Annual Report and Accounts 2020 Gaming Realms is an international developer, publisher and licensor of mobile games, building a portfolio of highly popular gaming content and brands. Through its unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats. The Gaming Realms management team includes accomplished entrepreneurs and experienced executives from a wide range of leading gaming and media companies. Contents Strategic Report 01 Highlights 02 At a Glance 04 Executive Chairman’s Statement 06 Financial Review 08 Engaging with Stakeholders 10 Principal Risks and Uncertainties Corporate Governance 12 Board and Executive Management 14 Directors’ Report 15 Statement of Directors’ Responsibilities 16 Corporate Governance Independent Auditor’s Report Financial Statements 20 24 Consolidated Statement of Comprehensive Income 25 Consolidated Statement of Financial Position 26 Consolidated Statement of Cash Flows 27 Consolidated Statement of Changes in Equity 28 Notes to the Consolidated Financial Statements 59 Parent Company Statement of Financial Position 60 Parent Company Statement of Changes in Equity 62 Notes to the Parent Company Financial Statements www.gamingrealms.com 1 Highlights 2020 Financial highlights: » Revenue increased by 66% to £11.4m (2019: £6.9m) for the year • Licensing revenue increased 81% to £7.5m (2019: £4.1m) • Social publishing revenue increased 41% to £3.9m (2019: £2.8m) » Adjusted EBITDA1 before share option and related charges of £3.3m (2019: loss of £0.2m) » Adjusted EBITDA from continuing operations of £2.9m (2019: loss of £0.3m) • Licensing segment generated £3.7m adjusted EBITDA (2019: £1.4m) • Social publishing segment generated £1.4m adjusted EBITDA (2019: £0.8m) • Head office costs reduced to £2.2m (2019: £2.4m) through ongoing cost control » Loss for the year reduced to £1.5m (2019: £5.4m) 2020 Operational highlights: » Portfolio grew to 44 proprietary games on the Group’s remote game server (“RGS”) (2019: 34) » Launched with 26 new partners for Slingo Originals content, including 888casino.com, DraftKings, Paddy Power Betfair and Sky Betting & Gaming » Signed licensing deals with NetEnt, Playtech, Inspired Entertainment and King Show Games to build new innovative Slingo games » Unique players in licensing business increased by 140% » Submitted licence applications in order to enter the Pennsylvania and Michigan iGaming markets » Prepared for launch in the Italian market 1 EBITDA is profit before interest, tax, depreciation, amortisation and impairment expenses and is a non-GAAP measure. The Group uses EBITDA and adjusted EBITDA to comment on its financial performance. Adjusted EBITDA is EBITDA excluding non-recurring material items which are outside the normal scope of the Group’s ordinary activities. Adjusting items include costs arising from a fundamental restructuring of the Group’s operations, management restructuring costs, relocation costs, impairment of financial assets and sales proceeds on business asset disposals. See Note 5 for further details. Financial StatementsStrategic ReportCorporate Governance 2 At a Glance Innovation Gaming Realms develops, publishes and licenses mobile gaming content. As the creator of a variety of Slingo™, bingo, slots and other casual games, we use our proprietary content to create a “Slingo” genre of games for our partners internationally. Gaming Realms has partnered with some of the most successful and popular global platforms and operators. Integrated game development, licensing and publishing Game development Game licensing Growing international partners 2 Mobile games studios: Victoria, Canada London, United Kingdom Brand licensing IP licensor » North American Lottery Printed Scratch Games – Scientific Games » Global Electronic Gaming Machines – Scientific Games » Global Lottery Mobile Instant Games – IWG » Social Slot Games – Zynga Inc. » Bingo – Pala Interactive » iGaming Library – US, UK and EU • US – BetMGM, DraftKings, RSi, Golden Nugget, Betfair/Fanduel, Caesars Interactive, Resorts, Hardrock, Ocean Resorts, Pala Interactive, Parx Casino and Kindred • Europe – Gamesys, Entain, Sky Betting & Gaming, Paddy Power Betfair, 888, Skill On Net, Rank, 32 Red, William Hill, Kindred, Buzz Bingo, Jumpman, Whitehat, Leo Vegas, Betsson, Sisal, Goldbet Brand partnerships » Endemol – Deal or No Deal » Fremantle – Britain’s Got Talent, the X Factor, The Price Is Right » Sony – Who Wants to Be a Millionaire » Scientific Games – Rainbow Riches » Inspired Entertainment – Centurion, Reel King » NetEnt – Starburst » King Show Games – Lucky Larry Lobstermania » Playtech – Fluffy Favourites Gaming Realms plc Annual Report and Accounts 2020 3 Key focus areas Original game content and IP development We build original content from our London and Vancouver Island game studios incorporating social meta games and real money mechanics with Slingo and other well- known brands. Data and algorithmic optimisation “It’s all about the data” – we put the customer first, developing engaging content and using data to enhance the development feedback loop. Advanced mobile gaming platform We have invested significantly in our Remote Gaming Server (“RGS”), which hosts and distributes our game portfolio. The scalable platform facilitates future growth through existing infrastructure for new games and distribution. Strategic partners and licensing Partners include Endemol, Zynga, IWG, Inspired Entertainment, Hasbro and Scientific Games. Not only do we leverage our own IP across multiple brands, but we also license Slingo into markets adjacent to the Group’s core mobile gaming business. Responsible gambling Gaming Realms is committed to providing an environment for customers to play responsibly and securely. Since commencing operations, we have had measures in place to encourage responsible play – to keep it fun – and have provided tools to help keep customers’ gaming and spending within their control. In addition, we fund research, education and treatment of problem gambling through donations to GambleAware. We always ensure that Responsible Gambling is at the heart of our game design process and have recently built a tool for players to set their own limits on stakes and features within games. We only contract with licenced partners, ensuring that the players are given a high level of protection through these operators. As our games are certified in highly regulated markets such as the UK and Sweden, the standards we have to provide for our games and RGS systems in terms of player protection is already set to an incredibly high level. Highly Experienced Team As we have transitioned our core focus to the licensing business, we have built up a high-quality management team of sector specialists to drive the implementation of our strategy. Financial StatementsStrategic ReportCorporate Governance 4 Executive Chairman’s Statement A transformational year Michael Buckley Executive Chairman “Our focus on content licensing resulted in 81% revenue growth in our licensing business” The Group made excellent progress during the year, increasing revenues by 66% to £11.4m (2019: £6.9m) and producing a maiden adjusted EBITDA profit before share option and related charges of £3.3m (2019: loss of £0.2m). This underscores the success of the revised strategy we set out at the beginning of 2020 to focus on our core licensing business segment, as well as delivering growth in our social publishing division. Our focus on content licensing resulted in 81% revenue growth in our licensing business to £7.5m (2019: £4.1m). We are seeing strong momentum within this business, with increased international demand for our Slingo Originals portfolio. With growing distribution via our proprietary Remote Game Server (“RGS”), we have been able to increase our EBITDA margin within the licensing segment to 50% (2019: 34%), resulting in EBITDA of £3.7m (2019: £1.4m). Licensing business highlights: » Increased our library of proprietary games by 10 to 44 games at year-end. » Went live with 26 new partners during the year, all of which have licensed our Slingo Originals content. » Went live with a number of “Tier 1” partners through our Scientific Games distribution channel. » Increased our unique players in the year by 140% to 2.28m (2019: 0.95m) » Signed deals with NetEnt, King Show Games and Inspired Entertainment for new branded Slingo games. » Maintained in excess of a 3.5% market share of sales in New Jersey, USA, from online slot products throughout the year. During 2020, the New Jersey online casino market grew by 102%. We grew our social publishing business in the year, reversing the trends of previous years. Revenues grew 41% to £3.9m (2019: £2.8m), the result of both publishing our Slingo Originals portfolio, as well as the development of new tournament and promotional features on the platform. With increasing margins, EBITDA has grown to £1.4m (2019: £0.8m). As a result, the division produced a cash contribution to the Group. 2020 was a challenging year with the difficulties imposed by COVID restrictions. The highly pleasing financial results and groundwork for the future years would not have been achieved without management and staff showing excellent dedication and adaptability in the challenging circumstances. I should like to thank them all for their efforts which are reflected in these Financial Statements. Outlook for 2021 We are continuing our focus on the following areas: » International expansion – particularly in the US and European regulated markets » Adding new distributors, operators and licensors » Further penetration with existing distributors and operators driven by new games The Group has made encouraging progress so far in 2021, obtaining a supplier licence in Michigan and expecting to be live imminently. We are committing a lot of resources to growing the U.S. iGaming market and expect to obtain a supplier license and go live in Pennsylvania in the first half of the year. As a result, we are well prepared to take advantage of the growth of iGaming within the U.S., and have signed several multi-State deals and direct integration agreements with the largest operators, including Rush Street Interactive, DraftKings and BetMGM. Gaming Realms plc Annual Report and Accounts 2020 5 We have also signed a distribution agreement with GAN for the U.S. and European markets. In January of this year, we had a successful launch in the Italian regulated market and are encouraged by early trading. We have further launches planned in the regulated markets of Denmark, Spain, Canada and Portugal. We have also recently launched Slingo Starburst, through our licencing agreement with NetEnt, which has proven extremely popular with our players and partners internationally. It has been our most successful launch to date in both unique player numbers and revenue generated in its first month. With regards to this year’s trading, I am pleased to inform shareholders that our licensing revenues for the first quarter of this year are 60% ahead of the same period in 2020, and we are operating slightly ahead of Board expectations. With these early results, and the imminent launches in both Michigan and Pennsylvania, the Board has every confidence in the strategy being pursued and its expectations for this year and beyond. COVID-19 Our top priority in response to the pandemic has been the health and welfare of our employees and partners as mentioned above. Our team has demonstrated incredible commitment and focus to maintain complete business continuity and we will continue to support them as we move to a more flexible model post COVID-19. Michael Buckley Executive Chairman 26 April 2021 Financial StatementsStrategic ReportCorporate Governance 6 Gaming Realms plc Annual Report and Accounts 2020 Financial Review Strategy is delivering profitable growth Mark Segal Chief Financial Officer “In 2020 the Group was able to focus on successfully executing its core strategy of scaling the licensing business” Overview In 2020 the Group was able to focus on successfully executing its core strategy of scaling the licensing business. For the year, the Group delivered adjusted EBITDA on a continuing basis of £2.9m (2019: £0.3m adjusted EBTIDA loss). This has resulted in a significant reduction in the pre-tax loss of £1.6m compared with the previous year (2019: £4.7m loss from continuing operations). In the prior year, the Group completed its disposal of the real money B2C assets and realised a £0.8m profit on disposal. The B2C RMG segment is presented as a discontinued operation in the comparative 2019 results. There were no such asset disposals during 2020. Continuing operations Year-on-year continuing revenue increased 66% to £11.4m (£2019: £6.9m) due to the strong performance of both the licensing and social publishing segments in the year. Continuing operations generated adjusted EBITDA of £2.9m (2019: £0.3m loss) and £3.3m before share option and related charges (2019: £0.2m loss). EBITDA generated from continuing operations was £2.0m (2019: £0.8m loss) including restructuring costs of £0.5m (2019: £0.3m) and impairment of assets of £0.4m (2019: £0.2m). Operating expenses for the year increased to £2.2m (2019: £1.5m) principally as a result of costs directly associated with the revenue growth in both the licensing and social publishing segments. Adjusted administrative expenses increased slightly to £5.5m (2019: £5.4m) due to increased staff costs in the licensing segment in order to drive the revenue growth, offset by head office cost savings compared to 2019. Licensing Licensing segment revenues increased 81% to £7.5m (2019: £4.1m) due to the successful implementation of the Group’s strategy of growing both the games content and distribution to an increased number of operators in Europe and the US. During 2020, the Group went live with an additional 26 partners in Europe, New Jersey and Latin America. After the year-end, the Group went live with a further 9 new operators, including Sisal and Goldbet in Italy, which represents a new regulated market for the Group. 10 new Slingo games were launched to the market during 2020, including Slingo Fluffy Favourites and Slingo Reel King. Revenues from the U.S. market continue to be a focus for the segment, and in 2020 increased to £2.4m (2019: £1.7m), representing 32% of total licensing revenues (2019: 40%). This market is expected to gain further prominence for the Group given the recently announced successful license application in Michigan and pending application in Pennsylvania. Social publishing The Group’s social publishing business delivered strong growth in 2020, with revenues increasing to £3.9m (2019: 2.8m). With continued cost controls in place, this resulted in the segment delivering £1.4m adjusted EBITDA for the year (2019: £0.8m). Marketing expenses of £0.2m were incurred (2019: £0.1m) in order to drive player activity and revenues. Discontinued operations Discontinued operations in the prior year relate only to B2C RMG. In July 2019 the Group concluded its transaction with River Tech plc (“River”), which finalised the Group’s strategy of withdrawing from the UK real money B2C market to focus on game development and licensing activities. The Group recorded a profit on disposal of these assets of £0.8m in the prior year. The Group recorded a loss after tax from discontinued operations of £0.8m in the prior year, comprising £0.7m profit on disposal of assets, £0.2m share of loss of associate prior to disposal, and incurred trading losses until disposal of £1.3m. Discontinued operations have been discussed in more detail in Note 24. Strategic Report Corporate Governance Financial Statements 7 £7.5m licensing revenue (2019: £4.1m) £2.9m Adjusted EBITDA (2019: loss of £0.3m) £2.0m Cash inflow from operating activities (2019: £1.5m outflow) Cashflow, Balance Sheet and Going Concern Net cash (Note 20) decreased by £0.5m in 2020 (2019: increased by £1.0m) to £2.1m at 31 December 2020 (2019: £2.6m). The current year reduction in net cash was largely driven through the £2.4m of development costs capitalised in the year (2019: £2.7m) offset by the £2.0m cash inflow from operating activities (2019: £1.5m outflow). After the year-end, on 1 April 2021 the Group received £1.0m from River for full and final settlement of the deferred consideration receivable (see Note 19), certain other receivable balances, and various legal proceedings and out of court disputes between the parties. Net assets totalled £10.9m (2019: £12.1m). The prolonged COVID-19 pandemic has brought significant uncertainty to global markets and economies, including the real money gambling sector. The Directors have performed qualitative and quantitative assessments of the associated risks facing the business and its ability to meet its short and medium-term forecasts. The forecasts were subject to stress testing to analyse the reduction in forecast revenues required to bring about insolvency of the Company unless capital was raised. In such cases it is anticipated that mitigation actions, such as reduction in overheads could be implemented to stall such an outcome. The Directors confirm their view that they have carried out a robust assessment of the emerging and principal risks facing the business. As a result of the assessment performed, the Directors consider that the Group has adequate resources to continue its normal course of operations for the foreseeable future. Dividend During the year, Gaming Realms did not pay an interim or final dividend. The Board of Directors are not proposing a final dividend for the current year. Corporation and deferred taxation The Group received £0.05m (2019: £0.1m) in research and development credits in Canada. A current year tax charge of £0.1m (2019: £0.1m) principally relates to taxation in overseas jurisdictions in which the Group operates. The Group also recognised an unwind of deferred tax of £0.1m (2019: £0.1m) which arose on prior year business combinations. Mark Segal Chief Financial Officer 26 April 2021 The table below sets out the split of revenue and adjusted EBITDA on a continuing and discontinued operations basis: 2020 Revenue Marketing expense Operating expense Administrative expense Share option and related charges Adjusted EBITDA 2019 Revenue Marketing expense Operating expense Administrative expense Share option and related charges Adjusted EBITDA Continuing operations Social Publishing £’000 3,886 (243) (1,161) (1,090) (7) 1,385 Head office £’000 2 (94) – (1,804) (294) (2,190) Continuing operations Social Publishing £’000 2,758 (130) (855) (1,001) – 772 Head office £’000 106 (82) 1 (2,446) (10) (2,431) Total continuing £’000 11,403 (355) (2,232) (5,504) (372) 2,940 Total continuing £’000 7,011 (212) (1,627) (5,417) (10) (255) Discontinued Real money gaming £’000 – – – – – – Discontinued operations Real money gaming £’000 6,002 (706) (4,908) (1,965) – (1,577) Licensing £’000 7,515 (18) (1,071) (2,610) (71) 3,745 Licensing £’000 4,147 – (773) (1,970) – 1,404 Total 2020 £’000 11,403 (355) (2,232) (5,504) (372) 2,940 Total 2019 £’000 13,013 (918) (6,535) (7,382) (10) (1,832) 8 Engaging with Stakeholders The Board recognises that Gaming Realms has a number of stakeholders, including shareholders, customers, employees, suppliers and regulators. The Board is cognizant of its responsibility to understand each of their views and does this through a variety of methods, which are continually reviewed to remain effective. Updates are provided and discussed at Board and relevant Committee meetings. Throughout this Annual Report, we have provided information on some of the initiatives and approaches undertaken in relation to stakeholder engagement by the Group during 2020. Section 172 statement The Board of Directors, in line with their duties under section 172 (“s172”) of the Companies Act 2016, act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard to a range of matters when making decisions for the long term. Key decisions and matters that are of strategic importance to the Company are appropriately informed by s172 factors. The 2018 UK Corporate Governance Code (the ‘2018 UK Code’) reinforced the importance of the Board understanding the views of the Company’s key stakeholders and this section is intended to provide information on how stakeholders’ interests have been considered in Board discussions and decision-making processes in accordance with the 2018 UK Code. Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders and other matters in their decision making. The Directors continue to have regard to the interests of the Company’s employees and other stakeholders, the impact of its activities on the community, the environment and the Company’s reputation for good business conduct, when making decisions. In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success of the Company for its members in the long term. We explain in this annual report, and below, how the Board engages with stakeholders. The Board regularly reviews the Company’s principal stakeholders and how it engages with them. This is achieved through information provided by management and also by direct engagement with stakeholders themselves. Shareholders The Board is committed to maintaining constructive dialogue with shareholders and ensuring that it has a deep understanding of their views. It also recognises that shareholders consider a range of environmental, social and governance matters. The Chair and Chief Financial Officer, on behalf of the Board, meet shareholders regularly and report to the Board on these discussions. All Directors are also available to meet institutional investors on request. Some of the activities undertaken during 2020 are summarised below: » The Company has engaged with an Investor Relations consultant. » The Chair engaged with key shareholders on corporate governance matters. » The Non-Executive Directors have engaged with stakeholders during the year. » Private individual shareholders were communicated with via the Company Secretary. » The Chairman and Chief Financial Officer have conducted a number of “online” presentations and interviews in order to have greater transparency with shareholders. AGM Due to COVID-19 restrictions only two of our Directors attended the 2020 AGM and an average of 52% of the total issued share capital was voted across all resolutions. Shareholders were given the opportunity to send in questions in advance to be answered by the directors at the 2020 AGM on the Group’s strategy and future outlook. The 2020 AGM will be held on 2 June 2021. Separate resolutions are proposed on each item of business. Website and shareholder communications Further details on the Group, our business and key financial dates can be found on our corporate website: www.gamingrealms.com Players We always ensure that Responsible Gambling is at the heart of our game design process and have recently built a tool for players to set their own limits on stakes and features within games. We only contract with licensed partners, ensuring that the players are given a high level of protection through these operators. As our games are certified in highly regulated markets such as the UK and Sweden, the standards we have to provide for our games and RGS systems in terms of player protection is already set to an incredibly high level. Gaming Realms plc Annual Report and Accounts 2020 9 Customers We are providing our customers with an increasing portfolio of unique games each year. We are making significant improvements to our platform in order to prepare for large scale growth. We ensure our games and platform are fully tested before each new launch and adhere to any regulations required for them. Trust is important to our customers and their end users, and our competitive customer offering is maintained through our unique Slingo IP, together with constant communication and emphasis on accounts management. We have invested in account managers who work closely with our B2B partners to ensure good relationships and that we get maximum exposure for our content. Employees Employee engagement is critical to our future success. In a year of remote working, our employees have worked hard to support the business and sustain our culture. Empowerment, career development, health and well-being and social responsibility are all areas our employees have told us they consider important in the workplace. The Board gains an understanding of the views of our employees and the culture of the organisation through visits to our offices, one-to- one meetings, Board presentations and via assessment of office wide engagement scores and views. We continue to monitor and develop our approach to performance management, to promote a culture of continuous improvement. Suppliers We have established long-term partnerships that complement our in-house expertise and have built a network of specialised partners within the industry and beyond. We have an open, constructive and effective relationship with all suppliers through regular meetings which provide both parties the ability to feedback on successes, challenges and the future roadmap. Our procurement policy includes a commitment to sustainable procurement and mitigation against the risk of modern slavery, anti-bribery and corruption, and data protection/privacy breaches across our supply chain. We aim to operate to the highest professional standards, treating our suppliers in a fair and reasonable manner and settling invoices promptly. We regularly monitor the relationship and engagement approach with our third-party suppliers. Regulators We have an open and transparent dialogue with the regulatory and industry bodies that we work with. The Group has a compliance team to ensure that all regulatory guidelines are met in its gambling operations. The Group also maintains close legal counsel to advise on any changes to the regulatory framework, as well as updates on territories currently outside the Group’s activities. We have spent 2020 working with the Regulators on our applications for supplier licenses in both Pennsylvania and Michigan. Financial StatementsStrategic ReportCorporate Governance 10 Principal Risks and Uncertainties The Board constantly monitors and assesses risks and uncertainties within the Group’s trading activities. There will always be a level of risk that needs to be evaluated against the Group’s potential returns in any activity. Risk How this risk is managed Regulatory and legislation Online gambling and gaming are subject to a dynamic and complex regulatory regime. The Group now holds licences from the UK Gambling Commission, the New Jersey Division for Gaming Enforcement and a Recognition Notice for the Malta Gaming Authority, as well as the recently issued iGaming supplier licence with the Michigan Gaming Control Board. In December 2020, the UK Government launched a review of the Gambling Act 2005, with the aim to ensure it is “fit for the digital age”. It is key to the Group to maintain compliance with all licences and any new ones that are required. These are critical to the continuing operation of the Group’s gambling activities and also the production and supply of its unique content into both its operations and other third parties. Taxation risk From the end of 2014, the gaming industry has been subject to point of consumption tax in relation to gambling activities within the UK. The rate increased to 21% in April 2019. There is a risk that increased gaming duty or taxes in the UK or other significant jurisdictions for the Group impacts revenues generated. The Group has a compliance team to ensure that all regulatory guidelines are met in its gambling operations, including any potential changes arising from the UK Government’s review of the Gambling Act 2005. The Group also maintains close legal counsel to advise on any changes to the regulatory framework, as well as updates on territories currently outside the Group’s activities. The licensing business operates in multiple jurisdictions reducing the impact of individual jurisdiction specific tax changes. The tax liability is borne by the operator. Residency The Group has legal entities in several jurisdictions, including US, Canada, Malta and the UK. The Group has undertaken a detailed transfer pricing exercise to ensure that revenue and profits are attributed correctly between the operating locations and continues to monitor taxation policies in all jurisdictions. Competition The online and free to play gaming markets are highly competitive in North America and the UK. Failure to be able to hold a competitive advantage would result in attracting less players and have lower engagement on our apps and sites. In following the Group’s strategy of developing new unique IP and content, the Group feels well placed to be able to compete in the markets it operates in. It invests significant resource to be able to improve its development and operations. Diverse products and geographies also help to diversify the risk. Brexit On 31 December 2020 the UK formally left the EU at the end of the Brexit transition period. Throughout the Brexit negotiations in 2020, the Group prepared for a worst-case scenario, being a “no deal” and its potential implications and uncertainties for the Group. Prior to the UK-EU trade deal in December 2020, we had already taken steps to mitigate our risks by incorporating Maltese subsidiaries and we are currently applying for a full Maltese Gambling Authority (MGA) license. We continue to monitor for the risks and implications of Brexit, and the outcomes of the deal on our people and business. We leverage internal and external expertise to mitigate the risks and impacts on the business. Gaming Realms plc Annual Report and Accounts 2020 11 Risk How this risk is managed Time to market The Group invests highly in technology and bringing new products and games to market. A delay in time to market will result in a loss of competitive advantage, a loss in potential revenue and also increasing cost of development. The Group has invested highly in having a dual product track to allow its products and games to be ready for both licensing and publishing exploitation in the same release. Extensive work is undergone on the planning stage to ensure that timeframes can be met, and products go live at the highest standard. Dependence on technology As a provider of online gambling services, the Group’s business is reliant on technology and advanced information systems. If the Group does not invest in the maintenance and further development of its technology systems, there is a risk that these systems may not cope with the needs of the business and may fail. The Group is reliant on the Internet and is vulnerable to activities such as distributed denial of service attacks, other forms of cyber-crime and a wide range of malicious viruses. Dependence on third-party service providers The Group engages with a number of providers for cloud-based technology and remote deployment, as well as other important service providers. In the event that there is any interruption to the products or services provided by third parties, problems in supplying the products, one or more ceased to be provided or are provided on onerous terms to the Group, this may have an adverse effect on the Group’s business and performance. The team The ability to carry out the Groups strategy is dependent on the engagement of its senior management team, its technology, marketing and operations teams. The Group operates with a small team across 2 main locations. If key employees leave, there is a risk of loss of knowledge. Business disruption including COVID-19 Business disruptions may occur where the Group’s workforce is unable to work or communicate, including due to pandemics such as COVID-19. Such disruptions affect the global economy and therefore our B2B operators and end users, if spending and confidence are significantly affected. The current COVID-19 pandemic may present further potential risks to the business. The Group continues to invest in its proprietary platform to ensure the necessary features and functionality meet partner needs. In addition, it has adopted industry standard protections to detect intrusions or other security breaches and implements preventative measures to protect against sabotage, hackers, viruses and other cyber-crime. The Group also holds relevant insurance to cover against this. The Group uses reliable and well-known suppliers and ensures that contractual agreements with key partners offer adequate protection. The Group continues to invest in its employees to ensure that it can attract, recruit and maintain a high-quality team. During the year, The Group has made a number of hires in key positions to ensure the team is appropriate for the next phase of the Company’s growth. The Group actively monitors developments which may affect its operations and the Directors have taken practical steps to mitigate disruption this is causing to the business. The Group’s workforce is predominantly based in the UK, Canada and the US. We have successfully migrated to a home working model during the pandemic. Our colleagues’ mental and physical well-being is being closely monitored and managed with training and support for all employees. The 2020 Strategic Report on pages 1 to 11 has been approved by the Board of Directors. On behalf of the Board: Michael Buckley Executive Chairman 26 April 2021 Financial StatementsStrategic ReportCorporate Governance 12 Board and Executive Management Accomplished team Board of Directors MB Michael Buckley Executive Chairman MS Mark Segal Chief Financial Officer JR Jim Ryan Non-Executive Director Mark Segal joined Gaming Realms in May 2013 having left bwin.party as Finance Director for the bingo vertical. Previous to that Mark was Finance Director of Cashcade until it was acquired by PartyGaming plc in July 2009. Mark was responsible for the full finance function, including commercial negotiations, business intelligence and operational support in the business, and was involved in the sale to PartyGaming plc and acquisition by Cashcade of Independent Technology Ventures in July 2007. Prior to joining Cashcade, in May 2005, Mark spent five years at the accountancy firm Martin Greene Ravden, where he qualified as a chartered accountant in 2003. Michael Buckley was Chairman of Cashcade, founded in 2000. Cashcade became a leading UK-based online gaming company prior to its sale to PartyGaming plc in 2009 for an aggregate sale consideration of £96m for shareholders. Michael has invested in and been Chairman of a number of public companies. These include SelecTV plc, a producer of comedy and comedy drama series for television such as Lovejoy, Birds of a Feather and The New Statesman. SelecTV invested in a consortium which in 1991 won the franchise to create Meridian Television of which Michael was a founding Director. He was also Chairman of Pacific Media plc, which invested in a number of internet backbone companies in Asia during the 1990s as well as creating a chain of movie theatres in South East Asia in partnership with United Artists Theatre Circuit Inc. Michael has held other public and private company directorships, having obtained a professional qualification as a chartered accountant in the UK. Jim Ryan is the CEO of Pala Interactive, LLC a real money gambling operator and B2B platform provider focused on the US regulated online gaming market. Prior to Pala Interactive, Jim was the Co-CEO of bwin. party digital entertainment plc. He has spent the last 14 years of his career in leadership roles within the online gaming sector. Jim has led a number of the industry’s largest merger and acquisition transactions which include the merger of PartyGaming plc and bwin, the acquisitions of Cashcade (Foxy Bingo) and the World Poker Tour and the sale of St Minver Limited to GTECH. Jim held senior posts at four publicly listed companies. In addition to his role of CEO of PartyGaming plc and Co-CEO of bwin.party digital entertainment plc he was President and Chief Executive Officer of Excapsa Software Inc. and as Chief Financial Officer of CryptoLogic Inc. and Chief Financial Officer of SXC Health Solutions Corp and was CEO of St. Minver Limited. Jim also held senior management posts at Procuron Inc., Metcan Information Technologies Inc. and Epson Canada Limited. Educated at Brock University (Goodman School of Business) in Ontario, Canada, where he obtained a business degree with first class honours, Jim obtained professional qualifications as a chartered accountant and certified public accountant from the Canadian Institute of Chartered Accountants. Gaming Realms plc Annual Report and Accounts 2020 Strategic Report Corporate Governance Financial Statements 13 MW Mark Wilson Non-Executive Director CA Chris Ash Non-Executive Director MB Mark Blandford Non-Executive Director Mark Wilson is a strategic adviser and investor in media, gaming and real estate. Mark has held multiple senior leadership positions, serving as CEO of Television Games Network, Executive Chairman of Music Choice International, President of Hubbard Enterprises, Managing Member of New Mexico Gaming LLC, and General Counsel and Corporate Secretary of Churchill Downs. He received a Juris Doctorate from the University of Louisville. Chris is one of the UK’s leading entrepreneurs and experts on the gaming industry. In a career of over 18 years in the industry, Chris built and sold Ash Gaming Ltd to Playtech plc for £23m, which, at the time, was one of the leading gaming content developers in the UK. Whilst at Playtech plc, Chris also ran the content aggregation business with 25 partner studios and assisted with M&A. Chris is now an investor in, and advisor to, a range of software businesses. Mark was the owner of a traditional ‘bricks and mortar’ bookmaker’s chain for over 15 years, then recognised the potential of the internet in the mid 1990’s. In 1998 he founded Sportingbet.com, and in 2001 floated the company on AIM. Mark stepped down from the Board of Sportingbet in 2007 before its eventual sale in 2013 for £485m, with the assets being split between William Hill and GVC. In 2002, Mark was awarded AIM Entrepreneur of the Year. After stepping down from the board of Sportingbet, Mark has become an active, successful and widely followed investor in the digital pay2play entertainment space. 