Real Luck Group Ltd. — Management Reports 2021

May 1, 2021

Real Luck Group Ltd.

(formerly Elephant Hill Capital Inc.)

Management’s Discussion and Analysis

For the years ended December 31, 2020 and 2019 (Expressed in Canadian dollars)

INTRODUCTION

The following management’s discussion and analysis (“MD&A”) is dated April 30, 2021, provides information concerning the financial condition and results of operations of Real Luck Group Ltd. (“Real Luck” or the “Company”), formerly known as Elephant Hill Capital Inc. for the year end December 31, 2020. The following MD&A should be read in conjunction with the Company’s annual audited consolidated and combined financial statements for the years ended December 31, 2020 and December 31, 2019 and the notes thereto. The Company’s financial statements and financial information included in this MD&A have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Except as otherwise stated, all dollar figures included therein and the following MD&A are presented in Canadian dollars.

Additional information relating to the Company is available on the Company’s website at www.luckbox.com and under the Company’s profile at www.sedar.com.

RESTATEMENT

Certain comparative figures of the consolidated and combined financial statements for the year ended December 31, 2019 have been restated. Refer to Note 29 to the consolidated and combined financial statements for the years ended December 31, 2020 and December 31, 2019 for details of the restatements contained herein. The MD&A and the discussions of the financial condition and results of operations of the Company have been corrected to reflect the impacts of the restatements.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

Statements in this MD&A that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties, which could cause actual results to vary considerably from these statements. Readers are cautioned not to put undue reliance on forward-looking statements.

This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities legislation (“ forward-looking information ”). Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward- looking information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made, and readers are advised to consider such forward-looking statements in light of the risks set forth below and as detailed under section Risks and Uncertainties in this MD&A.

In some cases, forward-looking information can be identified by the use of forward-looking terminology such as“anticipate”, “believe”, “expects” or “does not expect”, “estimates”, “outlook”, “prospects”; “projection”, “intends”, “believes”, “should”, “will”, “would” or the negative of these terms, and similar expressions intended to identify forward looking statements. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances. There can ne no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information.

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking information contained herein is given as of the date of this MD&A and the Company disclaims any obligation to update any forward-looking information, whether as a result of new information, future events or results, except as may be required by applicable securities laws. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information.

OVERVIEW

Real Luck Group Ltd. (“Real Luck” or the “Company”, formerly known as Elephant Hill Capital Corp.”) was incorporated under the Business Corporation Act of Alberta on January 15, 2018. The head office, principal address and registered office of the Company are located at 1250, 639-5 Avenue SW, Calgary, Alberta T2P 0M9.

On December 11, 2020, the Company completed a reverse takeover (the “Transaction”) with Esports Ltd. (“Luckbox”), a private company limited by share capital incorporated and domiciled in the Isle of Man, and Elephant Hill Sub Co., the Company’s wholly-owned subsidiary, through a three-cornered amalgamation. On December 16, 2020, the Company changed its name to “Real Luck Group Ltd” and began trading on TSX Venture Exchange as a Tier 2 Industrial Issuer under ticket symbol “LUCK”.

DESCRIPTION OF BUSINESS

General

The Company is a fully licensed operator of a global online esports betting platform. Esports are professional video game competitions and the Company offers users the opportunity to bet on the outcome of these matches much as users bet on traditional sports events such as soccer or tennis. Similarly, the Company’s business model is the same as any traditional fixed odds sportsbook - users place bets and the Company’s revenue is defined as bets minus wins. The Company is focused on customer acquisition and a sustainable solution for odds creation to further its competitive advantage in the market.

Principal products and services

The Platform

The Company operates a betting platform to offer esports betting to its end customers.

COMPANY STRATEGY AND OBJECTIVES

The Company is a fully licensed, global online esports betting platform. Esports are professional video game competitions and the Company offers users the opportunity to bet on the outcome of these matches much as users bet on traditional sports events such as soccer or tennis. Similarly, the Company’s business model is the same as any traditional fixed odds sportsbook - users place bets and the Company’s revenue is defined as bets minus wins. The Company is focused on customer acquisition and a sustainable solution for odds creation to further its competitive advantage in the market.

Odds creation is a critical part of the esports betting experience as well as helping to further manage the sportsbook maker’s risk. Odds are ideally engineered to attract equal interest on both sides of a betting line. There are currently a number of third party odds makers for esports. To be considered a leader in esports betting, it was essential that the Company have odds that covered as close to 100% of esports events as possible. The limitation of most of the third party odds providers in the market is that they often cover approximately half of the events. To get to market quickly and with as broad an offering as possible, the Company has elected to use a best-of-breed third party supplier for their odds.

However, as the Company expands and seeks to scale, there is a desire to bring odds creation in-house. An in-house solution will not only reduce costs and help ensure the highest quality, but it will also enable the Company to control the only part of the esports betting value chain that it does not currently do in-house. Accordingly, the Company has the acquisition of an odds maker in this space and one of its key milestones in the next 24 months.

