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 2021
Commission File Number: 001-40331
Enthusiast Gaming Holdings Inc.
(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 X
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): _____
This report on Form 6-K shall be deemed to be incorporated by reference into Enthusiast Gaming Holdings Inc.’s Registration Statement on Form F-10 (File No. 333-255725) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
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 10, 2021 | Chief Financial Officer |
Exhibit 99.1
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
MANAGEMENT’SDISCUSSION AND ANALYSIS
The following discussion and analysis is management’s assessment of the results and financial condition of Enthusiast Gaming Holdings Inc. (formerly J55 Capital Corp.) (the “Company” or “Enthusiast Gaming”, or when referenced prior to August 30, 2019, “J55”). 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, 2021 and accompanying notes and the audited 2020 annual consolidated financial statements, all of which are available on Enthusiast Gaming's issuer profile on SEDAR at www.sedar.com.
The date of this management’s discussion and analysis (“MD&A”) is August 9, 2021. 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 financial statements of the Company for the year ended December 31, 2020 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. All dollar amounts are stated in Canadian Dollars unless otherwise indicated.
CAUTIONARY STATEMENT REGARDING 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-GAAPMEASURES
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 highlight trends in the Company’s financial performance that may not otherwise be apparent when one relies solely on GAAP measures.
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.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
DESCRIPTION OF ENTHUSIAST GAMING 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. Over 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 video gaming expo, and its esports organization (Luminosity Gaming), the Company engages approximately 300 million gaming enthusiasts worldwide monthly. The Company is a publicly traded company listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Select Market (“NASDAQ”) under the symbol “EGLX”. The Company commenced trading on the TSX on January 27, 2020, following a graduation from the TSX Venture Exchange (the “TSXV”). The Company commenced trading on NASDAQ on April 21, 2021, following its filing of a Registration Statement on Form 40-F with the United States Securities and Exchange Commission (“SEC”). 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.
J55 was incorporated under the Business Corporation Act (British Columbia) on June 27, 2018 and upon incorporation was classified as a Capital Pool Company, as defined in Policy 2.4 of the TSXV.
On August 30, 2019, J55 completed a Qualifying Transaction (as defined by the policies of the TSXV) with Aquilini GameCo Inc. (“GameCo”) in accordance with an amalgamation agreement dated May 30, 2019, pursuant to which J55 acquired all of the issued and outstanding securities of GameCo in exchange for identical securities of J55 on a one-for-one basis (the “Amalgamation”). The Amalgamation is considered a related party transaction due to J55 and GameCo having common directors.
Although the Amalgamation resulted in GameCo becoming a wholly-owned subsidiary of J55, the transaction constitutes a reverse acquisition of J55 by GameCo in-as-much as the former shareholders of GameCo received 95.3%, on a non-diluted basis, of the issued and outstanding common shares of the resulting corporation. For accounting purposes, GameCo is considered the acquirer and J55 the acquiree. Accordingly, the consolidated financial statements are a continuation of the financial statements of GameCo and references to the “Company” will mean the consolidated entity subsequent to the date of the Amalgamation and to GameCo prior to that date.
On August 27, 2019, GameCo completed an acquisition of Luminosity Gaming Inc. (“Luminosity Gaming”) and Luminosity Gaming (USA), LLC (“Luminosity USA”, which together with Luminosity Gaming, is herein referred to as “Luminosity”) (the “Acquisition”). The Acquisition was completed in accordance with a share purchase agreement dated February 14, 2019 (the “SPA”), between GameCo, Luminosity, and Stephen Maida (founder and sole shareholder of Luminosity), pursuant to which GameCo agreed to acquire Luminosity in exchange for: (i) $1,500,000 in cash, payable on the closing date; (ii) 7,500,000 common shares in the capital of the GameCo, issuable on the closing date and subject to certain escrow conditions; and (iii) a promissory note, issuable on the closing date, with a principal value of $2,000,000, maturing on the completion of the of the Amalgamation. The Acquisition is accounted for in accordance with IFRS 3, Business Combinations (“IFRS 3”), as the operations of Luminosity constitute a business.
On August 30, 2019, following the closing of the Amalgamation, the Company completed a plan of arrangement with Enthusiast Gaming Properties Inc. (formerly Enthusiast Gaming Holdings Inc.) (“Enthusiast Properties”) in accordance with an arrangement agreement between J55, GameCo, and Enthusiast Properties, dated May 30, 2019 (the “Arrangement Agreement”). Pursuant to the Arrangement Agreement the Company acquired all of the outstanding common shares of Enthusiast Properties in exchange for common shares of the Company on the basis of 4.22 common shares for each one Enthusiast Properties common share (the “Arrangement” or the “POA”). All options and warrants of Enthusiast Properties were exchanged on the same basis, with all other terms of the options or warrants remaining the same. The Arrangement is accounted for in accordance with IFRS 3, as the operations of Enthusiast Properties constitute a business.
^1^Calculated based on data provided by Comscore as of January 2021.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
DESCRIPTIONOF ENTHUSIAST GAMING HOLDINGS INC. (Continued)
Upon the completion of the transactions described above, Enthusiast Gaming Holdings Inc. changed its name to Enthusiast Gaming Properties Inc., and J55 Capital Corp. changed its name to Enthusiast Gaming Holdings Inc.
On October 3, 2019, the Company, through its wholly-owned subsidiary, Enthusiast Properties, acquired Steel Media Limited (“Steel Media”) pursuant to a share purchase agreement dated September 17, 2019 (the “Steel SPA”). Pursuant to the terms of the Steel SPA, the Company has agreed to (i) a cash payment of approximately USD $2,969,000, of which USD $1,968,536 was paid on closing (USD $1,000,000 plus cash on hand) with the balance to be paid on the first anniversary of the date of closing and (ii) issuance of approximately USD $488,000 worth of common shares, which resulted in 304,147 shares being issued at a deemed price of $2.14 per share on closing. In addition, the Company has agreed to an earn-out payment of up to USD $500,000 based on the performance of Steel Media. All common shares issued in connection with the transaction are subject to a 12 month hold period from the date of issuance. The Steel SPA is accounted for in accordance with IFRS 3, as the operations of Steel Media constitute a business.
On August 30, 2020, the Company acquired all of the issued and outstanding shares of Omnia Media Inc. (“Omnia”) from Blue Ant Media Solutions Inc. (“Blue Ant”) pursuant to a share purchase agreement dated August 6, 2020 (the “Omnia SPA”). Pursuant to the terms of the Omnia SPA, Blue Any will receive (i) a cash payment of $11,000,000, subject to a customary working capital adjustment and holdbacks, (ii) 18,250,000 common shares of the Company which are subject to resale restrictions of: 50% after 180 days; 25% after 270 days; and 25% after 360 days, and (iii) a vendor-take-back loan with a face value of $5,750,000, which will bear interest at 9% per annum, compounded annually and payable at maturity, and carries a maturity of 36 months from the acquisition date. The Omnia SPA is accounted for in accordance with IFRS 3 as the operations of Omnia constitute a business.
In connection with the closing of the Omnia acquisition, on August 31, 2020 Enthusiast Gaming completed a share offering issuing 11,500,000 common shares at a price of $1.50 per offered share, for gross proceeds of $17,250,000, which includes the offered shares issued pursuant to the fully exercised over-allotment option. The share offering was underwritten by Canaccord Genuity Corp., as sole bookrunner and co-lead underwriter, with Paradigm Capital Inc., acting as co-lead and Haywood Securities Inc., acting a co-manager. The net proceeds of the offering being $15,609,257 were used to fund in part the Omnia SPA, certain cost related to the Omnia SPA and for general corporate purposes.
On May 1, 2021, the Company acquired all of the outstanding common shares of Vedatis SAS (“Vedatis”) from the owners pursuant to a share purchase agreement dated May 1, 2021 (the “Vedatis SPA”). Pursuant to the terms of the Vedatis SPA, for the exchange of all outstanding common shares, the previous owners of Vedatis would receive (i) a cash payment of Euro €3,500,000, subject to a Euro €100,000 target working capital adjustment (ii) the issuance of Euro €1,500,000 of common shares of the Company, for which 226,563 common shares were issued on May 4, 2021, (iii) a cash payment of Euro €1,250,000 on the first anniversary of closing, which is to be placed in escrow (iv) a payment of Euro €750,000 on the first anniversary of closing, which may be paid in cash or common shares at the option of the Company, and (v) an earn-out payment based o the performance of Vedatis. The 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 has, at its option, the ability to settle the earn-out payment half in cash and half in common shares. The earn-out payment is to be paid no later than 60 days from the completion of the earn-out period. The Vedatis SPA is accounted for in accordance with IFRS 3 as the operations of Vedatis constitute a business.
On June 21, 2021, the Company, through its wholly owned subsidiary, Enthusiast Gaming Media (US) Inc., completed the acquisition of Tabwire LLC (“Tabwire”) pursuant to an equity purchase agreement dated April 22, 2021 (the “Tabwire EPA”). Pursuant to the terms of the Tabwire EPA, the Company acquired all of the outstanding membership interest of Tabwire in exchange for (i) a cash payment of USD $5,000,000, subject to an accounts receivable adjustment, and (ii) the issuance of USD $6,000,000 of common shares of the Company, for which 790,094 common shares were issued on June 21, 2021. The Tabwire SPA is accounted for in accordance with IFRS 3 as the operations of Tabwire constitute a business.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
DESCRIPTIONOF ENTHUSIAST GAMING HOLDINGS INC. (Continued)
The Amalgamation, Acquisition, Arrangement, Steel SPA and Omnia SPA are collectively called the “Mergers and Acquisitions” in the consolidated financial statements for the year ended December 31, 2020. For information relating to the accounting of the Acquisition, Amalgamation, Arrangement, Steel SPA and Omnia SPA, see Note 5 of the consolidated financial statements for the year ended December 31, 2020. For information relating to the accounting of the Vedatis SPA and Tabwire EPA, see Note 5 of the condensed consolidated interim financial statements for the three and six months ended June 30, 2021.
BusinessOverview of Omnia
Omnia’s 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 has three main operating activities:
| 1. | The<br>External Talent Network relates to the distribution of talent-produced video content on YouTube, where such content is primarily<br>monetized through Google AdSense as well as other platforms such as Snapchat and Facebook and other OTT (over-the-top) and AVOD<br>(advertising-based video on demand) services; |
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| 2. | Owned<br>& Operated Content relates to the creation, distribution and exploitation of video content for owned channels on YouTube and<br>other social media platforms; and |
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| 3. | Direct<br>Sales relates to contracting directly with consumer brands to produce custom content and is typically supplemented with paid media<br>for customer activations. |
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Omnia produces and programs over 30 weekly shows across AVOD and 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 U.S. market inventory of over 1,000 channels, over 600 million subscribers and generated over 31 billion total video views in 2020.
Omnia’s main assets include short form video content, podcasts, and brands related to the Owned & Operated Content brands and channels. These include BCC Gaming, Arcade Cloud, GTA Today, The Squad, AC News, The Countdown, Wisecrack, and Best Cod Clips.
Businessoverview of Vedatis
Vedatis owns the web property, Icy Veins, which is one of the largest independent Activision Blizzard fan communities generating over 3 billion lifetime views of content and was founded in 2011. The platform provides news and strategy guides for leading franchises like World of Warcraft, Diablo, Heroes of Strom, Hearthstone and Overwatch. Enthusiast Properties has been monetizing the Icy Veins advertising traffic since 2017.
Businessoverview of Tabwire
Tabwire is a technology and data platform company that enables gamers to create a cross-platform registered user identification profile to track and directly view their game data in real-time. In addition, it has a unique feature set including a cheater detection system that enhances fair game play by generating a player trust ranking system for its registered users. It has already built game play companion tools for Riot’s Valorant and Ubisoft’s Rainbow Six Siege with more than 13 million gamers interacting with the platform, collectively generating more than half a billion views in the last year. There is an aggressive roadmap to launch real-time stats for additional game titles in coming months. Tabwire owns the web property, TabStats. The Company has been monetizing the TabStats advertising traffic since February 2021.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
BUSINESSPRODUCTS AND SERVICES
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.
Mediaand Content
Enthusiast Gaming’s media and content revenue stream is comprised of over 100 websites that are wholly owned or exclusively monetized by the Company and contain news, reviews, videos, live streams, blog posts, tips, chats, message boards, and other video-gaming related content. Central to Enthusiast Gaming’s ability to create valuable advertising space that can be sold on its websites and video channels (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.
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 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 owns content brands that matter to fans who love gaming and pop culture including BBC Gaming, Arcade Cloud and Wisecrack. BCC Gaming is a leading Fortnite community channel with more than 10 million subscribers on YouTube and nearly 2 million followers on Instagram attracting more than 25 million unique viewers a month.^2^ 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.
For any publishing company, the key mission is to build a dedicated following of engaged visitors and brands 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 has 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 over seven 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.
ProgrammaticMedia 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.
^2^Based on YouTube analytics reports and publicly available YouTube channel profiles as of April 2021.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
BUSINESSPRODUCTS AND SERVICES (Continued)
Mediaand Content (Continued)
A common advertising spending metric utilized in the digital publishing industry, is known as “Cost Per Thousand” (“CPM”) impressions.
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.
Saleof 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”, 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 on. As opposed to the historical process of using humans to negotiate the purchase and sale of ad space, 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.
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 “Click Through Rate”.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
BUSINESSPRODUCTS AND SERVICES (Continued)
Mediaand Content (Continued)
A large majority of Enthusiast Gaming’s revenue is 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 gross revenues and margins decline. Large advertisers are interested in widely distributed publishers like Enthusiast Gaming, and firms in between will become more secondary.
Esportsand 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 Fortnite, Super Smash Bros., Valorant, and Madden NFL. 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 teams 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.
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.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
BUSINESSPRODUCTS AND SERVICES (Continued)
Esportsand Entertainment (Continued)
Enthusiast Properties started organizing live events in 2014 by way of meet ups at a local pub in Toronto to engage the gaming community through personal interactions. As the meet ups continued to grow in popularity and size, the venues also grew to accommodate the increase in numbers. These small meet ups quickly escalated to a university, and then eventually, to an exhibition hall. Over the years, these meet ups graduated into EGLX.
In 2018, approximately 55,000 people attended two EGLX events and the Company continues to explore opportunities to grow its entertainment division to coincide with the significant growth of its platform online. Following the success of the two events in 2018, EGLX 2019 was brought back to the Metro Toronto Convention Centre with double the floor space. The 2019 EGLX had in excess of 30,000 attendees and featured over 150 exhibitors, panels, cosplay, free play, the Artist Alley, an Indie Corner and a Family Zone.
In November 2020 the Company held a virtual version of EGLX, which was live streamed from November 10-13, 2020 on eglx.com and on Twitch at twitch.tv/lgloyal. Supported by key sponsors, including SpiderTech, G FUEL and TikTok, the event featured world premieres, unique performances, and a number of gaming competitions. Featured talent and performances include: Muselk (9.48M subscribers), NickEh30 (5.4M subscribers), Fresh (6.66M subscribers), Anomaly (2.92M subscribers, XQC (1.13M subscribers), NFL superstars Richard Sherman and Darius Slay, and musicians ZHU and Goldlink.
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 15,000 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, the largest B2B mobile games conference series, with both virtual events and live events in locations such as London, San Francisco, Helsinki and Seattle.
Subscription
The Sims Resource (“TSR”) is one of the world’s largest networks of female gamers, and was recently ranked #7 on Quantcast’s Top 25 websites with the highest concentration of female audience in the United States (behind Oprah.com and Bravotv.com).
TSR operates on a subscription-based model and has a current subscriber base of approximately 150,700 monthly subscribers. TSR’s subscribers pay on average approximately USD$4 per month to access its VIP features.
In 2020 the Company launched similar subscription-based models on two owned and operated web properties, Escapist Magazine and Siliconera.
In May 2021, the Company acquired Vedatis, which owns the web property, Icy Veins, and offers premium subscriptions to the Icy Veins website.
In June 2021, the Company acquired Tabwire, which offers monthly premium membership subscriptions to the Tabstats website as well as the Tabwire Twitch channel.
The Company plans to continue to expand its subscription offerings across its networks of web and video properties.
GROWTHSTRATEGIES
Enthusiast Gaming has a complementary organic and M&A growth strategy. M&A continues to be an important growth lever, having helped the Company grow and serve 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 licensing content. The Company is also planning to launch additional products in the near future, including Project GG.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
GROWTHSTRATEGIES (Continued)
ProjectGG
In June 2021 the Company announced its plans to launch a pan-Enthusiast social network and freemium subscription offering, codenamed ProjectGG. Project GG will be a cross-platform, gaming centric social network, uniting gaming and esports fans with a platform to connect, view stats (both personal and stats of other gamers), global rankings, and leaderboards, and share content through their unique gaming profiles, whether it be on desktop, mobile, or in-game.
Visual samples of the user interface from the current development product are shown below:
| The<br> user interface of the desktop version of Project GG, displaying a user’s content feed. | The<br> user interface of the mobile version of Project GG, displaying a profile. | The<br> user interface of the mobile version of Project GG, displaying recently played games and activity feed. |
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Developing a proprietary product like Project GG will also enhance the Company’s ability to deliver a more complete fan experience with a more targeted, engaged, and personalized journey for gamers and customers alike and represents a significant step towards the Company’s evolution to a technology-powered, media, esports, and entertainment company.
The acquisition of Tabwire provided the Company with a technology and data platform which accelerated the development of Project GG. ProjectGG is planned to be launched as an exclusive beta to select users, including the Company’s rosters of influencers, in September 2021, with a public launch to follow in early 2022.
OptimizeCPMs
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 supply side platform (“SSP”) 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.
IncreaseDirect 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 Media and Content for Q2 2021 was $4.4 million as compared to approximately $0.6 million in Q2 2020. Enthusiast Gaming’s direct sales efforts began in Q1 2020 and continues to see increased success with larger client activations. The Company now has advertising sales and fulfillment professionals in New York, Los Angeles, Chicago, Detroit, Toronto, and London.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
GROWTHSTRATEGIES (Continued)
GrowSubscribers
The Company has more than doubled the number of paid subscribers for its web properties from approximately 61,000 in March 2019 to approximately 155,000 in June 2021. Enthusiast Gaming continues to look for new subscription opportunities and are in the early stages of developing an Enthusiast Gaming platform wide subscription model available to web, video, and esports audiences of the Company. The acquisition of Tabwire relates directly to these initiatives, see Project GG.
ContentLicensing
The Company is pursuing opportunities to license its library of content and owned & operated brands to distributors. Enthusiast Gaming already has established partnerships with TikTok, Samsung, and Snapchat, along with various OTT platforms.
StrategicAcquisitions
The Company’s growth is enhanced by a targeted acquisition strategy. Enthusiast Gaming (including Enthusiast Properties prior to the Arrangement) has successfully acquired or made significant investments in and integrated 18 companies. Enthusiast Gaming’s proven track record has amplified the business and is seen as the consolidator of choice. The Company continues to be disciplined in pursuing value-enhancing, highly-strategic acquisitions. There remain a significant number of independent gaming web and video properties that 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
GamingMarket
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$175 billion in 2020.^3^ According to Newzoo, the industry is expected to grow to USD$218 billion by 2023.^4^ 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.
Today, there are 2.7 billion global gamers, who engage with interactive entertainment using three platforms: console, PC and mobile, according to Newzoo.^5^ It is expected that gamers will surpass 3 billion by 2023 as smartphone penetration increases globally.^6^ 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.
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.
| ^3^ | Based on Newzoo’s 2018 - 2023 Global Gaming Market Forecast and an article published by Newzoo on March 3 2021 titled<br>“Hypercasual Games Introduced Millions of Consumers to the World of Gaming: What’s Next?” |
|---|---|
| ^4^ | Based on an article published by Newzoo on November 4 2020 titled “Global Game Revenues Up an Extra $15 Billion This<br>Year as Engagement Skyrockets”. |
| ^5^ | Based<br>on an article published by Newzoo on May 8 2020 titled “The World’s 2.7 Billion Gamers Will Spend $159.3 Billion on<br>Games in 2020; The Market Will Surpass $200 Billion by 2023”. |
| ^6^ | Based<br>on an article published by Newzoo on June 25 2020 titled “Three Billion Players by 2023 Engagement and Revenues Continue<br>to Thrive Across the Global Games Market”. |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
MARKET(Continued)
DigitalMedia
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. According to eMarketer, consumers in the U.S. spent an average of 181 minutes accessing digital media in 2010.^7^ In 2020, this figure increased to 470 minutes a day, representing 160% growth. 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.^8^ According to eMarketer, USD$90 billion was spent globally on digital advertising in 2012.^9^ This spend increased to USD$378 billion in 2020, representing growth of 319%. Digital advertising is expected to grow to USD$646 billion by 2024.^10^
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.^11^ According to YouTube, viewers watched an 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 increased from approximately 218 million in 2017 to over 2 billion in 2020, according to Twitter.^13^ Gamers are spending time on gaming websites containing news, reviews, videos, blog posts, tips, chats, message boards, and other content.
