Playgon Games Inc. — Audit Report / Information 2020

Apr 30, 2021

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PLAYGON GAMES INC. (formerly Global Daily Fantasy Sports Inc.) Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

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Independent Auditor's Report

To the Shareholders of Playgon Games Inc. (formerly Global Daily Fantasy Sports Inc.)

Opinion

We have audited the consolidated financial statements of Playgon Games Inc. (formerly Global Daily Fantasy Sports Inc.) (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31, 2019, and the consolidated statements of loss and comprehensive loss, consolidated statements of changes in shareholders' deficiency and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and December 31, 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company recorded a net loss of $ 6,391,317 and, as at December 31, 2020, the Company had an accumulated deficit of $ 30,022,025 and a working capital deficit of $ 1,872,784. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information comprises the information included in Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

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Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the 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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 Canadian generally accepted auditing standards 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 consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor's report is Trevor Nakanishi.

"D&H Group LLP"

Vancouver, B.C. April 26, 2021

Chartered Professional Accountants

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Consolidated Statements of Financial Position (Expressed in Canadian Dollars)

		December 31,	December 31,
	Note	2020	2019
		$	$
ASSETS
Current assets
Cash	16	781,456	90,292
Amounts receivable		7,482	23,508
Sales tax receivable		134,125	64,929
Prepaids		159,283	5,632
Other assets	4	445,749	67,865
		1,528,095	252,226
Security deposit		85,466	-
Property and equipment	5	1,005,866	1,153
Intangible assets	6	10,953,174	-
Right-of-use asset	7	109,204	-
		13,681,805	253,379
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	8	2,476,255	1,105,377
Loans payable	9	764,750	300,000
Purchase obligation payable		37,479	35,054
Current portion of lease liability	7	122,395	-
		3,400,879	1,440,431
Long-term debt	10	1,220,477	-
		4,621,356	1,440,431
SHAREHOLDERS' DEFICIENCY
Share capital	11	36,135,666	21,026,969
Reserves	11	2,827,012	1,416,687
Shares to be issued		21,500	-
Accumulated other comprehensive loss		98,296	-
Accumulated deficit		(30,022,025)	(23,630,708)
		9,060,449	(1,187,052)
		13,681,805	253,379

Nature and continuance of operations (Note 1) Subsequent Events (Note 16)

Approved on behalf of the Board of Directors on April 26, 2021:

/s/ Darcy Krogh /s/ Mike Marrandino Darcy Krogh Mike Marrandino Director Director

The accompanying notes are an integral part of these consolidated financial statements.

Page 1

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Consolidated Statements of Loss and Comprehensive Loss (Expressed in Canadian Dollars)

		Year Ended December 31,	Year Ended December 31,
	Note	2020	2019
		$	$
Sales		-	50,789
Operating expenses
Amortization of intangible assets	6	1,325,087	-
Advertising and promotion		642,306	-
Bad debts		11,442	-
Consulting fees		542,972	941,252
Data access fees		125,072	157,860
Depreciation	5,7	275,445	2,016
Interest and bank charges		131,065	7,060
Management and directors fees	12	562,242	616,156
Other general and administrative expenses		198,303	39,385
Professional fees		424,338	193,176
Regulatory and shareholder services		40,767	25,336
Rent	7	96,249	45,975
Salaries and benefits		704,734	255,088
Share-based compensation (recovery)	11	1,278,659	(7,657)
Travel (recovery)		(6,651)	32,853
		6,352,030	2,308,500
Loss before other income (expenses)		(6,352,030)	(2,257,711)
Other income (expenses)
Interest income		12,143	1,893
Foreign exchange gain (loss)		(60,421)	7,847
Government grant		10,000	-
Loss on disposal of property and equipment	5	(1,009)	(10,454)
		(39,287)	(714)
Loss for the year		(6,391,317)	(2,258,425)
Foreign currency translation
adjustment		(98,296)	-
Comprehensive loss for theyear		(6,489,613)	(2,258,425)
Basic and diluted loss per common share		(0.05)	(0.03)
Weighted average number of common shares
outstanding
Basic and diluted		130,362,116	69,542,224

The accompanying notes are an integral part of these consolidated financial statements.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Consolidated Statements of Cash Flows (Expressed in Canadian Dollars)

	Year Ended	December 31,
	2020	2019
	$	$
Cash flows provided by (used in) operating activities
Loss for the year	(6,391,317)	(2,258,425)
Items not affecting cash:
Accrued interest expense	97,070	-
Amortization of intangible assets	1,325,087	-
Bad debt	11,442	-
Depreciation	275,445	2,016
Share-based compensation	1,278,659	(7,657)
Loss on disposal of assets	1,009	10,454
Unrealized foreign exchange	(70,546)	-
Changes in non-cash working capital:
Amounts receivable	10,733	56,186
Sales tax receivable	(18,244)	(13,546)
Prepaids	(152,815)	50,448
Other assets	(373,878)	4,682
Accounts payable and accrued liabilities	190,482	427,419
	(3,816,873)	(1,728,423)
Cash flows provided by (used in) investing activities
Cash acquired from asset acquisition	30,206	-
Acquisition of property and equipment	(615,924)	-
Development costs	(607,003)
	(1,192,721)	-
Cash flows provided by (used in) financing activities
Loan proceeds	199,750	300,000
Loan repayments	(310,000)	-
Interest paid on loans	(20,869)	-
Long-term debt proceeds	40,000	-
Long-term debt repayments	(30,000)	-
Repayment of lease liability	(77,387)	-
Shares issued for cash	5,749,738	1,249,985
Share issuance costs	(827,500)	-
Shares to be issued	21,500
Warrants exercised	818,125	-
	5,563,357	1,549,985
Effect of foreign exchange on cash	137,401	-
Change in cash during the year	691,164	(178,438)
Cash, beginning of year	90,292	268,730
Cash, end ofyear	781,456	90,292
Supplemental disclosure with respect to cash flows(Note 14)