HIGHLIGHTS AND DEVELOPMENTS

Reverse takeover and listing transaction

On December 11, 2020, the Company acquired all of the issued and outstanding securities of Esports Limited (operating as “Luckbox”) through a reverse takeover (“the Transaction”), pursuant to the Business Combination Agreement dated November 2, 2020. The Transaction was completed by way of a “three-cornered” amalgamation whereby Luckbox and Elephant Hill Sub Co., a wholly-owned subsidiary of the Company, amalgamated pursuant to the Companies Act 2006 (Isle of Man) to form a new amalgamated entity (“AmalCo”), and AmalCo became a whollyowned subsidiary of the Company. Following the closing of the Transaction, the combined entity resulting from the Transaction (the “Resulting Issuer”) changed its name to Real Luck Group Ltd. and the business of the Resulting Issuer continues to be the business of Luckbox.

Prior to the Transaction, the capital structure of Luckbox consisted of 48,621,409 shares and (each, a “Luckbox share”), 7,581,553 warrants (each, a “Luckbox unit warrant”) and 1,191,544 advisory warrants (each, a “Luckbox advisory warrant”). On the closing date of the Transaction, the Company acquired all of the issued and outstanding shares of Luckbox. The Company incurred a total of $587,881 as listing expenses and $246,487 in legal, accounting and administrative expenses in connection with the Transaction.

In connection with the Transaction, Luckbox has completed four rounds of brokered and non-brokered financings in June 2020 and issued an aggregate of 10,847,320 subscription receipts at a price of $0.42 unit for gross proceeds of $4,555,874. Each subscription receipt unit comprises of one Luckbox share and one half of one Luckbox unit warrant. Each warrant is exercisable for 24 months from closing of the Transaction at an exercise price of $0.63 per Luckbox share. On closing of the Transaction, each Luckbox common share were exchanged on an equivalent basis, without further consideration, for shares and warrants in the capital of Real Luck, the Resulting Issuer.

Expoworld Convertible Notes

On July 10, 2020 and November 20, 2020, Luckbox issued to Expoworld Ltd. two non-interest bearing convertible notes in the amounts of $500,000 and CAD$1,000,000, respectively (the “ExpoWorld Notes”). Prior to closing of the Transaction, on December 7, 2020, the ExpoWorld Notes were automatically converted to 1,190,476 and 2,380,952 subscription receipt units. Each subscription receipt unit comprises of one Luckbox share and one half of one Luckbox unit warrant. Each warrant is exercisable for 24 months from closing of the Transaction at an exercise price of $0.63 per Luckbox share. On closing of the Transaction, each Luckbox common share were exchanged on an equivalent basis, without further consideration, for shares and warrants in the capital of Real Luck, the Resulting Issuer.

Acquisition of remaining interests in RTGH

In May 2020, Luckbox acquired the remaining 20% interest in Real Time Games Holdings Limited (“RTGH”) from noncontrolling interest by exchanging 1,801,394 Luckbox common shares as consideration. The Transaction was accounted for as an equity transaction for accounting purposes. The fair value of Luckbox shares was determined to be $0.355, based on the estimated share price under the most recent completed private placement, for an aggregate consideration of $639,495. The difference between the carrying the consideration paid and the carrying amount of the non-controlling interest on acquisition date was recorded as a charge to equity.

Prior to the acquisition, on May 14, 2020, Luckbox received a total of 1,880,020 Luckbox common shares from two existing shareholders for $nil consideration to be used as considerations for the acquisition of non-controlling interest. The balance of 78,626 common shares in excess of the consideration paid to non-controlling interest was recognized as treasury shares at par value and were subsequently cancelled. Subsequent to the acquisition, Real Time Games Holdings Limited and its subsidiaries became wholly-owned 100% subsidiaries of Luckbox.

RESULT OF OPERATIONS

Selected Annual Information

				December 31, 2019
		December 31, 2020		(As restated)
Revenue	$	75,480	$	4,024
Net loss for the year		(5,495,513)		(20,538,909)
Total loss and comprehensive loss for the year		(5,529,664)		(20,662,732)
Basic and diluted loss per share		(0.18)		(3.74)
Total assets		4,302,814		2,840,336
Total non-current liabilities		48,761		113,002

Revenue

The Company recognized revenue of $75,840 (2019 - $4,024) from the provision of online betting services.

Revenue increased by $71,456, or 1776% in fiscal 2020, due to 2019 being the first year of the Company’s betting services operations. The increase in revenue in the current year is also attributable to the Company’s ability to take advantage of the increasing popularity of esports betting activities.

Cost of sales

Cost of sales increase by $206,761, or 255% in fiscal 2020, primarily due to the increase in betting activities.

Operating expenses

The Company incurred operating expenses of $5,183,769 during the year ended December 31, 2020, compared to $19,435,797 for fiscal 2019.

