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 November 2022 Commission File Number: 001-40331
Enthusiast Gaming Holdings Inc. / Canada
(Exact name of registrant as specified in its charter)
90 Eglinton Avenue East, Suite 805, Toronto, ON, M4P 2Y3
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
INCORPORATION BY REFERENCE
Exhibit 99.1 and Exhibit 99.2 to this report on Form 6-K are hereby incorporated by reference into Enthusiast Gaming Holdings Inc.’s Registration Statement on Form F-10 (File No. 333-255725).
Exhibit 99.3 and Exhibit 99.4 to this report on Form 6-K are furnished, not filed, and will not be incorporated by reference into any registration statement.
EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Enthusiast Gaming Holdings Inc. | ||
|---|---|---|
| By: | /s/ Alex Macdonald | |
| Alex Macdonald | ||
| Date: November 14, 2022 | Chief Financial Officer |
Exhibit99.1
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
MANAGEMENT'SDISCUSSION AND ANALYSIS
The following discussion and analysis is management’s assessment of the results and financial condition of Enthusiast Gaming Holdings Inc. (the “Company” or “Enthusiast Gaming”). The following information should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2022, and accompanying notes, and the Company’s audited annual consolidated financial statements for the year ended December 31, 2021, and accompanying notes, all of which are available on Enthusiast Gaming's issuer profile on SEDAR at www.sedar.com and in the United States on EDGAR at www.sec.gov/edgar.
The date of this management’s discussion and analysis (“MD&A”) is November 14, 2022. Unless otherwise indicated, all financial data in this MD&A has been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting. Condensed consolidated interim financial statements do not include all of the information required for annual consolidated financial statements and should be read in conjunction with the audited annual consolidated financial statements of the Company for the year ended December 31, 2021 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee. This MD&A has been prepared pursuant to the disclosure requirements under National Instrument 51-102 – Continuous Disclosure Obligations of the Canadian Securities Administrators. Under the United States / Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in accordance with the Canadian disclosure requirements which may differ from United States disclosure requirements. All dollar amounts are stated in Canadian Dollars unless otherwise indicated.
CAUTIONARY 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 highlights 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 Nine Months Ended September 30, 2022
DESCRIPTIONOF 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. Approximately 70%^1^ of Enthusiast Gaming’s audience is comprised of Gen Zs and Millennials who rely on the Enthusiast Gaming platform to learn, engage, communicate, create, and share gaming related content.
Between its online digital media properties, its network of partner websites and video channels, its library of web and mobile casual games, its video gaming expo, and its esports organization (Luminosity Gaming Inc., “Luminosity Gaming” or “Luminosity”), the Company engages approximately 300 million gaming enthusiasts worldwide monthly.
Enthusiast Gaming was incorporated under the Business Corporation Act (British Columbia) on June 27, 2018. The Company is a publicly traded company listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Select Market (“Nasdaq”) under the symbol "EGLX". Enthusiast Gaming maintains its registered office at 510 West Georgia Street, Suite 1800, Vancouver, British Columbia, V6B 0M3 and its executive office at 90 Eglinton Avenue East, Suite 805, Toronto, Ontario, M4P 2Y3.
On 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 will 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 (iii) a cash payment of Euro €1,250,000 on the first anniversary of closing (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. 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. (“Media US”), 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. The Tabwire EPA is accounted for in accordance with IFRS 3 as the operations of Tabwire constitute a business.
On August 30, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all of the issued and outstanding membership interest of GameKnot LLC (“GameKnot”) pursuant to an equity purchase agreement dated August 30, 2021 (the “GameKnot EPA”). Pursuant to the terms of the GameKnot EPA, the Company acquired all of the outstanding membership interest of GameKnot in exchange for i) a cash payment of USD $1,500,000, (ii) the issuance of USD $750,000 of common shares of the Company (iii) a payment of USD $500,000 on the six-month anniversary of closing which may be paid in cash or common shares at the option of the Company. The GameKnot EPA is accounted for in accordance with IFRS 3, as the operations of GameKnot constitute a business.
