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Real Luck Group Ltd.
Management’s Discussion and Analysis
For the 6 months ended June 30, 2022 and 2021
(Expressed in Canadian dollars)
INTRODUCTION
The following management’s discussion and analysis (“MD&A“) is dated August 23, 2022, and provides information concerning the financial condition and results of operations of Real Luck Group Ltd. (“Real Luck” or the “Company“), for the six months ended June 30, 2022 (“Q2 2022“). This MD&A should be read in conjunction with the condensed consolidated interim financial statements for the six months ended June 30, 2022 and 2021 and the related notes thereto, and the audited consolidated financial statements for the years ended December 31, 2021 and 2020 and the related notes thereto. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). All currency amounts are expressed in Canadian dollars, unless otherwise noted.
Additional information relating to the Company is available on the Company’s website at www.realluckgroup.com. The Company’s annual information form (“AIF”) and other public filings made by the Company with Canadian securities regulatory authorities can be found under the Company’s SEDAR profile at www.sedar.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities legislation (“forward-lookinginformation“). 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 be 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.
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 compliment 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 the Company’s financial information reported under IFRS. Non-IFRS measures including “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.
OVERVIEW
Real Luck Group Ltd. (“Real Luck” or the “Company”) was incorporated under the Business Corporations Act of Alberta on January 15, 2018. The head office, principal address and registered office of the Company are located at 350 7th Avenue SW, Suite 3400, Calgary, Alberta, T2P 3N9.
On December 11, 2020, the Company completed a reverse takeover (the “Transaction“) with EH IOM SubCo Limited (“Elephant Hill Sub Co.”), the Company’s wholly-owned subsidiary), and Esports Limited (“EL”), a private company limited by share capital, incorporated and domiciled in the Isle of Man. The Company acquired all of the issued and outstanding common shares of EL. The Transaction was completed by way of a three-cornered amalgamation under the laws of Isle of Man and resulted in EL becoming a wholly owned subsidiary of the Corporation.
On December 16, 2020, the Company changed its name to “Real Luck Group Ltd.” and began trading on the TSX Venture Exchange as a Tier 2 Industrial Issuer under ticker symbol “LUCK”. Effective April 5, 2021, the Company is also listed on the OTCQB Venture Market under the ticker symbol “LUKEF”.
DESCRIPTION OF BUSINESS
General
The Company is a fully licensed operator of an award-winning global online betting platform, called “Luckbox” (“the Luckbox platform” or “the platform”), which offers real-money wagering on esports, sports and casino games.
Through its proprietary Luckbox platform, the Company currently offers players the ability to bet on professional competitive video game events and matches across 13 game titles, and more than 100 sports. The Company added a third revenue stream in the form of casino betting in December 2021.
Through its Isle of Man license, the Luckbox platform is currently able to accept players from more than 80 countries.
COMPANY STRATEGY AND OBJECTIVES
The Company works to maintain healthy margins through various methods, including odds creation, lowering costs and intelligent player acquisition and retention – working to decrease cost per acquisition (“CPA“) and increase player lifetime value (“LTV“).
During the fiscal year 2021, the Company focused on continuing to enhance its proprietary Luckbox platform by building a superior business intelligence infrastructure, which enables the Company to offer a unique and modern user experience tailored to the next generation of bettors, while ensuring maximum coverage of esports betting opportunities.
The Company was, through much of 2021 and the beginning of 2022, engaged in an extensive process of improving its proprietary Luckbox platform, in order to optimize player conversion and retention. A key milestone was reached in December 2021 with the launch of the Luckbox casino, which is intended to complement the existing esports and sports betting offers and to add an expected near-term revenue stream to the business. The Luckbox casino now features more than 700 games thanks to new key partnerships with game providers including Microgaming and Pragmatic Play.
The Company believes the Luckbox casino is now competitive with the offerings from many casino-dedicated operators (based on metrics such as number of games available, variety of features, user interface and user experience). Player marketing efforts were soft-launched in July with the intent to gradually increase the spend during the rest of the year. The casino vertical is designed to complement our esports and sports betting offering with a high margin product that will extend the cash runway.
The Company believes the platform is now at a strong baseline. This has enabled the Company to engage in meaningful player marketing efforts for the first time in the Company’s life. These efforts are expected to gain
momentum during Q3, 2022. Robust business intelligence tools enable the Company to closely monitor the effectiveness of player marketing campaigns. Management believes customer acquisition via player referral sites, or affiliate networks, is particularly important. The Company has, during the first months of 2022, established partnerships with more than 50 global sites as well as announced deals with Raketech which operates more than 1,700 player referral sites.
In 2022, the Company also worked to strengthen its leadership team, appointing Benn Timbury as Chief Operating Officer and Bo Wänghammar to its board of directors. Mr. Timbury’s most recent role was with one of Europe’s fastest growing igaming start-ups, the Gibraltar-based Lottoland Group, which is active in 15 global markets, has over 350 employees and more than 15 million customers. Mr. Wänghammar was formerly Managing Director of Casino at PokerStars (acquired by Flutter Entertainment for US$6 billion in October 2019) and the CEO at Mr. Green & Co online casino (acquired by William Hill for £242 million In October 2018). Most recently, the Company appointed Daniel Sanders, as Director of Marketing. With these key hires, our core leadership team is now in place.