14 Directors’ Report for the year ended 31 December 2020 The Directors present their Annual Report together with the audited financial statements for the year ended 31 December 2020. Principal activities The Group’s principal activities during the year were that of content development and licensing to real money and social gaming customers in Europe and North America. During the previous year, the Group also acted as an online casino operator and provided marketing services to real money gaming customers. The Group ceased involvement in these activities in July 2019 following the transaction to dispose of the Group’s real money gaming assets. See Note 24 to the financial statements for full details. These financial statements present the results of the Group for the year ended 31 December 2020. Names of Directors and dates of any changes The Directors who served during the year and to the date of this report were: » Michael Buckley » Mark Segal » Jim Ryan » Mark Wilson » Chris Ash » Mark Blandford » Patrick Southon (resigned 11 February 2020) Directors’ and Officers’ liability insurance The Group has purchased and maintains appropriate insurance cover in respect of Directors’ and Officers liabilities. The Group has also entered into qualifying third-party indemnity arrangements for the benefit of all its Directors, in a form and scope which comply with the requirements of the Companies Act 2006. Results and dividends The results for the year are set out on page 25. The Company will not be paying a dividend this year. Post balance sheet events Significant events impacting the Company that occurred after 31 December 2020 are disclosed in Note 30. Going concern Under Company law, the Company’s Directors are required to consider whether it is appropriate to prepare the financial statements on the basis that the Group and Company are a going concern. The Group meets its day-to-day working capital requirements from the cash flows generated by its trading activities and its available cash resources. As disclosed further in Note 1 of the financial statements, whilst there are a number of risks to the Group’s trading performance as summarised on page 10, the Group is confident of its ability to continue to meet its liabilities as they fall due. The Group’s strategic forecasts, based on reasonable assumptions, indicate that the Group should be able to operate within the level of its currently available resources. After making enquiries and after consideration of the Group’s existing operations, cash flow forecasts and assessment of business, regulatory and financing risks, the potential risks and the impacts of Brexit and COVID-19, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual report and Accounts. Disclosure to auditors The Directors who held office at the date of approval of this Directors’ report confirm that, as far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that ought to have been taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. BDO LLP have expressed their willingness to continue in office and a resolution to reappoint them will be proposed at the Annual General Meeting in accordance with Section 489 of the Companies Act 2006. Financial instruments Details of the Group’s financial risk management objectives and policies are included in Note 25 to the financial statements. Research and development The Group maintains its level of investment in software development activities. In the opinion of the Directors, continued investment in this area is essential to strengthen the Group’s market position for future growth. During the year, the Group capitalised £2.4m (2019: £2.7m) of development costs (see Note 14). During the year, the Group claimed Research and Development relief as per Note 12 to the financial statements. Future developments Future developments are discussed in the Executive Chairman’s Statement on page 4. The Directors report was approved on behalf of the Board on 26 April 2021 and signed on its behalf by Michael Buckley Executive Chairman 26 April 2021 Gaming Realms plc Annual Report and Accounts 2020 15 Website publication The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the UK governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market (‘AIM’). In preparing these financial statements, the Directors are required to: » Select suitable accounting policies and then apply them consistently; » Make judgements and accounting estimates that are reasonable and prudent; » State whether they have been prepared in accordance with IFRSs in conformity with the requirements of the Companies Act 2006, subject to any material departures disclosed and explained in the financial statements; and » Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Financial StatementsStrategic ReportCorporate Governance 16 Corporate Governance Chairman’s Introduction The Directors recognise the importance of good corporate governance and have chosen to apply the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). The QCA Code was developed by the QCA in consultation with a number of significant institutional small company investors, as an alternative corporate governance code applicable to AIM companies. The underlying principle of the QCA Code is that “the purpose of good corporate governance is to ensure that the company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term”. The Group is not in compliance with all aspects of the Code due to the size and relative stage of development of the business, but remains committed to developing its compliance position over time as the business grows and matures. To see how the Company addresses the key governance principles defined in the QCA Code please refer to the Company’s website and the below table. (The Company has not prepared an official Chairman’s corporate governance statement). The principles of the Quoted Company Alliance (QCA) Code QCA Code Principle What we do and why 1. Establish a strategy and business model which promote long-term value for shareholders The Company develops, publishes and licenses mobile real money and social games. Through its market leading mobile platform and unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats. Our goal is to try to beat the market by investing in unique content and relationships with partners. We do that through: » Investing in unique mobile content and features on our gaming platform » Investing with discipline, because we are able to test new opportunities before we roll them out » Using data and technology to continuously improve. We are able to AB test all developments in games and platform and able to deploy only the best. » We generate revenue by licensing our unique gaming content and Slingo brand to online real money gaming operators, social publishing operators and land-based gambling games manufacturers. Key Challenges in implementing the strategy: » Regulatory framework is continually changing for Gambling which requires constant updates and development work per territory » Continuing to create best in class Games to licence to operators » Having technical resource to integrate the games onto Client sites 2. Seek to understand and meet shareholder needs and expectations Please refer to our website for further details on how we comply with this requirement of the QCA code: https://www.gamingrealms.com/wp-content/uploads/Statement-of-Compliance-with-the-QCA-Corporate- Governance-Code-2020-02.pdf 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation Please refer to our website for further details on how we comply with this requirement of the QCA code: https://www.gamingrealms.com/wp-content/uploads/Statement-of-Compliance-with-the-QCA-Corporate- Governance-Code-2020-02.pdf The Board recognises that maintaining sound controls and discipline is critical to managing the downside risks to our plan. To continue the improvement in this area we are adding to our existing controls department, expanding the remit of the compliance teams, and engaging with external advisors to ensure we remain compliant with regulations in all territories we will be working in and continued tight control on investment as we continue to develop the platform and the games content. Both the Board and senior managers are responsible for reviewing and evaluating risk and the Executive Directors meet at least monthly to review ongoing trading performance, discuss budgets and forecasts and new risks associated with ongoing trading. Gaming Realms plc Annual Report and Accounts 2020 17 QCA Code Principle What we do and why 5. Maintain the Board as a well-functioning, balanced team led by the chair The Board comprises the Executive Chairman, one Executive Director and four Non-Executive Directors. Michael Buckley, the Executive Chairman, is responsible for the running of the Board and is supported by Mark Segal, the Chief Financial Officer. Michael has executive responsibility for running the Group’s business and implementing Group strategy. The Board has 4 Non-Executive Directors and is able to govern on an effective basis. The Directors considered to be independent are Jim Ryan, Mark Wilson, Mark Blandford and Chris Ash. Key Board activities this year included: » Input into the accelerating growth plan » Considered our financial and non-financial policies » Discussed strategic priorities, including expansion into new territories » Discussed the Group’s capital structure and financial strategy » Reviewed the Group risk register, including Compliance » Reviewed feedback from shareholders post full and half year results The Board is supported by the Audit and Remuneration Committees. The Committees’ roles and members are available on the Company’s website. During the year there were 12 board meetings. Attendance records were: Board member Michael Buckley Mark Segal Jim Ryan Mark Wilson Chris Ash Mark Blandford Patrick Southon* Meetings attended 12 12 12 12 12 12 0 * Patrick Southon, who resigned during the year, was not eligible to attend any meetings 6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills and experience, including in the areas of international online gambling, international licensing, finance, innovation, and marketing. All Directors receive regular and timely information on the Group’s operational and financial performance. Relevant information is circulated to the Directors in advance of meetings. The business reports monthly on its headline performance against its agreed budget, and the Board reviews the monthly update on performance and any significant variances are reviewed at each meeting. The Board makes decisions regarding the appointment and removal of Directors, and there is a formal, rigorous and transparent procedure for appointments. Full details of the Board members and their experience and skills can be found on page 12 of the 2020 Annual Report or via the Investor link on Gaming Realms plc’s website. The Board has not sought external advice on any significant matter, apart from advice sought in the normal course of business from our lawyers and tax compliance and other advisors. No external advisors have been engaged by the Board of Directors, except as noted above. Financial StatementsStrategic ReportCorporate Governance 18 Corporate Governance continued QCA Code Principle What we do and why 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement To date, the Board has not had a formal effectiveness review. The Chairman will be undertaking a rolling assessment of the individual contributions of each of the members of the team to ensure that: » Their contribution is relevant and effective » That they are committed » Where relevant, they have maintained their independence » That there is succession planning for Board members Going forward, appraisals will be carried out each year with all Executive Directors. 8. Promote a culture that is based on ethical values and behaviours Gaming Realms takes its ethical values very seriously and, in particular, being in the gaming sector the areas of promoting responsible gaming and preventing underage gaming. Staff undergo regular training and processes are in place to ensure correct practice. The culture of the Group is to put the customer, supplier, shareholder and people first. We believe in long-term partnerships in all these areas and work to maintain strong relationships. There is a requirement to include in the Chairman’s corporate governance statement what the Board does to monitor and promote a healthy corporate culture. We have not provided a Chairman’s corporate governance statement but will look to publish such a statement in the future. 9. Maintain governance Please refer to our website for further details on how we comply with this requirement of the QCA code: structures and processes that are fit for purpose and support good decision- making by the Board 10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders https://www.gamingrealms.com/wp-content/uploads/Statement-of-Compliance-with-the-QCA-Corporate- Governance-Code-2020-02.pdf The Company communicates with shareholders through the Annual Report and Accounts, full-year and half- year announcements, the Annual General Meeting (AGM) and one-to-one meetings with large existing or potential new shareholders. The Board receives regular updates on the views of shareholders through briefings and reports from the Executive Chairman, Chief Financial Officer and the Company’s brokers. The Company communicates with institutional investors through briefings with management. In addition, analysts’ notes and brokers’ briefings are reviewed to achieve a wide understanding of investors’ views. The Company completes regular employee surveys to maintain an open dialogue with employees. There is a requirement to prepare both an Audit Committee report and a Remuneration report. These have not been done in this report but we will look to publish such reports in the future. Gaming Realms plc Annual Report and Accounts 2020 19 Roles of the Board, Chairman and Chief Financial Officer The Board is responsible for the long-term success of the Company. There is a formal schedule of matters reserved to the Board. It is responsible for overall Group strategy; approval of major investments (whether Capex or Opex); approval of the annual and interim results; annual budgets; dividend policy; and Board structure. It monitors the exposure to key business risks and reviews the strategic direction of all trading subsidiaries, their annual budgets and their performance in relation to those budgets. There is a clear division of responsibility at the head of the Company. The Chairman is responsible for running the business of the Board and for ensuring appropriate strategic focus and direction. The Chairman and Chief Financial Officer are responsible for proposing the strategic focus to the Board, implementing it once it has been approved and overseeing the management of the Company through the Executive Team. Board committees The Board is supported by the Audit and Remuneration committees. Each committee has access to such resources, information and advice as it deems necessary, at the cost of the Company, to enable the committee to discharge its duties. The Audit Committee have the primary responsibility of monitoring the quality of internal controls and ensuring that the financial performance of the Group is properly measured and reported on. It will receive and review reports from the Group’s management and external auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Group. The Audit Committee will meet not less than twice in each financial year and will have unrestricted access to the Group’s external auditors. The Audit Committee is chaired by Jim Ryan and also comprises Mark Blandford and Michael Buckley. The Remuneration Committee review the performance of the executive directors and make recommendations to the Board on matters relating to their remuneration and terms of service. The Remuneration Committee also make recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any employee share option scheme or equity incentive plans in operation from time to time. The Remuneration Committee meet as and when necessary. In exercising this role, the directors shall have regard to the recommendations put forward in the QCA Guidelines. The Remuneration Committee is chaired by Mark Wilson and comprises Jim Ryan and Michael Buckley. The Company will continue review the corporate governance framework as the business grows. All Directors receive regular and timely information on the Group’s operational and financial performance. Relevant information is circulated to the Directors in advance of meetings. The business reports monthly on its headline performance against its agreed budget, and the Board reviews the monthly update on performance and any significant variances are reviewed at each meeting. Senior executives below Board level maybe invited to attend Board meetings where appropriate to present business updates. Board meetings throughout the year are held at the Company’s Head Office in London. Executive Team The Executive Team consists of Michael Buckley and Mark Segal with input from the vertical directors and teams. They are responsible for formulation of the proposed strategic focus for submission to the Board, the day-to-day management of the Group’s businesses and its overall trading, operational and financial performance in fulfilment of that strategy, as well as plans and budgets approved by the Board of Directors. It also manages and oversees key risks, management development and corporate responsibility programmes. The Executive team reports to the plc Board on issues, progress and recommendations for change. The controls applied by the Executive Team to financial and non-financial matters are set out earlier in this document, and the effectiveness of these controls is regularly reported to the Audit Committee and the Board. Financial StatementsStrategic ReportCorporate Governance 20 Independent Auditor’s Report to the Members of Gaming Realms plc Opinion on the financial statements In our opinion: » the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2020 and of the Group’s loss for the year then ended; » the Group financial statements have been properly prepared in accordance with international accounting standards, International Financial Reporting Standards (IFRSs) in conformity with the requirements of the Companies Act 2006; » the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and » the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Gaming Realms plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2020 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the ability to continue to adopt the going concern basis of accounting included: » A critical evaluation of management’s assessment of the entity’s ability to continue as a going concern, covering the period of 12 months from the date of approval of the financial statements by; » Evaluating the process management followed to make its assessment, including confirming the assessment and underlying projections were prepared by appropriate individuals with sufficient knowledge of the detailed figures as well as an understanding of the entities markets, strategies and risks. » Understanding, challenging and corroborating the key assumptions included by management in their cash flow forecasts against prior year, our knowledge of the business and industry, and other areas of the audit. » Assessing through enquiry with management, review of board minutes and review of external resources for any key future events that may have been omitted from cash flow forecasts and assessing the impact these could have on future cash flows and cash reserves. » Assessing management’s stress test scenario and sensitivities, including those in respect of Covid 19 considerations, and challenging whether other reasonably possible scenarios could occur and including where appropriate. » Sensitised cashflow forecasts prepared by management included the preparation of a reverse stress test to analyse the level of reduction in trade that could be sustained before a covenant breach or liquidity event would be indicated. We assessed the assumptions and accuracy of these calculations. » Considering the adequacy of the disclosures relating to Going Concern included within the annual report against the requirements of the accounting standards and consistency of the disclosure against the forecasts and going concern assessment. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Overview Coverage1 100% (2019: 100%) of Group profit before tax 100% (2019: 100%) of Group revenue 99% (2019: 97%) of Group total assets Key audit matters 2020 2019 Revenue Recognition (Licensing revenue) Impairment of Intangible Assets Capitalisation of Development costs Going concern Following review of the Group’s performance in 2020 and Q1 21 to date, alongside industry and market trends, we did not consider going concern to be a key audit matter in relation to the 2020 audit. Materiality Group financial statements as a whole £136k (2019:£147k) based on 1.2% (2019: 1.2%) of Revenue 1 These are areas which have been subject to a full scope audit by the Group engagement team An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. Gaming Realms plc Annual Report and Accounts 2020 21 In determining the scope of our audit we considered the level of work to be performed at each component in order to ensure sufficient assurance was gained to allow us to express an opinion on the financial statements of the Group as a whole. We tailored the extent of the work to be performed on each component, which was performed by the Group audit team, based on our assessment of the risk of material misstatement at each component. The Group consists of the parent company and seven subsidiaries. Four of the subsidiaries were considered to be significant components and along with the parent company were subject to a full scope audit by the Group audit team. Other components not considered significant were subject to desktop review by the Group audit team. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition – Licencing Revenue (with reference to notes 1 and 3) Key audit matter How the scope of our work responded to the key audit matter The Group has a number of revenue streams, as summarised in note 3 to the financial statements. The details of the accounting policies applied during the period are disclosed in note 1 to the financial statements. Licencing revenues include significant revenues where contracts entered into in previous years span multiple accounting periods and involve IP or content licencing and/or minimum guarantees or uncertain future events. There are significant judgements and estimates are required by management in determining the performance obligations in these contracts, whether revenue should be recorded at a point in time or over a period of time and the amount of revenue to be recognised. Therefore, this was considered to be an area of focus for our audit. We assessed whether the revenue recognition policies adopted by the Group was in accordance with applicable accounting standards. For a sample of key contracts: » We reviewed the terms to assess whether the revenue had been recognised in accordance with the Group’s accounting policy and whether any other terms within the contract had any material accounting or disclosure implications; » We challenged the significant judgements such as the identification of performance obligations and the timing of recognition against the terms; and » Where applicable, we inspected supporting documentation of the satisfaction of the performance obligation. Where revenue recognition was based on uncertain future events, we considered the adequacy the disclosure of the remaining performance obligations and judgements in the financial statements. Key observations Based on the work performed we did not identify any instances which may suggest that revenue has not been recognised appropriately and in accordance with the Group’s revenue recognition accounting policy. Impairment of intangible assets (with reference to notes 2 and 14) Key audit matter How the scope of our work responded to the key audit matter In accordance with applicable accounting standards, the Group monitors the carrying value of goodwill and other intangible assets for indications of impairment. The Group performs annual impairment reviews for all Cash Generating Units (CGUs). The audit team, which included our internal valuation specialists, challenged the appropriateness of the key assumptions used in the discounted cash flow models prepared by management, including the growth and discount rates applied. Impairment reviews also require significant judgement from management and are based on assumptions in respect of future profitability, growth rates and the discount rate to be applied to future cash flows. Therefore, this area is considered to be a key audit matter. Our work was based on our assessment of the historical accuracy of the group’s estimates in previous periods, our understanding of the commercial prospects of the CGUs, discussions with management surrounding the future plans for the operation, identification and analysis of changes in assumptions from prior periods and an assessment of the consistency of assumptions across the impairment reviews. We checked the mathematical accuracy of the impairment model and compliance of the methodology therein with the requirements of relevant accounting standards Key observations Based on the procedures performed, we consider management’s judgements and the disclosures in the financial statements to be appropriate. Financial StatementsStrategic ReportCorporate Governance 22 Independent Auditors’ Report to the Members of Gaming Realms plc continued Capitalisation of development costs (with reference to notes 1 and 14) Key audit matter How the scope of our work responded to the key audit matter The Group has material expenditure on the internal development of intangible software assets. Such expenditure should only be capitalised when it qualifies under the criteria of applicable accounting standards. Due to the level of judgement required by management in determining costs that meet the criteria for capitalisation, this was considered to be an area of focus for our audit. We assessed whether the capitalisation policies adopted by the Group comply with applicable accounting standards. We determined if the identified useful lives were in line with our expectations and that of comparable entities. We agreed a sample of costs capitalised in the year to source documentation to check that they met the capitalisation criteria of applicable accounting standards. We challenged management’s project analysis to gain assurance that the projects capitalised met the criteria of applicable accounting standards by: » Agreeing the accuracy of time capitalised to related time cards and payroll records for a sample of projects; and » Inspecting evidence of the projects subsequent launch or intention to launch. Key observations Based on the work performed, we consider management’s judgements to be appropriate and adequate. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Materiality Basis for determining materiality Rationale for the benchmark applied Performance materiality Basis for determining performance materiality Group financial statements Parent company financial statements 2020 £ 2019 £ 2020 £ 2019 £ 136,000 147,000 49,000 139,000 Based on 1.2% of Group revenue Based on 1.2% of Group revenue Revenue is a key KPI and a key focus area for investors, given that the Group is loss making and continues to be in its investment stage. Based on 1% of total assets of parent company Based on 1% of total assets of parent company For the Parent Company an asset base has been used as there is no revenue generated within the entity. £102k £110k £37k £109k 75% of Group materiality 75% of Group materiality 75% of company materiality 75% of company materiality Gaming Realms plc Annual Report and Accounts 2020 23 Component materiality We set materiality for each component of the Group based on a percentage between 20% and 75% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £7k to £91k (2019: £24k to £73.5k). In the audit of each component, we further applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £6.8k (2019: 6.5k). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report and accounts 2020, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Other matters prescribed by the Companies Act 2006 Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit: » the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and » the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: » adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or » the Parent Company financial statements are not in agreement with the accounting records and returns; or » certain disclosures of Directors’ remuneration specified by law are not made; or » we have not received all the information and explanations we require for our audit. Matters on which we are required to report by exception Financial StatementsStrategic ReportCorporate Governance 24 Gaming Realms plc Annual Report and Accounts 2020 Independent Auditors’ Report to the Members of Gaming Realms plc continued Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Dominic Stammers (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London, UK 26 April 2021 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Responsibilities of Directors As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: » We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur, by meeting with management from across the Group to understand where they considered there was a susceptibility to fraud. » Our audit planning identified fraud risks in relation to management override and revenue recognition. (Revenue recognition has been assessed as a Key Audit Matter above). We considered the processes and controls that the Group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how management monitors that processes and controls. » We designed our audit procedures to detect irregularities, including fraud. Our procedures included journal entry testing, with a focus on large or unusual transactions based on our knowledge of the business; enquiries with the Legal and Compliance Director, Group Management; and focussed testing as referred to in the Key Audit Matters section above. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Strategic Report Corporate Governance Financial Statements 25 Consolidated Statement of Comprehensive Income For the year ended 31 December 2020 Continuing Revenue Marketing expenses Operating expenses Administrative expenses Impairment of financial asset Share option and related charges Adjusted EBITDA – continuing Impairment of financial asset Restructuring expenses EBITDA – continuing Amortisation of intangible assets Depreciation of property, plant and equipment Impairment of property, plant and equipment Finance expense Finance income Loss before tax Tax credit Loss for the financial year – continuing Loss for the financial year – discontinued Loss for the financial year – total Other comprehensive income Items that will or may be reclassified to profit or loss: Exchange loss arising on translation of foreign operations Total other comprehensive income Total comprehensive income Loss attributable to: Owners of the parent Non-controlling interest Total comprehensive income attributable to: Owners of the parent Non-controlling interest Loss per share Basic and diluted – continuing Basic and diluted – discontinued Basic and diluted – total Note 2020 £ 2019 £ 3 11,403,486 6,882,741 27 10 5 5 10 14 16 16 11 11 12 24 (355,394) (212,473) (2,232,032) (1,498,294) (5,971,970) (5,743,747) (449,422) (372,344) (200,000) (9,972) 2,939,522 (449,422) (467,776) 2,022,324 (255,116) (200,000) (326,629) (781,745) (2,817,043) (2,982,845) (216,323) (204,714) (22,876) (882,032) 333,664 – (842,518) 146,661 (1,582,286) (4,665,161) 48,229 31,335 (1,534,057) (4,633,826) – (783,451) (1,534,057) (5,417,277) (226,666) (226,666) (305,671) (305,671) (1,760,723) (5,722,948) (1,527,964) (5,341,669) (6,093) (75,608) (1,534,057) (5,417,277) (1,754,630) (5,647,340) (6,093) (75,608) (1,760,723) (5,722,948) 13 13 Pence (0.54) – (0.54) Pence (1.60) (0.28) (1.88) * EBITDA and Adjusted EBITDA are non-GAAP measures used to represent the trading performance and results of the Group. EBITDA is defined as profit or loss before tax adjusted for finance income and expense, depreciation and amortisation. Adjusted EBITDA excludes those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability. See Note 5. The notes on pages 29 to 59 form part of these financial statements. 26 Consolidated Statement of Financial Position As at 31 December 2020 Non-current assets Intangible assets Other investments Property, plant and equipment Finance lease asset Other assets Current assets Trade and other receivables Deferred consideration Finance lease asset Cash and cash equivalents Total assets Current liabilities Trade and other payables Lease liabilities Non-current liabilities Deferred tax liability Other Creditors Derivative liabilities Lease liabilities Total liabilities Net assets Equity Share capital Share premium Merger reserve Foreign exchange reserve Retained earnings Total equity attributable to owners of the parent Non-controlling interest Total equity The notes on pages 29 to 59 form part of these financial statements. 31 December 2020 £ 31 December 2019 £ Note 14 15 16 22 17 18 19 22 20 21 22 12 23 23 22 11,137,123 11,702,553 401,291 560,793 – 150,528 289,511 760,763 157,166 150,885 12,249,735 13,060,878 2,343,739 972,554 140,058 2,105,167 5,561,518 1,850,863 1,298,663 126,354 2,626,837 5,902,717 17,811,253 18,963,595 1,943,714 2,125,257 343,859 256,527 2,287,573 2,381,784 320,913 457,492 3,304,870 3,126,673 627,000 340,175 4,592,958 6,880,531 272,000 646,122 4,502,287 6,884,071 10,930,722 12,079,524 26 28,664,731 28,442,874 87,258,166 87,198,410 (67,673,657) (67,673,657) 1,379,116 1,605,782 (38,768,257) (37,570,601) 10,860,099 12,002,808 70,623 76,716 10,930,722 12,079,524 The financial statements were approved and authorised for issue by the Board of Directors on 26 April 2021 and were signed on its behalf by: Michael Buckley Executive Chairman Gaming Realms plc Annual Report and Accounts 2020 Consolidated Statement of Cash Flows For the year ended 31 December 2020 Cash flows from operating activities Loss for the financial year Adjustments for: Depreciation of property, plant and equipment Impairment of property, plant and equipment Amortisation of intangible fixed assets Impairment Finance income Finance expense Income tax credit Exchange differences (Profit)/loss on disposal of property, plant and equipment Profit on disposal of assets Share of loss of associate Share based payment expense (Increase)/decrease in trade and other receivables Decrease in trade and other payables Increase in other assets Net cash flows from/(used in) operating activities before taxation Net tax (paid)/received in the year Net cash flows from/(used in) operating activities Investing activities Acquisition of property, plant and equipment Capitalised development costs Proceeds from disposal of assets, net of cash disposed of Costs related to asset disposal Proceeds from disposal of property, plant and equipment Interest received Finance lease asset – sublease receipts Net cash (used in)/from investing activities Financing activities Receipt of deferred consideration Principal paid on lease liability Issue of share capital on exercise of options Interest paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange gain on cash and cash equivalents Cash and cash equivalents at end of year Significant non-cash transactions are disclosed in Note 23 and 24. The notes on pages 29 to 59 form part of these financial statements. 27 Note 2020 £ 2019 £ (1,534,057) (5,417,277) 216,323 22,876 211,055 – 2,817,043 2,982,845 449,422 (333,664) 882,032 (48,229) (54,940) (1,000) – – 330,308 200,000 (420,512) 842,518 (31,335) 41,336 28,081 (683,323) 157,307 9,972 (463,237) 1,330,674 (233,543) – (803,124) (18,308) 2,049,334 (1,570,091) (33,717) 73,424 2,015,617 (1,496,667) (30,143) (106,583) (2,440,559) (2,680,289) – – 1,000 47 163,324 6,135,529 (765,867) – 3,705 120,507 (2,306,331) 2,707,002 – (300,086) 281,613 (225,516) (243,989) (534,703) 2,608,455 13,033 385,000 (252,376) – (322,772) (190,148) 1,020,187 1,550,141 38,127 2,086,785 2,608,455 16 16 14 5 11 11 12 24 24 27 16 14 24 24 11 22 19 22 26 20 20 Financial StatementsStrategic ReportCorporate Governance 28 Consolidated Statement of Changes in Equity For the year ended 31 December 2020 1 January 2019 Loss for the year Other comprehensive income Total comprehensive income for the year Contributions by and distributions to owners Share-based payment on share options (Note 27) 31 December 2019 1 January 2020 Loss for the year Other comprehensive income Total comprehensive income for the year Contributions by and distributions to owners Share-based payment on share options (Note 27) Share capital £ Share premium £ Merger reserve £ Foreign Exchange Reserve £ Retained earnings £ Total to equity holders of parents £ Non controlling interest £ Total equity £ 28,442,874 87,198,410 (67,673,657) 1,911,453 (32,238,904) 17,640,176 152,324 17,792,500 – – – – – – – – – – – – – (5,341,669) (5,341,669) (75,608) (5,417,277) (305,671) – (305,671) – (305,671) (305,671) (5,341,669) (5,647,340) (75,608) (5,722,948) – 9,972 9,972 – 9,972 28,442,874 87,198,410 (67,673,657) 1,605,782 (37,570,601) 12,002,808 76,716 12,079,524 28,442,874 87,198,410 (67,673,657) 1,605,782 (37,570,601) 12,002,808 76,716 12,079,524 – – – – – – – – – – – – – – (1,527,964) (1,527,964) (6,093) (1,534,057) (226,666) – (226,666) – (226,666) (226,666) (1,527,964) (1,754,630) (6,093) (1,760,723) – – 330,308 330,308 – 281,613 – – 330,308 281,613 Exercise of options (Note 26) 221,857 59,756 31 December 2020 28,664,731 87,258,166 (67,673,657) 1,379,116 (38,768,257) 10,860,099 70,623 10,930,722 The notes on pages 29 to 59 form part of these financial statements. Gaming Realms plc Annual Report and Accounts 2020 29 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 1. Accounting policies General information Gaming Realms Plc (the “Company”) and its subsidiaries (together the “Group”). The Company is admitted to trading on the Alternative Investment Market (AIM) of the London Stock Exchange. It is incorporated and domiciled in the UK. The address of its registered office is Two Valentine Place, London, SE1 8QH. The consolidated financial statements are presented in British Pounds Sterling. Basis of preparation The Group financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The Group financial statements have been prepared on the historical cost basis, except where certain assets or liabilities are held at amortised cost or at fair value as described in the accounting policies below. Basis of consolidation The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition up to the effective date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Going concern The Group meets its day-to-day working capital requirements from the cash flows generated by its trading activities and its available cash resources. The Group prepares cash flow forecasts and re-forecasts at least bi-annually as part of the business planning process. The Directors have reviewed forecast cash flows for the period to December 2023 and consider that the Group will have sufficient cash resources available to meet its liabilities as they fall due for at least the forthcoming 12 months from the date of the approval of the financial statements. Given the economic uncertainty resulting from the ongoing COVID-19 pandemic, these cash flow forecasts have been subject to short- and medium- term stress testing, scenario modelling and sensitivity analysis through to June 2022, which the Directors consider sufficiently robust. Scenarios considered include but are not limited to; failure to expand into new US states during the forecast period, non-receipt of deferred consideration due to the Group at the year-end and a significant reduction in trading cash flows compared to Group forecasts. The Directors note that in an extreme scenario, the Group also has the option to rationalise its cost base including cuts to discretionary capital, marketing and overhead expenditure. The Directors consider that the required level of change to the Group’s forecast cash flows to give a rise to a material risk over going concern are sufficiently remote. Subsequent to the year-end, on 1 April 2021 the Group received £1.0m from River in respect of the deferred consideration receivable (see Note 19), certain other receivable balances and full and final settlement of all legal proceedings and out of court disputes between the parties. The Directors note that aside from ongoing lease liabilities, the Group has no debt contractually repayable before 31 December 2022 (see Note 23). Accordingly, these financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Group and the Company will realise its assets and discharge its liabilities in the normal course of business. Management has carried out an assessment of the going concern assumption and has concluded that the Group and the Company will generate sufficient cash and cash equivalents to continue operating for the next 12 months. Adoption of new and revised standards New standards that have been adopted by the Group for the year ended 31 December 2020, but have not had a significant impact on the Group are: » Definition of a Business (Amendments to IFRS 3); » Interest Rate Benchmark Reform – IBOR ‘phase 2’ (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16); » COVID-19-Related Rent Concessions (Amendments to IFRS 16); » IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment – Disclosure Initiative – Definition of Material); and » Revisions to the Conceptual Framework for Financial Reporting. There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. Financial StatementsStrategic ReportCorporate Governance 30 Gaming Realms plc Annual Report and Accounts 2020 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 1. Accounting policies (continued) The following amendments are effective for the period beginning 1 January 2022: » Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); » Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); » Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and » References to Conceptual Framework (Amendments to IFRS 3). The Group is currently assessing the impact of these new accounting standards and amendments. Business combinations On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired, including separately identifiable intangible assets, is recognised as goodwill. Any discount on acquisition, i.e. where the cost of acquisition is below the fair value of the identifiable net assets acquired, is credited to the Statement of Comprehensive Income in the period of acquisition. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities, including separately identifiable intangible assets, of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated impairment. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is initially recognised at fair value on the date of acquisition and subsequently remeasured subsequently through profit or loss. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date. Adjusted EBITDA The Board of Directors believes that in order to best represent the trading performance and results of the Group, the reported numbers should exclude certain one-off items. The Group therefore presents adjusted results, as described in Note 5, which differ from statutory results due to the exclusion of these items. Management regularly uses the adjusted financial measures internally to understand, manage and evaluate the business and make operating decisions. These adjusted measures are among the primary factors management uses in planning for and forecasting future periods. EBITDA is a non-GAAP Company specific measure defined as profit or loss before tax adjusted for finance income and expense, depreciation and amortisation. Adjusted EBITDA excludes non-recurring material items which are outside the normal scope of the Group’s ordinary activities which the directors consider to be one-off or material in nature that should be brought to the reader’s attention in understanding the Group’s financial performance. The adjusting items are separately disclosed in order to enhance the reader’s understanding of the Group’s profitability and cash flow generation. Adjusting items include costs arising from a fundamental restructuring of the Group’s operations, relocation costs, impairment of financial assets and sales proceeds on business asset disposals. Revenue Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer. Performance obligations and timing of revenue recognition Revenue comprises licensing of content and IP, Social Publishing and net gaming revenue derived from real money gaming (only applicable to discontinued operations in the comparative year). The following is a description of the principal activities – separated by reportable segments – from which the Group generates its revenue. For more detailed information about reportable segments see note 10. The Group accounts for revenue as principal where it is the licenced entity in the provision of gaming services to end users and controls the service provision. Where the Group is considered to be acting as agent in the service provision, revenues are recognised net. Strategic Report Corporate Governance Financial Statements 31 Licensing revenue Licensing revenue derives from contractual relationships for the right to use of intellectual property and the amount of consideration receivable is dependent upon the value of sales the customer makes using the IP. For content licensing, revenue is sales-based dependent on the activity of the Group’s customers. Revenue is recognised as the usage occurs by the customer (under the IFRS 15 royalty exception). Any minimum guarantees are recognised at a point in time when the control of the licence is passed to the customer. For brand licensing, revenue is recognised at a point in time when there are no further monetary or financial obligations to be fulfilled by the licensor. However, where the Group has ongoing obligations, licensing fees are further analysed for the contractual service provision and recognised either at point in time or over time, applying the royalty exception as applicable. Determining the transaction price Most of the Group’s revenue is derived from fixed price contracts and therefore the amount of revenue to be earned from each contract is determined by reference to those fixed prices and rates. Contracts where the transaction price is not fixed are royalties which are accounted for in accordance with the usage-based royalty exception in IFRS 15. Allocating amounts to performance obligations For most contracts, there is a fixed amount for each wager or credit purchased and only one performance obligation, being the honouring of the outcome of the wager/purchase. Therefore, there is no judgement involved in allocating the contract price. Licensing contracts work on a sales-based royalty. Therefore, there is no judgement involved in allocating the contract price. Social publishing revenue Social publishing revenue derives from the purchase of credits and awards on social gaming sites. In addition, revenue is generated from in app advertisements. Revenue is recognised at a point in time when the user credit has been purchased as there is no further service to be delivered and credits are non-refundable. In app advertising revenue is recognised at a point in time when the advertisement is displayed, or offer has been completed by the customer and confirmed by third-party reports. Net gaming revenue derived from real money gaming (relevant only for discontinued operations) Net gaming revenue derived from online gambling operations is defined as the difference between the amounts of bets placed by the players less amounts won by players. It is stated after deduction of bonuses, jackpots and prizes granted to players. Revenue is recognised at a point in time when the player activity is concluded. Leases Group as a lessee All leases are accounted for by recognising a right-of-use asset and a lease liability except for: » Leases of low value assets; and » Leases with a duration of 12 months or less. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: » amounts expected to be payable under any residual value guarantee; » the exercise price of any purchase option granted in favour of the group if it is reasonable certain to assess that option; and » any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised. Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: » lease payments made at or before commencement of the lease; » initial direct costs incurred; and » the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset (typically leasehold dilapidations). 32 Gaming Realms plc Annual Report and Accounts 2020 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 1. Accounting policies (continued) Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term. When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss. Group as a lessor The Group has one leased property which is also sublet. For the sublet property, the Group has recognised a lease receivable equal to the net investment in the sublease. This is based on the present value of future lease payments due from the tenant. The lease liability is not impacted. Payments by the tenant reduce the lease receivable and finance income is recognised on the unwind of the lease receivable. The sublease covers the total lease commitment entered into by the Group. There are no variable lease payments. Foreign currency The financial information of the Group is prepared in British Pounds Sterling, which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the Group. The Group has subsidiaries with functional currencies of British Pounds Sterling, U.S. Dollars, Euros and Canadian Dollars. Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the statement of comprehensive income. Foreign exchange differences arising from financing transactions are recognised in finance income/loss, differences arising from trading balances are recognised in administration costs. On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve. Exchange differences recognised as profit or loss in Group entities’ separate financial statements on the translation of long-term monetary items forming part of the Parent company’s net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal. Impairment of non-financial assets Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units (“CGUs”). Goodwill is allocated on initial recognition to each of the Group’s CGUs that are expected to benefit from a business combination that gives rise to the goodwill. Impairment charges are included in the income statement, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed. Discontinued Operations The results of operations disposed of or classified as held for sale during the year are included in the consolidated statement of comprehensive income up to the date of disposal. A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale. Discontinued operations are presented in the consolidated statement of comprehensive income as a single line which comprises the post-tax profit or loss of the discontinued operation along with the post-tax gain or loss recognised on the re-measurement to fair value less costs to sell or on disposal of the assets or disposal groups constituting discontinued operations. 33 Interests in associates Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Where the interest in the associate arises as a result of the disposal of a subsidiary, the amount recognised as cost is the fair value of the interest retained in the associate. Subsequently associates are accounted for using the equity method, where the Group’s share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for losses in excess of the Group’s investment in the associate unless there is an obligation to make good those losses). Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is an indicator that the investment in an associate may have been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and – for the purpose of the statement of cash flows – bank overdrafts. Bank overdrafts are shown within trade and other payables in current liabilities on the consolidated statement of financial position. Non-controlling interests Non-controlling interest is initially recognised at the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests. Share-based payments Where equity-settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied. Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received. The fair value of share options issued without market-based vesting conditions is measured by the application of the Black-Scholes option pricing model by reference to the grant date of the options. The fair value of share options issued with market-based vesting conditions is measured by use of the Monte Carlo method. Externally acquired intangible assets Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Intangible assets are recognised on business combinations if they are separable from the acquired entity or arise from other contractual/ legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below). Internally generated intangible assets (development costs) Expenditure on internally developed products is capitalised if it can be demonstrated that: » it is technically feasible to develop the product for it to be sold; » adequate resources are available to complete the development; » there is an intention to complete and sell the product; » the Group is able to sell the product; » sale of the product will generate future economic benefits; and » expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated statement of comprehensive income as incurred. Financial StatementsStrategic ReportCorporate Governance 34 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 1. Accounting policies (continued) The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows: Intangible asset Customer databases Development costs Intellectual property Domain names Software Useful economic life 1-2 years 3-5 years 8 years 2-3 years 3-5 years Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual value, of each asset evenly over its expected useful life as follows: Office, furniture and equipment 20% per annum straight-line Computer equipment 33% per annum straight-line Leasehold improvements Over the life of the lease Reserves The following describes the nature and purpose of each reserve within equity: Reserve Share capital Share premium Merger reserve Retained earnings Description and purpose Nominal value of shares subscribed for. Amount subscribed for share capital in excess of nominal value. Adjustments arising on the reverse transaction and the excess of the fair value over nominal value for shares issued in business combinations qualifying for merger relief under the Companies Act 2006. All other net gains and losses and transactions with owners not recognised elsewhere. Foreign exchange reserve Gains/losses arising on retranslating the net assets of overseas operations into sterling. Research and development tax Research and development taxation relief is recognised once management considers it probable that any amount claimable will be received. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on: » The initial recognition of goodwill » The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit » Investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Gaming Realms plc Annual Report and Accounts 2020 35 2. Critical accounting estimates and judgements The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimates (a) Impairment of goodwill and other intangible assets Goodwill and other intangible assets are reviewed for impairment and their values are written down on the basis of the Group’s expectations of future economic benefits expected to be received. Any process which attempts to estimate future outcomes to determine the recoverable amount is subject to uncertainty. The recoverable amount is determined based on the lower of value in use calculations, which require the estimate of future cash flows and the choice of discount rate to calculate the present value of the cash flows. Calculations are based on management’s forecasts for the period, and past experience of the same or similar assets. Where it is believed that the estimation uncertainty can give rise to material differences in asset carrying values, this will be stated in the relevant notes to the financial statements. For both CGU’s impairment reviews were performed over, a reasonably possible change to an input to the impairment review calculation (such as WACC, long term growth rate, reduction in medium term cash flows) would not result in an impairment. See Note 14. (b) Amortisation of development costs Capitalised development costs are subject to amortisation over the estimated useful life and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The estimated useful life of these assets is based on management’s estimates of the period over which the assets are expected to generate revenue and are periodically reviewed to confirm they are still appropriate. (c) Fair Value Measurement A number of assets and liabilities included in the Group’s financial statements require measurement at, and/or disclosure of, fair value. The fair value measurement of the Group’s financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value hierarchy’): » Level 1: Quoted prices in active markets for identical items (unadjusted) » Level 2: Observable direct or indirect inputs other than Level 1 inputs » Level 3: Unobservable inputs (i.e. not derived from market data) The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur. The Group measures a number of items at fair value: » Other investments (Note 15) » Financial instruments (Note 25) For more detailed information in relation to the fair value measurement and sensitivities of the items above, please refer to the applicable notes. (d) Arrangement with Gamesys Group plc The arrangements entered into with Gamesys Group plc in 2017 are complex. The initial recognition involves estimating the fair value of the derivative liability, and estimating the initial carrying value of the loan liability using a suitable discount rate. The values computed reflected the directors’ expectations of the timing and quantum of expected cash outflows on the loan and the probability of the conversion option being exercised. If these estimates change this will have an impact on the carrying amounts of the conversion option and the loan. The ‘free services’ revenue element of the agreement is designated as the residual value on initial recognition. See Note 23 for further detail. Financial StatementsStrategic ReportCorporate Governance 36 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 2. Critical accounting estimates and judgements (continued) (e) Determining the discount rate of a lease liability under IFRS 16 The Group discounts the lease payments using its incremental borrowing rate. The possible effects of a change in the incremental borrowing rate are an increase or decrease in the lease liability, right-of-use asset and depreciation and financing expenses recognised. (f) Impairment of financial assets and expected credit losses Loss allowances for financial assets are based on assumptions about the risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculations based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. See Note 18 for further detail. Judgements (a) Revenue recognition Certain brand licensing agreements involve judgement over the nature, timing and extent of the Group’s activities in fulfilling contractual performance obligations. This judgement therefore impacts the timing of revenues recognised for such agreements. On a contract-by-contract basis, the Group assesses its expected ongoing commitments to fulfil its contractual obligations. Where an agreement provides the right for a customer to use the Group’s intellectual property and there are no significant ongoing commitments for the Group to satisfy, the performance obligation is considered to be satisfied at a point in time, when the associated revenues are recognised. However, where there is expected to be significant ongoing commitment for the Group, revenues are recognised over time with the satisfaction of the performance obligations. (b) Capitalisation of development costs The identification of development costs that meet the criteria for capitalisation is dependent on management’s judgement and knowledge of the work done. Development costs of gaming software platforms are separately identified. Key judgements relate to the separately identified projects, the expected future benefits and the useful economic life and are based on the information available at each period end. Economic success of any development is assessed on a reasonable basis but remains uncertain at the time of recognition. Development costs capitalised total £2.4m (2019: £2.7m). See Note 14. (c) Determining the lease term under IFRS 16 In order to determine the lease term, the Group takes into consideration the period over which the lease is non-cancellable, including renewal options that it is reasonably certain it will exercise and/or termination options that it is reasonably certain it will not exercise. The possible effects are an increase or decrease in the initial measurement of a right of use asset and lease liability and in depreciation and financing expenses in subsequent periods. (d) Deferred tax Deferred tax assets and liabilities are recognised for temporary differences and for tax loss carry-forwards. The assessment of temporary differences and tax loss carry-forwards is based on management’s estimates of future taxable profits against which the temporary differences and loss carry-forwards may be utilised. The key judgement is the Group not recognising a deferred tax asset in respect of their losses as there is no track record of taxable profits at this time. Deferred tax assets will be recognised when the Group has established a track record of expected future taxable profit. The total unrecognised deferred tax asset was £7.0m (2019: £6.4m). See Note 12. (e) Arrangement with Gamesys Group plc The agreement with Gamesys Group plc allows for early settlement of the loan if a change of control occurs. The directors’ have used their judgement in order to determine that the probability of a change in control is low. Had this judgement been different, the Group may be liable, if the option is exercised, to make an additional cash payment to Gamesys Group plc earlier than the end of the term. See Note 23 for more detail. Gaming Realms plc Annual Report and Accounts 2020 37 3. Revenue from contracts with customers Disaggregation of revenue The Group has disaggregated revenue into various categories in the following table which is intended to: » depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic date; and » enable users to understand the relationship with revenue segment information provided in note 10. Revenue from discontinued RMG operations (see Note 24) in the prior year all arose from the UK, including Channel Islands and was direct to consumers (B2C) recognised at a point in time. There were no remaining performance obligations unsatisfied at the previous year end. B2B licensing revenue by primary geographical market is split according to the location of the operator. In 2020 there was one customer (2019: no customers) who individually accounted for more than 10% of total revenue of the Group. Total revenue from this customer in 2020 was £1,689,358. Licensing £ Social publishing £ Other £ Intra-group £ Total £ 2020 revenue Primary geographical markets UK (including Channel Islands) USA Isle of Man Rest of the World Contract counterparties Direct to consumers (B2C) B2B Timing of transfer of goods and services Point in time Over time 2019 continuing revenue Primary geographical markets UK (including Channel Islands) USA Isle of Man Rest of the World Contract counterparties Direct to consumers (B2C) B2B Timing of transfer of goods and services Point in time Over time – – – – – – – – – – – 467,041 6,273,749 2,511,803 2,150,893 11,403,486 3,869,763 7,533,723 11,403,486 11,082,871 320,615 11,403,486 467,041 – 2,385,377 3,885,971 2,511,803 2,150,893 – – – 2,401 – – 7,515,114 3,885,971 2,401 – 2,401 2,401 2,401 – 2,401 – 3,885,971 7,515,114 7,515,114 – 3,885,971 7,194,499 3,885,971 320,615 – 7,515,114 3,885,971 Licensing £ 455,727 1,659,667 1,450,318 581,145 Social publishing £ – 2,758,475 – – 4,146,857 2,758,475 Other £ Intra-group £ Total £ – (128,755) 326,972 6,148 – 100,016 106,164 – – – 4,424,290 1,450,318 681,161 (128,755) 6,882,741 – 2,758,475 4,146,857 4,146,857 – 2,758,475 – 106,164 106,164 – 2,758,475 (128,755) 4,124,266 (128,755) 6,882,741 3,806,415 2,758,475 106,164 (128,755) 6,542,299 340,442 – – – 340,442 4,146,857 2,758,475 106,164 (128,755) 6,882,741 Financial StatementsStrategic ReportCorporate Governance 38 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 3. Revenue from contracts with customers (continued) Remaining performance Obligations The vast majority of the Group’s contracts are for services that will be provided within the next 12 months. Certain licence contracts have been entered into for which both: » the original contractual period was greater than 12 months; and » the Group’s right to consideration does not correspond directly with the performance. The amount of revenue that will be recognised in future periods on these contracts when those remaining performance obligations will be satisfied is: Next 12 months 12-24 months 24+ months 4. Expenses by nature Loss before interest and tax has been arrived at after charging/(crediting): Employee benefit expenses License and platform fees IT software and hosting costs Legal, professional and consulting Share option and related charges Depreciation of property, plant and equipment Amortisation of intangible assets Foreign exchange (gain)/loss 2020 £ 80,154 – – 2019 £ 320,615 80,154 – 80,154 400,769 Note 9 27 16 14 2020 £ 2019 £ 2,941,789 3,868,943 2,173,601 2,262,400 750,168 1,018,494 372,344 216,323 1,126,047 1,146,763 9,972 204,714 2,817,043 2,982,845 (19,595) 51,261 Gaming Realms plc Annual Report and Accounts 2020 39 5. Adjusted EBITDA EBITDA and adjusted EBITDA are non-GAAP measures and exclude exceptional items, depreciation, and amortisation. Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability. Adjusted EBITDA is stated before exceptional items as follows: Impairment of financial asset Restructuring costs Adjusting items 2020 £ (449,422) (467,776) (917,198) 2019 £ (200,000) (326,629) (526,629) Restructuring costs Restructuring costs of £0.5m in 2020 relate to a management restructure during the year, following the change in focus to the licensing business. Restructuring costs of £0.3m in 2019 related to redundancy and relocation costs. Impairment of financial asset In accordance with IFRS 9, management have performed an expected credit loss review over its deferred consideration and trade and other receivable balances. As a result of this review, an impairment provision of £449,422 (2019: £200,000) has been recorded in the income statement. The current year provision is split between deferred consideration (£527,446) (see Note 19) and other receivables (credit of £78,024). 6. Auditor’s remuneration During the year the Group obtained the following services from the Company’s auditor: Fees payable to the Company's auditor for the audit of the Group's annual accounts Fees payable to the Company's auditor for the audit of the subsidiary financial statements Fees payable to the Company's auditor for the review of the interim statement Fees payable to the Company's auditor for other services: – Tax compliance services – Tax advisory services – Other 2020 £ 25,000 57,758 3,500 29,286 – 21,547 137,091 2019 £ 25,000 70,900 3,588 30,197 22,938 – 152,623 7. Key management personnel remuneration During the year the Group paid the following remuneration to the key management personnel (which include directors) of the consolidated entity: Short-term benefits of key management personnel Post-employment benefits of key management personnel Share-based benefits of key management personnel Compensation for loss of office 2020 £ 2019 £ 1,062,704 1,327,969 36,112 267,518 309,722 41,065 3,551 – 1,676,056 1,372,585 Financial StatementsStrategic ReportCorporate Governance 40 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 8. Directors’ remuneration The following table presents the Directors’ remuneration of the Company for the year ended 31 December 2020. Michael Buckley Mark Segal Jim Ryan Mark Wilson Chris Ash Mark Blandford Patrick Southon Simon Collins Salary and fees £ 198,333 241,667 40,000 40,000 40,000 40,000 23,974 – Benefits £ Loss of office £ 2020 Total £ 198,333 261,667 40,000 40,000 40,000 40,000 – – – – – – 234,097 258,902 – – – 20,000 – – – – 831 – 623,974 20,831 234,097 878,902 2019 Total £ 150,000 200,781 40,000 40,000 23,333 8,333 239,596 31,385 733,428 The remuneration for Michael Buckley (including amounts paid to third parties, see Note 28) includes repayment of expenses incurred wholly for the benefit of Gaming Realms plc of £nil (2019: £15,000). The Directors’ ordinary shares in the Company, were as follows: Michael Buckley Mark Segal Jim Ryan Mark Wilson Chris Ash Mark Blandford Patrick Southon 2020 No. of shares 2019 No. of shares 26,500,000 27,000,000 740,761 1,153,845 1,153,845 740,761 1,384,615 384,615 1,965,680 1,965,680 10,000,000 10,000,000 N/A 12,417,319 41,514,131 53,892,990 Patrick Southon resigned as a Director on 11 February 2020, so his holding of ordinary shares in the Company as at 31 December 2020 has not been disclosed above. Gaming Realms plc Annual Report and Accounts 2020 Directors’ interests in long-term incentive plans The Directors’ interests in share options, over ordinary shares in the Company, were as follows: Michael Buckley 1 Michael Buckley 3 Michael Buckley 4 Mark Segal 1 Mark Segal 3 Mark Segal 4 Jim Ryan 2 Mark Wilson 2 Patrick Southon 1 Options at 1 Jan 2020 5,769,230 – – – 3,000,000 5,769,229 3,076,923 – – – 3,000,000 3,076,923 769,230 769,230 5,769,230 – – – Options granted Options exercised Options lapsed Options at 31 Dec 2020 Exercise price – – – – – – (769,230) (769,230) (5,769,230) – – – 3,000,000 5,769,229 (3,076,923) – – – – – 3,000,000 3,076,923 – – – – (5,769,230) £0.01 £0.10 £0.20 £0.01 £0.10 £0.20 £0.13 £0.13 £0.01 41 Hurdle price Date of grant £0.20 01-Aug-13 – – 01-Jun-20 28-Jul-20 £0.20 01-Aug-13 – – – – 01-Jun-20 28-Jul-20 01-Aug-13 01-Aug-13 £0.20 01-Aug-13 1 On 1 August 2013 the Company granted options to B Shares under the Gaming Realms 2013 EMI plan. The B Share value will be 20 pence less than the prevailing price of the ordinary shares and will therefore have no value unless the value of the new ordinary shares exceeds 20 pence. EMI options can only be granted to employees who meet the statutory working time requirement and cannot normally be exercised before 15 July 2015. All options granted under the New Share Option Scheme on Admission will be exercisable over B Shares at their nominal value of £0.01 and will be capable of exercise, subject to certain exceptions, after two years of the date of grant. 2 On 1 August 2013, the Company granted Unapproved Options which have the same rights as the options granted over the B Shares under Gaming Realms 2013 EMI plan, save that the exercise price will be 13 pence per ordinary share. During the year, all 1,538,460 options were exercised with the Company receiving £200,000 in proceeds for the aggregate exercise price. 3 On 2 June 2020, the Company granted these equity settled awards to certain Directors, which vest in three equal tranches on 3 February 2021, 2022 and 2023 subject to certain performance criteria. 4 On 28 July 2020, the Company granted these equity settled awards to certain Directors, which vest in two equal tranches 12 and 24 months from the date of grant. 9. Employee benefit expenses Employee benefit expenses (including directors) comprise: Wages and salaries Share option and related charges (Note 27) Social security contributions and similar taxes Pension contributions Staff costs capitalised in respect of internally generated intangible assets 2020 £ 2019 £ 4,026,970 4,847,133 372,344 417,195 149,563 9,972 522,976 175,723 4,966,072 5,555,804 (1,651,939) (1,676,889) 3,314,133 3,878,915 The Group makes contributions to defined contribution plans and has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. The assets of the individual schemes are held separately from those of the Group in independently administered funds. The average number of employees was 59 (2019: 85). Financial StatementsStrategic ReportCorporate Governance 42 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 10. Segment information The Board is the Group’s chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Group has 2 continuing reportable operating segments: » Licensing – brand and content licensing to partners in Europe and the US » Social Publishing – providing freemium games to the US The results of the discontinued segments are included in Note 24. Management do not report segmental assets and liabilities internally and as such an analysis is not reported. 2020 Revenue Marketing expense Operating expense Administrative expense Share option and related charges Adjusted EBITDA – continuing Impairment of financial asset Restructuring expenses EBITDA – continuing Amortisation of intangible assets Depreciation of property, plant and equipment Impairment of property, plant and equipment Finance expense Finance income Loss before tax – continuing 2019 Revenue Marketing expense Operating expense Administrative expense Share option and related charges Adjusted EBITDA – continuing Impairment of financial asset Restructuring expenses EBITDA – continuing Amortisation of intangible assets Depreciation of property, plant and equipment Finance expense Finance income Loss before tax – continuing Licensing £ Social publishing £ Head Office £ Total £ 7,515,114 3,885,971 2,401 11,403,486 (18,528) (242,667) (94,199) (355,394) (1,070,766) (1,161,266) – (2,232,032) (2,610,275) (1,090,014) (1,803,905) (5,504,194) (70,764) (6,906) (294,674) (372,344) 3,744,781 1,385,118 (2,190,377) 2,939,522 (449,422) (467,776) 2,022,324 (2,817,043) (216,323) (22,876) (882,032) 333,664 (1,582,286) Licensing £ Social publishing £ Head Office £ Total £ 4,146,857 2,758,475 106,164 7,011,496 – (130,505) (81,968) (212,473) (772,827) (854,984) 762 (1,627,049) (1,970,455) (1,001,103) (2,445,560) (5,417,118) – – (9,972) (9,972) 1,403,575 771,883 (2,430,574) (255,116) (200,000) (326,629) (781,745) (2,982,845) (204,714) (842,518) 146,661 (4,665,161) Segmental revenue includes £nil (2019: £128,755) of inter-segment Licensing revenue. This is shown as an Operating Expense under the real money gaming discontinued operations and eliminates on consolidation. Gaming Realms plc Annual Report and Accounts 2020 The Group’s non-current assets by geographical area are detailed below. UK USA Sweden Canada 11. Finance income and expense Finance income Interest received Fair value gain on other investments Interest income on unwind of finance lease asset Interest income on unwind of deferred consideration receivable Total finance income Finance expense Bank interest paid Fair value loss on other investments Fair value movement on derivative liability Effective interest on other creditor Interest expense on lease liability Total finance expense 12. Tax credit Current tax Current tax expense Adjustment for current tax of prior periods R&D tax credit for the year Total current tax Deferred tax Unwind of deferred tax Total deferred tax credit Total tax credit 43 15 22 19 15 23 23 22 2020 £ 2019 £ 11,756,451 12,485,328 5,599 401,291 86,394 186,959 289,511 99,080 12,249,735 13,060,878 2020 £ 2019 £ 47 111,780 20,500 201,337 333,664 18,663 – 355,000 437,050 71,319 882,032 3,705 – 30,625 112,331 146,661 45,931 245,619 72,000 406,912 72,056 842,518 2020 £ 2019 £ (93,997) (34,232) 46,127 (82,102) 130,331 130,331 48,229 (62,784) (134,631) 97,007 (100,408) 131,743 131,743 31,335 Financial StatementsStrategic ReportCorporate Governance 44 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 12. Tax credit (continued) The reasons for the difference between the actual tax credit for the period and the standard rate of corporation tax in the UK applied to profits for the year are as follows: Loss before tax for the year – continuing Loss before tax for the year – discontinued Loss before tax for the year Expected tax at effective rate of corporation tax in the UK of 19.0% (2019: 19.0%) Expenses not deductible for tax purposes Income not chargeable for tax purposes Effects of overseas taxation Adjustment for under-provision in prior years Research and development tax credit Timing difference Tax losses for which no deferred tax assets have been recognised Unwind of deferred taxes recognised on business acquisitions 2020 £ 2019 £ (1,582,286) (4,665,161) – (783,451) (1,582,286) (5,448,612) (300,634) (1,035,236) 3,369 – 93,997 34,233 (46,127) 12,745 36,755 (129,831) 62,785 134,631 (97,007) 29,959 284,519 1,098,352 (130,331) (48,229) (131,743) (31,335) There are unused UK tax losses carried forward as at the balance sheet date of £37.0m (2019: £37.7m) equating to an unrecognised deferred tax asset of £7.0m (2019: £6.4m) using the expected future tax rates in the UK of 19% (2019: 17%). No deferred tax asset has been recognised in respect of these losses, as the recoverability of any asset is dependent upon sufficient profits being achieved in future years to utilise this asset. The timings of such profits are uncertain. Deferred Tax Liability At 1 January 2020 Unwind of deferred tax recognised on business acquisitions Exchange differences At 31 December 2020 2020 £ 457,492 (130,331) (6,248) 320,913 2019 £ 607,943 (131,743) (18,708) 457,492 13. Profit/(Loss) per share Basic profit/(loss) per share is calculated by dividing the result attributable to ordinary shareholders by the weighted average number of shares in issue during the year. For fully diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares. The Group’s potentially dilutive securities consist of share options, performance shares and a convertible bond. As the continuing operations of the Group are loss-making, none of the potentially dilutive securities (see Note 27) are currently dilutive. Loss after tax – continuing Loss after tax – discontinued Loss after tax – total Weighted average number of ordinary shares used in calculating basic loss per share Weighted average number of ordinary shares used in calculating dilutive loss per share Basic and diluted loss per share – continuing Basic and diluted loss per share – discontinued Basic and diluted loss per share – total Note 24 2020 £ 2019 £ (1,527,964) (4,558,218) – (783,451) (1,527,964) (5,341,669) Number Number 285,165,652 284,428,747 285,165,652 284,428,747 Pence (0.54) – (0.54) Pence (1.60) (0.28) (1.88) Gaming Realms plc Annual Report and Accounts 2020 45 14. Intangible assets Goodwill £ Customer database £ Software £ Development costs £ Domain names £ Intellectual Property £ Total £ Cost At 1 January 2019 7,056,768 1,582,190 1,488,600 Additions Disposals Reclassified as held for sale – – – – – – – – – Exchange differences (207,720) (61,681) (68,226) 9,708,137 2,680,289 (437,023) (8,264) At 31 December 2019 6,849,048 1,520,509 1,420,374 11,798,373 Additions Disposals – – – – – – 2,440,559 – 29,418 6,194,372 26,059,485 – – (365) 9,053 – – – – – (231,600) 2,680,289 (164,766) (437,023) (577,856) 5,962,772 27,560,129 – – 2,440,559 – (144,766) (20,000) Exchange differences (151,829) (44,859) (36,151) (6,040) At 31 December 2020 6,697,219 1,475,650 1,384,223 14,232,892 (268) 8,785 (176,593) (415,740) 5,786,179 29,584,948 Accumulated amortisation and impairment At 1 January 2019 1,650,000 1,582,190 1,407,255 5,923,789 29,418 2,618,210 13,210,862 79,731 2,128,156 – 774,958 2,982,845 Amortisation charge Disposals Exchange differences – – – – – (61,681) (66,612) – (60,389) (5,521) At 31 December 2019 1,650,000 1,520,509 1,420,374 7,986,035 Amortisation charge Disposals Exchange differences – – – – – – – 2,050,390 – (44,859) (36,151) (5,680) At 31 December 2020 1,650,000 1,475,650 1,384,223 10,030,745 (20,000) (365) 9,053 – – (268) 8,785 – (121,563) (80,389) (255,742) 3,271,605 15,857,576 766,653 2,817,043 – – (139,836) (226,794) 3,898,422 18,447,825 Net book value At 31 December 2019 5,199,048 At 31 December 2020 5,047,219 – – – – 3,812,338 4,202,147 – – 2,691,167 11,702,553 1,887,757 11,137,123 The Group has no contractual commitments for development costs (2019: none). Goodwill The Group has 2 Cash Generating Units (“CGUs”) (2019: 2) for which the carrying amount of goodwill is allocated as follows: Licensing Social Publishing 2020 £ 2019 £ 4,819,435 4,964,607 227,784 234,441 5,047,219 5,199,048 Financial StatementsStrategic ReportCorporate Governance 46 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 14. Intangible assets (continued) Impairment of goodwill The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. A detailed impairment test was undertaken at 31 December 2020 to assess whether the carrying value of assets was supported by its recoverable amount. The recoverable amount is the higher of fair value less costs of disposal, and value in use. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows. No indicators of impairment arose as a result of this review. The recoverable amounts of both continuing CGUs have been determined from value in use calculations based on cash flow projections from formally approved budgets. Cash flow projections have been prepared by management for a three-year period to 31 December 2023, which have been presented and approved by the Board. These projections have been extended by a further 2 years using estimated growth rates to give 5-year projections. Other major assumptions are as follows: 2020 Licensing Social Publishing 2019 Licensing Social Publishing Discount rate Long-term growth rate* 14.4% 14.4% 13.7% 15.7% 2% 2% 2% 2% * The growth rate assumptions apply only to the period beyond the formal budgeted period with the value in use calculation based on an extrapolation of the budgeted cash flows for year 5. The discount rates used in discounting the projected cash flows are based on the Group’s Weighted Average Cost of Capital, after considering the specific risks of the different CGU’s. The discount rates used have been considered based on the risks involved in each of the underlying business units and terminal growth rates and reflect the expected growth in underlying EBITDA expected from these units. These CGUs have been considered for impairment and sensitivities have been calculated around the terminal growth rates and discount factors used together with specific scenarios including the loss of revenue where those revenues might be considered to be at risk. No indicators of impairment have arisen as a result as the impact of all sensitivities were judged to be within tolerable levels. 15. Other investments At 1 January 2019 Change in fair value At 31 December 2019 Change in fair value At 31 December 2020 Other investments £ 535,130 (245,619) 289,511 111,780 401,291 The other investment balance comprises a 6.6% interest in Ayima Group AB (“Ayima”). The shares of Ayima are quoted on AktieTorget, a Nordic stock exchange (www.aktietorget.se). The investment is remeasured each reporting period to fair value based on the quoted share price. As at 31 December 2020 the quoted share price was SEK 13.00 (£1.15) (2019: SEK 10.35 (£0.83)). This is a level 1 valuation as defined by IFRS 13. Under IFRS 9, movements in fair value are taken to the income statement. Gaming Realms plc Annual Report and Accounts 2020 16. Property, plant and equipment ROU lease assets £ Leasehold improvements £ Computers and related equipment £ Office furniture and equipment £ 47 Total £ 586,048 750,864 (241,127) (1,125) 167 115,094 644,281 – – 959 760,334 10,464 – (1,185) 769,613 – 116,713 – (541) 116,172 166,100 – 22,876 (481) 304,667 197,580 60,968 (181,100) – (916) 180,899 15,279 (13,093) (1,125) 235 92,475 30,336 (46,934) – (111) 76,532 182,195 75,766 1,094,827 – – (473) 27,774 (3,139) (463) 2,369 – (926) 40,607 (3,139) (3,047) 76,059 206,367 77,209 1,129,248 148,968 40,627 (174,938) (766) 13,891 16,263 – – (437) 29,717 126,631 36,836 (12,871) 161 150,757 25,809 (3,139) – (495) 172,932 67,799 10,538 (25,237) 144 53,244 8,151 – – (256) 61,139 343,398 204,714 (213,046) (1,002) 334,064 216,323 (3,139) 22,876 (1,669) 568,455 644,162 464,946 62,641 46,342 31,438 33,435 22,522 16,070 760,763 560,793 Cost At 1 January 2019 Additions Disposals Reclassified as held for sale Exchange differences At 31 December 2019 Additions Disposals Exchange differences At 31 December 2020 Accumulated depreciation At 1 January 2019 Depreciation charge Disposals Exchange differences At 31 December 2019 Depreciation charge Disposals Impairment Exchange differences At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 17. Other assets Other assets Other assets represent the rental deposit on operating leases and deposits held with third-party suppliers. 