^1^Calculated based on data provided by Comscore as of September 2022.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
DESCRIPTIONOF ENTHUSIAST GAMING HOLDINGS INC. (Continued)
On September 3, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all of the issued and outstanding shares of Addicting Games, Inc. and TeachMe, Inc. (“TeachMe”, which together with Addicting Games, Inc., is herein referred to a “Addicting Games”) pursuant to a share purchase agreement dated September 3, 2021 (the “Addicting Games SPA”). Pursuant to the terms of the Addicting Games SPA, the Company acquired all of the outstanding common shares of Addicting Games in exchange for i) a cash payment of USD $10,000,000, subject to a working capital adjustment and other adjustments, (ii) the issuance of USD $12,000,000 of common shares of the Company, (iii) a payment of USD $7,000,000 on the first anniversary of closing which may be paid in cash or common shares at the option of the Company, and (iv) a payment of USD $3,800,000 on the second anniversary of closing which may be paid in cash or common shares at the option of the Company. The Addicting Games SPA is accounted for in accordance with IFRS 3 as the operations of Addicting Games constitute a business.
On November 22, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all of the issued and outstanding membership interest of Outplayed, Inc. (“Outplayed”) pursuant to a merger agreement dated November 22, 2021 (the “Outplayed MA”). Pursuant to the Outplayed MA between Enthusiast Acquisition Corp. (“Acquisition Corp”), a subsidiary of Media US incorporated to facilitate this transaction, and Outplayed, Outplayed merged with and into Acquisition Corp and Acquisition Corp changed its name to Outplayed, Inc. Pursuant to the terms of the Outplayed MA, the Company acquired all of the outstanding membership interest of Outplayed in exchange for i) a cash payment of USD $7,500,000, subject to working capital and other adjustments, (ii) the issuance of 5,200,000 of common shares of the Company, (iii) a payment of USD $8,500,000 on the first anniversary of closing which may be paid in cash or common shares at the option of the Company, (iv) a payment of USD $8,500,000 on the second anniversary of closing which may be paid in cash or common shares at the option of the Company, (v) a first anniversary earn-out payment of USD $6,000,000 based on the performance of Outplayed, and (vi) a second anniversary earn-out payment of USD $6,000,000 based on the performance of Outplayed. The earn-out payments, subject to certain conditions, will be paid if certain site traffic based targets are met in the first and second years of operations. The first anniversary earn-out period is for one year from the closing date and the second anniversary earn-out period is for one year from the end of the first anniversary earn-out period. The Company has, at its option, the ability to settle the earn-out payments in common shares. The first anniversary earn-out payment is to be paid no later than 30 days from the completion of the first anniversary earn-out period and the second anniversary earn-out payment is to be paid no later than 30 days from the completion of the second anniversary earn-out period. The Outplayed MA is accounted for in accordance with IFRS 3, as the operations of Outplayed constitute a business.
On April 28, 2022, the Company, through its wholly-owned subsidiary, Steel Media Limited, acquired all of the issued and outstanding treasury shares of Fantasy Media Ltd (“FML”) and Fantasy Football Scout Limited (“FFS”, which together with “FML” is herein referred to as “FFS”), pursuant to a share purchase agreement dated April 28, 2022 (the “FFS SPA”). Pursuant to the terms of the FFS SPA, the Company acquired all of the outstanding treasury shares of FFS in exchange for (i) a cash payment of $2,937,520 (GBP £1,825,000) on closing, which includes an agreed upon cash excess amount of $523,120 (GBP £325,000), (ii) a payment of $1,609,600 (GBP £1,000,000) on the first anniversary of closing which may be paid in cash or common shares at the option of the Company, (iii) an earn-out cash payment $804,800 (GBP £500,000) on the first anniversary of closing, based on the renewal of a Fantasy Premier League agreement, subject to adjustments, and (iv) a cash payment of $80,480 (GBP £50,000) on the second anniversary of closing, subject to adjustments. The earn-out cash payment of $804,800 (GBP £500,000) will be paid if the Fantasy Premier League agreement, which expired on August 1, 2022, is renewed for an additional three-year period, on substantially similar or more favourable terms. The FFS SPA is accounted for in accordance with IFRS 3, as the operations of FFS constitute a business.