The accompanying notes are an integral part of these consolidated financial statements.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Consolidated Statements of Changes in Shareholders’ Deficiency (Expressed in Canadian Dollars)

						Accumulated
			Shares			Other
			to be	Share		Comprehensive
	Shares	Amount	issued	Subscriptions	Reserves	Loss	Deficit	Total
		$	$	$	$	$	$	$
Balance, December 31, 2018	59,374,005	19,526,984	-	250,000	1,424,344	-	(21,372,283)	(170,955)
Shares issued for cash	15,000,000	1,499,985	-	(250,000)	-	-	-	1,249,985
Share-based compensation	-	-	-	-	(7,657)	-	-	(7,657)
Loss for the year	-	-	-	-	-	-	(2,258,425)	(2,258,425)
Balance, December 31, 2019	74,374,005	21,026,969	-	-	1,416,687	-	(23,630,708)	(1,187,052)
Shares issued per acquisition
agreement	63,333,333	9,500,000	-	-	-	-	-	9,500,000
Shares issued for cash	38,331,588	5,749,738	-	-	-	-	-	5,749,738
Shares issued for agent's fees	96,960	14,544	-	-	-	-	-	14,544
Share issue costs	-	(973,710)	-	-	131,666	-	-	(842,044)
Warrant exercised	4,025,000	818,125	-	-	-	-	-	818,125
Shares to be issued	-	-	21,500	-	-	-	-	21,500
Share-based compensation	-	-	-	-	1,278,659	-	-	1,278,659
Foreign exchange on
translation	-	-	-	-	-	98,296	-	98,296
Loss for the year	-	-	-	-	-	-	(6,391,317)	(6,391,317)
Balance, December 31, 2020	180,160,886	36,135,666	21,500	-	2,827,012	98,296	(30,022,025)	9,060,449

The accompanying notes are an integral part of these consolidated financial statements.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS

Playgon Games Inc. (“Playgon”) (formerly Global Daily Fantasy Sports Inc.) was incorporated on December 2, 1985 under the laws of the Province of British Columbia. All references in this document to the “Company” refer to Playgon Games Inc. and its wholly owned subsidiaries. The Company is listed and traded on the TSX Venture Exchange (“TSXV”) under the symbol “DEAL”. The Company’s principal office is located at #656 - 1500 West Georgia Street, Vancouver, British Columbia, V6G 2Z6, Canada.

The Company’s principal business is the development and licensing of digital content for the growing iGaming market. The Company provides a multi-tenant gateway that allows online operators the ability to offer their customers innovative iGaming software solutions. Its current software platform includes Live Dealer Casino, E-Table games and Daily Fantasy Sports which, through a seamless integration at the operator level, allows customer access without having to share or compromise any sensitive customer data.

On June 19, 2020, the Company purchased 100% of the outstanding shares of Playgon Interactive Inc. (“Playgon Interactive”), a company existing under the laws of the Province of British Columbia. Playgon Interactive is in the business of developing online multi-player Live Dealer Casino and E-Table games that streams live casino games with dealers to online players. The acquisition of Playgon Interactive is being accounted for as an asset acquisition under IFRS 3 as Playgon Interactive did not meet the definition of a business (Note 3).

The Company’s operations have been primarily funded from equity financings, which are dependent upon many external factors and may be difficult to secure or raise when required on terms acceptable to the Company or at all. As at December 31, 2020, the Company has a working capital deficit of $1,872,784 (December 31, 2019 - $1,188,205) and an accumulated deficit of $30,022,025 (December 31, 2019 - $23,630,708). The Company recognizes that its objectives and scope of expenditures may change with ongoing results and, as a result, it may be required to obtain additional financing. While the Company has been successful in securing financing in the past, there can be no assurance that it will be able to do so in the future.

On March 11, 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. In order to combat the spread of COVID-19 governments worldwide, including Canada, have enacted emergency measures including travel bans, legally enforced or self-imposed quarantine periods, social distancing and business and organization closures. These measures will have a significant, negative effect on the economy of all nations for an undeterminable period of time, the extent of which is also uncertain. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. If for any reason the Company is unable to continue as a going concern, it could impact the Company’s ability to realize assets at their recognized values and to meet its liabilities in the ordinary course of business at the amounts stated in the consolidated financial statements.

These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the significant accounting policies used in the preparation of these consolidated financial statements.

Statement of compliance

These consolidated financial statements are audited and have been prepared in accordance with IFRS issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

Adoption of New Accounting Standards

Business combinations

On January 1, 2020, the Company adopted the amendments to IFRS 3 Business Combinations . The amendment:

• clarifies minimum requirements to be a business,

• clarifies market participants ability to replace missing elements,

• clarifies the assessment of whether an acquired process is substantive,

• narrows the definition of outputs, and

• provides for an optional concentration test which is met if substantially all of the fair value of the gross net assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

Basis of presentation

The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, except for certain financial assets and liabilities that are measured at fair value. The consolidated financial statements are presented in Canadian dollars unless otherwise noted.