18. Trade and other receivables Trade receivables Other receivables Tax and social security Prepayments and accrued income 2020 £ 2019 £ 150,528 150,885 2020 £ 1,319,769 216,207 5,288 802,475 2019 £ 974,321 145,855 123,919 606,768 2,343,739 1,850,863 The carrying value of trade and other receivables classified at amortised cost approximates fair value. All amounts shown fall due for payment within one year. The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. Management have assessed the expected loss rate based on the Group’s historical credit losses experienced over the five-year period ended 31 December 2020. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group’s customers. As discussed in Note 5, the result of this review performed by management was a credit of £78,024 (2019: charge of £200,000) being recognised in the income statement. Financial StatementsStrategic ReportCorporate Governance 48 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 19. Deferred consideration At 1 January 2019 Deferred consideration received in the year Interest recognised as finance income on b/fwd balance 11,24 Note Eliminated on 2019 RMG disposal Deferred consideration on 2019 RMG disposal Interest recognised as finance income on 2019 disposal At 31 December 2019 At 1 January 2020 Interest recognised as finance income on 2019 disposal Impairment recognised At 31 December 2020 24 24 11 11 5 Affiliate Marketing Continuing £ 385,000 (385,000) RMG* Continuing £ Total Continuing £ RMG* Discontinued £ Total £ 280,690 665,690 3,623,425 4,289,115 – (385,000) – (385,000) – – – – – – – – – 22,034 22,034 273,851 295,885 (302,724) (302,724) (3,897,276) (4,200,000) 1,208,366 1,208,366 90,297 90,297 1,298,663 1,298,663 1,298,663 1,298,663 201,337 (527,446) 972,554 201,337 (527,446) 972,554 – – – – – – – 1,208,366 90,297 1,298,663 1,298,663 201,337 (527,446) 972,554 * RMG refers to Real Money Gaming. This segment is classified as discontinued as disclosed in Note 24. 2019 RMG disposal As part of the 2019 disposal of the B2C RMG CGU (see Note 24), the Group was due £1.5m deferred consideration on 31 December 2020. During the prior year, a discount rate of 14.5% was used to calculate the present value of the £1.5m (£1,208,366). Interest income of £201,337 was recognised within finance income on the unwind of this balance. As disclosed in Note 5, management have performed an impairment assessment in line with IFRS 9 on the deferred consideration balance at the year-end, which has resulted in an impairment of £527,446 being recorded in the income statement in the year. The carrying amount at 31 December 2020 is £972,554 (2019: £1,298,663). After the year-end, on 1 April 2021 the Group received £1.0m from River for full and final settlement of the deferred consideration receivable, certain other receivable balances, and various legal proceedings and other out of court disputes between the parties. 20. Cash and cash equivalents Cash and cash equivalents Restricted cash Cash and cash equivalents for Statement of Cash Flows 2020 £ 2019 £ 2,105,167 2,626,837 (18,382) (18,382) 2,086,785 2,608,455 The Group has restricted cash of £18,382 (2019: £18,382) relating to funds held in Swiss subsidiaries which are currently in liquidation. The funds are restricted and are not included in the consolidated statement of cash flows. Gaming Realms plc Annual Report and Accounts 2020 21. Trade and other payables Trade payables Other payables Tax and social security Accruals 49 2020 £ 368,402 290,543 122,533 1,162,236 1,943,714 2019 £ 488,755 634,807 170,931 830,764 2,125,257 The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value. 22. Leases Group as a lessee Set out below, are the carrying amount of the Group’s right-of-use asset and lease liability, along with the movements during the year. Right-of-use assets At 1 January 2019 Additions Amortisation Exchange differences At 31 December 2019 Additions Amortisation Impairment Exchange differences At 31 December 2020 Lease liabilities At 1 January 2019 Additions Lease payments Interest expense Exchange differences At 31 December 2019 Additions Lease payments Interest expense Exchange differences At 31 December 2020 Current Non-current Land and buildings 115,094 644,281 (116,713) 1,500 644,162 – (165,223) (22,876) (704) 455,359 Land and buildings 498,115 594,281 (252,376) 72,056 (9,427) 902,649 – (298,606) 71,196 (312) 674,927 Motor vehicles – – – – – 10,464 (877) – – Total 115,094 644,281 (116,713) 1,500 644,162 10,464 (166,100) (22,876) (704) 9,587 464,946 Motor vehicles – – – – – – 10,464 (1,480) 123 – Total 498,115 594,281 (252,376) 72,056 (9,427) 902,649 10,464 (300,086) 71,319 (312) 9,107 684,034 2020 £ 343,859 340,175 684,034 2019 £ 256,527 646,122 902,649 Financial StatementsStrategic ReportCorporate Governance 50 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 22. Leases (continued) Group as a lessor Set out below, are the carrying amount of the Group’s finance lease asset, along with movements in the year. At 1 January 2019 Lease receipts Interest income Exchange differences At 31 December 2019 Additions Lease receipts Interest income Exchange differences At 31 December 2020 Current Non-current Finance lease asset £ 385,106 (120,507) 30,625 (11,704) 283,520 – (163,324) 20,500 (638) 140,058 2019 £ 126,354 157,166 283,520 2020 £ 140,058 – 140,058 23. Arrangement with Gamesys Group plc In December 2017 the Group entered into a complex transaction with Gamesys Group plc and group companies (together “Gamesys Group”). The transaction includes a £3.5m secured convertible loan agreement alongside a 10-year framework services agreement for the supply of various real money services. Under the framework services agreement the first £3.5m of services are provided free-of-charge within the first 5 years. The convertible loan has a duration of 5 years and carries interest at 3-month LIBOR plus 5.5%. It is secured over the Group’s Slingo assets and business. At any time after the first year, Gamesys Group plc may elect to convert all or part of the principal amount into ordinary shares of Gaming Realms plc at a discount of 20% to the share price prevailing at the time of conversion. To the extent that the price per share at conversion is lower than 10p (nominal value), then the shares can be converted at nominal value with a cash payment equal to the aggregate value of the convertible loan outstanding multiplied by the shortfall on nominal value payable to Gamesys Group plc. Under this arrangement, the maximum dilution to Gaming Realms shareholders will be approximately 11%, assuming the convertible loan is converted in full. The option violates the fixed-for-fixed criteria for equity classification as the number of shares is variable and as a result is classified as a liability. The fair value of the conversion feature is determined at each reporting date with changes recognised in profit or loss. The initial fair value was £0.6m based on a probability assessment of conversion and future share price. This is a level 3 valuation as defined by IFRS 13. The fair value as at 31 December 2020 was £0.6m (2019: £0.3m) based on revised probabilities of when and if the option will be exercised. The key inputs into the valuation model included timing of exercise by the counterparty (based on a probability assessment) and the share price. The initial fair value of the host debt was calculated as £2.7m, being the present value of expected future cash outflows. The initial rate used to discount future cashflows was 14.1%, being the Group’s incremental borrowing rate. This rate was calculated by reference to the Group’s cost of equity in the absence of reliable alternative evidence of the Group’s cost of borrowing given it is predominantly equity funded. Expected cashflows are based on directors’ judgement that a change in control event would not occur. Subsequently the loan is carried at amortised cost. The residual £0.2m of proceeds were allocated to the obligation to provide free services. Gaming Realms plc Annual Report and Accounts 2020 51 Fair value of debt host £ Obligation to provide free services £ Fair value of derivative Liability £ Total £ 2,795,602 209,000 200,000 3,204,602 – (8,000) 406,912 (276,841) – – – – – – – 72,000 (8,000) 406,912 (276,841) 72,000 2,925,673 201,000 272,000 3,398,673 2,925,673 – 437,050 (206,853) – 201,000 (52,000) – – – 3,155,870 149,000 272,000 3,398,673 – – – 355,000 627,000 (52,000) 437,050 (206,853) 355,000 3,931,870 At 1 January 2019 Utilisation of free services Effective interest Interest paid Change in fair value At 31 January 2019 At 1 January 2020 Utilisation of free services Effective interest Interest paid Change in fair value At 31 December 2020 24. Discontinued operations During the prior year, the Group disposed of the remaining elements of its real money gaming B2C CGU. During the prior year the Group also disposed of one of its subsidiaries, Blastmedia LLC, a software development Company. Analysis of profit for the financial year – discontinued operations: B2C RMG – 2019 disposals Profit on disposal Loss for the financial year B2C RMG business reclassified as held for sale Share of loss of associate Loss on disposal of B2C RMG Others: Blastmedia LLC – loss on disposal Loss for the financial year – discontinued 2020 £ 2019 £ – – – – – – 791,488 (1,309,467) (157,307) (675,286) (108,165) (783,451) A D B C B2C RMG – Disposal in 2019 On 17 July 2019, the Group completed the transaction to (i) sell the entire issued share capital of Bear Group Limited, (ii) license the Company’s real money gaming platform, and (iii) sell the Company’s residual interest in River UK Casino Limited, to River iGaming plc (“River”). The cash consideration of the transaction is £11.5m on a cash-free, debt-free basis, with £1.5m deferred for receipt until 31 December 2020. The transaction terminated the £4.2m deferred consideration due on 31 August 2019 and the put/call option over the Group’s 30% shareholding in River UK Casino. Financial StatementsStrategic ReportCorporate Governance 52 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 24. Discontinued operations (continued) A – B2C RMG profit on disposal Cash consideration Deferred consideration Deferred consideration cancelled Total consideration received Cash disposed of Net cash inflow on disposal Net assets disposed (other than cash): Intangible assets Investment in Bear Group Limited Investment in River UK Casino Property, plant and equipment Other assets Trade and other receivables Trade and other payables Total net assets disposed (other than cash) Gain on disposal of discontinued operation Less: Disposal costs Profit on disposal of discontinued operation 2020 £ – – – – – – – – – – – – – – – – – 2019 £ 6,967,718 1,208,366 (4,200,000) 3,976,084 (811,858) 6,155,860 3,402,811 1 2,110,885 8,100 32,000 494,787 (4,441,713) 1,606,871 1,557,355 (765,867) 791,488 B B – Share of loss in associate investment in River UK Casino The Group used the equity method of accounting for associates. The following table shows the aggregate movement in the Group’s interests in associates: At 1 January Share of associate's loss Disposal of associate At 31 December 2020 £ – – – – 2019 £ 2,268,192 (157,307) (2,110,885) – C – Disposal of Blastmedia LLC On 11 February 2019 the Group disposed of its investment in Blastmedia LLC, a software development company, for consideration of $100 (£77), which resulted in a loss on disposal of the investment being recognised of £108,165. Cash consideration Cash disposed of Net cash outflow on disposal Less: Assets disposed Investment in Blastmedia LLC Intangible assets Property, plant and equipment Other receivables Other payables Total net assets disposed (other than cash) Loss on disposal of Blastmedia LLC 2020 £ – – – – – – – – – – 2019 £ 77 (20,408) (20,331) 12,076 72,680 4,528 1,124 (2,574) 87,834 (108,165) Gaming Realms plc Annual Report and Accounts 2020 D – Results of discontinued operations B2C RMG Revenue Marketing expenses Operating expenses Administrative expenses EBITDA – B2C RMG Depreciation of property, plant and equipment Finance income Loss for the financial year – B2C RMG The net cash flows arising from discontinued operations are as follows: Operating activities Investing activities Financing activities Net cash inflow 53 2020 £ – – – – – – – – 2019 £ 6,002,455 (706,213) (4,907,731) (1,965,488) (1,576,977) (6,341) 273,851 (1,309,467) 2020 £ – – – – 2019 £ (1,072,258) 4,932,639 – 3,860,381 25. Financial instruments and risk management – Group The Group is exposed through its operations to risks that arise from use of its financial instruments. The Group’s financial assets and liabilities are shown on the face of the consolidated statement of financial position and are presented in the table below by category, as defined by IFRS 9 ‘Financial Instruments’. Amortised cost 2020 £ 2019 £ Fair Value 2020 £ 2019 £ Financial assets Cash and cash equivalents Trade and other receivables Deferred consideration Finance lease asset Other assets Other investments Financial liabilities Trade and other payables Accruals Other creditors Derivative liability Lease liability 2,105,167 2,626,837 1,535,976 972,554 140,058 150,528 – 1,120,176 1,298,663 283,520 150,885 – – – – – – – – – – – 401,291 289,511 658,945 1,123,562 1,162,236 3,304,870 830,764 3,126,673 – – – – – – – – 627,000 272,000 684,034 902,649 – – Financial assets and financial liabilities are recognised on the balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group classifies its financial instruments in the following categories: » Financial assets held at amortised cost; » Financial assets held at fair value; » Financial liabilities held at amortised cost; and » Financial liabilities held at fair value. The classification depends on the purpose for which the financial assets and liabilities were acquired. Management determines the classification of its financial instruments at initial recognition or in certain circumstances on modification. In the Directors’ opinion, there is no material difference between the book value and the fair value of any of the financial instruments. Financial StatementsStrategic ReportCorporate Governance 54 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 25. Financial instruments and risk management – Group (continued) The Group has some exposure to credit risk and liquidity risk. There has been no material change to the financial instruments used within the business during the year except for contingent consideration and therefore no material changes to the risk management policies put in place by the Board which are now discussed below. The Board has overall responsibility for the determination of the Group’s risk management objectives and policies. Whilst acknowledging this responsibility, it has delegated the authority and day to day responsibility for designing and operating systems and controls which meet these risk management objectives to the finance and administration function. The Board regularly reviews the effectiveness of these processes in meeting its objectives and considers any necessary changes in response to changes within the business or the environment in which it operates. Currency risk The Group is exposed to currency risk on translation and on sales and purchases that are denominated in a currency other than Pounds Sterling (GBP). The currency in which these transactions are primarily denominated is US Dollars (USD). The Group’s policy is, where possible to allow Group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency cash already denominated in that currency will, where possible, be transferred from elsewhere in the Group. As of 31 December 2020 the Group’s net exposure to foreign exchange risk was as follows: Net foreign currency financial assets US Dollar Euro Other 2020 £ 810,533 335,082 4,286 1,149,901 2019 £ 780,928 141,712 17,787 940,427 The effect of a 20% strengthening in Sterling against other currencies, all other variables held constant, have resulted in a decrease in losses and an increase in net assets of £229,980 (2019: decrease in losses and increase of net assets of £188,086). A 20% weakening in the exchange rates would, on same basis increase loss after tax and decrease net assets by £229,980. (2019: increase loss after tax and decrease net assets by £188,086). Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. Aside from ongoing lease liabilities, the Group has no debt contractually repayable before 31 December 2022 (see Note 23). The following table sets out the undiscounted contractual cash flows: At 31 December 2020 Trade and other payables Accruals Other creditors Lease liability Total At 31 December 2019 Trade and other payables Accruals Other creditors Lease liability Total Within 1 year £ 658,945 1,162,236 262,500 390,813 1-2 years £ – – 3,752,276 192,389 2,474,494 3,944,665 Within 1 year £ 1,123,562 830,764 263,219 327,030 2,544,575 1-2 years £ – – 264,600 356,919 621,519 3,754,338 368,315 4,122,653 Over 2 years £ – – – 175,588 175,588 Over 2 years £ – – Gaming Realms plc Annual Report and Accounts 2020 55 Credit risk The Group’s trading is mainly exposed to credit risk through credit sales in the Licencing and Social Publishing segments. Generally, receivables are due and collected within 30 days of invoice or contract. See Note 18 for further detail on receivables exposure and expected credit loss analysis. Management considered the credit risk on other financial assets including deferred consideration and the counterparty debt risk and recognised an impairment provision of £449,422 as discussed further in Note 5. In the opinion of management, the credit risk to cash and lease deposits is immaterial. See further disclosure on results of expected credit losses in Note 18. Financial liabilities measured at fair value The fair value hierarchy of financial liabilities measured at fair value is provided. The fair value of derivative liabilities totalling £0.6m (2019: £0.3m) was based on a probability assessment of conversion and future share price. This is a level 3 valuation as defined by IFRS 13. The fair value measurement hierarchy is based on the inputs to valuation techniques used to measure fair value. The inputs are categorised into three levels, with the highest level (level 1) given to inputs for which there are unadjusted quoted prices in active markets for identical assets or liabilities and the lowest level (level 3) given to unobservable inputs. Level 2 inputs are directly or indirectly observable inputs other than quoted prices. Capital management The Group is funded through shareholders’ funds and a £3.5m facility with Gamesys Group plc (Note 23). The Group monitors its capital structure, which comprises all components of equity (i.e. share capital, share premium, non-controlling interest and retained earnings) and monitors external debt. The Group is not subject to any externally imposed capital requirements. Changes in liabilities IAS 7 requires an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The Group’s liabilities arising from financing activities consist of the Gamesys Group plc arrangement (see Note 23), Derivative liability (see Note 23), an obligation to provide free services (see Note 23) and lease liabilities (see Note 22). A reconciliation between the opening and closing balances of these items is provided below. 