6-K
Enthusiast Gaming Holdings Inc. / Canada (EGLXF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
6-K
REPORT
OF FOREIGN PRIVATE ISSUER
Pursuant
to Rule 13a-16 or 15d-16
Under
the Securities Exchange Act of 1934
For the month
of August 2023 Commission File Number: 001-40331
Enthusiast Gaming Holdings Inc. / Canada
(Exact name of registrant as specified in its charter)
90 Eglinton Avenue East, Suite 805, Toronto, ON, M4P 2Y3
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
INCORPORATION BY REFERENCE
Exhibit 99.1 and Exhibit 99.2 to this report on Form 6-K are hereby incorporated by reference into Enthusiast Gaming Holdings Inc.’s Registration Statement on Form F-10 (File No. 333-255725) and is Registration Statement on Form S-8 (File No. 333-271652).
Exhibit 99.3 and Exhibit 99.4 to this report on Form 6-K are furnished, not filed, and will not be incorporated by reference into any registration statement.
EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Enthusiast Gaming Holdings Inc. | ||
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| By: | /s/ Alex Macdonald | |
| Alex Macdonald | ||
| Date: August 14, 2023 | Chief Financial Officer |
Exhibit 99.1
EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
MANAGEMENT’S DISCUSSIONAND ANALYSIS
The following discussion and analysis is management’s assessment of the results and financial condition of Enthusiast Gaming Holdings Inc. (the “Company” or “Enthusiast Gaming” or “we” or “our”). The following information should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2023, and accompanying notes, and the Company’s audited annual consolidated financial statements for the year ended December 31, 2022, and accompanying notes, all of which are available on Enthusiast Gaming’s issuer profile on SEDAR at www.sedarplus.ca and in the United States on EDGAR at www.sec.gov/edgar.
The date of this management’s discussion and analysis (“MD&A”) is August 14, 2023. Unless otherwise indicated, all financial data in this MD&A has been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting. Condensed consolidated interim financial statements do not include all of the information required for annual consolidated financial statements and should be read in conjunction with the audited annual consolidated financial statements of the Company for the year ended December 31, 2022, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee. This MD&A has been prepared pursuant to the disclosure requirements under National Instrument 51-102 – ContinuousDisclosure Obligations of the Canadian Securities Administrators. Under the United States / Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in accordance with the Canadian disclosure requirements which may differ from United States disclosure requirements. All dollar amounts are stated in Canadian Dollars unless otherwise indicated.
CAUTIONARY STATEMENTREGARDING FORWARD-LOOKING INFORMATION
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 “risks and uncertainties” in this MD&A.
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-GAAP MEASURES
There are measures included in this MD&A that do not have a standardized meaning under generally accepted accounting principles (“GAAP”) and therefore may not be comparable to similarly titled measures and metrics presented by other issuers and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. In particular, “working capital” is a non-GAAP measure. Enthusiast Gaming includes this measure because it believes certain investors use this measure and metric as a means of assessing financial performance and that such measure highlights trends in the Company’s financial performance that may not otherwise be apparent when one relies solely on GAAP measures.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
NON-GAAP MEASURES (Continued)
The non-GAAP measure presented in the MD&A is “working capital”, which refers to current assets minus current liabilities.
Non-GAAP measures should not be considered in isolation or as a substitute for revenue, net income, cash flows generated by operating, investing or financing activities, or other financial statement data presented in accordance with GAAP, and may not be comparable to similarly titled measures used by other companies.
DESCRIPTION OF ENTHUSIASTGAMING HOLDINGS INC.
Enthusiast Gaming is building the largest media platform for video game and esports fans to connect and engage worldwide. Through its proprietary mix of digital media and entertainment assets, Enthusiast Gaming has built a vast network of like-minded communities to deliver the ultimate fan experience. This vertically integrated media platform engages a diverse, youthful and affluent audience who are watching, reading and consuming gaming content. Around 70%^1^ of Enthusiast Gaming’s audience is comprised of Gen Zs and Millennials who rely on the Enthusiast Gaming platform to learn, engage, communicate, create, and share gaming related content.
Between its online digital media properties, its network of partner websites and video channels, its library of web and mobile casual games, its video gaming expo, and its esports organization (Luminosity Gaming Inc., “Luminosity Gaming” or “Luminosity”), the Company engages approximately 300 million gaming enthusiasts worldwide monthly.
Enthusiast Gaming was incorporated under the Business Corporation Act (British Columbia) on June 27, 2018. The Company is a publicly traded company listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Capital Market (see Nasdaq Minimum Bid Price Requirement) under the symbol “EGLX”. Enthusiast Gaming maintains its registered office at 510 West Georgia Street, Suite 1800, Vancouver, British Columbia, V6B 0M3 and its executive office at 90 Eglinton Avenue East, Suite 805, Toronto, Ontario, M4P 2Y3.
On April 28, 2022, the Company, through its wholly-owned subsidiary, Steel Media Limited, acquired all of the issued and outstanding treasury shares of Fantasy Media Ltd (“FML”) and Fantasy Football Scout Limited (“FFS”, which together with “FML” is herein referred to as “FFS”), pursuant to a share purchase agreement dated April 28, 2022 (the “FFS SPA”). Pursuant to the terms of the FFS SPA, the Company acquired all of the outstanding treasury shares of FFS in exchange for (i) a cash payment of $2,937,520 (GBP £1,825,000) on closing, which includes an agreed upon cash excess amount of $523,120 (GBP £325,000), (ii) a payment of $1,609,600 (GBP £1,000,000) on the first anniversary of closing which may be paid in cash or common shares at the option of the Company, (iii) an earn-out cash payment $804,800 (GBP £500,000) on the first anniversary of closing, based on the renewal of a Fantasy Premier League agreement, subject to adjustments, and (iv) a cash payment of $80,480 (GBP £50,000) on the second anniversary of closing, subject to adjustments. The earn-out cash payment of $804,800 (GBP £500,000) will be paid if the Fantasy Premier League agreement, which expired on August 1, 2022, is renewed for an additional three-year period, on substantially similar or more favourable terms. The Fantasy Premier League agreement was renewed on August 1, 2022 for an additional three-year period on substantially similar terms. The FFS SPA is accounted for in accordance with IFRS 3, as the operations of FFS constitute a business.
^1^Calculated based on data provided by Comscore as of May 2023.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
DESCRIPTION OF ENTHUSIASTGAMING HOLDINGS INC. (Continued)
In the years ended December 31, 2022 and 2021, the Company completed the following mergers and acquisitions:
| (i) | On April 28, 2022, the Company acquired all of the issued and outstanding treasury shares of FFS<br>pursuant to the FFS SPA dated April 28, 2022; |
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| (ii) | On November 22, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all<br>of the issued and outstanding membership interest of Outplayed, Inc. (“Outplayed”) pursuant to a merger agreement dated<br>November 22, 2021 (the “Outplayed MA”); |
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| (iii) | On September 3, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all<br>of the issued and outstanding shares of Addicting Games, Inc. and TeachMe, Inc. (“TeachMe”, which together with Addicting<br>Games, Inc., is herein referred to a “Addicting Games”) pursuant to a share purchase agreement dated September 3, 2021<br>(the “Addicting Games SPA”); |
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| (iv) | On August 30, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all of<br>the issued and outstanding membership interest of GameKnot LLC (“GameKnot”) pursuant to an equity purchase agreement<br>dated August 30, 2021 (the “GameKnot EPA”); |
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| (v) | On June 21, 2021, the Company, through its wholly owned subsidiary, Enthusiast Gaming Media (US)<br>Inc. (“Media US”), completed the acquisition of Tabwire LLC (“Tabwire”) pursuant to an equity purchase<br>agreement dated April 22, 2021 (the “Tabwire EPA”); and |
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| (vi) | On May 1, 2021, the Company acquired all of the outstanding common shares of Vedatis SAS (“Vedatis”)<br>from the owners pursuant to a share purchase agreement dated May 1, 2021 (the “Vedatis SPA”). |
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The FFS SPA, Outplayed MA, Addicting Games SPA, GameKnot EPA, Tabwire EPA and Vedatis SPA are collectively called the “Mergers and Acquisitions” in this MD&A. For information relating to the accounting of the Mergers and Acquisitions see Note 5 of the Company’s audited annual consolidated financial statements for the year ended December 31, 2022. For a business overview of Outplayed, Addicting Games, GameKnot, Tabwire and Vedatis refer to the MD&A for the year ended December 31, 2022.
BUSINESS OVERVIEW OF FANTASY FOOTBALL SCOUT
FFS owns the web properties FantasyFootballScout.co.uk and livefpl.net. FFS provides the fantasy football community, weekly scout report newsletters, integrated live rank data, data visualizations and three player comparison tools. LiveFPL is a free service to help members track their exact fantasy Premier League rankings in real time, both overall and in their mini-leagues and understand how to move up in rankings.
BUSINESS PRODUCTS ANDSERVICES
Enthusiast Gaming deploys its products and services as a single reportable segment in the digital media and entertainment industry. Enthusiast Gaming’s products and services fall into three principal pillars, which consist of Media and Content, Esports and Entertainment, and Subscription.
MEDIA AND CONTENT
Enthusiast Gaming’s media and content revenue stream is comprised of over 50 websites that are wholly owned or exclusively monetized by the Company and contain news, reviews, videos, live streams, blog posts, tips, chats, message boards, other video-gaming related content and casual games. Central to Enthusiast Gaming’s ability to create valuable advertising space that can be sold on its websites, video channels and casual games (referred to as “Inventory”) is the ability to both develop content rich digital media and foster the interaction and contributions of its users to its digital media properties. Enthusiast Gaming possesses a network of full and part-time content developers to ensure regular, interesting updates are made across its digital media properties to reflect the newest developments in the world of video games, in the form of videos, articles, blog posts, and other content.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
BUSINESS PRODUCTS ANDSERVICES (Continued)
MEDIA AND CONTENT (Continued)
The gaming community is drawn to different aspects and forms of content on Enthusiast Gaming’s network of websites. Part of Enthusiast Gaming’s strategy is to acquire and operate profitable video gaming websites and video properties with differentiating content from its then current portfolio, providing valuable, relevant content for any gaming enthusiast. Some of the different types of content includes: long form, short form, and documentary styles of content.
Another prevalent aspect of the media content on Enthusiast Gaming’s sites or video properties may be referred to as “video game journalism”, an aspect of the video gaming industry whereby individuals will review, critique, and provide commentary on new and old video games, particular aspects of video games, upgrades, new hardware platforms, and other aspects of video games.
Omnia Media Inc.’s (“Omnia”), a subsidiary of the Company, principal business activities include the creation, distribution, and exploitation of owned and talent-produced gaming-related video content, as well as the representation and management of underlying talent. Omnia generates advertising revenue from its external talent network, its owned and operated content, as well as through direct brand sales through delivery of targeted advertisements on YouTube and other platforms that users click on, leading to direct engagement between users and advertisers. Omnia produces and programs over 10 weekly shows across advertising-based video on demand (“AVOD”) and over-the-top (“OTT”) channels and represents over 500 gaming influencers across YouTube and Twitch. Its distribution network reaches over 90 million unique viewers and has a significant United States market inventory of over 700 channels, over 700 million subscribers and generated over 25 billion total video views in 2022. Omnia owns content brands that matter to fans who love gaming and pop culture including BCC Gaming, Arcade Cloud and Wisecrack. BCC Gaming is a leading Fortnite community channel. Arcade Cloud is a gaming channel featuring original animations. Wisecrack is a collective of comedians, academics, filmmakers, and artists. Omnia generates advertising revenue from its external talent network, its owned and operated content, as well as through direct brand sales through delivery of targeted advertisements on YouTube and other platforms that users click on, leading to direct engagement between users and advertisers.
Addicting Games has a portfolio of casual games for desktop and mobile devices. Advertising revenues generated from Inventory on Addicting Games’ casual games is included in media and content revenue.
For any publishing company, the key mission is to build a dedicated following of engaged visitors and brands that are looking for high levels of engagement within a target market to run successful advertising campaigns. Enthusiast Gaming has amassed a platform of engaged, lifestyle gamers that have become a leading advertising platform for brands targeting the gamer demographic. Enthusiast Gaming’s web platform generates over two billion page views per quarter, and its video platform, operated by Omnia, generates approximately six billion video views per quarter. Each of these views produces Inventory available for sale. The majority of Enthusiast Gaming’s media and content revenue is driven by programmatic advertising across the platform. Enthusiast Gaming has built out a direct sales team to foster key relationships and drive revenue. The direct sales team is also responsible for developing long term clients looking for integrated advertising solutions across Enthusiast Gaming’s brands.
Programmatic Media Value Chain
The programmatic media value chain consists of various industry players seeking to facilitate optimal purchasing of advertising from targeted publishers. Importantly, both the supply side (websites or video properties with ad space) and the demand side (brands and/or advertisers seeking ad space) have their own respective options when it comes to platforms. Supply-side Platforms (“SSPs”) and Display Side Platforms (“DSPs”) have been created in order to streamline publishing and ad-buying processes. Companies strategically use both SSPs and DSPs to facilitate optimal purchasing of advertising from targeted publishers.
A common advertising spending metric utilized in the digital publishing industry, is known as “Cost Per Thousand” (“CPM”) impressions.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
BUSINESS PRODUCTS ANDSERVICES (Continued)
MEDIA AND CONTENT (Continued)
Programmatic Media Value Chain (Continued)
CPM and other relevant metrics, allow SSPs and DSPs to navigate on a common basis whereby a more targeted marketing campaign will typically demand a higher CPM given that each ad impression can justifiably be worth more to the advertiser.
Should an advertiser or publisher decide to investigate one step deeper into the efficiency of its campaign, the metric of “Click Through Rate” serves as a percentage of people who saw the ad and subsequently clicked on it. Other methods of negotiating digital advertising and publishing transactions utilize “Cost Per Click”, wherein the advertiser pays on a per-click basis, or alternatively can pay on a more joint venture / commission basis sometimes referred to as “Cost Per Acquisition”.
Companies tend to utilize Effective Cost Per Thousand (“eCPM”) impressions in order to compare various advertising mechanisms and campaigns on a leveled basis. Essentially, eCPM inputs the earnings obtained via a certain campaign, divided by the number of actual impressions delivered. This results in a cost per impression, such that when multiplied by 1,000, will deliver an approximation for the eCPM.
Sale of Inventory
The digital media advertising revenue stream of Enthusiast Gaming’s business flows from the digital media publishing revenue stream. With content-rich digital media properties drawing billions of monthly page and video views, Enthusiast Gaming is able to sell valuable Inventory on its digital media properties. In addition to selling its own Inventory, Enthusiast Gaming acts as a representative for the sale of third-party Inventory on websites and video properties and applications that also host similarly themed content. By combining the Inventory in its own network with third-party Inventory, and in some instances, acting as an exclusive provider of advertising to third parties, Enthusiast Gaming gets access to exclusive ad auctions and sales opportunities through which it is able to command higher advertising revenues and negotiate favorable profit-sharing arrangements.
Online advertising revenue is determined by a number of metrics. Advertising revenues may factor in the number of individuals who view particular web pages or video properties in Enthusiast Gaming’s network of digital media properties, how often the web pages or videos are viewed, and how much time a user spends on a website or video property during each visit. Revenue can be accorded based on the number of advertising impressions, the “Click-through Rate” (“CTR”), and the rate at which advertisements lead to sales. The functioning of the advertisements themselves can have a significant effect on achieving key advertising metrics.
Enthusiast Gaming developed proprietary optimization tools which it utilizes to sell ads. The optimization tool allows Enthusiast Gaming to set strategic parameters for the sale of Inventory in real time auctions that occur in milliseconds and are all executed by computer programs. Additionally, the programmatic optimization tools enable Enthusiast Gaming to target specific advertisers at specific times in order to receive the highest value for its Inventory.
The Inventory or advertising space can be found in a variety of locations throughout the websites and video properties. New advertising impressions are generally created when a user opens a website or navigates to a different page, or when they watch a video. They can take on the form of pre-roll video advertisements, banner advertisements, ad-words, “skins” or background advertisements, in-application ads, or other forms of ad units as may be applicable to the respective property.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
BUSINESS PRODUCTS ANDSERVICES (Continued)
MEDIA AND CONTENT (Continued)
Sale of Inventory (Continued)
Enthusiast Gaming derives part of its total revenue from direct advertising campaigns. When a client opts for a direct campaign, Enthusiast Gaming will prepare a marketing plan with the client, consisting of the length of the campaign and set parameters which will define how the ad will be displayed such as, specific countries where the ad will be displayed, on desktop or mobile, whether the ad will click through to another site, etc. Additionally, depending on the campaign, Enthusiast Gaming may guarantee a certain amount of impressions or CTR. Additionally, Enthusiast Gaming may produce custom campaigns that involve activations by talent including conducting contests, livestreams, and social media posts to increase brand awareness.
Enthusiast Gaming’s media and content revenue is primarily derived from the sales of ad inventory on its network of digital media properties. Enthusiast Gaming has steadily grown its network of digital media properties and has experienced a corresponding growth in revenue. Due to the steady growth, the fluctuation of spending in the advertising industry has not been obvious from Enthusiast Gaming’s operating results. Ad inventory derives its value from a number of factors, including supply and demand. In preparation for retail-oriented holidays, retail sector advertisers may increase their advertising budgets, thus reducing the availability of ad inventory and increasing its value. Similarly, advertisers in the technology industry may correlate their ad campaigns to the launch of new products.
Online advertisements can be sold in a variety of ways. Enthusiast Gaming enters into agreements with online advertising exchanges, through which advertisers will bid on space and time in Enthusiast Gaming Inventory and the Inventory of companies Enthusiast Gaming represents.
Under its affiliate agreements, Enthusiast Gaming provides advertising sales as a third-party representative, to digital media publishers. Generally, Enthusiast Gaming will receive the right to market and sell all available advertising space within the digital media publisher’s website or video property for the duration of the agreement. In exchange for the opportunity to monetize the digital media publisher’s property, Enthusiast Gaming will compensate the digital media publisher, either in the form of fixed monthly payments subject to page views, or a percentage of ad revenue, or a combination of the two.
The advertising technology space is ever evolving, but like most industries, the race tends to be toward optimal efficiency. Enthusiast Gaming therefore believes, as do many industry experts, that original content production, curation, and publishing will continue to thrive and generate more value given its importance to target consumers. Conversely, as better efficiency is pursued, middle-firms currently exacting fees in between advertisers and publishers, should see their revenues and margins decline. Large advertisers are interested in widely distributed publishers like Enthusiast Gaming, and firms in between will become more secondary.
ESPORTS AND ENTERTAINMENT
The Company’s esports division, Luminosity Gaming, is a professional esports organization based in Toronto, Canada. It currently has fully-owned teams competing in Apex Legends, Rocket League, World of Warcraft, Call of Duty: Mobile, Fortnite, PlayerUnknown’s Battlegrounds (“PUBG”), Call of Duty: Warzone, Super Smash Bros: Melee, Super Smash Bros: Ultimate, Brawlstars, Halo, MLB the Show, and Pokemon Unite. Luminosity Gaming’s teams compete globally and Luminosity positions itself as a significant contender at the highest level of competition in all games in which it fields teams. In addition to its competitive esports teams, Luminosity also has a team of content creators on YouTube, Twitch, and TikTok.
The Company holds a non-controlling interest in the Vancouver Titans of the Overwatch League and the Seattle Surge of the Call of Duty® esports league. Enthusiast Gaming assists in the management of the Vancouver Titans and the Seattle Surge.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
BUSINESS PRODUCTS ANDSERVICES (Continued)
ESPORTS AND ENTERTAINMENT (Continued)
Enthusiast Gaming’s enterprise is made up of interrelated operations intended to derive revenue from assets acquired by Enthusiast Gaming across the esports value chain. Enthusiast Gaming leverages its esports operations to build content and develop an audience and fan base to facilitate merchandising and subscriptions, pursuant to direct sponsorships, endorsement deals, product placement deals, advertising sales and advertising.
The branding of Enthusiast Gaming and Luminosity Gaming is particularly important to its marketing initiatives and its ability to gain traction in the industry and engage marketing partners such as sponsors. The outcome of any contest, competition, or tournament for the teams and players that Enthusiast Gaming intends to manage and provide services to may affect the ability for Enthusiast Gaming to strengthen its brand. Enthusiast Gaming believes its business depends on identifiable intangible properties such as brand names.
Esports entities that rely on marketing initiatives as a source of revenue will need to have a large following in order to enable marketing partners to generate revenue by leveraging this following. To that end, Enthusiast Gaming has retained a management team that has business acumen, sports and entertainment experience and industry connections. Enthusiast Gaming leverages its direct sales team to not only sell advertising inventory, but to also sell sponsorships for its esports assets.
The Company’s entertainment division is also the operator of over 25 video game networking events across 11 countries, including key markets such as the US and UK. The Company is an industry leader in B2B and consumer mobile gaming events. It owns and operates numerous successful networking events around the world with registered industry attendees and key sponsors and partners. As part of its B2B events, the Company hosts Pocket Gamer Party, Top 50 Developer Guide, Mobile Mixers, the Mobile Games Awards, and a feature event, Pocket Gamer Connects (“PGC”), the largest B2B mobile games conference series, with both virtual events and live events in locations such as London, San Francisco, Helsinki, and Seattle. The following summarizes select Pocket Gamer events over last 12 months:
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
BUSINESS PRODUCTS ANDSERVICES (Continued)
SUBSCRIPTION
The Company offers membership subscriptions to the following owned and operated properties:
The Company plans to continue to expand its subscription offerings across its networks of web and video properties.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
GROWTH STRATEGIES
Enthusiast Gaming has a complementary organic and M&A growth strategy. M&A has been an important growth lever, having helped the Company grow and serve approximately 300 million monthly active viewers. The Company believes it has a clear path to further monetize the viewership base through multiple organic growth initiatives including: optimizing CPMs, increasing direct sales, growing subscribers, and deploying digital products to its audience (such as casual games).
Optimize CPMs
Enthusiast Gaming is focused on utilizing programmatic optimization tools to target specific viewers and delivering high value advertising. The Company built its adtech and programmatic optimization platform, through internally developed technology and third-party software. Enthusiast Gaming continues to enter into new SSPs relationships that contribute to increased sell through rates and revenue performance. The Company also invests in new adtech tools and expertise and expects to be able to achieve further revenue optimization on the Company’s web platforms.
Increase Direct Sales
Selling high-impact advertising inventory directly to brands creates additional margin accretion as marketers are charged a higher price than traditional programmatic sales. Direct selling specifically relates to contracting directly with brands to produce custom content and campaigns and is typically supplemented with paid media for customer activations. Direct sales included in revenue for the six months ended June 30, 2023 was $18.7 million as compared to approximately $14.5 million for the six months ended June 30, 2022. Enthusiast Gaming’s direct sales efforts began in Q1 2020 and continue to see increased success with larger client activations. The Company now has advertising sales and fulfillment professionals in major city centers including New York, Los Angeles, Chicago and Toronto.
Grow Subscribers
The Company has more than quadrupled the number of paid subscribers for its properties from approximately 61,000 in March 2019 to approximately 272,000 in June 2023. In 2021, approximately 48,000 paid subscribers were added through the Mergers and Acquisitions of Vedatis, Tabwire, GameKnot, Addicting Games, and Outplayed. In 2022, approximately 26,000 paid subscribers were added through the Mergers and Acquisitions of FFS. Enthusiast Gaming continues to look for opportunities to grow existing subscription offerings, launch new subscription offerings, and is in the early stages of developing an Enthusiast Gaming platform wide subscription model available to web, video, and esports audiences of the Company.
NFL Tuesday Night Gaming
In September 2022, the Company partnered with the National Football League (the “NFL”) to launch a first-of-its-kind gaming collaboration bringing together NFL players and Legends with top gaming content creators from marquee gaming organizations including Luminosity Gaming.
This multi-year partnership resulted in the launch of NFL Tuesday Night Gaming (“NFL TNG”). NFL TNG debuted September 13, 2022, on YouTube in the United States and Canada, and airs Tuesdays during the 2022-2023 NFL regular season. The show consists of a rotating roster of NFL players and legends, competing with gaming creators across multiple game titles each week.