The Vedatis SPA, Tabwire EPA, GameKnot EPA, Addicting Games SPA, Outplayed MA, and FFS SPA are collectively called the “Mergers and Acquisitions” in the MD&A. For information relating to the accounting of the Vedatis SPA, Tabwire EPA, GameKnot EPA, Addicting Games SPA and Outplayed MA refer to Note 5 of the audited consolidated financial statements of the Company for the year ended December 31, 2021. For information relating to the accounting of the FFS SPA refer to Note 5 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
DESCRIPTIONOF ENTHUSIAST GAMING HOLDINGS INC. (Continued)
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. Icy Veins provides news and strategy guides for leading franchises like World of Warcraft, Diablo, Heroes of Storm, Hearthstone, and Overwatch. Enthusiast Gaming Properties Inc. (“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 Valorant, Rainbow Six Siege, Escape from Tarkov, Apex Legends, and Warzone, amongst other game titles. Tabwire continues to add game titles to its player companion tools. Tabwire owns the web property TabStats. Enthusiast Properties has been monetizing the TabStats advertising traffic since February 2021.
Businessoverview of GameKnot
GameKnot owns the web property GameKnot.com. Founded in 2000, GameKnot is a news, strategy, and community site for casual and competitive chess players, offering multiple forms of competition via chess tournaments, leagues, and ladders. With free and premium subscription offerings, the GameKnot web property also provides resources including lessons and puzzles.
Businessoverview of Addicting Games
Addicting Games is an innovator in casual gaming with a portfolio of casual games for desktop and mobile devices. Since the early 2000s, Addicting Games has helped to popularize casual gaming online, developing and distributing innovative games. Today, Addicting Games provides an extensive library of over 1,500 games to approximately 10 million gamers monthly. Addicting Games’ audience spends over 15 minutes per average visit playing on titles spanning action, sports, puzzles, and more. Addicting Games offers subscriptions and in-app purchases on many of its properties.
Games, portals, and brands included in the Addicting Games portfolio include:
| ● | Addicting<br>Games (addictinggames.com) |
|---|---|
| ● | Shockwave<br>(shockwave.com) |
| --- | --- |
| ● | TypeRacer<br>(typeracer.com) |
| --- | --- |
| ● | ioGames<br>Space (iogames.space) |
| --- | --- |
| ● | Little<br>Big Snake (littlebigsnake.com, iOS app, Android app) |
| --- | --- |
| ● | Diep.io<br>(diep.io, iOS app, Android app) |
| --- | --- |
| ● | EV.io<br>(ev.io, Windows, MacOS) |
| --- | --- |
| ● | Mope.io<br>(mope.io, iOS app, Android app) |
| --- | --- |
| ● | Math<br>Games (mathgames.com) |
| --- | --- |
| ● | TeachMe<br> (teachme.com) |
| --- | --- |
The Company deploys these games on both web and mobile platforms with a stated goal that they can be player by anyone, anywhere, on any device.
Businessoverview of Outplayed
Outplayed owns the web property, U.GG, which is one of the largest League of Legends fan communities in the world. By combining a rigorous data science approach with a proprietary user centric experience, Outplayed provides actionable, data-driven insights supporting, educating, connecting, and engaging a monthly active user base of approximately 10 million players. U.GG is featured on the official League of Legends website (www.leagueoflegends.com) as a resource for players.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
DESCRIPTIONOF ENTHUSIAST GAMING HOLDINGS INC. (Continued)
Businessoverview of Fantasy Football Scout
FFS owns the web properties FantasyFootballScout.co.uk and livefpl.net. FFS provides the fantasy football community, weekly scout report newsletters, integrated live rank data, data visualizations and three player comparison tools. LiveFPL is a free service to help members track their exact fantasy Premier League rankings in real time, both overall and in their mini-leagues and understand how to move up in rankings.
