Contagious Gaming Inc. — Management Reports 2020

Nov 14, 2020

CONTAGIOUS GAMING INC.

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2020 The following management discussion and analysis ("MD&A") provides a review of the Contagious Gaming Inc.'s (the "Company" or "Contagious Gaming") results of operations, financial condition and cash flows for the six months ended September 30, 2020. This MD&A has been prepared with an effective date of November 13, 2020 and should be read in conjunction with the information contained in the Company's unaudited condensed consolidated interim financial statements and related notes for the six months ended September 30, 2020, which were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The audited consolidated financial statements and additional information regarding the business of the Company are available at www.sedar.com.

For reporting purposes, the Company prepares consolidated financial statements in Canadian dollars. Unless otherwise indicated, all dollar (''$'') amounts in this MD&A are expressed in Canadian dollars. References to "GBP" or "₤" are to Pounds Sterling and references to ''USD'' are to U.S. dollars.

All references to we, our, us and Contagious Gaming refer to the Company, together with its consolidated operations controlled by it and its predecessors.

All references to management refer to the directors, senior officers and other officers of Contagious Gaming, unless otherwise stated. The Company's audit committee has reviewed this document and, prior to its release, the Contagious Gaming board of directors (Board of Directors) approved it, on the audit committee's recommendation.

Description of Business

The Company is in the business of developing software solutions for regulated gaming and lottery markets. The Company is currently focused on capitalizing on its proprietary digital instant lottery content. The Company is listed on the TSX Venture Exchange ("TSX.V") under the symbol "CNS" and on the Frankfurt Stock Exchange under the symbol "RHRC".

Events / Highlights Since the Reporting Date

The Company announced on July 21, 2020, Peter Glancy resigned as the Company's Chief Executive Officer. In addition, both Mr. Glancy and Charles Shin resigned from the Company's board of directors. The Company's board of directors appointed Craig Loverock as Interim Chief Executive Officer, and appointed Justin Barragan as a director.

On September 29, 2020 the Company announced that it intends to settle an aggregate of $378,560 of indebtedness owed to certain arm's length and non-arm's length creditors through the issuance of 10,816,000 common shares at a deemed issuance price of $0.035 per share. The Company determined to satisfy the indebtedness with common shares in order to preserve its cash for working capital. The shares will be issued upon acceptance by the TSX Venture Exchange ("TSXV).

Business Update

Outlook

The Company is focused on monetizing its digital lottery content and continue to seek opportunities to distribute into additional markets globally. It will continue to pursue opportunities to grow the business through strategic acquisitions or other transactions.

Selected Financial Information

The following table highlights key operating results for the current and comparative periods and shows a reconciliation of Contagious' reported results to adjusted non-IFRS measures for continuing operations. For definitions of Adjusted EBITDA, Adjusted Earnings (Loss) and Adjusted Earnings (Loss) per Share please refer to the "Non-IFRS Financial Measures" section of this MD&A.

	Three Months Ended
	September 30	September 30
	2020	2019
	$	$
Revenue	-	28,621
Net loss for the period	(159,527)	(119,656)
Financing costs	6,000	15,563
EBITDA	(153,527)	(104,093)
Adjusted EBITDA	(153,527)	(104,093)
Adjusted EBITDA per Share – basic and diluted	(0.01)	(0.00)
Net loss for the period	(159,527)	(119,656)
Financing costs	6,000	15,563
Adjusted Earnings (Loss)	(153,527)	(104,093)
Adjusted Earnings (Loss) per Share – basic and diluted	(0.01)	(0.00)

The Company generated nil revenue for the three months ended September 30, 2020 compared with $28,621 for the comparative period ended September 30, 2019. Adjusted EBITDA for the three months ended September 30, 2020 amounted to a loss of $153,527 compared to a loss of $104,093 for the three months ended September 30, 2019. The increase in the Adjusted EBITDA loss is primarily due to the decrease in revenue. The Adjusted Loss amounted to $153,527 or $0.01 per share for the three months ended September 30, 2020 compared to a loss of $104,093 or $0.00 per share for the three months ended September 30, 2019.

Discussion of Operations

	Three Months EndedSeptember 30		Six months EndedSeptember 30
	2020$	2019$	2020$	2019$
Revenue	-	28,621	-	57,374
ExpensesDirect development costs	-	16,518	-	34,003
General and administrative	153,431	115,943	255,096	256,677
Financing costs	6,000	15,563	12,000	31,740
Foreign exchange loss	96	253	355	123,818

For the quarter ended September 30, 2020, Contagious recorded a net loss of $159,527 compared with a net loss of $119,656 for the comparative period. The increase in net loss is mainly due to a decrease in revenue.

Revenue – The decrease in revenue of $28,621 for the three months ended September 30, 2020 is due to changes in third party contract requirements.

Direct development costs – The decrease in direct development costs for the three months ended September 30, 2020 of $16,518 is directly related to the decrease in third party revenue.

General and administrative expenses – The increase in general and administrative costs for quarter ending September 30, 2020 is related to an increase in professional fees.