Season 1 of NFL Tuesday Night Gaming saw many impactful, viral moments for fans, including camaraderie between NFL Stars and gaming creators playing side-by-side, wholesome family moments on Family Game Night, and epic gaming moments. NFL TNG had approximately 73 million impressions across livestream and social content in season 1 over 18 episodes and 4-part special series.
In addition to the weekly live streamed gameplay, this partnership will also produce daily, always-on content throughout the season, including, pre-and post-game analysis, highlights, plays of the week, and more, leveraging the scale of the NFL and Enthusiast Gaming’s network of gaming assets. For more information on NFL TNG, visit nfltuesdaynightgaming.com.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
GROWTH STRATEGIES (Continued)
Content Licensing
The Company is pursuing opportunities to license its library of content and owned and operated brands to distributors. Enthusiast Gaming already has established partnerships with TikTok and Snapchat.
Strategic Acquisitions
The Company’s growth is enhanced by a targeted acquisition strategy. Enthusiast Gaming (including Enthusiast Properties) has successfully acquired or made significant investments in and integrated 24 companies. The Company continues to be disciplined in pursuing value-enhancing, highly-strategic acquisitions. A significant number of independent gaming web and video properties can benefit from Enthusiast Gaming’s viewership base, data and analytics platform, and CPM optimization strategy. Management maintains regular dialogue with these entities resulting in a strong M&A pipeline of highly accretive targets.
MARKET
Gaming Market
The robust global gaming market is rapidly expanding and represents one of the fastest growing segments within the broader media and entertainment ecosystem. Due to, among other things, increased engagement, technology adoption and shared experiences, the global gaming market reached USD$184.4 billion in 2022^2^. According to Newzoo, the industry is expected to grow to USD$211.2 billion by 2025.^2^ The proliferation of high-speed internet, accessible technology, and publishers using enhanced live operations and other tools, have further accelerated the gaming market. Gaming has amassed a diverse audience who rely on the industry as a form of entertainment and social connection. Increasingly, younger generations are immersing themselves in gaming ecosystems and now choose gaming as their primary form of entertainment. Nearly 50% of the Gen Z and Millennials prefer gaming than any other traditional media such as streaming TV, broadcast TV, music and reading.^3^
In 2022, there were nearly 3.2 billion global gamers, who engage with interactive entertainment using PC, console, mobile device or cloud gaming service^2^. It is expected that gamers will surpass 3.5 billion by 2025.^4^ Enhanced technology and high-fidelity content has allowed live concerts, movie screenings and birthday parties to take place within gaming ecosystems driving further engagement and excitement among young and old. Mordor Intelligence expects the gaming market growth in North America will be up from USD$63.1 billion in 2023 to USD95.6 billion by 2028, with a compound annual growth rate of 8.65% from 2023-2028^5^. The United States is one of the largest gaming markets while Canada’s industry is growing.^5^
| ^2^ | Based on data provide by Newzoo’s 2022 Global Games<br>Market Report. |
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| ^3^ | Based on data provide by Digiday, Gaming Advertising<br>Forum published on July 11, 2022. |
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| ^4^ | Based on data provide by Newzoo’s 2022 Global Games<br>Market Report. |
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| ^5^ | Based on data provided by the report “Gaming Market<br>- (2023-2028)” provided by Mordor Intelligence, published on March 28, 2023. |
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| 11 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
MARKET (Continued)
Gaming Market (Continued)
The industry is still in an early stage as developers and publishers continue to create new content, with better monetization and communication capabilities. Additionally, technology companies are fueling the rise of gaming by enhancing content through better platforms i.e., larger mobile phones, new consoles and cloud gaming, which allow gamers to play anytime, anywhere using any platform. As the industry continues to grow, dedicated fans are engaging with gaming related content even after they put their devices down. Video games have led to the rise of esports, streaming, dedicated news and fan sites as well as celebrities all of which accelerate the global excitement around gaming. The following statistics reflect how ubiquitous and diverse gaming users are:
| 33<br><br> <br>Average age of a gamer in 2023 | 81%<br><br> <br>Gen Z play 7+ hours per week | 77%<br><br> <br>Parents game with their children | 48%<br><br> <br>Gamers identify as female |
|---|
Source: ESA 2022 Essential Facts – About the Video Game Industry
Digital Media
Over the past two decades, the proliferation of the internet and mobile devices has shifted the way consumers engage with media and content, amplifying the digital media industry. In 2023, the average daily time spent with digital media in the United States is expected to increase from 470 minutes in 2020 to 500 minutes (over eight hours) in 2023.^6^ Due to, among other things, the shift in media consumption from traditional to digital and increased time consumers are spending online, advertisers have adjusted the way in which they allocate their advertising budgets^6^. According to eMarketer, digital advertising is expected to grow 10.5% from USD$550 billion spent in 2022 to USD$602 billion in 2023^7^. The spend will further rise to USD$871 billion by 2027, which will be 74% of the total global media and spending.^7^ The United States advertising spend market continues to improve as most of the major digital ad platforms saw an acceleration in spending growth in Q2 2023.^8^
| ^6^ | Based on data provided by<br>Statista as of January 2023. |
|---|---|
| ^7^ | Based on report “Worldwide<br>Digital Ad Spending 2023” published by eMarketer on January 9, 2023. |
| --- | --- |
| ^8^ | Based on the report “Q2<br>2023 Benchmark Report: Overall Trends Spend Growth Accelerates Across Platforms” published by Tinuiti in July 2023. |
| --- | --- |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
MARKET (Continued)
Digital Media (Continued)
United States Ad Spend Year Over YearGrowth by Platform^9^
Specifically, with regards to gaming, digital media has become an increasingly important component of the industry. Gamers are now allocating significant time to gaming outside of playing their favorite titles, choosing to watch gaming video content, following esports teams and joining forums / blogs. According to Nielsen, 77% and 71% of Gen Z and Millennial gamers also consume Gaming Video Content, respectively.^10^ Engagement is higher for the next generation, Gen Alpha, with 94% engaged with games and games content.^11^ According to YouTube, viewers watched approximately 50 billion hours of gaming video content on its platform in 2018, doubling to approximately 100 billion in 2020.^12^ Additionally, the number of gaming-related tweets continue to increase with over 24 billion in 2021, a 14% year-on-year increase, and 100% more than 2017, according to Twitter.^13^ Gamers are spending time on gaming websites containing news, reviews, videos, blog posts, tips, chats, message boards, and other content. Furthermore, 92% of Gen Alpha and Gen Z have spent money on in-game purchases^14^, and their attitudes towards brands are 36% higher among players than non-payers.^15^ In 2022, USD$56.6 billion of consumer spending on video game products are recorded in U.S, of which 84% sales were related to video game content.^16^
| ^9^ | Anonymized Tinuiti advertiser data, 2023. |
|---|---|
| ^10^ | Based on Nielsen’s 2019 Millennials on Millennials:<br>Gaming Media Consumption Report. |
| --- | --- |
| ^11^ | Based on Newzoo’s “How Consumers Engage with Video<br>Games Today – Newzoo’s Global Gamer Study 2023”, published on June 20, 2023. |
| --- | --- |
| ^12^ | Based on an article published by The Verge on December<br>8, 2020 titled “YouTube Gaming had its best year ever with more than 100 billion hours watched” and an article published<br>by YouTube on December 8, 2020 titled “2020 is YouTube Gaming’s biggest year ever: 100B watch time hours”. |
| --- | --- |
| ^13^ | Based on articles published by Twitter titled “Plug<br>into #GamingTwitter: Tips and insights for brands” and “Twitter Gaming reports record conversation volume for first<br>half of 2022” on July 12, 2022. |
| --- | --- |
| ^14^ | Based on Newzoo’s “Gen Alpha & Gen Z - The<br>Future of Gaming “Report published on September 28, 2022. |
| --- | --- |
| ^15^ | Based on Newzoo’s “How Consumers Engage with Video<br>Games Today – Newzoo’s Global Gamer Study 2023”, published on June 20, 2023. |
| --- | --- |
| ^16^ | Based on the article “2022 U.S. Video Game Spending<br>2nd Highest in History, Fall 5% Compared to 2021” by Circana (Formerly known as The NPD Group) on Feb 2, 2023. |
| --- | --- |
| 13 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
MARKET (Continued)
Gaming Market (Continued)
Viewers of Enthusiast Gaming’s network of digital media properties are both men and women ages 13 to 65+ with the majority of its users spending, on average, more than 15+ hours gaming per week. These individuals represent a highly sought-after demographic in a number of key advertising categories.
Esports
Esports, or electronic sports, is the evolution of video gaming. “Esports” typically refers to competitive gaming whereby gamers can, individually or in teams, compete against one another. Spectators can typically observe these competitions via different platforms online or in person at live events. The advent of online platforms, such as Twitch, has allowed more and more spectators to watch competitions globally from anywhere in the world and has contributed to the growth in the popularity of esports. Competitive gamers can now participate in regulated leagues, tournaments or other competitions and matches, for various different games on different entertainment systems. Further, competitive gamers, teams, team managers, streamers, game developers, viewing platforms and other participants in the esports industry are able to monetize the attention through different means, including through viewer subscriptions and marketing sponsorships.
Esports is an important component of online video gaming content. Most notably, esports turns competitive video-gaming into a spectator sport. Thousands of viewers will attend live events to watch professional video game players compete in tournaments. Additionally, these tournaments are often streamed online, with viewers logging on to watch from their computers, tablets or mobile devices. According to Newzoo, esports was set to generate nearly USD$1.8 billion in revenues in 2022 while the global esports audience would reach to 532 million.^17^ In January 2023, Technavio published a report on esports market that esports is set to generate nearly USD$3.52 billion in revenues from 2022 to 2027, growing at a compound annual growth rate of 21.8% during the forecast period, driven by more branding through esports, rising esports events and new platform launches.^18^
SUSTAINABILITY
Being Transparent and Accountable, Responsiblefor a Sustainable Business Environment
Corporate governance and sustainable development are key to bringing credibility to management’s decision making and enhancing the communications process between the Company and all stakeholders.
Journey to Governance Best Practicesand Supporting our Communities
The Board of Directors and management of Enthusiast Gaming believe that Company’s performance requires a sound and effective Environment, Social and Governance (“ESG”) approach. The Board of Directors has adopted certain practices and procedures to ensure that effective corporate governance practices are followed, and the Board of Directors review the Company’s corporate governance practices and procedures on a regular basis to ensure that they address significant issues around corporate governance.
At Enthusiast Gaming, management believes its employees are the biggest asset and it is committed to fostering, cultivating, and preserving a culture of diversity, inclusion, and equality. The collective sum of the individual differences, life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities, and talent that the Company’s employees invest in their work represents a significant part of the Company’s culture, reputation and achievements.
| ^17^ | Based on an article published by eMarketer “Esports<br>Ecosystem in 2023: Key industry companies, viewership growth trends, and market revenue stats” published on January 1, 2023. |
|---|---|
| ^18^ | Based on an article published by Technavio “Esports<br>Market by Revenue Stream, Genre and Geography - Forecast and Analysis 2023-2027” published in January 2023. |
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| 14 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
SUSTAINABILITY (Continued)
Journey to Governance Best Practicesand Supporting our Communities (Continued)
During the six months ending June 30, 2023, numerous new social, governance and IT policies were launched in addition to the existing policies, including a Diversity Policy, Parental Leave Policy, a new Vacation and Leave Policy and Referral Policy with the aim to provide an equitable and harmonious work environment for staff. As part of designing improved corporate governance practices throughout the organization, the Company is currently in process of establishing a new ERP system to ensure the continued support of business needs and strategic objectives, as well as further enhance the control environment, increase operational efficiencies, and maintain a high quality of its reporting capabilities as business continues to grow.
In 2023, the Company set up the following four Employee Resources Groups (“ERG”) spearheaded by the staff:
| Prism – Recognising our LGBTQIA+ community.<br><br><br><br>Tetris – People of Color<br><br><br><br>Joysticks – Employee Mental Health Awareness Group<br><br><br><br>RYG (Raise Your Game) - Women’s Affinity ERG |
|---|
In 2023, Luminosity Gaming continued its commitment to Diversity, Equity and Inclusion. Luminosity Gaming rosters three competitive Women’s teams, Luminosity Gaming Red and Luminosity Gaming Green who compete in Apex Legends and the Women’s Carball team which competes in Rocket League. Luminosity Gaming is also home to two of the top Women Battle Royale players, Vanessuh and Kenz Rosey, who compete in Fortnite and Call of Duty: Warzone, respectively. Additionally, the Company’s partnership with the global gaming community presents us with the unique opportunity to engage with gamers across all races, creed, and color.
Protecting our Environment
Enthusiast Gaming cares about the carbon footprint produced every day by our staff and customers. The Company provides a hybrid working environment, encouraging virtual meetings with internal and external stakeholders which greatly reduces travel and the use of utilities, plastics, and paper, and thereby minimizes our carbon footprint. For our PGC events, we provide both in person and virtual channels for participants to join our events in order to reduce emissions from attendee travel by opening the event to remote participation. We also support the Games Forest Club, a non-profit organisation which aims to guide the games industry towards a climate-positive future by 2030, with less environment impact, through donations for every PGC ticket we sell. These donations go towards preserving a section of forests in Peru, to help off-set our event-related carbon footprint.
| 15 |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
SIGNIFICANT ANNOUNCEMENTSYEAR TO DATE
| DATE | DESCRIPTION |
|---|---|
| January 23, 2023 | The Company announced a partnership with Mondelēz International’s SOUR PATCH KIDS® (NASDAQ: MDLX) to launch the SOUR PATCH KIDS Fruit Fight Tournament, which will be hosted on NFL TNG’s channels beginning in February 2023. The tournament is a collaboration among Enthusiast Gaming, SOUR PATCH KIDS, and media agency Spark Foundry to amplify the SOUR PATCH KIDS Fruit Fight campaign among the gaming community. |
| January 24, 2023 | The Company announced it has signed a new media sponsorship with Campbell Company of Canada for Campbell’s® Chunky® Soup to be the presenting sponsor for NFL TNG’s Chunky Soup Showdown. |
| January 31, 2023 | The Company announced that its most recent event, PGC London, drew record attendees. This show marked the 37th installment over 10 years of PGC events across the globe and surpassed all previous shows on a number of key metrics. At PGC London, a record 2,600 attendees representing more than 1,200 companies from 65 countries and six continents connected on various topics from across the gaming industry. |
| February 2, 2023 | The Company announced that its browser-based, first-person shooter game, EV.IO, continues to attract industry accolades as a pre-eminent web3 gaming offering, including recently winning FPS Game of the Year and Esports Game of the Year at the Web3 Gam3rs Choice Awards earlier this week, following wins in the categories of best esports title and best multiplayer title at the Polkastarter GAM3 Awards in December. |
| February 7, 2023 | The Company announced that it has renewed its partnership with Xbox as a media sponsor for the upcoming NFL TNG All-Star Game. |
| February 22, 2023 | The Company announced that it has been ranked as the #1 gaming property for unique visitor traffic in the United States, based on the latest digital media ratings from Comscore, a leading independent media measurement firm (Comscore Media Metrix®, Games, January 2023, U.S.). |
| March 1, 2023 | The Company announced that Nick Brien has been appointed as CEO to lead its global operations. Nick Brien will be based in Los Angeles. Most recently, Nick Brien was the CEO of Amobee, one of the world’s leading ad tech companies. Adrian Montgomery, who has served as CEO of Enthusiast Gaming since 2019, will move to Chair the Board of Directors as part of a previously announced transition plan. |
| May 1, 2023 | The Company announced an update on its senior management team. Changes to the senior management team include: (i) Tara Fournier joining Enthusiast Gaming as Chief People Officer; (ii) Amanda Rubin being promoted as Executive Vice President (“EVP”), Brand Solutions, (iii) Matt Goodman being promoted as EVP, Strategic Partnerships, and (iv) Scotty Tidwell being promoted as EVP, Content & Creators. |
| 16 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
SIGNIFICANT ANNOUNCEMENTSYEAR TO DATE (Continued)
| DATE | DESCRIPTION |
|---|---|
| May 4, 2023 | The Company announced the Listing Qualifications<br> department of the Nasdaq Stock Market LLC (“Nasdaq”) approved the Company’s request for a 180-day extension to<br> regain compliance with Nasdaq’s minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1). The Company now has until<br> October 30, 2023 to regain compliance. If at any time prior to October 30, 2023, the bid price of the Company’s common shares closes<br> at USD $1.00 per common share or more for a minimum of 10 consecutive business days, the Company will regain compliance with the<br> minimum bid price requirement.<br><br> <br><br><br> <br>In connection with the 180-days extension,<br> the Company has transferred the listing of the common shares from the Nasdaq Global Select Market to the Nasdaq Capital Market.<br> The transfer is expected to take effect at the opening of business on May 4, 2023. Neither the Company’s operations nor the<br> Company’s TSX listing are affected by the transfer of the Company’s listing to the Nasdaq Capital Market. The common<br> shares will continue to trade without interruption under the symbol “EGLX.” The Nasdaq Capital Market operates in substantially<br> the same manner as the Nasdaq Global Select Market, and companies on the Nasdaq Capital Market must meet certain financial and<br> corporate governance requirements to qualify for continued listing.<br><br> <br><br><br> <br>The Company intends to continue<br>to actively monitor the minimum bid price requirement and, as appropriate, will consider available options to resolve any deficiencies<br>and regain compliance. |
| June 21, 2023 | The Company announced that PGC Seattle, which occurred May 16-17, 2023, drew attendees from 40 different countries. The Company will be hosting its first-ever event in Dubai, GameExpo Summit, in June and its second annual PGC Toronto event in July. |
| July 10, 2023 | The Company announced that it has increased its position as the #1 Gaming Property in the United States, reaching a new record of 56 million Unique Visitors, based on the latest digital media rations from Comscore. The results represent a 28% year-over-year growth in Unique Visitor traffic to Enthusiast Gaming’s digital media Property of gaming communities, content, and creators (Comscore Media Metrix® Muilt-Platform, Total Audience, May 2023, U.S.). The Company also climbed to #72 on Comscore’s comprehensive ranking of the Top 100 Properties in the United States across all digital media categories, representing another market high (Comscore Media Metrix® Muilt-Platform, Total Audience, May 2023, U.S.). |
| July 18, 2023 | The Company announced Steelcase Inc. as the official performance seating partner of Luminosity Gaming. |
| July 27, 2023 | The Company announced that its data-driven and insights platform, U.GG, has expanded to include content and support for World of Warcraft, one of the largest massive multiplayer online role-playing games in the world. |
| 17 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALL PERFORMANCE
The comparative three months ended June 30, 2022, results below do not include a full three months of results for the Mergers and Acquisitions of FFS. FFS was acquired on April 27, 2022. The operating results of FFS have been included in the Company’s consolidated financial statements from the date of acquisition.
Summary of Financial and Operating ResultsFor the Three Months Ended June 30, 2023 and 2022
Selected financial information for the Company for the indicated period is provided below:
| Three Months Ended<br><br> <br>June 30, 2023<br><br> <br>$ | Three Months Ended<br><br> <br>June 30, 2022<br><br> <br>$ | |
|---|---|---|
| Total revenue | 42,598,769 | 51,119,028 |
| Cost of sales | 27,616,077 | 35,775,863 |
| Gross margin | 14,982,692 | 15,343,165 |
| Interest income | (1,514) | (1,320) |
| Operating expenses | 24,586,889 | 29,117,767 |
| Net loss and comprehensive loss for the period | (12,358,392) | (13,811,933) |
| Net loss per share – basic and diluted | (0.07) | (0.12) |
Revenue for the three months ended June 30, 2023 and 2022, was $42,598,769, and $51,119,028 respectively. The table below provides a breakdown of the revenue for the indicated period:
| Three Months Ended<br><br> <br>June 30, 2023<br><br> <br>$ | Three Months Ended<br><br> <br>June 30, 2022<br><br> <br>$ | |
|---|---|---|
| Media and content (a) | 36,886,121 | 45,391,845 |
| Esports and entertainment (b) | 1,703,290 | 2,183,894 |
| Subscriptions (c) | 4,009,358 | 3,543,289 |
| Total Revenue | 42,598,769 | 51,119,028 |
Notes:
| (a) | Media and content<br>revenue predominantly consists of advertising revenue on the Company’s web, video, and casual gaming platforms, and content<br>licensing revenue. Q2 2023 media and content revenue attributable to the video platform is $22.7 million, which decreased $5.0<br>million compared to $27.7 million in Q2 2022. The decrease in media and content revenue for Q2 2023, relating to the video platform,<br>is mainly attributable a 5% decrease in video views in Q2 2023 compared to Q2 2022, and a revenue per thousand impressions (“RPM”)<br>for the video platform which was 13% lower in Q2 2023 compared to Q2 2022, with a similar trend observed in the boarder programmatic<br>market. |
|---|---|
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALL PERFORMANCE (Continued)
**Summary of Financial and Operating Results (Continued)For the Three Months Ended June 30, 2023 and 2022 (Continued)
| (a) | (Continued) |
|---|
Q2 2023 media and content revenue, excluding the video platform, is $14.2 million, which decreased $3.5 million compared to $17.7 million in Q2 2022. The decrease in media and content revenue for Q2 2023, when excluding the video platform, is mainly attributed to a web RPM which was 28% lower in Q2 2023 compared to Q2 2022, due to weakened macroeconomic conditions which led to a decrease in spending from DSPs in Q2 2023 compared to Q2 2022. There was a decrease in total web pageviews of 9% in Q2 2023 compared to Q2 2022 which contributed to the web platform revenue decrease.
