Contagious Gaming Inc. — Interim / Quarterly Report 2022

Nov 19, 2021

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CONTAGIOUS GAMING INC.

Condensed Consolidated Interim Financial Statements September 30, 2021

Unaudited

Expressed in Canadian Dollars

CONTAGIOUS GAMING INC.

NOTICE OF NO AUDITOR REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The Company’s auditors have not reviewed these unaudited condensed interim consolidated financial

statements.

The accompanying notes form an integral part of these consolidated financial statements

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CONTAGIOUS GAMING INC.

Consolidated Statements of Financial Position As at September 30, 2021 and March 31, 2021

As at September 30, 2021	and March 31, 2021
(Expressed in Canadian Dollars) Notes	September 30, 2021 March 31, 2021
ASSETS Current Cash Accounts receivable 4 Prepaid expenses Total Assets	$ 16,137 $ 34,345 13,856 11,205 8,816 1,864
	$ 38,809 $ 47,414
LIABILITIES Current Accounts payable and accrued liabilities Due to related parties 5 Note payable 6 Total Liabilities EQUITY Share capital 8 Reserves 8 Deficit Total Equity	$ 906,625 $ 829,970 499,269 366,704 300,000 300,000
	1,705,894 1,496,674
	21,685,846 21,685,846 3,130,728 3,130,728 (26,483,659) (26,265,834)
	(1,667,085) (1,449,260)
Total Liabilities and Equity	$ 38,809 $ 47,414
Commitments and contingencies 7

Approved on behalf of the Board of Directors:

“Victor Wells” , Director “Justin Barragan” , Director

The accompanying notes form an integral part of these consolidated financial statements

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CONTAGIOUS GAMING INC.

Condensed Consolidated Interim Statements of Comprehensive Loss

For the Six Months ended September 30, 2021 and 2020

Expressed in Canadian Dollars Notes	2021 2020
Revenue Direct costs Gross margin Expenses General and administrative Financing costs Foreign exchange loss Net loss Comprehensive loss for the period Loss per share – basic and diluted 14 Weighted average number of shares outstanding – basic and diluted	$ - $ - - -
	- -
	205,825 255,096 12,000 12,000 - 355
	217,825 267,451
	(217,825) (267,451)
	$ (217,825) $ (267,451)
	S (0.01) S (0.01) 37,784,835 29,468,745

The accompanying notes form an integral part of these consolidated financial statements

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CONTAGIOUS GAMING INC.

Condensed Consolidated Interim Statements of Changes in Equity For the Six Months Ended September 30, 2021 and 2020

Expressed inCanadian Dollars	Share Capital (Note 8) Reserves Accumulated Other Comprehensive Number of Amount (Note 8) Income Deficit Total Shares* $ $ $ $ $
Balance at March 31, 2020 Cancellation of Trinity Mirror escrow shares Net lossforthe period	29,468,745 20,835,846 3,130,728 - (25,312,931) (1,346,357) (183,910) - - - - - - - - - (267,451) (267,451)
Balance at September 30, 2020	29,284,835 20,835,846 3,130,728 - (25,580,382) (1,613,808)

Expressed in Canadian Dollars	Share Capital (Note 8) Reserves Accumulated Other Comprehensive Number of Amount (Note 8) Income Deficit Total Shares $ $ $ $ $* 37,784,835 21,685,846 3,130,728 - (26,265,834) (1,449,260) - - - - (217,825) (217,825)
Balance at March 31, 2021 Net lossforthe period
Balance at September 30, 2021	37,784,835 21,685,846 3,130,728 - (26,483,659) (1,667,085)

The accompanying notes form an integral part of these consolidated financial statements

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CONTAGIOUS GAMING INC.