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.
| ^7^ | Based<br>on data provided by eMarketer as of January 2021. |
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| ^8^ | Based<br>on data provided by eMarketer as of January 2021 and March 2021. |
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| ^9^ | Based<br>on data provided by eMarketer as of March 2021. |
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| ^10^ | Based<br>on data provided by eMarketer as of March 2021. |
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| ^11^ | Based<br>on Nielsen’s 2019 Millennials on Millennials: Gaming Media Consumption Report. |
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| ^12^ | Based<br>on an article published by The Verge on December 8 2020 titled “YouTube Gaming had its best year ever with more than 100<br>billion hours watched” and an article published by YouTube on December 8 2020 titled “2020 is YouTube Gaming’s<br>biggest year ever: 100B watch time hours”. |
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| ^13^ | Based<br>on articles published by Twitter on February 15 2018 and January 11 2021 titled “Gaming and esports are happening on Twitter”<br>and “Over 2 Billion Gaming Tweets in 2020!”, respectively. |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
SIGNIFICANTANNOUNCEMENTS DURING AND SUBSEQUENT TO THE FIRST AND SECOND QUARTERS OF 2021
| Date | Description |
|---|---|
| January<br> 4, 2021 | The<br> Company announced that its owned and exclusive digital media property has been listed in the newly released Comscore ranking<br> of Top 100 Properties in the United States. The ‘Comscore 100’ represents the largest owners of digital content<br> across the internet, from social media to search to ecommerce giants such as Google Sites, Facebook and Amazon Sites. The<br> list is a significant milestone for direct advertising sales, and also serves as a filter within programmatic ad buying platforms<br> to ensure brands run on the highest-quality web sites. |
| January<br> 18, 2021 | The<br> Company announced that it has signed Samsung to an integrated sponsorship deal, leveraging Enthusiast Gaming’s media,<br> content, esports and entertainment platforms. The multi-platform sponsorship will utilize the breadth of Enthusiast Gaming’s<br> reach in the coveted Gen Z and Millennial demographics, to help drive awareness and market share for Samsung’s gaming-focused<br> computing components and accessories. |
| January<br> 20, 2021 | The<br> Company announced the voting results for the election of its Board of Directors, which took place at the Company’s Annual<br> General and Special Meeting of Shareholders (“AGSM”) held on January 20, 2021. All nominees as set forth in the<br> Company’s management information circular dated December 23, 2020 (“Circular”) were elected as directors<br> of Enthusiast Gaming at the AGSM. The shareholders of the Company approved and ratified the adoption of a proposed<br> stock option plan, the grant of 743,671 options as described in the Circular, approved and ratified the adoption of a proposed<br> Share Unit Plan and the grant of 1,251,162 restricted share units. |
| January<br> 22, 2021 | The<br> Company announced that it has issued notice to the holders of the Company’s convertible debentures (the “Debentures”)<br> to exercise the Company’s option to convert the outstanding Debentures into common shares of the Company. The Debentures<br> were set to mature on December 31, 2021. Upon completion of the conversions, the principal amount outstanding on the date<br> of the notice of $6 million will be converted into approximately 1,978,109 common shares. |
| February<br> 10, 2021 | The<br> Company announced it has offered and sold a total of 7,383,000 common shares resulting in gross proceeds of $42,452,250. |
| February<br> 16, 2021 | The<br> Company announced that it has signed exclusive monetization agreements with nine new leading video game fan communities. |
| February<br> 24, 2021 | The<br> Company announced the upcoming launch of a new premium online publication dedicated to the growing needs of today’s<br> esports fan. Combining content elements from the Company’s two existing esports coverage outlets, Upcomer and Daily<br> Esports, Enthusiast Gaming will relaunch one unified esports publication later this spring. The new publication,<br> which will operate as Upcomer, will leverage its existing user and prediction engine, to create one of the most complete esports<br> fan engagement experiences. The publication’s content suite will include, but not limited to, news and editorial,<br> long-form features, in-depth interviews, video documentary series, and fantasy leagues |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
| March<br> 2, 2021 | The<br> Company announced record breaking registration at its most recent mobile games virtual event, Pocket Gamer Connects Digital<br> #5 (“PGCD #5”), demonstrating the Company’s continued success pivoting its events and entertainment business<br> to be able to thrive in a virtual format. |
|---|---|
| March<br> 17, 2021 | The<br> Company announced that it has entered into a binding term sheet to acquire Vedatis SAS (“Vedatis”), owners of<br> Icy Veins (www.icy-veins.com), for European Euro €7,000,000 in cash and stock, plus an earnout subject to certain milestones<br> being achieved. Completion of the acquisition is conditional upon Enthusiast Gaming and Vedatis entering into a definitive<br> agreement as well as the satisfaction of a number of customary conditions, including due diligence and TSX approval. |
| March<br> 22, 2021 | The<br> Company announced that it has signed an integrated partnership deal with TikTok, the leading destination for short-form<br> mobile video. TikTok will leverage Enthusiast Gaming’s vast platform of video game and esports fan communities to help<br> drive adoption and bridge the integration of TikTok within the gaming and esports industry. |
| April<br> 7, 2021 | The<br> Company announced it has signed an integrated and strategic partnership deal with ESPAT TV. ESPAT TV will leverage Enthusiast<br> Gaming’s reach into the GenZ and Millennial demographics, utilizing the Company’s integrated platform of fan communities<br> to engage with a wider audience. |
| April<br> 9, 2021 | The<br> Company announced its esports organization, Luminosity Gaming, was ranked by Streams Charts as the most popular esports community<br> on Twitch in March 2021, with 40 million hours watched, outpacing the runner up by more than 15 million hours. |
| April<br> 13, 2021 | The<br> Company filed a Registration Statement on Form 40-F with the United States Securities and Exchange Commission (“SEC”).<br> Enthusiast Gaming will become a reporting issuer in the United States following effectiveness of the Form 40-F, in addition<br> to being a reporting issuer in Canada. A copy of the Form 40-F is available on EDGAR and the Company’s website at www.enthusiastgaming.com. |
| April<br> 20, 2021 | The<br> Company announced that its common shares have been approved for listing on the Nasdaq Global Select Market (“Nasdaq”)<br> under the trading ticker symbol “EGLX.” The Nasdaq Global Select Market is the highest listing tier of the Nasdaq<br> Stock Market’s three-tier market classification. Trading on the Nasdaq commenced at market open on April 21, 2021. The<br> Company will continue to maintain the listing of its common shares on the TSX under the symbol “EGLX”. |
| April<br> 23, 2021 | The<br> Company announced that NFL superstar, Silicon Valley advisor and community leader, Richard Sherman has been appointed to its<br> Board of Directors. |
| April<br> 26, 2021 | The<br> Company announced it has signed a partnership deal with ExitLag. ExitLag will be using Enthusiast Gaming’s extensive<br> reach into the video gaming and esports market as the Latin American software developer seeks to make an impactful debut in<br> the US with its proprietary technology to improve routing connections for gamers. |
| May<br> 6, 2021 | The<br> Company filed a final short form base shelf prospectus (the “Shelf Prospectus”) with the securities commissions<br> in each of the provinces of Canada, excluding Quebec, and a corresponding registration statement on Form F-10 (the “Registration<br> Statement”) with the United States Securities and Exchange Commission (the “SEC”) under the U.S./Canada<br> Multijurisdictional Disclosure System. The Shelf Prospectus and corresponding Registration Statement will allow the Company<br> to undertake offerings of common shares, preferred shares, debt securities, warrants, units and subscription receipts (collectively,<br> the “Securities”), or any combination thereof, up to an aggregate total of CAD$250 million from time to time during<br> the 25-month period that the final short form base shelf prospectus remains effective. The Securities may be offered in amounts,<br> at prices and on terms to be determined at the time of sale. The specific terms of any offering of Securities, including the<br> use of proceeds from any offering, will be set forth in one or more shelf prospectus supplement(s) to be filed with applicable<br> securities regulators. |
| May<br> 10, 2021 | The<br> Company announced that it has closed the previously-announced acquisition of Vedatis, which owns the web property Icy Veins<br> (www.icy-veins.com), for €7,000,000 million in cash and stock, plus an earn-out which is subject to certain conditions. |
| May<br> 12, 2021 | The<br> Company announced its plans to develop a subscription-based social network for gamers, codenamed Project GG. To<br> facilitate the development of Project GG, Enthusiast Gaming has entered into a definitive agreement to acquire<br> Tabwire LLC (“Tabwire”), which owns the web property TabStats (https://tabstats.com), for US$11 million in cash<br> and stock (the “Acquisition”). The Acquisition will provide Enthusiast with a technology and data platform which<br> provides gamers the |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
| ability<br> to directly view their game data in real-time. The acquisition is subject customary closing conditions including<br> regulatory approvals. | |
|---|---|
| May<br> 18, 2021 | The<br> Company announced today it has teamed up with Grammy-award winning international music superstars Coldplay to bring fans a<br> fresh and unique musical experience to celebrate the band’s new single ‘Higher Power’. The hour-long<br> launch event to promote Coldplay’s new hit single ‘Higher Power’ took place on May 20, 2021 and was livestreamed<br> on Luminosity Gaming’s Twitch channel. |
| May<br> 28, 2021 | The<br> Company announced that it has been added to the MSCI Canada Small Cap Index, which became effective after the close of trading<br> on May 27, 2021. |
| June<br> 9, 2021 | The<br> Company announced the launch of a proposed marketed public offering of common shares in the United States and Canada. A total<br> of 8,000,000 Common Shares will be offered by the Company (the “Offering”). The net proceeds from the<br> Offering are expected to be used by the Company primarily to strengthen its financial position, inclusive of future acquisitions,<br> working capital, repayment of indebtedness and other general corporate purposes. |
| June<br> 11, 2021 | The<br> Company announced that the Company has priced the Offering at USD$5.75 per common share for aggregate gross proceeds to the<br> Company of USD $46,000,000. In connection with the offering the Company has entered into an agreement with a syndicate of<br> underwriters co-led by RBC Capital Markets and Canaccord Genuity (the “Lead Underwriters”) as joint lead bookrunning<br> managers, with B. Riley Securities acting as joint bookrunner, and including Paradigm Capital Inc., Scotia Capital Inc., Alliance<br> Global Partners, Colliers Securities LLC and Haywood Securities Inc., as co-managers (together with the Lead Underwriters,<br> the “Underwriters”). The Company has also granted the Underwriters an option to purchase an additional<br> 600,000 common shares. |
| June<br> 15, 2021 | The<br> Company announced that it has closed its previously announced USD$46 million public Offering issuing 8,000,000 common shares<br> in the capital of the Company at a price of USD$5.75 per common share. |
| June<br> 16, 2021 | The<br> Company announced it has partnered with the Ad Council and COVID Collaborative on their COVID-19 Vaccine Education Initiative,<br> promoting COVID-19 vaccine awareness and education among young adults. |
| June<br> 21, 2021 | The<br> Company announced that the underwriters of the Company’s recently announced USD$46 million public Offering of 8,000,000<br> common shares in the capital of the Company at a price of USD$5.75 per share have exercised their over-allotment option in<br> full to purchase an additional 600,000 common shares at the USD5.75 per shares for aggregate gross proceeds to the Company<br> of USD$3,450,000. |
| June<br> 24, 2021 | The<br> Company announced that it has closed the previously announced acquisition Tabwire, which owns the web property TabStats (www.tabstats.com),<br> for USD$11 million in cash and stock. |
| June<br> 30, 2021 | The<br> Company announced the voting results for the election of its Board of Directors, which took place at the Company’s Annual<br> General Meeting of Shareholders (“AGM”) held on June 30, 2021. All nominees as set forth in the Company<br> management information circular dated June 3, 2021 which is available on SEDAR were elected as directors of Enthusiast Gaming<br> at the AGM. |
| July<br> 7, 2021 | The<br> Company announced that it has entered into a joint venture with Toronto Star Newspapers Limited (“Torstar”) to<br> create an original online news platform and community for gamers named AFK Media Partnership (“AFK”). |
| July<br> 20, 2021 | The<br> Company announced that Mr. John Albright has been appointed to its Board of Directors and Audit Committee effective immediately. Enthusiast<br> Gaming also announced that Robb Chase has resigned from the Board of Directors. |
| July<br> 27, 2021 | The<br> Company announced its esports organization, Luminosity Gaming, has renewed its sponsorship deal with G FUEL, The Official<br> Energy Drink of Esports^®^, to promote its line-up of gaming and esports energy and hydration drinks. The extended<br> 18-month partnership will feature new custom content from<br> G FUEL and pro gamers on the Luminosity Gaming roster, the launch of a new limited-edition G FUEL flavour, event activations,<br> giveaways, and more. The G FUEL logo will continue to be prominently displayed on Luminosity Gaming’s jerseys, and as<br> part of the expanded partnership, the logo will also be featured on all official Enthusiast Gaming merchandise. |
| August<br> 4, 2021 | The<br> Company announced it has signed an integrated media and esports partnership with the US Navy. The partnership will include<br> the creation of multiple unique gaming activations incorporating the Company’s talent roster of gamers, creators, and<br> athletes to increase awareness of Navy life and the wide range of professional opportunities the Navy offers, including those<br> in high-demand STEM fields. |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALLPERFORMANCE
The comparative three months ended June 30, 2020 results below were prior to the acquisition of Omnia, Vedatis and Tabwire. Omnia was acquired on August 30, 2020, Vedatis was acquired on May 1, 2021, and Tabwire was acquired on June 21, 2021. The operating results of these acquired entities have been included in the Company’s condensed consolidated interim financial statements from the date of their respective acquisition.
Summaryof Financial and Operating Results
Forthe Three Months Ended June 30, 2021 and 2020
Selected financial information for the Company for the indicated period is provided below:
| Three Months Ended<br><br> <br>June 30, 2021 | Three Months Ended June 30, 2020 | |
|---|---|---|
| $ | $ | |
| Total<br> revenue (a, b, c) | 37,057,601 | 7,029,096 |
| Cost<br> of sales (a, b, c) | 29,038,301 | 3,807,977 |
| Gross<br> profit | 8,019,300 | 3,221,119 |
| Interest<br> income | (22,911) | (15,007) |
| Operating<br> expenses | 19,550,684 | 7,491,479 |
| Net<br> loss and comprehensive loss for the period | (12,835,513) | (6,549,732) |
| Net<br>loss and comprehensive loss for the period per share<br><br> <br>–<br>basic and diluted | (0.11) | (0.09) |
Revenue for the three months ended June 30, 2021 and 2020, was $37,057,601 and $7,029,096, respectively. The table below provides a breakdown of revenue for the indicated period:
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |
|---|---|---|
| $ | $ | |
| Media<br> and content (a) | 33,462,535 | 4,246,328 |
| Esports<br> and entertainment (b) | 1,549,044 | 1,118,654 |
| Subscriptions<br> (c) | 2,046,022 | 1,664,114 |
| Total<br> revenue | 37,057,601 | 7,029,096 |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALL PERFORMANCE (Continued)
Summary of Financial and OperatingResults (Continued)
For the Three Months Ended June 30, 2021and 2020 (Continued)
Notes:
| (a) | Media and content revenue consists of advertising revenue on the Company’s<br>web and video platforms, and content licensing revenue. The web platform relates to Enthusiast Properties and the video platform<br>relates to Omnia. The increase in media and content revenue in Q2 2021 is mainly attributable to the acquisition of Omnia which<br>occurred in Q3 2020. Q2 2021 media and content revenue attributable to Omnia, Vedatis and Tabwire are $26.0 million, $0.07 million<br>and $0.01 million respectively. Q2 2021 media and content revenue excluding Omnia, Vedatis and Tabwire is $7.3 million, which increased<br>$3.1 million compared to $4.2 million in Q2 2020. The increase in media and content revenue for Q2 2021, when excluding Omnia,<br>Vedatis and Tabwire, is mainly due to an increase in direct sales attributable to the web platform, an increase of 18 new partner<br>websites added to the web platform in 2021 and a web RPM which was 175% higher in Q2 2021 as compared to Q2 2020. The web RPM in<br>Q2 2020 was noticeably lower which the Company attributes to the onset of the COVID-19 pandemic and its effects on the prices of<br>digital advertisements, which have recovered as of Q2 2021. The Company also added a new team of staff members in Q1 and Q2 2021<br>who are focused on optimizing the web network, which contributed to the increase in the web RPM in Q2 2021. The new partner websites<br>added to the web platform have more favourable commercial terms for the Company when compared to legacy partner websites, resulting<br>in lower cost of sales as a percentage of media and content revenue attributable to the web platform. This impact was significantly<br>offset by the acquisition of Omnia in Q3 2020. The video platform has higher cost of sales as a percentage of revenue when compared<br>to the web platform. and the video platform generates significantly more revenue than the web platform, which is the main driver<br>for the change in gross profit as a percent of total revenue from 45.8% in Q2 2020 to 21.6% in Q2 2021. Video views were 7.9 billion<br>in Q2 2021, compared to 9.4 billion in Q2 2020. Q2 2020 video views were noticeably higher which the Company attributes to the<br>onset of the COVID-19 pandemic and the related stay-at-home orders being enacted by governments worldwide, combined with the closing<br>of schools in most jurisdictions. |
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| (b) | Esports revenue is generated through the provision of management<br> services to other esports entities, sponsorships, prize money, merchandise sales, and other esports related sources.<br> Entertainment revenue mainly relates to Pocket Gamer Connects mobile gaming events which occur throughout each year and the<br> EGLX event which occurs in Q4 of each year. Entertainment revenue remained consistent at $0.4 million in each of Q2 2021 and<br> Q2 2020. Esports revenue increased to $1.1 million in Q2 2021 compared to $0.7 million in Q2 2020. The increase is mainly<br> attributable to sponsorship revenue earned in Q2 2021 of $1.1 million compared to $0.3 million in Q2 2020, sourced through<br> direct sales efforts. This increase in esports sponsorship revenue was offset by $Nil management service revenue being earned<br> in Q2 2021, compared to $0.4 million of management service revenue in Q2 2020, this decrease is due to the termination of<br> Management Services Agreement with AIG eSports LP on April 1, 2021 (see Related Party Transactions). |
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| (c) | Subscription revenue is generated from paid subscribers on the Company’s<br>web properties TSR, The Escapist, Siliconera, Icy Veins (Vedatis), and Tabstats (Tabwire). The increase in subscription revenue<br>is primarily attributable to an increase in paid subscribers on TSR. TSR had approximately 111,000 paid subscribers as at June<br>30, 2020, this number increased to approximately 151,000 paid subscribers as at June 30, 2021. TSR’s subscribers pay on average<br>approximately USD$4 per month to access its VIP features. The cost of sales attributable to subscription revenue is nominal. |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALL PERFORMANCE (Continued)
Summary of Financial and OperatingResults (Continued)
For the Three Months Ended June 30, 2021and 2020 (Continued)
Operating expenses for the three months ended June 30, 2021 and 2020 were $19,550,684 and $7,491,479 respectively. The table below provides a breakdown of operating expenses for the indicated period:
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |
|---|---|---|
| $ | $ | |
| Professional fees (a) | 1,213,479 | 627,703 |
| Consulting fees (b) | 1,075,726 | 1,181,024 |
| Advertising and promotion (c) | 813,588 | 212,605 |
| Office and general (d) | 2,165,506 | 466,173 |
| Salaries and wages (e) | 5,566,237 | 1,646,915 |
| Technology support, web development and content (f) | 2,698,660 | 1,299,857 |
| Esports player, team and game expenses (g) | 1,465,718 | 618,687 |
| Foreign exchange (gain) loss (h) | (1,066,122) | 108,248 |
| Share based compensation (i) | 3,958,309 | 278,875 |
| Amortization and depreciation (j) | 1,659,583 | 1,051,392 |
| Total operating expenses | 19,550,684 | 7,491,479 |
Notes:
| (a) | Professional fees relate to corporate activities and are comprised of legal,<br>audit, tax, and accounting fees. Professional fees increased during Q2 2021 as compared to Q2 2020 due to fees incurred relating<br>to the registration of the Company with the SEC, the listing of the Company’s common shares on the Nasdaq, and the June Offering<br>(see Share Capital). |
|---|---|
| (b) | Consulting fees include fees pursuant to the Master Services Agreement with<br>the Vancouver Arena Limited Partnership (see Related Party Transactions) and include management consultants, investor relations<br>services, and technology and data evaluation services. The decrease in consulting fees is primarily due to the termination of the<br>Master Services Agreement with Vancouver Arena Limited Partnership on April 1, 2021. This decrease was offset by an increase in<br>the numbers of consultants in Q2 2021 as compared to Q2 2020. |
| --- | --- |
| (c) | Advertising and promotion expense relates to corporate marketing, brand<br>marketing, and brand ambassadors. Advertising and promotion fees increased in Q2 2021 by $0.6 million as compared to Q2 2020 largely<br>due to corporate and brand marketing initiatives which had not yet commenced in Q2 2020. |
| --- | --- |
| (d) | Office and general costs increased in Q2 2021, mainly due to substantial<br>increases in insurance expense relating to the listing of the Company’s common shares on the Nasdaq. The Company also incurred<br>additional listing fees, regulatory filing fees, and transfer agent fees as a result of the Nasdaq listing. These additional expenses<br>commenced in April 2021 and are expected to continue to be incurred. The Company maintains two offices in Toronto, Ontario and<br>an office in Los Angeles, California. Occupancy costs are also included in office and general. |
| --- | --- |
| (e) | The Company has a staff of approximately 160 employees as at June 30, 2021<br>compared to a staff of approximately 50 employees as of June 30, 2020. The Company continues to hire additional staff to support<br>its growth. A significant portion of the increase in staffing levels is attributable to the hiring of content and sales employees.<br>Additionally, the acquisition of Omnia in Q3 2020 resulted in approximately 40 additional staff being added to the Company, and<br>the acquisition of Tabwire and the commencement of Project GG in Q2 2021 resulted in approximately 10 additional staff being added<br>to the Company. Furthermore, the increase was contributed to the Company adding a number of senior level roles in 2020 and 2021,<br>including a C level, and several EVP, SVP, and VP level positions. The Company also commenced an annual short-term incentive plan<br>for employees in Q4 2020, which contributed to the increased salaries and wages. Salaries and wages also include commissions on<br>direct sales. Increased direct sales contributed to the increase in salaries and wages as direct sales were $4.4 million in Q2<br>2021 compared to $0.6 million in Q2 2020. |
| --- | --- |
| 17 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALL PERFORMANCE (Continued)
Summary of Financial and OperatingResults (Continued)
For the Three Months Ended June 30, 2021and 2020 (Continued)
| (f) | Technology support, web development and content costs relate solely to the<br>media and content division of the Company. The increase was contributed to by increased content costs incurred relating to the<br>launch of Upcomer, a new premium online publication focused on esports fans, as well as other content initiatives that included<br>live content events, including Gamers Greatest Talent and the Coldplay event. |
|---|---|
| (g) | Esports player, team and game expenses relate to costs incurred in support<br>of the Luminosity Gaming esports teams, including but not limited to player and influencer salaries, team housing and team travel.<br>Esports player, team and game expenses increased in Q2 2021 primarily relating to players and influencers salaries. The current<br>roster of players and influencers in Q2 2021 is comprised of more notable players and influencers compared to Q2 2020 who are<br>compensated at higher levels. |
| --- | --- |
| (h) | The Company and its subsidiaries commonly transact and carry assets and<br>liabilities in currencies other than their respective functional currencies. Foreign exchange gains or losses are caused by movements<br>in exchange rates. Therefore, the Company expects continued gains and losses due to fluctuating exchange rates. The large gain<br>in Q2 2021 is related to a strengthening of the US dollar compared to the Canadian dollar between the date of the closing of the<br>June Offering and June 30, 2021. The proceeds of the June Offering were received in USD, see Share Capital. |
| --- | --- |
| (i) | Share-based compensation is a non-cash expense which relates to options<br>and restricted share units granted to directors, officers, employees, and consultants of the Company, which are expensed over their<br>respective vesting periods. Share-based compensation expense increased significantly in Q2 2021 due to stock options and restricted<br>share units issued in January 2021 and April 2021. In January 2021, the Company issued 743,671 options and 1,251,162 restricted<br>share units. In April 2021, the Company issued 855,234 options and 1,242,577 restricted share units. No options or restricted share<br>units were issued in Q1 2020 or Q2 2020, and during those periods, there were no restricted share units outstanding, and limited<br>unvested stock options. The Company’s restricted share unit plan was adopted in January 2021. |
| --- | --- |
| (j) | Amortization and depreciation is significantly comprised of amortization<br>of intangible assets arising from the Mergers and Acquisitions. Amortization and depreciation increased in Q2 2021 mainly due to<br>the amortization of intangible assets recognized upon the acquisition of Omnia in Q3 2020 and Vedatis and Tabwire in Q2 2021. |
| --- | --- |
| 18 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALL PERFORMANCE (Continued)
The comparative six months ended June 30, 2020 results below were prior to the acquisition of Omnia, Vedatis and Tabwire. Omnia was acquired on August 30, 2020, Vedatis was acquired on May 1, 2021, and Tabwire was acquired on June 21, 2021. The operating results of these acquired entities have been included in the Company’s condensed consolidated interim financial statements from the date of their respective acquisition.