Direct sales is a significant driver for the increase in gross profit from 30.0% in Q2 2022 to 35.2% as direct sales represent a larger percentage of overall revenue in Q2 2023 compared to Q2 2022. The majority of direct sales are included in media and content. Video views were 5.7 billion in Q2 2023, compared to 6.0 billion in Q2 2022 (see Select Operating Metrics). In Q2 2022 certain large partner channels left the video network, which the Company elected for in order to reduce operating costs relating to these channels and the Company continues to prioritize the profitable channels. Web pageviews were 3.7 billion in Q2 2023 compared to 4.1 billion in Q2 2022 (see Select Operating Metrics). The decrease in web pageviews was mainly driven by no major game releases in Q2 2023 compared to Q2 2022, which saw elevated traffic from release of Elden Ring in February 2022.
| (b) | Esports revenue is generated through sponsorships, brand advertising, prize<br>money, merchandise sales, and other esports related sources. Entertainment revenue mainly relates to PGC mobile gaming events which<br>occur throughout each year. Esports revenue decreased to $0.9 million in Q2 2023 compared to $1.7 million in Q2 2022, a decrease<br>of $0.8 million. The decrease in esports revenue is mainly attributable to the decrease in influencer campaigns resulting in lower<br>brand advertising revenue. Entertainment revenue increased to $0.8 million in Q2 2023 compared to $0.5 million in Q2 2022, an increase<br>of $0.3 million. The increase in entertainment revenue is mainly attributable to the success of the inaugural GameExpo Summit event<br>held in Dubai from June 21-22, 2023, which hosted 1,300 attendees. |
|---|---|
| (c) | Subscription revenue is generated from paid subscribers (see Select OperatingMetrics) on the Company’s web properties including TSR, Icy Veins, Tabstats, GameKnot, Addicting Games, Shockwave, TeachMe,<br>TypeRacer, Little Big Snake, U.GG, and FFS. As of June 30, 2023, the Company has approximately 272,000 paid subscribers, compared<br>to approximately 258,000 paid subscribers as of June 30, 2022. The increase in subscription revenue is primarily attributable to<br>an increase in paid subscribers on TSR. TSR’s subscribers pay on average approximately USD$4 per month to access its VIP<br>features. The cost of sales attributable to subscription revenue is nominal. |
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| 19 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALL PERFORMANCE (Continued)
**Summary of Financial and Operating Results (Continued)For the Three Months Ended June 30, 2023 and 2022 (Continued)
Operating expenses for the three months ended June 30, 2023 and 2022, were $24,586,889 and $29,117,767 respectively. The table below provides a breakdown of operating expenses for the indicated period:
| Three Months Ended<br><br> <br>June 30, 2023<br><br> <br>$ | Three Months Ended<br><br> <br>June 30, 2022<br><br> <br>$ | |
|---|---|---|
| Professional fees (a) | 690,063 | 667,681 |
| Consulting fees (b) | 1,595,468 | 1,777,003 |
| Advertising and promotion (c) | 938,613 | 427,618 |
| Office and general (d) | 1,930,338 | 2,681,589 |
| Annual general meeting legal and advisory costs (e) | — | 2,237,200 |
| Salaries and wages (f) | 9,932,310 | 9,112,903 |
| Technology support, web development and content (g) | 4,156,966 | 3,800,203 |
| Esports player, team and game expenses (h) | 645,715 | 1,483,360 |
| Foreign exchange loss (i) | 22,851 | (633,789) |
| Share-based compensation (j) | 1,788,490 | 3,128,625 |
| Amortization and depreciation (k) | 2,886,075 | 4,435,374 |
| Total Operating Expenses | 24,586,889 | 29,117,767 |
Notes:
| (a) | Professional fees<br>relate to corporate activities and are mainly comprised of legal, audit, tax and accounting fees. Professional fees remained relatively<br>consistent in Q2 2023 as compared to Q2 2022. |
|---|---|
| (b) | Consulting fees<br>include management consultants and advisory services, investor relations services, and technology and data evaluation services.<br>Consulting fees decreased by $0.2 million in Q2 2023 as compared to Q2 2022 largely due to reduced consulting fees relating to<br>advisory services. |
| --- | --- |
| (c) | Advertising and<br>promotion expense relates to corporate marketing, brand marketing, and brand ambassadors. Advertising and promotion expenses increased<br>by $0.5 million in Q2 2023 as compared to Q2 2022 due to increased brand and product marketing initiatives. |
| --- | --- |
| (d) | Office and general<br>costs include such costs as insurance expense relating to the listing of the Company’s common shares on the Nasdaq, travel<br>expenses, payment processing fees, and listing fees/sustaining relating to the Nasdaq and TSX. Office and general costs decreased<br>by $0.8 million in Q2 2023 as compared to Q2 2022, largely due to a decrease in insurance expense. |
| --- | --- |
| (e) | Annual general meeting<br>legal and advisory costs relate to non-recurring legal, advisory, and other expenses incurred in relation to the Company’s<br>contested 2022 annual general meeting (“AGM”) (see Significant Announcements During the Year and Subsequent to YearEnded December 31, 2022 in the December 31, 2022 MD&A). The 2023 AGM was not contested. |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALL PERFORMANCE (Continued)
**Summary of Financial and Operating Results (Continued)For the Three Months Ended June 30, 2023 and 2022 (Continued)
Notes (Continued):
| (f) | The Company has<br>a staff of approximately 190 employees as of June 30, 2023, compared to a staff of approximately 220 employees as of June 30, 2022.<br>Although there is a decrease in staffing levels, salaries and wages increased in Q2 2023 compared to Q2 2022 as average salaries<br>have increased in 2023 and due to severance costs of approximately $1.0 million included in salaries and wages from Company restructuring<br>in Q2 2023. |
|---|---|
| (g) | Technology support,<br>web development and content costs relate to Media and Content and Esports and Entertainment. Technology support, web development<br>and content costs increased by $0.4 million in Q2 2023 as compared to Q2 2022 due to an increase in content and design costs incurred<br>on new and existing properties including NFL TNG and TSR. The increase was offset by the sale of certain legacy editorial properties<br>in Q3 2022. |
| --- | --- |
Technology support, web development and content costs include $0.5 million of expenses relating to NFL TNG in Q2 2023 as compared to $Nil in Q2 2022.
| (h) | Esports player,<br>team, and game expenses primarily relate to Luminosity Gaming, including but not limited to esports player and influencer salaries,<br>and team travel. Esports player, team and games expense decreased $0.8 million in Q2 2023 compared to Q2 2022, mainly due to lower<br>average salary, which was offset by a higher number of esports players and influencers. Luminosity Gaming had approximately 80<br>esports players and influencers as of June 30, 2023 compared to approximately 50 esports players and influencers as of June 30,<br>2022. |
|---|---|
| (i) | The Company and<br>its subsidiaries commonly transact and carry assets and liabilities in currencies other than respective functional currencies.<br>Foreign exchange gains or losses are caused by movements in exchange rates. The Company expects continued gains and losses due<br>to fluctuating exchange rates. |
| --- | --- |
| (j) | Share-based compensation<br>is a non-cash expense which relates to options and restricted share units granted to directors, officers, employees, and consultants<br>of the Company, which are expensed over their respective vesting periods. Share-based compensation expense decreased by $1.3 million<br>in Q2 2023 as compared to Q2 2022 largely due to forfeitures, but also driven by vesting periods, and black-scholes option pricing<br>model inputs. In January 2021, the Company issued 743,671 options and 1,251,162 restricted share units. In April 2021, the Company<br>issued 855,234 options and 1,242,577 restricted share units. In April 2022, the Company issued 1,560,697 options and 1,922,877<br>restricted share units. In November 2022, the Company issued 211,942 options and 437,636 restricted share units. In March 2023,<br>the Company issued 6,062,976 options. In May 2023, Company issued 212,868 restricted share units. In June 2023, the Company issued<br>202,694 restricted share units. |
| --- | --- |
| (k) | Amortization and<br>depreciation are significantly comprised of amortization of intangible assets arising from the Mergers and Acquisitions. Amortization<br>and depreciation expense decreased by $1.5 million in Q2 2023 as compared to Q2 2022 mainly due to the amortization of intangible<br>assets recognized upon the acquisitions of Vedatis and Tabwire in Q2 2021, GameKnot and Addicting Games in Q3 2021, Outplayed in<br>Q4 2021, and FFS in Q2 2022. Certain intangible assets recognized from the Mergers and Acquisitions are amortized over periods<br>of one year or less, resulting in certain intangible assets becoming fully amortized in Q2 2023 or prior to Q2 2023. |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALLPERFORMANCE (Continued)
The comparative six months ended June 30, 2022 results below do not include a full six months of results for the Mergers and Acquisitions of FFS. FFS was acquired on April 27, 2022. The operating results of FFS have been included in the Company’s consolidated financial statements from the date of acquisition.
Summaryof Financial and Operating Results
For the Six Months Ended June 30, 2023 and 2022
Selected financial information for the Company for the indicated period is provided below:
| Six Months Ended<br><br> June 30, 2023<br><br> $ | Six Months Ended<br><br> June 30, 2022<br><br> $ | |
|---|---|---|
| Total<br> revenue | 85,478,735 | 98,286,566 |
| Cost<br> of sales | 53,730,485 | 69,452,022 |
| Gross<br> margin | 31,748,250 | 28,834,544 |
| Interest<br> income | (62,721) | (2,721) |
| Operating<br> expenses | 49,818,009 | 53,940,137 |
| Net<br> loss and comprehensive loss for the period | (21,088,541) | (26,053,292) |
| Net<br> loss per share – basic and diluted | (0.12) | (0.20) |
Revenue for the six months ended June 30, 2023 and 2022, was $85,478,735, and $98,286,566 respectively. The table below provides a breakdown of the revenue for the indicated period:
| Six Months Ended<br><br> June 30, 2023<br><br> $ | Six Months Ended<br><br> June 30, 2022<br><br> $ | |
|---|---|---|
| Media<br> and content (a) | 72,417,828 | 87,255,753 |
| Esports<br> and entertainment (b) | 5,097,287 | 4,153,673 |
| Subscriptions<br> (c) | 7,963,620 | 6,877,140 |
| Total Revenue | 85,478,735 | 98,286,566 |
Notes:
| (a) | Media<br> and content revenue predominantly consists of advertising revenue on the Company’s<br> web, video, and casual gaming platforms, and content licensing revenue. For the six months<br> ended June 30, 2023, media and content revenue attributable to the video platform is<br> $43.8 million, which decreased $9.7 million compared to $53.5 million in six months ended<br> June 20, 2022. The decrease in media and content revenue for six months ended June 30,<br> 2023, relating to the video platform, is mainly attributable to a 13% decrease in video<br> views in the six months ended June 30, 2023, compared to six months ended June 30, 2022,<br> and a revenue per thousand impressions (“RPM”) for the video platform which<br> was 8% lower in six months ended June 30, 2023, compared to six months ended June 30,<br> 2022, with a similar trend observed in the broader programmatic market. |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
For the Six Months Ended June 30, 2023 and 2022 (Continued)
| (a) | (Continued) |
|---|
For the six months ended June 30, 2023, media and content revenue, excluding the video platform, is $28.6 million, which decreased $5.1 million compared to $33.7 million for the six months ended June 30, 2022. The decrease in media and content revenue for six months ended June 30, 2023, when excluding the video platform, is mainly due to a web RPM which was 39% lower in six months ended June 30, 2023, compared to six months ended June 30, 2022, due to weakened macroeconomic conditions which led to a decrease in spending from DSPs in the six months ended June 30, 2023, compared to six months ended June 30, 2022. There was a decrease in total web pageviews of 2% in the six months ended June 30, 2023, compared to the six months ended June 30, 2022, which contributed to the web platform revenue decrease.
The year-over-year decrease in web RPM was also contributed to by a non-recurring surge in traffic on a web property occurring in the six months ended June 30, 2022, relating to the release of Elden Ring in February 2022. The web property which covered the release of Elden Ring had a high RPM in the six months ended June 30, 2022.
The increase in direct sales is a significant driver for the increase in gross profit as a percent of total revenue from 29.3% in the six months ended June 30, 2022, to 37.1% in the six months ended June 30, 2023. Direct sales in the six months ended June 30, 2023, were $18.7 million, which increased $4.2 million compared to direct sales of $14.5 million in six months ended June 30, 2022. Video views were 11.4 billion for six months ended Q2 2023, compared to 13.1 billion for the six months ended Q2 2022 (see Select Operating Metrics). In Q2 2022 certain large partner channels left the video network, which the Company elected for in order to reduce operating costs relating to these channels and the Company continues to prioritize the profitable channels, along with deploying new content to TikTok. Web pageviews were 8.0 billion in Q2 2023 compared to 8.2 billion in Q2 2022 (see Select Operating Metrics). The decrease in web pageviews was mainly driven by no major releases in in the six months ended June 30, 2023, compared to the six months ended June 30, 2022, which saw elevated traffic from release of Elden Ring in February 2022.
| (b) | Esports<br> revenue is generated through sponsorships, brand advertising, prize money, merchandise<br> sales, and other esports related sources. Entertainment revenue mainly relates to PGC<br> mobile gaming events which occur throughout each year. Esports revenue decreased to $1.8<br> million in six months ended June 30, 2023 compared to $2.1 million in six months ended<br> June 30, 2022, a decrease of $0.3 million. The decrease in esports revenue is mainly<br> attributable to a decrease in influencer campaigns resulting in lower brand advertising<br> revenue. Entertainment revenue increased to $3.3 million in six months ended June 30,<br> 2023 compared to $2.1 million in six months ended June 30, 2022, an increase of $1.2<br> million. The increase in entertainment revenue is mainly attributable to the success<br> of the PGC London event held from January 23-24, 2023, which hosted 2,600 attendees,<br> and the inaugural GameExpo Summit live event held in Dubai from June 21-22, 2023, which<br> hosted 1,300 attendees. In the six months ended June 30, 2022, the PGC London held from<br> February 14-15, 2022, hosted 2,000 attendees. |
|---|---|
| (c) | Subscription<br> revenue is generated from paid subscribers (see Select Operating Metrics) on the<br> Company’s web properties including TSR, Icy Veins, Tabstats, GameKnot, Addicting<br> Games, Shockwave, TeachMe, TypeRacer, Little Big Snake, U.GG, and FFS. As of June 30,<br> 2023, the Company has approximately 272,000 paid subscribers, compared to approximately<br> 258,000 paid subscribers as of June 30, 2022. The increase in subscription revenue is<br> primarily attributable to an increase in paid subscribers on TSR. TSR’s subscribers<br> pay on average approximately USD$4 per month to access its VIP features. The cost of<br> sales attributable to subscription revenue is nominal. |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
For the Six Months Ended June 30, 2023 and 2022 (Continued)
Operating expenses for the six months ended June 30, 2023 and 2022, were $49,818,009 and $53,940,137 respectively. The table below provides a breakdown of operating expenses for the indicated period:
| Six Months Ended<br><br> June 30, 2023<br><br> $ | Six Months Ended<br><br> June 30, 2022<br><br> $ | |
|---|---|---|
| Professional<br> fees (a) | 1,143,399 | 1,592,502 |
| Consulting<br> fees (b) | 2,903,952 | 3,255,177 |
| Advertising<br> and promotion (c) | 2,394,724 | 755,065 |
| Office<br> and general (d) | 4,222,121 | 4,944,494 |
| Annual<br> general meeting legal and advisory costs (e) | — | 2,237,200 |
| Salaries<br> and wages (f) | 19,139,334 | 17,809,778 |
| Technology<br> support, web development and content (g) | 9,452,990 | 7,259,071 |
| Esports<br> player, team and game expenses (h) | 1,281,162 | 2,994,848 |
| Foreign<br> exchange loss (i) | 137,408 | (625,202) |
| Share-based<br> compensation (j) | 2,918,821 | 4,514,806 |
| Amortization<br> and depreciation (k) | 6,224,098 | 9,202,398 |
| Total Operating Expenses | 49,818,009 | 53,940,137 |
Notes:
| (a) | Professional<br> fees relate to corporate activities and are mainly comprised of legal, audit, tax and<br> accounting fees. Professional fees decreased $0.4 million in the six months ended June<br> 30, 2023, as compared to six months ended June 30, 2022, due to decreased corporate activity. |
|---|---|
| (b) | Consulting<br> fees include management consultants and advisory services, investor relations services,<br> and technology and data evaluation services. Consulting fees decreased by $0.4 million<br> in six months ended June 30, 2023, as compared to six months ended June 30, 2022, largely<br> due to reduced consulting fees relating to advisory services. |
| --- | --- |
| (c) | Advertising<br> and promotion expense relates to corporate marketing, brand marketing, and brand ambassadors.<br> Advertising and promotion expenses increased by $1.6 million in six months ended June<br> 30, 2023, as compared to six months ended June 30, 2022, due to increased brand and product<br> marketing initiatives, the majority of which relates to NFL TNG. |
| --- | --- |
| (d) | Office<br> and general costs include such costs as insurance expense relating to the listing of<br> the Company’s common shares on the Nasdaq, travel expenses, payment processing<br> fees, and listing fees/sustaining relating to the Nasdaq and TSX. Office and general<br> costs decreased by $0.7M in the six months ended June 30, 2023, as compared to six months<br> ended June 30, 2022, largely due to a decrease in insurance expense. |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
For the Six Months Ended June 30, 2023 and 2022 (Continued)
| (e) | Annual<br> general meeting legal and advisory costs relate to non-recurring legal, advisory, and<br> other expenses incurred in relation to the Company’s contested 2022 AGM (see Significant Announcements During the Year and Subsequent to Year Ended December 31, 2022 in the<br> December 31, 2022 MD&A). The 2023 AGM was not contested. |
|---|---|
| (f) | The<br> Company has a staff of approximately 190 employees as of June 30, 2023, compared to a<br> staff of approximately 220 employees as of June 30, 2022. Although there is a decrease<br> in staffing levels, salaries and wages increased in the six months ended June 30, 2023,<br> compared to the six months ended June 30, 2022, as average salaries have increased in<br> 2023 and due to severance costs of approximately $1.0 million included in salaries and<br> wages from Company restructuring. Also, direct sales commissions, which are included<br> in salaries and wages, have increased. Direct sales were $18.7 million in the six months<br> ended June 30, 2023, compared to $14.5 million in the six months ended June 30, 2022. |
| --- | --- |
| (g) | Technology<br> support, web development and content costs relate to Media and Content and Esports and<br> Entertainment. Technology support, web development and content costs increased by $2.2<br> million in six months ended June 30, 2023, as compared to six months ended June 30, 2022,<br> due to an increase in content and design costs incurred on new and existing properties<br> including NFL TNG and TSR. The increase was offset by the sale of certain legacy editorial<br> properties in Q3 2022. |
| --- | --- |
Technology support, web development and content costs include $2.8 million of expenses relating to NFL TNG in six months ended June 30, 2023, as compared to $Nil in six months 2022.
| (h) | Esports<br> player, team, and game expenses primarily relate to Luminosity Gaming, including but<br> not limited to esports player and influencer salaries, and team travel. Esports player,<br> team and games expense decreased $1.7 million in six months ended June 30, 2023, compared<br> to six months ended June 30, 2022, mainly due to lower average salary, which was offset<br> by a higher number of esports players and influencers. Luminosity Gaming had approximately<br> 80 esports players and influencers as of June 30, 2023, compared to approximately 50<br> esports players and influencers as of June 30, 2022. |
|---|---|
| (i) | The<br> Company and its subsidiaries commonly transact and carry assets and liabilities in currencies<br> other than respective functional currencies. Foreign exchange gains or losses are caused<br> by movements in exchange rates. The Company expects continued gains and losses due to<br> fluctuating exchange rates. |
| --- | --- |
| (j) | Share-based<br> compensation is a non-cash expense which relates to options and restricted share units<br> granted to directors, officers, employees, and consultants of the Company, which are<br> expensed over their respective vesting periods. Share-based compensation expense decreased<br> by $1.6 million in six months ended June 30, 2023, as compared to six months ended June<br> 30, 2022, largely due to forfeitures, but also driven by vesting periods, and black-scholes<br> option pricing model inputs. In January 2021, the Company issued 743,671 options and<br> 1,251,162 restricted share units. In April 2021, the Company issued 855,234 options and<br> 1,242,577 restricted share units. In April 2022, the Company issued 1,560,697 options<br> and 1,922,877 restricted share units. In November 2022, the Company issued 211,942 options<br> and 437,636 restricted share units. In March 2023, the Company issued 6,062,976 options.<br> In May 2023, Company issued 212,868 restricted share units. In June 2023, the Company<br> issued 202,694 restricted share units. |
| --- | --- |
| (k) | Amortization<br> and depreciation are significantly comprised of amortization of intangible assets arising<br> from the Mergers and Acquisitions. Amortization and depreciation expense decreased by<br> $3.0 million in six months ended June 30, 2023 as compared to six months ended June 30,<br> 2022 mainly due to the amortization of intangible assets recognized upon the acquisitions<br> of Vedatis and Tabwire in Q2 2021, GameKnot and Addicting Games in Q3 2021, Outplayed<br> in Q4 2021, and FFS in Q2 2022. Certain intangible assets recognized from the Mergers<br> and Acquisitions are amortized over periods of one year or less, resulting in certain<br> intangible assets becoming fully amortized in Q2 2023 or prior to Q2 2023. |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
SELECTOPERATING METRICS
Financial results include the results of the Mergers and Acquisitions from the respective closing date of the acquisition transaction. Paid subscribers for Vedatis and Tabwire are included beginning in Q2 2021, paid subscribers for GameKnot and Addicting Games are included beginning in Q3 2021, paid subscribers for U.GG are included beginning in Q4 2021, and paid subscribers for FFS are included beginning in Q2 2022. The figures below do not include pro forma adjustments for Vedatis, Tabwire, GameKnot, Addicting Games, Outplayed and FFS.
| Quarterly select operating metrics | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | Q2 2023 |
| Total Views (Millions) | 9,825 | 9,576 | 11,251 | 10,048 | 9,729 | 9,755 | 10,046 | 9,389 |
| Web pageviews | 2,606 | 2,866 | 4,137 | 4,074 | 3,617 | 3,753 | 4,287 | 3,721 |
| Video views | 7,219 | 6,710 | 7,114 | 5,974 | 6,112 | 6,002 | 5,759 | 5,668 |
| Paid subscribers (thousands – as of end of period) | 207 | 220 | 233 | 258 | 260 | 262 | 275 | 272 |
Changes in views by quarter are impacted, but not limited to, seasonality (refer to Seasonality), trends, new game releases, new products and offerings, and global factors such as COVID-19. The Company seeks to grow existing properties, create new properties and add new partners. Total views remained relatively consistent from Q3 2021 to Q4 2021, increased 18% in Q1 2022 compared to Q4 2021, and remained relatively consistent to prior quarters from Q2 2022 to Q2 2023.
Web pageviews increased 44% in Q1 2022 compared to Q4 2021. Management attributes this increase to organic growth in traffic driven by content related to new game releases on both owned-and-operated and represented web properties, such as the Elden Ring game released in February 2022, as well as launch of desktop app for U.GG. Web pageviews decreased 11.2% in Q3 2022 compared to Q2 2022, which management attributes to a decrease in traffic relating to the Elden Ring game following its initial surge upon launch. Web pageviews increased 14% in Q1 2023 compared to Q4 2022, which management attributes to a continuation of the Q4 2022 trends, as well as higher web-based usage broadly across the web platform. The launch of Harry Potter Hogwarts Legacy game in Q1 2023 and renewed traffic from Premier League Fantasy users in FFS properties upon resumption of weekly Premier League games in Q1 2023 after end of FIFA World Cup in Q4 2022 also contributed to the Q1 2023 increase. Web pageviews decreased 13.2% in Q2 2023 compared to Q1 2023 mainly due to lack of any major game releases in Q2 2023, the conclusion of the Premier League season in early Q2 2023 and the seasonal impact prevalent in the months leading up to the summer break.
Video views decreased to 5.9 billion in Q2 2022, or 16.0% from Q1 2022. This decrease specifically relates to certain large partner channels leaving the video network, which the Company elected for in order to reduce operating costs relating to these channels. Management also attributes the decrease to the reduction in the gaming category views across YouTube primarily driven from relaxed COVID-19 restrictions.
Paid subscribers relate primarily to TSR. TSR was acquired by Enthusiast Properties in Q1 2019. In Q4 2019, the Company began initiatives to increase the numbers of paid subscribers, including pricing analysis, promotional events, and marketing initiatives. In Q3 and Q4 2020, the Company established a team of employees focused exclusively on subscription efforts, and the Company attributes the additional increase in the number of paid subscribers observed in the table above primarily to these initiatives as well as the Mergers and Acquisitions. Across 2021 and 2022, approximately 74,000 paid subscribers were added from the Mergers and Acquisitions, with the remaining subscription growth being organic.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
QUARTERLYRESULTS OF OPERATIONS
| Q3 <br><br>2021<br><br>$ | Q4 <br><br>2021<br><br>$ | Q1<br><br>2022<br><br>$ | Q2<br><br>2022<br><br>$ | Q3<br><br>2022<br><br>$ | Q4<br><br>2022<br><br>$ | Q1<br><br>2023<br><br>$ | Q2<br><br>2023<br><br>$ | |
|---|---|---|---|---|---|---|---|---|
| Total revenue | 43,341,907 | 56,942,443 | 47,167,538 | 51,119,028 | 50,578,758 | 53,970,597 | 42,879,966 | 42,598,769 |
| Interest income | 9,315 | 983 | 1,401 | 1,320 | 5,257 | 28,274 | 61,207 | 1,514 |
| Operating expenses | 21,354,332 | 25,679,125 | 24,822,370 | 29,117,767 | 26,600,236 | 30,259,158 | 25,231,120 | 24,586,889 |
| Net loss and comprehensive Loss | (12,302,971) | (12,861,272) | (12,241,359) | (13,811,933) | (30,189,879) | (12,484,952) | (8,730,149) | (12,358,392) |
| Loss per share – basic and diluted | (0.10) | (0.10) | (0.08) | (0.12) | (0.25) | (0.08) | (0.06) | (0.07) |
The Company has been expanding its operations since the acquisition of Omnia in Q3 2020, which is the primary driver of the increase in total revenue and operating expenses from Q2 2021 through Q4 2022. The Mergers and Acquisitions contributed to the increase in total revenue and operating expenses observed in Q2 2021 through Q4 2022. In Q3 2022, the Company recognized a goodwill impairment charge on the Omnia cash-generating unit (“CGU”) and Addicting Games CGU which caused a significant increase in net loss and comprehensive loss observed in Q3 2022, see Goodwill Impairment.
Period-to-period results are also impacted by certain operating metrics (see Select Operating Metrics) and seasonality (see Seasonality).
SEASONALITY
The Company’s media and content division is impacted by seasonality which is linked to advertiser spend and consumer events. Advertising seasonality is driven by two main factors, RPM and traffic, which are interlinked factors that are tied to seasonal periods of time throughout the year. These seasonal periods of time are linked to cultural holidays, commercial holidays, or ad hoc events (e.g., election years).