Basis of consolidation

These consolidated financial statements include the accounts of the Company and its subsidiaries at the end of the reporting period as follows:

Incorporation	Percentage owned
	2020 2019
Playgon Interactive Inc. Canada Companies owned by Playgon Interactive Cleebo Games Inc. Canada Bitrate Productions (“Bitrate”) USA GDFSI Malta Holding Limited Malta Companies owned by GDFSI Malta Holding Limited GDFSI Malta Limited Malta	100% 100% 100% - 100% - 100% 100% 100% 100%

On June 19, 2020, the Company acquired 100% of the shares of Playgon Interactive, a corporation incorporated under the laws of the Province of British Columbia (Note 3).

All significant intercompany accounts and transactions between the Company and its subsidiary have been eliminated upon consolidation.

Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

Cash and Cash Equivalents

Cash includes cash on hand and demand deposits. Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. The Company is not exposed to significant credit or interest rate risk although cash is held in excess of federally insured limits with a major financial institution. As at December 31, 2020 and 2019, the Company did not have any cash equivalents.

Foreign currency translation

The functional currency of an entity is the currency of the primary economic environment in which the entity operates. The functional currency of Playgon and its subsidiaries is the CAD with the exception of Bitrate which has a functional currency of the USD. The functional currency determinations were conducted through an analysis of the consideration factors identified in IAS 21, The Effects of Changes in Foreign Exchange Rates .

Transactions in currencies other than CAD are recorded at exchange rates prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the period end exchange rate while non-monetary assets and liabilities in foreign currencies are translated at historical rates. Revenues and expenses are translated at the average exchange rates approximating those in effect during the reporting period.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company’s USD operations are translated into CAD at the exchange rate at the reporting date. The income and expenses are translated using average rate. Foreign currency differences that arise on translation for consolidation purposes are recognized in other comprehensive loss.

Property and equipment

Property and equipment is stated at historical cost less accumulated amortization and accumulated impairment losses.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of loss and comprehensive loss during the financial period in which they are incurred.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in profit or loss.

Amortization is charged to earnings over the estimated useful lives using the declining balance method or straight-line basis as follows:

Computers	55%
Computer software	100%
Furniture and equipment	20%
Other equipment	20%
Leasehold improvements	5 years

In the year of acquisition, amortization is charged at one-half the above rates.

Property and equipment acquired during the year but not placed into use are not amortized until they are placed into use.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

Intangible asset

Intangible assets are carried at cost, less accumulated depreciation and accumulated impairment losses. Intangible assets consist of licenses and costs incurred to develop software platforms and internet websites and mobile phone applications to promote, advertise and earn revenue with respect to the Company’s business operations. Costs are capitalized when the expenditure can be directly attributed or allocated on a reasonable and consistent basis and was incurred for its intended use in accordance with IFRS, and in accordance with IAS 38, Intangible Assets, as issued by the IASB. Content developed for advertising or promoting is recognized as an expense when incurred.

Intangible assets acquired in business combinations and pursuant to asset purchases are recorded at their fair values. Intangible assets consist of licenses and costs incurred to develop software platforms and internet websites and mobile phone applications to earn revenue with respect to the Company’s business operations.

Development expenditures, including the cost of material, direct labour and other direct costs are recognized as an intangible asset when the following recognition requirements are met:

• the development costs can be measured reliably;

• the project is technically and commercially feasible;

• the Company intends to and has sufficient resources to complete the project;

• the Company has the ability to use or sell the asset, and

• the asset will generate probable future economic benefits.

Intangible assets being developed are amortized once development is complete and the asset starts to generate income.

The Company’s intangible asset has a finite life and is being amortized using the straight-line method over 5 years. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Government grants

The Company claims investment tax credits as a result of research and development. Investment tax credits are recognized against the related asset when they have been realized.

Impairment of Non-financial Assets

The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If indicators exist, then the asset’s recoverable amount is estimated. The recoverable amounts of the following types of intangible assets are measured annually whether or not there is any indication that it may be impaired:

• (i) an intangible asset with an indefinite useful life; and (ii) an intangible asset not yet available for use.

The recoverable amount of an asset or CGU is the greater of its value in use (“VIU”) and its fair value less costs to sell (“FVLCS”). In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

The Company’s assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the consolidated statement of comprehensive loss.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

In respect of assets other than intangible assets that have indefinite useful lives, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed in a subsequent period when there has been an increase in the recoverable amount of a previously impaired asset or CGU. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Financial Instruments

Classification

The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (“FVOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.

Measurement

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

Financial assets and liabilities carried at FVTPL are initially recorded at fair value. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in profit or loss in the period in which they arise.

Financial assets and liabilities carried at FVOCI are initially recorded at fair value. Unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVOCI are included in compressive income or loss in the period in which they arise.

Impairment of Financial Assets at Amortized Cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. Regardless of whether credit risk has increased significantly, the loss allowance for trade receivables without a significant financing component classified at amortized cost, are measured using the lifetime expected credit loss approach. The Company shall recognize in the statements of net (loss) income, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

Derecognition

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the statements of net (loss) income.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

Impairment of Financial Assets

At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, an impairment loss is recognized in the consolidated statement of comprehensive loss.

Impairment losses on financial assets carried at amortized cost, including loans and receivables, are calculated as the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.

Share Capital

Common shares issued by the Company are classified as equity. Costs directly attributable to the issue of common shares, share purchase warrants and share options are recognized as a deduction from equity, net of any related income tax effects.

