A platform for growth Annual Report & Accounts 2021 2 Gaming Realms plc Annual Report and Accounts 2021 Gaming Realms plc Annual Report and Accounts 2021 Contents Strategic Report Highlights At a Glance Executive Chairman’s Statement Financial Review Engaging with Stakeholders Principal Risks and Uncertainties Corporate Governance Board and Executive Management Directors’ Report Statement of Directors’ Responsibilities Corporate Governance Financial Statements Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Parent Company Statement of Financial Position Parent Company Statement of Changes in Equity Notes to the Parent Company Financial Statements Company Information 01 02 04 06 08 10 12 14 15 16 20 26 27 28 29 30 65 66 67 71 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. www.gamingrealms.com Highlights Revenue increased by 29% to £14.7m (2020: £11.4m) EBITDA of £5.0m (2020: £2.0m) 2021 2020 £14.7m £11.4m 2021 2020 £5.0m £2.0m Licensing revenue increased 48% to £11.1m (2020: £7.5m) Social publishing revenue decreased 8% to £3.6m (2020: £3.9m) Licensing segment generated £6.4m EBITDA (2020: £3.5m) Social publishing segment generated £1.1m EBITDA (2020:£1.4m) 01 Head office costs were £2.5m (2020: £2.9m including £0.7m of restructuring costs and impairment charges) due to an increase in share option and related charges and growth in business activities 2021 2020 £11.1m £7.5m 2021 2020 £3.6m £3.9m 2021 2020 £6.4m 2021 £1.1m 2021 £3.5m 2020 £1.4m 2020 £2.5m £2.9m Adjusted EBITDA1 before share option and related charges of £5.7m (2020: £3.3m) Profit after tax for the year of £1.3m (2020: loss of £1.5m) Year-end cash balance increased to £4.4m (2020: £2.1m) 2021 2020 £5.7m £3.3m 2021 2020 £1.3m -£1.5m 2021 2020 £4.4m £2.1m 2021 Operational Highlights: Portfolio grew to 53 proprietary games on the Group’s remote game server (“RGS”) (2020: 44) Launched with 35 new partners for Slingo Originals content including Wynnbet, Sisal, Aspire Global, Goldbet Prepared for launch in the Ontario, Quebec and Spanish markets Launched in Michigan and Pennsylvania, 2 regulated iGaming markets in the U.S. Signed licensing deals with Everi, Discovery Channel, IGT, Play AGS, Pragmatic Play Launched in European regulated iGaming markets in Italy, Romania and the Netherlands. Increased unique players in licensing business by 48% Launched Game Developer Program allowing 4ThePlayer and other studios to build their content on our platform Extended brand licensing deal with Scientific Games for Slingo branded lottery instant scratch games. First phase of migration to next-gen RGS platform, moving to a more dynamically scalable modern RGS platform. 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 in the prior year include management restructuring costs and impairment of financial assets. See Note 5 for further details. Adjusted EBITDA before share option and related charg- es is also discussed above which is adjusted EBITDA with the share option and related charge in the income statement added back on the basis it is a material non-cash charge. Strategic ReportGovernance ReportFinancial Statements 02 Gaming Realms plc Annual Report and Accounts 2021 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 Brand licensing Game licensing Brand partnerships 2 Mobile Games Studios • London, United Kingdom • Victoria, Canada 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 • Banijay - 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 • Everi – Shark Week • IGT – Da Vinci Diamonds • Pragmatic Play – Sweet Bonanza Growing international partners Growing US iGaming Market We are focusing on the growing North American market where the gross revenues in 2021 were more than all previous years combined. 03 03 $450M $400M $350M $300M $250M $200M $150M $100M $50M $M Feb 2 0 M ar 2 0 Apr 2 0 M ay 2 0 Jun 2 0 Jul 2 0 Aug 2 0 Sep 2 0 O ct 2 0 N ov 2 0 D ec 2 0 Jan 2 1 Feb 2 1 M ar 2 1 Apr 2 1 M ay 2 1 Jun 2 1 Jul 2 1 Aug 2 1 Sep 2 1 O ct 2 1 N ov 2 1 D ec 2 1 Jan 2 2 Feb 2 2 New Jersey Delaware Pennsylvania West Virginia Michigan* Connecticut Source: Eilers&Krejcik All States Casino report – Feb 2022 *Michigan online casino values are estimated International growth in regulated markets Regulated markets Live 2022 Sweden Estonia & Latvia Lithuania Denmark Great Britain The Netherlands Ontario, CA Quebec, CA Pennsylvania, USA Connecticut, USA New Jersey, USA Romania Italy Spain Portugal Malta Michigan, USA Mexico Colombia Greece Key focus areas Original Game Content & 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. 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. 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. Strategic Partners and Licensing Partners include Banijay, Zynga, IWG, Inspired Entertainment, IGT, King Show Games 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. 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. 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 built a tool for both our partners and 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 US, 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. Strategic ReportGovernance ReportFinancial Statements 04 Gaming Realms plc Annual Report and Accounts 2021 Executive Chairman’s Statement An increased international demand for Slingo Originals portfolio Introduction The Group made excellent progress during the year, increasing revenues by 29% to £14.7m (2020: £11.4m), and adjusted EBITDA by 71% to £5.7m (2020: £3.3m) before share options and related charges. We invested heavily in our proprietary Remote Game Server “RGS” platform, and expanded into multiple regulated markets. We also increased our Slingo Originals game portfolio to 53 with the addition of 10 new games, and licenced Slingo into adjacent markets including our lottery deal for physical scratch cards in North America. This resulted in revenue growth of 48% in our licensing business to £11.1m (2020: £7.5m), and we are continuing to see strong momentum in this area with increased international demand for our Slingo Originals portfolio. With growing distribution via our RGS combined with control of overheads, we were able to increase our EBITDA margin within the licensing division to 57% (2020: 50%). Licensing business highlights: • • • • • • • Increased library of proprietary games to 53 games in total at year-end. Went live with 35 new partners during the year, all of whom have licensed the Company’s Slingo Originals content. Launched in 2 additional regulated iGaming markets in the U.S. being Michigan and Pennsylvania. Launched in 3 regulated iGaming markets in Europe, being Romania, Italy and the Netherlands. Increased unique players in the year by 48% to 3.36m (2020: 2.28m). Signed deals with IGT, Play AGS and Pragmatic Play as partners for new branded Slingo games. With growth in New Jersey, together with launches in Michigan and Pennsylvania in the second half of the year, U.S. content licensing revenues grew 47% in 2021, and by 56% with constant currency conversion. Extended brand licensing deal with Scientific Games for Slingo branded lottery instant scratch games. • We continue to operate our Social business as a partially integrated division. This gives us an opportunity to rebrand our real money games for social users, and monetise them further. It also keeps the Slingo brand within the Group, and has the advantage of bringing our games to a wider audience, many of whom play for real money as and when they are in a regulated territory. Revenue from Social decreased 8% to £3.6m (2020: £3.9m), but this decline was marginal at 1% on a constant currency basis. EBITDA decreased to £1.1m (2020: £1.4m), the decline again exaggerated by currency movements. However, the Social business continued to provide a positive cash contribution to the Group. North America The Group made significant progress during 2021 towards expanding its presence in the U.S. iGaming market beyond New Jersey, being granted additional full iGaming Supplier Licences in the U.S. states of Michigan and Pennsylvania. An application process was started for a supplier license in Ontario, Canada, which was subsequently granted in March 2022. Ontario is likely to be a larger market than any of the currently regulated U.S. states. Capitalising on these opportunities, we signed a number of direct integration and multi-State deals, and the Group now has licensing agreements with the majority of the U.S. iGaming market. Michael Buckley Executive Chairman These include multi-State deals with BetMGM, Draftkings, Fanduel, Rush Street Interactive, Golden Nugget, Poker Stars, Barstool/PNG, Kindred, Wynn Interactive, Parx, Tropicana/Gamesys and Caesars Entertainment. The Company also has direct integrations with BetMGM, Draftkings, Rush Street Interactive, Fanduel, Golden Nugget, Gamesys, Wynn Interactive and 888. Europe Gaming Realms continued to strengthen its position in the growing European market having successfully launched in the Italian iGaming market with Goldbet and Sisal in January 2021. In November 2021, Gaming Realms entered the regulated Romanian iGaming market through a partnership agreement with Superbet, the largest digital and retail betting operator in Romania. Superbet now publishes many of the games from the Slingo Original’s portfolio. Further bolstering its European presence, Gaming Realms went live in December 2021 with JVH gaming and entertainment group in the newly regulated Dutch market under the Jack’s Casino and Sports brand (“Jack’s Casino”). Board and employees Despite a number of Covid-19- related challenges during 2021, the Group’s senior management and staff demonstrated outstanding teamwork and resilience, and the operational and financial outcomes achieved during the year owe much to their skill and commitment. On behalf of the Board and shareholders, I would like to pass on my sincere thanks to all of them. After joining the Board in 2019, Chris Ash resigned as a Non-Executive Director of the Company in September 2021 given 05 We have already increased our games portfolio with 4 new games in 2022, and during the course of this year we will introduce new marketing features on our platform. These developments will maintain and drive stronger relationships with our partners and players. The Company has made an excellent start to the current year, with licensing revenues increasing by 43% year-on-year for the first quarter of 2022, and unique players increasing by 39% to over 1.5 million in the same period. This strong performance in the first quarter, combined with new markets and partners coming on stream, leads your Board to believe the Company will continue to grow significantly following its proven successful strategy. Michael Buckley