Advertiser spend is impacted by their annual budgets, financial year-end date, cultural holidays, commercial holidays, ad hoc events, new brands, new campaigns and new products. Advertiser spend normally increases significantly for consumer spending events such as Black Friday, Christmas, Back to School, Valentine’s Day, and Easter which result in a corresponding increase in RPM. Advertiser spend typically increases substantially in Q4 as Black Friday and the December holiday season approaches. Advertiser spend can differ from consumer spend as consumers have different spending patterns and important events.
Q1 is typically the slowest part of the year historically, as most media spending occurs in Q4. As a result, Q1 normally reports the lowest media and content revenue and Q4 the highest media and content revenue. Q2 and Q3 media and content revenue varies depending on an advertiser’s financial year end, budgeted advertiser spends remaining and new brands, campaigns, and products being promoted.
Due to seasonality, the results of operations for any quarter are not necessarily indicative of the results of operations for the fiscal year.
GOODWILLIMPAIRMENT
The Company performs its annual impairment tests at December 31 or at an interim date when events or changes in the business environment (triggering events) would more likely than not reduce the fair value of a CGU below its carrying value.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
GOODWILLIMPAIRMENT (Continued)
During the year ended December 31, 2022, the Company concluded that there were triggering events requiring an impairment assessment as of September 30, 2022 and December 31, 2022 due to overall macroeconomic conditions including but not limited to increasing interest rates, high inflation, and softening of digital advertisement demand and spending due to uncertain economic outlooks. In addition, there was a decline in the Company’s share price resulting in market capital being lower than the net assets of the Company. The Company performed impairment testing as of September 30, 2022, and determined that impairment charges were necessary for the Omnia CGU of $14,082,162 and the Addicting Games CGU of $17,199,124 due to the overall macroeconomic conditions. The Company performed impairment testing as of December 31, 2022, and determined that no further impairment charges were necessary. The Company’s analysis showed the value of the Enthusiast Properties, TSR, Luminosity, Steel Media and Outplayed CGUs exceeds their carrying amount, ranging between 18% to 447% of recoverable amount compared to the carrying amount of the net assets. For key assumptions used to determine the recoverable amount of goodwill based on each CGU’s value-in-use refer to Note 11 of the Company’s consolidated financial statements for the year ended December 31, 2022, and 2021.
As of June 30, 2023, the Company concluded that there were no triggering events requiring an impairment assessment.
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cashflow for the Six Months Ended June 30, 2023
Net cash used in operating activities for the six months ended June 30, 2023, was $1,157,209 (June 30, 2022 – $5,266,928). This was due to the net loss of $18,953,292 and was decreased by items not affecting cash such as amortization and depreciation of $6,224,098, share-based compensation of $2,918,821, interest and accretion of $137,327, and a loss on revaluation of deferred payment liability of $202,077, and increased by items not affecting cash such as deferred tax recovery of $763,489. These non-cash items for the six months ended June 30, 2023, were offset by changes in working capital including a decrease in trade and other receivables of $5,108,139, a decrease in prepaid expenses of $736,371, an increase in accounts payable and accrued liabilities of $2,974,533, a decrease in contract liabilities of $477,981 and a decrease in income taxes of $480,392.
For the six months ended June 30, 2022, net cash used in operating activities was $5,266,928. This was due to the net loss of $27,913,159 and was decreased by items not affecting cash such as amortization and depreciation of $9,202,398, share-based compensation of $4,514,806, interest and accretion of $2,143,527, loss on settlement of deferred payment liability of $3,302,824, and increased by items not affecting cash such as deferred tax recovery of $884,172, a gain on revaluation of deferred payment liability $871,763, a foreign exchange gain of $492,716, gain on player buyouts of $480,537 and share of income from investment in associates and joint ventures $1,227,942. These non-cash items for the six months ended June 30, 2022, were offset by changes in working capital including a decrease in trade and other receivables of $1,255,456, an increase in prepaid expenses of $1,598,380, an increase in accounts payable and accrued liabilities of $7,128,498 and an increase in contract liabilities of $310,858.
Net cash used by investing activities for the six months ended June 30, 2023 was $888,994 (June 30, 2022 – $1,185,379) which is predominately attributable to the repayment of deferred payment liability of $844,350. For the six months ended June 30, 2022, net cash used by investing activities was predominately attributable to cash paid for mergers and acquisitions of $2,937,520 and repayment of deferred payment liability of $472,833, which were collectively offset by cash acquired from mergers and acquisitions of $1,748,602 and proceeds from player buyouts, net of transaction costs, of $480,537.
Net cash used by financing activities for the six months ended June 30, 2023 was $2,622,429 (June 30, 2022 – $1,350,097), which is predominately attributable to the repayment of long-term debt of $2,176,470 and lease payments of $439,184. For the six months ended June 30, 2022, net cash used by financing activities was predominately attributable to the repayment of long-term debt of $1,000,000 and lease payments of $417,092.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
Cashflow for the Six Months Ended June 30, 2023 (Continued)
For the six months ended June 30, 2023, and 2022, the Company had a net decrease in cash of $4,673,728 and $7,714,920, respectively. As a result, the Company had a cash balance as of June 30, 2023 and 2022, of $2,741,788 and $14,939,342, respectively.
Liquidity
Selected financial information about the Company’s financial position as of the indicated dates is provided below:
| **** | June 30, 2023<br><br> $ | December 31, 2022<br><br> $ |
|---|---|---|
| Cash | 2,741,788 | 7,415,516 |
| Total<br> assets | 321,843,913 | 341,437,545 |
| Total<br> liabilities | 83,669,926 | 86,786,538 |
| Share<br> capital, contributed surplus and accumulated other comprehensive income | 484,290,238 | 481,813,966 |
| Retained<br> earnings (deficit) | (246,116,251) | (227,162,959) |
| Working<br> capital (deficiency) | (9,462,167) | (11,196,337) |
Total liabilities at each reporting date are broken down as follows:
| June 30, 2023<br><br> $ | December 31, 2022<br><br> $ | |
|---|---|---|
| Accounts<br> payable and accrued liabilities | 35,797,853 | 32,823,320 |
| Contract<br> liabilities | 4,902,397 | 5,380,378 |
| Income<br> tax payable | 242,785 | 129,485 |
| Current<br> portion of long-term debt | 4,352,940 | 17,431,625 |
| Current<br> portion of deferred payment liability | 79,205 | 2,391,863 |
| Current<br> portion of lease liabilities | 870,447 | 872,429 |
| Current<br> portion of other long-term debt | 9,678 | 10,891 |
| Long-term<br> debt | 10,891,725 | — |
| Long-term<br> lease liabilities | 1,612,364 | 1,451,939 |
| Long-term<br> portion of deferred payment liability | 1,039,794 | 1,478,438 |
| Other long-term<br>debt | 141,141 | 144,844 |
| Deferred<br> tax liability | 23,729,627 | 24,671,326 |
| Total liabilities | 83,669,926 | 86,786,538 |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
Liquidity(continued)**
During the six months ended June 30, 2023, the Company incurred a net loss and comprehensive loss of $21,088,541 (June 30, 2022 – $26,053,292) and, as of that date, the Company had accumulated a deficit of $246,116,251 (December 31, 2022 – $227,162,959) and negative cash flows from operations of $1,157,209 (June 30, 2022 – $5,266,928). Whether and when the Company can attain profitability and positive cash flows from operations is uncertain.
As of June 30, 2023, the Company has current assets of $36,793,138 (December 31, 2022 - $47,843,654) and current liabilities of $46,255,305 (December 31, 2022 - $59,039,991) resulting in a working capital deficiency of $9,462,167 (December 31, 2022 – $11,196,337).
The Company has not yet realized profitable operations and has mainly relied on non-operational sources of financing to fund operations. Management has been able to raise sufficient funds to finance the Company’s operations, growth, and mergers and acquisitions in the past and may need to continue to do so to fund these activities in the future.
As of June 30, 2023, the Company’s working capital deficiency of $9,462,167 includes contract liabilities of $4,902,397. The working capital will be used to finance operations and growth over the next 12 months. The Company also has other cash commitments of $2,454,000 (see Commitments) over the next 12 months.
To the extent that further working capital is required in the next 12 months, the Company has an operating credit consisting of an authorized amount of up to $5 million available to draw upon. As of June 30, 2023, the balance on this operating credit is $Nil. For details on the operating credit see Note 12 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2023. The Company has not identified any legal or practical restrictions on its ability to meet its obligations.
As of June 30, 2023, the Company is in advanced discussions with its primary lender to document an amendment of its existing debt facilities, the successful execution of which will enable re-investment of funds into the business for growth opportunities and continued operations as well as alleviate short term liquidity pressures. The failure to successfully amend its existing debt facilities could impact planned and continuing operations.
CapitalManagement
The Company considers its capital structure to consist of shareholders’ equity, long-term debt, and deferred payment liability. The Company manages its capital structure and makes adjustments to it in order to have the funds available to support the acquisition and development of its business. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The Company is dependent on external financing to fund its activities. In order to carry out the planned operations and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the size of the Company, is reasonable. There were no changes in the Company’s approach to capital management during the six months ended June 30, 2023. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements aside from the covenants described in Note 12 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2023.
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern. The Company’s ability to raise future capital is subject to uncertainty and the inability to raise such capital may have an adverse impact over the Company’s ability to continue as a going concern.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
NasdaqMinimum Bid Price Requirement
On November 4, 2022, the Company disclosed the receipt of a notice (the “Notice”) on November 3, 2022 from the Nasdaq that the Company is not currently in compliance with the USD$1.00 minimum bid price requirement for continued listing of the Company’s common shares on the Nasdaq Global Select Market, as set forth in Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”). The Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until May 2, 2023 (the “Compliance Deadline”), to regain compliance with the Minimum Bid Price Requirement by having the closing bid price of the common shares meet or exceed USD$1.00 per common share for at least ten consecutive business days. The Company’s common shares continued to trade on the Nasdaq global Select Market since the date of the Notice, and neither the Company’s operations nor the Company’s TSX listing are affected by the receipt of the Notice. During the 180 calendar days since the date of the Notice, the Company did not meet the Minimum Bid Requirement. As a result, the Company applied for an extension to the Compliance Deadline.
On May 4, 2023, the Company announced the Listing Qualifications department of the Nasdaq approved the Company’s request for a 180-day extension to regain compliance with Nasdaq’s Minimum Bid Price Requirement. The Company now has until October 30, 2023 to regain compliance. If at any time prior to October 30, 2023, the bid price of the Company’s common shares closes at USD $1.00 per share or more for a minimum of 10 consecutive business days, the Company will regain compliance with the Minimum Bid Price Requirement.
In connection with the 180-day extension, the Company has transferred the listing of the common shares from the Nasdaq Global Select Market to the Nasdaq Capital Market. The transfer is expected to take effect at the opening of business on May 4, 2023. Neither the Company’s operations nor the Company’s TSX listing are affected by the transfer of the Company’s listing to the Nasdaq Capital Market. The common shares will continue to trade without interruption under the symbol “EGLX.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Select Market, and companies on the Nasdaq Capital Market must meet certain financial and corporate governance requirements to qualify for continued listing.
The Company intends to continue to actively monitor the Minimum Bid Price Requirement and, as appropriate, will consider available options to resolve any deficiencies and regain compliance.
SHARECAPITAL
Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
During the six months ended June 30, 2023:
| (i) | On<br> June 16, 2023, the Company issued 2,626,037 common shares to settle the FFS First Anniversary<br> Deferred Payment (see Note 14 of the condensed consolidated interim financial statements<br> for the three and six months ended June 30, 2023). |
|---|
During the six months ended June 30, 2022:
| (i) | On<br> February 14, 2022, the Company issued the remaining 35,770 common shares to be issued<br> relating to the Outplayed SPA. |
|---|---|
| (ii) | On<br> February 28, 2022, the Company issued 111,267 common shares to settle the GameKnot Deferred<br> Payment liability (see Note 14 of the condensed consolidated interim financial statements<br> for the three and six months ended June 30, 2023). |
| --- | --- |
| (iii) | The<br> Company received proceeds of $69,821 from the exercise of 74,051 stock options. The fair<br> value assigned to these stock options of $239,899 was reclassified from contributed surplus<br> to share capital. |
| --- | --- |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
SHARECAPITAL (Continued)
| (iv) | On<br> June 2, 2022, the Company issued 348,852 common shares to settle the Vedatis Deferred<br> Payment liability (see Note 14 of the condensed consolidated interim financial statements<br> for the three and six months ended June 30, 2023). |
|---|---|
| (v) | On<br> June 2, 2022, the Company issued 4,319,996 common shares to settle the Addicting Games<br> Deferred Payment liability (see Note 14 of the condensed consolidated interim financial<br> statements for the three and six months ended June 30, 2023). |
| --- | --- |
| (vi) | On<br> June 2, 2022, the Company issued 11,499,988 common shares to settle the Outplayed Deferred<br> Payment liability and Outplayed Earn-Out Payment liability (see Note 14 of the condensed<br> consolidated interim financial statements for the three and six months ended June 30,<br> 2023). |
| --- | --- |
DISCLOSUREOF OUTSTANDING SHARE DATA
The Company had the following shares and securities convertible into shares outstanding as of the following dates:
| August 14, 2023 | June 30, 2023 | December 31, 2022 | |
|---|---|---|---|
| Common<br> shares | 154,767,243 | 154,767,243 | 151,767,243 |
| Options,<br> convertible into common shares | 9,833,445 | 9,903,709 | 3,941,982 |
| Restricted<br> share units | 4,495,938 | 4,507,866 | 4,139,454 |
| Total | 169,096,626 | 169,178,818 | 159,848,679 |
RELATEDPARTY TRANSACTIONS
The Company’s key management personnel have authority and responsibility for overseeing, planning, directing and controlling the activities of the Company. Key management personnel include members of the Board of Directors, Chief Executive Officer, former Chief Operating Officer, Chief Financial Officer, President, former Chief Corporate Officer, President and Senior Vice President, Legal and General Counsel. Compensation of key management personnel may include short-term and long-term benefits. Short-term benefits include salaries and bonuses. Share-based compensation includes the fair value of stock options and restricted share units vested during the year.
Compensation provided to key management during the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||
|---|---|---|---|---|
| June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | |
| Short-term<br> benefits | 820,379 | 390,000 | 1,507,924 | 2,268,250 |
| Share-based<br> compensation | 1,614,007 | 2,228,539 | 2,446,011 | 3,417,866 |
| Total | 2,434,386 | 2,618,539 | 3,953,935 | 5,686,116 |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
RELATEDPARTY TRANSACTIONS (Continued)
A summary of other related party transactions during the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||
|---|---|---|---|---|
| June 30, 2023<br><br> $ | June 30, 2023<br><br> $ | June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | |
| Total transactions during the period: | ||||
| Expenses | ||||
| Consulting<br> fees | 12,382 | 147,353 | 31,187 | 285,924 |
| Share<br> of net income from investment in associates and joint ventures | (17,146) | (931,901) | (4,910) | (1,227,942) |
A summary of related party balances as of June 30, 2023 and December 31, 2022, is as follows:
| June 30, 2023<br><br> $ | December 31, 2022<br><br> $ | |
|---|---|---|
| Balances receivable (payable): | ||
| Trade<br> and other receivables | 67,181 | 67,180 |
| Investment<br> in associates and joint ventures | 17,146 | 12,236 |
| Accounts<br> payable and accrued liabilities | (96,204) | (249,976) |
During the six months ended June 30, 2023, the Company recognized consulting expenses of $31,187 (June 30, 2022 - $37,486) to Rivonia Capital Inc., a company in which a former director of the Company is a principal. As of December 31, 2022, a balance of $14,125 is included in account payable and accrued liabilities.
During the six months ended June 30, 2023, the Company recognized $Nil (June 30, 2022 - $248,438) in consulting fees relating to Board of Director and committee fees to certain directors. As of June 30, 2023, a balance of $96,204 (December 31, 2022 - $235,851) is included in account payable and accrued liabilities.
See Note 6 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2023 for information relating to an investment in a joint venture under common management as the Company. During the six months ended June 30, 2023, the Company recognized a share of net income from investment in joint ventures of $4,910 (June 30, 2022 – $10,660) from AFK, a related party by nature of it having common management as the Company. As of June 30, 2023, a balance of $67,181 (December 31, 2022 - $67,180) is included in trade and other receivables.
See Note 6 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2023 for information relating to an investment in associates controlled by the former Chairman of the Company. The former Chairman of the Company did not seek re-election at the Company’s July 19, 2022 AGM and is no longer a related party as of July 19, 2022. During the period from January 1, 2022 to June 30, 2022, the Company’s share of net income from investment is associates was $1,217,282.
See Note 16 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2023 for information relating to stock options issued to officers and directors of the Company.
See Note 17 of the condensed consolidated interim financial statements for the three and six months June 30, 2023 for information relating to restricted share units issued to officers and directors of the Company.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
OFF-BALANCESHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.
SEGMENTEDINFORMATION
The Company operates in one industry segment of digital media and entertainment. The majority of the Company’s assets are located in Canada and the United States of America (“USA”). The Company sells into three major geographic centers: USA, Canada, England and Wales and other foreign countries. The Company has determined that it has a single reportable segment as the Company’s decision makers reviews information on a consolidated basis.
Revenues by pillar for the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||
|---|---|---|---|---|
| June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | |
| Media<br> and content | 36,886,121 | 45,391,845 | 72,417,828 | 87,255,753 |
| Esports<br> and entertainment | 1,703,290 | 2,183,894 | 5,097,287 | 4,153,673 |
| Subscription | 4,009,358 | 3,543,289 | 7,963,620 | 6,877,140 |
| TOTAL | 42,598,769 | 51,119,028 | 85,478,735 | 98,286,566 |
Revenue, in Canadian dollars, in each of these geographic locations for the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||
|---|---|---|---|---|
| June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | |
| Canada | 1,042,290 | 982,472 | 2,159,724 | 1,874,698 |
| USA | 35,827,405 | 44,528,742 | 70,206,112 | 85,161,563 |
| England<br> and Wales | 1,928,559 | 2,001,224 | 5,618,870 | 4,629,288 |
| All<br> other countries | 3,800,515 | 3,606,587 | 7,494,029 | 6,621,018 |
| TOTAL | 42,598,769 | 51,119,028 | 85,478,735 | 98,286,566 |
The non-current assets, in Canadian dollars, in each of the geographic locations as of June 30, 2023 and December 31, 2022, is as follows:
| June 30, 2023<br><br> $ | December 31, 2022<br><br> $ | |
|---|---|---|
| Canada | 153,387,056 | 153,899,948 |
| USA | 122,749,694 | 130,543,027 |
| France | 3,335,105 | 3,364,854 |
| England<br> and Wales | 5,578,920 | 5,786,062 |
| TOTAL | 285,050,755 | 293,593,891 |
| 34 | ||
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
ADOPTIONOF NEW OR AMENDED IFRS ACCOUNTING STANDARDS
The following new standards, interpretation or amendment were adopted for the first time on January 1, 2023:
| (a) | IAS<br> 1 – Presentation of Financial Statements (“IAS 1”) |
|---|
In February 2021, the IASB issued amendments to IAS 1 to assist entities in determining which accounting policies to disclose in the financial statements. The amendments to IAS 1 require that an entity disclose its material accounting policies, instead of its significant accounting policies. The amendments apply to annual reporting periods beginning on or after January 1, 2023. There was no material impact from the adoption this amendment on the Company’s condensed consolidated interim financial statements.
In January 2020, IAS 1 was amended to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or non-current is based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023 and are to be applied retrospectively. There was no material impact from the adoption this amendment on the Company’s condensed consolidated interim financial statements.
| (b) | IAS<br> 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS<br> 8”) |
|---|
In February 2021, the IASB issued “Definition of Accounting Estimates”, which amends IAS 8. The amendment replaces the definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty.” The amendment provides clarification to help entities to distinguish between accounting policies and accounting estimates. The amendments are effective for annual periods beginning on or after January 1, 2023. There was no impact from the adoption this amendment on the Company’s condensed consolidated interim financial statements.
| (c) | IAS<br> 12 – Income Taxes (“IAS 12”) |
|---|
In May 2021, the IASB issued “Deferred Tax related to Assets and Liabilities arising from a Single Transaction”, which amends IAS 12. The amendment narrows the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offset temporary differences. As a result, companies will need to recognize a deferred tax asset and deferred tax liability for temporary differences arising on initial recognition of transactions such as leases and decommissioning obligations. The amendments are effective for annual periods beginning on or after January 1, 2023 and are to be applied retrospectively. There was no material impact from the adoption this amendment on the Company’s condensed consolidated interim financial statements.
SIGNIFICANTACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes to the consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the estimates are revised. Significant areas requiring the Company to make estimates include goodwill impairment testing and recoverability of assets, identification and valuation of intangible assets acquired in business combinations, estimated useful life of long-lived assets, income taxes, the fair value of share-based payments, provisions for expected credit losses, fair value measurement of an investment not quoted in an active market, recognition of revenue on a gross versus net basis and functional currency. These estimates and judgments are further discussed below:
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
SIGNIFICANTACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)
| (a) | Goodwill impairment testing and recoverability of assets |
|---|
In evaluating impairment, the Company determines the recoverable amount based on an assessment of value-in-use using a discounted cash flow approach. In determining the estimated recoverable amount, the Company’s significant assumptions include expected future cash flows, terminal growth rates and discount rates. The approach uses cash flow projections based upon a financial forecast approved by management, covering a five-year period. Cash flows for the years thereafter are extrapolated using the estimated terminal growth rate. The risk premiums expected by market participants related to uncertainties about the industry and assumptions relating to future cash flows may differ or change quickly, depending on economic conditions and other events.
| (b) | Identification and valuation of intangible assets acquired in business combinations |
|---|
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination of the fair value of intangible assets. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, management with assistance from an independent valuation expert develops the fair value using appropriate valuation techniques which are based on a forecast of the total expected future net cash flows. In determining the fair value of the intangible assets at the acquisition date, the Company’s significant assumptions include the future net cash flows, royalty rates, attrition rates and the discount rate applied.
Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last for one year from the acquisition date.
| (c) | Estimated useful lives of long-lived assets |
|---|
Management reviews the useful lives of depreciable assets at each reporting date. Management assesses that the useful lives represent the expected utilization in terms of duration of the assets to the Company. Actual utilization, however, may vary due to technical obsolescence, particularly relating to website content and application and technology development.
| (d) | Income taxes |
|---|
At the end of each reporting period, the Company assesses whether the realization of deferred tax benefits is sufficiently probable to recognize deferred tax assets. This assessment requires the exercise of judgment on the part of management with respect to, among other things, benefits that could be realized from available income tax strategies and future taxable income, as well as other positive and negative factors.
The recorded amount of total deferred tax assets could be reduced if estimates of projected future taxable income and benefits from available income tax strategies are lowered, or if changes in current income tax regulations are enacted that impose restrictions on the timing or extent of the Company’s ability to utilize deferred tax benefits.
The Company’s effective income tax rate can vary significantly quarter-to-quarter for various reasons, including the mix and volume of business in lower income tax jurisdictions and in jurisdictions for which no deferred income tax assets have been recognized because management believed it was not probable that future taxable profit would be available against which income tax losses and deductible temporary differences could be utilized. The Company’s effective income tax rate can also vary due to the impact of foreign exchange fluctuations.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
SIGNIFICANTACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)
| (e) | Share-based payments |
|---|
The fair value of all share-based payments granted are determined using the Black-Scholes option pricing model which incorporates assumptions regarding risk-free interest rates, dividend yield, expected volatility, estimated forfeitures, and the expected life of options. The Company has a significant number of options outstanding and expects to continue to make option grants.
| (f) | Provision for expected credit losses (“ECLs”) |
|---|
The Company performs impairment testing annually for trade receivables in accordance with IFRS 9. The ECL model requires considerable judgment, including consideration of how changes in economic factors affect ECLs, which are determined on a probability-weighted basis. IFRS 9 outlines a three-stage approach to recognizing ECLs which is intended to reflect the increase in credit risks of a financial instrument based on i) 12-month ECLs, or ii) lifetime ECLs. The Company measures provision for ECLs at an amount equal to lifetime ECLs.