Condensed Consolidated Interim Statements of Cash Flows For the Six Months Ended September 30, 2021 and 2020

Expressed in Canadian Dollars	2021 2020
Cash provided by (used in) operations Loss for the period Changes in non-cash working capital: Accounts receivable Prepaid expenses Accounts payable and accrued liabilities Cash flows from financing activities Increase in due to related parties Decrease in cash Cash at beginning of period	$ (217,825) $ (107,924)
	(217,825) (107,924) (2,651) (929) (6,952) (7,702) 76,655 21,753
	(150,773) (94,802)
	132,565 58,585
	132,565 58,585
	(18,208) (36,217) 34,345 143,716
Cash at end ofperiod	$ 16,137 $ 107,499

The accompanying notes form an integral part of these consolidated financial statements

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CONTAGIOUS GAMING INC. Notes to Consolidated Financial Statements For the Six Months Ended September 30, 2021 and 2020 Expressed in Canadian Dollars

1. CORPORATE INFORMATION

Contagious Gaming Inc. (on a consolidated basis the “Company ” or “ Contagious ”) is in the business of developing software solutions for regulated gaming and lottery markets. The Company’s head office address is at #800 – 789 West Pender Street, Vancouver, BC, V6C 1H2. The registered and records office address is at Suite 1500-1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. The Company is listed on the TSX Venture Exchange (“TSX.V”) under the symbol “CNS” and on the Frankfurt Stock Exchange under the symbol “RHRD”.

2. BASIS OF PRESENTATION

a) Statement of Compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). The same accounting policies and methods of computation were followed in the preparation of these Condensed Interim Consolidated Financial Statements as those disclosed in the Company’s annual audited consolidated financial statements for the year ended March 31, 2021.

These condensed interim consolidated financial statements do not include all of the information required for full annual consolidated financial statements and accordingly should be read in conjunction with the annual audited consolidated financial statements for the year ended March 31, 2021, which are made available on SEDAR at www.sedar.com.

These condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors on November 19, 2021.

b) Basis of Measurement

These financial statements have been prepared on the historical cost basis, with the exception of items that IFRS requires to be carried at fair value, as explained in the accounting policies set out in Note 3.

c) Basis of Consolidation

The condensed consolidated interim financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

These consolidated financial statements include the accounts of Contagious Gaming and the whollyowned Canadian subsidiary Telos Entertainment.

d) Going Concern

As at September 30, 2021, the Company does not have sufficient cash to meet anticipated cash needs for working capital and capital expenditures through the next twelve months. The Company intends on raising financing before the end of fiscal 2022. The Company will require additional financing in the near term to enable the launch of current initiatives. There can be no assurance however, that additional financing can be obtained in a timely manner, or at all especially in light of the potential impact of COVID-19 on capital markets.

Not raising sufficient additional financing on a timely basis may result in delays and possible termination of all or some of the Company’s initiatives, and as a result, these conditions indicate the existence of a material uncertainty which, may cast significant doubt as to the ability of the Company to continue as a going concern. The Company cannot predict whether it will be able to raise the necessary funds it needs to continue as a going concern.

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CONTAGIOUS GAMING INC. Notes to Consolidated Financial Statements For the Six Months Ended September 30, 2021 and 2020 Expressed in Canadian Dollars

2. BASIS OF PRESENTATION – CONTINUED

The Company’s financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realization of assets and settlement of liabilities in the ordinary course of business. The consolidated financial statements do not include the adjustments that would result if the Company were unable to continue as a going concern.

e) Use of Estimates and Judgments

The Company makes certain estimates and assumptions regarding the future. Estimates and judgments 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 outcomes may differ from these estimates and assumptions.

The effect of a change in an accounting estimate is recognized prospectively by including it in profit or loss in the year of the change, if the change affects that year only, or in the year of the change and future years, if the change affects both.

Information about critical estimates and assumptions in applying accounting policies and estimates that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the consolidated financial statements within the next financial year are discussed below:

(i) Accruals and provisions

Estimate is used in assessing, measuring and recognizing accruals and provisions. Estimate is required to determine the possible consideration required to settle the present obligation at the statement of financial position date.

(ii) Deferred taxes

The recognition of deferred tax assets is based on forecasts of future taxable income. The measurement of future taxable income for the purposes of determining whether or not to recognize deferred tax assets depends on many factors, including the Company’s ability to generate such profits and the implementation of effective tax planning strategies. The occurrence or non-occurrence of such events in the future may lead to significant changes in the measurement of deferred tax assets.

f) Functional and Presentation Currency

These consolidated financial statements are presented in Canadian dollars. The functional currency of the Canadian legal parent company, Contagious Gaming, and its legal Canadian subsidiary, Telos, is the Canadian dollar.