Advertising, marketing and investor relations Amortization and depreciation Bad debt expense (recovery) Consulting fees Foreign exchange (gain) loss Legal and professional fees General and administrative expenses Salaries and director fees Share-based payments Transfer agent and filing fees Travel and accommodation Total operating expenses	$ 406,207 $ 407,358 89,962 97,837 (62,371) 47,453 668,119 753,153 96,614 19,124 907,092 646,685 521,371 578,645 1,547,475 1,946,715 887,554 14,765,372 16,503 - 105,243 173,455
	$ 5,183,769 $ 19,435,797

The variances in operating costs were attributable to the following factors:

• Decrease in bad debt expenses of $109,824 due to the recovery of $62,371 receivables in 2020 that was written off in the prior year;

• Decrease in consulting fees of $85,034 due to Luckbox hired more employees during the year instead of contracting outside services to perform the work;

• Increase in foreign exchange loss of $77,490 due to the fluctuations in the exchange rates of the Pound Sterling, the functional currencies of the Company’s subsidiaries, and the increase in activities denominated in foreign currencies in 2020 compared to 2019;

• Increase in legal and professional fees of $260,407 mainly due to the costs incurred in connection with the completion of the Transaction, as discussed under the “Highlights and Developments” section;

• Decrease in salaries and director fees of $399,240 due to the changes in payment structures whereby more share-based compensations were granted instead of cash-based compensation;

• Decrease in share-based payments of $13,877,818 was due to the decrease in the number of share-based payment expenses to directors, officers, employees and consultants of Luckbox. In 2019, as Luckbox was still privately held, a large number of share-based compensation was granted to the two founders and employees as incentives. As Luckbox prepared to go public and completed various private placement tranches during fiscal 2020, fewer share-based compensation was granted as the anticipated fair value of the Company’s share after being listed would increase compared to fiscal 2019.

The Company incurred substantial one-time accounting, legal and administrative costs to complete the Transaction, which significantly impacted the Company’s financial performance for the current year. Excluding the non-recurring income and expenses such as listing expenses and change in fair value of derivative liabilities, the net loss for the year ended December 31, 2020 would have been as follows:

Total loss and comprehensive loss for the period Add: Listing expenses Loss on re-measurement of warrant liabilities Professional fees related to the Transaction Gain on re-measurement of conversion options Accretion expenses on convertible notes Normalized comprehensive loss	$ (5,529,664) $ (20,662,732) 587,881 - 140,005 - 246,487 - (2,630,811) - 1,820,163 964,286
	$(5,365,939) $(19,698,446)

• Listing expense of $540,027 was resulted from the completion of the Transaction, as discussed under the “Highlights and developments” section above;

• The loss on re-measurement of warrant liabilities of $140,005 were due to the changes in the fair value of the instruments during the year, as measured by the Black-Scholes option pricing model.

• The professional fees of $246,487 were incurred in connection with the Transaction, as discussed under the “Highlights and Developments” section above.

• The increases in gain on re-measurement of conversion options of the convertible notes of $2,630,811 was due to all the convertible notes were settled in fiscal 2020 and the fair value of the conversion options on settlement was recognized in profit and loss.

• The increase in accretion expenses on convertible notes of $1,820,163 was due to the amortization of the carrying values of the ExpoWorld Notes that were issued and settled within fiscal 2020. In addition, the Avatar note was accreted over 4 months in fiscal 2019 and was accreted over 9 months in fiscal 2020, which leads to higher expense in fiscal 2020.

Fourth quarter results

	Three months ended December 31, 2020 Three months ended December 31, 2019 (Restated)
Revenue Cost of sales Operating expenses Advertising, marketing and investor relations Amortization and depreciation Bad debt expense (recovery) Consulting fees Foreign exchange (gain) loss Legal and professional fees General and administrative expenses Salaries and director fees Share-based payments Transfer agent and filing fees Travel and accommodation Other expenses (income) Loss from operations before income taxes Income tax expenses Net loss for the period Other comprehensive (gain) loss Total loss and comprehensive loss	$ 16,423 $ 1,385 89,146 51,975
	(72,723) (50,590)
	204,437 190,217 18,553 26,094 (16,948) - 167,806 132,243 28,838 (65,182) 307,604 495,106 118,633 18,614 484,666 456,397 857,908 11,613,372 16,503 - 91,830 87,373
	2,279,830 12,954,234 102,590 1,049,598
	(2,455,143) (14,054,422) 1,521 2,278
	(2,456,664) (14,056,700) 56,357 122,953
	(2,513,021) (14,179,653)

Summary of quarterly results

			September 30,	December 31,
Three months ended,	March 31, 2020	June 30, 2020	2020	2020
Total revenue	-	25,065	33,992	16,423
Net loss	(1,129,459)	(1,137,367)	(772,023)	(2,456,664)
Total comprehensive loss	(1,106,830)	(1,140,143)	(769,670)	(2,513,021)
Basic and diluted net lossper share	(0.06)	(0.05)	(0.02)	(0.05)

For the three months ended December 31, 2020, net loss for the period increased by $9,706,020 and total comprehensive loss increased by $9,639,424 compared to the three months ended December 31, 2019. The most significant components of this overall change are explained as follows:

• The decrease in operating expense of $10,674,404 for the three months ended December 31, 2020 compared to that of 2019 was mainly attributable due to the decrease share-based payments of $10,674,404. In 2020, the number of share-based awards granted to officers, employees and consultants

were lower compared to 2019 in anticipation of the increase in the fair value of the Company’s shares after being listed in December 2020 as discussed under section “Operating expenses” above;