Executive Chairman 25 April 2022 conflicts of interest that could arise from our third-party distribution agreement with 4ThePlayer.com, of which he is a Director. On behalf of the Company, I would like to thank Chris once again for the valuable guidance and strategic advice he provided in scaling our licensing business. Post Period End and Outlook Gaming Realms continues to 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. Momentum has continued into 2022, with Gaming Realms focusing on regulated markets and North America in particular. In this regard, we launched our game portfolio in Ontario on 4 April 2022, having already gone live with Loto Quebec in March. With the increased number of states we are now in, together with our multi-State deals with the largest operators, we are well placed to gain market share in North America. In January of this year, the Group entered the regulated Spanish market with long- term strategic partner Gamesys (now part of Bally’s Corporation) under its Monopoly and Botamania brands and has since launched with Yo Bingo (part of Rank Group). Looking to the future, we have recently signed a deal with Microgaming, one of the largest distributors of content in the industry, and hope to launch our game portfolio with some of their partners shortly. +29% Increase in revenue to £14.7m (2020: £11.4m) “ We have invested heavily in growing our proprietary Remote Game Server “RGS” platform in multiple regulated markets and have increased our Slingo Originals game portfolio to 53 with the addition of 10 new games.” Strategic ReportGovernance ReportFinancial Statements 06 Gaming Realms plc Annual Report and Accounts 2021 Financial Review High margin revenue growth £11.1m £5.0m licensing revenue (2020: £7.5m) Adjusted EBITDA (2020: £2.9m) £5.0m Cash inflow from operating activities (2020: £2.0m) Mark Segal Chief Financial Officer Overview The Group’s financial results for the year ended 31 December 2021 reflect the continued delivery of the core strategy of scaling the licensing business. The Group delivered total revenue growth of 29% to £14.7m (2020: £11.4m), driven by the performance of the licensing business. For the year, the Group delivered adjusted EBITDA before share option and related charges of £5.7m (2020: £3.3m) which has translated into the Group recording a pre-tax profit of £1.0m compared with a £1.6m loss in the previous year. The £1.0m pre-tax profit represents a £2.6m increase on the previous year (2020: £1.6m pre-tax loss). This is materially explained by; the £2.0m increase in adjusted EBITDA generated in the current year, no adjusting items in the current year (2020: £0.9m total charge for restructuring expenses and an impairment against financial assets), offset by a £0.2m increase in the current year amortisation charge and £0.1m higher net finance costs. Performance Year-on-year Group revenues increased 29% to £14.7m (£2020: £11.4m) due to the strong performance of the licensing segment, offset by an 8% decline in social publishing revenues in the year. The overall Group generated adjusted EBITDA of £5.0m (2020: £2.9m) and £5.7m before share option and related charges (2020: £3.3m). Adjusting items in the prior year relate to management restructuring costs and impairment of financial assets (see Note 5), while there were no such costs in the current year. Operating expenses incurred remained stable compared with the previous year at £2.2m (2020: £2.2m). Between the segments this was split between a £0.1m increase in revenue associated operational costs in the licensing segment offset against £0.2m lower operational costs in the social publishing division due to revenue driven costs falling in line with segmental revenues. Adjusted administrative expenses increased to £6.4m (2020: £5.5m) predominantly due to increased staff costs in the licensing segment required to deliver the segments growth, along with other incremental business expansion costs. Licensing Licensing segment revenues increased 48% to £11.1m (2020: £7.5m). This can be split as: • Content licensing revenue growth of 36% to £9.1m (2020: £6.7m); and • Brand licensing revenue increasing 137% to £2.0m (2020: £0.9m). The segment delivered £6.4m adjusted EBITDA (2020: £3.7m). Content licensing Growth in the content licensing business remains the key focus of the Group. The current year performance reflects the successful implementation of the Group’s strategy of growing the games portfolio and increasing the distribution footprint to an increased number of operators in Europe and the U.S. During 2021 the Group began operating with partners in 5 new regulated markets; Italy, Romania, the Netherlands, and the U.S. states of Michigan and Pennsylvania. After the year-end, the Group was awarded an iGaming supplier license within the Canadian province of Ontario and started trading in April 2022. The Group also started trading in the Spanish regulated market in January 2022. Outside of going live with partners in these newly entered regulated markets, we also went live with a further 18 partners during 2021 in existing markets in Europe and New Jersey. This has been further bolstered with an additional 10 partners going live in 2022 to date in these jurisdictions. The strong operational leverage and largely fixed cost base of the segment’s content business model allowed total expenses (excluding share option and related costs) to increase by 23% to £4.6m (2020: £3.7m) compared to the 36% content licensing revenue increase. The Group released 10 new Slingo games to the market during 2021, including Slingo Starburst and Slingo Lucky Larry’s Lobstermania. Due to the popularity of Slingo as a genre amongst our partners and players, in addition to these new Slingo games, a number of partner themed Slingo and table games were released to the market during the year. A key focus of the segment remains identifying and partnering with the leading gaming brands in the market, in order to bring the best possible content to players. During the year we released new Slingo game collaborations with key partners including King Show Games, NetEnt and Pragmatic Play. Further agreements were entered into during the year for the development of innovative new Slingo collaborations, which will be released to the market in 2022. Revenues from North America continue to be a focus for the segment, and in 2021 increased to £4.5m (2020: £2.4m), representing 40% of total licensing revenues (2020: 32%). We anticipate this to increase further in 2022 with a full year of trading in Michigan and Pennsylvania, as well as the impact of the recent entry into the Ontario market and expected entry into the Connecticut market later in 2022. 07 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 £0.1m (2020: £0.05m) in research and development credits in Canada. A current year tax credit of £0.3m (2020: £0.05m) largely relates to the unwind of deferred tax of £0.1m (2020: £0.1m) which arose on prior year business combinations. Mark Segal Chief Financial Officer 25 April 2022 Brand licensing The significant £1.1m increase in brand licensing revenues in 2021 compared with the prior year is predominantly the result of a significant deal completed in the year. The Group’s Slingo brand is well-known by consumers, which allows us to license this brand into adjacent markets where the right opportunities arise. Social publishing The Group’s social publishing business saw an 8% decline in revenues to £3.6m (2020: £3.9m), largely as a result of currency headwinds experienced during 2021, with the majority of the segments transactions denominated in U.S. Dollars. At constant currency, the revenue of the segment would have decreased by 1% as opposed to the reported 8%. Operational costs, which are largely driven by revenues, reduced by 15% from the previous year to £1.0m (2020: £1.2m). Marketing expenses of £0.3m were incurred (2020: £0.2m) with the aim of driving player activity and revenues. The 13% increase in segmental administrative expenses is due to investment in the development and operational team. In recent years there has been a successful implementation of cost controls, which has resulted in the segment having a stable fixed cost base. Excluding staff costs, segmental administrative expenses remained stable with the prior year, increasing 3%. As a result, the segment delivered £1.1m adjusted EBITDA for the year, a 24% reduction on the £1.4m in 2020. Cashflow, Balance Sheet and Going Concern Net cash (Note 20) increased by £2.3m in 2021 (2020: decreased by £0.5m) to £4.4m at 31 December 2021 (2020: £2.1m). The current year increase in net cash was largely driven through the £5.0m cash inflow from operating activities (2020: £2.0m) and £1.0m deferred consideration received (2020: £Nil), offset by the £3.4m of development costs capitalised in the year (2020: £2.4m). The £1.0m increase in development costs capitalised in 2021 compared with the previous year is a function of the Group investing in the development teams in both the licensing and social publishing segments, to enable the delivery of an expanded games portfolio in both segments, and to develop and enhance the Group’s proprietary RGS with new tools, features and capabilities to cater for the demands of expanding partner and territory numbers. During the year, the Group received £1.0m from River Tech plc (“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 £13.1m (2020: £10.9m). 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 The table below sets out the split of revenue and adjusted EBITDA: 2021 Revenue Marketing expense Operating expense Administrative expense Share option and related charges Adjusted EBITDA 2020 Revenue Marketing expense Operating expense Administrative expense Share option and related charges Adjusted EBITDA Licensing Social Publishing Head office £ 11,100,085 (20,348) (1,209,530) (3,325,714) (170,062) 6,374,431 £ 3,567,616 (282,579) (992,789) (1,228,709) (7,441) 1,056,098 Licensing Social Publishing £ 7,515,114 (18,528) (1,070,766) (2,610,275) (70,764) 3,744,781 £ 3,885,971 (242,667) (1,161,266) (1,090,014) (6,906) 1,385,118 £ - (76,303) - (1,856,570) (521,691) (2,454,564) Head office £ 2,401 (94,199) - (1,803,905) (294,674) (2,190,377) Total £ 14,667,701 (379,230) (2,202,319) (6,410,993) (699,194) 4,975,965 Total £ 11,403,486 (355,394) (2,232,032) (5,504,194) (372,344) 2,939,522 Strategic ReportGovernance ReportFinancial Statements 08 Gaming Realms plc Annual Report and Accounts 2021 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. 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 2021. 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. 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. 