Summary of Financial and OperatingResults
For the Six Months Ended June 30, 2021and 2020
Selected financial information for the Company for the indicated period is provided below:
| Six Months Ended<br><br> <br>June 30, 2021 | Six Months Ended<br><br> <br>June 30, 2020 | |
|---|---|---|
| $ | $ | |
| Total revenue (a, b, c) | 67,079,936 | 14,163,432 |
| Cost of sales (a, b, c) | 53,129,628 | 7,649,084 |
| Gross profit | 13,950,308 | 6,514,348 |
| Interest income | (41,231) | (76,530) |
| Operating expenses | 38,285,626 | 14,817,208 |
| Net loss and comprehensive loss for the period | (26,400,641) | (11,914,044) |
| Net loss and comprehensive loss for the period<br>per share – basic and diluted | (0.23) | (0.16) |
Revenue for the six months ended June 30, 2021 and 2020, was $67,079,936 and $14,163,432, respectively. The table below provides a breakdown of revenue for the indicated period:
| Six Months Ended<br><br> <br>June 30, 2021 | Six Months Ended<br><br> <br>June 30, 2020 | |
|---|---|---|
| $ | $ | |
| Media and content (a) | 60,440,722 | 7,672,733 |
| Esports and entertainment (b) | 2,776,468 | 3,615,448 |
| Subscriptions (c) | 3,862,746 | 2,875,251 |
| Total revenue | 67,079,936 | 14,163,432 |
Notes:
| (a) | Media and content revenue consists of advertising revenue on the Company’s<br>web and video platforms, and content licensing revenue. The web platform relates to Enthusiast Properties and the video platform<br>relates to Omnia. The increase in media and content revenue in the six months ended June 30, 2021 is mainly attributable to the<br>acquisition of Omnia which occurred in Q3 2020. For the six months ended June 30, 2021, media and content revenue attributable<br>to Omnia, Vedatis and Tabwire are $46.7 million, $0.07 million and $0.01 million respectively. For the six months ended June 30,<br>2021, media and content revenue excluding Omnia, Vedatis and Tabwire is $13.6 million, which increased $5.9 million compared to<br>$7.7 million in six months ended June 30, 2020. The increase in media and content revenue for the six months ended June 30, 2020,<br>when excluding Omnia, Vedatis and Tabwire, is mainly due to an increase in direct sales attributable to the web platform, an increase<br>of 18 new partner websites added to the web platform in the six months ended June 30, 2021, and an RPM which was 52% higher in<br>the six months ended June 30, 2021 as compared to six months ended June 30, 2020. The web RPM for the six months ended June 30,<br>2020, was noticeably lower which the Company attributes to the onset of the COVID-19 pandemic and its effects on the prices of<br>digital advertisements, which have recovered as of Q2 2021. The Company also added a new team of staff members in Q1 and Q2 2021<br>who are focused on optimizing the web network, which contributed to the increase in the web RPM for the six months ended June 30,<br>2021. The new partner websites added to the web platform have more favourable commercial terms for the Company when compared to<br>legacy partner websites, resulting in lower cost of sales as a percentage of media and content revenue attributable to the web<br>platform. This impact was significantly offset by the acquisition of Omnia in Q3 2020. The video platform has higher cost of sales<br>as a percentage of revenue when compared to the web platform, and the video platform generates significantly more revenue than<br>the web platform, which is the main driver for the change in gross profit as a percent of total revenues from 46.7% in the six<br>months ended June 30, 2020 to 20.8% in the six months ended June 30, 2021. Video views were 15.2 billion in the six months ended<br>June 30, 2021, compared to 16.3 billion in the six months ended June 30, 2020 which was prior to the acquisition of Omnia. |
|---|---|
| 19 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALL PERFORMANCE (Continued)
Summary of Financial and OperatingResults (Continued)
For the Six Months Ended June 30, 2021and 2020 (Continued)
| (b) | Esports revenue is generated through the provision of management services to other esports entities,<br>sponsorships, prize money, merchandise sales, and other esports related sources. Entertainment revenue mainly relates to Pocket<br>Gamer Connects mobile gaming events which occur throughout each year and the EGLX event which occurs in Q4 of each year. The decrease<br>in esports and entertainment revenue was caused by entertainment revenue decreasing from $2.3 million for the six months ended<br>June 30, 2020 to $0.7 million for the six months ended June 30, 2021, a decrease of $1.6 million. This decrease is mainly due to<br>the Company’s largest annual event (by revenue), Pocket Gamer Connects London, not being held as a live event in January<br>2021 due to public health restrictions in the United Kingdom relating to the COVID-19 pandemic. In Q1 2021, Pocket Gamer Connects<br>London was held as a virtual event while in Q1 2020 it was a live event. This resulted in significantly less revenue earned from<br>Pocket Gamer Connects London 2021 compared to the same event in 2020 as the selling price for attendance at virtual events is considerably<br>lower than live events, and there are less sponsorship opportunities for virtual events. The move to virtual events also results<br>in a decrease in cost of sales as costs incurred for virtual events are significantly less than live events. Esports revenue increased<br>to $2.1 million for the six months ended June 30, 2021 compared to $1.3 million for the six months ended June 30, 2020. The increase<br>is mainly attributable to sponsorship revenue earned in the six months ended June 30, 2021 of $1.7 million compared to $0.3 million<br>in the six months ended June 30, 2020, sourced through direct sales efforts. This increase in esports revenue was offset by $0.4<br>million management service revenue being earned in the six months ended June 30, 2021, compared to $0.8 million of management service<br>revenue in the six months ended June 30, 2020, this decrease is due to the termination of Management Services Agreement with AIG<br>eSports LP on April 1, 2021 (see Related Party Transactions). This increase in esports revenue was also offset by $Nil buy-out<br>revenue being earned in the six months ended June 30, 2021, compared to $0.2 million of buy-out revenue in the six months ended<br>June 30, 2020. |
|---|---|
| (c) | Subscription revenue is generated from paid subscribers on the Company’s<br>web properties TSR, The Escapist, Siliconera, Icy Veins (Vedatis), and Tabstats (Tabwire). The increase in subscription revenue<br>is primarily attributable to an increase in paid subscribers on TSR. TSR had approximately 111,000 paid subscribers as at June<br>30, 2020, this number increased to approximately 151,000 paid subscribers as at June 30, 2021. TSR’s subscribers pay on average<br>approximately USD$4 per month to access its VIP features. The cost of sales attributable to subscription revenue is nominal. |
| --- | --- |
Operating expenses for the six months ended June 30, 2021 and 2020 were $38,285,626 and $14,817,208 respectively. The table below provides a breakdown of operating expenses for the indicated period:
| Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |
|---|---|---|
| $ | $ | |
| Professional fees (a) | 1,950,975 | 913,945 |
| Consulting fees (b) | 2,386,353 | 2,388,674 |
| Advertising and promotion (c) | 1,855,942 | 486,491 |
| Office and general (d) | 2,872,451 | 1,452,641 |
| Salaries and wages (e) | 10,194,512 | 2,887,399 |
| Technology support, web development and content (f) | 4,093,543 | 2,234,751 |
| Esports player, team and game expenses (g) | 2,994,323 | 1,483,796 |
| Foreign exchange gain (h) | (1,076,255) | (48,269) |
| Share based compensation (i) | 9,718,345 | 669,248 |
| Amortization and depreciation (j) | 3,295,437 | 2,348,532 |
| Total operating expenses | 38,285,626 | 14,817,208 |
Notes:
| (a) | Professional fees relate to corporate activities and are comprised of legal,<br>audit, tax, and accounting fees. Professional fees increased for the six months ended June 30, 2021, due to fees incurred relating<br>to the registration of the Company with the SEC, the listing of the Company’s common shares on the Nasdaq, the February Offering,<br>and the June Offering (see Share Capital). |
|---|---|
| 20 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALL PERFORMANCE (Continued)
Summary of Financial and OperatingResults (Continued)
For the Six Months Ended June 30, 2021and 2020 (Continued)
| (b) | Consulting fees include fees pursuant to the Master Services Agreement with<br>the Vancouver Arena Limited Partnership (see Related Party Transactions) and include management consultants, investor relations<br>services, and technology and data evaluation services. The termination of the Master Services Agreement with Vancouver Arena Limited<br>Partnership on April 1, 2021 was the primary cause of the $0.3 million decrease in consulting fees for the six months ended June<br>30, 2021 compared to the six months ended June 30, 2020. This decrease was offset by an increase in the numbers of consultants<br>in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. |
|---|---|
| (c) | Advertising and promotion expense relates to corporate marketing, brand<br>marketing, and brand ambassadors. Advertising and promotion fees increased in the six months ended June 30, 2021 by $1.4 million<br>as compared to the six months ended June 30, 2020 largely due to corporate and brand marketing initiatives which had not yet commenced<br>in the six months ended June 30, 2020. |
| --- | --- |
| (d) | Office and general costs increased during the six months ended June 30,<br>2021, mainly due to substantial increases in insurance expense relating to the listing of the Company’s common shares on<br>the Nasdaq. The Company also incurred additional listing fees, regulatory filing fees, and transfer agent fees as a result of the<br>Nasdaq listing. These additional expenses commenced in April 2021 and are expected to continue to be incurred. The Company maintains<br>two offices in Toronto, Ontario and an office in Los Angeles, California. Occupancy costs are also included in office and general. |
| --- | --- |
| (e) | The Company has a staff of approximately 160 employees as at June 30, 2021<br>compared to a staff of approximately 50 employees as of June 30, 2020. The Company continues to hire additional staff to support<br>its growth. A significant portion of the increase in staffing levels is attributable to the hiring of content and sales employees.<br>Additionally, the acquisition of Omnia in Q3 2020 resulted in approximately 40 additional staff being added to the Company, and<br>the acquisition of Tabwire and the commencement of Project GG in Q2 2021 resulted in approximately 10 additional staff being added<br>to the Company. Furthermore, the increase was contributed to the Company adding a number of senior level roles in 2020 and 2021,<br>including a C level, and several EVP, SVP, and VP level positions. The Company also commenced an annual short-term incentive plan<br>for employees in Q4 2020, which contributed to the increased salaries and wages. Salaries and wages also include commissions on<br>direct sales. Increased direct sales contributed to the increase in salaries and wages as direct sales were $6.7 million for the<br>six months ended June 30, 2021, compared to $0.8 million for the six months ended June 30, 2020. |
| --- | --- |
| (f) | Technology support, web development and content costs relate solely to the<br>media and content division of the Company. The increase was contributed to by increased content costs incurred relating to the<br>launch of Upcomer, a new premium online publication focused on esports fans, as well as other content initiatives and additional<br>live content being produced in Q2 2021 including Gamers Greatest Talent and the Coldplay event. |
| --- | --- |
| (g) | Esports player, team and game expenses relate to costs incurred in support<br>of the Luminosity Gaming esports teams, including but not limited to player and influencer salaries, team housing and team travel.<br>Esports player, team and game expenses increased for the six months ended June 30, 2021, primarily relating to players and influencers<br>salaries. The current roster of players and influencers in 2021 is comprised of more notable players and influencers compared<br>to 2020 who are compensated at higher levels. |
| --- | --- |
| (h) | The Company and its subsidiaries commonly transact and carry assets and<br>liabilities in currencies other than their respective functional currencies. Foreign exchange gains or losses are caused by movements<br>in exchange rates. Therefore, the Company expects continued gains and losses due to fluctuating exchange rates. The large gain<br>for the six months ended June 30, 2021, is related to a strengthening of the US dollar compared to the Canadian dollar between<br>the date of the closing of the June Offering and June 30, 2021. The proceeds of the June Offering were received in USD, see ShareCapital. |
| --- | --- |
| 21 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
OVERALL PERFORMANCE (Continued)
Summary of Financial and OperatingResults (Continued)
For the Six Months Ended June 30, 2021and 2020 (Continued)
| (i) | Share-based compensation is a non-cash expense which relates to options<br>and restricted share units granted to directors, officers, employees, and consultants of the Company, which are expensed over their<br>respective vesting periods. Share-based compensation expense increased significantly for the six months ended June 30, 2021, due<br>to stock options and restricted share units issued in January 2021 and April 2021. In January 2021, the Company issued 743,671<br>options and 1,251,162 restricted share units. In April 2021, the Company issued 855,234 options and 1,242,577 restricted share<br>units. No options or restricted share units were issued in Q1 2020 or Q2 2020, and during those periods, there were no restricted<br>share units outstanding, and limited unvested stock options. The Company’s restricted share unit plan was adopted in January<br>2021. |
|---|---|
| (j) | Amortization and depreciation is significantly comprised of amortization<br>of intangible assets arising from the Mergers and Acquisitions. Amortization and depreciation increased for the six months ended<br>June 30, 2021, mainly due to the amortization of intangible assets recognized upon the acquisition of Omnia in Q3 2020 and Vedatis<br>and Tabwire in Q2 2021. |
| --- | --- |
SELECT PRO FORMA OPERATING METRICS
The Company completed the acquisition of Omnia on August 30, 2020 and Enthusiast Properties on August 30, 2019. Financial results include the results of Omnia and Enthusiast Properties, as well as other acquired business, from the date of the closing of their respective acquisition transactions. On April 12, 2019 Enthusiast Properties acquired 100% of the assets of TSR. References to “pro forma” figures below will assume the acquisition of Omnia, Enthusiast Properties and TSR took place on the first day of the respective period. “Web pageviews” relate to Enthusiast Properties, “Video views” relate to Omnia and Enthusiast Properties, and “Paid Subscribers” relates to TSR, The Escapist and Siliconera. Vedatis and Tabwire paid subscribers are included in the Q2 2021 paid subscribers. The Company is providing pro forma quarterly information for 2019 and 2020 as a number of mergers and acquisitions closed in the second half of 2019 and in 2020 reduce the comparability of year-over-year figures. The information below does not include any “pro forma” adjustments for Q4 2020, Q1 2021, and Q2 2021.
| Quarterly Select Pro Forma Operating Metrics | ||||||||
|---|---|---|---|---|---|---|---|---|
| Pro Forma for Omnia and Enthusiast Properties Acquisitions | ||||||||
| Q3 2019 | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | Q1 2021 | Q2 2021 | |
| Total Views (millions) | 8,633 | 8,678 | 9,201 | 12,485 | 10,554 | 9,852 | 9,896 | 10,395 |
| Web pageviews | 1,763 | 1,759 | 2,296 | 3,119 | 2,427 | 2,522 | 2,596 | 2,516 |
| Video views | 6,870 | 6,919 | 6,905 | 9,366 | 8,127 | 7,330 | 7,300 | 7,879 |
| Paid Subscibers (thousands - as at end of period) | 69 | 72 | 92 | 111 | 112 | 122 | 137 | 155 |
Web pageviews, which relate historically to Enthusiast Properties which was acquired in Q3 2019, have increased steadily over the last eight quarters. The Company continually grows existing properties and creates or acquires new properties, and adds new partner properties, to the web platform. The increase in pageviews in Q3 2019 through Q2 2020 was significantly due to additional partner web properties being added to the web platform. The significant increase in web pageviews in Q2 2020 was, in the belief of Management, caused by global stay-at-home orders being enacted by governments worldwide, combined with the closing of schools in most jurisdictions, in reaction to the COVID-19 pandemic. The Company’s audience was spending additional time on the Company’s platforms, resulting in a significant increase in pageviews. As these public health restrictions were eased in Q3 2020, the number of pageviews declined, and remained relatively constant in Q4 2020 through Q2 2021.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
SELECT PRO FORMA OPERATING METRICS (Continued)
Video views relate historically to Omnia which was acquired in Q3 2020. At the time of the acquisition of Omnia, video views were relatively steady at approximately 6.9 billion. The significant increase in video views in Q2 2020 was, in the belief of Management, caused by global stay-at-home orders being enacted by governments worldwide, combined with the closing of schools in most jurisdictions, in reaction to the COVID-19 pandemic. The Company’s audience was spending additional time on the Company’s platforms, resulting in a significant increase in video views. As these public health restrictions were eased in Q3 2020, the number of video views declined. The decline in video views continued into Q4 2020, before stabilizing in Q1 2021 at approximately 7.3 billion. The video views have increased to 7.9 billion in Q2 2021, due to increased traffic to the Company’s Arcade Cloud video properties, a number of new Snapchat channels being launched by the Company in Q2 2021 (including Livestream Fails and Blox Buddies), and from additional partner channels being added to the Company’s video platform in Q1 and Q2 2021.
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. The significant increase in paid subscribers in Q1 and Q2 2020 was, in the belief of Management, caused by global stay-at-home orders being enacted by governments worldwide, combined with the closing of schools in most jurisdictions, in reaction to the COVID-19 pandemic. This increased the amount of traffic on TSR, resulting in additional paid subscribers. 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 Q4 2020, Q1 2021, and Q2 2021 primarily to these initiatives.
QUARTERLY RESULTS OF OPERATIONS
| Q3 2019 | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | Q1 2021 | Q2 2021 | |
|---|---|---|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | $ | $ | $ | |
| Total revenue | 3,007,307 | 9,202,019 | 7,134,336 | 7,029,096 | 16,328,946 | 42,471,103 | 30,022,335 | 37,057,601 |
| Interest income | 590,292 | 18,761 | 61,523 | 15,007 | 14,775 | 10,853 | 18,320 | 22,911 |
| Operating expenses | 7,808,999 | 15,362,369 | 7,325,729 | 7,491,479 | 8,177,992 | 12,524,904 | 18,734,942 | 19,550,684 |
| Net loss and comprehensive loss | (16,139,544) | (60,156,679) | (5,364,312) | (6,549,732) | (8,033,467) | (6,949,471) | (13,565,128) | (12,835,513) |
| Loss per share – basic and diluted | (0.42) | (1.55) | (0.07) | (0.09) | (0.10) | (0.06) | (0.12) | (0.11) |
In Q3 2019 the Company completed the Amalgamation with J55, the Acquisition of Luminosity Gaming, and the Arrangement with Enthusiast Properties, and in Q4 2019 the Company completed the acquisition of Steel Media. Prior to these transactions, the Company had limited operating activities. These transactions caused the significant increases in total revenue, operating expenses, and net loss and comprehensive loss observed in Q3 2019 and Q4 2020. In Q4 2019 the Company recognized goodwill impairment on acquisition of business of $46.2 million relating to the Acquisition and the Arrangement, which caused the significant increase in net loss and comprehensive loss in Q4 2019. In Q3 2020 the Company completed the acquisition of Omnia, which caused the significant increases in total revenue and operating expenses observed in Q3 and Q4 2020. The Company has been expanding its operations since the acquisition of Omnia in Q3 2020, which contributes to the increase in operating expenses from Q4 2020 through Q2 2021. However, the majority of the increase in operating expenses from Q4 2020 to Q2 2021 relates to share-based compensation. Q2 2021 share-based compensation was $4.0 million, compared to $0.1 in Q4 2020. In Q2 2021, the Company completed the acquisitions of Vedatis and Tabwire which also contributed to the increase in operating expenses observed in Q2 2021.
While the significant variations in period-to-period results are as a direct result of the Mergers and Acquisitions, period-to-period results are also impacted by certain operating metrics (see Select Pro Forma Operating Metrics) and seasonality (see Seasonality). For the closing dates of the Mergers and Acquisitions, see Description of Enthusiast Gaming Holdings.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
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, revenue per thousand impressions (“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 increases substantially in Q4 as Black Friday and the December holiday season approaches. Advertiser spend can differ from consumer spend as consumers have difference spending patterns and important events.
Q1 is typically the slowest part of the year as most 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash flow for the Six Months Ended June 30, 2021
Net cash used in operating activities for the six months ended June 30, 2021, was $16,470,444 (June 30, 2020 – $7,297,822). This was significantly due to the net loss of $26,279,347, and was decreased by items not affecting cash such as amortization and depreciation of $3,295,437, share-based compensation of $9,718,345, interest and accretion of $465,657, share of loss from investment in associates of $72,260, a loss on the change in the fair value of investments of $156,671, a loss on settlement of vendor-take-back loan of $316,241, a loss on revaluation of the deferred payment liability of $89,184, a foreign exchange loss of $587,716, and shares for services of $185,662 and increased by items not affecting cash such as deferred tax recovery of $125,061 and a gain on repayment of long-term debt of $39,502. These non-cash items for the six months ended June 30, 2021 were collectively offset by changes in working capital including a decrease in trade and other receivables of $375,985, an increase in prepaid expenses of $3,608,526, a decrease in loans receivable of $37,500, a decrease in accounts payable and accrued liabilities of $2,511,575, an increase in contract liabilities of $998,992 and a decrease in income tax receivable of $206,083. For the six months ended June 30, 2020, net cash used in operating activities was attributable to the net loss of $11,917,663, which was decreased by items not affecting cash such as amortization and depreciation of $2,348,532, share-based compensation of $669,248, interest and accretion of $897,397, capitalized interest and success fee of $1,382,646, a loss on the change in fair value of investment of $163,015, a share of loss from investment in associates of $1,272,347 and shares for services of $92,115 and increased by items not affecting cash such as a gain on player buy-out of $204,764, a deferred tax recovery of $442,195 and a foreign exchange gain of $14,831. These non-cash items for the six months ended June 30, 2020 were collectively offset by changes in working capital including an increase in trade and other receivables of $177,083, a decrease in prepaids expense of $121,589, a decrease in accounts payable and accrued liabilities of $902,945, an increase in contract liabilities of $299,600 and a decrease in income tax receivable of $285,630.
Net cash provided by financing activities for the six months ended June 30, 2021 was $76,588,642 (June 30, 2020 – $2,106,515). This was attributable to proceeds from the issuance of shares for offerings of $95,183,398 (net of transaction costs), proceeds from the exercise of options of $784,431, proceeds from long-term debt of $944,787 which were collectively offset by repayments of long-term debt of $13,773,470, repayment of the vendor-take- back loan of $6,158,329 and lease payments of $392,175. For the six months ended June, 2020, net cash provided by financing activities was attributable to proceeds from the exercise of warrants of $2,178,850 and proceeds from the exercise of options of $49,367 which were collectively offset by lease payments of $121,702.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
Cash flow for the Six Months Ended June 30, 2021 (Continued)
Net cash used in investing activities for the six months ended June 30, 2021 was $12,390,120 (June 30, 2020 – net cash provided of $379,893) which was due to cash paid for acquisitions of $12,549,396, and acquisitions of property and equipment of $3,398, which were offset by cash acquired through business acquisitions of $162,674. For the six months ended June 30, 2020, net cash provided by investing activities was attributable to proceeds from a disposal of an investment of $680,000 and proceeds from a disposal of intangible assets of $204,764 which were collectively offset by investment in associate of $500,000 and acquisitions of property and equipment of $4,871.
For the six months ended June 30, 2021 and 2020, the Company had a net increase in cash of $47,043,750 and a net decrease in cash of $4,791,213 respectively. As a result, the Company had a cash balance as at June 30, 2021 and 2020, of $51,367,573 and $8,420,509, respectively.