• The decrease in other expenses and income of $947,008 were mainly attributable to the decrease in total non-recurring expenses as discussed in section above;

			September 30,	December 31,
Three months ended,	March 31,	June 30,	2019	2019
	2019	2019	(Restated)	(Restated)
Total revenue	-	1,953	686	1,385
Net loss	(1,514,085)	(1,012,872)	(3,955,252)	(14,056,700)
Total comprehensive loss	(1,514,085)	(1,020,206)	(3,948,788)	(14,179,653)
Basic and diluted net lossper share	-	-	(5.20)	(1.45)

Quarter to quarter fluctuations are typically due to the following factors:

Net loss:

• Timing of grants of share-based compensation awards with the variation in the associated fair values of each award Unit, being either common shares or stock options, calculated at the time of grant and the variation in the number of awards granted

• The fair value movements of the instruments classified as derivative liabilities, including the unit warrant as part of the subscription units and the conversion options of the convertible notes, as a result of the fluctuation in fair value of the underlying share price.

• Timing of recognition of non-recurring expenses, including the legal and professional fees in connection with the completion of the Transaction and listing expenses.

• The fair value movements of cryptographic assets that Luckbox held during the period and the resulting gain or loss on re-valuation.

Total comprehensive loss:

• Fluctuations in the foreign exchange rates among the presentation currency, Canadian dollar, and the functional currencies of the subsidiaries, being Pound Sterling and Bulgarian Lev, that result in exchange differences recognized in other comprehensive income on translation.

Additional disclosure for venture issuers without significant revenue

The material components of general and administrative expenses have been disclosed for the years ended December 31, 2020 and December 31, 2019 under section “Results of Operations”.

Off-balance sheet arrangement

As at the date of this MD&A, the Company has not entered into any off-balance sheet arrangements.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the Company’s cash flows for the year ended December 31, 2020 and 2019:

	December 31, 2020 December 31, 2019 (Restated)
Cash used in operating activities, net Cash generated in investing activities Cash generated by financing activities Increase (decrease in cash) Effects of exchange difference Cash, beginning of year Cash,end ofyear	$ (3,920,091) $ (4,835,125) 39,388 41,106 5,596,429 3,497,876
	1,715,726 (1,296,143) 106,109 (40,267) 2,020,845 3,357,255
	$ 3,842,680 $ 2,020,845

The Company consumed net cash of $3,920,091 (2019 - $4,835,125) in operating activities. As the Company is in its early-stage and only started carrying on business in its current capacity in April 2019, cash used to fund the development of its operations in the past two years exceeded the cash inflows from revenue that it generated. As a result, the Company has relied on its ability to raise financing through the issuance of equity securities to obtain sufficient cash flows. There is no certainty that equity financing will continue to be available at the times and in the amounts required to fund the Company’s future activities.

Cash generated in investing activities for the year mainly came from the proceeds on disposal of cryptographic assets and cash received in the reverse takeover transaction.

Cash generated by financing activities for the year mainly came from the proceeds on issuance of subscription units under private placement in connection with the Transaction and the issuance of ExpoWorld convertible notes. Refer to section “Highlights and Developments” for the details of proceeds received under private placement financing and from issuance of convertible notes.

Although the Company anticipates it will have positive cash flows from operating activities in future periods, to the extent that the Company has negative cash flows in any future periods, certain of the net proceeds from the financing may be used to fund such negative cash flows from operating activities, if any.

As at December 31, 2020, the Company had working capital of $3,024,296 as compared to a working capital deficit of $(1,610,602) at December 31, 2019. The Company believes that it has sufficient cash resources to fund its operations for the next twelve months.

RELATED PARTY DISCLOSURES

The Company has determined that related parties consist of the Company’s Board of Directors and its senior officers who are responsible for planning, directing and controlling the activities of the Company. The directors and officers of the Company are:

• Quentin Martin, CEO and Director

• Ran Kaspi, CFO (appointed on November 16, 2020)

• Michael Stevens, Corporate Secretary and Director

• Drew Green, Director (appointed on December 11, 2020)

• Maruf Raza, Director (appointed on December 11, 2020)

• Lloyd Melnick, Director (appointed on December 11, 2020)

• Lars Lien, former CEO and Director (resigned on June 25, 2020)

• Lee Hills, former Director (resigned on May 5, 2020)

Related party transactions

During the year ended December 31, 2020, the Company incurred charges with directors and officers recorded as follows:

		Cash fees and salaries	Share-based	compensation
Quentin Martin	$	161,193	$	332,962
Ran Kaspi		26,178		31,083
Michael Stevens		68,775		52,664
Drew Green		15,000		37,337
Maruf Raza		5,000		14,935
Lloy Melnick		2,500		11,201
Lars Lien		29,246		63,289
Lee Hills		105,886		14,644
Total	$	413,778	$	558,115

The share-based payments including common shares and options granted to related parties were fair valued on the dates that they were granted.

During the year ended December 31, 2020, the Company issued a total of 1,158,552 common shares and granted 3,932,500 options to these directors and officers. The stock options granted are subject to a vesting schedule whereby 10% of options granted vested immediately on grant date, 10% vests six months from grant date, and 20% vests each six month thereafter. Each exercisable option entitles the holder to purchase one share of the Company for a period of five years from grant date, at an exercise price of $0.42 per share.