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 2021 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 2021 AGM and an average of 43% 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 2021 AGM will be held on 8 June 2022. 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 operators to configure stakes within games in order to manage their players responsibly. 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 mar- kets 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. 09 Customers We are providing our customers with an increasing portfolio of unique games each year. We are making significant improve- ments 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 sup- port 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 2021 working with the Regulators on our successful applications for supplier licenses in both Pennsylvania and Michigan. Strategic ReportGovernance ReportFinancial Statements 10 Gaming Realms plc Annual Report and Accounts 2021 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, iGaming supplier licence with the Michigan Control Board, Interactive Gaming Manufacturer Licence in Pennsylvania and a Recognition Notice for the Malta Gaming Authority. The Group has recently been granted a supplier licence from Ontario and will be pursuing further licences in regulated markets. 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. The Board considers this to be a greater risk than the previous year due to the Group operating in more regulated territories and the soon to be published UK Government white paper on gambling reform. 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 Board considers this risk to remain static with the previous year. Residency The Group has legal entities in several jurisdictions, including US, Canada, Malta and the UK. The Board considers this risk to remain static with the previous year. 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. The Board considers this risk to remain static with the previous year. 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. 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. 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. We have protected the Slingo mark and game mechanics through various registered marks and patents that the Group owns. Diverse products and geographies also help to diversify the risk. 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. The Board considers this risk to remain static with the previous year. 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. The Board considers this risk to remain static with the previous year. 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 Board considers this risk to remain static with the previous year. The Team The ability to carry out the Groups strategy is dependent on the engagement of its senior management team, its technology, commercial 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. The Board considers this risk to remain static with the previous year. Business disruption 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 Board considers this risk to remain static with the previous year. 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 2021 Strategic Report on pages 1 to 11 has been approved by the Board of Directors. On behalf of the Board: Michael Buckley Executive Chairman 25 April 2022 Strategic ReportGovernance ReportFinancial Statements 12 Gaming Realms plc Annual Report and Accounts 2021 Board and Executive Management MB MS JR Michael Buckley Executive Chairman Mark Segal Chief Financial Officer 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 21 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. 13 MW MB Mark Wilson Non-executive Director 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. 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. Strategic ReportGovernance ReportFinancial Statements 14 Gaming Realms plc Annual Report and Accounts 2021 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 £3.4m (2020: £2.4m) 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 25 April 2022 and signed on its behalf by Michael Buckley Executive Chairman 25 April 2022 Directors’ Report The Directors present their Annual Report together with the audited financial statements for the year ended 31 December 2021. The Group meets its day-to-day working capital requirements from the cash flows generated by its trading activities and its available cash resources. 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. These financial statements present the results of the Group for the year ended 31 December 2021. 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 • Mark Blandford • Chris Ash (resigned 29 September 2021) 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 26. The Company will not be paying a dividend this year (2020: none). Post balance sheet events Significant events impacting the Company that occurred after 31 December 2021 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. 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 24 to the financial statements. Statement of Directors’ Responsibilities 15 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. 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. 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 UK adopted International Accounting Standards 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 UK adopted International Accounting Standards 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 Strategic ReportGovernance ReportFinancial Statements 16 Gaming Realms plc Annual Report and Accounts 2021 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, lotteries 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 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 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. 2. Seek to understand and meet shareholder needs and expectations 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 17 5. Maintain the board as a well- functioning, balanced team led by the chair The Board comprises the Executive Chairman, one Executive Director and three 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 3 Non-Executive Directors and is able to govern on an effective basis. The Directors considered to be independent are Jim Ryan, Mark Wilson and Mark Blandford. 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 14 board meetings. Attendance records were: Board Member Meetings Attended Michael Buckley Mark Segal Jim Ryan Mark Wilson Mark Blandford Chris Ash* 14 14 14 14 14 11 * Chris Ash, resigned during the year 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 2021 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. A Board evaluation process will be carried out annually going forward as part of a wider strategy review and future planning discussion. The process will be led by the Chairman and every three years with the help of an external facilitator, the Board will be challenged to review its performance and effectiveness objectively. During this process the Board will consider: • Performance of the Board against the current strategy; • Effectiveness of the Board in areas such as supervision, leadership and management of personnel and risk areas; • Areas of weakness either at Board level or executive management level for which recruitment may be required; and • Succession planning. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement Strategic ReportGovernance ReportFinancial Statements 18 Gaming Realms plc Annual Report and Accounts 2021 Corporate Governance continued 8. Promote a culture that is based on ethical values and behaviours 9. Maintain governance 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 Our long-term growth is underpinned by our corporate culture and core beliefs. As part of a new starter pack all new employees are provided with the core values in which the Group operates. At Gaming Realm’s we take pride in our work ethic, creativity and cooperative team dynamic. It is important to us to keep moving forward as a company, producing innovative work, reflecting on mistakes, and striving to improve with each new project. None of this is achievable without strong relationships and a collaborative working environment, which is at the core of our company ethos and success. The Group has policies in the following areas to help promote ethical values and behaviour: whistleblowing, antibribery, anti-slavery, fraud, equal opportunities, disciplinary and grievance procedures, health and safety. These policies form part of a globally applicable Group Policy Handbook and Code of Conduct. 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 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. 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. 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. 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 to review the corporate governance framework as the business grows. Strategic ReportGovernance ReportFinancial Statements 20 Gaming Realms plc Annual Report and Accounts 2021 Independent auditor’s report to the members of Gaming Realms plc • • Assessing the appropriateness of assumptions made in the Directors’ stress testing, scenario modelling and sensitivity analysis, and the appropriateness of the mitigating actions including challenging whether other reasonably possible scenarios could occur. 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 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 and the Parent Company’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. 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 2021 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; 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 2021 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent 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 UK adopted international accounting standards. 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 Parent Company’s ability to continue to adopt the going concern basis of accounting included: A critical evaluation of Directors’ assessment of the entity’s ability to continue as a going concern by: • • • Evaluating the process the Directors followed in making their assessment, including confirming that 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 the Directors in their cash flow forecasts against prior year, our knowledge of the business and industry, and other areas of the audit. Enquiry with management, review of board minutes and review of external resources to identify any key future events that may have been omitted from cash flow forecasts which would impact future cash flows and cash reserves. This included consideration of the repayment of the Convertible Loan Notes due within the next 12 months. 