React Gaming Group Inc. — Interim / Quarterly Report 2022

Nov 29, 2022

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(formerly Intema Solutions Inc.)

Management’s Discussion and Analysis For the third quarter ended September 30, 2022

REACT GAMING GROUP INC. (formerly Intema Solutions Inc.) Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

BASIS OF PRESENTATION

The following Management’s Discussion and Analysis (“ MD&A ”) of the results of operations and financial position of React Gaming Group Inc. (formerly Intema Solutions Inc.) (“ React Gaming ” or the “ Company ”) must be read in conjunction with the unaudited interim financial statements of the Company and the accompanying notes for the three-month period ended September 30, 2022, and with the most recent audited annual financial statements and MD&A for the year ended December 31, 2021. The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and are available on SEDAR (www.sedar.com). This MD&A reflects information available to the Company as at November 29, 2022.

FORWARD-LOOKING STATEMENTS

This MD&A may contain “forward-looking statements.” All statements other than statements of historical facts included in this MD&A, including, without limitation, those regarding the projected financial performance of the Company; the expected development of the Company’s business and projects; execution of the Company’s vision and growth strategy; sources and availability of financing for the Company’s projects; renewal of the Company’s current customer, supplier and other material agreements; and future liquidity, working capital, and capital requirements, are forward-looking statements. Although the forward-looking statements in this MD&A are based upon what management of the Company believes are reasonable assumptions, there can be no assurance that they will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update forward-looking statements except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

NON-IFRS FINANCIAL MEASURES

The term EBITDA (Earnings Before Interest, Income Taxes, Depreciation and Amortization) does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented in other financial statements of other issuers. The Company defines EBITDA as income from continuing operations before amortization of tangible and intangible assets, provision for impairment of goodwill and other intangible assets, interest, gains or losses on disposal of assets, gains on debt settlement, gains or losses on foreign exchange and income taxes on the result. Management believes that EBITDA is an important measurement tool as it allows us to evaluate the performance of the Company arising from operating activities irrespective of elements that depend mainly on non-operating factors such as the historical cost. EBITDA allows us to compare the operating performance of the Company consistently. Several analysts and investors use EBITDA to evaluate and measure the Company's ability to repay its debt and meet its various payment obligations.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.) Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

OVERVIEW

React Gaming, incorporated under the Canada Business Corporations Act, is a publicly traded holding company that stands at the forefront of the esports and iGaming industry, the fastest growing subsector of the digital entertainment space. By investing in innovative technologies that enhance tournaments, teams, and wagering, we provide our users with gaming platforms that produce non-stop action, exciting outcomes, and unparalleled enjoyment. Through the use of intelligent data, we also connect our sponsors to robust communities within the rapidly evolving industry, ensuring maximum engagement and substantial reward. React Gaming’s common shares are listed on the TSX Venture Exchange under the symbol “ RGG ”.

On February 18, 2022, React Gaming completed the game-changing acquisition of Livestream Gaming Ltd. (“ Livestream ”), the parent company of LOOT.BET, which has become the Company’s main asset.

LOOT.BET is one of the global leaders in esports betting, with a focus on live betting and online gaming and building an exceptional product for its 500,000+ registered users. Supported by a professional operational and software development team of over 50 employees, LOOT.BET is world-renowned not only as an established and reliable esports betting platform but also as a supporter of the esports industry.

React Gaming’s goal as an emerging esports and iGaming company is to bring the excitement of esports betting to the entire world through fully licensed, safe, and secure online platforms. The Company holds an online gaming license from the Isle of Man, one of the world's most prestigious gaming jurisdictions, allowing it to deploy its LOOT.BET platform in new promising markets.

The Company is also developing an online esports tournament platform through its compete.gg subsidiary and has a roster of competitive professional esports teams through its Parabellum Esports subsidiary.

More information about React Gaming is available at reactgaming.ca.

DESCRIPTION OF MAIN ASSET

Principal Services

Livestream’s principal activity is to provide online betting and online gambling services. Livestream offers these services through its LOOT.BET website platform at LOOT.BET. The LOOT.BET website platform offers an esports sportsbook, traditional sportsbook, and random number generator casino games. LOOT.BET has over 500,000 registered users, and is available in English, Spanish, German, Portuguese, Filipino, Russian, and Chinese. Livestream regularly sponsors notable professional esports tournaments and partners with leading esports operators, studios, and esports influencers.