The Company applies the simplified approach to determine ECLs on trade receivables by using a provision matrix based on historical credit loss experiences. The historical results are used to calculate the run rates of default which are then applied over the expected life of the trade receivables, adjusted for forward looking estimates.
| (g) | Recognition of revenue on a gross versus net basis |
|---|
The Company follows the guidance provided in IFRS 15, Revenue from Contracts with Customers, for determining whether the Company is the principal or an agent in arrangements with customers that involve another party that contributes to providing a specified service to a customer. In these instances, the Company determines whether it controls the promised specified service itself (as principal) or arranges for the specified service to be provided by another party (as an agent).
This determination depends on the facts and circumstances of each arrangement and, in some instances, involves significant judgment. The most significant factors to consider include whether the Company controls the good or service immediately before it is transferred to the customer, is primarily responsible for fulfilling the promise to provide the specified good or service, has inventory risk before transferring the specified good or service, and has discretion in establishing prices for the specified good or service.
| (h) | Functional currency |
|---|
The functional currency of the Company and each of its subsidiaries is the currency of the primary economic environment in which the entities operate. The Company has determined that the functional currency for the Company is Canadian dollars while the functional currencies of subsidiaries are United States dollars, UK pound Sterling or Euro. Assessment of functional currency involves certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.
FINANCIALINSTRUMENTS AND RISK MANAGEMENT
Fairvalues
The fair values of cash, investments, trade and other receivables, loans receivable, accounts payable and accrued liabilities and contract liabilities approximate their carrying values due to the relatively short-term nature of these financial instruments. The fair value of long-term debt, lease liabilities, deferred payment liability and other long-term debt loan is based on observable market data and the calculation of discounted cash flows. Discount rates were determined based on current terms and conditions observed in the credit market.
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
FINANCIALINSTRUMENTS AND RISK MANAGEMENT (Continued)
Fairvalues (Continued)
The Company follows a three-tier categorization for its financial instruments as a framework for disclosing fair value based upon inputs used to value the Company’s investments. The hierarchy is summarized as:
| ● | Level<br> 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities |
|---|---|
| ● | Level<br> 2 – inputs that are observable for the asset or liability, either directly (prices)<br> or indirectly (derived from prices) from observable market data |
| --- | --- |
| ● | Level<br> 3 – inputs for assets and liabilities not based upon observable market data |
| --- | --- |
As of June 30, 2023, the Vedatis Earn-Out Payment liability is classified as a Level 3 financial instrument (see Note 14 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2023).
Total interest income and interest expense for the three and six months ended June 30, 2023 and 2022 for financial assets or financial liabilities that are not at fair value through profit or loss can be summarized as follows:
| For the three months ended | For the six months ended | |||
|---|---|---|---|---|
| June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | June 30, 2023<br><br> $ | June 30, 2022<br><br> $ | |
| Interest<br> Income | (1,514) | (1,320) | (62,721) | (2,721) |
| Interest<br> and Accretion Expense | 581,825 | 1,119,109 | 1,160,640 | 2,549,778 |
| TOTAL | 580,311 | 1,117,789 | 1,097,919 | 2,547,057 |
The Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, foreign currency risk and interest rate risk.
Creditrisk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations.
The Company’s maximum exposure to credit risk for its trade receivables is summarized as follows:
| June 30, 2023<br><br> $ | December 31, 2022<br><br> $ | |
|---|---|---|
| Trade<br> receivables aging: | ||
| 0-30<br> days | 19,349,991 | 26,077,091 |
| 31-60<br> days | 951,380 | 1,455,672 |
| 61-90<br> days | 2,470,603 | 1,803,214 |
| Greater<br> than 90 days | 3,836,285 | 2,558,113 |
| Total trade receivables | 26,608,259 | 31,894,090 |
| Expected<br> credit loss provision | (410,218) | (300,735) |
| Net trade receivables | 26,198,041 | 31,593,355 |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
FINANCIALINSTRUMENTS AND RISK MANAGEMENT (Continued)
CreditRisk (Continued)
The movement in the expected credit loss provision can be reconciled as follows:
| June 30, 2023<br><br> $ | December 31, 2022<br><br> $ | |
|---|---|---|
| Expected<br> credit loss provision, beginning balance | (300,735) | (58,472) |
| Increase<br> in provision for expected credit loss | (125,340) | (240,603) |
| Recoveries | 13,984 | — |
| Effect<br> of movement in exchange rates | 1,873 | (1,660) |
| Expected<br> credit loss provision, ending balance | (410,218) | (300,735) |
The following default rates, determined based on historical default rates based on the aging of trade receivables, are used to calculate the expected credit loss provision on trade receivables as of June 30, 2023:
| Total | Not past due | Over 30 days past due | Over 60 days past due | Over 90 days past due | |
|---|---|---|---|---|---|
| Default<br> rates | 0.89% | 1.26% | 1.77% | 4.77% | |
| Trade<br> receivables | 26,608,259 | 19,349,991 | 951,380 | 2,470,603 | 3,836,285 |
| Expected<br> credit loss provision | 410,218 | 171,598 | 12,005 | 43,632 | 182,983 |
All of the Company’s cash is held with major financial institutions and thus the exposure to credit risk is considered insignificant. Management actively monitors the Company’s exposure to credit risk under its financial instruments.
Concentrationrisk
The Company has one customer which makes up more than 10% of revenue. This customer accounts for approximately 31.83% (December 31, 2022 – 30.24%) of trade receivables as of June 30, 2023, 49.72% (June 30, 2022 – 56.29%) of revenues for the six months ended June 30, 2023 and 52.84% (June 30, 2022 – 54.30%) of revenues for the three months ended June 30, 2023.
LiquidityRisk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements.
| 39 |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
FINANCIALINSTRUMENTS AND RISK MANAGEMENT (Continued)
LiquidityRisk (Continued)
The Company holds sufficient cash and working capital which is maintained through stringent cash flow management to ensure sufficient liquidity is maintained. The table below summarizes the Company’s contractual obligations into relevant maturity groups at the statement of financial position date based on the expected contractual maturity date. The amounts disclosed in the table are the contractual undiscounted payments.
| Less than one year <br><br> $ | One to two years <br><br> $ | Two to three years <br><br> $ | More than three years <br><br> $ | Total <br><br> $ | |
|---|---|---|---|---|---|
| Accounts<br> payable and accrued liabilities | 35,797,853 | — | — | — | 35,797,853 |
| Contract<br> liabilities | 4,902,397 | — | — | — | 4,902,397 |
| Income<br> tax payable | 242,785 | — | — | — | 242,785 |
| Deferred<br> payment liability ^(1)^ | 84,085 | — | 1,920,682 | — | 2,004,767 |
| Lease<br> liabilities | 926,959 | 532,573 | 547,395 | — | 2,006,927 |
| Long-term<br> debt | 4,352,940 | 10,882,355 | — | — | 15,235,295 |
| Other<br> Long-term debt | 9,678 | 11,614 | 11,614 | 363,954 | 396,860 |
| TOTAL | 46,316,697 | 11,426,542 | 2,479,691 | 363,954 | 60,586,884 |
Notes:
| (1) | The<br> Company has, at its option, the ability to settle the deferred payment liability amounts<br> due in two to three years half in cash and half in common shares. |
|---|
Foreigncurrency risk
A large portion of the Company’s transactions occur in foreign currencies (including US dollars, UK pound sterling, and Euro) and, therefore, the Company is exposed to foreign currency risk at the end of the reporting period through its US dollars, UK pound sterling, and Euro denominated trade and other receivables, accounts payable and accrued liabilities, deferred payment liability and cash. As of June 30, 2023, a 10% depreciation or appreciation of the US dollar, UK pound sterling, and Euro against the Canadian dollar would have resulted in an approximate $399,000, $94,000 and $154,000 decrease or increase, respectively, in total net loss and comprehensive loss.
Interestrate risk
The Company’s long-term debt bears interest at Banker’s Acceptance fee equal to CDOR rate plus 7.5%. Fluctuations in the Banker’s Acceptance fee equal to CDOR rate will result in changes to interest expense. A change in the annual interest rate of 0.50% would approximately result in a $74,000 change in the annual interest expense.
| 40 |
|---|
EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
COMMITMENTS
In addition to the financial liabilities summarized above, as of June 30, 2023, the Company has the following payment commitments with respect to consulting and other contractual obligations:
| $ | |
|---|---|
| Not<br> later than one year | 1,144,000 |
| Later<br> than one year and not later than five years | 1,310,000 |
| Total | 2,454,000 |
Further, the Company is subject to capital commitments pursuant to its investments in AIG Canada and AIG USA, see Note 6 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2023, as well as Surge eSports LLC which is being established under a similar structure. If the Company fails to make any capital contributions, as required, it may be subject to certain actions including the loss of rights or a reduction in equity ownership in order to satisfy the capital contribution requirements.
CONTROLSAND PROCEDURES
DisclosureControls and Procedures
Management is responsible for the design and effectiveness of disclosure controls and procedures to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, which is required to be disclosed by the Company in its filings or required to be submitted by the Company under securities legislation is recorded, processed, and summarized and reported within specified time periods. The Company’s Chief Executive Officer and Chief Financial Officer have each evaluated the design of the Company’s disclosure controls and procedures as of June 30, 2023 and have concluded that these controls and procedures were appropriately designed.
Changesin Internal Control Over Financial Reporting
There have been no material changes in the Company’s internal control over financial reporting during the six months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
RISKSAND UNCERTAINTIES
The securities of Enthusiast Gaming should be considered highly speculative due to the nature of the Company’s businesses and the current stage of its development. Risks and uncertainties are discussed in great detail in the Company’s Annual Information Form available on SEDAR at www.sedarplus.ca.
The risks presented in the Annual Information Form may not be all of the risks that the Company may face. It is believed that these are the factors that could cause actual results to be different from expected and historical results. Other sections of this MD&A and the condensed consolidated interim financial statements for the three and six months ended June 30, 2023, each of which are available on SEDAR, and other filings the Company has made and may make in the future with the applicable securities authorities, include additional factors that could have an effect on the business and financial performance of the Company’s business. The market in which the Company competes is very competitive and changes rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. You should not rely upon forward-looking statements as a prediction of future results.
| 41 |
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EnthusiastGaming Holdings Inc.
Management Discussion and Analysis
For The Three and Six Months Ended June 30, 2023
MANAGEMENT’SRESPONSIBILITY FOR FINANCIAL STATEMENTS
The information provided in this report, is the responsibility of management. During the preparation of financial statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the accompanying financial statements.
Management maintains a system of internal controls to provide reasonable assurance that the Company’s assets are safeguarded and to facilitate the preparation of relevant and timely information.
The Company’s Board of Directors follows recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders. The Company’s Audit Committee meets with management quarterly to review the financial statement results, including the MD&A, and to discuss other financial, operating, and internal control matters. The Audit Committee receives a report from the independent auditors quarterly and is free to meet with them throughout the year.
ADDITIONALINFORMATION
Additional information relating to the Company is available in the condensed consolidated interim financial statements of the Company for the three and six months ended June 30, 2023. Additional information can also be found in the investors section of the Company’s website at www.enthusiastgaming.com or on the Company’s SEDAR profile at www.sedarplus.ca including the most recently filed Annual Information Form and Management Information Circular.
| 42 |
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Exhibit99.2
EnthusiastGaming Holdings Inc.
Condensed Consolidated Interim Statements of FinancialPosition
As of June 30, 2023 and December 31, 2022
(Unaudited - Expressed in Canadian Dollars)
| Note | June 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|---|
| ASSETS | |||||||
| Current | |||||||
| Cash | $ | 2,741,788 | $ | 7,415,516 | |||
| Trade and other receivables | 5 | 32,645,717 | 37,868,107 | ||||
| Investments | 125,000 | 125,000 | |||||
| Loans receivable | — | 50,935 | |||||
| Income tax receivable | — | 367,092 | |||||
| Prepaid expenses | 1,280,633 | 2,017,004 | |||||
| Total current assets | 36,793,138 | 47,843,654 | |||||
| Non-current | |||||||
| Property and equipment | 7 | 157,427 | 180,621 | ||||
| Right-of-use assets | 10 | 1,605,459 | 2,099,996 | ||||
| Investment in associates and joint ventures | 6 | 2,383,861 | 2,450,031 | ||||
| Long-term portion of prepaid expenses | 273,533 | 279,814 | |||||
| Intangible assets | 8 | 110,461,565 | 116,967,438 | ||||
| Goodwill | 9 | 170,168,930 | 171,615,991 | ||||
| Total Assets | $ | 321,843,913 | $ | 341,437,545 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current | |||||||
| Accounts payable and accrued liabilities | 11 | $ | 35,797,853 | $ | 32,823,320 | ||
| Contract liabilities | 4,902,397 | 5,380,378 | |||||
| Income tax payable | 242,785 | 129,485 | |||||
| Current portion of long-term debt | 12 | 4,352,940 | 17,431,625 | ||||
| Current portion of deferred payment liability | 14 | 79,205 | 2,391,863 | ||||
| Current portion of lease liabilities | 10 | 870,447 | 872,429 | ||||
| Current portion of other long-term debt | 13 | 9,678 | 10,891 | ||||
| Total current liabilities | 46,255,305 | 59,039,991 | |||||
| Non-current | |||||||
| Long-term debt | 12 | 10,891,725 | — | ||||
| Long-term portion of deferred payment liability | 14 | 1,612,364 | 1,451,939 | ||||
| Long-term portion of lease liabilities | 10 | 1,039,764 | 1,478,438 | ||||
| Other long-term debt | 13 | 141,141 | 144,844 | ||||
| Deferred tax liability | 23,729,627 | 24,671,326 | |||||
| Total liabilities | $ | 83,669,926 | $ | 86,786,538 | |||
| Shareholders’ Equity | |||||||
| Share capital | 15 | 444,474,076 | 442,781,376 | ||||
| Contributed surplus | 16, 17 | 33,321,563 | 30,402,742 | ||||
| Accumulated other comprehensive income | 6,494,599 | 8,629,848 | |||||
| Deficit | (246,116,251 | ) | (227,162,959 | ) | |||
| Total shareholders’ equity | 238,173,987 | 254,651,007 | |||||
| Total liabilities and shareholders’ equity | $ | 321,843,913 | $ | 341,437,545 |
Basis of preparation (Note 2)
Commitments(Note 21)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1
EnthusiastGaming Holdings Inc.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
For the three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| For the three months ended | For the six months ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Note | June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||
| Revenue | 22 | $ | 42,598,769 | $ | 51,119,028 | $ | 85,478,735 | $ | 98,286,566 | ||||
| Cost of sales | 27,616,077 | 35,775,863 | 53,730,485 | 69,452,022 | |||||||||
| Gross margin | 14,982,692 | 15,343,165 | 31,748,250 | 28,834,544 | |||||||||
| Operating expenses | |||||||||||||
| Professional fees | 690,063 | 667,681 | 1,143,399 | 1,592,502 | |||||||||
| Consulting fees | 18 | 1,595,468 | 1,777,003 | 2,903,952 | 3,255,177 | ||||||||
| Advertising and promotion | 938,613 | 427,618 | 2,394,724 | 755,065 | |||||||||
| Office and general | 1,930,338 | 2,681,589 | 4,222,121 | 4,944,494 | |||||||||
| Annual general meeting legal and advisory costs | — | 2,237,200 | — | 2,237,200 | |||||||||
| Salaries and wages | 18 | 9,932,310 | 9,112,903 | 19,139,334 | 17,809,778 | ||||||||
| Technology support, web development and content | 4,156,966 | 3,800,203 | 9,452,990 | 7,259,071 | |||||||||
| Esports player, team and game expenses | 645,715 | 1,483,360 | 1,281,162 | 2,994,848 | |||||||||
| Foreign exchange loss (gain) | 22,851 | (633,789 | ) | 137,408 | (625,202 | ) | |||||||
| Share-based compensation | 16, 17 | 1,788,490 | 3,128,625 | 2,918,821 | 4,514,806 | ||||||||
| Amortization and depreciation | 7, 8, 10 | 2,886,075 | 4,435,374 | 6,224,098 | 9,202,398 | ||||||||
| Total operating expenses | 24,586,889 | 29,117,767 | 49,818,009 | 53,940,137 | |||||||||
| Other expenses (income) | |||||||||||||
| Transaction costs | — | 114,853 | — | 114,853 | |||||||||
| Share of net (income) loss from investment in associates and joint ventures | 6 | (106,277 | ) | (931,901 | ) | 66,170 | (1,227,942 | ) | |||||
| Interest and accretion | 10, 12 - 14 | 605,385 | 1,119,109 | 1,215,725 | 2,549,778 | ||||||||
| Loss on settlement of deferred payment liability | 14 | — | 3,302,824 | — | 3,302,824 | ||||||||
| Loss (gain) on revaluation of deferred payment liability | 14 | 374,101 | 143,775 | 202,077 | (871,763 | ) | |||||||
| Gain on player buyouts | — | (480,537 | ) | — | (480,537 | ) | |||||||
| Interest income | (1,514 | ) | (1,320 | ) | (62,721 | ) | (2,721 | ) | |||||
| Net loss before income taxes | (10,475,892 | ) | (17,041,405 | ) | (19,491,010 | ) | (28,490,085 | ) | |||||
| Income taxes | |||||||||||||
| Current tax expense | 22,279 | 196,717 | 225,771 | 307,246 | |||||||||
| Deferred tax recovery | (281,579 | ) | (357,892 | ) | (763,489 | ) | (884,172 | ) | |||||
| Net loss for the period | (10,216,592 | ) | (16,880,230 | ) | (18,953,292 | ) | (27,913,159 | ) | |||||
| Other comprehensive income (loss) | |||||||||||||
| Items that may be reclassified to profit or loss | |||||||||||||
| Foreign currency translation adjustment | (2,141,800 | ) | 3,068,297 | (2,135,249 | ) | 1,859,867 | |||||||
| Net loss and comprehensive loss for the period | $ | (12,358,392 | ) | $ | (13,811,933 | ) | $ | (21,088,541 | ) | $ | (26,053,292 | ) | |
| Net loss per share, basic and diluted | $ | (0.07 | ) | $ | (0.12 | ) | $ | (0.12 | ) | $ | (0.20 | ) | |
| Weighted average number of common shares outstanding, basic and diluted | 152,171,249 | 138,745,383 | 151,970,362 | 136,189,630 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
EnthusiastGaming Holdings Inc.
Condensed Consolidated Interim Statements of Shareholders’Equity
For the six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| Note | Number of<br><br>shares | Share capital | Contributed surplus | Accumulated <br><br>other <br><br>comprehensive <br><br>income (loss) | Deficit | Total <br><br>shareholders’<br><br>equity | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2022 | 133,549,269 | $ | 387,087,948 | $ | 25,485,361 | $ | 527,166 | $ | (150,332,154 | ) | $ | 262,768,321 | |||||
| Issuance of shares to effect the Outplayed acquisition | 15 | 35,770 | 181,389 | — | — | — | 181,389 | ||||||||||
| Shares issued upon exercise of options | 15 | 74,051 | 309,720 | (239,899 | ) | — | — | 69,821 | |||||||||
| Shares issued for settlement of deferred payment liability | 14, 15 | 16,280,103 | 50,373,851 | — | — | — | 50,373,851 | ||||||||||
| Share-based compensation | 16, 17 | — | — | 4,514,806 | — | — | 4,514,806 | ||||||||||
| Other comprehensive income for the period | — | — | — | 1,859,867 | — | 1,859,867 | |||||||||||
| Net loss for the period | — | — | — | — | (27,913,159 | ) | (27,913,159 | ) | |||||||||
| Balance June 30, 2022 | 149,939,193 | $ | 437,952,908 | $ | 29,760,268 | $ | 2,387,033 | $ | (178,245,313 | ) | $ | 291,854,896 | |||||
| Balance, January 1, 2023 | 151,767,243 | $ | 442,781,376 | $ | 30,402,742 | $ | 8,629,848 | $ | (227,162,959 | ) | $ | 254,651,007 | |||||
| Shares issued for settlement of deferred payment liability | 14, 15 | 2,626,037 | 1,692,700 | — | — | — | 1,692,700 | ||||||||||
| Share-based compensation | 16, 17 | — | — | 2,918,821 | — | — | 2,918,821 | ||||||||||
| Other comprehensive loss for the period | — | — | — | (2,135,249 | ) | — | (2,135,249 | ) | |||||||||
| Net loss for the period | — | — | — | — | (18,953,292 | ) | (18,953,292 | ) | |||||||||
| Balance, June 30, 2023 | 154,393,280 | $ | 444,474,076 | $ | 33,321,563 | $ | 6,494,599 | $ | (246,116,251 | ) | $ | 238,173,987 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
EnthusiastGaming Holdings Inc.
Condensed Consolidated Interim Statements of Cash Flows
For the six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| For the six months ended | |||||||
|---|---|---|---|---|---|---|---|
| Note | June 30, 2023 | June 30, 2022 | |||||
| Cash flows from operating activities | |||||||
| Net loss for the period | $ | (18,953,292 | ) | $ | (27,913,159 | ) | |
| Items not affecting cash: | |||||||
| Amortization and depreciation | 7, 8, 10 | 6,224,098 | 9,202,398 | ||||
| Share-based compensation | 16, 17 | 2,918,821 | 4,514,806 | ||||
| Interest and accretion | 10, 12 - 14 | 137,327 | 2,143,527 | ||||
| Deferred tax recovery | (763,489 | ) | (884,172 | ) | |||
| Share of net loss (income) from investment in associates and joint ventures | 6 | 66,170 | (1,227,942 | ) | |||
| Loss (gain) on revaluation of deferred payment liability | 14 | 202,077 | (871,763 | ) | |||
| Loss on settlement of deferred payment liability | 14 | — | 3,302,824 | ||||
| Foreign exchange loss (gain) | 24,480 | (492,716 | ) | ||||
| Gain on player buyouts | — | (480,537 | ) | ||||
| Shares for services | — | 84,388 | |||||
| Provisions | 165,145 | — | |||||
| Changes in working capital: | |||||||
| Changes in trade and other receivables | 5,108,139 | 1,255,456 | |||||
| Changes in prepaid expenses | 736,371 | (1,598,380 | ) | ||||
| Changes in loans receivable | — | 125,995 | |||||
| Changes in accounts payable and accrued liabilities | 2,974,533 | 7,128,498 | |||||
| Changes in contract liabilities | (477,981 | ) | 310,858 | ||||
| Changes in income tax receivable and payable | 594,894 | 174,993 | |||||
| Income tax paid | (114,502 | ) | (42,002 | ) | |||
| Net cash used in operating activities | (1,157,209 | ) | (5,266,928 | ) | |||
| Cash flows from investing activities | |||||||
| Cash paid for mergers and acquisitions | — | (2,937,520 | ) | ||||
| Cash acquired from mergers and acquisitions | — | 1,748,602 | |||||
| Proceeds from player buyouts, net of transaction costs | — | 480,537 | |||||
| Repayment of deferred payment liability | 14 | (844,350 | ) | (472,833 | ) | ||
| Acquisition of intangible assets | 8 | (27,488 | ) | — | |||
| Acquisition of property and equipment | 7 | (17,156 | ) | (4,165 | ) | ||
| Net cash used in investing activities | (888,994 | ) | (1,185,379 | ) | |||
| Cash flows from financing activities | |||||||
| Repayment of long-term debt | 12 | (2,176,470 | ) | (1,000,000 | ) | ||
| Proceeds from exercise of options | 15 | — | 69,821 | ||||
| Repayment of other long-term debt | 13 | (6,775 | ) | (2,826 | ) | ||
| Lease payments | 10 | (439,184 | ) | (417,092 | ) | ||
| Net cash used in financing activities | (2,622,429 | ) | (1,350,097 | ) | |||
| Foreign exchange effect on cash | (5,096 | ) | 87,484 | ||||
| Net change in cash | (4,673,728 | ) | (7,714,920 | ) | |||
| Cash, beginning of period | 7,415,516 | 22,654,262 | |||||
| Cash, end of period | $ | 2,741,788 | $ | 14,939,342 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 1. | Nature of operations |
|---|
Enthusiast Gaming Holdings Inc. (the “Company” or “Enthusiast”) was incorporated under the Business Corporation Act (British Columbia) on June 27, 2018. The Company is publicly traded on the Toronto Stock Exchange (“TSX”) and Nasdaq Capital Market under the symbol “EGLX”. The Company maintains its registered office at 510 West Georgia Street, Suite 1800, Vancouver, British Columbia and its executive office at 90 Eglinton Avenue East, Suite 805, Toronto, Ontario, M4P 2Y3.