2020 Opening balance New leases entered into during the year Cash Non-cash transaction Unwind of discount Exchange differences Change in fair value Carried forward 2019 Opening balance Adoption of IFRS 16 New leases entered into during the year Cash Non-cash transaction Unwind of discount Exchange differences Change in fair value Carried forward – (52,000) 437,050 – – – – – 3,155,870 149,000 Fair value of debt host £ 2,925,673 – (206,853) Fair value of debt host £ 2,795,602 – – (276,841) Obligation to provide free services £ Fair value of derivative liability £ 201,000 272,000 Obligation to provide free services £ Fair value of derivative liability £ 209,000 200,000 – – – – – – – – – – 355,000 627,000 – – – – – – 72,000 272,000 Lease liability £ 902,649 10,464 (300,086) – 71,319 (312) – 684,034 Lease liability £ – 498,115 594,281 (252,376) – 72,056 (9,427) – 902,649 – (8,000) 406,912 – – – – – 2,925,673 201,000 Financial StatementsStrategic ReportCorporate Governance 56 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 26. Share capital Ordinary shares Ordinary shares of 10 pence each 286,647,315 28,664,731 284,428,747 28,442,874 The increase of 2,218,568 ordinary shares relates to the exercise of share options during the year. The total amount received by the Company for the exercise price settlement was £281,613, which has been recorded as an increase in share capital and share premium as follows: 2020 Number 2020 £ 2019 Number 2019 £ Share capital Share premium £ 221,857 59,756 281,613 27. Share-based payments Gaming Realms 2013 EMI Plan On 1 August 2013 the Company adopted the Gaming Realms 2013 EMI Plan to allow, at the discretion of the Board, eligible employees to be granted EMI or non-EMI options at an exercise price to be determined by the Board not less than the nominal value of a share. Options will vest subject to such time based and share price performance-based conditions as the Board may determine. Options to acquire ordinary shares under the EMI plan may be granted up to a maximum of £3m (based on the market value of the shares placed under option at the date of the grant). No consideration is payable for the grant of the option and the options are not transferable or assignable. Cash consideration is paid to the Company by the employee at the point that the share options are exercised. The following table illustrates the number and weighted average exercise price of share options: Outstanding at 1 January 2019 Forfeited during the year Number of options outstanding at 31 December 2019 Granted during the year Forfeited during the year Lapsed during the year Exercised during the year Number of options outstanding at 31 December 2020 Exercisable at 31 December 2020 Weighted average exercise price (pence) 15.45 17.12 15.33 14.69 22.44 1.00 12.69 15.60 20.56 Number 40,362,525 (2,643,414) 37,719,111 25,246,152 (6,884,000) (26,153,837) (2,218,568) 27,708,858 3,462,706 Gaming Realms plc Annual Report and Accounts 2020 Options to subscribe under various schemes, including those noted in Directors’ interests in Note 8, are shown in the table below: Date granted Exercise price (pence) Approved 1 August 2013 Unapproved 1 August 2013 Approved Unapproved Approved Approved Approved Approved Approved Unapproved Approved Unapproved Unapproved Approved Approved Approved 2 April 2014 17 June 2014 17 June 2014 19 February 2015 15 October 2015 10 November 2015 28 July 2016 28 July 2016 1 May 2020 1 May 2020 1 May 2020 2 June 2020 28 July 2020 26 November 2020 Unapproved 26 November 2020 0.01 13.00 23.00 23.00 28.88 33.00 25.13 25.00 20.00 20.00 10.00 10.00 10.00 20.00 20.00 20.00 20.00 Exercisable between 31 July 2015 to 31 July 2023 31 July 2015 to 31 July 2023 1 April 2017 to 1 April 2024 16 June 2016 to 16 June 2024 16 June 2016 to 16 June 2024 19 February 2018 to 19 February 2025 15 October 2018 to 15 October 2025 10 November 2018 to 10 November 2025 28 July 2018 to 28 July 2026 28 July 2018 to 28 July 2026 3 February 2021 to 1 May 2030 3 February 2021 to 1 May 2030 1 May 2020 to 1 May 2030 3 February 2021 to 2 June 2030 1 August 2021 to 28 July 2030 2020 Number of shares – – 1,377,469 – 326,087 172,475 535,000 854,175 167,500 30,000 4,350,000 1,300,000 750,000 6,000,000 8,846,152 26 November 2021 to 26 November 2030 2,500,000 26 November 2021 to 26 November 2030 500,000 57 2019 Number of shares 26,153,837 1,538,460 1,690,621 750,000 326,087 172,475 5,535,000 974,105 548,526 30,000 – – – – – – – 27,708,858 37,719,111 During the year 25,246,152 share options were granted to Directors, certain employees and others. The fair value of options granted during the year were determined using Black-Scholes models. The following principal assumptions were used in the valuation performed at each grant date. Grant date No. of options Vesting date Model used 1 May 2020 1 May 2020 1 May 2020 2 Jun 2020 2 Jun 2020 2 Jun 2020 2,216,661 2,216,661 2,216,678 2,000,000 2,000,000 2,000,000 3 Feb 2021 3 Feb 2022 3 Feb 2023 3 Feb 2021 3 Feb 2022 3 Feb 2023 Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Share price at date of grant (pence) Volatility Expected option life Dividend yield Risk free investment rate Fair value per option at grant date (pence) Exercise price (pence) Exercisable to 9.15 70% 1 year n/a 0.09% 2.22 10.00 9.15 60% 9.15 55% 2 years 3 years n/a 0.04% 2.74 10.00 n/a 0.04% 3.10 10.00 13.50 70% 1 year n/a 0.07% 5.25 10.00 13.50 60% 13.50 55% 2 years 3 years n/a -0.02% 5.83 10.00 n/a -0.01% 6.25 10.00 1 May 2030 1 May 2030 1 May 2030 2 Jun 2030 2 Jun 2030 2 Jun 2030 Grant date No. of options Vesting date Model used Share price at date of grant (pence) Volatility Expected option life Dividend yield Risk free investment rate Fair value per option at grant date (pence) Exercise price (pence) Exercisable to 1 May 2020 28 Jul 2020 28 Jul 2020 26 Nov 2020 26 Nov 2020 26 Nov 2020 750,000 4,423,077 4,423,075 1,000,000 1,000,000 1,000,000 1 May 2020 1 Aug 2021 1 Aug 2022 25 Nov 2021 25 Nov 2022 25 Nov 2023 Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes 12.30 70% 15.65 60% 15.65 55% 18.30 73% 18.30 70% 18.30 68% 0.75 years 2 years 3 years 2 years 3 years 4 years n/a 0.09% 1.88 10.00 n/a -0.09% 3.90 20.00 n/a -0.14% 4.53 20.00 n/a -0.03% 6.69 20.00 n/a -0.04% 7.90 20.00 n/a -0.03% 8.81 20.00 1 May 2030 28 Jul 2030 28 Jul 2030 26 Nov 2030 26 Nov 2030 26 Nov 2030 Financial StatementsStrategic ReportCorporate Governance 58 Notes to the Consolidated Financial Statements For the year ended 31 December 2020 continued 27. Share-based payments (continued) The share option and related charges income statement expense comprises: IFRS 2 share-based payment charge Direct taxes related to share options 2020 £ 330,308 42,036 372,344 2019 £ 9,972 – 9,972 IFRS 2 (Share-based payments) requires that the fair value of such equity-settled transactions are calculated and systematically charged to the statement of comprehensive income over the vesting period. The total fair value that was charged to the income statement in relation to the equity-settled share-based payments was £330,308 (2019: £9,972). Where individual EMI thresholds are exceeded or when unapproved share options are exercised by overseas employees, the Group is subject to employer taxes payable on the taxable gain on exercise. Since these taxes are directly related to outstanding share options, the income statement charge has been included within share option and related charges. The Group uses its closing share price at the reporting date to calculate such taxes to accrue. The tax related income statement charge for the year was £42,036 (2019: £nil). 28. Related party transactions Jim Ryan is a Non-Executive Director of the Company and the CEO of Pala Interactive, which has a real-money online casino and bingo site in New Jersey. During the year, total license fees earned by the Group were $45,693 (2019: $19,269) with $13,155 due at 31 December 2020 (2019: $4,120). Jim Ryan is a Non-Executive Director of Gamesys Group plc. In December 2017 the Group entered into a 10-year framework services agreement and a 5-year convertible loan agreement for £3.5m with Gamesys Group plc (see Note 23). During the year £113,333 (2019: £90,000) of consulting fees were paid to Dawnglen Finance Limited, a company controlled by Michael Buckley, which is included in the remuneration figure of £198,333 (2019: £150,000) shown in Note 8. No amounts were owed at 31 December 2020 (2019: £nil). The details of key management compensation are set out in Note 7. 29. Subsidiaries The subsidiaries of the Company, all of which have been included in these consolidated financial statements, are as follows: Name Registered Office Blastworks Limited 2 Valentine Place, London, SE1 8QH Alchemybet Limited 2 Valentine Place, London, SE1 8QH Blastworks Inc. Backstage Technologies, Inc. Hullabu Inc. 300 Deschutes Way SW, Tumwater, WA 98501 808 Douglas Street, Victoria, BC, V8W 2B6 848 N Rainbow Blvd, Las Vegas, NV, 89101 Alchemybet Malta Holdings Limited MK Business Centre, 115A Floor 2, Valley Road, Birkirkara, BKR 9022 Alchemybet Malta Limited MK Business Centre, 115A Floor 2, Valley Road, Birkirkara, BKR 9022 Country of Incorporation Principal activity Proportion held by Parent Company Proportion held by Group UK UK USA IP owner 91% Software Developer 89% Social publishing operator 100% Canada Software Developer 100% USA IP owner 0% 100% 100% 100% 100% 62.5% Malta Holding company 100% 100.0% Malta License holder 0% 100.0% Quickthink Digital Limited 2 Valentine Place, London, SE1 8QH UK Marketing services 100% Blueburra Holdings Limited Digital Blue Limited 49 Victoria Street, Douglas, Isle of Man, IM1 2LD 49 Victoria Street, Douglas, Isle of Man, IM1 2LD Isle of Man Marketing services 100% Isle of Man Marketing services 0% 100% 100% 100% Gaming Realms plc Annual Report and Accounts 2020 59 The Group held 100% interest in the following subsidiaries that were in the process of liquidation at the balance sheet date: Name PDX Businessgroup AG PDX Technologies AG PDX Management AG PDX Public Health and Safety AG BFX Solutions AG DDX Solutions AG Registered Office Vordergasse 53 8200 Schaffhause Country of Incorporation Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Principal activity Proportion held by Parent Company Proportion held by Group In liquidation 100% In liquidation In liquidation In liquidation In liquidation In liquidation 0% 0% 0% 0% 0% 100% 100% 100% 100% 100% 100% 30. Post balance sheet events On 6 January 2021, the Group was awarded a provisional iGaming supplier license by the Michigan Gaming Control Board to allow the Group to provide its Slingo Originals game content to Michigan’s licensed online casino operators. On 1 April 2021, the Group received £1.0m from River for full and final settlement of the deferred consideration receivable (see Note 19), certain other receivable balances, and various legal proceedings and other out of court disputes between the parties. Financial StatementsStrategic ReportCorporate Governance 60 Gaming Realms plc Annual Report and Accounts 2020 Parent Company Statement of Financial Position As at 31 December 2020 Non-current assets Investment in subsidiary undertakings Other investments Property, plant and equipment Other assets Current assets Trade and other receivables Deferred consideration Cash and cash equivalents Total assets Current liabilities Trade and other payables Lease liabilities Non-current liabilities Other Creditors Derivative liabilities Lease liabilities Total liabilities Net assets Equity Share capital Share premium Merger reserve Retained earnings Total equity 31 December 2020 £ 31 December 2019 £ Note 2 2 3 4 5 5,129,119 5,128,030 401,291 460,592 138,798 289,511 629,699 138,798 6,129,800 6,186,038 15,448,125 15,251,311 972,554 1,298,663 35,488 1,717,280 16,456,167 18,267,254 22,585,967 24,453,292 6 8,856,470 8,053,805 178,043 106,720 9,034,513 8,160,525 7 7 3,304,870 3,126,673 627,000 308,774 272,000 444,160 4,240,644 3,842,833 13,275,157 12,003,358 9,310,810 12,449,934 8 28,664,731 28,442,874 87,978,166 87,918,410 2,683,702 2,683,702 (110,015,789) (106,595,052) 9,310,810 12,449,934 As permitted by section 408 of the Companies Act 2006, a separate profit and loss account of the Company is not presented. The Company’s loss for the financial year was £3,751,045 (2019: £6,226,399). The notes on pages 62 to 64 form part of these financial statements. The financial statements were approved and authorised for issue by the Board of Directors on 26 April 2021 and were signed on its behalf by: Michael Buckley Executive Chairman 61 Parent Company Statement of Changes in Equity For the year ended 31 December 2020 1 January 2019 Loss for the year Share-based payment on share options 31 December 2020 Loss for the year Share-based payment on share options Exercise of options 31 December 2020 Share capital £ Share premium £ Merger reserve £ Retained earnings £ Total equity £ 28,442,874 87,918,410 2,683,702 (100,378,625) 18,666,361 – – – – – – (6,226,399) (6,226,399) 9,972 9,972 28,442,874 87,918,410 2,683,702 (106,595,052) 12,449,934 – – – – 221,857 59,756 – – – (3,751,045) (3,751,045) 330,308 – 330,308 281,613 28,664,731 87,978,166 2,683,702 (110,015,789) 9,310,810 The notes on pages 62 to 64 form part of these financial statements. Financial StatementsStrategic ReportCorporate Governance 62 Notes to the Parent Company Financial Statements For the year ended 31 December 2020 1. Principal accounting policies These financial statements present the results of Gaming Realms plc for the year ended 31 December 2020. The Company is the ultimate parent company of the Gaming Realms Group and is admitted to trading on the Alternative Investment Market (AIM) of the London Stock Exchange. It is incorporated and domiciled in the UK. The address of its registered office is Two Valentine Place, London, SE1 8QH. These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101). The financial statements are prepared under the historical cost convention. No profit and loss account is presented by the Company as permitted by Section 408 of the Companies Act 2006. The financial statements are prepared in British Pounds Sterling. Basis of preparation The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2020. The Company has taken advantage of the following disclosure exemptions under FRS 101: a) IFRS 2 Share-based Payment disclosure, the share-based payment arrangement concerns its own equity instruments and its separate financial statements are presented alongside the consolidated financial statements of the Group; b) IFRS 7 Financial Instruments disclosures, given that equivalent disclosures are included in the consolidated financial statements of the Group in which the entity is consolidated; c) IFRS 13 Fair Value Measurement disclosures; d) Certain disclosures required by IAS 1 Presentation of Financial Statements, including certain comparative information in respect of share capital movements; e) IAS 7 Statement of Cash Flows and related notes; f) IAS 24 Related Party Disclosures relating to key management personnel compensation; and g) IAS 24 Disclosure of related party transactions entered into between two or more members of a group, given that any subsidiary which is party to the transaction is wholly owned by such a member. Investments Investments in subsidiaries and associates are stated at cost less provision for impairment in value, except for investments acquired before 1 October 2013 (date of adoption of IFRS) where shares issued to effect business combinations and the conditions of the Companies Act 2006 are met, merger relief was applied and the resulting investment is recorded at the nominal value of the shares issued. Taxation Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Deferred tax is measured at the average tax rates that are expected to apply in the period in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Foreign currencies Transactions denominated in foreign currencies are recorded at exchange rates as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. Financial liabilities Financial liabilities held by the company consist of trade payables, deferred consideration, long-term borrowings and other short-term monetary liabilities, which are held at amortised cost, and derivative liabilities which are held at fair value through profit and loss. Gaming Realms plc Annual Report and Accounts 2020 2. Investments At 1 January 2019 Change in fair value Disposals Impairment At 31 December 2019 Change in fair value Additions Impairment At 31 December 2020 63 Investment in subsidiary undertakings £ 10,897,262 – (1) (5,769,231) 5,128,030 – 1,089 – 5,129,119 Investment in associate £ 3,000 – (3,000) – – – – – – Other investments £ 535,130 (245,619) – – 289,511 111,780 – – 401,291 The £1,089 addition to investments in subsidiary undertakings during the year relates to the incorporation of a 100% owned Maltese subsidiary, Alchemybet Malta Holdings Limited. This entity was incorporated on 30 September 2020. As part of the Groups transaction with River iGaming plc during the prior year, the Company disposed of its £1 investment in Bear Group Limited. See Note 24 of the consolidated accounts for further information. During the prior year, following the disposal of Bear Group Limited and changes in operations of other subsidiaries, an impairment of subsidiary investments of £5.8m was recognised. Details of the Company’s investments can be found in Note 29 of the consolidated financial statements. 3. Property, plant and equipment Cost At 1 January 2020 Additions At 31 December 2020 Accumulated depreciation and impairment At 1 January 2020 Depreciation charge Impairment At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 ROU lease assets £ Leasehold improvements £ Computers and related equipment £ Office furniture and equipment £ 644,281 10,464 654,745 86,569 136,619 22,876 246,064 60,968 11,421 19,047 – – – 60,968 11,421 19,047 7,717 12,194 – 19,911 3,811 6,394 – 10,205 Total £ 735,717 10,464 746,181 106,018 156,695 22,876 285,589 557,712 408,681 53,251 41,057 15,236 8,842 629,699 460,592 7,921 1,488 – 9,409 3,500 2,012 Financial StatementsStrategic ReportCorporate Governance 64 Notes to the Parent Company Financial Statements For the year ended 31 December 2020 continued 4. Trade and other receivables Amounts due from Group companies Tax and social security Other debtors Prepayments and accrued income 2020 £ 2019 £ 15,242,105 15,127,642 12,880 78,865 114,275 39,140 18,286 66,243 15,448,125 15,251,311 The balances due from fellow Group companies are repayable on demand and interest free. Management has assessed its receivables from Group companies using a forward-looking expected credit loss model. The methodology used in determining the amount of provision as at the reporting date is that of lifetime expected credit losses which is defined as a credit loss estimate of the present value of cash shortfalls over the expected life of the financial assets (receivables from Group companies). The expected credit loss charge in the year was calculated to be £nil (2019: £15,252). 5. Deferred consideration See Note 19 of the consolidated accounts for further information. 6. Trade and other payables Creditors: amounts falling due within one year Amounts due to Group companies Trade creditors Other creditors Accruals and deferred income Tax and social security 7. Other creditors & derivative liability See Note 23 of the consolidated accounts for further information. 8. Called up share capital Allotted, called up and fully paid 2020 £ 2019 £ 8,254,395 7,487,624 139,574 86,267 339,268 36,966 113,876 86,267 342,447 23,591 8,856,470 8,053,805 Ordinary shares of 10 pence each 286,647,315 28,664,731 284,428,747 28,442,874 2020 Number 2020 £ 2019 Number 2019 £ Allotted and fully paid up At 1 January 2019 and 1 January 2020 Exercise of options At 31 December 2020 9. Employee information The Company had an average of 7 (2019: 8) employees during the year. The employee costs for the Company were £924,566 (2019: £944,117). £ 28,442,874 221,857 28,664,731 Details of Directors’ remuneration can be found in Note 8 of the consolidated financial statements. 10. Related party transactions During the year £113,333 (2019: £90,000) of consulting fees were paid to Dawnglen Finance Limited, a company controlled by Michael Buckley. No amounts were owed at 31 December 2020 (2019: £nil). The details of key management compensation are set out in Note 7 of the consolidated financial statements. Gaming Realms plc Annual Report and Accounts 2020 Company Information Directors Michael Buckley, Executive Chairman Mark Segal, Chief Financial Officer Jim Ryan, Non-executive Director Mark Wilson, Non-executive Director Chris Ash, Non-executive Director Mark Blandford, Non-executive Director Patrick Southon, Chief Executive Officer (resigned 11 February 2020) Company Secretary Mark Segal Auditors BDO LLP, 55 Baker Street, London, W1U 7EU Bankers Barclays Bank plc, 1 Churchill Place, London, E14 5HP Nominated advisors Peel Hunt, 120 London Wall, London, EC2Y 5ET Solicitors Memery Crystal LLP, 44 Southampton Buildings, London WC2A 1AP Registrars Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13 8AE Registered office Two Valentine Place, London, SE1 8QH Registered Number 04175777 Designed and produced by Instinctif Partners creative.instinctif.com Gaming Realms plc Two Valentine Place London SE1 8QH www.gamingrealms.com