Livestream’s revenue is generated by the services provided to users on LOOT.BET. In 2021, 90% of Livestream’s revenue was generated from betting activity on the LOOT.BET platform, with the remaining 10% generated from RNG (random number generator) games on the LOOT.BET platform.

Overview of Global Regulatory Environment and Gaming Licenses

There are broadly two types of gaming licences in the world: (a) local; and (b) multi-jurisdictional (or pointof-supply). Local licences are jurisdiction-specific and permit holders to offer gaming services to residents of that jurisdiction while preventing unlicensed entities from doing so. Currently there are over 30 jurisdictions which require a licence to provide gaming services to their respective residents, including the United Kingdom and the United States. Multijurisdictional licences, like the Isle of Man (IOM) licence, enable gaming companies to operate in other territories which do not expressly prohibit offshore gaming operators by relying on the well-established general principle of e-commerce and internet law that deems online product offerings to take place where the operator’s server and/or the operator itself is established and located. This principle is widely relied upon by offshore online gaming operators as well as by many other e-commerce businesses.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.) Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

Market

Livestream’s target market is men ages 18 to 29, with a strong interest in esports and video games, and sports in general. In many countries betting on esports has become a common hobby for Livestream’s target audience. With adoption among so many individuals, the trend is towards responsible and higher regulated gaming.

The LOOT.BET website is accessible globally, except in those jurisdictions which either require a local license, or are prohibited by local laws. Accordingly, Livestream does not offer services to individuals located in those jurisdictions and its platform has multiple checks to ensure access to such individuals is prohibited.

Competitive Landscape

Livestream operates in a highly competitive environment featuring existing traditional gaming companies as well as similar endemic esports betting operators. There are a variety of principal competitive factors that separate service providers within the industry. These factors include the geographic reach of the LOOT.BET platform; gaming licences and player protections; number of esports titles supported; number of betting markets that are included; esports industry statistics provided; overheads and customer acquisition cost; brand awareness; accessibility of the customer interface; number and quality of payment methods per territory; and the level of customer support provided.

The gaming industry’s strict licensing regime provides a strong barrier to entry of one to three years for any new start-ups, thereby providing a substantial advantage to those who already have experience and a history of operation. While competition is still expected to grow, due to the high cost of obtaining applicable licences and the general lack of compliance expertise, management believes that the Company’s position in the market and its potential growth within the market are not jeopardized by new entrants.

HIGHLIGHTS (as at the date of this MD&A)

• On November 22, 2022 – Wholly-owned subsidiary Parabellum Esports partners with XP League, the first and largest esports franchise in North America. The partnership will also be a launching pad for the Parabellum Academy, which will work directly with players, creators and enthusiasts who want to enter the esports space.

• On November 16, 2022 – The Company signs a definitive B2B subscription master services agreement with HHR Philippines Inc. (HHRPh), allowing HHRPh to hold an exclusive right to use React Gaming's Loot.Bet cloud-based software (the “skin”) for the Philippines. The goal of the partnership is to have the skin operational by April 1, 2023.

• On November 15, 2022 – Wholly-owned subsidiary Parabellum Esports partners with Viral Nation, a global digital media innovation group, with the purpose of helping Parabellum scale by securing global partnership and sponsorship opportunities, as well as representing its business interests within the esports ecosystem.

• On November 14, 2022 – The Company appoints Leigh Hughes as its permanent CEO.

• On October 24, 2022 – Closing of a first $635,000 tranche of a $5 million private placement of units of the Company at a price of $0.10 per unit, each unit consisting of one common share and one warrant. Each warrant entitles the holder to purchase one additional common share at $0.12 for a period of 48 months.

• On August 4, 2022 – Wholly-owned LOOT.BET subsidiary receives GLI-19 certification from Gaming Laboratories International, confirming that the LOOT.BET esports online betting platform complies with the requirements of applicable technical standards.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.) Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

• On August 2, 2022 – LOOT.BET launched on July 31, 2022 its Isle of Man-licensed online esports betting platform.

• On July 20, 2022 – React Gaming starts trading on the OTCQB Venture Market in the United States. The Company upgraded to the OTCQB from the Pink market.

• On July 19, 2022 – Wholly-owned Parabellum Esports subsidiary secures first paid sponsorship with Shakepay, a Canadian technology company, as its first entry into esports.

• On July 12, 2022 – Wholly-owned subsidiary Compete.gg has been granted access to the Riot Games API (application programming interface), allowing Compete to break into an entirely new realm of competitive esports with multiplayer online battle arena titles such as League of Legends, considered as one of the top-played games in the esports space.