Related party balances

As at December 31, 2020, due from related party balance of $36,062 (December 31, 2019 - $39,719) represents the Canadian equivalent of amounts due from Lars Lien, former CEO and Director. Included in the total balance is a loan amount denominated in GBP of $34,780 (£20,000) that was advanced to Lars Lien on October 8, 2019, is interest bearing at 3%, is repayable by October 7, 2022 and is secured against 33,000 shares of the Company held by him. As at December 31, 2020, the accrued interest on the loan is $1,248 (2019 - $241) and has been recognized as interest income in profit and loss.

The remaining balance of $nil (2019 – $5,300) also due from Lars Lien and is unsecured, non-interest bearing and repayable upon demand. This balance was paid in full during the year ended 2020.

As at December 31, 2020, an amount of $28,695 (December 31, 2019 - $nil) was due to Michael Stevens. The amount is unsecured, non-interest bearing and is repayable upon demand.

As at December 31, 2020, included in accounts payable and accrued liabilities is $26,178 (December 31, 2019 - $nil) of consulting fees owed to Ran Kaspi, CFO of the Company. The amount is unsecured, non-interest bearing and is due on demand.

As at December 31, 2020, included in accounts payable and accrued liabilities is an amount of $2,988 (2019 - $25,664) due to Luckbox Limited, a related party under common control by Lars Lien and Michael Stevens. The amount is unsecured, non-interest bearing and is repayable upon demand.

OUTSTANDING SHARE DATA

The Company is authorized to issue an unlimited number of common shares. As at April 30, 2020, the Company had a total of 52,889,318 issued and outstanding common shares. The total unit warrants outstanding were 7,194,514; the total advisory warrants outstanding were 992,306 and the total exercisable stock options of 2,351,184. If all of these warrants and options were exercised, they would represent an additional 11,034,157 common shares to be issued for total issued and fully diluted total of 63,923,475 common shares.

NON-IFRS FINANCIAL MEASURES

This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. Non-IFRS measures including “Normalized Comprehensive Loss” (calculated as Total Comprehensive Loss less non-recurring expenses) and “Working Capital” (calculated as current assets less current liabilities) were used in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets and forecasts.

SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed by the Company are set out in Note 3 to the audited consolidated and combined financial statements for the years ended December 31, 2020 and 2019.

The Company has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2020:

• Amendments to IAS 1 “Presentation of financial statements” and IAS 8 “Accounting policies, changes in accounting estimates and errors”: Definition of Material (in force for annual periods beginning on or after January 1, 2020).

• Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform (in force for annual periods beginning on or after January 1, 2020).

• Amendments to IFRS 3 "Business Combinations" (in force for annual periods beginning on or after January 1, 2020).

The adoption of these standards did not have material impacts on the Company’s consolidated and combined financial statements for the year ended December 31, 2020.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of the Company’s consolidated and combined financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Company’s financial statements, and revenue and expenses during the reporting period. Estimates and assumptions are subject to uncertainty and actual results could significantly differ from those estimated. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

Significant estimates in the Company’s consolidated and combined financial statements include the following:

• Share-based payments (Refer to Note 16 to the Consolidated and Combined Financial Statements)

• Useful lives of equipment (Refer to Note 7 to the Consolidated and Combined Financial Statements)

• Determination of lease terms (Refer to Note 9 to the Consolidated and Combined Financial Statements)

The most significant judgments in applying the Company’s financial statements include:

• The assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;

• The fair value and classification of financial instruments;

• The determination of the functional currency of the Company and its subsidiary; and

• Whether there are indicators of impairment of the Company’s non-current assets.

Actual results could differ from management’s best estimates as additional information could become available in the future and may have an impact on future periods.

RISKS ARISING FROM FINANCIAL INSTRUMENTS

Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from cash and due from related party.

The Company limits its exposure to credit loss on cash by placing its cash with reputable financial institutions. The exposure to credit loss on other receivables is limited as other receivables are primarily comprised of money deposited on a reputable and secured payment platform. The exposure to credit loss on due from related party is limited as the amount is secured by the Company’s owned by the related party.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Management controls and monitors the Company’s cash flow on a regular basis, including forecasting future cash flows.

The following is an analysis of the contractual maturities of the Company’s financial liabilities as at December 31, 2020:

	Within one year	Within one year	Between one and	Between one and
				fiveyears
Accounts payable	$	958,732	$	-
Due to related parties		28,695		-
Corporate tax payable		4,796		-
Lease obligations		38,369		48,761
	$	1,030,592	$	48,761

Foreign exchange risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk as it incurs certain expenditures that are denominated in foreign currencies while its functional currency is the Canadian dollar. The Company does not hedge its exposure to fluctuations in foreign exchange rates.