21 Overview Coverage Key audit matters 100% (2020: 100%) of Group profit before tax 100% (2020: 100%) of Group revenue 99% (2020: 99%) of Group total assets 2021 2020 Revenue Recognition (Licensing revenue) Impairment of Intangible Assets Capitalisation of Development costs Following review of the Group’s performance in 2021 and our risk assessment we did not consider the impairment of intangible assets to be a key audit matter in the current year. Materiality Group financial statements as a whole £175k (2020: £136k) based on 1.2% (2020: 1.2%) of Group revenue 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) that 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. 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. 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 based on our assessment of the risk of material misstatement at each component. The Group consists of the Parent Company and seven subsidiaries. Three of the subsidiaries and the Parent Company were considered to be significant components and were subject to a full scope audit by the Group audit team. The financial information of other components not considered significant were subject to analytical review procedures by the Group audit team. Strategic ReportGovernance ReportFinancial Statements 22 Gaming Realms plc Annual Report and Accounts 2021 Independent auditor’s report to the members of Gaming Realms plc continued Key audit matter Revenue recognition – Licencing Revenue (with reference to notes 1 and 3) 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 a number of significant transactions where contracts entered into in previous years span multiple accounting periods and involve intellectual property, which includes minimum guarantees and/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. Brand license revenue for the year was £2.0m (2020: £0.9m) Capitalisation of development costs (with reference to notes 1 and 14) The Group incurs material expenditure on the internal development of intangible software assets. Such expenditure should only be capitalised when it meets 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. Capitalised development costs in the year were £3.4m (2020: £2.4m) How the scope of our audit addressed the key audit matter 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; • We inspected supporting documentation of the satisfaction of the performance obligation; and • Where revenue recognition included minimum guarantees and/or was based on uncertain future events, we challenged management’s forecasts of future revenue to be earned under these contracts based on historical sales data and agreed to supporting documentation where relevant. This included assessing the appropriateness of the discount rate and performing sensitivity analysis on the forecasts. We also considered the adequacy of 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. Our procedures included the following: • We assessed whether the capitalisation policies adopted by the Group comply with applicable accounting standards. • We challenged management’s project analysis to check that the projects capitalised met the criteria of applicable accounting standards. This included: • Agreeing a sample of costs capitalised in the year, to source documentation. • Agreeing the accuracy of time capitalised to related timecards 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. 23 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 2021 £ £175k 2020 £ £136k Based on 1.2% of Group revenue Revenue is a fundamental KPI and a key focus area for investors, given that the Group has historically been loss making and continues to be in its investment stage. 2021 £ £94k 2020 £ £49k Based on 0.45% of total assets of Parent Company. Based on 0.22% of total assets of Parent Company. Total assets was considered to be the most appro- priate benchmark as the principal activity of the Parent Company is a holding company. £131k £102k £70k £37k 75% of Group materiality based on history of minimal adjustments, with few accounts subject to estimation and management’s attitude to adjustments. 75% of Parent Company materiality based on history of minimal adjustments, few accounts subject to estimation and management’s attitude to adjustments. Component materiality We set materiality for each component of the Group based on a percentage of between 46% and 97% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £81k to £170k. 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 £8.75k (2020: £6.8k). 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, 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. Strategic ReportGovernance ReportFinancial Statements 24 Gaming Realms plc Annual Report and Accounts 2021 Independent auditor’s report to the members of Gaming Realms plc continued Other Companies Act 2006 reporting 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: Matters on which we are required to report by exception • 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. 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 obtained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates and determined that the most significant laws and regulations are the Companies Act 2006, applicable accounting frameworks and AIM Rules. We identified these areas of laws and regulations as those that could reasonably be expected to have a material effect on the financial statements from sector experience and through discussion with management and those charged with governance. • We assessed compliance with these laws and regulations through enquiry with management, the Audit Committee and the Legal and Compliance Director and through review of board meeting minutes. • We reviewed the financial statement disclosures against the requirements of the applicable accounting framework and underlying supporting documentation. 25 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 of controls and revenue recognition, with the consideration of the risk around revenue recognition and our response expanded upon as a Key Audit Matter above; • We obtained an understanding of 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; • In response to the risk of fraud in relation to management override of controls, our procedures included journal entry testing, with a focus on large or unusual transactions based on our knowledge of the business, by agreeing to supporting documentation; • We communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. 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. 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 25 April 2022 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Strategic ReportGovernance ReportFinancial Statements 26 Gaming Realms plc Annual Report and Accounts 2021 Consolidated Statement of Comprehensive Income For the year ended 31 December 2021 Revenue Marketing expenses Operating expenses Administrative expenses Impairment of financial asset Share option and related charges Adjusted EBITDA Impairment of financial asset Restructuring expenses EBITDA Amortisation of intangible assets Depreciation of property, plant and equipment Impairment of property, plant and equipment Impairment of goodwill Finance expense Finance income Profit / (loss) before tax Tax credit Profit / (loss) for the financial year Other comprehensive income Items that will or may be reclassified to profit or loss: Exchange gain / (loss) arising on translation of foreign operations Total other comprehensive income Total comprehensive income Profit / (loss) attributable to: Owners of the parent Non−controlling interest Total comprehensive income attributable to: Owners of the parent Non−controlling interest Profit / (loss) per share Basic Diluted Note 2021 £ 2020 £ 3 14,667,701 11,403,486 (379,230) (355,394) (2,202,319) (2,232,032) (6,410,993) (5,971,970) − (449,422) (699,194) (372,344) 4,975,965 2,939,522 − − (449,422) (467,776) 4,975,965 2,022,324 (3,064,299) (2,817,043) (216,834) (216,323) − (22,876) (73,677) − (689,935) (882,032) 26,496 333,664 957,716 (1,582,286) 296,436 48,229 1,254,152 (1,534,057) 39,153 39,153 (226,666) (226,666) 1,293,305 (1,760,723) 1,257,698 (1,527,964) (3,546) (6,093) 1,254,152 (1,534,057) 1,296,851 (1,754,630) (3,546) (6,093) 1,293,305 (1,760,723) Pence 0.44 0.42 Pence (0.54) (0.54) 26 10 5 5 10 14 16 16 14 11 11 12 13 13 * 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 30 to 64 form part of these financial statements. Consolidated Statement of Financial Position As at 31 December 2021 Non−current assets Intangible assets Other investments Property, plant and equipment 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 Other Creditors Derivative liabilities Non−current liabilities Other Creditors Derivative liabilities Deferred tax liability 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 30 to 64 form part of these financial statements. 27 31 December 2021 £ 31 December 2020 £ Note 14 15 16 17 18 19 22 20 21 22 23 23 23 23 12 22 11,815,598 11,137,123 − 484,578 150,646 401,291 560,793 150,528 12,450,822 12,249,735 3,260,687 2,343,739 − − 972,554 140,058 4,412,375 2,105,167 7,673,062 5,561,518 20,123,884 17,811,253 2,241,114 1,943,714 172,887 343,859 3,489,278 744,000 − − 6,647,279 2,287,573 − − 199,876 168,227 3,304,870 627,000 320,913 340,175 368,103 4,592,958 7,015,382 6,880,531 13,108,502 10,930,722 25 28,970,262 28,664,731 87,370,856 87,258,166 (67,673,657) (67,673,657) 1,418,269 1,379,116 (36,977,228) (38,768,257) 13,108,502 10,860,099 − 70,623 13,108,502 10,930,722 The financial statements were approved and authorised for issue by the Board of Directors on 25 April 2022 and were signed on its behalf by: Michael Buckley Executive Chairman Strategic ReportGovernance ReportFinancial Statements 28 Gaming Realms plc Annual Report and Accounts 2021 Consolidated Statement of Cash Flows For the year ended 31 December 2021 Cash flows from operating activities Profit / (loss) for the financial year Adjustments for: Depreciation of property, plant and equipment Impairment of property, plant and equipment Loss / (profit) on disposal of property, plant and equipment Loss on disposal of intangible assets Impairment of goodwill Amortisation of intangible fixed assets Impairment of financial asset Finance income Finance expense Income tax credit Exchange differences Share based payment expense Increase in trade and other receivables Increase / (decrease) in trade and other payables Net cash flows from operating activities before taxation Net tax received / (paid) in the year Net cash flows from operating activities Investing activities Acquisition of property, plant and equipment Acquisition of intangible assets Capitalised development