The Company has commenced development of innovative software products designed to engage with and convert a new and growing digital audience. Importantly, this effort will not increase our current cash burn from the roughly $2 million per quarter run-rate which we have maintained since Q1 2021. Over time, we expect that these new products could significantly expand our growth trajectory and accelerate our path to cash flow break-even. We are witnessing an unprecedented shift in entertainment where gaming is increasingly dominant, and we are working to build products and a brand to target this demographic in a way no other operator is.
The Company knows what this audience enjoys, how to reach them and, importantly, how to monetize them, based upon the Company’s leadership team’s prior responsibilities and accomplishments. Much of the Company’s targeted players’ current behavior is already attuned to igaming and the Company is building products and features to enrich their viewing and playing experiences. This provides the Company with a unique B2C opportunity and adds potential for a significant B2B element to our Luckbox platform. A B2B offering can be served to players via other operators as a white label solution which adds an additional revenue stream for the Company. These products and tools will be highly social and can be used by influencers, communities and peers, increasing potential virality and adoption.
The Company also plans to add further in-house capabilities, including the addition of its own odds compilation team which will aid the Company in capturing greater value in addition to providing a more streamlined platform.
Most third-party odds providers in the market provide limited event coverage, increasing the complexity of user facing platforms. To get to market quickly and with as broad an offering as possible, the Company has elected to use a best- of-breedthird-party supplier for odds.
As the Company expands and seeks to scale, there is a business rationale to bring odds creation in-house. A proprietary solution will not only reduce costs and help ensure the highest quality but will also enable the Company to control the only part of the esports betting value chain that it does not currently perform in-house.
The Company is also targeting growth opportunities in new market segments and geographical regions by seeking to acquire additional licenses in selected regulated markets.
SUMMARY OF SIGNIFICANT EVENTS
The Company has undergone an intense and necessary phase of recalibrating the Luckbox platform, with “under the hood” improvements designed to provide a frictionless customer acquisition experience as well as improving player retention.
The Luckbox platform’s technology now allows the Company to not only develop its own in-house solutions to seamlessly plug into the platform and user experience but also partner with relevant third parties in a modular fashion. In order to rapidly adapt to business needs. During the current fiscal year, the Company announced the following partnerships, integrations and appointments which make the platform more extensible and adaptable to the growing business needs, including sports betting and casino:
Re-commences affiliate marketing activity
February 14, 2022: Real Luck Group signed agreements with several key affiliate marketing networks to increase player traffic to the Luckbox platform’s next-generation esports, sports and casino real-money betting products.
COO Appointed
March 1, 2022: Appointed Benn Timbury as COO. Mr. Timbury’s most recent role was with one of Europe’s fastest growing start-ups, the Gibraltar-based Lottoland Group, which is active in 15 global markets, has over 350 employees, and more than 15 million customers.
Board of Director Changes
March 9, 2022: Appointed Bo Wänghammar to the Company’s board of directors. Mr. Wänghammar was formerly Managing Director of Casino at PokerStars (acquired by Flutter Entertainment for US$6 billion in October 2019), and the CEO at Mr. Green & Co online casino (acquired by William Hill for £242 million In October 2018). Mike Stevens resigned from his position as a director to focus on his family and charity work.
Agreement with leading performance marketing firm Raketech Group
March 24, 2022: Announced a partnership with leading affiliate and performance marketing company Raketech Group
Holding (STO: RAKE). The agreement builds upon prior agreements that Real Luck Group has signed with several key affiliate marketing networks to increase player traffic. Raketech, headquartered in Malta, operates more than 1,760 sites, driving active players to igaming brands.
Partnership with Microgaming to enhance online casino
April 13, 2022: A partnership with online casino software supplier Microgaming adds more than 100 games to Luckbox’s casino, including 9 Masks of Fire, Book of Oz, Immortal Romance™ and branded titles such as Jurassic World™, Game of Thrones™ and Lara Croft®. The Luckbox platform is built for a new generation of gaming and esports players that the Company plans to monetize for decades to come. This ethos extends to casino, where the Luckbox platform is striving to offer the best possible content and user experience, built upon a strong data analytics driven approach and the Company is already seeing a promising initial uptake from players.
Luckbox shortlisted in two categories at EGR Marketing & Innovation Awards 2022
May 11, 2022: Luckbox was shortlisted in two categories at the EGR Marketing & Innovation Awards 2022. The EGR Marketing & Innovation Awards recognizes the most innovative and creative operators, suppliers and affiliates in the online gaming industry, honoring those that have brought something new to the industry within the last 12 months. Luckbox was shortlisted in the Innovation In Esports and Brand of the Year categories.
Virtual AGM matters
The Company held its “virtual” AGM on August 11, 2022 and all matters put forward before the shareholders for consideration and approval were approved. It was also stated that the Company has commenced player acquisition as of August, 2022 and that the Balance Sheet remains strong, with no debt. Additionally, management highlighted new business initiatives that included the development of innovative (e)sportsbook products and B2B offerings to drive revenue growth with the anticipation that the Company can achieve profitability in H1, 2023.
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