As at December 31, 2020, the Company’s significant foreign exchange currency exposure on its financial instruments, expressed in Canadian dollars was as follows:

		BGN		GBP		EUR		USD
Cash	$	10,392	$	32,265	$	175,900	$	5,630
Restricted cash		-		46,917		-		-
Other receivables		799		8,715		75,233		(14,773)
Accounts payable		(190,133)		(507,138)		(38,445)		(15,163)
Lease liabilities		(87,131)		-		-		-
	$	(266,073)	$	(419,241)	$	212,688	$	(24,306)

The table below details the effect on earnings before tax of a 10% strengthening or weaking of the CAD exchange rates as at December 31, 2020 on items denominated in BGN, GBP, EUR and USD:

		10%		10%
		Strengthening		Weakening
GBP:CAD exchange rate	$	(72,906)	$	72,906
GBP:USD exchange rate		(3,097)		3,097
GBP:EUR exchange rate		33,233		(33,233)
GBP:BGN exchange rate		(21,257)		21,257
	$	(64,027)		64,027

Capital Management

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to provide future returns for shareholders and maintain an optimal capital structure. In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to reduce debt.

RISKS AND UNCERTAINTIES

The Company is subject to a number of risks and uncertainties, each of which could have adverse effects on its business and financial condition. Some of these risks and uncertainties are detailed below. For a comprehensive list of the Company’s risks and uncertainties, refer to the Filing Statement dated November 27, 2020, under the section entitled “Risk Factors”.

Company has a Limited Operating History

The Company began carrying on business in its current capacity on April 25, 2019 and has not yet generated material income. The Company is, therefore, subject to many of the risks common to early- stage enterprises, including undercapitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment and likelihood of success must be considered in light of the early stage of operations. The Company’s lack of operating history may also make it difficult for investors to evaluate the Company’s prospects for success and there is no guarantee that the Company’s business model will continue to achieve its strategic objectives.

Global Economic Risk

The ongoing economic slowdown and downturn of global capital markets (in particular as a result of the current outbreak of the novel coronavirus (“ COVID-19 ”) and the global COVID-19 pandemic) has generally made the raising of capital by equity or debt financing more difficult. Access to financing has been negatively impacted by the ongoing

global economic risks. As such, the Company is subject to liquidity risks in meeting development and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the Company’s ability to raise equity or obtain loans and other credit facilities in the future and on terms favourable to the Company. If uncertain market conditions persist, the Company’s ability to raise capital could be jeopardized, which could have an adverse impact on the Company’s business and operations.

COVID-19 Risk

The recent outbreak of COVID-19 has had a negative impact on global financial conditions. The Company cannot accurately predict the impact COVID-19 will have on the Company’s ability to remain open for business in response to government public health efforts to contain COVID-19 and to obtain financing or third parties’ ability to meet their obligations with the Company, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak and the length of travel and quarantine restrictions imposed by governments of affected countries, and future demand of the Company’s products and services.

In the event that the prevalence of the coronavirus continues to increase (or fears in respect of the coronavirus continue to increase), governments may increase regulations and restrictions regarding the flow of labour or products, and travel bans, and the Company’s operations, suppliers, customers and distribution channels, and ability to advance its projects, could be adversely affected. In particular, should any employees or consultants of the Company become infected with COVID-19 or similar pathogens, it could have a material negative impact on the Company’s operations and prospects.

Changing Economic Conditions

The demand for entertainment and leisure activities, including esports betting and gaming, more generally, can be highly sensitive to changes in consumers’ disposable income, and thus can be affected by changes in the economy and consumer tastes, both of which are difficult to predict and beyond the Company’s control. Unfavourable changes in general economic conditions, including recessions, economic slowdowns, sustained high levels of unemployment, and increasing fuel or transportation costs or the perception by customers of weak or weakening economic conditions, may reduce customers’ disposable income or result in fewer individuals engaging in entertainment and leisure activities, such as esports betting or online gaming. As a result, the Company cannot ensure that demand for its product and service offerings will remain constant. Adverse developments affecting economies throughout the world, including a general tightening of availability of credit, decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs, acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in stock markets, as well as concerns regarding epidemics and the spread of contagious diseases, could lead to a further reduction in discretionary spending on leisure activities, such as esports betting and gaming. Any significant or prolonged decrease in consumer spending on entertainment or leisure activities could adversely affect the demand for the Company’s product offerings, reducing its cash flows and revenues. If the Company experiences a significant unexpected decrease in demand for its product offerings, its business may be harmed.

Competition in Esports Betting Industry

The industry within which the Company operates is rapidly evolving and intensely competitive, and is subject to changing technology, shifting customer needs and frequent introductions of new offerings. The Company’s potential competitors include large and established companies as well as other start-up companies. Such competitors may spend more money and time on developing and testing products and services, undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies or otherwise develop more commercially successful products or services than the Company, which could negatively impact its business. Furthermore, new

competitors, whether licenced or not, may enter the Company’s key product and/or geographic markets. There is no assurance that the Company will be able to maintain or grow its position in the marketplace.

As a result of the foregoing, among other factors, the Company will have to continually introduce and successfully market new and innovative technologies, product and service offerings and product and service enhancements to remain competitive and effectively stimulate customer demand, acceptance and engagement. The process of developing new product and service offerings and systems is inherently complex and uncertain, and new product and service offerings may not be well received by customers, even if well-reviewed and of high quality. Furthermore, the Company may not recover the often substantial up-front costs of developing and marketing new technologies and product and service offerings, or recover the opportunity cost of diverting management and financial resources away from other technologies and product or service offerings. Additionally, if the Company cannot efficiently adapt its processes and infrastructure to meet the needs of its product and service offering innovations, its business could be negatively impacted.