costs Proceeds from disposal of property, plant and equipment Disposal of other investments Interest received Finance lease asset − sublease receipts Net cash used in 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 from / (used in) financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange (loss) / gain on cash and cash equivalents Cash and cash equivalents at end of year The notes on pages 30 to 64 form part of these financial statements. Note 2021 £ 2020 £ 16 16 16 14 14 14 5 11 11 12 26 16 14 14 15 11 22 19 22 25 1,254,152 (1,534,057) 216,834 216,323 − 2,125 (2,004) 73,677 22,876 (1,000) − − 3,064,299 2,817,043 − (26,496) 689,935 (296,436) 22,374 466,254 (745,778) 208,400 449,422 (333,664) 882,032 (48,229) (54,940) 330,308 (463,237) (233,543) 4,927,336 2,049,334 40,439 (33,717) 4,967,775 2,015,617 (141,546) (323,608) (30,143) − (3,435,308) (2,440,559) − 1,000 362,436 145 − 47 146,505 163,324 (3,391,376) (2,306,331) 972,554 − (388,494) (300,086) 418,221 281,613 (215,169) (225,516) 787,112 (243,989) 2,363,511 (534,703) 20 2,086,785 2,608,455 (37,921) 13,033 20 4,412,375 2,086,785 29 Consolidated Statement of Changes in Equity For the year ended 31 December 2021 Share capital £ Share premium £ Merger reserve £ Foreign Exchange Reserve £ Retained earnings £ Total to equity holders of parents £ Non− controlling interest £ Total equity £ 1 January 2020 28,442,874 87,198,410 (67,673,657) 1,605,782 (37,570,601) 12,002,808 76,716 12,079,524 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 26) Exercise of options (Note 25) − − − − − − − − 221,857 59,756 − − (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 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 1 January 2021 28,664,731 87,258,166 (67,673,657) 1,379,116 (38,768,257) 10,860,099 70,623 10,930,722 Profit 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 26) Exercise of options (Note 25) Recycling of non− controlling interest − − − − − − − − 305,531 112,690 − − − − − − − − − 1,257,698 1,257,698 (3,546) 1,254,152 39,153 − 39,153 − 39,153 39,153 1,257,698 1,296,851 (3,546) 1,293,305 − − − 466,254 466,254 − 418,221 − − 466,254 418,221 67,077 67,077 (67,077) − 31 December 2021 28,970,262 87,370,856 (67,673,657) 1,418,269 (36,977,228) 13,108,502 − 13,108,502 The notes on pages 30 to 64 form part of these financial statements. Strategic ReportGovernance ReportFinancial Statements 30 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 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 UK adopted 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 2024, which include the potential repayment of the convertible loan in December 2022 (see Note 23), 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 2023, which the Directors consider sufficiently robust. Scenarios considered include but are not limited to; failure to expand into planned new regulated jurisdictions during the forecast period 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. 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. 31 Adoption of new and revised standards There were no new standards, amendments or interpretations that were relevant to the Group for the year ended 31 December 2021. 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. 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 following amendments are effective for the period beginning 1 January 2023: » Disclosure of Accounting Policies (Amendments to ISA 1 and IFRS Practice Statement 2); » Definition of Accounting Estimates (Amendments to IAS 8); and » Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). 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. Strategic ReportGovernance ReportFinancial Statements 32 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 1. Accounting policies (continued) 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 in the comparative year relate to management restructuring costs and impairment charges against financial assets. 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, and social publishing. 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. 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. 33 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. 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). Strategic ReportGovernance ReportFinancial Statements 34 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 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. 35 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. 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). Strategic ReportGovernance ReportFinancial Statements 36 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 1. Accounting policies (continued) 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. 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 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. Retained earnings 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. 37 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). 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. Strategic ReportGovernance ReportFinancial Statements 38 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2. Critical accounting estimates and judgements (continued) (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 24) 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. (e) 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. 39 (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 £3.4m (2020: £2.4m). See Note 14. (c) 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 £7.7m (2020: £7.0m). See Note 12. (d) 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. (e) Taxes Judgement is required to interpret international tax laws relating to e-commerce in order to identify and value provisions in relation to indirect taxes. The principal risks relating to the Group’s tax liabilities arise from domestic and international tax laws and practices in the e-commerce environment which continues to evolve. The Group is basing its tax provisions on current (and enacted but not yet implemented) tax rules and practices, together with advice received, where necessary, from provisional advisers, and believes that its accruals for tax liabilities are adequate for all open enquiry years based on its assessment of many factors including past experience and interpretations of tax law. The Group monitors changes in legislation and updates its tax liabilities accordingly, However, due to different interpretations and evolving practice there is a risk that additional liabilities could arise. To the extent that the final outcome of such matters differs to management’s assessment at any reporting dates, such differences may impact the financial results or contingent liabilities disclosed in the period in which such determination is made. Further details can be found in Note 28 to the financial statements. Strategic ReportGovernance ReportFinancial Statements 40 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 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. B2B licensing revenue by primary geographical market is split according to the location of the operator. In 2021 there was one customer (2020: one customer) who individually accounted for more than 10% of total revenue of the Group. Total revenue from this customer in 2021 was £1,635,877 (2020: £1,689,358). 2021 revenue Primary geographical markets UK (including Channel Islands) USA Isle of Man Malta Rest of the World Contract counterparties Direct to consumers (B2C) B2B Timing of transfer of goods and services Point in time Over time Licensing £ Social publishing £ Other £ Total £ 764,759 − 4,460,407 3,567,616 2,390,623 2,055,937 1,428,359 − − − 11,100,085 3,567,616 − 3,567,616 11,100,085 − 11,100,085 3,567,616 11,019,931 3,567,616 80,154 − 11,100,085 3,567,616 − − − − − − − − − − − − 764,759 8,028,023 2,390,623 2,055,937 1,428,359 14,667,701 3,567,616 11,100,085 14,667,701 14,587,547 80,154 14,667,701 41 Licensing £ Social publishing £ Other £ Total £ 467,041 − − 467,041 2,385,377 3,885,971 2,401 6,273,749 2,511,803 884,089 1,266,804 − − − − − − 2,511,803 884,089 1,266,804 7,515,114 3,885,971 2,401 11,403,486 − 3,885,971 − 3,885,971 7,515,114 − 2,401 7,517,515 7,515,114 3,885,971 2,401 11,403,486 7,194,499 3,885,971 2,401 11,082,871 320,615 − − 320,615 7,515,114 3,885,971 2,401 11,403,486 2020 revenue Primary geographical markets UK (including Channel Islands) USA Isle of Man Malta Rest of the World Contract counterparties Direct to consumers (B2C) B2B Timing of transfer of goods and services Point in time Over time 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 2021 £ − − 2020 £ 80,154 80,154 Strategic ReportGovernance ReportFinancial Statements 42 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 4. Expenses by nature Profit / (loss) before interest and tax has been arrived at after charging/(crediting): Employee benefit expenses (excluding share option and related charges) License and platform fees IT software and hosting costs Legal, professional and consulting Share option and related charges Marketing expenses Depreciation of property, plant and equipment Amortisation of intangible assets Foreign exchange loss / (gain) Note 2021 £ 2020 £ 9 3,626,086 2,941,789 2,184,605 2,173,601 899,653 750,168 748,697 1,018,494 699,194 372,344 379,230 355,394 216,834 216,323 3,064,299 2,817,043 43,247 (19,595) 26 16 14 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 2021 £ − − − 2020 £ (449,422) (467,776) (917,198) Restructuring costs Restructuring costs of £467,776 in the prior year related to a management restructure following the change in focus to the licensing business. No such costs were incurred in 2021. Impairment of financial asset In the prior year, an impairment provision of £449,422 was recorded in the income statement following management’s expected credit loss review performed over its deferred consideration and trade and other receivables balances. The provision was split between deferred consideration (£527,446) (see Note 19) and other receivables (credit of £78,024). No such impairments were recognised in 2021. 