• On July 7, 2022 – LOOT.BET enters into a partnership agreement with Oddin.gg to provide LOOT.BET with its renowned esports odds feed and help it scale its operations worldwide.

SELECTED FINANCIAL HIGHLIGHTS

	Three months ended	Three months ended	Nine months ended	Nine months ended
(In Canadian dollars)
	September 30		September 30
	2022	2021	2022	2021
FINANCIAL PERFORMANCE
Revenue	792,164	32,918	1,971,668	95,925
Gross profit	389,091	23,682	954,408	58,193
EBITDA(1)	(981,462)	(1,278,952)	(5,604,834)	(2,281,543)
Net loss	(2,095,032)	(1,518,826)	(7,004,383)	(2,885,344)
Loss per share — basic and diluted	(0.013)	(0.013)	(0.043)	(0.026)
	As of	As at
	Sep. 30	Dec. 31
	2022	2021
FINANCIAL SITUATION
Cash and cash equivalents	351,142	2,949,609
Workingcapital	(4,704,675)	2,229,114
Shareholder’s equity	9,772,586	3,205,021
Long-term debt and performance contingency (includingcurrentportions)		362,438
	3,401,842

• (1) The term EBITDA (earnings before interest, taxes, depreciation, and amortization) does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented in other financial statements of other companies. The Company defines EBITDA as income from continuing operations before amortization of tangible and intangible assets, provision for impairment of goodwill and other intangible assets, interest, gains or losses on disposal of assets, gains on debt settlement, gains or losses on foreign exchange and income taxes.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.)

Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

RECONCILIATION OF NET LOSS TO EBITDA

	Three months ended	Three months ended	Nine months ended	Nine months ended
(In Canadian dollars)
	September 30		September 30
	2022	2021	2022	2021
Net loss	(2,095,032)	(1,518,826)	(7,004,383)	(2,885,344)
Interest expense	(5,394)	21,952	7,928	44,731
Depreciation of assets and other intangible assets	352,639	90,258	839,603	111,579
Loss on assets written off	164,769	53,909	196,914	53,909
Stock-based compensation expense	151,171	73,755	1,226,489	393,582
Goodwill impairment	444,405	-	444,405	-
Gain on revaluation of performance contingency	-	-	(1,315,790)	-
EBITDA	(981,462)	(1,278,952)	(5,604,834)	(2,281,543)

OPERATING RESULTS

Revenue

For the third quarter of 2022, revenue increased to $792,164, from $32,918 for the same quarter a year ago. The increase was mainly driven by Livestream and its operating entity LOOT.BET. For the nine-month period, revenue increased to $1,971,668 from $95,925 for the same period a year ago.

Gross profit

Gross profit for the third quarter totaled $389,091 (49.1% of total revenue), compared to $32,918 in 2021. For the nine-month period, gross profit increased to $954,408 (48.4% of total revenue), from $95,925 for the same period a year ago.

Operating loss

Operating loss for the third quarter totaled $(1,635,418) compared to $(1,496,874) in 2021. The increase was mainly due to LOOT.BET’s operating costs related to Livestream’s ongoing operations relative to revenues generated. For the nine-month period, operating loss stood at $(7,830,525) versus $(2,840,613).

EBITDA

EBITDA loss decreased to $(981,462) for the third quarter of 2022, from $(1,278,952) a year ago, mainly due to the increase in goodwill impairment in Q3 2022. For the nine-month period, EBITDA loss stood at $(5,604,834) versus $(2,281,543) a year ago.

Net loss

For the third quarter ended September 30, 2022, the Company recorded a net loss of $(2,095,032), or $(0.013) per basic and diluted share, compared to $(1,518,826), or $(0.013) per basic and diluted share, for the corresponding period of 2021. For the nine-month period, the net loss was $(7,004,383) or $(0.043) per basic and diluted share, compared to $(2,885,344), or $(0.026) per basic and diluted share a year ago.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.)

Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

SUMMARY OF QUARTERLY RESULTS

	2022	2022	2022	2021
(In Canadian dollars, except per share amounts)
	**Q3 **	**Q2 **	**Q1 **	**Q4 **
Revenue	792,164	845,543	333,961	31,136
EBITDA(1)	(981,462)	(2,535,197)	(2,088,175)	(2,319,900)
Net loss	(2,095,032)	(1,532,382)	(3,376,969)	(2,297,837)
Net loss per share – basic and diluted		(0.009)	(0.022)	(0.020)
	(0.013)
	2021	2021	2021	2020
(In Canadian dollars, except per share amounts)
	**Q3 **	**Q2 **	**Q1 **	**Q4 **
Revenue	32,918	39,020	23,987	42,922
EBITDA (1)	(1,278,952)	(703,828)	(298,763)	(106,351)
Net loss	(1,518,826)	(1,036,429)	(330,089)	(131,820)
Net loss per share – basic and diluted	(0.013)	(0.006)	(0.003)	(0.004)

(1) The term EBITDA (earnings before interest, income taxes, depreciation, and amortization) does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented in other financial statements of other companies. The Company defines EBITDA as income from continuing operations before amortization of tangible and intangible assets, provision for impairment of goodwill and other intangible assets, interest, gains, or losses on disposal of assets, gains on debt settlement, gains or losses on foreign exchange and income taxes.

Several factors can cause quarterly variances, such as seasonality, vacations and statutory holidays, and React Gaming’s software solutions sales cycle, which may not necessarily be indicative of future results.

In Q1 2022, the Company acquired Livestream, which reflects the increase in revenue in 2022. The higher losses incurred in Q3 2021 and Q4 2021 are mainly due to the acquisition of Livestream, whereas the losses in 2022 are due to running Livestream’s operations.

CASH FLOWS

Nine months ended September 30:	2022	2021	Variance
(In Canadian dollars)
Cash flows used in operating activities	(5,428,902)	(2,626,953)	(2,801,949)
Cash flows used in investing activities	(7,959,067)	(176,601)	(7,782,466)
Cash flows provided by financing activities	10,549,814	4,926,317	5,623,497
Effect of exchange rate changes	239,688	-	239,688
Net (decrease) increase in cash and cash equivalents	(2,598,467)	2,122,763	(4,721,230)

Operating Activities

Cash flows used in operating activities totaled $5,428,902 in 2022, compared to $2,626,953 in 2021. The $2,801,949 variation was mainly due to the increase in net loss and the gain on revaluation of performance contingency, partially offset by the increase in amortization and in stock-based compensation expense.

Investing Activities

Cash flows used in investing activities totaled $7,959,067 in 2022, compared to $176,601 a year ago. The $7,782,466 variation was mainly due to the acquisition of Livestream.

Financing Activities

Cash flows provided by financing activities totaled $10,549,814 in 2022, compared to $4,926,317 a year ago. The $5,623,497 variation was mainly due to the closing of the $10 million private placement in February 2022.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.) Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

FINANCIAL POSITION

The following table shows the main variances that have occurred in the financial position of the Company for the nine months ended September 30, 2022:

(In Canadian dollars)
	Sep. 30, 2022	Dec. 31, 2021	Variance
Cash and cash equivalents		2,949,609	(2,598,467)	Decrease due to operations in the normal course of business
	351,142
Restricted cash		8,983,100	(8,144,312)	Released the restricted cash relative to the completion of the Livestream transaction – remaining cash is relative to payment to processors and player accounts on Livestream
	838,788
Trade and other receivables		164,000	510,675	Increase in advances and sales tax receivable
	674,675
Intangible assets, net		300,705	2,471,614	Increase from software purchased through Livestream acquisition
	2,772,319
Goodwill		525,289	12,263,011	Increase from Livestream and Parabellum acquisitions, offset by Team Bloodhounds write-off
	12,788,300
Accounts payable and other liabilities		603,417	3,197,019	Increase from VAT liability on Livestream financials as well as Livestream payable balances and increasing overall payment days
	3,800,436
Performance contingency		-	1,154,202	Performance contingency related to the Livestream transaction
	1,154,202
Long-term debt, including current portion of long-term debt		362,438	1,885,202	Increase from holdback related to Livestream purchase
	2,247,640

FINANCING

On February 18, 2022, the Company closed a private placement in escrow of 20,014,000 units for gross proceeds of $10,007,000. Each unit consisted of one share and half a warrant. Each whole warrant entitles its holder to purchase an additional common share at $0.90 per share for a period of 12 months following the closing of the private placement.

On March 8, 2021, the Company closed a non-brokered private placement for total gross proceed of $5,000,000. In exchange, the Company issued 25,000,000 common shares at $0.20 per share and 25,000,000 warrants. Each whole warrant entitles its holder to purchase an additional common share at $0.265 per share for a period of 12 months following the closing of the private placement.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.) Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

TRANSACTIONS BETWEEN RELATED PARTIES

During the nine-month periods ended September 30, 2022 and 2021, the Company performed transactions with some officers and directors and companies controlled by officers or directors of React Gaming.