3. SIGNIFICANT ACCOUNTING POLICIES

All significant accounting policies have been applied on a basis consistent with those applied in the most recent audited annual financial statements. The policies applied in these condensed consolidated interim financial statements are based on IFRS issued and effective as of the date the Board of Directors approved and authorized to issue these condensed interim consolidated financial statements.

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CONTAGIOUS GAMING INC. Notes to Consolidated Financial Statements For the Six Months Ended September 30, 2021 and 2020 Expressed in Canadian Dollars

4. ACCOUNTS RECEIVABLE

4. ACCOUNTS RECEIVABLE
		September 30	March 31,
		2021	2021
Trade receivable	$	2,294 $	2,294
Government remittances		11,562	8,911
	$	13,856 $	11,205

5. RELATED PARTIES TRANSACTIONS AND BALANCES

a) Amounts Due To Related Parties

		September 30,		March 31,
		2021		2021
Due to related parties:
Due to directors, officers and their
companies (i)	$	499,269	$	366,704

• (i) Amounts due to directors, officers and their companies are for accrued salaries, fees and travel costs. These amounts are unsecured, non-interest bearing and are due on demand. Included in Accounts Payable is an amount of $366,103 owing to a former director who ceased to be a director during the previous year.

b) Compensation of Key Management Personnel

Key management personnel are those persons that have authority and responsibility for planning, directing and controlling the activities of the Company, directly and indirectly. As of June 30, 2021, the Company’s key management personnel consist of the Company’s directors and senior management (Chief Executive Officer, Corporate Secretary and Chief Financial Officer). The Company incurred fees and expenses in the normal course of operations in connection with the key management and directors. Details are as follows:

irectors. Details are as follows:
		September 30	March 31
Nature of Transactions		2021	2021
Management fees and salaries	$	86,184 $	170,340
Directors fees		33,150	67,371
Advisory fees		-	18,468
	$	119,334 $	256,179

During the current period, the Company recorded $12,894 (2020 - $899) of legal fees to McMillan LLP, a law firm in which one of the Company’s director is a partner.

6. NOTE PAYABLE

On September 19, 2014, Contagious Gaming issued to its lenders a Convertible Note payable with a face value of $300,000, accruing interest at a rate of 8% per annum compounded quarterly, with interest payable on quarterly basis, unsecured and with a maturity date of September 19, 2017 in settlement for a previously outstanding loan and accrued interest.

Upon maturity of the Convertible Note on September 19, 2017, the Company and its lenders agreed to extend the note without any conversion features, to be due on December 31, 2019. The extension was accounted for as an extinguishment of the convertible note payable for consideration equal to the fair value of the revised note payable. The carrying value of the note was determined using a 20% discount rate with the difference of $64,875 representing a gain on the extinguishment of the convertible note payable. The note payable is unsecured, bears interest at 8% per annum compounded quarterly, with interest payable on a quarterly basis. Subsequent to maturity on December 31, 2019, the note payable remains due on demand with no specified terms of repayment.

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CONTAGIOUS GAMING INC. Notes to Consolidated Financial Statements For the Six Months Ended September 30, 2021 and 2020 Expressed in Canadian Dollars

7. COMMITMENTS AND CONTINGENCIES

As part of the Board’s ongoing compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the Company. The Company takes legal advice as to the potential outcomes of claims and actions and provisions are made where appropriate.

Management is not aware of any contingencies that may have a significant impact on the financial position of the Company.