Liquidity
Selected financial information about the Company’s financial position as at the indicated dates is provided below:
| June 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |
|---|---|---|
| $ | $ | |
| Cash | 51,367,573 | 4,323,823 |
| Total assets | 294,396,186 | 222,321,234 |
| Total liabilities | 57,267,136 | 80,450,177 |
| Share capital, contributed surplus and accumulated other comprehensive income (loss) | 361,410,413 | 240,156,589 |
| Retained earnings (deficit) | (124,564,879) | (98,285,532) |
| Working capital (deficiency) | 51,299,392 | (7,304,839) |
Total liabilities at each reporting date are broken down as follows:
| June 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |
|---|---|---|
| $ | $ | |
| Accounts payable and accrued liabilities | 21,901,837 | 23,602,547 |
| Contract liabilities | 2,672,365 | 1,625,594 |
| Current portion of long-term debt | 2,750,000 | 1,250,000 |
| Current portion of deferred payment liability | 1,599,657 | 636,600 |
| Current portion of convertible debentures | - | 7,546,453 |
| Current portion of lease contract liabilities | 503,102 | 578,330 |
| Long-term debt | 7,271,115 | 21,651,956 |
| Long-term lease contract liabilities | 1,991,145 | 2,308,336 |
| Vendor-take-back loan | - | 5,559,250 |
| Deferred payment liability | 1,690,410 | 529,124 |
| Deferred tax liability | 16,887,505 | 15,161,987 |
| Total liabilities | 57,267,136 | 80,450,177 |
During the six months ended June 30, 2021, the Company incurred a net loss and comprehensive loss of $26,400,641 (June 30, 2020 – $11,914,044) and, as of that date, the Company had accumulated a deficit of $124,564,879 (December 31, 2020 – $98,285,532) and negative cash flows from operations of $16,470,444 (June 30, 2020 – $7,297,822). Whether and when the Company can attain profitability and positive cash flows from operations is uncertain.
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 acquisition in the past and may need to continue to do so to fund these activities in the future.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
Liquidity (Continued)
As at June 30, 2021, the Company had working capital of $51,299,392, which will be used to finance operations, growth, and mergers and acquisitions over the next 12 months. The Company also has contractual liabilities of $2,672,365 (see Liquidity Risk) and other cash commitments of $1,094,000 (see Commitments) over the next 12 months. After considering these items, Management believes that the existing working capital is sufficient to meet the Company’s requirements over the next 12 months. To the extent that further working capital is required in the next 12 months, the Company has revolving credit facilities with an aggregate principal limit amount of $14 million available to draw on. As at June 30, 2021, and as of the date of this MD&A, the balances on these revolving credit facilities are $Nil. For details on the revolving credit facilities see Note 14 of the unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2021. The Company has not identified any legal or practical restrictions on its ability to meet its obligations.
As at June 30, 2021, the Company has current assets of $80,726,353 (December 31, 2020 - $27,934,685) to cover current liabilities of $29,426,961 (December 31, 2020 - $35,239,524).
Capital 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 equity 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, 2021. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements aside from the covenants described in Note 14 of the condensed consolidated interim financial statements for the six months ended June 30, 2021.
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.
Bought Deal Prospectus Offerings
On February 10, 2021, the Company offered and sold a total of 7,383,000 common shares resulting in gross proceeds of $42,452,250. The Company incurred cash share issuance cost of $2,704,571 relating to the offering. The net proceeds from the offering are expected to be used for future acquisitions, working capital and general corporate purposes.
The following table sets forth the anticipated use of the net proceeds received by the Company as at and in connection with the February 10, 2021 offering:
| Use of Net Proceeds | |
|---|---|
| $ | |
| Reduction of long- term debt (revolving portion) ^(1) (2)^ | 13,773,470 |
| Debt servicing ^(3)^ | 1,160,000 |
| Capital expenditures ^(4)^ | 1,000,000 |
| Unallocated working capital and future acquisitions ^(5)^ | 23,814,209 |
| Total | 39,747,679 |
Notes:
| (1) | Represents the revolving portion of the Company’s long-term debt facilities. These amounts<br>would be available for use by the Company in future periods however the Company does not intend to draw on these facilities in<br>the twelve-month period following the closing of the February 10, 2021 offering. |
|---|---|
| (2) | Incurred in August 2019 by GameCo for the purposes of (i) working capital and (ii) to finance future<br>acquisitions. |
| --- | --- |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL CONDITION, LIQUIDITY AND CAPITALRESOURCES (Continued)
Bought Deal Prospectus Offerings (Continued)
| (3) | Represents the estimated cash interest and other debt servicing charges to be payable by Enthusiast<br>Gaming in relation to its outstanding long-term debt facilities (after considering the reduction) in the twelve-month period following<br>the closing of the February 10, 2021 offering. |
|---|---|
| (4) | Represents the estimated cash capital contributions Enthusiast Gaming may provide to its investments<br>in associates. Enthusiast Gaming can reallocate such funds in order to satisfy operating cash flow requirement if required. Failure<br>to pay such cash capital contributions if and when requested by Enthusiast Gaming’s associates could result in certain actions<br>including the loss of rights or a reduction in necessary equity in order to satisfy the capital call requirement which are not<br>expected to affect Enthusiast Gaming’s available cash. |
| --- | --- |
| (5) | The Company intends to use $23,814,2092 from the February 10, 2021 offering to pursue its growth<br>strategies, which may include value-enhancing acquisitions and/or potential strategic partnerships, and the funding of capital<br>and operating expenditures necessary for the Company’s growth plans as well as to strengthen its financial position. As a<br>result of the Company’s anticipated growth and the fact that it operates in a dynamic and rapidly-evolving market, the Company<br>does not believe it can provide meaningful approximate amounts of the proceeds that will be allocated to each of these purposes.<br>As such, the Company has not specifically allocated these amounts among these purposes as at the date of this MD&A. The Company<br>expects that a significant portion of these amounts will be allocated to future acquisitions. Such decisions will depend on market<br>conditions, acquisition candidates and other factors, as they evolve over time. |
| --- | --- |
In June 2021, the Company offered and sold a total of 8,600,000 common shares resulting in gross proceeds of $60,137,755 (USD $49,450,000). The Company incurred cash share issuance cost of $4,702,036 relating to the offering. The net proceeds from the offering are expected to be used for future acquisitions, working capital and general corporate purposes.
The following table sets forth the anticipated use of the net proceeds received by the Company as at and in connection with the June 2021 offering:
| Use of Net Proceeds | |
|---|---|
| $ | |
| Deferred payments relating to acquisitions^(1)^ | 2,472,557 |
| Cash portion of Tabwire acquisition^(2)^ | 6,143,500 |
| Principal and interest payments^(3)^ | 2,500,000 |
| Vendor-take-back loan principal and interest payments^(4)^ | 6,158,328 |
| Future acquisition and unallocated working capital^(5)^ | 38,161,334 |
| Total | 55,435,719 |
Notes:
| (1) | Represents €1,250,000 ($1,852,857) escrow payment relating to the acquisition of Vedatis and<br>USD$500,000 ($619,700) deferred payment relating to the acquisition of Steel Media Ltd. due April 2022. |
|---|---|
| (2) | Represents the cash portion USD$5,000,000 ($6,143,500) paid on the closing of the acquisition of<br>Tabwire. |
| --- | --- |
| (3) | Represents the principal payments of $2,500,000 to be payable by Enthusiast Gaming in relation<br>to its outstanding long-term debt facilities in the twelve month period following the closing of the June offering. The long-term<br>debt facilities were incurred in August 2019 by GameCo for the purposes of (i) working capital and (ii) to finance future acquisitions. |
| --- | --- |
| (4) | Represents the cash interest $408,328 and principal payments $5,750,000 paid by Enthusiast Gaming<br>in relation to its outstanding vendor-take-back loan as at the date of the closing of the June offering. The vendor-take-back loan<br>was incurred in August 2020 by Enthusiast Gaming in connection with the acquisition of Omnia Media Inc. In connection with the<br>Offering, the principal amount of the vendor-take-back loan that would be due on its maturity in August 2023 will be repaid together<br>with accruing but unpaid interest to the repayment date. |
| --- | --- |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL CONDITION, LIQUIDITY AND CAPITALRESOURCES (Continued)
Bought Deal Prospectus Offerings (Continued)
| (5) | The Company intends to use $38,161,334 from the June offering to pursue its growth strategies,<br>which may include targeted acquisitions and/or potential strategic partnerships, and the funding of capital and operating expenditures<br>necessary for the Company’s growth plans as well as to strengthen its financial position. As a result of the Company’s<br>anticipated growth and the fact that it operates in a dynamic and rapidly-evolving market, the Company does not believe it can<br>provide meaningful approximate amounts of the proceeds that will be allocated to each of these purposes. As such, the Company has<br>not specifically allocated these amounts among these purposes as at the date of this MD&A. The Company expects that a significant<br>portion of these amounts will be allocated to future acquisitions. Such decisions will depend on market conditions, acquisition<br>candidates and other factors, as they evolve over time. |
|---|
While the Company anticipates that it will spend the funds available to it as set forth above, there may be circumstances where, for sound business reasons, a reallocation of the net proceeds may be necessary. While actual expenditures may in fact differ from these amounts and allocations, in any event the net proceeds will be used by the Company in furtherance of its business.
The Company has historically had negative cash flows from operating activities and has historically incurred net losses. The Company expects, following the February and June offerings, to be able to meets is cash needs for the twelve-month period following the February and June offerings. To the extent that the Company has negative operating cash flows in future periods, it may need to deploy a portion of its existing working capital to fund such negative cash flows.
Share Capital
Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
During the six months ended June 30, 2021:
| (i) | The Company received proceeds of $784,431 from the exercise of 363,176 stock options. The fair<br>value assigned to these stock options of $620,892 was reclassified from contributed surplus to share capital. |
|---|---|
| (ii) | The Company issued 2,835,289 common shares from the conversion of convertible debentures (see Note<br>15 of the condensed consolidated interim financial statements for the six months ended June 30, 2021). |
| --- | --- |
| (iii) | On January 20, 2021, the Company issued 429,354 common shares to settle the remaining Steel Media<br>deferred payment liability (see Note 16 of the condensed consolidated interim financial statements for the six months ended June<br>30, 2021). |
| --- | --- |
| (iv) | On February 10, 2021, the Company offered and sold a total of 7,383,000 common shares resulting<br>in gross proceeds of $42,452,250 (the “February Offering”). The Company incurred cash share issuance cost of $2,704,571<br>relating to the February Offering. |
| --- | --- |
| (v) | On May 4, 2021, the Company issued 226,563 common shares in connection with the closing of the<br>Vedatis SPA (see Note 5 of the condensed consolidated interim financial statements for the six months ended June 30, 2021). |
| --- | --- |
| (vi) | In June 2021, the Company offered and sold a total of 8,600,000 common shares resulting in gross<br>proceeds of $60,137,755 (USD $49,450,000) (the “June Offering”). The Company incurred cash share issuance cost of $4,702,036<br>relating to the June Offering. |
| --- | --- |
| (vii) | On June 21, 2021, the Company issued 790,094 common shares in connection with the closing of the<br>Tabwire EPA (see Note 5 of the condensed consolidated interim financial statements for the six months ended June 30, 2021). |
| --- | --- |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
Share Capital (Continued)
During the six months ended June 30, 2020:
| (i) | The Company received proceeds of $2,178,851 from the exercise of 1,988,429 common share purchase<br>warrants. The fair value assigned to these warrants of $4,982,369 was reclassified from warrant reserve to share capital. |
|---|---|
| (ii) | The Company received proceeds of $49,367 from the exercise of 131,875 stock options. The fair value<br>assigned to these options of $439,913 was reclassified from contributed surplus to share capital. |
| --- | --- |
DISCLOSURE OF OUTSTANDING SHARE DATA
The Company had the following shares and securities convertible into shares outstanding at the following dates:
| August 9,<br><br> <br>2021 | June 30,<br><br> <br>2021 | December 31, 2020 | |
|---|---|---|---|
| Common shares | 125,558,457 | 125,558,457 | 104,930,981 |
| Options, convertible into common shares | 3,962,769 | 3,962,769 | 2,734,073 |
| Restricted share units | 2,493,739 | 2,493,739 | - |
| Convertible debentures, convertible into common shares | - | - | 2,835,289 |
| Total | 132,014,965 | 132,014,965 | 110,500,343 |
RELATED PARTY 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, Chief Operating Officer, Chief Financial Officer, Chief Corporate Officer, President and former esports President. 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 period is as follows:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||
| Short-term benefits | $ | 434,395 | $ | 469,093 | $ | 1,276,804 | $ | 803,521 |
| Share-based compensation | 2,695,546 | 207,212 | 8,031,981 | 469,087 | ||||
| $ | 3,129,941 | $ | 676,305 | $ | 9,308,785 | $ | 1,272,608 |
A summary of other related party transactions is as follows:
| For the three months ended | For the six months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | ||||||
| Total transactions during the period: | |||||||||
| Revenue | $ | 67,769 | $ | 386,582 | $ | 692,705 | $ | 770,638 | |
| Expenses | |||||||||
| Consulting fees | 191,468 | 556,931 | 680,864 | 1,227,270 | |||||
| Interest and accretion | 130,332 | - | 282,838 | - | |||||
| Loss on settlement of vendor-take-back loan | 316,241 | - | 316,241 | - | |||||
| Share of loss from investment in associates | (6,158 | ) | 1,176,518 | 72,260 | 1,272,347 | ||||
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
RELATED PARTY TRANSACTIONS (Continued)
A summary of related party balances is as follows:
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Balances receivable (payable): | ||||||
| Investment in associates | $ | 954,649 | $ | 1,026,909 | ||
| Trade and other receivables | 4,567,518 | 4,651,059 | ||||
| Loans receivable | 125,995 | 148,660 | ||||
| Accounts payable and accrued liabilities | (1,190,334 | ) | (686,480 | ) | ||
| Contract liabilities | (54,192 | ) | (72,343 | ) | ||
| Vendor-take-back loan | - | (5,559,250 | ) |
On August 27, 2019, the Company entered into a Management Services Agreement (the “Management SA”) with AIG eSports LP, a related party by nature of it being under the control or direction of the Chairman of the Company, as well as a Master Services Agreement (the “Master SA”) with Vancouver Arena Limited Partnership, a related party by nature of it being under the control or direction of the Chairman of Company (collectively, the “MSAs”). Pursuant to the Management SA, the Company is to provide a series of esports management services for a base compensation of $100,000 per month, plus an annual amount of USD $250,000, as well as other additional amounts receivable upon certain milestones relating to the performance of the esports teams under management. Pursuant to the Master SA, the Company receives a range of marketing and consulting services at a cost of $100,000 per month, as well as certain other costs payable upon certain milestones relating to third-party revenues generated by the Company relating to the Master SA services. The MSAs had a retroactive effective date of September 7, 2018, and contain payment-in-kind provisions whereas either party may, at its discretion, satisfy its amounts payable through the provision of its respective services. On April 1, 2021, the Management SA with AIG eSports LP and Master SA with Vancouver Arena Limited Partnership was terminated. During the six months ended June 30, 2021, the Company recognized management revenue of $379,125 (June 30, 2020 - $770,638) relating to the Management SA, and recognized consulting expenses of $379,125 (June 30, 2020 - $1,227,270) relating to the Master SA. As at June 30, 2021, a balance of $445,076 (December 31, 2020 - $422,642) is included in trade and other receivables.
On April 6, 2020, the Company entered into an Exchange of Marketing Rights and Benefits Agreement with AIG eSports LP and Surge eSports LLC, related parties by nature of them being under the control or direction of the Chairman of the Company. Pursuant to the Exchange of Marketing Rights and Benefits Agreement the Company is to provide media advertising for AIG eSports LP and Surge eSports LLC sponsors and AIG eSports LP and Surge eSports LLC is to provide advertising for the Company. During the six months June 30, 2021, the Company recognized media advertising revenue of $16,579 (June 30, 2020 - $Nil) relating to the Exchange of Marketing Rights and Benefits Agreement. As at June 30, 2021, a balance of $54,192 (December 31, 2020 - $72,343) is included in contract liabilities for media advertising services to be provided by the Company to AIG eSports and Surge eSports LLC.
As at June 30, 2021, a balance of $29,281 (December 31, 2020 - $30,079) and $23,880 (December 31, 2020 - $24,531) is due to AIG eSports LP and Surge eSports LLC, respectively, which is included in accounts payable and accrued liabilities.
As at June 30, 2021, trade and other receivables include $3,152,930 (December 31, 2020 - $3,238,915) of amounts advanced to Surge eSports LLC, a related party by nature of it being under the control or direction of the Chairman of the Company. The Company intends to apply these advances against future share subscriptions in Surge eSports LLC. The advances are non-interest bearing and are receivable if the Company does not obtain share subscriptions in Surge eSports LLC.
On August 30, 2020, the Company completed the acquisition of Omnia, following the acquisition Blue Ant and its affiliated companies are related parties to the Company. During the six months ended June 30, 2021, the Company earned media revenue of $297,001 (June 30, 2020 - $Nil) from Blue Ant and its affiliated companies. As at June 30, 2021, the Company has trade and other receivables of $969,512 (December 31, 2020 - $741,403) due from Blue Ant and its affiliated companies. As at June 30, 2021, the Company has accounts payable and accrued liabilities of $576,359 (December 31, 2020 - $380,152) due to Blue Ant and its affiliated companies. See Note 17 for information relating to the VTB loan payable to Blue Ant.
During the six months ended June 30, 2021, the Company recognized consulting expenses of $37,355 (June 30, 2020 - $36,840) to Rivonia Capital Inc., a company in which a director of the Company is a principal. As at June 30, 2021, a balance of $14,181 (December 31, 2020 - $14,012) is included in account payable and accrued liabilities.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
RELATED PARTY TRANSACTIONS (Continued)
During the six months ended June 30, 2021, the Company recognized consulting expenses of $69,836 (June 30, 2020 - $Nil) to Franchise Agency LLC, an agency which represents a director of the Company. As at June 30, 2021, a balance of $294,358 (December 31, 2020 - $Nil) is included in account payable and accrued liabilities.
During the six months ended June 30, 2021 the Company recognized $194,548 (June 30, 2020 - $Nil) in consulting fees relating to Board of Director and committee fees to certain directors. As at June 30, 2021, a balance of $252,275 (December 31, 2020 - $237,706) is included in account payable and accrued liabilities.
As at June 30, 2021, the Company has other receivables due from the Chief Corporate Officer of $Nil (December 31, 2020 - $248,099) relating to proceeds receivable for warrant exercises and withholding taxes receivable for stock option exercises.
As at June 30, 2021, the Company has loans receivable due from the President and Chief Corporate Officer of $80,297 (December 31, 2020 - $96,004) and $45,698 (December 31, 2020 - $52,656) respectively. The loans receivable are non-interest bearing and due on demand.
See Note 8 of the condensed consolidated interim financial statements for information relating to an investment in associates controlled by a related party.
See Note 20 of the condensed consolidated interim financial statements for information relating to stock options issued to officers and directors of the Company.
See Note 21 of the condensed consolidated interim financial statements for information relating to restricted share units issued to officers and directors of the Company.
SUBSEQUENT EVENTS
| (i) | On July 7, 2021, the Company, through its wholly-owned subsidiary, Enthusiast Gaming Inc., entered<br>into a joint venture with Toronto Star Newspapers Limited (“Torstar”) to create an original online news platform and<br>community for gamers named AFK Media Partnership. The Company’s interest in this joint venture is 50%. |
|---|---|
| (ii) | On July 19, 2021, 178,293 restricted share units issued on April 13, 2021 were amended to reflect<br>a vesting date of 100% on October 31, 2021. |
| --- | --- |
| (iii) | As of July 19, 2021, Blue Ant holds less than 10% of the issued and outstanding common shares of<br>the Company and is no longer a related party of the Company. On July 19, 2021, Robb Chase, chief financial officer<br>of Blue Ant, resigned from the Board of Directors of the Company. |
| --- | --- |
OFF-BALANCE SHEET 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.
SEGMENTED INFORMATION
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 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 is summarized below for the six months ended June 30, 2021 and 2020:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||
| Media and content | $ | 33,462,535 | $ | 4,246,328 | $ | 60,440,722 | $ | 7,672,733 |
| Esports and entertainment | 1,549,044 | 1,118,654 | 2,776,468 | 3,615,448 | ||||
| Subscription | 2,046,022 | 1,664,114 | 3,862,746 | 2,875,251 | ||||
| $ | 37,057,601 | $ | 7,029,096 | $ | 67,079,936 | $ | 14,163,432 | |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
SEGMENTED INFORMATION (Continued)
Revenue, in Canadian dollars, in each of these geographic locations for the six months ended June 30, 2021 and 2020 are as below:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||
| Canada | $ | 443,605 | $ | 652,188 | $ | 1,214,683 | $ | 1,273,267 |
| USA | 32,767,492 | 3,558,560 | 58,886,319 | 6,074,361 | ||||
| All other countries | 3,846,504 | 2,818,348 | 6,978,934 | 6,815,804 | ||||
| $ | 37,057,601 | $ | 7,029,096 | $ | 67,079,936 | $ | 14,163,432 |
The non-current assets, in Canadian dollars, in each of the geographic locations as at June 30, 2021 and December 31, 2020 are as below:
| June 30, 2021 | December 31, 2020 | |||
|---|---|---|---|---|
| Canada | $ | 136,339,596 | $ | 140,113,284 |
| USA | 60,616,549 | 50,338,388 | ||
| France | 12,686,740 | - | ||
| England and Wales | 3,743,432 | 3,934,877 | ||
| $ | 213,386,317 | $ | 194,386,549 |
ADOPTION OF NEW OR AMENDED STANDARDS
No new standards, interpretations or amendments were adopted during the six months ended June 30, 2021.
SIGNIFICANT ACCOUNTING ESTIMATES ANDJUDGEMENTS
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, right-of-use asset and lease contract liability, provisions for expected credit losses, fair value measurement of an investment not quoted in an active market and recognition of revenue on a gross versus net basis. These estimates and judgments are further discussed below:
| (a) | Goodwill impairment testing and recoverability of assets |
|---|
The Company has five CGUs and reviews the value in use versus the carrying value both in total and for each of the individual assets. The recoverable amount of the CGU was estimated based on an assessment of value in use using a discounted cash flow approach. In determining the estimated recoverable amounts, 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.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
SIGNIFICANT ACCOUNTING ESTIMATES ANDJUDGEMENTS (Continued)
| (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 in 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.
| (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) | Right-of-use assets and lease contract liability |
|---|
The Company has applied judgement to determine the incremental borrowing rate and the lease term for some lease contracts in which it is a lessee that include renewal options, which significantly affects the amount of lease contract liability and right-of-use assets recognized.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
SIGNIFICANT ACCOUNTING ESTIMATES ANDJUDGEMENTS (Continued)
| (g) | 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 1) 12-month expected credit losses or 2) lifetime expected credit losses. 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.
| (h) | Fair value measurement of an investment not quoted in an active market |
|---|
The fair value of an investment that is not quoted in an active market requires the use of judgments and estimates by management. Management used the valuation techniques and inputs outlined in Note 6 of the condensed consolidated interim financial statements using all available data on the investment and market conditions at the date of these financial statements. Changes in these assumptions and conditions could result in changes of the reported fair value of this investment.
| (i) | 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 has promised to provide the specified service itself (as principal) or to arrange 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.