Equity Financing

The Company engages in equity financing transactions to obtain the funds necessary to continue operations. These equity financings transactions may involve issuance of common shares or units. Units typically comprise a certain number of common shares and share purchase warrants. Depending on the terms and conditions of each equity financing transaction, the warrants are exercisable into additional common shares at a price prior to expiry as stipulated by the terms of the transaction. The Company has adopted the residual value method with respect to the allocation of proceeds received on sale of units to the underlying common shares and share purchase warrants issued as private placement units. The fair value of the common shares issued in private placements is determined by the closing quoted bid price on the announcement date. The balance, if any, is allocated to the attached share purchase warrants.

Share-Based Payment Transactions

The share option plan allows Company employees and consultants to acquire shares of the Company. The fair value of share options granted is recognized as a share-based compensation expense with a corresponding increase in the equity settled share-based payments reserve in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee.

For employees the fair value is measured at grant date and each tranche is recognized on a straight-line basis over the period during which the share options vest. The fair value of the share options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the share options were granted.

At the end of each reporting period, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest.

Equity-settled share-based payment transactions with non-employees are measured at the fair value of the goods or services received. However, if the fair value cannot be estimated reliably, the share-based payment transaction is measured at the fair value of the equity instruments granted at the date the Company receives the goods or the services.

Current and Deferred Income Taxes

Income tax expense comprises current and deferred tax. Income tax is recognized in the statement of comprehensive loss, except to the extent that it relates to items recognized in other comprehensive loss or

Page 10

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

directly in equity. In this case the income tax is also recognized in other comprehensive loss or directly in equity, respectively.

Current Income Tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the statement of financial position date in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred Income Tax

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Loss Per Share

Basic loss per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted loss per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on loss per share earnings. The Company computes the dilutive impact of common shares assuming the proceeds received from the pro forma exercise of in-themoney share options and warrants are used to purchase common shares at average prices.

Revenue Recognition

Revenue is recognized only when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the entity.

Provisions

A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount, which is determined on a cost recovery basis.

Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of

Page 11

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement exists, and if the Company has the right to direct the use of the asset. At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative standalone prices.

As a lessee, the Company recognizes a right-of-use asset and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.

The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

Use of Estimates

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expense during the reporting period. Actual outcomes could differ from these estimates. These financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimates are revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectation of future events that are believed to be reasonable under the circumstances.

The following are critical judgments and estimations that management has made in the process of applying accounting policies that have the most significant effect on the amounts recognized in the financial statements:

Functional currency

As at December 31, 2020, the functional currency of the Playgon and its subsidiaries is the Canadian dollar (“CAD”) with the exception of Bitrate which has a functional currency of the United States dollar (“USD”). In determining the functional currency, management considered the currency that mainly influences the cost of providing goods and services in each jurisdiction in which the Company operates. As no single currency was clearly dominant the Company also considered secondary indicators including the currency in which funds from financing activities are denominated and the currency in which funds are retained.

Financial instruments

The determination of categories of financial assets and financial liabilities has been identified as an accounting policy which involves judgments or assessments made by management.

Income taxes

In assessing the probability of future taxable income in which deferred tax assets can be utilized, management makes estimates of future profits or losses adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.

Valuation of share-based compensation and investment in warrants

The Company uses the Black-Scholes Option Pricing Model for valuation of share-based compensation and other equity-based payments. Option pricing models require the input of subjective assumptions

Page 12

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

including expected price volatility, interest rate, and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and equity reserves.

Economic recoverability and probability of future economic benefits of intangible assets and amortization Management has determined that intangible asset costs incurred which were capitalized may have future economic benefits and may be economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefits including anticipated cash flows and estimated economic life. The amortization expense related to intangible assets is determined using estimates relating to the useful life of the intangible asset.

Valuation of right-of-use asset and lease liabilities

The application of IFRS 16 requires the Company to make judgements that affect the valuation of the rightof-use assets and the valuation of lease liabilities. These including assessing lease agreements to determine the contract term and interest rate used for discounting of future cash flows.

The lease term determined by the Company is comprised of the non-cancellable period of lease agreements, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

The present value of the lease payment is determined using a discount rate representing the rate of a commercial mortgage rate, observed in the period when the lease agreement commences or is modified.

3. ACQUISITION

On June 19, 2020, the Company acquired 16,850,447 (100%) common shares of Playgon Interactive through the issuance of 63,333,333 common shares of the Company at $0.15 per common share for a total value of $9,500,000. The acquisition has been treated as an acquisition of an intangible asset.

The assets and liabilities of Playgon Interactive and its subsidiaries on acquisition were as follows:

The assets and liabilities of Playgon Interactive and its subsidiaries	on acquisition were as follows:
	$
Cash	30,206
Amounts receivable	7,482
Sales tax receivable	50,952
Prepaids	836
Security deposit	91,205
Property and equipment	631,816
Intangible assets	399,923
Right-of-use asset	186,459
Accounts payable and accrued liabilities	(1,125,107)
Loans payable	(560,000)
Long-term debt	(1,280,775)
Lease liability	(204,332)
Net liabilities	(1,771,335)

The total consideration for the acquisition was as follows:

The total consideration for the acquisition was as follows:
	$
Value of common shares issued	9,500,000
Net liabilities acquired	1,771,335
Total consideration	11,271,335

Page 13

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

The total consideration for the acquisition of Playgon Interactive and its subsidiaries has been added to intangible assets (Note 6).