The Company’s principal business activities are comprised of media and content, entertainment and esports. The Company’s digital media platform includes video gaming related websites, YouTube channels and a library of casual games. The Company’s esports division, Luminosity Gaming Inc. (“Luminosity”), is a leading global esports franchise that consists of professional esports teams under ownership and management, including the Vancouver Titans Overwatch team and the Seattle Surge Call of Duty team. The Company’s entertainment business owns and operates the largest mobile gaming event in Europe, Pocket Gamer Connects.
On April 28, 2022, the Company, through its wholly-owned subsidiary, Steel Media Limited, acquired all of the issued and outstanding treasury shares of Fantasy Media Ltd (“FML”) and Fantasy Football Scout Limited (“FFS”, which together with “FML” is herein referred to as “FFS”), pursuant to a share purchase agreement dated April 28, 2022 (the “FFS SPA”). The FFS SPA is accounted for in accordance with IFRS 3, as the operations of FFS constitute a business.
The FFS SPA is called “Mergers and Acquisitions” in these condensed consolidated interim financial statements. For information relating to the accounting of the FFS SPA refer to Note 5 of the audited consolidated financial statements of the Company for the year ended December 31, 2022.
Approval of Financial Statements
These condensed consolidated interim financial statements were authorized for issuance by the Board of Directors of the Company on August 14, 2023.
| 2. | Statement of compliance and basis of preparation |
|---|---|
| (i) | Statement of compliance |
| --- | --- |
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, InterimFinancial Reporting. These condensed consolidated interim financial statements do not include all of the information required for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2022, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations by the IFRS Interpretations Committee.
| (ii) | Basis of preparation |
|---|
These condensed consolidated interim financial statements are prepared under the historical cost convention except for the revaluation of certain financial assets and liabilities to fair value. All financial information is presented in Canadian dollars, except as otherwise noted.
The Company’s future operations are dependent upon its ability to generate positive cash flows from operations and raise additional financing. For the six months ended June 30, 2023, the Company incurred a net loss of $18,953,292 (June 30, 2022– $27,913,159), had negative cash flows from operations of $1,157,209 (June 30, 2022 – $5,266,928) and as of June 30, 2023, the Company has an accumulated deficit of $246,116,251 (December 31, 2022 – $227,162,959).
The Company’s cash resources as of June 30, 2023, are not sufficient to fund its planned business operations over the next 12 months. Additional financing will be required in order to settle current liabilities and to service the Company’s debt facilities and remain in compliance with covenants under the Amended Commitment Letter as well as fund the planned business operations, which includes increasing direct and programmatic advertising revenues, increasing subscription revenue, building key strategic partnerships, undertaking marketing initiatives, and improving technical infrastructure.
5
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 2. | Statement of compliance and basis of preparation (continued) |
|---|---|
| (ii) | Basis of preparation (continued) |
| --- | --- |
As of June 30, 2023, the Company is in advanced discussions with its primary lender to document an amendment of its existing debt facilities, the successful execution of which will enable re-investment of funds into the business for growth opportunities and continued operations as well as alleviate short term liquidity pressures. The failure to successfully amend its existing debt facilities could impact planned and continuing operations.
These factors represent a material uncertainty that casts substantial doubt as to the Company’s use of the going concern assumption in preparation of these condensed consolidated interim financial statements. These condensed consolidated interim financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for these condensed consolidated interim financial statements, adjustments may be necessary to the carrying value of assets and liabilities or reported expenses, and these adjustments could be material.
| (ii) | Basis of consolidation |
|---|
Subsidiaries are entities controlled by the Company where control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are included in the consolidated financial statements from the date control is obtained until the date control ceases. All intercompany balances, transactions, income and expenses have been eliminated on consolidation.
These condensed consolidated interim financial statements include the accounts of Enthusiast Gaming Holdings Inc. and its wholly-owned subsidiaries. The accounts of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The table below lists the Company’s wholly-owned subsidiaries:
| Name of Subsidiary | Jurisdiction | Functional Currency | Accounting Method |
|---|---|---|---|
| GameCo Esports Canada Inc. (formerly Aquilini GameCo Inc.) | Canada | Canadian dollars | Consolidation |
| GameCo eSports USA Inc. | USA | U.S. dollars | Consolidation |
| Luminosity Gaming Inc. | Canada | Canadian dollars | Consolidation |
| Luminosity Gaming (USA) LLC | USA | U.S. dollars | Consolidation |
| Enthusiast Gaming Properties Inc. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming Inc. | Canada | U.S. dollars | Consolidation |
| Enthusiast Gaming Live Inc. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming Media (US) Inc. | USA | U.S. dollars | Consolidation |
| Tabwire LLC | USA | U.S. dollars | Consolidation |
| GameKnot LLC | USA | U.S. dollars | Consolidation |
| Addicting Games, Inc. | USA | U.S. dollars | Consolidation |
| TeachMe, Inc. | USA | U.S. dollars | Consolidation |
| Outplayed, Inc. | USA | U.S. dollars | Consolidation |
| Storied Talent, LLC | USA | U.S. dollars | Consolidation |
| Enthusiast Gaming (PG) Inc. | Canada | Canadian dollars | Consolidation |
| Steel Media Limited | England and Wales | UK Pound Sterling | Consolidation |
| Fantasy Media Ltd. | England and Wales | UK Pound Sterling | Consolidation |
| Fantasy Football Scout Limited | England and Wales | UK Pound Sterling | Consolidation |
| Omnia Media Inc. | USA | U.S. dollars | Consolidation |
| Vedatis SAS | France | Euro | Consolidation |
Refer to Note 6 for the Company’s investment in associates and joint ventures.
| 3. | Significant accounting policies |
|---|
The Company’s accounting policies as described in Note 3, Significant Accounting Policies, of the Company’s audited consolidated financial statements for the year ended December 31, 2022, have been applied consistently to all periods presented in these condensed consolidated interim financial statements. Refer to those audited consolidated financial statements for the significant accounting policies which remain unchanged as of June 30, 2023.
6
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 3. | Significant accounting policies (continued) |
|---|
The following new standards, interpretation or amendment were adopted for the first time on January 1, 2023:
IAS 1 – Presentation of Financial Statements (“IAS 1”)
In February 2021, the IASB issued amendments to IAS 1 to assist entities in determining which accounting policies to disclose in the financial statements. The amendments to IAS 1 require that an entity disclose its material accounting policies, instead of its significant accounting policies. The amendments apply to annual reporting periods beginning on or after January 1, 2023. There was no material impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
In January 2020, IAS 1 was amended to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or non-current is based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023 and are to be applied retrospectively. There was no material impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
In February 2021, the IASB issued “Definition of Accounting Estimates”, which amends IAS 8. The amendment replaces the definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty.” The amendment provides clarification to help entities to distinguish between accounting policies and accounting estimates. The amendments are effective for annual periods beginning on or after January 1, 2023. There was no impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
IAS 12 – Income Taxes (“IAS 12”)
In May 2021, the IASB issued “Deferred Tax related to Assets and Liabilities arising from a Single Transaction”, which amends IAS 12. The amendment narrows the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offset temporary differences. As a result, companies will need to recognize a deferred tax asset and deferred tax liability for temporary differences arising on initial recognition of transactions such as leases and decommissioning obligations. The amendments are effective for annual periods beginning on or after January 1, 2023 and are to be applied retrospectively. There was no material impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
| 4. | Significant accounting judgments, estimates and uncertainties |
|---|
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes to the consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the estimates are revised.
There have been no significant changes to the Company’s significant accounting judgements, estimates and uncertainties, as described in Note 4, SignificantAccounting Judgments, Estimates and Uncertainties, of the Company’s audited consolidated financial statements for the year ended December 31, 2022.
7
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 5. | Trade and other receivables |
|---|
A summary of trade and other receivables is as follows:
| June 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|
| Trade receivables (Note 20) | $ | 26,608,259 | $ | 31,894,090 | ||
| Other receivables | 6,353,920 | 5,906,625 | ||||
| HST and VAT receivables | 93,756 | 368,127 | ||||
| Expected credit loss provision (Note 20) | (410,218 | ) | (300,735 | ) | ||
| $ | 32,645,717 | $ | 37,868,107 |
As of June 30, 2023, other receivables include:
| (i) | amounts advanced to Surge eSports LLC, a former related party by nature of it being under the control<br>or direction of the former Chairman of the Company, of $3,368,145 (December 31, 2022 - $3,445,481). The Company intends to apply<br>these advances against future share subscriptions in Surge eSports LLC. The advances are non-interest bearing and are receivable<br>if the Company does not obtain share subscriptions in Surge eSports LLC, and, |
|---|---|
| (ii) | a promissory note receivable of $1,324,000 (December 31, 2022 - $1,354,400) relating to the sale<br>of certain web properties pursuant to an asset purchase agreement dated September 29, 2022. The promissory note is non-interest<br>bearing and due by September 29, 2023. |
| --- | --- |
| 6. | Investment in associates and joint ventures |
| --- | --- |
| (i) | Investment in associates |
| --- | --- |
On August 30, 2019, pursuant to an investment agreement between GameCo Esports Canada Inc. (“GameCo”) and Aquilini Properties LP (a former related party by nature of it being under the control or direction of the former Chairman of the Company), GameCo acquired 100 class B common shares of AIG eSports Canada Holdings Ltd. (“AIG Canada”) and GameCo eSports USA Inc. acquired a 25% non-voting participating interest in AIG eSports USA Intermediate Holdings, LLC (“AIG USA”). Collectively, AIG Canada and AIG USA own and manage professional esports teams in Canada and the United States. Aquilini Properties LP controls AIG Canada and AIG USA.
On October 1, 2022, the Company made a capital contribution of $323,078 to AIG Canada through the settlement of trade receivables due from AIG eSports LP. GameCo, through the class B common shares acquired in AIG Canada, holds 25% of the limited partnership units of AIG eSports LP.
A summary of the Company’s investment in associates is as follows:
| AIG Canada | AIG USA | Total | ||||||
|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2022 | $ | 662,853 | $ | 163,507 | $ | 826,360 | ||
| Contributions | 323,078 | — | 323,078 | |||||
| Share of net income from investment in associate | 760,117 | 528,240 | 1,288,357 | |||||
| Balance, December 31, 2022 | $ | 1,746,048 | $ | 691,747 | $ | 2,437,795 | ||
| Share of net (loss) income from investment in associate | (99,629 | ) | 28,549 | (71,080 | ) | |||
| Balance, June 30, 2023 | $ | 1,646,419 | $ | 720,296 | $ | 2,366,715 | ||
| (ii) | Investment in joint ventures | |||||||
| --- | --- |
On July 7, 2021, the Company, through its wholly-owned subsidiary, Enthusiast Gaming Inc., entered into a joint venture with Toronto Star Newspapers Limited (“Torstar”) to create an original online news platform and community for gamers named AFK Media Partnership (“AFK”). The Company and Torstar each hold a 50% interest in this joint venture. The Company and Torstar have each invested $125,000 into AFK as startup capital.
8
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 6. | Investment in associates and joint ventures (continued) |
|---|---|
| (ii) | Investment in joint ventures (continued) |
| --- | --- |
A summary of the Company’s investment in AFK is as follows:
| Amount | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 58,909 | |
| Share of net loss from investment in joint venture | (46,673 | ) | |
| Balance, December 31, 2022 | $ | 12,236 | |
| Share of net income from investment in joint venture | 4,910 | ||
| Balance, June 30, 2023 | $ | 17,146 |
A summary of the Company’s investment in associates and joint ventures is as follows:
| June 30, 2023 | December 31, 2022 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| AIG Canada | $ | 1,646,419 | $ | 1,746,048 | |||||||||||
| AIG USA | 720,296 | 691,747 | |||||||||||||
| AFK | 17,146 | 12,236 | |||||||||||||
| Total investment in associates and joint ventures | $ | 2,383,861 | $ | 2,450,031 | |||||||||||
| 7. | Property and equipment | ||||||||||||||
| --- | --- | ||||||||||||||
| Furniture and fixtures | Computer<br><br> <br>equipment | Leasehold improvements | Production<br><br> <br>equipment | Total | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Cost | |||||||||||||||
| Balance, January 1, 2022 | $ | 186,245 | $ | 191,093 | $ | 86,919 | $ | 45,739 | $ | 509,996 | |||||
| Additions | 514 | 10,764 | — | — | 11,278 | ||||||||||
| Effect of movement in exchange rates | 8,729 | 10,706 | 4,625 | 3,125 | 27,185 | ||||||||||
| Balance, December 31, 2022 | $ | 195,488 | $ | 212,563 | $ | 91,544 | $ | 48,864 | $ | 548,459 | |||||
| Additions | — | 17,156 | — | — | 17,156 | ||||||||||
| Effect of movement in exchange rates | (2,991 | ) | (3,534 | ) | (1,624 | ) | (1,097 | ) | (9,246 | ) | |||||
| Balance, June 30, 2023 | $ | 192,497 | $ | 226,185 | $ | 89,920 | $ | 47,767 | $ | 556,369 | |||||
| Accumulated depreciation | |||||||||||||||
| Balance, January 1, 2022 | $ | 67,945 | $ | 131,692 | $ | 41,679 | $ | 20,692 | $ | 262,008 | |||||
| Depreciation | 30,645 | 28,412 | 17,558 | 12,419 | 89,034 | ||||||||||
| Effect of movement in exchange rates | 3,931 | 8,169 | 2,779 | 1,917 | 16,796 | ||||||||||
| Balance, December 31, 2022 | $ | 102,521 | $ | 168,273 | $ | 62,016 | $ | 35,028 | $ | 367,838 | |||||
| Depreciation | 12,778 | 9,962 | 9,022 | 5,968 | 37,730 | ||||||||||
| Effect of movement in exchange rates | (1,697 | ) | (2,811 | ) | (1,226 | ) | (892 | ) | (6,626 | ) | |||||
| Balance, June 30, 2023 | $ | 113,602 | $ | 175,424 | $ | 69,812 | $ | 40,104 | $ | 398,942 | |||||
| Net book value | |||||||||||||||
| Balance, December 31, 2022 | $ | 92,967 | $ | 44,290 | $ | 29,528 | $ | 13,836 | $ | 180,621 | |||||
| Balance, June 30, 2023 | $ | 78,895 | $ | 50,761 | $ | 20,108 | $ | 7,663 | $ | 157,427 |
9
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 8. | Intangibles | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Domain<br> names | Application<br> & technology development & website content | Brand<br> name | Subscriber<br> & sponsorship relationships | Player<br> contracts | Multi<br> channel network license | Talent<br> management & owned & operated content brand | Talent<br> contracts & digital content | Game<br> application & technology development | Total | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, January 1, 2022 | $ | 50,834,054 | $ | 16,955,178 | $ | 34,574,132 | $ | 7,914,405 | $ | 311,200 | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,063,887 | $ | 142,271,856 | |||||||
| Mergers and Acquisitions | — | 837,000 | 845,000 | 891,000 | — | — | — | — | — | 2,573,000 | |||||||||||||||||
| Disposals | (1,955,000 | ) | (340,000 | ) | — | — | (311,200 | ) | — | — | — | — | (2,606,200 | ) | |||||||||||||
| Effect<br> of movement in foreign exchange rates | 676,519 | 865,525 | 1,558,148 | 70,014 | — | — | — | — | 275,749 | 3,445,955 | |||||||||||||||||
| Balance, December<br> 31, 2022 | $ | 49,555,573 | $ | 18,317,703 | $ | 36,977,280 | $ | 8,875,419 | $ | — | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,339,636 | $ | 145,684,611 | |||||||
| Additions | — | 27,488 | — | — | — | — | — | — | — | 27,488 | |||||||||||||||||
| Effect<br> of movement in foreign exchange rates | (237,485 | ) | (128,575 | ) | (516,805 | ) | 16,168 | — | — | — | — | (5,716 | ) | (872,413 | ) | ||||||||||||
| Balance,<br> June 30, 2023 | $ | 49,318,088 | $ | 18,216,616 | $ | 36,460,475 | $ | 8,891,587 | $ | — | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,333,920 | $ | 144,839,686 | |||||||
| Accumulated<br> amortization | |||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | — | $ | 4,394,766 | $ | — | $ | 1,856,235 | $ | 311,200 | $ | 1,440,120 | $ | — | $ | 3,103,940 | $ | 2,027,000 | $ | 13,133,261 | |||||||
| Amortization | — | 7,605,307 | — | 1,333,806 | — | 1,074,920 | — | 1,826,400 | 3,853,494 | 15,693,927 | |||||||||||||||||
| Disposals | — | (340,000 | ) | — | — | (311,200 | ) | — | — | — | — | (651,200 | ) | ||||||||||||||
| Effect<br> of movement in foreign exchange rates | — | 311,890 | — | 24,828 | — | — | — | — | 204,467 | 541,185 | |||||||||||||||||
| Balance, December<br> 31, 2022 | $ | — | $ | 11,971,963 | $ | — | $ | 3,214,869 | $ | — | $ | 2,515,040 | $ | — | $ | 4,930,340 | $ | 6,084,961 | $ | 28,717,173 | |||||||
| Amortization | — | 3,800,634 | — | 698,010 | — | 537,460 | — | 436,660 | 254,336 | 5,727,100 | |||||||||||||||||
| Effect<br> of movement in foreign exchange rates | — | (57,038 | ) | — | (3,737 | ) | — | — | — | — | (5,377 | ) | (66,152 | ) | |||||||||||||
| Balance,<br> June 30, 2023 | $ | — | $ | 15,715,559 | $ | — | $ | 3,909,142 | $ | — | $ | 3,052,500 | $ | — | $ | 5,367,000 | $ | 6,333,920 | $ | 34,378,121 | |||||||
| Balance, December 31, 2022 | $ | 49,555,573 | $ | 6,345,740 | $ | 36,977,280 | $ | 5,660,550 | $ | — | $ | 8,233,960 | $ | 9,363,000 | $ | 576,660 | $ | 254,675 | $ | 116,967,438 | |||||||
| Balance,<br> June 30, 2023 | $ | 49,318,088 | $ | 2,501,057 | $ | 36,460,475 | $ | 4,982,445 | $ | — | $ | 7,696,500 | $ | 9,363,000 | $ | 140,000 | $ | — | $ | 110,461,565 |
10
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 9. | Goodwill |
|---|
The following comprises the balance of goodwill by cash-generating unit (“CGU”). Goodwill arose through the mergers and acquisitions of (i) Luminosity on August 27, 2019, (ii) Enthusiast Gaming Properties Inc. (“Enthusiast Properties) on August 30, 2019, (iii) Steel Media Limited (“Steel Media”) on October 3, 2019, (iv) Omnia Media Inc. (“Omnia”) on August 30, 2020, (v) Vedatis SAS (“Vedatis”) on May 1, 2021, (vi) Tabwire LLC (“Tabwire”) on June 21, 2021, (vii) GameKnot LLC (“GameKnot”) on August 30, 2021, (viii) Addicting Games, Inc. (“Addicting Games”) on September 2, 2021, (ix) Outplayed, Inc. (“Outplayed”) on November 22, 2021, and (x) FFS on April 28, 2022.
In April 2019, Enthusiast Properties acquired 100% of the assets of The Sims Resource (“TSR”) from Generatorhallen AB and IBIBI HB. TSR is identified as a separate CGU from Enthusiast Properties based on the nature of the business and the assessment that TSR generates cash flows that are largely independent of the cash flows from other assets deployed in Enthusiast Properties. The Company has included Vedatis, Tabwire and GameKnot within the Enthusiast Properties CGU based on the nature of these businesses and the assessment that they generate cash flows that are not largely independent of the cash flows from other assets deployed in Enthusiast Properties. The Company has included FFS within the Steel Media CGU based on the nature of these businesses and the assessment that they generate cash flows that are not largely independent of the cash flows from other assets deployed in Steel Media.
A summary goodwill by CGU is as follows:
| Enthusiast<br> <br> Properties | TSR | Luminosity | Steel<br> Media | Omnia | Addicting<br> <br> Games | Outplayed | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2022 | $ | 76,263,276 | $ | 20,898,598 | $ | 6,003,150 | $ | 1,890,627 | $ | 22,921,670 | $ | 29,282,414 | $ | 37,837,924 | $ | 195,097,659 | |||||
| Mergers and Acquisitions | — | — | — | 2,053,293 | — | — | — | 2,053,293 | |||||||||||||
| Goodwill impairment | — | — | — | — | (14,082,162 | ) | (17,199,124 | ) | — | (31,281,286 | ) | ||||||||||
| Effect<br> of movement in foreign exchange rates | 849,126 | — | — | 45,344 | — | 2,015,165 | 2,836,690 | 5,746,325 | |||||||||||||
| Balance, December<br> 31, 2022 | $ | 77,112,402 | $ | 20,898,598 | $ | 6,003,150 | $ | 3,989,264 | $ | 8,839,508 | $ | 14,098,455 | $ | 40,674,614 | $ | 171,615,991 | |||||
| Effect<br> of movement in foreign exchange rates | (298,077 | ) | — | — | 100,959 | — | (254,154 | ) | (995,789 | ) | (1,447,061 | ) | |||||||||
| Balance,<br> June 30, 2023 | $ | 76,814,325 | $ | 20,898,598 | $ | 6,003,150 | $ | 4,090,223 | $ | 8,839,508 | $ | 13,844,301 | $ | 39,678,825 | $ | 170,168,930 |
The Company performs its annual impairment tests at December 31 or at an interim date when events or changes in the business environment (triggering events) would more likely than not reduce the fair value of a CGU below its carrying value. During the six months ended June 30, 2023, the Company concluded that there were no triggering events requiring an impairment assessment.
| 10. | Right-of-use assets and lease liabilities |
|---|
The Company’s leased assets consist of office premises. When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using incremental borrowing rates of 4.20% to 5.00%.
A summary of right-of-use assets is as follows:
| Amount | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 2,885,662 | |
| Depreciation | (924,883 | ) | |
| Effect<br> of movement in exchange rates | 139,217 | ||
| Balance, December<br> 31, 2022 | $ | 2,099,996 | |
| Depreciation | (459,267 | ) | |
| Effect<br> of movement in exchange rates | (35,270 | ) | |
| Balance,<br> June 30, 2023 | $ | 1,605,459 |
11
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 10. | Right-of-use assets and lease liabilities (continued) |
|---|
A summary of lease liabilities is as follows:
| Amount | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 3,010,347 | |
| Payments | (948,040 | ) | |
| Accretion | 105,496 | ||
| Effect of movement in exchange rates | 183,064 | ||
| Balance, December 31, 2022 | 2,350,867 | ||
| Payments | (439,184 | ) | |
| Accretion | 46,546 | ||
| Effect of movement in exchange rates | (48,018 | ) | |
| Balance, June 30, 2023 | 1,910,211 | ||
| Current portion of lease liabilities | 870,447 | ||
| Long-term portion of lease liabilities | $ | 1,039,764 |
Note 20 provides a summary of undiscounted lease payments to be made as of the statement of financial position date. Variable lease payments during the six months ended June 30, 2023, which are not included in lease liabilities are $120,171 (June 30, 2022 - $151,252). The total cash outflow for leases during the six months ended June 30, 2023 is $559,355 (June 30, 2022 - $568,344).
| 11. | Accounts payable and accrued liabilities |
|---|
A summary of accounts payable and accrued liabilities is as follows:
| June 30, 2023 | December 31, 2022 | |||
|---|---|---|---|---|
| Accounts payable | $ | 26,177,007 | $ | 23,404,129 |
| Accrued liabilities | 9,620,846 | 9,419,191 | ||
| $ | 35,797,853 | $ | 32,823,320 |
The Company, in the course of its normal operations, is subject to claims, lawsuits, and contingencies. Accruals are made in instances where it is probable that liabilities may be incurred and where such liabilities can be reasonably estimated.
| 12. | Long-term debt |
|---|
Under the terms of a commitment letter (the “Commitment Letter”) dated December 3, 2021, an arm’s length lender (the “Bank”) agreed to provide the Company, as borrower, and certain Canadian and U.S. subsidiaries of the Company, as guarantors, with a non-revolving term facility (the “Term Credit”) and an operating line (the “Operating Credit”).