In March 2020, the World Health Organization declared the outbreak of the novel strain of the coronavirus, specifically identified as SARS-CoV-2, to be a pandemic. Responses to the SARS-CoV-2 outbreak have resulted in governments worldwide enacting emergency measures to combat the spread of the virus, causing disruptions to business operations worldwide and a significant increase in economic uncertainty, with more volatile commodity prices and currency exchange rates, and a marked decline in long-term interest rates. These events are resulting in a challenging economic climate in which it is difficult to reliably estimate the length or severity of these developments and their financial impact. The direct and indirect impact to the Company has been considered in management’s judgments, estimates and uncertainties at period-end. Although management has determined that no significant revisions to such estimates, judgments or assumptions were required at period-end, there could be a further prospective material impact in future periods to the extent that the negative impacts from SARS-CoV-2 continue or worsen. The Company is monitoring developments of the SARS-CoV-2 outbreak and will adapt its business plans accordingly.
ACCOUNTING STANDARDS AND AMENDMENTS ISSUEDBUT NOT YET APPLIED
The Company is not aware of any proposed accounting standards or amendments that would have a significant effect on the consolidated financial statements.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair values
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 contract liability, deferred payment liability, convertible debentures and vendor-take-back 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.
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 at June 30, 2021, the investment in Addicting Games is classified as a Level 3 financial instrument (see Note 7 of the condensed consolidated interim financial statements) and the Vedatis earn-out payment liability is classified as a Level 3 financial instrument (see Note 16 of the condensed consolidated interim financial statements).
Total interest income and interest expense 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, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||
| Interest income | $ | (22,911 | ) | $ | (15,007 | ) | $ | (41,231 | ) | $ | (76,530 | ) |
| Interest and accretion expense | 480,987 | 1,361,524 | 1,272,301 | 2,686,785 | ||||||||
| Net interest expense | $ | 458,076 | $ | 1,346,517 | $ | 1,231,070 | $ | 2,610,255 |
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.
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, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Trade receivables aging: | ||||||
| 0-30 days | $ | 16,002,441 | $ | 16,461,821 | ||
| 31-60 days | 156,546 | 846,232 | ||||
| 61-90 days | 114,618 | 537,836 | ||||
| Greater than 90 days | 1,844,845 | 737,696 | ||||
| 18,118,450 | 18,583,585 | |||||
| Expected credit loss provision | (57,608 | ) | (67,466 | ) | ||
| Net trade receivables | $ | 18,060,842 | $ | 18,516,119 | ||
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| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(Continued)
Credit Risk (Continued)
The movement in the expected credit loss provision can be reconciled as follows:
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Expected credit loss provision: | ||||||
| Expected credit loss provision, beginning balance | $ | (67,466 | ) | $ | (357,920 | ) |
| Increase in provision for expected credit loss | - | (28,725 | ) | |||
| Write-offs | - | 319,174 | ||||
| Recoveries | 8,504 | - | ||||
| Effect of movement in exchange rates | 1,354 | 5 | ||||
| Expected credit loss provision, ending balance | $ | (57,608 | ) | $ | (67,466 | ) |
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 at June 30, 2021:
| Over 30 | Over 60 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | days past | days past | Over 90 days | ||||||||||
| **** | Total | Not past due | due | due | past due | |||||||||
| Default rates | **** | **** | 0.20 | % | 0.23 | % | 0.38 | % | 1.34 | % | ||||
| Trade receivables | $ | 18,118,450 | $ | 16,002,441 | 156,546 | $ | 114,618 | $ | 1,844,845 | |||||
| Expected credit loss provision | $ | 57,608 | $ | 32,095 | $ | 358 | $ | 439 | $ | 24,716 |
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.
Concentration risk
The Company has one customer which makes up more than 10% of revenue, this customer accounts for approximately 61.20% (December 31, 2020 – 67.02%) of trade receivables as at June 30, 2021, and 73.28% (June 30, 2020 – 24.08%) of revenues for the six months ended June 30, 2021.
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.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(Continued)
Liquidity Risk (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 1 | One to two | Two to three | More than | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| year | years | years | three years | Total | ||||||
| Accounts payable and accrued liabilities | $ | 21,901,837 | $ | - | $ | - | $ | - | $ | 21,901,837 |
| Contract liabilities | 2,672,365 | - | - | - | 2,672,365 | |||||
| Deferred payment liability | 619,700 | 1,102,425 | - | 1,994,234 | 3,716,359 | |||||
| Lease contract liability | 520,455 | 561,842 | 650,265 | 1,011,033 | 2,743,595 | |||||
| Long-term debt | 2,750,000 | 7,250,000 | - | - | 10,000,000 | |||||
| $ | 28,464,357 | $ | 8,914,267 | $ | 650,265 | $ | 3,005,267 | $ | 41,034,156 |
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 receivables, accounts payable, deferred payment liability and cash. As at June 30, 2021, a 10% depreciation or appreciation of the U.S. dollar, UK pound sterling and Euro against the Canadian dollar would have resulted in an approximate $4,559,000, $11,000 and $307,000 decrease or increase, respectively, in net loss and comprehensive loss.
Interest rate risk
The Company’s long-term debt bears interest at prime rate plus 5.05%. Fluctuations in the prime rate will result in changes to the months interest expense. A change in the annual interest rate of 0.50% would result in a $50,000 change in the annual interest expense.
COMMITMENTS
In addition to the financial liabilities summarized above, the Company has the following payment commitments with respect to consulting and other contractual obligations:
| Not later than one year | $ | 1,094,000 |
|---|---|---|
| Later than one year and not later than five years | 1,040,000 | |
| $ | 2,134,000 |
Further, the Company is subject to capital commitments pursuant to its investments in AIG Canada and AIG USA, see Note 8 of the condensed consolidated interim financial statements, 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.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
MANAGEMENT’S RESPONSIBILITY FORFINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with IFRS. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Based on a review of the Company’s internal control procedures, the Company’s Chief Executive Officer and Chief Financial Officer believe its internal controls and procedures are appropriately designed as at June 30, 2021.
There have been no material changes in the Company’s internal control over financial reporting during the six months ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Disclosure Controls and Procedures
Management is also 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 at June 30, 2021, and have concluded that these controls and procedures were appropriately designed.
RISKS AND 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.sedar.com.
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 financial statements for the six months ended June 30, 2021, 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.
MANAGEMENT’S RESPONSIBILITY FORFINANCIAL 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.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Six Months Ended June 30, 2021
ADDITIONAL INFORMATION
Additional information relating to the Company is available in the audited consolidated financial statements of the Company for the years ended December 31, 2020 and 2019. 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.sedar.com including the most recently filed Annual Information Form and Management Information Circular.
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Exhibit 99.2
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As at June 30, 2021 and December 31, 2020
(Unaudited
- Expressed in Canadian Dollars)
| Note | June<br> 30, 2021 | December<br> 31, 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current | ||||||||
| Cash | $ | 51,367,573 | $ | 4,323,823 | ||||
| Trade and other receivables | 6 | 22,322,613 | 22,424,596 | |||||
| Investments | 7 | 2,503,692 | 124,998 | |||||
| Loans receivable | 22 | 176,931 | 194,389 | |||||
| Income tax receivable | 262,331 | 290,077 | ||||||
| Prepaid<br> expenses | 4,093,213 | 576,802 | ||||||
| Total<br> current assets | 80,726,353 | 27,934,685 | ||||||
| Non-current | ||||||||
| Property and equipment | 9 | 296,112 | 354,850 | |||||
| Right-of-use asset<br> - lease contracts | 12 | 2,446,961 | 2,848,400 | |||||
| Long-term investment | 7 | - | 2,606,100 | |||||
| Investment in associates | 8 | 954,650 | 1,026,910 | |||||
| Long-term portion of<br> prepaid expenses | 256,055 | 263,196 | ||||||
| Intangible assets | 10 | 84,903,287 | 81,106,007 | |||||
| Goodwill | 11 | 124,712,768 | 106,181,086 | |||||
| Total<br> Assets | $ | 294,296,186 | $ | 222,321,234 | ||||
| LIABILITIES<br> AND SHAREHOLDERS’ EQUITY | ||||||||
| Current | ||||||||
| Accounts payable and<br> accrued liabilities | 13 | $ | 21,901,837 | $ | 23,602,547 | |||
| Contract liabilities | 2,672,365 | 1,625,594 | ||||||
| Current portion of<br> long-term debt | 14 | 2,750,000 | 1,250,000 | |||||
| Current portion of<br> deferred payment liability | 16 | 1,599,657 | 636,600 | |||||
| Current portion of<br> convertible debentures | 15 | - | 7,546,453 | |||||
| Current<br> portion of lease contract liabilities | 12 | 503,102 | 578,330 | |||||
| Total<br> current liabilities | 29,426,961 | 35,239,524 | ||||||
| Non-current | ||||||||
| Long-term debt | 14 | 7,271,115 | 21,651,956 | |||||
| Long-term lease contract<br> liabilities | 12 | 1,991,145 | 2,308,336 | |||||
| Vendor-take-back loan | 17 | - | 5,559,250 | |||||
| Long-term portion of<br> deferred payment liability | 16 | 1,690,410 | 529,124 | |||||
| Deferred<br> tax liability | 16,887,505 | 15,161,987 | ||||||
| Total<br> liabilities | $ | 57,267,136 | $ | 80,450,177 | ||||
| Shareholders’<br> Equity | ||||||||
| Share capital | 18 | 345,078,178 | 232,616,997 | |||||
| Contributed surplus | 20,<br> 21 | 16,591,617 | 7,494,164 | |||||
| Accumulated other comprehensive<br> income (loss) | (75,866 | ) | 45,428 | |||||
| Deficit | (124,564,879 | ) | (98,285,532 | ) | ||||
| Total<br> shareholders’ equity | 237,029,050 | 141,871,057 | ||||||
| Total<br> liabilities and shareholders’ equity | $ | 294,296,186 | $ | 222,321,234 |
Commitments*(Note 25)*
Subsequentevents (Note 27)
The accompanying notes are an integral part of these condensed consolidated interim financial statements
1
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
For the three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| For<br> the three months ended | For<br> the six months ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Note | June<br> 30, 2021 | June<br> 30, 2020 | June<br> 30, 2021 | June<br> 30, 2020 | ||||||||||
| Revenue | ||||||||||||||
| Revenue | $ | 37,057,601 | $ | 7,029,096 | $ | 67,079,936 | $ | 13,958,668 | ||||||
| Gain<br> on player buyout | 10 | - | - | - | 204,764 | |||||||||
| Total<br> revenue | 26 | 37,057,601 | 7,029,096 | 67,079,936 | 14,163,432 | |||||||||
| Cost<br> of sales | 29,038,301 | 3,807,977 | 53,129,628 | 7,649,084 | ||||||||||
| Gross<br> margin | 8,019,300 | 3,221,119 | 13,950,308 | 6,514,348 | ||||||||||
| Operating<br> expenses | ||||||||||||||
| Professional fees | 1,213,479 | 627,703 | 1,950,975 | 913,945 | ||||||||||
| Consulting fees | 22 | 1,075,726 | 1,181,024 | 2,386,353 | 2,388,674 | |||||||||
| Advertising and promotion | 813,588 | 212,605 | 1,855,942 | 486,491 | ||||||||||
| Office and general | 2,165,506 | 466,173 | 2,872,451 | 1,452,641 | ||||||||||
| Salaries and wages | 22 | 5,566,237 | 1,646,915 | 10,194,512 | 2,887,399 | |||||||||
| Technology support,<br> web development and content | 2,698,660 | 1,299,857 | 4,093,543 | 2,234,751 | ||||||||||
| Esports player, team<br> and game expenses | 1,465,718 | 618,687 | 2,994,323 | 1,483,796 | ||||||||||
| Foreign exchange (gain)<br> loss | (1,066,122 | ) | 108,248 | (1,076,255 | ) | (48,269 | ) | |||||||
| Share-based compensation | 20,<br> 21 | 3,958,309 | 278,875 | 9,718,345 | 669,248 | |||||||||
| Amortization<br> and depreciation | 9,<br> 10, 12 | 1,659,583 | 1,051,392 | 3,295,437 | 2,348,532 | |||||||||
| Total<br> operating expenses | 19,550,684 | 7,491,479 | 38,285,626 | 14,817,208 | ||||||||||
| Other<br> expenses (income) | ||||||||||||||
| Transaction costs | 5 | 209,129 | - | 209,129 | - | |||||||||
| Share of (income) loss<br> from investment in associates | 8 | (6,158 | ) | 1,176,518 | 72,260 | 1,272,347 | ||||||||
| Interest and accretion | 12, 14, 15, 16, 17 | 480,987 | 1,361,524 | 1,272,301 | 2,686,785 | |||||||||
| Change in fair value<br> of investment | 7 | 160,655 | (11,601 | ) | 156,671 | 163,015 | ||||||||
| Gain on repayment of<br> long-term debt | 14 | - | - | (39,502 | ) | - | ||||||||
| Loss on settlement<br> of vendor-take-back loan | 17 | 316,241 | - | 316,241 | - | |||||||||
| Loss on revaluation<br> of deferred payment liability | 16 | 89,184 | - | 89,184 | - | |||||||||
| Interest<br> income | (22,911 | ) | (15,007 | ) | (41,231 | ) | (76,530 | ) | ||||||
| Net<br> loss before income taxes | (12,758,511 | ) | (6,781,794 | ) | (26,370,371 | ) | (12,348,477 | ) | ||||||
| Income<br> taxes | ||||||||||||||
| Current tax expense | 48,692 | 11,381 | 34,037 | 11,381 | ||||||||||
| Deferred<br> tax recovery | (45,282 | ) | (442,195 | ) | (125,061 | ) | (442,195 | ) | ||||||
| Net<br> loss for the period | (12,761,921 | ) | (6,350,980 | ) | (26,279,347 | ) | (11,917,663 | ) | ||||||
| Other<br> comprehensive income (loss) | ||||||||||||||
| Items that may be reclassified<br> to profit or loss | ||||||||||||||
| Foreign<br> currency translation adjustment | (73,592 | ) | (198,752 | ) | (121,294 | ) | 3,619 | |||||||
| Net<br> loss and comprehensive loss for the period | $ | (12,835,513 | ) | $ | (6,549,732 | ) | $ | (26,400,641 | ) | $ | (11,914,044 | ) | ||
| Net<br> loss and comprehensive loss per share, basic<br> and diluted | $ | (0.11 | ) | $ | (0.09 | ) | $ | (0.23 | ) | $ | (0.16 | ) | ||
| Weighted average number<br> of common shares outstanding,<br> basic and diluted | 117,523,027 | 74,210,312 | 114,509,330 | 73,367,225 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
2
EnthusiastGaming Holdings Inc.
CondensedConsolidated Interim Statements of Shareholders’ Equity
Forthe six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| Shares<br> to | Accumulated<br> other | Total | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number<br> of | Contributed | Warrant | be<br> returned | comprehensive | shareholders’ | |||||||||||||||||||
| Note | shares | Share<br> capital | surplus | reserve | to<br> treasury | income<br> (loss) | Deficit | equity | ||||||||||||||||
| Balance,<br> December 31, 2019 | 72,091,673 | $ | 176,511,857 | $ | 9,439,324 | $ | 15,404,728 | $ | (3,858,756 | ) | $ | 90,078 | $ | (78,930,532 | ) | $ | 118,656,699 | |||||||
| Shares<br> issued upon exercise of warrants | 18 | 1,988,429 | 7,161,220 | - | (4,982,369 | ) | - | - | - | 2,178,851 | ||||||||||||||
| Shares<br> issued upon exercise of options | 18 | 131,875 | 489,280 | (439,913 | ) | - | - | - | - | 49,367 | ||||||||||||||
| Share-based<br> compensation | 20 | - | - | 669,248 | - | - | - | - | 669,248 | |||||||||||||||
| Expiry<br> of warrants | 19 | - | - | - | (2,372,764 | ) | - | - | 2,372,764 | - | ||||||||||||||
| Other<br> comprehensive income for the period | - | - | - | - | - | 3,619 | - | 3,619 | ||||||||||||||||
| Net<br> loss for the period | - | - | - | - | - | - | (11,917,663 | ) | (11,917,663 | ) | ||||||||||||||
| Balance,<br> June 30, 2020 | 74,211,977 | $ | 184,162,357 | $ | 9,668,659 | $ | 8,049,595 | $ | (3,858,756 | ) | $ | 93,697 | $ | (88,475,431 | ) | $ | 109,640,121 | |||||||
| Balance,<br> December 31, 2020 | 104,930,981 | $ | 232,616,997 | $ | 7,494,164 | $ | - | $ | - | $ | 45,428 | $ | (98,285,532 | ) | $ | 141,871,057 | ||||||||
| Issuance<br> of shares for offerings, net of transaction cost | 18 | 15,983,000 | 95,183,398 | - | - | - | - | - | 95,183,398 | |||||||||||||||
| Issuance<br> of shares to effect the Vedatis acquisition | 5 | 226,563 | 2,374,380 | - | - | - | - | - | 2,374,380 | |||||||||||||||
| Issuance<br> of shares to effect the Tabwire acquisition | 5 | 790,094 | 5,238,323 | - | - | - | - | - | 5,238,323 | |||||||||||||||
| Shares<br> issued upon exercise of options | 18 | 363,176 | 1,405,323 | (620,892 | ) | - | - | - | - | 784,431 | ||||||||||||||
| Shares<br> issued upon conversion of convertible debentures | 15,<br> 18 | 2,835,289 | 7,626,957 | - | - | - | - | - | 7,626,957 | |||||||||||||||
| Shares<br> issued for settlement of deferred payment liability | 16,<br> 18 | 429,354 | 632,800 | - | - | - | - | - | 632,800 | |||||||||||||||
| Share-based<br> compensation | 20,<br> 21 | - | - | 9,718,345 | - | - | - | - | 9,718,345 | |||||||||||||||
| Other<br> comprehensive loss for the period | - | - | - | - | - | (121,294 | ) | - | (121,294 | ) | ||||||||||||||
| Net<br> loss for the period | - | - | - | - | - | - | (26,279,347 | ) | (26,279,347 | ) | ||||||||||||||
| Balance,<br> June 30, 2021 | 125,558,457 | $ | 345,078,178 | $ | 16,591,617 | $ | - | $ | - | $ | (75,866 | ) | $ | (124,564,879 | ) | $ | 237,029,050 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
3
EnthusiastGaming Holdings Inc.
CondensedConsolidated Interim Statements of Cash Flows
Forthe six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| For<br> the six months ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| Note | June<br> 30, 2021 | June<br> 30, 2020 | ||||||
| Cash flows from operating activities | **** | **** | **** | **** | **** | |||
| Net<br> loss for the period | $ | (26,279,347 | ) | $ | (11,917,663 | ) | ||
| Items<br> not affecting cash: | ||||||||
| Amortization<br> and depreciation | 9,<br> 10, 12 | 3,295,437 | 2,348,532 | |||||
| Share-based<br> compensation | 20,<br> 21 | 9,718,345 | 669,248 | |||||
| Interest<br> and accretion | 12, 14, 15, 16, 17 | 465,657 | 897,397 | |||||
| Deferred<br> tax recovery | (125,061 | ) | (442,195 | ) | ||||
| Gain<br> on player buyout | 10 | - | (204,764 | ) | ||||
| Foreign<br> exchange loss (gain) | 587,716 | (14,831 | ) | |||||
| Gain<br> on repayment of long-term debt | 14 | (39,502 | ) | - | ||||
| Loss<br> on settlement of vendor-take-back loan | 17 | 316,241 | - | |||||
| Loss<br> on revaluation of deferred payment liability | 16 | 89,184 | - | |||||
| Capitalized<br> interest and success fee | - | 1,382,646 | ||||||
| Shares<br> for services | 185,662 | 92,115 | ||||||
| Change<br> in fair value of investment | 7 | 156,671 | 163,015 | |||||
| Share<br> of loss from investment in associates | 8 | 72,260 | 1,272,347 | |||||
| Changes<br> in working capital | ||||||||
| Changes<br> in trade and other receivables | 375,985 | (177,083 | ) | |||||
| Changes<br> in prepaid expenses | (3,608,526 | ) | 121,589 | |||||
| Changes<br> in loans receivable | 37,500 | - | ||||||
| Changes<br> in accounts payable and accrued liabilities | (2,511,575 | ) | (902,945 | ) | ||||
| Changes<br> in contract liabilities | 998,992 | (299,600 | ) | |||||
| Changes<br> in income tax receivable | (206,083 | ) | (285,630 | ) | ||||
| Net<br> cash used in operating activities | (16,470,444 | ) | (7,297,822 | ) | ||||
| Cash<br> flows from investing activities | ||||||||
| Cash<br> paid for mergers and acquisitions | 5 | (12,549,396 | ) | - | ||||
| Cash<br> acquired from mergers and acquisitions | 5 | 162,674 | - | |||||
| Proceeds<br> from disposal of investment | - | 680,000 | ||||||
| Proceeds<br> from disposal of intangible assets | 10 | - | 204,764 | |||||
| Investment<br> in associate | 8 | - | (500,000 | ) | ||||
| Acquisition<br> of property and equipment | 9 | (3,398 | ) | (4,871 | ) | |||
| Net<br> cash (used in) provided by investing activities | (12,390,120 | ) | 379,893 | |||||
| Cash<br> flows from financing activities | ||||||||
| Proceeds<br> from the issuance of shares for offerings, net of transaction costs | 18 | 95,183,398 | - | |||||
| Proceeds<br> from long-term debt | 14 | 944,787 | - | |||||
| Repayment<br> of long-term debt | 14 | (13,773,470 | ) | - | ||||
| Proceeds<br> from exercise of warrants | - | 2,178,850 | ||||||
| Proceeds<br> from exercise of options | 18 | 784,431 | 49,367 | |||||
| Repayment of vendor-take-back loan | 17 | (6,158,329 | ) | - | ||||
| Lease<br> payments | 12 | (392,175 | ) | (121,702 | ) | |||
| Net<br> cash provided by financing activities | 76,588,642 | 2,106,515 | ||||||
| Foreign<br> exchange effect on cash | (684,328 | ) | 20,201 | |||||
| Net<br> change in cash | 47,043,750 | (4,791,213 | ) | |||||
| Cash,<br> beginning of period | 4,323,823 | 13,211,722 | ||||||
| Cash,<br> end of period | $ | 51,367,573 | $ | 8,420,509 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
4
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 1. | Nature of operations |
|---|
Enthusiast Gaming Holdings Inc. (the “Company” or “Enthusiast”) was incorporated under the Business CorporationAct (British Columbia) on June 27, 2018. The Company is publicly traded on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Select Market (“Nasdaq”) under the symbol “EGLX”. On April 21, 2021 the common shares of the Company commenced trading on the Nasdaq. 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 100+ gaming related websites and 1,000 YouTube channels. The Company’s esports division, Luminosity Gaming Inc., is a leading global esports franchise that consists of 7 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 Canada’s largest gaming expo, Enthusiast Gaming Live Expo, EGLX, and the largest mobile gaming event in Europe, Pocket Gamer Connects.
On August 30, 2020, the Company acquired all of the issued and outstanding shares of Omnia Media Inc. (“Omnia”) from Blue Ant Media Solutions Inc. (“Blue Ant”) pursuant to a share purchase agreement dated August 6, 2020 (the “Omnia SPA”). The Omnia SPA is accounted for in accordance with IFRS 3, as the operations of Omnia constitute a business.