4. OTHER ASSETS

In October 2018 the Company’s bank in Malta, Satabank, was directed by the Malta Financial Services Authority (MFSA) to refrain, cease and desist from taking further deposits into the accounts of its current customers. The MFSA also retained Ernst & Young LLP, to take charge of the bank’s assets for the purpose of safeguarding the interests of depositors and to assume control of the bank’s business. The Company has 46,047 euro (CAD$71,871) (December 31, 2019 - 46,489 euro (CAD$67,865)) in a bank account (2019 – two bank accounts) at Satabank and is in the process of transferring these funds to a new bank in Malta. As the funds are not currently available, the cash amount has been categorized as “Other assets” in the consolidated statement of financial position. Dialogue with Satabank is ongoing and the Company anticipates release in full of these funds in 2021.

On December 14, 2020, Devkey Consulting Limited (“Devkey”), a company controlled by the former CFO of Playgon Paul Dever, initiated a civil claim against the Company in the Supreme Court of British Columbia (the “Court”) for failure to pay monthly fees and invoiced expenses from July 2018 to August 2020 and an unpaid severance amount upon termination of his consulting contract. The claim was for €231,569 (CAD - $373,613) and on December 16, 2020, the Court ordered the full amount claimed be garnished from the Company and paid into court until a judgement on the claim is reached. The Company has retained legal counsel regarding this matter and strongly believes the garnishment order will be lifted. As at December 31, 2020, the Company has recorded the full amount of the garnishment as “Other Assets” on the consolidated statement of financial position.

Page 14

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

5. PROPERTY AND EQUIPMENT

			Furniture
		Computer	and	Other	Leasehold
	Computers	Software	Equipment	Equipment	Improvements	Total
	$	$	$	$	$	$
Cost:
At December 31, 2018	-	-	24,854	-	-	24,854
Disposals	-	-	(16,202)	-	-	(16,202)
At December 31, 2019	-	-	8,652	-	-	8,652
Acquired on
acquisition (Note 3)	14,619	4,494	336,117	86,714	189,872	631,816
Additions	35,268	-	-	154,876	425,780	615,924
Disposals	-	-	(8,652)	-	-	(8,652)
Net exchange
differences	(1,213)	-	(19,388)	(10,069)	(11,949)	(42,619)
At December 31, 2020	48,674	4,494	316,729	231,521	603,703	1,205,121
Amortization:
At December 31, 2018	-	-	11,231	-	-	11,231
Additions	-	-	2,016	-	-	2,016
Disposals	-	-	(5,748)	-	-	(5,748)
At December 31, 2019	-	-	7,499	-	-	7,499
Additions	17,390	698	62,493	31,418	95,641	207,640
Disposals	-	-	(7,643)	-	-	(7,643)
Net exchange
differences	(258)	-	(1,709)	(833)	(1,086)	(3,886)
At December 31, 2020	17,132	698	60,640	30,585	94,555	203,610
Net book value:
At December 31, 2019	-	-	1,153	-	-	1,153
At December 31, 2020	31,542	3,796	256,089	200,936	509,148	1,001,511

Page 15

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

6. INTANGIBLE ASSETS

	Gaming Platform
	$
Cost:
At December 31, 2018 and 2019	-
Acquired on acquisition (Note 3)	11,671,258
Internallydeveloped additions	607,003
At December 31, 2020	12,278,261
Amortization:
At December 31, 2018 and 2019	-
Additions	1,325,087
At December 31, 2020	1,325,087
Net book value:
At December 31, 2019	-
At December 31, 2020	10,953,174

Gaming Platform

Upon completion of the Playgon Interactive Inc. acquisition the Company allocated $11,671,258 of acquisition costs to intangible assets related to Playgon Interactives Gaming Platform. The multi-tenant B2B gateway allows operators the ability to offer their customers innovative iGaming software solutions including Live Dealer Casino and E-table games.

7. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

Right-of-use asset

	Office Lease
	$
Cost:
At December 31, 2019	-
Acquired on acquisition (Note 3)	186,459
Net exchange difference	(11,733)
At December 31, 2020	174,726
Depreciation:
At December 31, 2019	-
Additions	67,805
Net exchange differences	(2,283)
At December 31, 2020	65,522
Net book value:
At December 31, 2019	-
At December 31, 2020	109,204

Depreciation of right-of-use assets is calculated using the straight-line method over the remaining lease term.

Page 16

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

Lease liability

At the date of recognition, the lease liability was measured at the present value of the lease payments that were not paid at that date. The lease payments are discounted using an interest rate of 7%. The continuity of the lease liabilities is presented in the table below:

	December 31,
	2020
	$
Balance, beginning of period	-
Acquired on acquisition (Note 3)	204,332
Lease payments	(77,387)
Interest expense	5,912
Net exchange difference	(10,462)
	122,395
Less: current portion of lease liability	(122,395)
Non-currentportion of lease liability	-
The remaining minimum future lease payments, excluding estimated	operating costs, for the term of the
lease including assumed renewal periods are as follows:
January1,2021 to December 31,2021	$126,378(US$99,261)

The remaining minimum future lease payments, excluding estimated operating costs, for the term of the lease including assumed renewal periods are as follows:

In addition, not included in lease liabilities, the Company also paid an aggregate amount of $7,471 and $63,272 for short-term leases, respectively.

