTIONS (CONTINUED) |
Interim Unaudited Condensed Consolidated Statements of Changes in Equity
· | During the three and six months ended June 30, 2022, EUR nil, of share capital (three and six months ended June 30, 2021: EUR nil and EUR 22,000, respectively) 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 six months ended June 30, 2022, EUR 6,764, of share capital (three and six months ended June 30, 2021: EUR nil) was issued to the vendors of Wild Streak (Note 4). 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 six months ended June 30, 2022, EUR 1,426, of share capital (three and six months ended June 30, 2021: EUR nil) was issued to the vendors of Spin (Note 5) as share consideration for the acquisition of Spin. |
· | During the three and six months ended June 30, 2022, EUR 6,982 of shares to be issued (three and six months ended June 30, 2021: EUR 15,310) to the vendors for the sale of Wild Streak (Note 4) was recognized in the interim unaudited condensed consolidated statements of changes in equity. |
· | During the three and six months ended June 30, 2022, EUR nil 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 (three and six months ended June 30, 2021: EUR nil and EUR 1,918, respectively). |
· | During the three and six months ended June 30, 2022, EUR nil additional share capital, 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 8) (three and six months ended June 30, 2021: EUR 143 and EUR 410, respectively). |
Interim Unaudited Condensed Consolidated Statements of Cash Flows
· | During the three and six months ended June 30, 2022, a total of EUR nil in payments were made to the former Managing Director of Oryx for deferred consideration (three and six months ended June 30, 2021: EUR nil and 11,521, respectively). |
· | During the three and six months ended June 30, 2022, a total of EUR nil in payments were made to the former Managing Director of Oryx for interest on deferred and contingent consideration payable (three and six months ended June 30, 2021: EUR nil and EUR 140, respectively). |
· | During the three and six months ended June 30, 2022, a total of EUR 10,626 in cash consideration payments were made to the vendors of the sale of Spin and Wild Streak (three months and six months ended June 30, 2021: EUR 8,206). |
· | During the three and six months ended June 30, 2022, a total of EUR 664 in in loan payments were made to the vendors of the sale of Spin (three months and six months ended June 30, 2021: EUR nil). |
35
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 | ||||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Trade and other receivables | 10,455 | 8,454 |
Financial Liabilities
Financial liabilities as subsequently | ||||||||
measured at amortized cost | ||||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Trade payables | 5,013 | 1,464 | ||||||
Accrued liabilities | 13,962 | 12,380 | ||||||
Other liabilities | 579 | 69 | ||||||
Lease obligations on right of use assets | 662 | 600 | ||||||
20,216 | 14,513 |
The carrying values of the financial instruments approximate their fair values.
Fair Value Hierarchy
The following table presents the fair values and fair value hierarchy of the Company's financial instruments.
June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
Level 1 | Level 3 | Total | Level 1 | Level 3 | Total | |||||||||||||||||||
Financial assets | ||||||||||||||||||||||||
Fair value through profit and loss: | ||||||||||||||||||||||||
Cash and cash equivalents | 11,046 | - | 11,046 | 16,006 | - | 16,006 | ||||||||||||||||||
Consideration receivable | - | - | - | - | 56 | 56 | ||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||
Fair value through profit and loss: | ||||||||||||||||||||||||
Deferred consideration | 3,948 | - | 3,948 | - | - | - | ||||||||||||||||||
Other liabilities | - | 36 | 36 | - | 36 | 36 | ||||||||||||||||||
Fair value through other comprehensive income (loss): | ||||||||||||||||||||||||
Other liabilities | - | 148 | 148 | - | 148 | 148 |
36
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) |
There were no transfers between the levels of the fair value hierarchy during the periods.
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.
Foreign currency exchange risk
The Company's interim financial statements are presented in EUR; however, a portion of the Company's net assets and operations are denominated in other currencies, particularly Canadian and US dollars. 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 income (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 619 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.
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 June 30, 2022:
2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||
Trade payables and other liabilities | 19,554 | - | - | - | - | 19,554 | ||||||||||||||||||
Lease obligations on right of use assets | 217 | 287 | 161 | 160 | - | 825 | ||||||||||||||||||
Other non-current liabilities | - | 1 | 1 | 1 | 236 | 239 | ||||||||||||||||||
19,771 | 288 | 162 | 161 | 236 | 20,618 |
37
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 June 30, 2022:
Aging (months) | ||||||||||||||||||||
Note | <1 | 1 - 3 | >3 | Total | ||||||||||||||||
Gross accounts receivable | 13 | 10,779 | 903 | 1,386 | 13,068 | |||||||||||||||
Expected loss rate | 7.04 | % | 41.75 | % | 106.57 | % | 20.00 | % | ||||||||||||
Expected Loss Provision | 13 | 759 | 377 | 1,477 | 2,613 |
The provision matrix below shows the expected credit loss rate for each aging category of accounts receivable as at December 31, 2021:
Aging (months) | ||||||||||||||||||||
Note | <1 | 1 - 3 | >3 | Total | ||||||||||||||||
Gross accounts receivable | 13 | 8,717 | 747 | 1,405 | 10,869 | |||||||||||||||
Expected loss rate | 6.31 | % | 71.62 | % | 94.66 | % | 22.22 | % | ||||||||||||
Expected Loss Provision | 13 | 550 | 535 | 1,330 | 2,415 |
Gross accounts receivable includes the balance of accrued income within the aging category of less than one month.