On May 1, 2021, the Company acquired all of the issued and outstanding shares of Vedatis SAS (“Vedatis”) pursuant to a share purchase agreement dated May 1, 2021 (the “Vedatis SPA”). The Vedatis SPA is accounted for in accordance with IFRS 3, as the operations of Vedatis constitute a business.
On June 21, 2021, the Company, through its wholly-owned subsidiary, Enthusiast Gaming Media (US) Inc., acquired all of the issued and outstanding membership interest of Tabwire LLC (“Tabwire”) pursuant to an equity purchase agreement dated April 22, 2021 (the “Tabwire EPA”). The Tabwire EPA is accounted for in accordance with IFRS 3, as the operations of Tabwire constitute a business.
The Omnia SPA, Vedatis SPA and Tabwire EPA are called the “Mergers and Acquisitions” in these condensed consolidated interim financial statements. For information relating to the accounting of the Omnia SPA refer to Note 5 of the audited consolidated financial statements of the Company for the year ended December 31, 2020. For information relating to the accounting of the Vedatis SPA and Tabwire EPA see Note 5.
Approvalof Financial Statements
These condensed consolidated interim financial statements were authorized for issuance by the Board of Directors of the Company on August 9, 2021.
| 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, Interim Financial Reporting.
The 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 financial statements of the Company for the year ended December 31, 2020, 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.
| (ii) | Basis of presentation |
|---|
The 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.
5
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 2. | Statement of compliance and basis of preparation (continued) |
|---|---|
| (iii) | 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 condensed consolidated interim 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:
| Accounting | |||
|---|---|---|---|
| Name of Subsidiary | Jurisdiction | Functional Currency | Method |
| 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 Inc. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming Media (US) Inc. | USA | U.S. dollars | Consolidation |
| Tabwire LLC | USA | U.S. dollars | Consolidation |
| Enthusiast Gaming Media Holdings Inc. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming Media II Holdings Inc. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming Media III Holdings Inc. | Canada | U.S. dollars | Consolidation |
| Enthusiast Gaming (TSR) Inc. | Canada | U.S. dollars | Consolidation |
| Hexagon Games Corp. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming (PG) Inc. | Canada | Canadian dollars | Consolidation |
| Steel Media Limited | England and Wales | UK Pound Sterling | Consolidation |
| Omnia Media Inc. | USA | U.S. dollars | Consolidation |
| Vedatis SAS | France | Euro | Consolidation |
Refer to Note 8 for the Company’s investment in associates.
| 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, 2020, 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 at June 30, 2021, except as noted below.
| (i) | Restricted share units |
|---|
The Company has a Share Unit Plan for directors, officers, employees and consultants. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Fair value of equity-settled restricted share units is measured at the grant date based on the market value of the Company’s common shares on that date. Compensation expense is recognized over the tranche’s vesting period based on the number of awards expected to vest with the offset credited to contributed surplus. The number of awards expected to vest is reviewed quarterly with any impact being recognized immediately.
When common shares are issued for restricted share units, the fair value attributed to these restricted share units is transferred from contributed surplus to share capital.
No new standards, interpretations or amendments were adopted for the first time from January 1, 2021.
6
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 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 judgments, estimates and uncertainties, as described in Note 4, Significant Accounting Judgments, Estimates and Uncertainties, of the Company’s audited consolidated financial statements for the year ended December 31, 2020.
In March 2020, the World Health Organization declared the outbreak of the novel strain of the coronavirus, specifically identified as SARS-CoV-2, to be a pandemic. Responses to the SARS-CoV-2 outbreak have resulted in governments worldwide enacting emergency measures to combat the spread of the virus, causing disruptions to business operations worldwide and a significant increase in economic uncertainty, with more volatile commodity prices and currency exchange rates, and a marked decline in long-term interest rates. These events are resulting in a challenging economic climate in which it is difficult to reliably estimate the length or severity of these developments and their financial impact. The direct and indirect impact to the Company has been considered in management’s judgments, estimates and uncertainties at period-end. Although management has determined that no significant revisions to such estimates, judgments or assumptions were required at period-end, there could be a further prospective material impact in future periods to the extent that the negative impacts from SARS-CoV-2 continue or worsen. The Company is monitoring developments of the SARS-CoV-2 outbreak and will adapt its business plans accordingly.
| 5. | Mergers and acquisitions |
|---|---|
| (i) | Vedatis SPA |
| --- | --- |
As described in Note 1, on May 1, 2021, the Company completed the acquisition of Vedatis. Based in Lyon, France, Vedatis owns the web property Icy Veins. Pursuant to the terms of the Vedatis SPA, the Company acquired all of the outstanding common shares of Vedatis in exchange for i) a cash payment of Euro €3,500,000, subject to a Euro €100,000 target working capital adjustment, which was paid on April 28, 2021, (ii) the issuance of Euro €1,500,000 of common shares of the Company, for which 226,563 common shares were issued on May 4, 2021, (iii) a cash payment of Euro €1,250,000 on the first anniversary of closing which was paid to escrow on June 23, 2021, (iv) a payment of Euro €750,000 on the first anniversary of closing which may be paid in cash or common shares at the option of the Company, and (v) an earn-out payment based on the performance of Vedatis.
The 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 has, at its option, the ability to settle the earn-out payment half in cash and half in common shares. The earn-out payment is to be paid no later than 60 days from the completion of the earn-out period.
Following the acquisition, the Company controls Vedatis and for accounting purposes the Company is deemed the acquirer. The Vedatis SPA is accounted for in accordance with IFRS 3 as the operations of Vedatis constitute a business. As a result, the business combination is accounted for using the acquisition method of accounting and Vedatis’ identifiable net assets acquired are recognized at their fair value.
The Vedatis SPA has been accounted for at the fair value of the consideration provided to Vedatis, consisting of cash, common shares and the deferred payment liability. The Company’s deferred payment liability to the former shareholders of Vedatis is carried at fair value. Management uses current and historical operational results, estimates and probabilities of future earnings and discounted cash flows to estimate the earn-out payment, see Note 16.
7
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 5. | Mergers and acquisitions (Continued) |
|---|---|
| (i) | Vedatis SPA (Continued) |
| --- | --- |
At the time of issuance of these condensed consolidated interim financial statements, certain aspects of the valuation are not finalized, accordingly the preliminary purchase price allocation is subject to change. The following table summarizes the recognized amounts of assets acquired, liabilities assumed and consideration paid, at the date of acquisition:
| Provisional Fair Values | |||
|---|---|---|---|
| Fair value of identifiable net assets | |||
| Cash | $ | 156,168 | |
| Trade and other receivables | 72,915 | ||
| Property and equipment | 2,097 | ||
| Intangible assets | 3,511,000 | ||
| Goodwill | 9,372,025 | ||
| Accounts payable and accrued liabilities | (599,981 | ) | |
| Contract liabilities | (45,391 | ) | |
| Income tax payable | (233,829 | ) | |
| Deferred tax liability | (878,284 | ) | |
| $ | 11,356,720 | ||
| Purchase Price | |||
| --- | --- | --- | |
| Consideration: | |||
| Cash (a) | 7,006,067 | ||
| Fair value of 226,563 common shares issued at 10.48 per share (b) | 2,374,380 | ||
| Deferred payment liability (c) | 2,649,930 | ||
| Settlement<br> of pre-existing relationship (d) | (673,657 | ) | |
| 11,356,720 |
All values are in US Dollars.
| a. | Cash<br> consists of the $7,130,507 (Euro €4,750,000) paid less estimated working capital<br> recovery of $124,440. |
|---|---|
| b. | The<br> fair value per share was measured to be $10.48 based on the closing price of the Company’s<br> shares on the TSX on the date of acquisition. |
| --- | --- |
| c. | The<br> fair value of the deferred payment liability is the present value of the payment of $1,109,850<br> (Euro €750,000) due on the first anniversary of closing and the present value of<br> estimated earn-out payable to the former shareholders of Vedatis of $1,920,745 (Euro<br> €1,297,976), see note 16. |
| --- | --- |
| d. | The<br>settlement of a pre-existing relationship consists of accounts payable by the Company to Vedatis with a fair value of $673,657<br>which was effectively settled on the date of acquisition. |
| --- | --- |
Trade receivables have been reflected at fair value which represent gross contractual amounts receivable. Goodwill represents intangible assets that cannot be measured directly such as brand name, subscriber relationships and website content, and synergies expected to be achieved from integrating Vedatis into the Company’s existing business. Goodwill is not expected to be deductible for tax purposes.
| (ii) | Tabwire EPA |
|---|
As described in Note 1, on June 21, 2021, the Company, through its wholly-owned subsidiary, Enthusiast Gaming Media (US) Inc. completed the acquisition of Tabwire. Based in Chicago, Illinois, Tabwire is a technology company that gives gamers the ability to login directly to view their game data in real time. Pursuant to the term of the Tabwire EPA, the Company acquired all of the outstanding membership interest of Tabwire in exchange for i) a cash payment of USD $5,000,000, subject to an accounts receivable adjustment, which was paid on June 23, 2021, and (ii) the issuance of USD $6,000,000 of common shares of the Company, for which 790,094 common shares were issued on June 21, 2021.
8
EnthusiastGaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 5. | Mergers and acquisitions (Continued) |
|---|---|
| (ii) | Tabwire EPA (Continued) |
| --- | --- |
Following the acquisition, the Company controls Tabwire and for accounting purposes the Company is deemed the acquirer. The Tabwire EPA is accounted for in accordance with IFRS 3 as the operations of Tabwire constitute a business. As a result, the business combination is accounted for using the acquisition method of accounting and Tabwire’s identifiable net assets acquired are recognized at their fair value.
The Tabwire SPA has been accounted for at the fair value of the consideration provided to Tabwire, consisting of cash and common shares.
At the time of issuance of these condensed consolidated interim financial statements, certain aspects of the valuation are not finalized, accordingly the preliminary purchase price allocation is subject to change. The following table summarizes the recognized amounts of assets acquired, liabilities assumed and consideration paid, at the date of acquisition:
| Provisional Fair Values | |||
|---|---|---|---|
| Fair value of identifiable net assets | |||
| Cash | $ | 6,506 | |
| Trade and other receivables | 76,647 | ||
| Intangible assets | 3,188,000 | ||
| Goodwill | 9,159,657 | ||
| Accounts payable and accrued liabilities | (6,097 | ) | |
| Contract liabilities | (2,388 | ) | |
| Deferred tax liability | (972,340 | ) | |
| $ | 11,449,985 | ||
| Purchase Price | |||
| --- | --- | --- | |
| Consideration: | |||
| Cash (a) | 6,262,616 | ||
| Fair value of 790,094 common shares issued at 6.63 per share (b) | 5,238,323 | ||
| Settlement<br> of pre-existing relationship (c) | (50,954 | ) | |
| 11,449,985 |
All values are in US Dollars.
| a. | Cash<br> consists of the $6,143,500 (USD $5,000,000) paid and the estimated accounts receivable<br> adjustment payable of $119,116. |
|---|---|
| b. | The<br> fair value per share was measured to be $6.63 based on the closing price of the Company’s<br> shares on the TSX on the date of acquisition. |
| --- | --- |
| c. | The<br> settlement of a pre-existing relationship consists of accounts payable by the Company<br> to Tabwire with a fair value of $50,954 which was effectively settled on the date of<br> acquisition. |
| --- | --- |
Trade receivables have been reflected at fair value which represent gross contractual amounts receivable. Goodwill represents intangible assets that cannot be measured directly such as brand name, subscriber relationships and developed technology, and synergies expected to be achieved from integrating Vedatis into the Company’s existing business. Goodwill is not expected to be deductible for tax purposes.
For a pre-existing relationship between the Company, Vedatis and Tabwire, that is not extinguished on the business combination, such a relationship is considered effectively settled as part of the business combination even if it is not legally cancelled. At the acquisition date, it becomes an intercompany relationship and is elimination upon consolidation.
The acquisition of Vedatis and Tabwire is consistent with the Company’s targeted acquisition strategy of identifying value-enhancing independent gaming web and video properties that can enhance viewership base, data and analytics platform and pricing optimization strategy.
The Company incurred transaction costs of $209,129 relating to the Vedatis SPA and Tabwire EPA which is included in net loss and comprehensive loss.
9
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 5. | Mergers and acquisitions (Continued) |
|---|
Since the date of acquisition of Vedatis, revenue of $83,330 and a net loss of $228,529 have been included in the condensed consolidated interim statement of loss and comprehensive loss relating to Vedatis. Since the date of acquisition of Tabwire, revenue of $10,278 and a net loss of $4,188 have been included in the condensed consolidated interim statement of loss and comprehensive loss relating to Tabwire. If the Vedatis and Tabwire acquisitions had occurred on January 1, 2021 pro-forma revenue and net loss would have been $67,359,185 and $25,819,686 respectively for six months ended June 30, 2021.
| 6. | Trade and other receivables |
|---|
Trade and other receivables consist of the following:
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Trade receivables (Note 22, 24) | $ | 18,118,450 | $ | 18,583,585 | ||
| HST and VAT receivables | 257,414 | 303,739 | ||||
| Other receivables (Note 22) | 4,004,357 | 3,604,738 | ||||
| Expected credit loss provision (Note 24) | (57,608 | ) | (67,466 | ) | ||
| $ | 22,322,613 | $ | 22,424,596 | |||
| 7. | Investments | |||||
| --- | --- |
In April 2019, Enthusiast Gaming Properties Inc. (“Enthusiast Properties”) entered into a Senior Convertible Debenture Purchase Agreement to invest in Addicting Games Inc. (“Addicting Games”), one of the largest online game networks in the United States. Under the Senior Convertible Debenture Purchase Agreement, Enthusiast Properties invested USD $1,500,000 by way of a 3-year secured convertible debenture with interest accruing at 2% per annum. The convertible debenture and accrued interest can be converted into common shares of Addicting Games at the option of the Company based on a conversion price which is the lesser of the price of the common shares as valued in Addicting Games’ next equity raise or a liquidation event or by dividing USD $30,000,000 by the aggregate number of outstanding common shares, warrants and options.
The convertible debenture has been accounted for in accordance with IFRS 9, as a financial asset at fair value, with changes in fair value recognized in profit and loss as they arise at each subsequent reporting period.
The fair value of the convertible debenture was valued using a binomial model using a ‘with derivatives’ and ‘without derivatives’ approach. The ‘with derivatives’ approach fair values the convertible debenture with the conversion option. The ‘without derivatives’ approach fair values the convertible debenture by treating the debt component of the loan as a plain vanilla bond. The fair value of the debt portion was determined using the discounted cash flow method by discounting the expected cash flows using a risk-adjusted discount rate. The difference in fair values from the ‘with’ and ‘without’ approaches represents the fair value of the embedded derivative component (the conversion option). The ‘with’ and ‘without’ scenarios assumed the occurrence of i) a liquidity event, as well as, ii) a non-liquidity event, and considered the fair value of the conversion option to be the weighted average of these two values.
The valuation of the investment included the following inputs for a liquidity event:
| June 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |
|---|---|---|
| Liquidity event probability | 50.00% | 50.00% |
| Exercise price for conversion | USD $15 | USD $15 |
| Time to maturity | 0.26 years | 0.51 years |
| Initial stock price | USD $15 | USD $15 |
| Volatility | 125.00% | 131.10% |
| Risk free interest rate | 0.05% | 0.09% |
| Credit spread | 242 bps | 317 bps |
| Risk adjusted rate | 2.46% | 3.26% |
| Discount for lack of marketability (“DLOM”) | 19.00% | 21.00% |
| Synthetic credit rating | B | B+ |
10
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 7. | Investments (continued) |
|---|
The valuation of the investment included the following inputs for a ‘no’ liquidity event:
| June 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |
|---|---|---|
| ‘No’ liquidity event probability | 50.00% | 50.00% |
| Exercise price for conversion | USD $15 | USD $15 |
| Time to maturity | 0.78 years | 1.27 years |
| Initial stock price | USD $15 | USD $15 |
| Volatility | 125.00% | 144.70% |
| Risk free interest rate | 0.07% | 0.11% |
| Credit spread | 266 bps | 346 bps |
| Risk adjusted rate | 2.70% | 3.57% |
| DLOM | 19.00% | 21.00% |
| Synthetic credit rating | B | B+ |
As at June 30, 2021, the expected liquidity event date is estimated to be October 4, 2021. As at December 31, 2020, the expected liquidity event date was estimated to be July 5, 2021.
As at June 30, 2021, the debt portion has been valued at $1,934,375 (December 31, 2020 - $1,948,950) and the derivative portion has been valued at $444,321 (December 31, 2020 - $657,150). The fair value of the long-term investment is $2,378,696 (December 31, 2020 - $2,606,100). The loss from the change in the fair value of the long-term investment during the six months ended June 30, 2021 of $156,671 (June 30, 2020 – $163,015) is included in the condensed consolidated interim statement of loss and comprehensive loss. The loss from the change in foreign exchange movements during the six months ended June 30, 2021 of $70,733 (June 30, 2020 – gain of $122,500) is included in the foreign currency translation adjustment in the condensed consolidated interim statement of loss and comprehensive loss.
Investments consist of the following:
| June 30, 2021 | December 31, 2020 | |||
|---|---|---|---|---|
| Addicting Games Inc. | $ | 2,378,696 | $ | 2,606,100 |
| Guaranteed investment certificates | 124,996 | 124,998 | ||
| Total investments | 2,503,692 | 2,731,098 | ||
| Current portion of investments | 2,503,692 | 124,998 | ||
| Long-term portion of investments | $ | - | $ | 2,606,100 |
| 8. | Investment in associates | |||
| --- | --- |
On August 30, 2019, pursuant to an investment agreement between Aquilini GameCo Inc. (“GameCo”) and Aquilini Properties LP (a related party by nature of it being under the control or direction of the Chairman of the Company), GameCo acquired 100 class B common shares of AIG eSports Canada Holdings Ltd. (“AIG Canada”) for $1,246,125 (USD $937,500), and GameCo eSports USA Inc. acquired a 25% non-voting participating interest in AIG eSports USA Intermediate Holdings, LLC, (“AIG USA”) for $414,594 (USD $312,500). 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 April 22, 2020 and September 23, 2020, the Company made capital contributions of $500,000 and $1,252,312 respectively to AIG Canada. On September 23, 2020, the Company made a capital contribution of $417,438 to AIG USA.
11
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 8. | Investment in associates (continued) |
|---|
A summary of the Company’s investment in associate is as follows:
| AIG Canada | AIG USA | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, December 31, 2019 | $ | 503,965 | $ | 410,330 | $ | 914,295 | |||||||||
| Contributions - cash | 1,752,312 | 417,438 | 2,169,750 | ||||||||||||
| Share of net loss from investment in associate | (1,590,286 | ) | (466,849 | ) | (2,057,135 | ) | |||||||||
| Balance, December 31, 2020 | $ | 665,991 | $ | 360,919 | $ | 1,026,910 | |||||||||
| Share of net loss from investment in associate | (5,730 | ) | (66,530 | ) | (72,260 | ) | |||||||||
| Balance, June 30, 2021 | $ | 660,261 | $ | 294,389 | $ | 954,650 | |||||||||
| 9. | Property and equipment | ||||||||||||||
| --- | --- | ||||||||||||||
| Furniture and | Computer | Leasehold | Production | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| fixtures | equipment | improvements | equipment | Total | |||||||||||
| Cost | |||||||||||||||
| Balance, December 31, 2019 | $ | 119,730 | $ | 115,140 | $ | 84,385 | $ | - | $ | 319,255 | |||||
| Mergers and Acquisitions | 61,585 | 70,026 | 4,224 | 47,251 | 183,086 | ||||||||||
| Additions | 4,871 | 2,388 | - | - | 7,259 | ||||||||||
| Effect of movement inexchange rates | (3,092 | ) | (3,677 | ) | (1,402 | ) | (1,317 | ) | (9,488 | ) | |||||
| Balance, December 31, 2020 | $ | 183,094 | $ | 183,877 | $ | 87,207 | $ | 45,934 | $ | 500,112 | |||||
| Mergers and Acquisitions (Note 5) | - | 2,097 | - | - | 2,097 | ||||||||||
| Additions | - | 3,398 | - | - | 3,398 | ||||||||||
| Effect of movement<br> in exchange rates | (3,470 | ) | (4,754 | ) | (1,805 | ) | (1,219 | ) | (11,248 | ) | |||||
| Balance, June 30, 2021 | $ | 179,624 | $ | 184,618 | $ | 85,402 | $ | 44,715 | $ | 494,359 | |||||
| Accumulated depreciation | |||||||||||||||
| Balance, December 31, 2019 | $ | 5,484 | $ | 12,231 | $ | 3,228 | $ | - | $ | 20,943 | |||||
| Depreciation | 29,442 | 69,126 | 22,237 | 8,020 | 128,825 | ||||||||||
| Effect of movement<br> in exchange rates | (841 | ) | (2,509 | ) | (907 | ) | (249 | ) | (4,506 | ) | |||||
| Balance, December 31, 2020 | $ | 34,085 | $ | 78,848 | $ | 24,558 | $ | 7,771 | $ | 145,262 | |||||
| Depreciation | 15,293 | 26,241 | 8,492 | 6,512 | 56,538 | ||||||||||
| Effect of movement<br> in exchange rates | (633 | ) | (2,120 | ) | (552 | ) | (248 | ) | (3,553 | ) | |||||
| Balance, June 30, 2021 | $ | 48,745 | $ | 102,969 | $ | 32,498 | $ | 14,035 | $ | 198,247 | |||||
| Net book value | |||||||||||||||
| Balance, December 31, 2020 | $ | 149,009 | $ | 105,029 | $ | 62,649 | $ | 38,163 | $ | 354,850 | |||||
| Balance, June 30, 2021 | $ | 130,879 | $ | 81,649 | $ | 52,904 | $ | 30,680 | $ | 296,112 |
12
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 10. | Intangible assets | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Application and | Talent | ||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| technology | management | ||||||||||||||||||||||
| development | Subscriber and | Multi channel | and owned and | Talent | |||||||||||||||||||
| Domain | and website | Brand | sponsorship | Player | network | operated | contracts and | ||||||||||||||||
| name | content | name | relationships | contracts | license | content brand | digital content | Total | |||||||||||||||
| Cost | |||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 40,930,000 | $ | 3,252,104 | $ | 8,602,563 | $ | 6,832,646 | $ | 2,901,900 | $ | - | $ | - | $ | - | $ | 62,519,213 | |||||
| Mergers and Acquisitions | - | - | - | - | - | 10,749,000 | 9,363,000 | 5,507,000 | 25,619,000 | ||||||||||||||
| Disposals | - | - | - | - | (2,590,700 | ) | - | - | - | (2,590,700 | ) | ||||||||||||
| Effect of movement in foreign exchange rates | - | (1,182 | ) | - | - | - | - | - | - | (1,182 | ) | ||||||||||||
| Balance, December 31, 2020 | $ | 40,930,000 | $ | 3,250,922 | $ | 8,602,563 | $ | 6,832,646 | $ | 311,200 | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 85,546,331 | |||||
| Mergers and Acquisitions (Note 5) | - | 1,043,000 | 5,537,000 | 119,000 | - | - | - | - | 6,699,000 | ||||||||||||||
| Effect of movement in foreign exchange rates | - | (2,337 | ) | (4,544 | ) | (297 | ) | - | - | - | - | (7,178 | ) | ||||||||||
| Balance, June 30, 2021 | $ | 40,930,000 | $ | 4,291,585 | $ | 14,135,019 | $ | 6,951,349 | $ | 311,200 | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 92,238,153 | |||||
| Accumulated amortization | |||||||||||||||||||||||
| Balance, December 31, 2019 | $ | - | $ | 395,893 | $ | - | $ | 239,200 | $ | 1,866,800 | $ | - | $ | - | $ | - | $ | 2,501,893 | |||||
| Amortization | - | 1,627,117 | - | 716,300 | 1,035,100 | 365,200 | - | 787,100 | 4,530,817 | ||||||||||||||
| Disposals | - | - | - | - | (2,590,700 | ) | - | - | - | (2,590,700 | ) | ||||||||||||
| Effect of movement in foreign exchange rates | - | (1,686 | ) | - | - | - | - | - | - | (1,686 | ) | ||||||||||||
| Balance, December 31, 2020 | $ | - | $ | 2,021,324 | $ | - | $ | 955,500 | $ | 311,200 | $ | 365,200 | $ | - | $ | 787,100 | $ | 4,440,324 | |||||
| Amortization | - | 832,985 | - | 365,651 | - | 537,460 | - | 1,158,420 | 2,894,516 | ||||||||||||||
| Effect of movement in foreign exchange rates | - | 22 | - | 4 | - | - | - | - | 26 | ||||||||||||||
| Balance, June 30, 2021 | $ | - | $ | 2,854,331 | $ | - | $ | 1,321,155 | $ | 311,200 | $ | 902,660 | $ | - | $ | 1,945,520 | $ | 7,334,866 | |||||
| Net book value | |||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 40,930,000 | $ | 1,229,598 | $ | 8,602,563 | $ | 5,877,146 | $ | - | $ | 10,383,800 | $ | 9,363,000 | $ | 4,719,900 | $ | 81,106,007 | |||||
| Balance, June 30, 2021 | $ | 40,930,000 | $ | 1,437,254 | $ | 14,135,019 | $ | 5,630,194 | $ | - | $ | 9,846,340 | $ | 9,363,000 | $ | 3,561,480 | $ | 84,903,287 |
During the six months ended June 30, 2020, the Company entered into a buyout agreement relating to a player contract for gross proceeds of $204,764. The net book value on the date of termination of the player contract was $Nil resulting in a gain on disposal of intangible assets of $204,764. The gain on disposal is included in revenue in the condensed consolidated interim statement of loss and comprehensive loss. During the year ended December 31, 2020, the Company recorded disposals of $2,389,000 of player contract cost and accumulated amortization for players no longer on the Company’s active roster. There were no disposals during the six months ended June 30, 2021.