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31,	December 31,
	2020	2019
	$	$
Accounts payable	2,224,893	979,246
Accrued liabilities	44,066	37,670
Payroll taxes payable	131,138	88,461
Accrued interest payable (Note 10)	76,158	-
	2,476,255	1,105,377

Page 17

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

9. LOANS PAYABLE

	Third Party
	Loans
	$
Balance, December 31, 2018	-
Advance	300,000
Balance, December 31, 2019	300,000
Advance	199,750
Acquired on acquisition (Note 3)	560,000
Repayment - cash	(310,000)
Interest	15,000
Balance, December 31, 2020	764,750

Third Party Loans

As at December 31, 2020, the Company owes various third party lenders $764,750. The loans are secured by assets of the Company with due dates ranging from demand loans to periods of one year and interest rates ranging from 7% to 12% per annum. As at December 31, 2020, the amount outstanding was due on demand and incurred interest of 12% per annum. Interest of $25,926 (December 31, 2019 - $Nil) remains outstanding and is included in accounts payable and accrued liabilities.

10. LONG-TERM DEBT

	Third Party Loans	CEBA	Total
	$	$	$
Balance, December 31, 2018 and 2019	-	-	-
Advance	-	40,000	40,000
Acquired on acquisition (Note 3)	1,250,775	30,000	1,280,775
Repayment – cash	-	(30,000)	(30,000)
Foreign exchange adjustment	(70,298)	-	(70,298)
Balance, December 31, 2020	1,180,477	40,000	1,220,477

Third Party Loans

As at December 31, 2020 the Company has $133,660 and US$822,194 (CAD $1,046,818) owing to various third party lenders. The loans are secured by assets of the Company and bear interest at 5% per annum. The loan repayment schedule is based on an amount equal to 25% of the free cash flow of the Company, that is cash flow generated by operations after deducting all expenditures (“Available Cash Flow”). Additionally, in the event the Company completes a financing of $5,000,000 or greater the loan amounts become due on demand. As at December 31, 2020, the Company does not expect to have Available Cash Flow, over the next twelve months, for the purposes of debt repayments and accordingly, has recorded the debt as a long-term liability. The Company evaluates the likelihood of having Available Cash Flow for debt repayments on a quarterly basis. Interest of $50,232 (December 31, 2019 - $Nil) remains outstanding and is included in accounts payable and accrued liabilities.

Canada Emergency Business Account

As at December 31, 2020, the Company owes the Government of Canada $40,000 in relation to two loans received under the Canada Emergency Business Account (“CEBA”) program. The CEBA loans are interest

Page 18

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

free and mature December 31, 2022. Should the Company repay the balance of the loans before the maturity date, 25% of the loan will be forgiven.

During the year ended December 31, 2020, the Company received $80,000 in CEBA loans of which $30,000 has been repaid and $10,000 is a government grant.

11. SHARE CAPITAL AND RESERVES

Authorized share capital

The Company is authorized to issue an unlimited number of common shares without par value.

Issued share capital

During the year ended December 31, 2020:

• the Company issued 63,333,333 common shares at $0.15 per common share for a total value of $9,500,000 for the acquisition of Playgon Interactive (Note 3). Pursuant to the terms of the Playgon Acquisition 4,608,891 Common Shares (the “Indemnity Escrow Consideration Shares”), were placed in escrow to satisfy any indemnity claims. Subject to the satisfaction of any agreed claims under the purchase agreement, 50% of the Indemnity Escrow Consideration Shares will be released to certain selling shareholders on the one-year anniversary of the closing date of the Playgon Acquisition and the balance will be released on the 18-month anniversary of the closing date of the Playgon Acquisition. In addition, 41,480,009 common shares of the Company (the “Release Escrow Consideration Shares”) will be subject to resale restrictions, such that 12.5% of the Release Escrow Consideration Shares shall be released for sale on a quarterly basis following the initial six-month anniversary of the closing date of the Playgon Acquisition. If the aggregate of indemnity claims exceeds the number of Indemnity Escrow Consideration Shares multiplied by $0.15 per share, the Release Escrow Consideration Shares shall also be subject to recovery by the Company to a maximum indemnity cap of $5,000,000. As of December 31, 2020, 5,185,003 of the Release Escrow Consideration Shares have been released.

• the Company completed a brokered private placement of 38,331,588 units at a price of $0.15 per unit for gross proceeds of $5,749,738 (“June 2020 PP”). Each unit consists of one common share and one common share purchase warrant exercisable for an 18-month period at an exercise price of $0.215 per warrant. The Company fair valued the warrants at $nil, using the residual value method. In connection with this private placement, the Company incurred agent fees of $364,656, agents’ expenses of $119,033, regulatory and other fees of $72,249, legal fees of $271,562, issued 96,960 common shares valued at $14,544 to the agent, and issued 1,171,866 agent warrants at a value of $131,666 with each agent warrant being exercisable for an 18-month period at an exercise price of $0.15 per warrant.

• During the year ended December 31, 2020, 4,025,000 warrants were exercised for gross proceeds of $818,125.

During the year ended December 31, 2019:

• the Company completed a first tranche of a non-brokered private placement of 11,600,000 units at a price of $0.10 per unit for gross proceeds of $1,159,985. Each unit consisted of one common share of the Company and one non-transferable common share purchase warrant. Each warrant entitles, subject to accelerated vesting in certain circumstances, the holder to purchase an additional common share of the Company at an exercise price of $0.20 per until April 4, 2020. In addition, the Company completed a second tranche of a non-brokered private placement of 3,400,000 units at a price of $0.10 per unit for gross proceeds of $340,000. Each unit consisted of one common share of the Company and one non-transferable common share purchase warrant. Each warrant entitled the holder to purchase an additional common share of the Company at an exercise price of $0.20 per until July 17, 2020. On July 17, 2020, 250,000 warrants expired unexercised.