The Company's key management personnel are members of the Board of Directors, the Chief Executive Officer and the Chief Financial Officer. Key management personnel remuneration includes the following expenses:

(In Canadian dollars)	Nine months ended September 30	Nine months ended September 30
	2022	2021
Salaries and benefits	279,972	260,418
Share based compensation	577,344	45 547
Professional fees	69,010	34 493
	926,326	340 458

Directors and officers of the Company subscribed for a total of 1,086,000 units in the $10,007,000 private placement dated February 18, 2022.

An officer of the Company subscribed for a total of 500,000 units in the $5,000,000 private placement dated March 8, 2021.

CAPITAL STRUCTURE

The following table sets out the common shares, stock options and warrants of the Company that are outstanding as at the date of this MD&A:

outstanding as at the date of this MD&A:
	November 28, 2022
Outstanding common shares	167,439,734
Warrants	34,064,384
Stock options	10,019,412
Fully diluted common shares	211,523,530

DIVIDEND POLICY

Since its incorporation, the Company has not paid any dividend on its common shares. The Company’s current policy is to retain future earnings to finance its growth. Any future determination to pay dividends is at the discretion of the Company’s Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements and other such factors as the Board of Directors of the Company may deem relevant.

OFF-BALANCE SHEET AGREEMENTS

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

FINANCIAL RISK FACTORS

The Company operates in an industry subject to various financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. In order to minimize the negative effects on its financial performance, the Company has centralized cash management for defining, assessing and hedging financial risks.

These financial risk factors are disclosed in Note 22 of the annual financial statements for the fiscal year ended December 31, 2021.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.)

Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

PRINCIPAL RISK FACTORS

Cash . In the normal course of business, the Company is exposed to a number of risks that may affect its performance. The ability of the Company to realize its assets and discharge its liabilities depends on the continued support of its lenders and shareholders.

Competition . The Company’s competitors are international, national and regional CRM solution developers. These developers constitute a risk in regards with the ability of the Company to attract customers and to exercise its activities successfully. The Company closely monitors the evolution of its competitors and the markets they serve to determine its competitiveness within each sector. The Company, by its size, is more flexible in terms of pricing compared to its main competitors. In addition, the Company is constantly investing in the development of its software solutions in order to quickly adapt to changing markets.

Availability and cost of qualified professionals . Within the information technology sector, qualified personnel are in strong demand. In recent years, the Company has managed to attract and retain competent staff.

Other risk factors are disclosed on page 14 of the filing statement dated March 29, 2022, which was filed on SEDAR.

INTEGRITY OF FINANCIAL INFORMATION

The Company’s management and Board of Directors is responsible for setting up and maintaining information systems and controls in place, ensuring the reliability of information disseminated both inside and outside the Company. The Company has implemented a communication policy with shareholders, the relevant regulatory authorities and the public. The objective of this policy is to ensure that the information disclosed is complete and relevant. The Company announces material changes through press releases on time. The press releases are reviewed and approved by the directors and are made available to the public in accordance with the stated policies of the TSX Venture Exchange. The Company informs its shareholders at shareholder meetings as well as through press releases, quarterly and annual financial statements, and MD&As.

The Audit Committee, composed of a majority of independent directors, has a mandate to report to the Board of Directors and evaluate:

• a) The integrity of financial statements and related disclosures of the Company.

• b) Independence, qualifications, and appointment of the independent auditor of the Company.

• c) The Company's compliance with laws and regulations.

• d) Management responsibility for reporting on internal controls.

CONTROL SYSTEMS REGARDING FINANCIAL INFORMATION

Management is responsible for the establishment and maintenance of control systems with regard to financial reporting to provide reasonable assurance regarding the reliability of financial information under IFRS. The Chief Executive Officer and the Chief Financial Officer, based on their evaluation of these controls for the three months ended September 30, 2022, concluded that the design of internal control is effective in regard to financial reporting and has not made any changes to the internal controls over financial reporting during the three months ended September 30, 2022, which could influence or be likely to materially affect internal controls of the Company with respect to financial reporting.

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REACT GAMING GROUP INC. (formerly Intema Solutions Inc.)

Management’s Discussion and Analysis

FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2022

CONTROLS AND DISCLOSURE PROCEDURES

The Chief Executive Officer and Chief Financial Officer of the Company are responsible for establishing and maintaining controls and disclosure procedures, as defined by National Instrument 52-109 of the Canadian Securities.

ADDITIONAL INFORMATION

Additional information about the Company is available on our website at www.intema.com and on SEDAR at www.sedar.com.

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