Financing costs – The decrease in financing costs for the quarter ended September 30, 2020 are related to lower accretion expenses related to the note payable.

Summary of Quarterly Results

The following is a summary of the results from the eight previously completed financial quarters. In compliance with IFRS 5 disclosed is also the results from continuing operations only:

	Sept 302020$	June 302020$	March 312020$	Dec 312019$	Sept 302019$	June 302019$	March 312019$	Dec 31,2018$
Revenue	-	-	2,430	27,736	28,621	28,753	81,933	109,039
Net loss – asstated (i)	(159,527)	(107,924)	(146,591)	(164,941)	(119,656)	(269,241)	(48,272)	(93,789)
Net loss –continuing (i)	(159,527)	(107,924)	(146,591)	(164,941)	(119,656)	(131,784)	(139,221)	(119,362)
Net loss pershare – asstated (ii)	(0.01)	(0.00)	(0.00)	(0.01)	(0.00)	(0.01)	(0.00)	(0.00)
Net loss per	(0.01)	(0.00)	(0.00)	(0.01)	(0.00)	(0.01)	(0.00)	(0.00)
share (ii)

(i) For all of the above quarters with the exception of December 31, 2018 and September 30, 2018, the net loss is the result of fluctuations in the current level of third party development work. The net loss for the quarter ended December 31, 2018 is a result of the current level of third party development work and the decrease in general and administrative costs. Net loss for the quarter ended September 30, 2018 reflects the current level of third party development work and operating costs.

(ii) Net loss per share fluctuates from period to period and is impacted by the amount of loss incurred and the number of weighted average number of common shares outstanding.

Financial Condition, Liquidity and Capital Resources

	September 30, 2020	March 31, 2020
	$	$
Cash	77,631	143,716
Other current assets	24,356	13,572
Current liabilities	1,715,795	1,503,645
Current working capital (deficiency)	(1,613,808)	(1,346,357)

Assets – The decrease in cash of $66,085 since March 31, 2020 primarily relates to use of cash for operations.

The increase in other current assets of $10,784 since March 31, 2020 primarily relates to an increase in prepaid expenses of $5,181 and an increase in accounts receivable of $5,603.

Liabilities – The increase in current liabilities since March 31, 2020 primarily relates to an increase in accounts payable.

Working Capital – The increase in the current working capital deficiency is mainly due to the decrease in cash used in operations and the increase in current liabilities. The Company's current working capital is not considered sufficient to support its expected general administrative and corporate operating requirements on an ongoing basis for the next twelve months without additional financing.

Financing of Operations and Recent Financing – To date, Contagious has financed its operations through software development revenue, debt, equity and government assistance.

Liquidity Risk and Contractual Obligations – 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.

Liquidity Outlook

The Company's objective when managing capital is to maximize returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Company is not subject to externally imposed capital requirements.

The Company's cash reserves of $77,631 as at September 30, 2020 are insufficient to meet anticipated cash needs for working capital and capital expenditures through the next twelve months, nor are they sufficient to see the current initiatives through to completion. To the extent that the Company does not believe it has sufficient liquidity to meet its current obligations, management considers securing additional funds, primarily through the issuance of equity securities of the Company, to be critical for its needs. The Company's long-term liquidity depends on its ability to access the capital markets, which depends substantially on the success of the Company's ongoing programs, as well as economic conditions relating to the state of the capital markets generally. Further, there can be no assurance 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. Accessing the capital markets can be particularly challenging for companies that operate in the gaming industry.

Given the Company's conclusion about the insufficiency of its cash reserves, significant doubt may be cast about the Company's ability to continue operating as a going concern. The continuation of the Company as a going concern for the foreseeable future depends mainly on raising sufficient capital, and in the interim, reducing, where possible, operating expenses and potentially selling off assets. This outlook is based on the Company's current financial position and is subject to change.

Outstanding Share Data

The following table summarizes the maximum number of common shares potentially outstanding as at September 30, 2020 and as of the date of this MD&A if all outstanding warrants were exercised into common shares:

Fully diluted	29,284,835	29,284,835
Common sharesShare purchase warrants	29,284,835-	29,284,835-
	As of September30, 2020	As of the dateof this MD&A

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Related Party Transactions and Balances

For details please refer to Note 5 of the September 30, 2020 consolidated financial statements.

Future Changes in Significant Accounting Policies

For details please refer to Note 3 of the September 30, 2020 consolidated financial statements.

Financial Instruments and Other Instruments

For details please refer to Note 10 of the September 30, 2020 consolidated financial statements.

Risks and Uncertainties

Details of the risks and uncertainties related to the Company's business are set out in the Management Discussion and Analysis dated March 31, 2020 under the heading "Risk Factors" which is available under the Company's profile on SEDAR at www.sedar.com.

Commitments and Contingencies

For details please refer to Note 7 of the September 30, 2020 consolidated financial statements.