The Term Credit consists of an authorized credit limit amount of $10,000,000, bearing interest at the Banker’s Acceptance fee equal to CDOR rate plus 7.5% per annum, with interest payable monthly. The Term Credit is repayable in up to 24 equal monthly instalments of principal based on an amortization period of 60 months, with final payment of the remaining principal then outstanding due 24 months from the initial drawdown date of advance. On December 17, 2021 the Company was advanced $10,000,000 which was used to extinguish a prior long-term debt. The Term Credit was used for purposes of (i) working capital, and (ii) to finance mergers and acquisitions.
The Operating Credit consists of an authorized amount of $5,000,000, subject to a borrowing base, bearing interest at the greater of (i) the Bank’s prime lending rate plus 1.25%, and (ii) 2.45% per annum, with interest payable monthly. The Operating Credit is repayable no later than 24 months from the date of the satisfaction or waiver of conditions precedent. The Operating Credit is to be used for purposes of general operating requirements. No amounts were drawn upon the Operating Credit as of June 30, 2023 or as of December 31, 2022.
The aggregate of all advances under the Operating Credit and Bank credit cards are not to exceed the lesser of (i) the Operating Credit, and (ii) the borrowing base. The borrowing base is based on a percentage of eligible accounts receivable less certain accounts payable for material subsidiaries of the Company.
12
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 12. | Long-term debt (continued) |
|---|
Subject to the Bank’s approval, the Company can exercise an option to extend the maturity date of both the Term Credit and Operating Credit for an additional 12-month period. The Term Credit and Operating Credit are secured by substantially all of the assets of the Company and the guarantor subsidiaries. The Company will be entitled to prepay all or part of the Term Credit and Operating Credit at any time with penalty.
On September 12, 2022, the Company entered into an amendment to commitment letter (the “Amended Commitment Letter”) which increased the total amount of the Term Credit to a maximum amount of $20,000,000. On September 16, 2022, the Company was advanced an incremental $10,000,000 pursuant to the Amended Commitment Letter. The Company incurred transaction costs of $241,872 in connection with the Amended Commitment Letter. As the terms of the Amended Commitment Letter were substantially different from the terms of the Commitment Letter, the amendment was determined to be derecognition of debt in accordance with IFRS 9, Financial Instruments. During the year ended December 31, 2022, a loss on derecognition of long-term debt in the amount of $482,282 was recognized in the consolidated statements of loss and comprehensive loss.
The Term Credit under the Amended Commitment Letter is amortized at an effective interest rate of 11.08% following the transaction costs incurred and loss on derecognition of long-term debt recognized pursuant to the amendment.
On December 31, 2022, as per the terms of the Commitment Letter, the Company provided the Bank notice of the exercise of the Company’s option to extend the maturity date of the Term Credit and Operating Credit for an additional 12-month period ending December 31, 2024. On March 21, 2023, the Company received notice of the Bank’s approval of the Company’s option to extend the maturity date. The change in the maturity date will be subsequently reflected in the Commitment Letter by means of an amendment.
During the six months ended June 30, 2023, the Company recognized $1,082,674 (June 30, 2022 – $397,155) of interest expense and $10,490 (June 30, 2022 – expense of $88,841) of accretion income which are included in interest and accretion in the condensed consolidated interim statements of loss and comprehensive loss.
The following tables shows the movement of the Term Credit balance during the period:
| Amount | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 9,681,867 | |
| Advances | 10,000,000 | ||
| Repayments | (2,588,238 | ) | |
| Accretion | 97,586 | ||
| Transaction costs | (241,872 | ) | |
| Loss on derecognition of long-term debt | 482,282 | ||
| Balance, December 31, 2022 | $ | 17,431,625 | |
| Payments | (2,176,470 | ) | |
| Accretion | (10,490 | ) | |
| Balance, June 30, 2023 | 15,244,665 | ||
| Current portion of long-term debt | 4,352,940 | ||
| Long-term debt | $ | 10,891,725 |
The Amended Commitment Letter contains certain covenants that the Company must comply with, including (i) maintaining a minimum funded debt to gross profit ratio, which varies by quarter, (ii) at all times, a cash runway ratio of a minimum of 4 months, tested quarterly, until the quarter ending March 31, 2023, and then a cash runway ratio of a minimum of 6 months, tested quarterly, until the quarter ending December 31, 2023, and (iii) beginning December 31, 2023, a minimum funded debt to EBITDA ratio of no more than 4.0x, calculated based on the trailing 12 months and tested quarterly. The Company was in compliance with the applicable covenants during the six months ended June 30, 2023.
13
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 13. | Other long-term debt |
|---|
Upon the acquisition of Addicting Games, the Company obtained a USD $150,000 United States of America Small Business Administration loan (“SBA Loan”). The SBA Loan has a term which is thirty years from the date of the initial advance, expiring July 2, 2050. The SBA loan bears interest at 3.75% per annum, is repayable in monthly installment payments until maturity of USD $731, which includes principal and interest, the remaining outstanding principal amount will be repaid on July 2, 2050. The SBA Loan is secured by Addicting Games’ assets.
The SBA Loan is being amortized at an effective interest rate of 7.10%.
The following table shows the movement of the SBA Loan during the period:
| Amount | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 147,445 | |
| Accretion | 11,089 | ||
| Payments | (12,871 | ) | |
| Effect of movement in exchange rates | 10,072 | ||
| Balance, December 31, 2022 | $ | 155,735 | |
| Accretion | 5,355 | ||
| Payments | (6,775 | ) | |
| Effect of movement in exchange rates | (3,496 | ) | |
| Balance, June 30, 2023 | 150,819 | ||
| Current portion of other long-term debt | 9,678 | ||
| Other long-term debt | $ | 141,141 | |
| 14. | Deferred payment liability | ||
| --- | --- |
The deferred payment liability relates to the mergers and acquisitions of (i) Steel Media on October 3, 2019, (ii) Vedatis on May 1, 2021, (iii) GameKnot on August 30, 2021, (iv) Addicting Games on September 3, 2021, (v) Outplayed on November 22, 2021, and (vi) FFS on April 28, 2022.
| (i) | Steel Media deferred payment liability |
|---|
The Steel Media deferred payment liability consisted of the present value of the earn-out payment (the “Steel Media Earn-Out Payment”) of USD $500,000 expected to be paid based on the performance of Steel Media by April 15, 2022.
The Company had, at its option, the ability to settle the Steel Media Earn-Out Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the five trading days immediately prior to the date that the amount of any Steel Media Earn-Out Payment was conclusively determined.
The expected Steel Media Earn-Out Payment was calculated on a dollar-for-dollar basis to the extent the average annualized normalized gross revenue of Steel Media for the period from January 1, 2020 to December 31, 2021 exceeded USD $2,500,000. The maximum Steel Media Earn-Out Payment would not exceed USD $500,000.
The Steel Media Earn-Out Payment was amortized at an effective interest rate of 13.15%.
During the year ended December 31, 2022, the Steel Media Earn-Out Payment was determined to be $461,891 (USD $369,631) resulting in gain on revaluation of deferred payment liability of $149,399. On April 29, 2022, the Company settled the Steel Media Earn-Out Payment through a cash payment of $472,833 (USD $369,631).
14
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 14. | Deferred payment liability (continued) |
|---|---|
| (i) | Steel Media deferred payment liability (continued) |
| --- | --- |
The following table shows the movement of the Steel Media deferred payment liability during the period:
| Steel Media<br> <br>Earn-Out<br> <br>Payment | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 600,508 | |
| Accretion | 20,698 | ||
| Payment – cash | (472,833 | ) | |
| Gain on revaluation of deferred payment liability | (149,399 | ) | |
| Effect of movement in exchange rates | 1,026 | ||
| Balance, December 31, 2022 and June 30, 2023 | $ | — | |
| (ii) | Vedatis deferred payment liability | ||
| --- | --- |
The Vedatis deferred payment liability consists of the present value of a Euro €750,000 payment (the “Vedatis Deferred Payment”) to be paid on May 1, 2022 and the present value of the estimated earn-out payment (the “Vedatis Earn-Out Payment”) expected to be paid based on the performance of Vedatis by August 29, 2025.
The Vedatis Earn-Out Payment, subject to certain conditions, is equal to the sum of earnings before interest, taxes, depreciation and amortization for the best four consecutive quarters of the existing Vedatis business at the time of closing excluding new business generated or enhanced by the Company. The earn-out period is for four years following May 1, 2021.
The Company had, at its option, the ability to settle the Vedatis Deferred Payment of Euro €750,000 either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the two trading days immediately prior to May 1, 2022. On June 2, 2022, the Vedatis Deferred Payment has been settled by the Company issuing 348,852 common shares of the Company through the exercise of the Company’s option (Note 15).
The Company has, at its option, the ability to settle the Vedatis Earn-Out Payment half in cash and half in common shares, the share payment portion will be settled by the allotment and issuance of such number of common shares determined by the volume weighted average price for the two trading days immediately prior to May 1, 2025.
The Company uses Monte-Carlo simulation valuation techniques to estimate the net present value of the Vedatis Earn-Out Payment. The cash portion and equity portion are present valued separately based on the outcomes of the Monte-Carlo simulation. The Vedatis Earn-Out Payment is revalued each reporting period with changes in fair value of the Vedatis Earn-Out Payment recorded in the condensed consolidated interim statements of loss and comprehensive loss.
On June 30, 2023, the Vedatis Earn-Out Payment was revalued at $1,612,364 (December 31, 2022 - $1,377,764) based on a discounted valuation using a 12.23% (December 31, 2022 – 11.01%) and 4.27% (December 31, 2022 – 3.68%) discount rate for the cash settled and equity settled portion, respectively, and an expectation that a Vedatis Earn-Out Payment of $1,920,948 (December 31, 2022 – $1,667,515) is probable. Following the June 30, 2023 revaluation, the cash portion of the Vedatis Earn-Out Payment is amortized at an effective interest rate of 12.29% (December 31, 2022 – 11.06%).
15
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 14. | Deferred payment liability (continued) |
|---|---|
| (ii) | Vedatis deferred payment liability (continued) |
| --- | --- |
The fair value of the Vedatis Earn-Out Payment as of June 30, 2023 and December 31, 2022 was calculated using the following inputs:
| June<br> 30, 2023 | December<br> 31, 2022 | |||
|---|---|---|---|---|
| Payment date | August<br> 29, 2025 | August<br> 29, 2025 | ||
| Time to maturity | 2.17<br> years | 2.66 years | ||
| Required<br> metric risk premium | 21.75% | 21.75% | ||
| EBITDA<br> volatility | 16.00% | 15.00% | ||
| Senior<br> credit rating | B- | B- | ||
| Earn-out<br> payment credit rating | CCC+ | CCC+ | ||
| Drift<br> rate | 4.34% | 3.73% | ||
| Discount<br> rate (risk free rate) for equity-based payment | 4.27% | 3.68% | ||
| Discount<br> rate (risk adjusted rate) for cash payment | 12.23% | 11.01% | ||
| Discount<br> rate for lack of marketability | Nil% | Nil% |
The following table shows the movement of the Vedatis deferred payment liability during the period:
| Vedatis<br> <br>Deferred<br> <br>Payment | Vedatis<br> <br>Earn-Out<br> <br>Payment | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2022 | $ | 1,058,789 | $ | 1,774,336 | $ | 2,833,125 | |||
| Accretion | 21,117 | 64,110 | 85,227 | ||||||
| Payment – shares | (1,013,400 | ) | — | (1,013,400 | ) | ||||
| Gain on revaluation of deferred payment liability | — | (472,381 | ) | (472,381 | ) | ||||
| Effect of movement in exchange rates | (66,506 | ) | 11,699 | (54,807 | ) | ||||
| Balance, December 31, 2022 | $ | — | $ | 1,377,764 | $ | 1,377,764 | |||
| Accretion | — | 36,044 | 36,044 | ||||||
| Gain on revaluation of deferred payment liability | — | 202,077 | 202,077 | ||||||
| Effect of movement in exchange rates | — | (3,521 | ) | (3,521 | ) | ||||
| Balance, June 30, 2023 | — | 1,612,364 | 1,612,364 | ||||||
| Current portion of deferred payment liability | — | — | — | ||||||
| Long-term portion of deferred payment liability | $ | — | $ | 1,612,364 | $ | 1,612,364 | |||
| (iii) | GameKnot deferred payment liability | ||||||||
| --- | --- |
The GameKnot deferred payment liability consisted of the present value of a USD $500,000 six-month anniversary payment (the “GameKnot Deferred Payment”) to be paid on February 28, 2022.
The Company had, at its option, the ability to settle the GameKnot Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to August 30, 2021.
The GameKnot Deferred Payment was amortized at an effective interest rate of 6.01%.
On February 28, 2022, the GameKnot Deferred Payment has been settled by the Company issuing 111,267 common shares of the Company through the exercise of the Company’s option (Note 15).
The following table shows the movement of the GameKnot deferred payment liability during the period:
| GameKnot<br> Deferred Payment | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 627,781 | |
| Accretion | 6,111 | ||
| Payment – shares | (634,900 | ) | |
| Effect of movement in exchange rates | 1,008 | ||
| Balance, December 31, 2022 and June 30, 2023 | $ | — |
16
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim FinancialStatements
For the three and six months ended June 30, 2023and 2022
(Unaudited - Expressed in Canadian Dollars)
| 14. | Deferred payment liability (continued) |
|---|---|
| (iv) | Addicting Games deferred payment liability |
| --- | --- |
The Addicting Games deferred payment liability consisted of the present value of a USD $7,000,000 first anniversary payment (the “Addicting Games First Anniversary Deferred Payment”) to be paid on September 3, 2022 and the present value of a USD $3,800,000 second anniversary payment (the “Addicting Games Second Anniversary Deferred Payment”) to be paid on September 3, 2023 (collectively the “Addicting Games Deferred Payment”).
The Company had, at its option, the ability to settle the Addicting Games Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the payment due dates.
The Addicting Games First Anniversary Deferred Payment and Addicting Games Second Anniversary Deferred Payment were amortized at an effective interest rate of 6.88% and 6.88% respectively.
On May 25, 2022, the Company and former shareholders of Addicting Games entered into an amending agreement to the Addicting Games share purchase agreement to satisfy the settlement of the Addicting Games Deferred Payment by the Company issuing 4,320,000 common shares of the Company. On June 2, 2022, the Addicting Games Deferred Payment has been settled by the Company issuing 4,319,996 common shares of the Company (Note 15) resulting in a loss on settlement of deferred payment liability of $248,358 which was recognized in the consolidated statements of loss and comprehensive loss. The common shares issued were 4 common shares less than 4,320,000 common shares to be issued due the elimination of fractional common shares.
The following table shows the movement of the Addicting Games deferred payment liability during the period:
| Addicting Games <br> Deferred Payment | |||
|---|---|---|---|
| Balance, January 1, 2022 | $ | 12,768,719 | |
| Accretion | 372,915 | ||
| Payment - shares | (13,305,588 | ) | |
| Loss on settlement of deferred payment liability | 248,358 | ||
| Effect of movement in exchange rates | (84,404 | ) | |
| Balance, December 31, 2022 and June 30, 2023 | $ | — | |
| (v) | Outplayed deferred payment liability | ||
| --- | --- |
The Outplayed deferred payment liability consisted of the present value of a USD $8,500,000 first anniversary payment (the “Outplayed First Anniversary Deferred Payment”) to be paid on November 22, 2022, the present value of a USD $8,500,000 second anniversary payment (the “Outplayed Second Anniversary Deferred Payment”) to be paid on November 22, 2023 (collectively, the “Outplayed Deferred Payment”), the present value of the first anniversary earn-out payment USD $6,000,000 (the “Outplayed First Anniversary Earn-Out Payment”) expected to be paid based on the performance of Outplayed by December 22, 2022, and the present value of the second anniversary earn-out payment USD $6,000,000 (the “Outplayed Second Anniversary Earn-Out Payment”) expected to be paid based on the performance of Outplayed by December 22, 2023 (collectively, the “Outplayed Earn-Out Payment”).
The Outplayed Earn-Out Payment, subject to certain conditions, was to be paid if certain site traffic based targets were met in the first and second years of operations. The first anniversary earn-out period was for one year from the closing date and the second anniversary earn-out period was for one year from the end of the first anniversary earn-out period.
The Company had, at its option, the ability to settle the Outplayed Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days two business days prior to the anniversary payment due dates. The Company had, at its option, the ability to settle the Outplayed Earn-Out Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the date the applicable earn-out is achieved.
17
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 14. | Deferred payment liability (continued) |
|---|---|
| (v) | Outplayed deferred payment liability (continued) |
| --- | --- |
The Outplayed First Anniversary Earn-Out Payment, the Outplayed Second Anniversary Earn-Out Payment, Outplayed First Anniversary Earn-Out Payment and the Outplayed Second Anniversary Earn-Out Payment were amortized at an effective interest rate of 7.38%, 7.38%, 17.97% and 17.96% respectively.
On May 25, 2022, the Company and former shareholders of Outplayed entered into an amending agreement to the Outplayed merger agreement to satisfy the settlement of the Outplayed Deferred Payment and Outplayed Earn-Out Payment by the Company issuing 11,500,000 common shares of the Company. On June 2, 2022, the Outplayed Deferred Payment and Outplayed Earn-Out Payment was settled by the Company issuing 11,499,988 common shares of the Company (Note 15) resulting in a loss on settlement of deferred payment liability of $2,900,068 which was recognized in the consolidated statements of loss and comprehensive loss. The common shares issued were 12 common shares less than 11,500,000 common shares to be issued due the elimination of fractional common shares.
The following table shows the movement of the Outplayed deferred payment liability during the period:
| Outplayed Deferred Payment | Outplayed Earn-Out Payment | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2022 | $ | 19,467,148 | $ | 11,741,140 | $ | 31,208,288 | |||
| Accretion | 610,138 | 912,424 | 1,522,562 | ||||||
| Payment – shares | (20,763,426 | ) | (14,656,537 | ) | (35,419,963 | ) | |||
| Loss on settlement of deferred payment liability | 815,138 | 2,084,930 | 2,900,068 | ||||||
| Effect of movement in exchange rates | (128,998 | ) | (81,957 | ) | (210,955 | ) | |||
| Balance, December 31, 2022 and June 30, 2023 | $ | — | $ | — | $ | — | |||
| (vi) | FFS deferred payment liability | ||||||||
| --- | --- |
The FFS deferred payment liability consists of the present value of a $1,609,600 (GBP £1,000,000) first anniversary payment (the “FFS First Anniversary Deferred Payment”) to be paid on April 28, 2023, the present value of a $80,480 (GBP £50,000) second anniversary payment (the “FFS Second Anniversary Payment”) to be paid April 28, 2024 (collectively, the “FFS Deferred Payment”) and the present value of the first anniversary earn-out payment of $804,800 (GBP £500,000) (the “FFS Earn-Out Payment”) expected to be on April 28, 2023.
The FFS Earn-Out Payment will be paid if the Fantasy Premier League agreement, which expired on August 1, 2022, is renewed for an additional three-year period, on substantially similar or more favourable terms. The Fantasy Premier League agreement was renewed on August 1, 2022 for an additional three-year period on substantially similar terms.
The Company has, at its option, the ability to settle the FFS First Anniversary Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the payment due date.
The FFS First Anniversary Deferred Payment was included in FFS’ total purchase price consideration at an initial fair value of $1,497,581 based on a discounted valuation using a 7.48% discount rate. The FFS Second Anniversary Deferred Payment was included in FFS’ total purchase price consideration at an initial fair value of $69,668 based on a discounted valuation using a 7.48% discount rate. The FFS Earn-Out Payment was included in FFS’ total purchase price consideration at an initial fair value of $748,790 based on a discounted valuation using a 7.48% discount rate with an expectation that payment of the full earn-out of GBP £500,000 is probable.
The FFS First Anniversary Deferred Payment, FFS Second Anniversary Deferred Payment and FFS Earn-Out Payment are amortized at an effective interest rate of 7.23%, 7.23% and 7.23% respectively.
On May 9, 2023, the Company settled the FFS Earn-Out Payment through a cash payment of $844,350 (GBP £500,000).
On June 16, 2023, the FFS First Anniversary Deferred Payment has been settled by the Company issuing 2,626,037 common shares of the Company through the exercise of the Company’s option (Note 15).
18
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 14. | Deferred payment liability (continued) |
|---|---|
| (vi) | FFS deferred payment liability (continued) |
| --- | --- |
The following table shows the movement of the FFS deferred payment liability during the period:
| FFS Deferred Payment | FFS Earn-Out Payment | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2022 | $ | — | $ | — | $ | — | |||
| Initial fair value of deferred payment liability | 1,567,249 | 748,790 | 2,316,039 | ||||||
| Accretion | 76,532 | 36,567 | 113,099 | ||||||
| Effect of movement in exchange rates | 24,969 | 11,931 | 36,900 | ||||||
| Balance, December 31, 2022 | $ | 1,668,750 | $ | 797,288 | $ | 2,466,038 | |||
| Accretion | 40,831 | 19,041 | 59,872 | ||||||
| Payment – cash | — | (844,350 | ) | (844,350 | ) | ||||
| Payment – shares | (1,692,700 | ) | — | (1,692,700 | ) | ||||
| Effect of movement in exchange rates | 62,324 | 28,021 | 90,345 | ||||||
| Balance, June 30, 2023 | 79,205 | — | 79,205 | ||||||
| Current portion of deferred payment liability | 79,205 | — | 79,205 | ||||||
| Long-term portion of deferred payment liability | $ | — | $ | — | $ | — |
The following table shows the aggregate movement of the deferred payment liability during the six months ended June 30, 2023 and year ended December 31, 2022:
| June 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|
| Beginning balance | $ | 3,843,802 | $ | 48,038,421 | ||
| Initial fair value of deferred payment liability | — | 2,316,039 | ||||
| Accretion | 95,916 | 2,120,612 | ||||
| Payment – cash | (844,350 | ) | (472,833 | ) | ||
| Payment – shares | (1,692,700 | ) | (50,373,851 | ) | ||
| Loss on settlement of deferred payment liability | — | 3,148,426 | ||||
| Loss (gain) on revaluation of deferred payment liability | 202,077 | (621,780 | ) | |||
| Effect of movement in exchange rates | 86,824 | (311,232 | ) | |||
| Ending balance | 1,691,569 | 3,843,802 | ||||
| Current portion of deferred payment liability | 79,205 | 2,391,863 | ||||
| Long-term portion of deferred payment liability | $ | 1,612,364 | $ | 1,451,939 |
The Company had a working capital adjustment receivable from the acquisition of Addicting Games of $154,398 which was settled as part of the amending agreement to the Addicting Games share purchase agreement and is included in the loss on settlement of deferred payment liability in the consolidated statements of loss and comprehensive loss resulting in a total loss on settlement of deferred payment liability of $3,302,824 during the year ended December 31, 2022.
| 15. | Share capital |
|---|
Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
During the six months ended June 30, 2023:
| (i) | On June 16, 2023, the Company issued 2,626,037 common shares to settle the FFS First Anniversary<br>Deferred Payment (Note 14). |
|---|
During the six months ended June 30, 2022:
| (i) | On February 14, 2022, the Company issued the remaining 35,770 common shares to be issued relating<br>to the Outplayed share purchase agreement. |
|---|---|
| (ii) | On February 28, 2022, the Company issued 111,267 common shares to settle the GameKnot Deferred<br>Payment liability (Note 14). |
| --- | --- |
19
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 15. | Share capital (continued) |
|---|
During the six months ended June 30, 2022 (continued):
| (iii) | The Company received proceeds of $69,821 from the exercise of 74,051 stock options. The fair value<br>assigned to these stock options of $239,899 was reclassified from contributed surplus to share capital. |
|---|---|
| (iv) | On June 2, 2022, the Company issued 348,852 common shares to settle the Vedatis Deferred Payment<br>liability (Note 14). |
| --- | --- |
| (v) | On June 2, 2022, the Company issued 4,319,996 common shares to settle the Addicting Games Deferred<br>Payment liability (Note 14). |
| --- | --- |
| (vi) | On June 2, 2022, the Company issued 11,499,988 common shares to settle the Outplayed Deferred Payment<br>liability and Outplayed Earn-Out Payment liability (Note 14). |
| --- | --- |
| 16. | Stock options |
| --- | --- |
On January 20, 2021, the shareholders of the Company approved and ratified the adoption of the stock option plan (the “Stock Option Plan”) which allows the Board of Directors to grant stock options to directors, officers, employees and consultants of the Company as performance incentives. The maximum number of common shares issuable under the Stock Option Plan is limited to 10% of the issued and outstanding common shares of the Company. There are also limitations on the number of common shares issuable to insiders. At the time of granting a stock option, the Board of Directors must approve: (i) the exercise price, being not less than the market value of the common shares; (ii) the vesting provisions; and (iii) the expiry date, generally being no more than ten years after the grant date.