13
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 11. | Goodwill |
|---|
The following comprises the balance of goodwill by cash-generating unit (“CGU”). Goodwill arose through the acquisitions of (i) Luminosity Gaming Inc. (“Luminosity”) on August 27, 2019; (ii) Enthusiast Properties on August 30, 2019; (iii) Steel Media Limited (“Steel Media”) on October 3, 2019; (iv) Omnia on August 30, 2020; (v) Vedatis on May 1, 2021; and (vi) Tabwire on June 21, 2021. 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 within Enthusiast Properties.
| Enthusiast<br> Properties | TSR | Luminosity | Steel Media | Omnia | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, December 31, 2019 | $ | 54,467,041 | $ | 20,898,598 | $ | 6,003,150 | $ | 1,890,627 | $ | - | $ | 83,259,416 |
| Mergers and Acquisitions | - | - | - | - | 22,921,670 | 22,921,670 | ||||||
| Balance, December 31, 2020 | $ | 54,467,041 | $ | 20,898,598 | $ | 6,003,150 | $ | 1,890,627 | $ | 22,921,670 | $ | 106,181,086 |
| Mergers and Acquisitions (Note 5) | 18,531,682 | - | - | - | - | 18,531,682 | ||||||
| Balance, June 30, 2021 | $ | 72,998,723 | $ | 20,898,598 | $ | 6,003,150 | $ | 1,890,627 | 22,921,670 | $ | 124,712,768 |
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, 2021, the Company concluded that there were no triggering events requiring an impairment assessment.
| 12. | Right-of-use asset and lease liability |
|---|
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%.
| Right-of-use asset | Amount | ||
|---|---|---|---|
| Balance, December 31, 2019 | $ | 733,413 | |
| Building lease additions - cost | 162,226 | ||
| Building lease additions - cost, mergers and acquisitions | 2,392,984 | ||
| Depreciation | (377,145 | ) | |
| Effect of movement in exchange rates | (63,078 | ) | |
| Balance, December 31, 2020 | $ | 2,848,400 | |
| Depreciation | (344,383 | ) | |
| Effect of movement in exchange rates | (57,056 | ) | |
| Balance, June 30, 2021 | $ | 2,446,961 |
14
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 12. | Right-of-use asset and lease liability (continued) | ||
|---|---|---|---|
| Lease liability | Amount | ||
| --- | --- | --- | --- |
| Balance, December 31, 2019 | $ | 742,212 | |
| Building lease additions - finance cost | 162,226 | ||
| Building lease additions - finance cost, mergers and acquisitions | 2,398,085 | ||
| Payments | (404,958 | ) | |
| Interest cost | 56,720 | ||
| Effect of movement in exchange rates | (67,619 | ) | |
| Balance, December 31, 2020 | $ | 2,886,666 | |
| Payments | (392,175 | ) | |
| Interest cost | 58,631 | ||
| Effect of movement in exchange rates | (58,875 | ) | |
| Balance, June 30, 2021 | 2,494,247 | ||
| Current portion of contract lease liability | 503,102 | ||
| Long-term portion of contract lease liability | $ | 1,991,145 |
Note 24 provides a summary of undiscounted lease payments to be made as at the statement of financial position date. Variable lease payments during the six months ended June 30, 2021, which are not included in lease liability are $113,934 (June 30, 2020 - $84,773). The total cash outflow for leases during the six months ended June 30, 2021 is $506,109 (June 30, 2020 - $206,475).
| 13. | Accounts payable and accrued liabilities | |||
|---|---|---|---|---|
| June 30, 2021 | December 31, 2020 | |||
| --- | --- | --- | --- | --- |
| Accounts payable | $ | 17,000,928 | $ | 19,826,473 |
| Accrued liabilities | 4,900,909 | 3,776,074 | ||
| $ | 21,901,837 | $ | 23,602,547 |
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. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company has no reason to believe that the ultimate outcome of these matters would have a material impact on its consolidated financial position.
| 14. | Long-term debt |
|---|
Under the terms of a loan facility agreement dated August 2, 2019, an arm’s length lender (the “Lender”) agreed to provide the Company with a loan of up to $20,000,000 (the “Facility”) comprising two advances: (i) an initial advance in an amount of up to $3,000,000 (the “Initial Advance”) at the request of the Company following satisfaction or waiver by the Lender of certain conditions precedent and (ii) a further advance in an amount equal to the remaining difference between $20,000,000 and the amount of the Initial Advance (the “Further Advance”) at the request of the Company following satisfaction or waiver by the Lender of certain additional conditions precedent, including the completion of the acquisition of Enthusiast Properties. The Company received the Initial Advance and Further Advance, aggregating $20,000,000, during the year ended December 31, 2019. The Facility is secured by the Company’s assets.
The loan has a term (the “Term”) which expires on August 2, 2021, the date that is 24 months from the date of the Initial Advance (the “Maturity Date”). Interest (or standby fees at an equivalent rate in lieu thereof) accrues at a rate per annum that is equal to the prime rate plus 5.05% calculated on the aggregate amount of the Facility, compounded monthly, whether or not the conditions precedent are satisfied or the Facility is advanced. The Company has further agreed to pay the Lender a success fee an amount that is equal to 4.1% per annum, payable monthly, calculated on the full amount of the Facility from the date of the Initial Advance.
15
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 14. | Long-term debt (continued) |
|---|
Interest (and any such equivalent amount by way of standby fee) and the success fee will be capitalized during the first 12 months of the Term and, commencing in August 2020, interest and the success fee shall be payable in cash on the last business day of each and every month until the Maturity Date.
The Company will be entitled to prepay all or a part of the Facility at any time, from time to time, without bonus or penalty after the date that is twelve (12) months following the date of completion of the acquisition of Enthusiast Properties.
On August 30, 2020 the Company entered into an amending facility agreement (the “Amended Facility”). The Amended Facility extended the Facility expiry Term to September 6, 2022 and commencing in August 2021 principal repayments of $250,000 per month are payable every month until maturity, the remaining outstanding principal amount will be repaid on September 6, 2022. The Company will be entitled to prepay all or a part of the Facility at any time, from time to time, without bonus or penalty. The Company incurred an amendment fee in the amount of $200,000 in connection with the Amended Facility which has been netted against the long-term debt balance.
On November 27, 2020 the Company entered into an amending and restated facility agreement (the “Amended and Restated Facility”). The Amended and Restated Facility increased the total size of the loan and allows for three loans, Facility A, B and C. Facility A and B are revolving loans up to $10,000,000 each. Facility C is a term loan in the amount of $10,000,000. Facility A and B are limited to an aggregate principal amount of $14,000,000. The maximum amount of Facility A is based on the aggregate of 85% eligible accounts receivable less the amount of Facility A then outstanding and less amounts payable and reserves for material subsidiaries. The Company incurred transaction cost of $17,500 in connection with the Amended and Restated Facility which has been netted against the long-term debt balance.
As terms of the amended facilities were not substantially different from the terms of the Facility, the amendments were determined to be a modification of debt in accordance with IFRS 9, Financial Instruments. A loss on modification of long-term debt in the amount of $814,899 and $325,421 was recognized in the consolidated statement of loss and comprehensive loss the during the year ended December 31, 2020 related to the August 30, 2020 and November 27, 2020 amendments, respectively.
The Amended and Restated Facility is amortized at an effective interest rate of 7.29% following the transaction costs and loss on modification of debt recognized pursuant to the amendments.
The Amended and Restated Facility will be used for purposes of (i) working capital and (ii) to finance future acquisitions.
On December 31, 2020 the Company was advanced $75,333 and $150,667 on Facility A and B respectively for a total advance of $226,000. As at December 31, 2020 the total principal balances of Facility A, B and C are $9,972,104, $2,856,579 and $10,000,000 respectively for a total principal balance of $22,828,682.
On January 18, 2021 and February 3, 2021, the Company was advanced $441,921 and $502,866 respectively on Facility A and B. On February 12, 2021, the Company repaid Facility A and B principal balances of $13,773,470. As at June 30, 2021, the principal balance of Facility C is $10,000,000.
The Amended and Restated Facility is amortized at an effective interest rate of 7.28% following the repayment on February 12, 2021.
During the six months ended June 30, 2021, the Company recognized $468,452 (June 30, 2020 - $972,646) of interest expense, $265,927 (June 30, 2020 - $410,000) of success fee expense and $12,656 (June 30, 2020 – expense of $373,467) of accretion income which are included in interest and accretion in the condensed consolidated interim statement of loss and comprehensive loss.
16
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 14. | Long-term debt (continued) |
|---|
The following table shows the movement of the long-term debt balance during the period:
| Amount | |||
|---|---|---|---|
| Balance, December 31, 2019 | $ | 19,691,220 | |
| Capitalized interest | 1,016,577 | ||
| Capitalized success fee | 478,333 | ||
| Advance | 226,000 | ||
| Loss on modification of long-term debt | 1,140,320 | ||
| Transaction cost | (217,500 | ) | |
| Accretion | 567,006 | ||
| Balance, December 31, 2020 | $ | 22,901,956 | |
| Advances | 944,787 | ||
| Repayments | (13,773,470 | ) | |
| Gain on repayment of long-term debt | (39,502 | ) | |
| Accretion | (12,656 | ) | |
| Balance, June 30, 2021 | 10,021,115 | ||
| Current portion of long-term debt | 2,750,000 | ||
| Long-term debt | $ | 7,271,115 |
The Amended and Restated Facility agreement contains certain covenants that the Company must comply with including maintaining a total consolidated equity of at least $20,000,000 and maintaining a minimum cash balance of $2,000,000. The Company was in compliance with these covenants during the six months ended June 30, 2021.
| 15. | Convertible debentures |
|---|
On November 8, 2018, Enthusiast Properties issued convertible debenture units (the “Debenture Units”) for total gross proceeds of $9,000,000.
Each Debenture Unit, issued at a price of $1,000, is comprised of one unsecured convertible debenture (each a “Debenture” and collectively, the “Debentures”), having a principal amount of $1,000 and accruing interest at 9% per annum, payable semi-annually until maturity, and 166 common share purchase warrants of the Company (each, a “Debenture Warrant”). Each Debenture is convertible into shares of the Company at a conversion price of $3.03 per common share (the “Conversion Price”), subject to acceleration in certain events. The Debentures mature on December 31, 2021. Each Debenture Warrant entitles the holder to acquire one share at a price of $3.79 per share for a period of two years, subject to acceleration in certain events. The Debentures and the Debenture Warrants contain customary anti-dilution provisions. The Company also issued 540 Debenture Units to the brokers as part of the transaction. If the brokers subscribe for the Debenture Units, 89,640 warrants will be issued. The brokers did not subscribe for the Debenture Units and they expired unexercised on November 8, 2020.
Beginning on March 9, 2019, the Company may, at its option, require the conversion of the then outstanding principal amount of the Debentures (plus accrued and unpaid interest thereon) at the Conversion Price on not less than 30 days’ notice, should the daily volume-weighted average trading price of the shares of the Company be greater than $4.55 for each of seven consecutive trading days, ending five trading days prior to the applicable date.
The Company may accelerate the expiry date of the then outstanding Debenture Warrants on not less than 30 days’ notice, should the volume-weighted average trading price of the shares be greater than $5.68 for the twenty consecutive trading days, ending five trading days prior to the applicable date.
The fair value of the convertible debentures on the date of the acquisition of Enthusiast Properties was determined to be $6,761,663 measured using a market rate of 13.0% for a similar unsecured debt without the conversion feature. The 1,495,442 warrants issued previously were valued on the date of the acquisition of Enthusiast Properties as consideration in the amount of $2,056,130. The convertible debentures are amortized at an effective interest rate of 22.82%.
17
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 15. | Convertible debentures (continued) |
|---|
In December 2020, debenture holders converted $400,000 of convertible debentures into 136,649 common shares of the Company. Between January 5, 2021 and January 21, 2021 debenture holders converted $2,600,000 of convertible debentures into 857,180 common shares of the Company. On January 21, 2021, the Company issued notice to the holders of the convertible debentures to exercise the Company’s option to convert the outstanding convertible debentures into common shares of the Company. Through the notice, $6,000,000 of convertible debentures were converted into 1,978,109 common shares of the Company on January 27, 2021.
During the six months ended June 30, 2021, the Company recognized $53,051 (June 30, 2020 - $405,000) of interest expense and $80,504 (June 30, 2020 - $413,484) of accretion expense which is included in interest and accretion in the condensed consolidated interim statement of loss and comprehensive loss.
The following tables shows the movement of the convertible debenture balance during the period:
| Amount | |||
|---|---|---|---|
| Balance, December 31, 2019 | $ | 7,015,820 | |
| Conversion to equity | (400,000 | ) | |
| Loss on conversion of convertible debentures | 49,002 | ||
| Accretion | 881,631 | ||
| Balance, December 31, 2020 | $ | 7,546,453 | |
| Conversion to equity | (7,626,957 | ) | |
| Accretion | 80,504 | ||
| Balance, June 30, 2021 | $ | - | |
| 16. | Deferred payment liability | ||
| --- | --- |
The deferred payment liability relates to the acquisition of Steel Media on October 3, 2019 and the acquisition of Vedatis on May 1, 2021.
| (i) | Steel Media Deferred Payment Liability |
|---|
The Steel Media deferred payment liability consists of the present value of a USD $1,000,000 payment (the “Steel Media Deferred Payment”) to be paid on October 3, 2020 and 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 has, at its option, the ability to settle USD $500,000 of the remaining Steel Media 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 five trading days immediately prior to October 3, 2020. The Company also has, at its option, the ability to settle USD $500,000 of 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 is conclusively determined.
The expected Steel Media Earn-Out Payment is 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 exceeds USD $2,500,000. The maximum Steel Media Earn-Out Payment will not exceed USD $500,000.
The Steel Media Deferred Payment was included in Steel Media’s total purchase price consideration at an initial fair value of $1,211,818 based on a discounted valuation using a 10.00% discount rate. The Steel Media Earn-Out Payment was included in Steel Media’s total purchase price consideration at an initial fair value of $470,625 based on a discounted valuation using a 13.97% discount rate and an expectation that payment of the full earn-out of USD $500,000 is probable.
The Steel Media Deferred Payment and Steel Media Earn-Out Payment are amortized at an effective interest rate of 9.54% and 13.15% respectively.
18
EnthusiastGaming Holdings Inc.
Notesto the Condensed Consolidated Interim Financial Statements
Forthe three and six months ended June 30, 2021 and 2020
(Unaudited
- Expressed in Canadian Dollars)
| 16. | Deferred payment liability (continued) |
|---|---|
| (i) | Steel Media Deferred Payment Liability (Continued) |
| --- | --- |
Between October 16 and November 2, 2020, $659,832 (USD $500,000) of the Steel Media Deferred Payment liability was paid by the Company. On January 20, 2021, the remaining Steel Media Deferred Payment liability of $632,800 (USD $500,000) was settled by the Company through the issuance of 429,354 common shares through the exercise of the Company’s option.
| (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, see Note 5.
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 has, 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. The Company has, at its option, the ability to settle the Vedatis Earn-Out Payment half in cash and half in common shares by the Company, 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 consolidated statement of loss and comprehensive loss.
The Vedatis Deferred Payment was included in Vedatis’ total purchase price consideration at an initial fair value of $1,047,028 based on a discounted valuation using a 6% discount rate. The Vedatis Earn-Out Payment was included in Vedatis’ total purchase price consideration at an initial fair value of $1,602,902 based on a discounted valuation using an 8.16% and 0.78% discount rate for the cash settled and equity settled portion, respectively, and an expectation that a Vedatis Earn-Out Payment of $1,920,745 is probable. The Vedatis Deferred Payment is amortized at an effective interest rate of 5.86% and the cash portion of the Vedatis Earn-Out Payment is amortized at an effective interest rate of 8.19%.
On June 30, 2021, the Vedatis Earn-Out Payment was revalued at $1,690,410 based on a discounted valuation using a 7.54% and 0.86% discount rate for the cash settled and equity settled portion, respectively, and an expectation that a Vedatis Earn-Out Payment of $1,994,234 is probable. Following the June 30, 2020 revaluation, the cash portion of the Vedatis Earn-Out Payment is amortized at an effective interest rate of 7.56%.
19
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 16. | Deferred payment liability (continued) |
|---|---|
| (ii) | Vedatis Deferred Payment Liability (Continued) |
| --- | --- |
The fair value of the Vedatis Earn-Out Payment on the acquisition date and at period end was calculated using the following inputs:
| June 30, 2021 | May 1, 2021 | |
|---|---|---|
| Payment<br> date | August 29, 2025 | August 29, 2025 |
| Time<br> to maturity | 4.17 years | 4.33 years |
| Required<br> metric risk premium | 21.75% | 21.75% |
| EBITDA<br> volatility | 19.00% | 19.00% |
| Senior<br> credit rating | B- | B- |
| Earn-out<br> payment credit rating | CCC+ | CCC+ |
| Drift<br> rate | 0.84% | 0.75% |
| Discount<br> rate (risk free rate) for equity-based payment | 0.86% | 0.78% |
| Discount<br> rate (risk adjusted rate) for cash payment | 7.54% | 8.16% |
| Discount<br> rate for lack of marketability | Nil% | Nil% |
The following table shows the movement of the Steel Media Deferred Payment, the Steel Media Earn-Out Payment, the Vedatis Deferred Payment deferred and the Vedatis Earn-Out Payment balances during the period:
| Steel Media<br> Deferred<br> Payment | Steel Media<br> Earn-Out<br> Payment | Vedatis<br> Deferred<br> Payment | Vedatis<br> Earn-Out<br> Payment | Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, December 31, 2019 | $ | 1,208,413 | $ | 473,413 | $ | - | $ | - | $ | 1,681,826 | |||||
| Accretion | 92,767 | 68,097 | - | - | 160,864 | ||||||||||
| Payment | (659,832 | ) | - | - | - | (659,832 | ) | ||||||||
| Effect of movement in exchange rates | (4,748 | ) | (12,386 | ) | - | - | (17,134 | ) | |||||||
| Balance, December 31, 2020 | $ | 636,600 | $ | 529,124 | $ | - | $ | - | $ | 1,165,724 | |||||
| Initial fair value of deferred payment liability | - | - | 1,047,028 | 1,602,902 | 2,649,930 | ||||||||||
| Accretion | - | 37,126 | 10,105 | 9,109 | 56,340 | ||||||||||
| Payment | (632,800 | ) | - | - | - | (632,800 | ) | ||||||||
| Loss on revaluation of deferred payment liability | - | - | - | 89,184 | 89,184 | ||||||||||
| Effect of movement in exchange rates | (3,800 | ) | (16,654 | ) | (7,072 | ) | (10,785 | ) | (38,311 | ) | |||||
| Balance, June 30, 2021 | - | 549,596 | 1,050,061 | 1,690,410 | 3,290,067 | ||||||||||
| Current portion of deferred payment liability | - | 549,596 | 1,050,061 | - | 1,599,657 | ||||||||||
| Long-term portion of deferred payment liability | $ | - | $ | - | $ | - | $ | 1,690,410 | $ | 1,690,410 | |||||
| 17. | Vendor-take-back loan | ||||||||||||||
| --- | --- |
The vendor-take-back loan (“VTB”) arose on the acquisition of Omnia on August 30, 2020. The VTB has a principal balance of $5,750,000 and accrues interest at 9% per annum, compounded annually and payable at maturity, and matures on August 30, 2023.
The VTB was included in Omnia’s total purchase price consideration at an initial fair value of $5,357,408 based on the present value of the cash flows using a 11.60% discount rate and a maturity date of 36 months. The VTB is amortized at an effective interest rate of 11.03%.
On June 17, 2021, the Company settled the VTB by paying the principal balance of $5,750,000 and accrued interest of $408,329. The Company recognized a loss on settlement of the VTB of $316,241 in the condensed consolidated interim statement of loss and comprehensive loss during the six months ended June 30, 2021.
During the six months ended June 30, 2021, the Company recognized $255,792 (June 30, 2020 - $Nil) of interest expense and $27,046 (June 30, 2020 - $Nil) of accretion expense in relation to the VTB which is included in interest and accretion expense in the condensed consolidated interim statement of loss and comprehensive loss.