Non-IFRS Financial Measures

The following non-IFRS definitions are used in this MD&A because management believes that they provide useful information regarding our ongoing operations. Readers are cautioned that the definitions are not recognized measures under IFRS, do not have standardized meanings prescribed by IFRS, and should not be construed to be alternatives to revenues and net loss and comprehensive loss for the period determined in accordance with IFRS or as indicators of performance, liquidity or cash flows. Our method of calculating these measures may differ from the method used by other entities and accordingly our measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions.

• Adjusted EBITDA as defined by the Company means earnings before interest and financing costs (net of interest income), income taxes, amortization, depreciation, RTO public listing, stock based compensation, stock based marketing compensation, transaction costs, impairment loss, bargain purchase gain, movement in contingent consideration and irrecoverable taxes. Management believes that Adjusted EBITDA is a useful measure because it provides information to management about the operating and financial performance of the Company and its ability to generate operating cash flow to fund future working capital needs, service outstanding debt and fund future capital expenditures.

• Adjusted Earnings (Loss), as defined by the Company, means net income (loss) plus or minus items of note that management may reasonably quantify and that it believes will provide the reader with a better understanding of the Company's underlying business performance. For the purposes of the Company's current quarter MD&A, Adjusted Earnings (Loss) is calculated by adjusting net income (loss) for (i) financing costs related to extinguished debt, (ii) stock based compensation, (iii) stock based marketing compensation, (iv) RTO public listing, (v) transaction costs and (vi) acquisition related costs. Management believes that Adjusted Earnings (Loss) is an important indicator of the issuer's ability to generate liquidity through operating cash flow to fund future working capital needs, service outstanding debt and fund future capital expenditures and uses the metric for this purpose. Adjusted Earnings (Loss) is also used by investors and analysts for the purpose of valuing an issuer.
• Adjusted Earnings (Loss) per Share, as defined by the Company, means Adjusted Earnings (Loss) divided by the weighted average number of shares outstanding for the period. Management believes that Adjusted Earnings (Loss) is an important indicator of the issuer's ability to generate liquidity through operating cash flow to fund future working capital needs, service outstanding debt, and fund future capital expenditures and uses the metric for this purpose. Adjusted Earnings (Loss) per Share is also used by investors and analysts for the purpose of valuing an issuer.

The intent of Adjusted EBITDA, Adjusted Earnings (Loss) and Adjusted Earnings (Loss) per Share is to provide additional useful information to investors and analysts and these measures do not have any standardized meaning under IFRS. Adjusted EBITDA, Adjusted Earnings (Loss) and Adjusted Earnings (Loss) per Share should therefore not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Adjusted EBITDA, Adjusted Earnings (Loss) and Adjusted Earnings (Loss) per Share differently.

A reconciliation of the adjusted measures noted above is included in the "Discussion of Operations" section of this MD&A.

Forward Looking Statements

Certain information included in this discussion may constitute forward-looking statements. Readers are cautioned not to put undue reliance on forward-looking statements. These statements relate to future events or the Company's future performance, business prospects or opportunities. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These forward-looking statements include statements regarding the timing and amount of estimated future cash flows, capital expenditures, currency fluctuations and the requirements of future capital. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements contained into this report should not be unduly relied upon. These statements speak only as of the date of this report. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this report. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about:

• general business and economic conditions;
• the availability and reasonable terms to finance the Company;
• the ability to deliver compelling content, products and services in a highly competitive market; and
• the ability to attract and retain skilled staff

These forward-looking statements involve risks and uncertainties relating to, among other things, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government approvals, actual performance of facilities, equipment and processes relative to specifications and expectations and unanticipated impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors hereinabove. Additional risk factors are described in more detail hereinafter. Investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur. The Company cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on the Company's forwardlooking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. The forward-looking statements contained in this report are expressly qualified by this cautionary statement.

CORPORATE DIRECTORY

Trading Symbol – CNS Exchange - TSX-V

Contagious Gaming Inc.

#800 – 789 West Pender Street, Vancouver, BC, V6C 1H2

www.contagiousgaming.com info@contagiousgaming.com

Officers and Directors

Craig Loverock – Interim CEO, CFO and Corporate Secretary Victor Wells – Director Desmond Balakrishnan – Director Justin Barragan - Director

Audit Committee

Victor Wells (Chairman) Justin Barragan Desmond Balakrishnan

Compensation Committee

Victor Wells (Chairman) Desmond Balakrishnan Justin Barragan

Corporate Governance Committee

Desmond Balakrishnan (Chairman) Justin Barragan Victor Wells

Legal Counsel

McMillan LLP Suite 1500 - 1055 West Georgia Street Vancouver, BC V6E 4N7 Tel: 604-689-9111 Fax: 604-685-7084

Auditor

BDO Canada LLP 60 Columbia Way, Suite 300 Markham, On, Canada L3R 0C9 Tel: 905-946-1066

Transfer Agent

Computershare 2nd Floor, 510 Burrard Street Vancouver, BC V6C 3B9 Tel: 604-661-9400 Fax: 604-661-9549