The following table reflects the continuity of stock options as of June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of options | Weighted average exercise price | Number of options | Weighted average<br><br> exercise price | ||||||||
| Beginning balance | 3,941,982 | $ | 3.46 | 3,923,491 | $ | 3.35 | |||||
| Granted | 6,062,976 | 0.91 | 1,772,909 | 2.56 | |||||||
| Exercised | — | — | (760,938 | ) | (0.44 | ) | |||||
| Forfeited | (101,249 | ) | 3.51 | (993,480 | ) | (3.73 | ) | ||||
| Ending balance | 9,903,709 | $ | 1.90 | 3,941,982 | $ | 3.46 | |||||
| Exercisable | 2,877,912 | $ | 3.37 | 1,972,929 | $ | 3.10 |
The weighted average share price on the date of exercise is $Nil (December 31, 2022 - $1.10).
On April 20, 2022, the Company issued 1,560,697 stock options to directors, officers, employees and consultants, of which 902,141 were issued to directors and officers. These stock options are exercisable at $2.75, expire April 20, 2027 and vest as follows: (i) 34,000 on April 20, 2022, (ii) 503,308 on January 1, 2023, (iii) 17,000 on April 20, 2023, (iv) 503,308 on January 1, 2024, and (v) 503,351 on January 1, 2025. The fair value of these stock options issued was $2.07 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $2.75; exercise price - $2.75; expected life in years – 5 years; expected volatility – 105.61% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 3.55%; and, risk-free interest rate – 2.74%.
20
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 16. | Stock options (continued) |
|---|
On November 17, 2022, the Company issued 211,942 stock options to directors, officers and employees, of which 174,011 were issued to directors and officers. Stock options issued to directors and officers of 122,608 are exercisable at $1.13, expire February 16, 2027 and vest as follows: (i) 40,868 on January 1, 2023, (ii) 40,868 on January 1, 2024, and (iii) 40,872 on January 1, 2025. The fair value of these stock options issued was $0.55 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $0.81; exercise price - $1.13; expected life in years – 4.25 years; expected volatility – 109.11% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 4.13%; and, risk-free interest rate – 3.33%. Stock options issued to employees and officers of 89,334 are exercisable at $1.13, expire November 17, 2027 and vest as follows: (i) 12,500 on November 17, 2022 (ii) 33,944 on January 1, 2023, (iii) 21,444 on January 1, 2024, and (iv) 21,446 on January 1, 2025. The fair value of these stock options issued was $0.59 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $0.81; exercise price - $1.13; expected life in years – 5 years; expected volatility – 107.44% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 4.13%; and, risk-free interest rate – 3.33%.
On March 1, 2023, the Company issued 5,305,104 stock options to the Chief Executive Officer. These stock options are exercisable at $0.91, expire March 1, 2033 and vest as follows: (i) 1,326,276 on March 1, 2024, and (ii) 3,978,828 in substantially equal installments of 110,523 at the end of each month starting March 31, 2024 for 36 months ending on February 28, 2027. The fair value of these stock options issued was $0.84 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $0.91; exercise price - $0.91; expected life in years – 10 years; expected volatility – 107.75% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – Nil%; and, risk-free interest rate – 3.41%.
On March 1, 2023, the Company issued 757,872 performance stock options to the Chief Executive Officer. These performance stock options are exercisable at $0.91, expire March 1, 2033 and vest as follows: (i) 189,468 on March 1, 2024, and (ii) 568,404 in substantially equal installments of 15,789 at the end of each month starting March 31, 2024 for 36 months ending on February 28, 2027 and, in all events, are subject to the Company’s common shares having an average share price of at least USD $5.00 on the Nasdaq over a period of 90 consecutive days with such threshold being subject to adjustment in the event of any stock split, reverse split or other capital reorganization event (the “Performance Award Requirement”). The Performance Award Requirement is a market condition, an expense for a market-linked performance condition is recognized based on the probable outcome of the market-linked performance condition being met over the vesting period. As of June 30, 2023, it was considered probable that the market-linked performance condition would not be met during the vesting period, as a result no expense was recognized during the period.
The Company recorded share-based compensation expense of $1,464,806 (June 30, 2022 - $1,443,860) for stock options vesting during the six months ended June 30, 2023.
The Company has the following stock options outstanding as of June 30, 2023:
| Expiry date | Number of stock options outstanding | Exercise price | Number of stock options exercisable | Weighted average remaining life (years) | ||||
|---|---|---|---|---|---|---|---|---|
| November 14, 2023 | 13,187 | 2.37 | 13,187 | 0.38 | ||||
| March 29, 2024 | 200,450 | 2.37 | 200,450 | 0.75 | ||||
| August 27, 2024 | 868,750 | 2.40 | 868,750 | 1.16 | ||||
| December 9, 2025 | 643,983 | 3.20 | 643,983 | 2.45 | ||||
| January 1, 2026 | 580,339 | 8.75 | 399,550 | 2.51 | ||||
| February 16, 2027 | 122,608 | 1.13 | 61,303 | 3.64 | ||||
| April 20, 2027 | 1,132,082 | 2.75 | 454,245 | 3.81 | ||||
| November 17, 2027 | 89,334 | 1.13 | 46,444 | 4.39 | ||||
| December 12, 2028 | 190,000 | 1.00 | 190,000 | 5.46 | ||||
| March 1, 2033 | 6,062,976 | 0.91 | — | 9.68 | ||||
| 9,903,709 | 1.90 | 2,877,912 | 6.97 |
21
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 17. | Share units |
|---|
On January 20, 2021, the shareholders of the Company approved and ratified the adoption of the Share Unit Plan (“SU Plan”) which allows for the issuance of restricted share units and performance share units (collectively “Share Units”) to directors, officers, employees and consultants. The Board of Directors, or a committee appointed by the Board of Directors, will establish vesting conditions of Share Units at the time of grant. The maximum number of common shares that are issuable to settle Share Units cannot exceed 4% of the aggregate number of common shares issued and outstanding and the maximum number of common shares issuable in aggregate under the SU Plan and other share-based compensation arrangements adopted by the Company cannot exceed 10% of the common shares issued and outstanding. Share Units can be settled in cash or common shares at the option of the Company.
On April 20, 2022, the Company issued 1,922,877 restricted share units to directors, officers, employees and consultants, of which 1,531,349 were issued to directors and officers. These restricted share units are expected to be settled through the issuance of 1,922,877 common shares of the Company. These restricted share units vest as follows: (i) 166,666 on April 20, 2022, (ii) 557,608 on January 1, 2023, (iii) 83,334 on April 20, 2023, (iv) 557,608 on January 1, 2024, and (v) 557,661 on January 1, 2025. The fair value of these restricted share units issued was $2.69 per restricted share unit using the following inputs and assumptions: quoted market price on the date of issuance - $2.75; and, expected forfeiture rate - 2.58%.
On November 17, 2022, the Company issued 437,636 restricted share units to directors, officers and employees, of which 401,229 were issued to directors and officers. These restricted share units are expected to be settled through the issuance of 437,636 common shares of the Company. These restricted share units vest as follows: (i) 155,018 on November 17, 2022, (ii) 102,507 on January 1, 2023, (iii) 90,007 on January 1, 2024, and (iv) 90,014 on January 1, 2025. The fair value of these restricted share units issued was $0.80 per restricted share unit using the following inputs and assumptions: quoted market price on the date of issuance - $0.81; and, expected forfeiture rate - 2.70%.
On May 17, 2023, the Company issued 212,868 restricted share units to directors. These restricted share units are expected to be settled through the issuance of 212,868 common shares of the Company. These restricted share units vest on the date of issuance. The fair value of these restricted share units issued was $0.68 per restricted share unit using the following inputs and assumptions: quoted market price on the date of issuance - $0.68; and, expected forfeiture rate – Nil%.
On June 22, 2023, the Company issued 202,694 restricted share units to directors. These restricted share units are expected to be settled through issuance of 202,694 common shares of the Company. These restricted share units vest on the date of issuance. The fair value of these restricted share units issued was $0.59 per restricted share unit using the following inputs and assumptions: quoted market price on the date of issuance - $0.59; and, expected forfeiture rate – Nil%.
The Company recorded share-based compensation expense of $1,454,015 (June 30, 2022 - $3,070,946) for restricted share units vesting during the six months ended June 30, 2023.
The Company has the following restricted share units outstanding as of June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|
| Beginning balance | 4,139,454 | 2,455,697 | ||||
| Granted | 415,562 | 2,360,513 | ||||
| Released | — | (42,838 | ) | |||
| Forfeited | (47,150 | ) | (633,918 | ) | ||
| Ending balance | 4,507,866 | 4,139,454 | ||||
| Vested | 3,400,736 | 1,752,170 |
22
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 18. | Related party transactions and balances |
|---|
The Company’s key management personnel have authority and responsibility for overseeing, planning, directing and controlling the activities of the Company. Key management personnel include members of the Board of Directors, Chief Executive Officer, former Chief Operating Officer, Chief Financial Officer, former Chief Corporate Officer, President and Senior Vice President, Legal and General Counsel. Compensation of key management personnel may include short-term and long-term benefits. Short-term benefits include salaries and bonuses. Share-based compensation includes the fair value of stock options and restricted share units vested during the period.
Compensation provided to key management during the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||
| Short-term benefits | $ | 820,379 | $ | 390,000 | $ | 1,507,924 | $ | 2,268,250 |
| Share-based compensation | 1,614,007 | 2,228,539 | 2,446,011 | 3,417,866 | ||||
| $ | 2,434,386 | $ | 2,618,539 | $ | 3,953,935 | $ | 5,686,116 |
A summary of other related party transactions during the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||
| Total transactions during the period: | ||||||||||||
| Expenses | ||||||||||||
| Consulting fees | $ | 12,382 | $ | 147,353 | $ | 31,187 | $ | 285,924 | ||||
| Share of net income from investment in associates and joint ventures | (17,146 | ) | (931,901 | ) | (4,910 | ) | (1,227,942 | ) |
A summary of related party balances as of June 30, 2023 and December 31, 2022 is as follows:
| June 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|
| Balances receivable (payable): | ||||||
| Trade and other receivables | $ | 67,181 | $ | 67,180 | ||
| Investment in associates and joint ventures | 17,146 | 12,236 | ||||
| Accounts payable and accrued liabilities | (96,204 | ) | (249,976 | ) |
During the six months ended June 30, 2023, the Company recognized consulting expenses of $31,187 (June 30, 2022 - $37,486) to Rivonia Capital Inc., a company in which a former director of the Company is a principal. As of December 31, 2022, a balance of $14,125 is included in account payable and accrued liabilities.
During the six months ended June 30, 2023, the Company recognized $Nil (June 30, 2022 - $248,438) in consulting fees relating to Board of Director and committee fees to certain directors. As of June 30, 2023, a balance of $96,204 (December 31, 2022 - $235,851) is included in account payable and accrued liabilities.
See Note 6 for information relating to an investment in a joint venture under common management as the Company. During the six months ended June 30, 2023, the Company recognized a share of net income from investment in joint ventures of $4,910 (June 30, 2022 - $10,660) from AFK, a related party by nature of it having common management as the Company. As of June 30, 2023, a balance of $67,181 (December 31, 2022 - $67,180) is included in trade and other receivables.
See Note 6 for information relating to an investment in associates controlled by the former Chairman of the Company. The former Chairman of the Company did not seek re-election at the Company’s July 19, 2022 annual general meeting and is no longer a related party as of July 19, 2022. During the period from January 1, 2022 to June 30, 2022, the Company’s share of net income from investment is associates was $1,217,282.
See Note 16 for information relating to stock options issued to officers and directors of the Company.
See Note 17 for information relating to restricted share units issued to officers and directors of the Company.
23
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 19. | Capital<br> management |
|---|
The Company considers its capital structure to consist of shareholders’ equity, long-term debt and deferred payment liability. The Company manages its capital structure and makes adjustments to it, in order to have the funds available to support the acquisition and development of its business. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The Company is dependent on external financing to fund its activities. In order to carry out the planned operations and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the size of the Company, is reasonable. There were no changes in the Company’s approach to capital management during the six months ended June 30, 2023. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements aside from the covenants described in Note 12.
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern. The Company’s ability to raise future capital is subject to uncertainty and the inability to raise such capital may have an adverse impact over the Company’s ability to continue as a going concern (Note 2).
| 20. | Financial<br> instruments |
|---|
Fairvalues
The fair values of cash, investments, trade and other receivables, loans receivable, accounts payable and accrued liabilities and contract liabilities approximate their carrying values due to the relatively short-term nature of these financial instruments. The fair value of long-term debt, lease liabilities, deferred payment liability and other long-term debt is based on observable market data and the calculation of discounted cash flows. Discount rates were determined based on current terms and conditions observed in the credit market.
The Company follows a three-tier categorization for its financial instruments as a framework for disclosing fair value based upon inputs used to value the Company’s investments. The hierarchy is summarized as:
| ● | Level<br>1 – quoted prices (unadjusted) in active markets for identical assets and liabilities |
|---|---|
| ● | Level<br>2 – inputs that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices)<br>from observable market data |
| --- | --- |
| ● | Level<br>3 – inputs for assets and liabilities not based upon observable market data |
| --- | --- |
As of June 30, 2022 the Vedatis Earn-Out Payment liability is classified as a Level 3 financial instrument, see Note 14.
Total interest income and interest expense for the three and six months ended June 30, 2023 and 2022 for financial assets or financial liabilities that are not at fair value through profit or loss is as follows:
| For the three months ended | For the six months ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||
| Interest income | $ | (1,514 | ) | $ | (1,320 | ) | $ | (62,721 | ) | $ | (2,721 | ) |
| Interest and accretion expense | 581,825 | 1,119,109 | 1,160,640 | 2,549,778 | ||||||||
| Net interest expense | $ | 580,311 | $ | 1,117,789 | $ | 1,097,919 | $ | 2,547,057 |
The Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, foreign currency risk and interest rate risk.
24
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 20. | Financial<br> instruments (continued) |
|---|
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations.
The Company’s maximum exposure to credit risk for its trade receivables is summarized as follows:
| June 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|
| Trade receivables aging: | ||||||
| 0-30 days | $ | 19,349,991 | $ | 26,077,091 | ||
| 31-60 days | 951,380 | 1,455,672 | ||||
| 61-90 days | 2,470,603 | 1,803,214 | ||||
| Greater than 90 days | 3,836,285 | 2,558,113 | ||||
| 26,608,259 | 31,894,090 | |||||
| Expected credit loss provision | (410,218 | ) | (300,735 | ) | ||
| Net trade receivables | $ | 26,198,041 | $ | 31,593,355 |
The movement in the expected credit loss provision can be reconciled as follows:
| June 30, 2023 | December 31, 2022 | |||||
|---|---|---|---|---|---|---|
| Expected credit loss provision, beginning balance | $ | (300,735 | ) | $ | (58,472 | ) |
| Increase in provision of expected credit losses | (125,340 | ) | (240,603 | ) | ||
| Recoveries | 13,984 | — | ||||
| Effect of movement in exchange rates | 1,873 | (1,660 | ) | |||
| Expected credit loss provision, ending balance | $ | (410,218 | ) | $ | (300,735 | ) |
The following default rates, determined based on historical default rates based on the aging of trade receivables, are used to calculate the expected credit loss provision on trade receivables as of June 30, 2023:
| Total | Not past due | Over 30 days past due | Over 60 days past due | Over 90 days past due | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Default rates | 0.89 | % | 1.26 | % | 1.77 | % | 4.77 | % | ||||||
| Trade receivables | $ | 26,608,259 | $ | 19,349,991 | $ | 951,380 | $ | 2,470,603 | $ | 3,836,285 | ||||
| Expected credit loss provision | $ | 410,218 | $ | 171,598 | $ | 12,005 | $ | 43,632 | $ | 182,983 |
All of the Company’s cash is held with major financial institutions and thus the exposure to credit risk is considered insignificant. Management actively monitors the Company’s exposure to credit risk under its financial instruments.
Concentrationrisk
The Company has one customer which makes up more than 10% of revenue. This customer accounts for approximately 31.83% (December 31, 2022 – 30.24%) of trade receivables as of June 30, 2023, 49.72% (June 30, 2022 – 56.29%) of revenues for the six months ended June 30, 2023 and 52.84% (June 30, 2022 – 54.30%) of revenues for the three months ended June 30, 2023.
25
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 20. | Financial<br> instruments (continued) |
|---|
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements.
The Company holds sufficient cash and working capital which is maintained through stringent cash flow management to ensure sufficient liquidity is maintained. The table below summarizes the Company’s contractual obligations into relevant maturity groups at the statement of financial position date based on the expected contractual maturity date. The amounts disclosed in the table are the contractual undiscounted payments.
| Less than one year | One to two years | Two to three years | More than three years | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Accounts payable and accrued liabilities | $ | 35,797,853 | $ | — | $ | — | $ | — | $ | 35,797,853 |
| Contract liabilities | 4,902,397 | — | — | — | 4,902,397 | |||||
| Income tax payable | 242,785 | — | — | — | 242,785 | |||||
| Deferred payment liability | 84,085 | — | 1,920,682 | — | 2,004,767 | |||||
| Lease liabilities | 926,959 | 532,573 | 547,395 | — | 2,006,927 | |||||
| Long-term debt | 4,352,940 | 10,882,355 | — | — | 15,235,295 | |||||
| Other long-term debt | 9,678 | 11,614 | 11,614 | 363,954 | 396,860 | |||||
| $ | 46,316,697 | $ | 11,426,542 | $ | 2,479,691 | $ | 363,954 | $ | 60,586,884 |
Foreign currency risk
A large portion of the Company’s transactions occur in foreign currencies (including US dollars, UK pound sterling and Euro) and, therefore, the Company is exposed to foreign currency risk at the end of the reporting period through its US dollars, UK pound sterling and Euro denominated trade and other receivables, accounts payable and accrued liabilities, contract liabilities, deferred payment liability and cash. As of June 30, 2023, a 10% depreciation or appreciation of the US dollar, UK pound sterling and Euro against the Canadian dollar would have resulted in an approximate $399,000, $94,000, and $154,000 decrease or increase, respectively, in total net loss and comprehensive loss.
Interest rate risk
The Company’s long-term debt bears interest at Banker’s Acceptance fee equal to CDOR rate plus 7.5%. Fluctuations in the Banker’s Acceptance fee equal to CDOR rate will result in changes to the months interest expense. A change in the annual interest rate of 0.50% would approximately result in a $74,000 change in the annual interest expense.
| 21. | Commitments |
|---|
As of June 30, 2023, the Company has the following payment commitments with respect to consulting and other contractual obligations:
| Not later than one year | $ | 1,144,000 |
|---|---|---|
| Later than one year and not later than five years | 1,310,000 | |
| $ | 2,454,000 |
Further, the Company is subject to capital commitments pursuant to its investments in AIG Canada and AIG USA, see Note 6, as well as Surge eSports LLC which is being established under a similar structure. If the Company fails to make any capital contributions, as required, it may be subject to certain actions including the loss of rights or a reduction in equity ownership in order to satisfy the capital contribution requirements.
26
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
| 22. | Segment<br> disclosure |
|---|
The Company operates in one industry segment of digital media and entertainment. The majority of the Company’s assets are located in Canada and the United States of America (“USA”). The Company sells into three major geographic centers: USA, Canada, England and Wales and other foreign countries. The Company has determined that it has a single reportable segment as the Company’s decision makers reviews information on a consolidated basis.
Revenues by pillar for the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||
| Media and content | $ | 36,886,121 | $ | 45,391,845 | $ | 72,417,828 | $ | 87,255,753 |
| Esports and entertainment | 1,703,290 | 2,183,894 | 5,097,287 | 4,153,673 | ||||
| Subscription | 4,009,358 | 3,543,289 | 7,963,620 | 6,877,140 | ||||
| $ | 42,598,769 | $ | 51,119,028 | $ | 85,478,735 | $ | 98,286,566 |
Revenues, in Canadian dollars, in each of these geographic location for the three and six months ended June 30, 2023 and 2022 is as follows:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||
| Canada | $ | 1,042,290 | $ | 982,475 | $ | 2,159,724 | $ | 1,874,698 |
| USA | 35,827,405 | 44,528,742 | 70,206,112 | 85,161,563 | ||||
| England and Wales | 1,928,559 | 2,001,224 | 5,618,870 | 4,629,287 | ||||
| All other countries | 3,800,515 | 3,606,587 | 7,494,029 | 6,621,018 | ||||
| $ | 42,598,769 | $ | 51,119,028 | $ | 85,478,735 | $ | 98,286,566 |
The non-current assets, in Canadian dollars, in each of the geographic locations as of June 30, 2023 and December 31, 2022 is as follows:
| June 30, 2023 | December 31, 2022 | |||
|---|---|---|---|---|
| Canada | $ | 153,387,056 | $ | 153,899,948 |
| USA | 122,749,694 | 130,543,027 | ||
| France | 3,335,105 | 3,364,854 | ||
| England and Wales | 5,578,920 | 5,786,062 | ||
| $ | 285,050,775 | $ | 293,593,891 |
27
Exhibit 99.3
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Alex Macdonald, the Chief Financial Officer of Enthusiast Gaming Holdings Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of Enthusiast Gaming Holdings Inc. (the “issuer”) for the interim period ended June 30, 2023. |
|---|---|
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the<br>interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that<br>is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered<br>by the interim filings. |
| --- | --- |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects<br>the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim<br>filings. |
| --- | --- |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for<br>establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those<br>terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the<br>issuer. |
| --- | --- |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s<br>other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| --- | --- |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance<br>that |
| --- | --- |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period<br>in which the interim filings are being prepared; and |
| --- | --- |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified<br>in securities legislation; and |
| --- | --- |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding<br>the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s<br>GAAP. |
|---|---|
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s)<br>and I used to design the issuer’s ICFR is the COSO Internal Control – Independent Framework (2013), published by the Committee<br>of Sponsoring Organizations of the Treadway Commission. |
| --- | --- |
| 5.2 | ICFR – material weakness relating to design: N/A |
| --- | --- |
| 5.3 | Limitation on scope of design: N/A |
| --- | --- |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in<br>the issuer’s ICFR that occurred during the period beginning on April 1, 2023 and ended on June 30, 2023 that has materially affected,<br>or is reasonably likely to materially affect, the issuer’s ICFR. |
| --- | --- |
Date: August 14, 2023.
/s/ Alex Macdonald
Alex Macdonald
Chief Financial Officer
Exhibit 99.4
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Nicolas Brien, the Chief Executive Officer of Enthusiast Gaming Holdings Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of Enthusiast Gaming Holdings Inc. (the “issuer”) for the interim period ended June 30, 2023. |
|---|---|
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the<br>interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that<br>is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered<br>by the interim filings. |
| --- | --- |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects<br>the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim<br>filings. |
| --- | --- |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for<br>establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those<br>terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the<br>issuer. |
| --- | --- |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s<br>other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| --- | --- |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance<br>that |
| --- | --- |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period<br>in which the interim filings are being prepared; and |
| --- | --- |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified<br>in securities legislation; and |
| --- | --- |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding<br>the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s<br>GAAP. |
|---|---|
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s)<br>and I used to design the issuer’s ICFR is the COSO Internal Control – Independent Framework (2013), published by the Committee<br>of Sponsoring Organizations of the Treadway Commission. |
| --- | --- |
| 5.2 | ICFR – material weakness relating to design: N/A |
| --- | --- |
| 5.3 | Limitation on scope of design: N/A |
| --- | --- |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in<br>the issuer’s ICFR that occurred during the period beginning on April 1, 2023 and ended on June 30, 2023 that has materially affected,<br>or is reasonably likely to materially affect, the issuer’s ICFR. |
| --- | --- |
Date: August 14, 2023.
/s/ Nicolas Brien
Nicolas Brien
Chief Executive Officer