Page 19

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

Share options

The Company has established a rolling share option plan (the “Plan”), in which the maximum number of common shares which can be reserved for issuance under the Plan is 10% of the issued and outstanding shares of the Company. The minimum exercise price of the options is set at the Company’s closing share price on the day before the grant date, less allowable discounts in accordance with the policies of the TSXV. The vesting provisions are determined by the Board of Directors and, unless otherwise stated, fully vest when granted.

During the year ended December 31, 2020, the Company granted 11,625,000 share options to various directors, consultants, and employees of the Company with a total fair value of $2,966,007. Of the options granted, 2,600,002 vested on grant date, 3,441,671 vest on the first anniversary of the grant, 3,508,334 vest on the second anniversary of the grant, and 1,241,661 vest on the third anniversary of the grant, 499,999 vest on the fourth anniversary of the grant and 333,333 vest on the fifth anniversary of the grant. During the year ended December 31, 2020, the Company recorded share-based compensation of $1,278,659 in relation to these options.

No options were granted during the year ended December 31, 2019.

Option-pricing models require the use of estimates and assumptions including the expected volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide a reliable measure of the fair value of the Company’s share options.

The following weighted average assumptions were used in the Black-Scholes option-pricing model for the valuation of the share options granted:

	December 31,	December 31,
	2020	2019
Risk-free interest rate	0.36%	-
Dividend yield	Nil	Nil
Expected life	5.06 years	-
Volatility	130.74%	-
Weighted average fair valueper options	0.25	-

Share option transactions are summarized as follows:

		Weighted
	Number of	Average
	Share Options	Exercise Price
		$
Balance, December 31, 2018	2,825,000	0.45
Forfeited	(533,337)	0.42
Balance, December 31, 2019	2,291,663	0.45
Granted	11,625,000	0.30
Forfeited	(183,336)	0.48
Expired	(508,327)	0.48
Balance, December 31, 2020	13,225,000	0.32
Unvested	(9,091,666)	0.30
Exercisable, December 31, 2020	4,133,334	0.36

Page 20

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

A summary of the share options outstanding and exercisable at December 31, 2020 is as follows:

Number of Share	Number of Share
Options	Options	Exercise
Outstanding	Exercisable	Price	Expiry Date
		$
1,400,000	1,400,000	0.48	September 12, 2022
200,000	133,332	0.15	August 23, 2023
9,375,000	2,600,002	0.28	June 30, 2025
100,000	-	0.39	August 12, 2025
500,000	-	0.37	September 15, 2025
500,000	-	0.37	January 1, 2026
1,000,000	-	0.37	January 1, 2027
150,000	-	0.40	December 1, 2025
13,225,000	4,133,334

The weighted average life of share options outstanding at December 31, 2020 was 4.26 years.

Warrants

During the year ended December 31, 2020, the Company issued the following warrants:

• In connection with the June 2020 PP, 38,331,558 warrants with an exercise price of $0.215 per warrant plus 1,171,866 agent warrants with an exercise price of $0.15 per warrant issued as finders’ fees with a total value of $131,666.

The following weighted average assumptions were used in the Black-Scholes option-pricing model for the valuation of the agent warrants issued:

	December 31,	December 31,
	2020	2019
Risk-free interest rate	0.30%	-
Dividend yield	Nil	Nil
Expected life	1.5 year	-
Volatility	95.19%	-
Weighted average fair valueper warrant	0.11	-

Page 21

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

Warrant transactions are summarized as follows:

					Weighted
				Number of	Average
				Share Options	Exercise Price
					$
Balance,	December	31,	2018	4,975,730	0.40
Issued				15,000,000	0.20
Balance,	December	31,	2019	19,975,730	0.25
Issued				39,503,424	0.21
Exercised				(4,025,000)	0.20
Expired				(11,850,000)	0.20
**Balance, **	December	**31, **	2020	43,604,154	0.23

A summary of the warrants outstanding at December 31, 2020 is as follows:

Number of Warrants	Exercise
Outstanding	Price	Expiry Date
	$
3,117,128	0.40	August 16, 2021
1,858,602	0.40	September 29, 2021
37,456,558	0.22	December 19, 2021
1,171,866	0.15	December 19, 2021
43,604,154

The weighted average life of warrants outstanding at December 31, 2020 was 0.93 years.

Page 22

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

12. RELATED PARTY TRANSACTIONS

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and certain of the members of the Board of Director. Transactions with related parties are made in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

Amounts receivable at December 31, 2020 includes $7,482 (December 31, 2019 - $Nil) receivable from a company related by way of common directors.

Accounts payable and accrued liabilities at December 31, 2020 includes $1,236,578 (December 31, 2019 - $785,536) owing to directors, officers, or to companies significantly controlled by common directors for unpaid fees and expense reimbursements.