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 43 2020 £ 25,000 57,758 3,500 29,286 − 21,547 2021 £ 25,000 65,000 3,000 31,000 18,853 37,945 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: 180,798 137,091 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 2021 £ 2020 £ 1,572,932 1,062,704 29,813 36,112 384,598 267,518 − 309,722 1,987,343 1,676,056 8. Directors’ remuneration The following table presents the Directors’ remuneration of the Company for the year ended 31 December 2021. Michael Buckley Mark Segal Jim Ryan Mark Wilson Mark Blandford Chris Ash Patrick Southon Salary and fees £ Bonus £ Benefits £ 2021 Total £ 2020 Total £ 250,000 125,000 − 375,000 198,333 250,000 125,000 14,891 389,891 261,667 40,000 40,000 40,000 30,000 − − − − − − − − − − − 40,000 40,000 40,000 30,000 − 650,000 250,000 14,891 914,891 40,000 40,000 40,000 40,000 258,902 878,902 Strategic ReportGovernance ReportFinancial Statements 44 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 The Directors’ ordinary shares in the Company, were as follows: Michael Buckley Mark Segal Jim Ryan Mark Wilson Mark Blandford Chris Ash 2021 No. of shares 2020 No. of shares 26,500,000 26,500,000 740,761 740,761 1,153,845 1,153,845 1,153,845 1,153,845 10,380,000 10,000,000 N/A 1,965,680 39,928,451 41,514,131 Chris Ash resigned as a Director on 29 September 2021, so his holding of ordinary shares in the Company as at 31 December 2021 has not been disclosed above. Directors’ interests in long−term incentive plans The Directors’ interests in share options, over ordinary shares in the Company, were as follows: Options at 1 Jan 2021 Options granted Options exercised Options lapsed Options at 31 Dec 2021 Exercise price Date of grant Michael Buckley Mark Segal 1 2 1 2 3,000,000 5,769,229 3,000,000 3,076,923 − − − − (1,000,000) − − − − − − − 2,000,000 5,769,229 £0.10 02−Jun−20 £0.20 28−Jul−20 3,000,000 £0.10 02−Jun−20 3,076,923 £0.20 28−Jul−20 1 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. During the year Michael Buckley exercised 1,000,000 of these options (2020: none), with a gain on exercise before tax of £223,699 (2020: £Nil). 2 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 26) Social security contributions and similar taxes Pension contributions Staff costs capitalised in respect of internally generated intangible assets 2021 £ 2020 £ 4,518,267 4,026,970 699,194 372,344 448,778 417,195 136,046 149,563 5,802,285 4,966,072 (1,484,505) (1,651,939) 4,317,780 3,314,133 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. Unpaid contributions at 31 December 2021 were £27,321 (2020: £Nil). The average number of employees was 60 (2020: 59). 45 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 reportable operating segments: » Licensing − brand and content licensing to partners in Europe and the US » Social Publishing − providing freemium games to the US 2021 Revenue Marketing expense Operating expense Administrative expense Licensing £ Social publishing £ Head Office £ Total £ 11,100,085 3,567,616 − 14,667,701 (20,348) (282,579) (76,303) (379,230) (1,209,530) (992,789) − (2,202,319) (3,325,714) (1,228,709) (1,856,570) (6,410,993) Share option and related charges (170,062) (7,441) (521,691) (699,194) Adjusted EBITDA Impairment of financial asset Restructuring expenses EBITDA Amortisation of intangible assets Depreciation of property, plant and equipment Impairment of goodwill Finance expense Finance income Profit before tax 6,374,431 1,056,098 (2,454,564) 4,975,965 − − 4,975,965 (3,064,299) (216,834) (73,677) (689,935) 26,496 957,716 Strategic ReportGovernance ReportFinancial Statements 46 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 10. Segment information (continued) 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 The Group’s non−current assets by geographical area are detailed below. UK USA Canada Malta Sweden 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) 2021 £ 2020 £ 11,869,577 11,756,451 821 5,599 567,648 86,394 12,776 − − 401,291 12,450,822 12,249,735 11. Finance income and expense Finance income Interest received Fair value gain on other investments Interest income on unwind of deferred income 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 credit / (charge) 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 15 22 19 15 23 23 22 47 2021 £ 145 − 2020 £ 47 111,780 19,087 − 7,264 20,500 − 201,337 26,496 333,664 20,238 18,663 38,855 − 117,000 355,000 468,339 437,050 45,503 71,319 689,935 882,032 2021 £ 2020 £ 38,310 (93,997) 4,952 (34,232) 130,878 46,127 174,140 (82,102) 122,296 130,331 122,296 130,331 296,436 48,229 Strategic ReportGovernance ReportFinancial Statements 48 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 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: Profit / (loss) before tax for the year 2021 £ 2020 £ 957,716 (1,582,286) Expected tax at effective rate of corporation tax in the UK of 19.0% (2020: 19.0%) 181,966 (300,634) Expenses not deductible for tax purposes Effects of overseas taxation Adjustment for tax in respect of prior periods Research and development tax credit Timing difference Relief for losses brought forward Tax losses for which no deferred tax assets have been recognised Unwind of deferred taxes recognised on business acquisitions 274,425 (38,310) (4,952) 3,369 93,997 34,233 (130,878) (46,127) (136,257) 12,745 (781,569) − 461,435 284,519 (122,296) (130,331) (296,436) (48,229) There are unused UK tax losses carried forward as at the balance sheet date of £30.9m (2020: £37.0m) equating to an unrecognised deferred tax asset of £7.7m (2020: £7.0m) using the expected future tax rates in the UK of 25% (2020: 19%). 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 2021 Unwind of deferred tax recognised on business acquisitions Exchange differences At 31 December 2021 2021 £ 2020 £ 320,913 457,492 (122,296) (130,331) 1,259 (6,248) 199,876 320,913 49 13. Earnings / (loss) per share Basic earnings / (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. The calculation of diluted EPS is based on the result attributable to ordinary shareholders and weighted average number of ordinary shares outstanding after adjusting for the effects of all dilutive potential ordinary shares. The Group’s potentially dilutive securities consist of share options (see Note 26) and a convertible loan (see Note 23). The convertible loan is anti-dilutive and so is ignored in calculating diluted EPS. Profit / (loss) after tax attributable to the owners of the parent Company Denominator − basic Weighted average number of ordinary shares Denominator − diluted Weighted average number of ordinary shares Weighted average number of option shares Weighted average number of shares Basic earnings / (loss) per share Diluted earnings / (loss) per share 2021 £ 2020 £ 1,257,698 (1,527,964) Number Number 288,496,688 285,165,652 288,496,688 285,165,652 13,140,665 − 301,637,353 285,165,652 Pence 0.44 0.42 Pence (0.54) (0.54) Strategic ReportGovernance ReportFinancial Statements 50 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 14. Intangible assets Goodwill £ Customer database £ Software £ Development costs Licenses Domain names Intellectual Property Total Cost At 1 January 2020 6,849,048 1,520,509 1,420,374 11,798,373 Additions Disposals − − − − − − 2,440,559 − 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 − − − − − 9,053 5,962,772 27,560,129 − − − − 2,440,559 − (268) (176,593) (415,740) 8,785 5,786,179 29,584,948 Additions Disposals − (73,677) − − 76,286 3,435,308 247,322 (212,215) (198,043) Exchange differences 50,382 14,886 14,122 − − − 89 − − 3,758,916 (483,935) 58,568 138,047 At 31 December 2021 6,673,924 1,490,536 1,262,416 17,470,157 247,322 8,874 5,844,747 32,997,976 Accumulated amortisation and impairment At 1 January 2020 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 − − − − − 9,053 3,271,605 15,857,576 − − 766,653 2,817,043 − − (268) (139,836) (226,794) 8,785 3,898,422 18,447,825 Amortisation charge Impairment Disposals − 73,677 (73,677) − − − − − (212,215) (200,047) 31,978 2,269,464 43,469 Exchange differences − 14,886 14,122 2,227 − − − 719,388 3,064,299 − − 73,677 (485,939) 89 51,192 82,516 At 31 December 2021 1,650,000 1,490,536 1,218,108 12,102,389 43,469 8,874 4,669,002 21,182,378 Net book value At 31 December 2020 5,047,219 At 31 December 2021 5,023,924 − − − 4,202,147 − 44,308 5,367,768 203,853 − − 1,887,757 11,137,123 1,175,745 11,815,598 The Group has no contractual commitments for development costs (2020: none). Goodwill The Group has 2 Cash Generating Units (“CGUs”) (2020: 2) for which the carrying amount of goodwill is allocated as follows: Licensing Social Publishing 2021 £ 2020 £ 4,867,609 4,819,435 156,315 227,784 5,023,924 5,047,219 − − − − − 51 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 2021 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 2024, 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: 2021 Licensing Social Publishing 2020 Licensing Social Publishing Discount rate Long−term growth rate * 16.0% 16.0% 14.4% 14.4% 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. The £73,677 (2020: £Nil) impairment charge relates to goodwill held in Hullabu Inc., which was in the process of being dissolved at 31 December 2021. Strategic ReportGovernance ReportFinancial Statements 52 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 15. Other investments At 1 January 2020 Change in fair value At 31 December 2020 Change in fair value Disposal At 31 December 2021 Other investments £ 289,511 111,780 401,291 (38,855) (362,436) − 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. During the year the Group disposed of its entire shareholding in Ayima, generating cash proceeds on disposal of £362,436 bringing the investment balance to £Nil (2020: £401,291). As at 31 December 2020 the quoted share price was SEK 13.00 (£1.15). This was a level 1 valuation as defined by IFRS 13. Under IFRS 9, movements in fair value were taken to the income statement. 53 16. Property, plant and equipment Cost At 1 January 2020 Additions Disposals Exchange differences At 31 December 2020 Additions Disposals Exchange differences At 31 December 2021 Accumulated deprecation At 1 January 2020 Depreciation charge Disposals Impairment Exchange differences At 31 December 2020 Depreciation charge Disposals Exchange differences At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 17. Other assets Other assets ROU lease assets* £ Leasehold improvements £ Computers and related equipment £ Office furniture and equipment £ Total £ 760,334 10,464 − (1,185) 769,613 − − 2,077 771,690 116,172 166,100 − 22,876 (481) 304,667 151,613 − 1,294 457,574 76,532 182,195 75,766 1,094,827 − − (473) 76,059 − (13,474) 250 62,835 13,891 16,263 − − (437) 29,717 16,084 (13,474) 228 32,555 27,774 (3,139) (463) 2,369 − (926) 40,607 (3,139) (3,047) 206,367 77,209 1,129,248 139,219 (35,530) 1,269 311,325 150,757 25,809 (3,139) − (495) 172,932 40,590 (34,859) 993 179,656 2,327 (16,682) 755 141,546 (65,686) 4,351 63,609 1,209,459 53,244 8,151 − − (256) 61,139 8,547 (15,228) 638 55,096 334,064 216,323 (3,139) 22,876 (1,669) 568,455 216,834 (63,561) 3,153 724,881 464,946 314,116 46,342 30,280 33,435 131,669 16,070 8,513 560,793 484,578 2021 £ 2020 £ 150,646 150,528 Other assets represent the rental deposit on operating leases and deposits held with third−party suppliers. *See Note 22 for further analysis by lease category. Strategic ReportGovernance ReportFinancial Statements 54 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 18. Trade and other receivables Trade receivables Other receivables Tax and social security Prepayments and accrued income 2021 £ 2020 £ 1,372,749 1,319,769 41,957 394,749 216,207 5,288 1,451,232 802,475 3,260,687 2,343,739 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 2021. The historical loss rates are then adjusted for current and forward−looking information on macroeconomic factors affecting the Group’s customers. On the basis of this review, no impairment has been recorded (2020: credit of £78,024 – see Note 5). 