38
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
17 | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) |
Concentration risk
For the three months ended June 30, 2022, one customer (three months ended June 30, 2021: one customer) contributed more than 10% each to the Company's revenues. Aggregate revenues from this customer totalled EUR 9,458 (three months ended June 30, 2021: EUR 2,714).
For the six months ended June 30, 2022, one customer (six months ended June 30, 2021: one customer) contributed more than 10% each to the Company's revenues. Aggregate revenues from this customer totalled EUR 18,987 (six months ended June 30, 2021: EUR 5,467).
As at June 30, 2022, one customer (December 31, 2021: one customer) constituted more than 10% to the Company's accounts receivable. The balance owed by this customer totalled EUR 3,201 (December 31, 2021: EUR 4,305).
18 | SUPPLEMENTARY CASHFLOW INFORMATION |
Cash flows arising from changes in non-cash working capital are summarized below:
Six Months Ended June 30, | ||||||||
Cash flows arising from movement in: | 2022 | 2021 | ||||||
Trade and other receivables | (1,623 | ) | 2,183 | |||||
Prepaid expenses and other assets | (546 | ) | (1,838 | ) | ||||
Deferred revenue | 679 | 503 | ||||||
Trade payables and other liabilities | 4,216 | 224 | ||||||
Other liabilities - non-current | 11 | 25 | ||||||
Changes in Non-Cash Working Capital | 2,737 | 1,097 |
For the six months ended June 30, 2022, cash flows arising from movement in prepaid expenses and other assets excludes EUR 821 (six months ended June 30, 2021: nil) in prepaid consideration (Note 1).
39
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
19 | SEGMENT INFORMATION |
Operating
The Company has one reportable operating segment, 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 contracted customers in the following jurisdictions:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||
Netherlands | 9,649 | - | 19,218 | - | |||||||||||||
Curaçao | 4,173 | 3,761 | 7,837 | 6,534 | |||||||||||||
Malta | 3,375 | 9,386 | 6,570 | 18,861 | |||||||||||||
Croatia | 676 | 713 | 1,260 | 1,138 | |||||||||||||
USA | 801 | 69 | 1,119 | 69 | |||||||||||||
Germany | 399 | 404 | 828 | 830 | |||||||||||||
Romania | 373 | 425 | 794 | 744 | |||||||||||||
Serbia | 365 | 243 | 700 | 442 | |||||||||||||
Other | 983 | 490 | 1,828 | 1,069 | |||||||||||||
Revenue | 20,794 | 15,491 | 40,154 | 29,687 |
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 | |||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
United States | 75,517 | 55,581 | ||||||
Other | 887 | 851 | ||||||
Non-Current Assets | 76,404 | 56,432 |
40
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 | |||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Income taxes payable | 1,224 | 784 | ||||||
Deferred income tax liabilities | 1,131 | 1,243 |
The components of income taxes recognized in the interim unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Current period | 573 | 452 | 1,025 | 1,143 | ||||||||||||
Adjustment in respect of prior periods | 234 | - | 263 | - | ||||||||||||
Current Income Taxes | 807 | 452 | 1,288 | 1,143 | ||||||||||||
Deferred income tax recovery | (232 | ) | 30 | (288 | ) | (154 | ) | |||||||||
Deferred Income Tax Recovery | (232 | ) | 30 | (288 | ) | (154 | ) | |||||||||
Income Taxes | 575 | 482 | 1,000 | 989 |
There is no income tax expense recognized in other comprehensive income (loss).
As at | As at | |||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Intangible assets | 1,084 | 1,196 | ||||||
Other | 47 | 47 | ||||||
Deferred income tax liabilities | 1,131 | 1,243 |
41
BRAGG GAMING GROUP INC. | |
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | |
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 income (loss) and comprehensive income (loss) were reported at rates different than the combined Canadian federal and provincial statutory income tax rates for the following reasons:
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
% | % | |||||||
Canadian statutory tax rate | 26.5 | 26.5 | ||||||
Effect of tax rate in foreign jurisdictions | (15.0 | ) | 7.4 | |||||
Non-deductible and non-taxable items | 218.7 | (30.2 | ) | |||||
Change in tax benefits not recognized | 29.7 | (8.6 | ) | |||||
Other | 10.4 | (36.1 | ) | |||||
Effective Income Tax Rate Applicable to Income (Loss) Before Income Taxes | 270.3 | (41.0 | ) |
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.
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Bragg Gaming Group Inc. published this content on 09 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 August 2022 13:15:07 UTC.