Summary of key management personnel compensation:

		For the year ended
		December 31,
	2020	2019
	$	$
Management and directors’ fees	562,242	480,913
Salaries and benefits	64,091
Professional fees	126,489	19,309
Share-based compensation	1,220,965	96,625
Share issue costs	71,869	19,309
	2,045,656	616,156

Page 23

PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

13. INCOME TAX

Deferred income tax assets and liabilities of the Company as at December 31, 2020 and 2019 are as follows:

	2020 $ 2019 $
Deferred income tax assets Non-capital losses Capital losses Other Valuation allowance Net deferred income tax asset	6,363,174 4,836,700 869,200 889,900 200,000 67,000
	7,432,374 5,793,600 (7,432,374) (5,793,600)
	- -

The reconciliation of the combined statutory income tax rates to the effective tax rate for fiscal 2020 and 2019 is as follows:

	2020 $ 2019 $
Combined statutory tax rates Expected income tax recovery Foreign income tax rate differences Non-deductible expenditures Other Income tax rate change Unrecognized benefit of income tax losses Actual income tax recovery	27.0% 27.0% (1,813,200) (627,900) (58,800) (223,900) 360,800 (300) (127,574) (160,000) - (69,500) 1,638,7740 1,081,600
	- -

As at December 31, 2020 the Company has non-capital losses of approximately $6,363,174 (2019 - $3,354,116), capital losses of approximately $6,591,643 (2019 - $6,591,643) and accumulated pools of approximately $1,069,200 (2019 - $318,714) for Canadian income tax purposes to offset against future income. The non-capital losses expire commencing 2027 to 2039. The Company also has non-capital losses of approximately $11,996,380 (2019 - $10,947,476) for Maltese income tax purposes.

The potential income tax benefits relating to these items have not been recognized in the financial statements, as their realization is not considered probable under the liability method of tax allocation. Accordingly, no deferred income tax assets have been recognized on account of these losses.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Categories of financial assets and financial liabilities

Financial instruments are classified into one of the following categories: fair value through profit or loss (“FVTPL”); amortized costs; and fair value through other comprehensive income. The carrying values of the Company’s financial instruments are classified into the following categories:

		December 31,	December 31,
Financial Instrument	Category	2020	2019
		$	$
Cash	FVTPL	781,456	90,292
Amounts receivable	Amortized costs	7,482	23,508
Sales tax receivable	Amortized costs	134,125	64,929
Other assets	Amortized costs	445,749	67,865
Accounts payable and accrued liabilities	Amortized costs	(2,458,138)	(1,105,377)
Loans payable	FVTPL	(764,750)	(300,000)
Purchase obligation payable	Amortized costs	(37,479)	(35,054)
Lease liability	Amortized costs	(122,395)	-
Long-term debt	Amortized costs	(1,220,477)	-

The Company’s financial instruments recorded at fair value require disclosure about how the fair value was determined based on significant levels of inputs described in the following hierarchy:

• Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and value to provide pricing information on an ongoing basis.

• Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the market place.

• Level 3 - Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The recorded amounts for cash, amounts receivable, sales tax receivable, accounts payable and accrued liabilities, loans payable, purchase obligation payable approximate their fair value due to their short-term nature. The Company’s fair value of cash and other assets under the fair value hierarchy is measured using Level 1 inputs. The Company’s lease liability is measured as the present value of the discounted future cash flows.

Risk exposure

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

• a) Currency risk

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. The Company’s operations are carried out in Canada, the United States, and Malta. As at December 31, 2020, the Company had assets totaling US$140,778 and liabilities totalling US$1,517,604. Additionally, the Company had assets totalling EUR$167,956 and liabilities totaling EUR$368,507. These factors expose the Company to foreign currency exchange rate risk, which could have an adverse effect on the profitability of the Company. A 10% change in the

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

exchange rate with the USD would change other comprehensive income/loss by approximately CAD$175,000 while a 10% change in the exchange rate with the EURO would change other comprehensive income/loss by approximately CAD$31,000. At this time, the Company currently does not have plans to enter into foreign currency future contracts to mitigate this risk, however it may do so in the future.

b) Credit risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash and amounts receivable. Management believes that the credit risk concentration with respect to financial instruments included in cash and amounts receivable is remote.

c) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they come due. The Company’s ability to continue as a going concern is dependent on management’s ability to raise the required capital through future equity or debt issuances but there can be no assurance that such financing will be available on a timely basis under terms acceptable to the Company. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. As at December 31, 2020, the Company had a cash balance of $781,456 to settle current liabilities of $3,400,879.

d) Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices. These fluctuations may be significant.

e) Interest rate risk

Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial assets and liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company does not hold any financial liabilities with variable interest rates. The loans included in loans payable bear interest at rates ranging from 0% to 12% per annum with maturity dates occurring within the next twelve months. The Company does maintain bank accounts which earn interest at variable rates, but it does not believe it is currently subject to any significant interest rate risk.

f) Regulatory risk

The Company is exposed to risk due to the regulatory uncertainty of the online gaming industry. The Company is unable to predict whether regulations will be introduced in the future and if so, whether they could negatively impact the operations of the Company.

Capital Management

The Company does not have any externally imposed regulatory capital requirements for managing capital. The Company has defined its capital to mean working capital and shareholders’ equity, as determined at each reporting date.

The Company’s objectives when managing capital are to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Company sets the amount of capital in proportion to risk. 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 issue new shares, or engage in debt financing.

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PLAYGON GAMES INC. (Formerly Global Daily Fantasy Sports Inc.) Notes to Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (Expressed in Canadian Dollars)

15. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS

		For the year ended
		December 31,
	2020	2019
	$	$
Supplemental cash-flow disclosure
Interest paid	20,869	-
Taxes paid	-	-
Supplemental non-cash disclosures
Shares issued pursuant to the acquisition (Note 3)	9,500,000	-
Shares issued for share issue costs	14,544	-
Warrants issued for share issue costs	131,666	-

16. SUBSEQUENT EVENTS

• Subsequent to December 31, 2020:

• 250,016 warrants with an exercise price of $0.40 were exercised for proceeds of $100,006.

• 31,566,591 warrants with an exercise price of $0.215 were exercised for proceeds of $6,786,817.

• 892,892 warrants with an exercise price of $0.15 were exercised for proceeds of $133,934.

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