19. Deferred consideration At 1 January 2020 Interest recognised as finance income on 2019 disposal Impairment recognised At 31 December 2020 Deferred consideration received in the year At 31 December 2021 £ 1,298,663 201,337 (527,446) 972,554 (972,554) − During 2019, the Group disposed of its B2C real money gaming CGU. As part of this transaction the Group was due £1.5m deferred consideration on 31 December 2020, which was discounted at inception. During 2020, interest income of £201,337 was recognised within finance income on the unwind of the balance, while an impairment provision of £527,446 was recorded in the income statement following managements impairment assessment. During the current year, 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 55 2021 £ 2020 £ 4,412,375 2,105,167 − (18,382) 4,412,375 2,086,785 The Group has restricted cash of £Nil (2020: £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. 21. Trade and other payables Trade payables Other payables Tax and social security Accruals 2021 £ 531,939 158,726 236,491 2020 £ 368,402 290,543 122,533 1,313,958 1,162,236 2,241,114 1,943,714 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 2020 Additions Amortisation Impairment Exchange differences At 31 December 2020 Additions Amortisation Exchange differences At 31 December 2021 Land and buildings £ 644,162 Motor vehicles £ Total £ − 644,162 − 10,464 10,464 (165,223) (22,876) (704) (877) (166,100) − − (22,876) (704) 455,359 9,587 464,946 − − − (148,125) (3,488) (151,613) 783 − 783 308,017 6,099 314,116 Strategic ReportGovernance ReportFinancial Statements 56 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 22. Leases (continued) Lease liabilities At 1 January 2020 Additions Lease payments Interest expense Exchange differences At 31 December 2020 Additions Lease payments Interest expense Exchange differences At 31 December 2021 Current Non−current Land and buildings £ 902,649 − (298,606) 71,196 (312) Motor vehicles £ Total £ − 902,649 10,464 (1,480) 123 − 10,464 (300,086) 71,319 (312) 674,927 9,107 684,034 − − − (384,942) (3,552) (388,494) 45,120 71 383 − 45,503 71 335,176 5,938 341,114 2021 £ 172,887 168,227 341,114 2020 £ 343,859 340,175 684,034 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 2020 Lease receipts Interest income Exchange differences At 31 December 2020 Lease receipts Interest income Exchange differences At 31 December 2021 Finance lease asset £ 283,520 (163,324) 20,500 (638) 140,058 (146,505) 7,264 (817) − 57 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%, which has been updated to a fixed 5.75% following the cessation of LIBOR on 31 December 2021. 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 2021 was £0.7m (2020: £0.6m) 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. At 1 January 2020 Utilisation of free services Effective interest Interest paid Change in fair value At 31 December 2020 At 1 January 2021 Utilisation of free services Effective interest Interest paid Change in fair value At 31 December 2021 Fair value of debt host £ Obligation to pro- vide free services £ Fair value of deriv- ative Liability £ Total £ 2,925,673 − 437,050 (206,853) − 201,000 (52,000) − − − 272,000 3,398,673 − − − (52,000) 437,050 (206,853) 355,000 355,000 3,155,870 149,000 627,000 3,931,870 3,155,870 − 468,339 (194,931) − 149,000 (89,000) − − − 627,000 3,931,870 − − − (89,000) 468,339 (194,931) 117,000 117,000 3,429,278 60,000 744,000 4,233,278 Strategic ReportGovernance ReportFinancial Statements 58 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 24. 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’. Financial assets Cash and cash equivalents Trade and other receivables Accrued income Deferred consideration Finance lease asset Other assets Other investments Financial liabilities Trade and other payables Accruals Other creditors Derivative liability Lease liability Amortised cost Fair Value 2021 £ 2020 £ 2021 £ 2020 £ 4,412,375 2,105,167 1,414,706 1,535,976 1,239,634 − − 150,646 − 468,777 972,554 140,058 150,528 − 690,665 658,945 1,313,958 1,162,236 3,489,278 3,304,870 − − − − − − − − − − − − − − − − 401,291 − − − − − 744,000 627,000 341,114 684,034 − − 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. 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. 59 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 2021 the Group’s net exposure to foreign exchange risk was as follows: Net foreign currency financial assets US Dollar Euro Other 2021 £ 1,043,049 238,309 69,901 2020 £ 810,533 335,082 4,286 1,351,259 1,149,901 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 £270,252 (2020: decrease in losses and increase of net assets of £229,980). A 20% weakening in the exchange rates would, on same basis increase loss after tax and decrease net assets by £270,252. (2020: increase loss after tax and decrease net assets by £229,980). 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. The ongoing lease liabilities and convertible loan which is contractually repayable on 31 December 2022 (see Note 23) are included in the Group’s cash flow modelling. The following table sets out the undiscounted contractual cash flows: At 31 December 2021 Trade and other payables Accruals Other creditors Lease liability Total At 31 December 2020 Trade and other payables Accruals Other creditors Lease liability Total Within 1 year £ 1−2 years £ Over 2 years £ 690,665 1,313,958 3,489,278 192,981 5,686,882 − − − − − − 154,220 154,220 21,368 21,368 Within 1 year 1−2 years Over 2 years £ 658,945 1,162,236 262,500 390,813 £ − − 3,752,276 192,389 2,474,494 3,944,665 £ − − − 175,588 175,588 Strategic ReportGovernance ReportFinancial Statements 60 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 24. Financial instruments and risk management – Group (continued) Credit risk The Group’s trading is mainly exposed to credit risk through credit sales in both 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 £Nil (2020: £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 £0.7m (2020: £0.6m) 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. 2021 Opening balance Cash Non−cash transaction Unwind of discount Exchange differences Change in fair value Carried forward Fair value of debt host £ Obligation to provide free services £ Fair value of derivative liability £ 149,000 627,000 3,155,870 (194,931) − 468,339 − − − (89,000) − − − − − − − 117,000 744,000 3,429,278 60,000 Lease liability £ 684,034 (388,494) − 45,503 71 − 341,114 61 2020 Fair value of debt host Obligation to provide free services Fair value of derivative liability Lease liability Opening balance 2,925,673 201,000 272,000 New leases entered into during the year Cash Non−cash transaction Unwind of discount Exchange differences Change in fair value Carried forward 25. Share capital Ordinary shares − (206,853) − 437,050 − − − − (52,000) − − − 3,155,870 149,000 − − − − − 355,000 627,000 902,649 10,464 (300,086) − 71,319 (312) − 684,034 Ordinary shares of 10 pence each 289,702,626 28,970,262 286,647,315 28,664,731 The increase of 3,055,311 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 £418,221, which has been recorded as an increase in share capital and share premium as follows: 2021 Number 2021 £ 2020 Number 2020 £ Share capital Share premium £ 305,531 112,690 418,221 26. 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. Strategic ReportGovernance ReportFinancial Statements 62 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 26. Share−based payments (continued) The following table illustrates the number and weighted average exercise price of share options: Outstanding at 1 January 2020 Granted during the year Forfeited during the year Lapsed during the year Exercised during the year Number of options outstanding at 31 December 2020 Granted during the year Forfeited during the year Exercised during the year Number of options outstanding at 31 December 2021 Exercisable at 31 December 2021 Weighted average exercise price (pence) 15.33 14.69 22.44 1.00 12.69 15.60 22.40 10.00 13.69 16.39 17.60 Number 37,719,111 25,246,152 (6,884,000) (26,153,837) (2,218,568) 27,708,858 350,000 (1,833,335) (3,055,301) 23,170,222 10,463,814 Options to subscribe under various schemes, including those noted in Directors’ interests in Note 8, are shown in the table below: Date granted 2 April 2014 17 June 2014 Exercise price (pence) Exercisable between 23.00 1 April 2017 to 1 April 2024 28.88 16 June 2016 to 16 June 2024 19 February 2015 33.00 19 February 2018 to 19 February 2025 15 October 2015 25.13 15 October 2018 to 15 October 2025 10 November 2015 25.00 10 November 2018 to 10 November 2025 28 July 2016 20.00 28 July 2018 to 28 July 2026 Approved Approved Approved Approved Approved Approved Unapproved 28 July 2016 20.00 28 July 2018 to 28 July 2026 Approved 1 May 2020 10.00 3 February 2021 to 1 May 2030 Unapproved 1 May 2020 10.00 3 February 2021 to 1 May 2030 Unapproved 1 May 2020 10.00 1 May 2020 to 1 May 2030 2021 Number of shares 2020 Number of shares 992,252 1,377,469 − 172,475 535,000 560,175 167,500 30,000 326,087 172,475 535,000 854,175 167,500 30,000 1,466,668 4,350,000 1,300,000 1,300,000 750,000 750,000 Approved Approved Approved 2 June 2020 28 July 2020 20.00 3 February 2021 to 2 June 2030 5,000,000 6,000,000 20.00 1 August 2021 to 28 July 2030 8,846,152 8,846,152 26 November 2020 20.00 26 November 2021 to 26 November 2030 2,500,000 2,500,000 Unapproved 26 November 2020 20.00 26 November 2021 to 26 November 2030 Approved 5 January 2021 22.40 1 January 2022 to 5 January 2031 500,000 350,000 500,000 − 23,170,222 27,708,858 63 During the year 350,000 share options were granted to certain employees. 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 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 5 Jan 2021 5 Jan 2021 5 Jan 2021 116,666 116,666 116,668 1 Jan 2022 1 Jan 2023 1 Jan 2024 Black Scholes Black Scholes Black Scholes 22.20 74% 2 years n/a −0.13% 0.09 22.40 22.20 70% 3 years n/a −0.11% 0.10 22.40 22.20 69% 4 years n/a −0.11% 0.11 22.40 5 Jan 2031 5 Jan 2031 5 Jan 2031 The share option and related charges income statement expense comprises: IFRS 2 share−based payment charge Direct taxes related to share options 2021 £ 466,254 232,940 699,194 2020 £ 330,308 42,036 372,344 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 £466,254 (2020: £330,308). 