20
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 17. | Vendor-take-back loan (Continued) |
|---|
The following tables shows the movement of the VTB during the period:
| Amount | |||
|---|---|---|---|
| Balance, December 31, 2019 | $ | - | |
| Initial fair value of vendor-take-back loan | 5,357,408 | ||
| Interest | 190,381 | ||
| Accretion | 11,461 | ||
| Balance, December 31, 2020 | $ | 5,559,250 | |
| Interest | 255,792 | ||
| Accretion | 27,046 | ||
| Repayments | (6,158,329 | ) | |
| Loss on settlement of vendor-take-back loan | 316,241 | ||
| Balance, June 30, 2021 | $ | - | |
| 18. | Share capital | ||
| --- | --- |
Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
During the six months ended June 30, 2021:
| (i) | The Company received proceeds of $784,431 from the exercise of 363,176 stock options. The fair<br>value assigned to these stock options of $620,892 was reclassified from contributed surplus to share capital. |
|---|---|
| (ii) | The Company issued 2,835,289 common shares from the conversion of convertible debentures (Note<br>15). |
| --- | --- |
| (iii) | On January 20, 2021, the Company issued 429,354 common shares to settle the remaining Steel Media<br>Deferred Payment liability (Note 16). |
| --- | --- |
| (iv) | On February 10, 2021, the Company offered and sold a total of 7,383,000 common shares resulting<br>in gross proceeds of $42,452,250 (the “February Offering”). The Company incurred cash share issuance cost of $2,704,571<br>relating to the February Offering. |
| --- | --- |
| (v) | On May 4, 2021, the Company issued 226,563 common shares in connection with the closing of the<br>Vedatis SPA (Note 5). |
| --- | --- |
| (vi) | In June 2021, the Company offered and sold a total of 8,600,000 common shares resulting in gross<br>proceeds of $60,137,755 (USD $49,450,000) (the “June Offering”). The Company incurred cash share issuance cost of $4,702,036<br>relating to the June Offering. |
| --- | --- |
| (vii) | On June 21, 2021, the Company issued 790,094 common shares in connection with the closing of the<br>Tabwire EPA (Note 5). |
| --- | --- |
During the six months ended June 30, 2020:
| (i) | The Company received proceeds of $2,178,851 from the exercise of 1,988,429 common share purchase<br>warrants. The fair value assigned to these warrants of $4,982,369 was reclassified from warrant reserve to share capital. |
|---|---|
| (ii) | The Company received proceeds of $49,367 from the exercise of 131,875 stock options. The fair value<br>assigned to these options of $439,913 was reclassified from contributed surplus to share capital. |
| --- | --- |
21
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 19. | Warrants |
|---|
Each common share warrant entitles the holder to purchase one common share of the Company. The Company has no warrants outstanding as at June 30, 2021.
The following table reflects the continuity of warrants as at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Number of<br> warrants | Weighted average<br> exercise price | Number of<br> warrants | Weighted average<br> exercise price | |||||||
| Beginning balance | - | $ | - | 7,444,961 | $ | 2.03 | ||||
| Granted | - | - | - | - | ||||||
| Exercised | - | - | (3,109,589 | ) | (0.88 | ) | ||||
| Expired | - | - | (4,335,372 | ) | (2.86 | ) | ||||
| Ending balance | - | $ | - | - | $ | - |
The weighted average share price on the date of exercise is $Nil (December 31, 2020 - $2.32).
During the six months ended June 30, 2020, the fair value assigned to 935,297 expired warrants of $2,372,764 was reclassified from warrant reserve to deficit.
| 20. | 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 at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number<br> of options | Weighted average<br> exercise price | Number<br> of options | Weighted average<br> exercise price | |||||||||
| Beginning balance | 2,734,073 | $ | 1.61 | 3,744,095 | $ | 1.32 | ||||||
| Granted | 1,598,905 | 6.17 | - | - | ||||||||
| Exercised | (363,176 | ) | (2.16 | ) | (823,937 | ) | (0.27 | ) | ||||
| Expired | (7,033 | ) | (2.37 | ) | (186,085 | ) | (2.06 | ) | ||||
| Ending balance | 3,962,769 | $ | 3.40 | 2,734,073 | $ | 1.61 | ||||||
| Exercisable | 2,574,198 | $ | 1.69 | 2,242,837 | $ | 1.44 |
The weighted average share price on the date of exercise is $7.25 (December 31, 2020 - $2.25).
On January 20, 2021, following shareholder approval of the Stock Option Plan, the Company issued 743,671 stock options to directors, officers and employees, of which 679,582 were issued to directors and officers. These stock options are exercisable at $3.20, expire December 9, 2025 and vest as follows: (i) 304,709 on January 20, 2021; (ii) 247,890 on January 20, 2022; and (iii) 191,072 on January 20, 2023. These stock options were approved for issuance by the Board of Directors on December 9, 2020, and were granted upon shareholder approval of the Stock Option Plan on January 20, 2021. The fair value of the stock options issued was $4.73 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $6.10; exercise price - $3.20; expected life in years – 4.89 years; expected volatility – 86.59% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 2.90%; and, risk-free interest rate – 0.43%.
22
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 20. | Stock options (continued) |
|---|
On April 13, 2021, the Company issued 855,234 stock options to directors, officers, employees and consultants, of which 493,969 were issued to directors and officers. These stock options are exercisable at $8.75, expire January 1, 2026 and vest one-third on January 1, 2022, January 1, 2023 and January 1, 2024 respectively. The fair value of these stock options issued was $6.06 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $8.73; exercise price - $8.75; expected life in years – 4.72 years; expected volatility – 92.89% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 2.90%; and, risk-free interest rate – 0.94%.
The Company recorded share-based compensation expense of $3,145,232 (June 30, 2020 - $669,248) for stock options vesting during the six months ended June 30, 2021.
The Company has the following stock options outstanding as at June 30, 2021:
| Expiry date | Number of stock<br> options outstanding | Exercise<br> price | Number of stock<br> options<br> exercisable | Weighted average<br> remaining life<br> (years) | ||||
|---|---|---|---|---|---|---|---|---|
| October 17, 2022 | 17,959 | $ | 0.80 | 17,959 | 1.30 | |||
| November 18, 2022 | 874,558 | 0.37 | 874,558 | 1.39 | ||||
| November 14, 2023 | 13,187 | 2.37 | 13,187 | 2.38 | ||||
| March 29, 2024 | 324,410 | 2.37 | 324,410 | 2.75 | ||||
| August 27, 2024 | 943,750 | 2.40 | 849,375 | 3.16 | ||||
| December 9, 2025 | 743,671 | 3.20 | 304,709 | 4.45 | ||||
| January 1, 2026 | 855,234 | 8.75 | - | 4.51 | ||||
| December 12, 2028 | 190,000 | 1.00 | 190,000 | 7.46 | ||||
| 3,962,769 | $ | 3.40 | 2,574,198 | 3.46 | ||||
| 21. | 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 January 20, 2021, following shareholder approval of the SU Plan, the Company issued 1,251,162 restricted share units to directors, officers and employees, of which 1,158,772 were issued to directors and officers. These restricted share units are expected to be settled through the issuance of 1,251,162 common shares of the Company. These restricted share units vest as follows: (i) 530,692 on January 20, 2021; (ii) 417,054 on January 20, 2022; and (iii) 303,416 on January 20, 2023. These restricted share units were approved for issuance by the Board of Directors on December 9, 2020, and were granted upon shareholder approval of the SU Plan on January 20, 2021. These restricted share units have been fair valued based on the quoted market price on the date of issuance of $6.10 per common share.
On April 13, 2021, the Company issued 1,242,577 restricted share units to directors, officers, employees and employees, of which 636,887 were issued to directors and officers. These restricted share units are expected to be settled through the issuance of 1,242,577 common shares of the Company. These restricted share units vest one-third on January 20, 2022, January 20, 2023 and January 20, 2024 respectively. These restricted share units have been fair valued based on the quoted market price on the date of issuance of $8.73 per common share.
The Company recorded share-based compensation expense of $6,573,113 (June 30, 2020 - $Nil) for restricted share units vesting during the six months ended June 30, 2021.
23
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 21. | Share Units (Continued) |
|---|
The Company has the following restricted share units outstanding as at June 30, 2021:
| Number of restricted share units | June 30, 2021 | December 31, 2020 | ||
|---|---|---|---|---|
| Beginning balance | - | - | ||
| Granted | 2,493,739 | - | ||
| Ending balance | 2,493,739 | - | ||
| Vested | 530,692 | |||
| 22. | 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, Chief Operating Officer, Chief Financial Officer, Chief Corporate Officer, President and former esports President. 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 period is as follows:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||
| Short-term benefits | $ | 434,395 | $ | 469,093 | $ | 1,276,804 | $ | 803,521 |
| Share-based compensation | 2,695,546 | 207,212 | 8,031,981 | 469,087 | ||||
| $ | 3,129,941 | $ | 676,305 | $ | 9,308,785 | $ | 1,272,608 |
A summary of other related party transactions is as follows:
| For the three months ended | For the six months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | ||||||
| Total transactions during the period: | |||||||||
| Revenue | $ | 67,769 | $ | 386,582 | $ | 692,705 | $ | 770,638 | |
| Expenses | |||||||||
| Consulting fees | 191,468 | 556,931 | 680,864 | 1,227,270 | |||||
| Interest and accretion | 130,332 | - | 282,838 | - | |||||
| Loss on settlement of vendor-take-back loan | 316,241 | - | 316,241 | - | |||||
| Share of loss from investment in associates | (6,158 | ) | 1,176,518 | 72,260 | 1,272,347 |
A summary of related party balances is as follows:
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Balances receivable (payable): | ||||||
| Investment in associates | $ | 954,649 | $ | 1,026,909 | ||
| Trade and other receivables | 4,567,518 | 4,651,059 | ||||
| Loans receivable | 125,995 | 148,660 | ||||
| Accounts payable and accrued liabilities | (1,190,334 | ) | (686,480 | ) | ||
| Contract liabilities | (54,192 | ) | (72,343 | ) | ||
| Vendor-take-back loan | - | (5,559,250 | ) |
24
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 22. | Related party transactions and balances (continued) |
|---|
On August 27, 2019, the Company entered into a Management Services Agreement (the “Management SA”) with AIG eSports LP, a related party by nature of it being under the control or direction of the Chairman of the Company, as well as a Master Services Agreement (the “Master SA”) with Vancouver Arena Limited Partnership, a related party by nature of it being under the control or direction of the Chairman of Company (collectively, the “MSAs”). Pursuant to the Management SA, the Company is to provide a series of esports management services for a base compensation of $100,000 per month, plus an annual amount of USD $250,000, as well as other additional amounts receivable upon certain milestones relating to the performance of the esports teams under management. Pursuant to the Master SA, the Company receives a range of marketing and consulting services at a cost of $100,000 per month, as well as certain other costs payable upon certain milestones relating to third-party revenues generated by the Company relating to the Master SA services. The MSAs had a retroactive effective date of September 7, 2018, and contain payment-in-kind provisions whereas either party may, at its discretion, satisfy its amounts payable through the provision of its respective services. On April 1, 2021, the Management SA with AIG eSports LP and Master SA with Vancouver Arena Limited Partnership was terminated. During the six months ended June 30, 2021, the Company recognized management revenue of $379,125 (June 30, 2020 - $770,638) relating to the Management SA, and recognized consulting expenses of $379,125 (June 30, 2020 - $1,227,270) relating to the Master SA. As at June 30, 2021, a balance of $445,076 (December 31, 2020 - $422,642) is included in trade and other receivables.
On April 6, 2020, the Company entered into an Exchange of Marketing Rights and Benefits Agreement with AIG eSports LP and Surge eSports LLC, related parties by nature of them being under the control or direction of the Chairman of the Company. Pursuant to the Exchange of Marketing Rights and Benefits Agreement the Company is to provide media advertising for AIG eSports LP and Surge eSports LLC sponsors and AIG eSports LP and Surge eSports LLC is to provide advertising for the Company. During the six months June 30, 2021, the Company recognized media advertising revenue of $16,579 (June 30, 2020 - $Nil) relating to the Exchange of Marketing Rights and Benefits Agreement. As at June 30, 2021, a balance of $54,192 (December 31, 2020 - $72,343) is included in contract liabilities for media advertising services to be provided by the Company to AIG eSports and Surge eSports LLC.
As at June 30, 2021, a balance of $29,281 (December 31, 2020 - $30,079) and $23,880 (December 31, 2020 - $24,531) is due to AIG eSports LP and Surge eSports LLC, respectively, which is included in accounts payable and accrued liabilities.
As at June 30, 2021, trade and other receivables include $3,152,930 (December 31, 2020 - $3,238,915) of amounts advanced to Surge eSports LLC, a related party by nature of it being under the control or direction of the Chairman of the Company. The Company intends to apply these advances against future share subscriptions in Surge eSports LLC. The advances are non-interest bearing and are receivable if the Company does not obtain share subscriptions in Surge eSports LLC.
On August 30, 2020, the Company completed the acquisition of Omnia, following the acquisition Blue Ant and its affiliated companies are related parties to the Company. During the six months ended June 30, 2021, the Company earned media revenue of $297,001 (June 30, 2020 - $Nil) from Blue Ant and its affiliated companies. As at June 30, 2021, the Company has trade and other receivables of $969,512 (December 31, 2020
- $741,403) due from Blue Ant and its affiliated companies. As at June 30, 2021, the Company has accounts payable and accrued liabilities of $576,359 (December 31, 2020 - $380,152) due to Blue Ant and its affiliated companies. See Note 17 for information relating to the VTB loan payable to Blue Ant.
During the six months ended June 30, 2021, the Company recognized consulting expenses of $37,355 (June 30, 2020 - $36,840) to Rivonia Capital Inc., a company in which a director of the Company is a principal. As at June 30, 2021, a balance of $14,181 (December 31, 2020 - $14,012) is included in account payable and accrued liabilities.
During the six months ended June 30, 2021, the Company recognized consulting expenses of $69,836 (June 30, 2020 - $Nil) to Franchise Agency LLC, an agency which represents a director of the Company. As at June 30, 2021, a balance of $294,358 (December 31, 2020 - $Nil) is included in account payable and accrued liabilities.
During the six months ended June 30, 2021 the Company recognized $194,548 (June 30, 2020 - $Nil) in consulting fees relating to Board of Director and committee fees to certain directors. As at June 30, 2021, a balance of $252,275 (December 31, 2020 - $237,706) is included in account payable and accrued liabilities.
25
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 22. | Related party transactions and balances (continued) |
|---|
As at June 30, 2021, the Company has other receivables due from the Chief Corporate Officer of $Nil (December 31, 2020 - $248,099) relating to proceeds receivable for warrant exercises and withholding taxes receivable for stock option exercises.
As at June 30, 2021, the Company has loans receivable due from the President and Chief Corporate Officer of $80,297 (December 31, 2020 - $96,004) and $45,698 (December 31, 2020 - $52,656) respectively. The loans receivable are non-interest bearing and due on demand.
See Note 8 for information relating to an investment in associates controlled by a related party.
See Note 20 for information relating to stock options issued to officers and directors of the Company.
See Note 21 for information relating to restricted share units issued to officers and directors of the Company.
| 23. | Capital 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 equity 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, 2021. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements aside from the covenants described in Note 14.
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.
| 24. | Financial instruments |
|---|
Fair values
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 contract liabilities, deferred payment liability, convertible debentures and VTB 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.
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 1 – quoted prices (unadjusted)<br>in active markets for identical assets and liabilities |
|---|---|
| ● | Level 2 – inputs that are observable<br>for the asset or liability, either directly (prices) or indirectly (derived from prices) from observable market data |
| --- | --- |
| ● | Level 3 – inputs for assets and<br>liabilities not based upon observable market data |
| --- | --- |
As at June 30, 2021, the investment in Addicting Games is classified as a Level 3 financial instrument, see Note 7, and the Vedatis Earn-Out Payment liability is classified as a Level 3 financial instrument, see Note 16.
26
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 24. | Financial instruments (continued) |
|---|
Fair values (continued)
Total interest income and interest expense 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, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||
| Interest income | $ | (22,911 | ) | $ | (15,007 | ) | $ | (41,231 | ) | $ | (76,530 | ) |
| Interest and accretion expense | 480,987 | 1,361,524 | 1,272,301 | 2,686,785 | ||||||||
| Net interest expense | $ | 458,076 | $ | 1,346,517 | $ | 1,231,070 | $ | 2,610,255 |
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.
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, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Trade receivables aging: | ||||||
| 0-30 days | $ | 16,002,441 | $ | 16,461,821 | ||
| 31-60 days | 156,546 | 846,232 | ||||
| 61-90 days | 114,618 | 537,836 | ||||
| Greater than 90 days | 1,844,845 | 737,696 | ||||
| 18,118,450 | 18,583,585 | |||||
| Expected credit loss provision | (57,608 | ) | (67,466 | ) | ||
| Net trade receivables | $ | 18,060,842 | $ | 18,516,119 |
The movement in the expected credit loss provision can be reconciled as follows:
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Expected credit loss provision: | ||||||
| Expected credit loss provision, beginning balance | $ | (67,466 | ) | $ | (357,920 | ) |
| Increase in provision for expected credit loss | - | (28,725 | ) | |||
| Write-offs | - | 319,174 | ||||
| Recoveries | 8,504 | - | ||||
| Effect of movement in exchange rates | 1,354 | 5 | ||||
| Expected credit loss provision, ending balance | $ | (57,608 | ) | $ | (67,466 | ) |
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 at June 30, 2021:
| Total | Not past due | Over 30<br> days past<br> due | Over 60<br> days past<br> due | Over 90 days<br> past due | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Default rates | 0.20 | % | 0.23 | % | 0.38 | % | 1.34 | % | ||||||
| Trade receivables | $ | 18,118,450 | $ | 16,002,441 | 156,546 | $ | 114,618 | $ | 1,844,845 | |||||
| Expected credit loss provision | $ | 57,608 | $ | 32,095 | $ | 358 | $ | 439 | $ | 24,716 |
27
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 24. | Financial instruments (continued) |
|---|
Credit risk (continued)
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.
Concentration risk
The Company has one customer which makes up more than 10% of revenue, this customer accounts for approximately 61.20% (December 31, 2020 – 67.02%) of trade receivables as at June 30, 2021 and 73.28% (June 30, 2020 – 24.08%) of revenues for the six months ended June 30, 2021.
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 1<br> year | One to two<br> years | Two to three<br> years | More than<br> three years | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Accounts payable and accrued liabilities | $ | 21,901,837 | $ | - | $ | - | $ | - | $ | 21,901,837 |
| Contract liabilities | 2,672,365 | - | - | - | 2,672,365 | |||||
| Deferred payment liability | 619,700 | 1,102,425 | - | 1,994,234 | 3,716,359 | |||||
| Lease contract liability | 520,455 | 561,842 | 650,265 | 1,011,033 | 2,743,595 | |||||
| Long-term debt | 2,750,000 | 7,250,000 | - | - | 10,000,000 | |||||
| $ | 28,464,357 | $ | 8,914,267 | $ | 650,265 | $ | 3,005,267 | $ | 41,034,156 |
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 receivables, accounts payable, deferred payment liability and cash. As at June 30, 2021, a 10% depreciation or appreciation of the US dollar, UK pound sterling and Euro against the Canadian dollar would have resulted in an approximate $4,559,000, $11,000 and $307,000 decrease or increase, respectively, in total net loss and comprehensive loss.
Interest rate risk
The Company’s long-term debt bears interest at prime rate plus 5.05%. Fluctuations in the prime rate will result in changes to the months interest expense. A change in the annual interest rate of 0.50% would result in a $50,000 change in the annual interest expense.
| 25. | Commitments |
|---|
The Company has the following payment commitments with respect to consulting and other contractual obligations:
| Not later than one year | $ | 1,094,000 |
|---|---|---|
| Later than one year and not later than five years | 1,040,000 | |
| $ | 2,134,000 |
28
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months endedJune 30, 2021 and 2020
(Unaudited - Expressed in Canadian Dollars)
| 25. | Commitments (continued) |
|---|
Further, the Company is subject to capital commitments pursuant to its investments in AIG Canada and AIG USA, see Note 8, 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. | Segment 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 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 is summarized below for the six months ended June 30, 2021 and 2020:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||
| Media and content | $ | 33,462,535 | $ | 4,246,328 | $ | 60,440,722 | $ | 7,672,733 |
| Esports and entertainment | 1,549,044 | 1,118,654 | 2,776,468 | 3,615,448 | ||||
| Subscription | 2,046,022 | 1,664,114 | 3,862,746 | 2,875,251 | ||||
| $ | 37,057,601 | $ | 7,029,096 | $ | 67,079,936 | $ | 14,163,432 |
Revenue, in Canadian dollars, in each of these geographic locations for the six months ended June 30, 2021 and 2020 are as below:
| For the three months ended | For the six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||
| Canada | $ | 443,605 | $ | 652,188 | $ | 1,214,683 | $ | 1,273,267 |
| USA | 32,767,492 | 3,558,560 | 58,886,319 | 6,074,361 | ||||
| All other countries | 3,846,504 | 2,818,348 | 6,978,934 | 6,815,804 | ||||
| $ | 37,057,601 | $ | 7,029,096 | $ | 67,079,936 | $ | 14,163,432 |
The non-current assets, in Canadian dollars, in each of the geographic locations as at June 30, 2021 and December 31, 2020 are as below:
| June 30, 2021 | December 31, 2020 | |||
|---|---|---|---|---|
| Canada | $ | 136,339,596 | $ | 140,113,284 |
| USA | 60,616,549 | 50,338,388 | ||
| France | 12,870,256 | - | ||
| England and Wales | 3,743,432 | 3,934,877 | ||
| $ | 213,569,833 | $ | 194,386,549 | |
| 27. | Subsequent events | |||
| --- | --- | |||
| (i) | On July 7, 2021, the Company, through its wholly-owned subsidiary, Enthusiast Gaming Inc., entered<br>into a joint venture with Toronto Star Newspapers Limited (“Torstar”) to create an original online news platform and<br>community for gamers named AFK Media Partnership. The Company’s interest in this joint venture is 50%. | |||
| --- | --- | |||
| (ii) | On July 19, 2021, 178,293 restricted share units issued on April 13, 2021 were amended to reflect<br>a vesting date of 100% on October 31, 2021. | |||
| --- | --- | |||
| (iii) | As of July 19, 2021, Blue Ant holds less than 10% of the issued and outstanding common shares of<br>the Company and is no longer a related party of the Company. On July 19, 2021, Robb Chase, chief financial officer of Blue Ant,<br>resigned from the Board of Directors of the Company. | |||
| --- | --- |
29
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, 2021. |
|---|---|
| 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, 2021 and ended on June 30, 2021 that has materially affected,<br>or is reasonably likely to materially affect, the issuer’s ICFR. |
| --- | --- |
Date: August 10, 2021
/s/ Alex Macdonald
_______________________
Alex Macdonald
Chief Financial Officer
Exhibit 99.4
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Adrian Montgomery, 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, 2021. |
|---|---|
| 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, 2021 and ended on June 30, 2021 that has materially affected,<br>or is reasonably likely to materially affect, the issuer’s ICFR. |
| --- | --- |
Date: August 10, 2021
/s/ Adrian Montgomery
_______________________
Adrian Montgomery
Chief Executive Officer