Reliance on Management

The success of the Company will be dependent upon the ability, expertise, judgment, discretion and good faith of its key executives, including the directors and officers of the Company and a small number of highly skilled and experienced executives and personnel. While employment agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. Any loss of the services of such individuals could have a material adverse effect on the Company’s business, operating results, or financial condition. The competition for highly skilled technical, management and other employees in the Company’s industry is high and there can be no assurance that the Company will be able to engage or retain the services of such qualified personnel in the future.

Esports Betting Industry Is Heavily Regulated

The Company and its officers, directors, major shareholders, key employees and business partners are subject to the laws and regulations relating to online gaming of the jurisdictions in which the Company conducts business, as well as the general laws and regulations that apply to all e-commerce businesses, such as those related to privacy and personal information, tax and consumer protection. These laws and regulations vary from one jurisdiction to another and future legislative and regulatory action, court decisions or other governmental action. There can be no assurance that legally enforceable prohibiting legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to the Company’s business to prohibit, legislate or regulate various aspects of the Internet, e- commerce, payment processing, or the online gaming industries. Compliance with any such legislation may have a material adverse effect on the Company’s business, financial condition and results of operations.

Any gaming licence that the Company current holds may be revoked, suspended or conditioned at any time, and the industry has recently experienced significantly more enforcement actions, particularly in the United Kingdom, where the Gambling Commission has issued fines against numerous operators for regulatory failings. The loss of a gaming licence in one jurisdiction could trigger the loss of a gaming licence or affect the Company’s eligibility for such a licence in another jurisdiction, and any of such losses, or potential for such loss, could cause the Company to cease offering some or all of its product offerings, increasing its customer base and/or generating revenues in the impacted jurisdictions.

Additionally, the Company’s product and service offerings must be approved in most regulated jurisdictions in which they are offered and will likely need to undergo third party testing by a certified testing lab. Such testing can be costly and time consuming, and this process cannot be assured or guaranteed. Obtaining these approvals is a timeconsuming process that can be extremely costly and do not guarantee the Company to obtain such approvals.

Furthermore, some jurisdictions require licence holders to obtain government approval before engaging in some transactions, such as business combinations, reorganizations, stock offerings and repurchases. The Company may not be able to obtain all necessary gaming licences in a timely manner, or at all. Delays in regulatory approvals or

failure to obtain such approvals may also serve as a barrier to entry to the market for the Company’s product offerings. If the Company is unable to overcome the barriers to entry, it will materially affect its results of operations and future prospects.

Complex and Evolving Regulatory Environment for Online Gaming Industry

In addition to regulations governing online gaming, the Company might be subject to a variety of laws and regulations domestically and abroad that involve the Internet, e-commerce, privacy and protection of data and personal information, rights of publicity, acceptable content, intellectual property, advertising, marketing, distribution, data and information security, electronic contracts and electronic communications, competition, protection of minors, consumer protection, unfair commercial practices, product liability, taxation, economic or other trade prohibitions or sanctions, securities law compliance and online payment and payment processing services. The Company may introduce new products or services, expand its activities in certain jurisdictions, or take other actions that may subject it to additional laws, regulations or other government scrutiny.

These laws, regulations and legislation, along with other applicable laws and regulations are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations, including pre-existing laws regulating communications and commerce in the context of the Internet and e-commerce, are often uncertain, particularly in the new and rapidly evolving industry in which the Company operates, and may be interpreted and applied inconsistently across jurisdictions and inconsistently with its future policies and practices.

Legislators and regulators also look beyond online gaming regulations specifically to implement restrictive measures on online gaming. In certain jurisdictions, this has included restrictions on payment processing, internet blocking, account and identity verification requirements, and similar measures. Such regulations, if not appropriately mitigated, could materially adversely affect the Company’s business, results of operations or financial condition. In addition, such restrictive measures may impact the ability or desire of third-party suppliers, including payment processors, to provide services to the Company globally or in certain jurisdictions. This would adversely affect the Company’s financial results due to the potential need to determine whether to change suppliers, which may not be on as favorable terms, or comply with the supplier’s requested restrictions.

These laws and regulations, as well as any changes to the same and any related inquiries, investigations or any other government actions, may be costly to comply with and may delay or impede new product development, result in negative publicity, increase the Company’s operating costs, require significant management time and attention, and subject it to remedies that may harm its business, including fines or demands or orders that modify or cease certain or all existing business practices, such as limiting its use of personal information to add value for customers, or implement costly and burdensome compliance measures. Any such consequences could adversely affect the Company’s business, results of operations or financial condition.

Social Responsibility Concerns

Negative public perception and concerns with safer betting and online gaming could lead to new regulatory restrictions on the Company’s current and future operations. Such restrictions on the Company’s future marketing or product offerings could result in increased compliance costs and have a material adverse effect on its business, results of operations, financial condition and prospects. In addition, public scrutiny related to betting and gaming activities could negatively impact the Company’s reputation and the value of its brand. This can result in a decrease in employee engagement and retention, and the willingness of future customers and the Company’s partners to do business with it, which could have a materially adverse effect on its business, results of operations and cash flows.