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 £232,940 (2020: £42,036). 27. 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 $38,937 (2020: $45,693) with $4,351 due at 31 December 2021 (2020: $13,155). Jim Ryan is a Director of Bally’s Corporation (“Bally’s”) and was previously a Non−Executive Director of Gamesys Group prior to its acquisition by Bally’s. In December 2017 the Group entered into a 10−year framework services agreement and a 5−year convertible loan agreement for £3.5m with the Gamesys Group (see Note 23). During the year £150,000 (2020: £113,333) of consulting fees were paid to Dawnglen Finance Limited, a company controlled by Michael Buckley, which is included in the remuneration figure of £375,000 (2020: £198,333) shown in Note 8. No amounts were owed at 31 December 2021 (2020: £nil). The details of key management compensation are set out in Note 7. Strategic ReportGovernance ReportFinancial Statements 64 Gaming Realms plc Annual Report and Accounts 2021 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 28. Contingent liabilities Judgement is required to interpret international tax laws relating to e-commerce in order to identify and value provisions in relation to indirect taxes. The principal risks relating to the Group’s tax liabilities arise from domestic and international tax laws and practices in the e-commerce environment which continues to evolve. The Group is basing its tax provisions on current (and enacted but not yet implemented) tax rules and practices, together with advice received, where necessary, from professional advisers, and believes that its accruals for tax liabilities are adequate for all open enquiry years based on its assessment of many factors including past experience and interpretations of tax law. The Group monitors changes in legislation and updates its tax liabilities accordingly. However, due to different interpretations and evolving practice there is a risk that additional liabilities could arise. 29. Subsidiaries The subsidiaries of the Company, all of which have been included in these consolidated financial statements, are as follows: Name Registered Office Country of Incorporation Principal activity Proportion held by Parent Company Proportion held by Group Blastworks Limited 2 Valentine Place, London, SE1 8QH Alchemybet Limited 2 Valentine Place, London, SE1 8QH Blastworks Inc. 300 Deschutes Way SW, Tumwater, WA 98501 UK UK USA IP owner 100% Software Developer 100% Social publishing operator 100% Backstage Technologies, Inc. 808 Douglas Street, Victoria, BC, V8W 2B6 Canada Software Developer 100% Hullabu Inc. 848 N Rainbow Blvd, Las Vegas, NV, 89101 USA 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 Malta Malta IP owner 0% Holding company 100% License holder 0% Quickthink Digital Limited 2 Valentine Place, London, SE1 8QH UK Marketing services 100% Blueburra Holdings Limited 49 Victoria Street, Douglas, Isle of Man, IM1 2LD Digital Blue Limited 49 Victoria Street, Douglas, Isle of Man, IM1 2LD Isle of Man Marketing services 100% Isle of Man Marketing services 0% 100% 100% 100% 100% 62.5% 100.0% 100.0% 100% 100% 100% 30. Post Balance Sheet Events On 6 January 2022, 3,900,000 share options were granted to certain Directors and employees of the Group. The options vest in tranches on 15 October 2022, 2023 and 2024. All options have an exercise price of 32.5 pence per share. On 23 February 2022, Bally’s Corporation (owner of Gamesys Group) exercised their option to convert £500,000 of the £3,500,000 convertible loan (see Note 23) into Gaming Realms plc ordinary shares. This resulted in the issue of 2,170,817 new ordinary shares. On 4 March 2022, the Group was awarded a full iGaming supplier license by the Alcohol and Gaming Commission of Ontario to allow the Group to provide its Slingo Original’s game content to Ontario’s licensed online casino operators. Following this, the Group launched its content on 4 April 2022, the first day the newly regulated market opened. Parent Company Statement of Financial Position As at 31 December 2021 Company number: 04175777 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 Other Creditors Derivative 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 65 31 December 2021 £ 31 December 2020 £ Note 2 2 3 4 5 6 7 7 7 7 5,662,961 5,129,119 − 319,600 138,798 401,291 460,592 138,798 6,121,359 6,129,800 14,725,367 15,448,125 − 67,103 972,554 35,488 14,792,470 16,456,167 20,913,829 22,585,967 8,526,244 8,856,470 141,290 178,043 3,489,278 744,000 − − 12,900,812 9,034,513 − − 167,856 3,304,870 627,000 308,774 167,856 4,240,644 13,068,668 13,275,157 7,845,161 9,310,810 8 28,970,262 28,664,731 88,090,856 87,978,166 2,683,702 2,683,702 (111,899,659) (110,015,789) 7,845,161 9,310,810 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 £2,350,124 (2020: £3,751,045). The notes on pages 67 to 70 form part of these financial statements. The financial statements were approved and authorised for issue by the Board of Directors on 25 April 2022 and were signed on its behalf by: Michael Buckley Executive Chairman Strategic ReportGovernance ReportFinancial Statements 66 Gaming Realms plc Annual Report and Accounts 2021 Parent Company Statement of Changes in Equity For the year ended 31 December 2021 1 January 2020 Loss for the year Share−based payment on share options Exercise of options 31 December 2020 Loss for the year Share−based payment on share options Exercise of options 31 December 2021 Share capital £ Share premium £ Merger reserve £ Retained earnings £ Total equity £ 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 − − − − 305,531 112,690 − − − (2,350,124) (2,350,124) 466,254 − 466,254 418,221 28,970,262 88,090,856 2,683,702 (111,899,659) 7,845,161 The notes on pages 67 to 70 form part of these financial statements. 67 Notes to Parent Company Financial Statements For the year ended 31 December 2021 1. Principal accounting policies These financial statements present the results of Gaming Realms plc for the year ended 31 December 2021. 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 2021. 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. Strategic ReportGovernance ReportFinancial Statements 68 Gaming Realms plc Annual Report and Accounts 2021 Notes to Parent Company Financial Statements For the year ended 31 December 2021 1. Principal accounting policies (continued) 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, 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. 2. Investments At 1 January 2020 Change in fair value Additions At 31 December 2020 Change in fair value Additions Disposal At 31 December 2021 Investment in subsidiary undertakings Other investments £ £ 5,128,030 289,511 − 111,780 1,089 − 5,129,119 401,291 − (38,855) 533,842 − − (362,436) 5,662,961 − At 1 January 2021, the Company had the following shareholdings in Group subsidiaries; 90.66% in Blastworks Limited and 88.85% in Alchemybet Limited. The additional investment of £533,842 during the year represents the Company purchasing the remaining shareholding of both subsidiaries so that 100% of the shares are owned by Gaming Realms plc. The £1,089 addition in the previous year relates the incorporation of a 100% owned Maltese subsidiary, Alchemybet Malta Holdings Limited. This entity was incorporated on 30 September 2020. Details of the Company’s investments can be found in Note 29 of the consolidated financial statements. The other investments balance relates to the Company’s interest in Ayima shares. See Note 15 of the consolidated accounts for further information. 69 3. Property, plant and equipment Cost At 1 January 2021 Additions At 31 December 2021 Accumulated deprecation and impairment At 1 January 2021 Depreciation charge At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 4. Trade and other receivables Amounts due from Group companies Tax and social security Other debtors Prepayments and accrued income ROU lease assets £ Leasehold improvements £ Computers and related equipment £ Office furniture and equipment £ Total £ 654,745 60,968 − − 654,745 60,968 11,421 1,014 12,435 19,047 746,181 − 1,014 19,047 747,195 246,064 122,015 368,079 19,911 12,194 32,105 9,409 1,444 10,205 285,589 6,353 142,006 10,853 16,558 427,595 408,681 286,666 41,057 28,863 2,012 1,582 8,842 2,489 460,592 319,600 2021 £ 2020 £ 14,588,109 15,242,105 − 92 12,880 78,865 137,166 114,275 14,725,367 15,448,125 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 (2020: £Nil). 5. Deferred consideration See Note 19 of the consolidated accounts for further information. Strategic ReportGovernance ReportFinancial Statements 70 Gaming Realms plc Annual Report and Accounts 2021 Notes to Parent Company Financial Statements For the year ended 31 December 2021 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 2021 £ 2020 £ 7,654,870 8,254,395 35,674 139,574 − 86,267 764,760 339,268 70,940 36,966 8,526,244 8,856,470 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 Ordinary shares of 10 pence each 289,702,626 28,970,262 286,647,315 28,664,731 2021 Number 2021 £ 2020 Number 2020 £ Allotted and fully paid up At 1 January 2020 Exercise of options At 31 December 2020 Exercise of options At 31 December 2021 £ 28,442,874 221,857 28,664,731 305,531 28,970,262 9. Employee information The Company had an average of 6 (2020: 7) employees during the year. The employee costs for the Company were £881,117 (2020: £924,566). Details of Directors’ remuneration can be found in Note 8 of the consolidated financial statements. 10. Related party transactions During the year £150,000 (2020: £113,333) of consulting fees were paid to Dawnglen Finance Limited, a company controlled by Michael Buckley. No amounts were owed at 31 December 2021 (2020: £nil). The details of key management compensation are set out in Note 7 of the consolidated financial statements. 71 Company Information Directors Michael Buckley, Executive Chairman Mark Segal, Chief Financial Officer Jim Ryan, Non−executive Director Mark Wilson, Non−executive Director Mark Blandford, Non−executive Director Chris Ash, Non−executive Director (resigned 29 September 2021) 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 Strategic ReportGovernance ReportFinancial Statements 72 Gaming Realms plc Annual Report and Accounts 2021 73 Strategic ReportGovernance ReportFinancial Statements Gaming Realms plc Two Valentine Place London SE1 8QH UK www.gamingrealms.com