8. SHARE CAPITAL

a) Authorized and Issued Share Capital

The Company’s authorized share capital consists of an unlimited number of common shares without par value. The Company is also authorized to issue an unlimited number of Class A Preferred Shares without par value. No Class A Preferred Shares were issued as of the period end date.

b) Issued and Outstanding

In satisfaction of agreements dated January 12, 2021, with certain creditors, on February 24, 2021, the Company issued 8,500,000 shares to settle $425,000 of accounts payable and amounts due to related parties and recorded a loss on settlement of debt of $425,000 based on the quoted share price on the date the shares were issued to extinguish the liabilities.

c) Stock Options

The Company has a stock option plan in place under which it is authorized to grant options of up to 10% of its outstanding shares of the Company to officers, directors, employees and consultants. The exercise price of each option is to be determined by the Board of Directors but shall not be less than the discounted market price as defined by the TSX Venture Exchange. The expiry date for each option should be for a maximum term of five years. Stock options granted vest over the period determined by the Board of Directors. Stock options granted to investor relations consultants vest according to TSX Venture Exchange policy.

There are no stock options outstanding as September 30, 2021 and March 31, 2021.

d) Escrow Shares

As of September 30, 2021, nil (March 31, 2021 – nil) common shares of the Company were held in escrow. Details are as follows:

In connection with the September 25, 2014, amending agreement with Trinity Mirror and pursuant to an escrow agreement dated September 25, 2014, 183,910 common shares of the Company were placed in escrow upon TSX-V approval on Nov 5, 2014. 25% of the escrowed shares are to be released for each £150,000 of advertising to be performed by Trinity Mirror under a £600,000 advertising credit. On April 1, 2020, the shares in escrow were returned to the Company as the advertising plan had not been executed and as such the deal expired.

e) Reserves

e) Reserves
	Reserves ($)
	Contribution Options Warrants Convertible Note Total
Balance– March 31, 2021	202,877 1,546,275 1,319,046 62,530 3,130,728
Balance– September 30, 2021	202,877 1,546,275 1,319,046 62,530 3,130,728

Contribution reserve arose on the issuance of the redeemable Class A Preferred Shares in 2006 and 2007.

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CONTAGIOUS GAMING INC. Notes to Consolidated Financial Statements For the Six Months Ended September 30, 2021 and 2020 Expressed in Canadian Dollars

8. SHARE CAPITAL – CONTINUED

Options and warrants reserves represent fair value of share purchase options and share purchase warrants issued for services and private placement.

Convertible note reserve relates to the equity portion of the convertible note payable described in Note 6.

9. INCOME TAX

The Company’s tax charge, which relates fully to deferred taxes, differs from the amount obtained by applying the Canadian statutory tax rate due to the following:

	September 30, 2021 March 31, 2021
Loss from continuing operations before taxes Canadian statutory tax rate Income tax recovery Foreign and provincial tax rate differences Items (deductible)/non-deductible for tax purposes Operating losses not set-up as deferred tax assets Future income tax recovery	$ (217,824) $ (952,903) 27.00% 27.00% $ (58,812) $ (257,284) (300) (886) 3,420 135,304 55,692 122,866 $ - $ -

Details of deferred income tax assets (liabilities) are as follows:

	September 30, 2021 March 31, 2021
Deferred income tax assets related to: Non-capital losses Intangible assets Total future income tax assets Valuation allowance Less deductible temporary differences for which deferred income tax assets are not recognized Net deferred income tax asset	$ 2,076,835 $ 2,021,142 80,977 83,914
	$ 2,157,812 $ 2,105,056 - -
	(2,157,812) (2,105,056)
	$ - $ -

As at September 30, 2021, the Company had non-capital losses in Canada of approximately $7,426,055 that may be applied against future income for income tax purposes. These losses expire at various dates between 2026 and 2042.

10. FINANCIAL INSTRUMENTS

a) Fair Value of Financial Instruments

The Company has classified its financial instruments using a fair value hierarchy that reflects the significance of inputs used as follows:

Level 1: Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Valuation based on directly or indirectly observable inputs in active markets for similar assets or liabilities, other than Level 1 prices, such as quoted interest or currency exchange rates;

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CONTAGIOUS GAMING INC. Notes to Consolidated Financial Statements For the Six Months Ended September 30, 2021 and 2020 Expressed in Canadian Dollars

10. FINANCIAL INSTRUMENTS – CONTINUED

Level 3: Valuation based on significant inputs that are not derived from observable market data, such as discounted cash flow methodologies based on internal cash flow forecasts.