Success of Esports Betting Products not Guaranteed

The esports betting industry is characterized by elements of chance. Accordingly, the Company employs theoretical win rates to estimate what a certain type of esports bet, on average, will win or lose in the long run. The actual win

rates of esports bets may differ from the theoretical win rates that the Company has estimated and could result in the winnings of the Company’s customers exceeding those anticipated. The variability of win rates (hold rates) also has the potential to negatively impact the Company’s financial condition, results of operations, and cash flows.

Failure to Retain or Add Customers

The Company operates in a dynamic environment characterized by rapidly changing industry and legal standards, and its products will be subject to changing consumer preferences that cannot be predicted with certainty. The Company will need to keep up with trends in the digital sports entertainment and gaming industries to continually introduce new offerings that complement its existing platforms to maintain or increase customer engagement and growth of its business. If the Company is unable to maintain or increase its customer base or engagement, or effectively monetize its customer base’s use of its product offerings, its revenue and financial results may be adversely affected.

Intellectual Property and Risk of Infringement

The Company’s success depends on its ability to obtain trademark protection for the names or symbols under which it markets its product offerings and to obtain copyright protection of its proprietary technologies, other game innovations and creative assets. There can be no assurance that any trademark or copyright will provide competitive advantages for the Company or that its intellectual property will not be successfully challenged or circumvented by competitors. Moreover, due to the differences in foreign patent, trademark, copyright and other laws concerning proprietary rights, the Company’s intellectual property may not receive the same degree of protection in each jurisdiction where it operates. The Company’s failure to possess, obtain or maintain adequate protection of its intellectual property rights for any reason in these jurisdictions could allow competitors to mimic its brands, products, services and methods of operations, and have a material adverse effect on its business, results of operations and financial condition.

Risk of Failing to Adapt to Changing Technology and to Effectively Scale

The Company’s future success depends on its ability to adapt and enhance its suite of technology and software, such as its platforms, as well as its product offerings to meet customer needs at competitive prices. Such efforts will require adding new functionality and responding to technological advancements or disruptive technologies, which will increase the Company’s research and development costs. The Company’s ability to grow is also subject to the risk of future disruptive technologies. If new and/or disruptive technologies emerge that are able to deliver online betting and gaming and/or entertainment products and services at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely affect the Company’s ability to compete.

In addition, as the customer base and the amount and types of product offerings continue to grow and evolve, the Company needs an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy customers’ needs. Such infrastructure expansion may be complex, and unanticipated delays in completing these projects or availability of components may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of the Company’s offerings. As such, the Company could fail to continue to effectively scale and grow its technical infrastructure to accommodate increased demands.

Reliance on technical infrastructure and third-party networks

The Company relies on information technology and other systems and platforms to deliver its product offerings to customers. The Company has experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. Such disruptions have not had a material impact on the Company; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with the Company’s computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, each of

which could materially adversely affect the Company’s business, financial condition, results of operations and prospects.

Furthermore, the delivery of the Company’s offerings and a significant portion of the Company’s revenues is dependent on the continued use and expansion of third-party-owned communication networks, including wireless networks, the Internet and mobile operating systems. No assurance can be given as to the continued use and expansion of these networks as a medium of communications for the Company.

Subsequent events

On February 4, 2021, the Company granted 450,000 stock options to an officer of the Company pursuant the stock option plan. Each option is exercisable for one common share of the Company for a period of three years from grant date, at an exercise price of $0.97. These options will vest over a three-year period with 10% vest immediately on grant date, 10% vests six months from grant date and 20% every six months thereafter.

On February 16, 2021, the Company granted 150,000 stock options to employees pursuant to the stock option plan. Each option is exercisable for one common share of the Company for a period of three years from grant date, at an exercise price of $1.42. These options will vest over a three-year period with 10% vest immediately on grant date, 10% vests six months from grant date and 20% every six months thereafter.

Subsequent to year-end, a total of 166,666 options have been exercised to purchase 166,666 common shares in the capital of the Company at $0.42 per share. The gross proceeds from the exercise of the options were $70,000.

Subsequent to year-end, 2,052,733 unit warrants were exercised to purchase 2,052,733 common shares in the capital of the Company at $0.63 per share. In addition, 382,143 broker warrants were exercised to purchase 382,143 units at $0.42 per unit. Each unit is comprised of one Company common share and one half of one warrant. Each warrant entitles the holder to purchase one Company at an exercise price of $0.63 for a period of two years. The total proceeds received from the exericses of the unit and broker warrants are $1,293,222 and $160,500 respectively.

On March 9, 2020, the Company completed a brokered private placement of 14,837,317 special warrants of the Company at a price of $1.20 for an aggregate gross proceeds of $17,804,780. Each warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $1.50 per share, for a period of 3 years from the date of closing. In conjunction with the transaction, the Company issued 1,650,067 Special Warrants as agent’s compensation.