The fair values of accounts receivable, accounts payable and accrued liabilities, note payable and balances with related parties approximate their carrying value due to their short term maturities.

There were no transfers between levels during the period.

b) Management of Risks Arising from Financial Instruments

The Company’s financial instruments are exposed to the following financial risks:

Credit risk

Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is exposed to credit risk from credit sales. The Company provides credit to its customers in the normal course of its operations and credit sales represent a significant portion of the Company’s sales activities. The Company does not obtain collateral or security to support trade receivables but mitigates this risk by granting credit only to financially reliable customers. An allowance for doubtful accounts is established using an expected credit loss model that is based upon factors surrounding the credit risk of specific accounts, historical trends and other information.

As of September 30, 2021, there was one trade receivables representing 100% of the total trade receivables (March 31, 2021 – one). There are no debtors past due as at September 30, 2021, and the Company’s estimated expected credit loss is insignificant.

Cash is spread across the Company with different institutions which helps to manage cash credit risk. Excess cash is held in Canadian Guaranteed Investment Certificates. The Company only engages banks with appropriate credit ratings.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly with respect to ensuring the sufficiency of funds for working capital and commitments. The Company monitors the maturity dates of existing accounts payables and accrued liabilities, loans payable, and commitments to mitigate this risk.

The following table outlines the remaining contractual maturities for the Company’s financial liabilities and the financial period in which they fall due:

iabilities and the financial period	in which they fall due:
March 31, 2021	2022 $	2023 $	2024 $	Total $
Accounts payable	829,970	-	-	829,970
Due to related parties	366,704	-	-	366,704
Note payable	300,000	-	-	300,000
	1,496,674	-	-	1,496,674
September 30, 2021	2022 $	2023 $	2024 $	Total $
Accounts payable	906,625	-	-	906,625
Due to related parties	499,269	-	-	499,269
Note payable	300,000	-	-	300,000
	1,705,894	-	-	1,705,894

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CONTAGIOUS GAMING INC. Notes to Consolidated Financial Statements For the Six Months Ended September 30, 2021 and 2020 Expressed in Canadian Dollars

11. NATURE OF EXPENSE

11. NATURE OF EXPENSE
	September 30, 2021 March 31, 2021 - 6,262 $ -$ 6,262
Salaries and benefits included in: General and administrative expense

12. CAPITAL MANAGEMENT

The Company’s capital management objectives are to ensure the Company’s ability to continue as a going concern and to grow the Company’s operations. The Company depends on revenue generated and external financing to fund its activities. The capital structure of the Company currently consists of common shares, share purchase warrants, loans payable and related party debt. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may arrange more loans, issue new shares through private placements, or sell assets to fund operations. Management reviews its capital management approach on a regular basis. The Company is not subject to externally imposed capital requirements. The Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly-rated financial instruments, such as cash and other short-term guaranteed deposits, all held with major financial institutions.

13. SEGMENTED INFORMATION

The Company is engaged in the business of developing software solutions for regulated gaming and lottery markets. Based on the Company’s organizational structure and the manner in which the operations are managed and evaluated by senior management, the Company is considered to be operating in one reportable segment. Substantially all of the Company’s revenues were generated in Canada.

14. EARNINGS/(LOSS) PER SHARE

The calculation of basic and diluted earnings (loss) per share has been calculated based on the weighted average number of common shares issued and outstanding during the reporting period.

Diluted and basic loss per share are the same because the effects of potential issuances of shares under stock options and warrants would be anti-dilutive.

15. SUBSEQUENT EVENTS

On July 14, 2021, the Company announced a non-brokered private placement of up to 20,000,000 units at $0.05 for gross proceeds of up to $1,000,000 (the “ Offering ”). Each Unit will consist of one common share in the capital of the Company (the “ Shares ”) plus one common share purchase warrant (the “ Warrants ”). Each Warrant will entitle the holder to purchase one additional Share at a price of $0.07 for a period of two years from the closing of the Offering.

On November 11, 2021, the Company announced that the Company is not proceeding with the private placement of 20,000,000 units at a price of $0.05 per unit for gross aggregate proceeds of up to $1,000,000 at this time.

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