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 50 websites that are wholly owned or exclusively monetized by the Company and contain news, reviews, videos, live streams, blog posts, tips, chats, message boards, other video-gaming related content and casual games. Central to Enthusiast Gaming’s ability to create valuable advertising space that can be sold on its websites, video channels and casual games (referred to as “Inventory”) is the ability to both develop content rich digital media and foster the interaction and contributions of its users to its digital media properties. Enthusiast Gaming possesses a network of full and part-time content developers to ensure regular, interesting updates are made across its digital media properties to reflect the newest developments in the world of video games, in the form of videos, articles, blog posts, and other content.
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 Media Inc.’s (“Omnia”), a subsidiary of the Company, principal business activities include the creation, distribution, and exploitation of owned and talent-produced gaming-related video content, as well as the representation and management of underlying talent. Omnia generates advertising revenue from its External Talent Network, its Owned and Operated Content, as well as through Direct Brand Sales through delivery of targeted advertisements on YouTube and other platforms that users click on, leading to direct engagement between users and advertisers. Omnia produces and programs over 20 weekly shows across advertising-based video on demand (“AVOD”) and over-the-top (“OTT”) channels and represents over 500 gaming influencers across YouTube and Twitch. Its distribution network reaches over 90 million unique viewers and has a significant U.S. market inventory of over 1,000 channels, over 600 million subscribers and generated over 29 billion total video views in 2021. Omnia owns content brands that matter to fans who love gaming and pop culture including BCC Gaming, Arcade Cloud and Wisecrack. BCC Gaming is a leading Fortnite community channel. Arcade Cloud is a gaming channel featuring original animations. Wisecrack is a collective of comedians, academics, filmmakers, and artists. Omnia generates advertising revenue from its external talent network, its owned and operated content, as well as through direct brand sales through delivery of targeted advertisements on YouTube and other platforms that users click on, leading to direct engagement between users and advertisers.
Addicting Games has a portfolio of casual games for desktop and mobile devices. Advertising revenues generated from Inventory on Addicting Games’ casual games is included in media and content revenue.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
BUSINESSPRODUCTS AND SERVICES (Continued)
Mediaand Content (Continued)
For any publishing company, the key mission is to build a dedicated following of engaged visitors and brands that are looking for high levels of engagement within a target market to run successful advertising campaigns. Enthusiast Gaming has amassed a platform of engaged, lifestyle gamers that have become a leading advertising platform for brands targeting the gamer demographic. Enthusiast Gaming’s web platform generates over two billion page views per quarter, and its video platform, operated by Omnia, generates approximately six billion video views per quarter. Each of these views produces Inventory available for sale. The majority of Enthusiast Gaming’s media and content revenue is driven by programmatic advertising across the platform. Enthusiast Gaming has built out a direct sales team to foster key relationships and drive revenue. The direct sales team is also responsible for developing long term clients looking for integrated advertising solutions across Enthusiast Gaming’s brands.
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.
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” (“CTR”), and the rate at which advertisements lead to sales. The functioning of the advertisements themselves can have a significant effect on achieving key advertising metrics.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
BUSINESSPRODUCTS AND SERVICES (Continued)
Mediaand Content (Continued)
Saleof Inventory (Continued)
Enthusiast Gaming developed proprietary optimization tools which it utilizes to sell ads. The optimization tool allows Enthusiast Gaming to set strategic parameters for the sale of Inventory in real time auctions that occur in milliseconds and are all executed by computer programs. Additionally, the programmatic optimization tools enable Enthusiast Gaming to target specific advertisers at specific times in order to receive the highest value for its Inventory.
The Inventory or advertising space can be found in a variety of locations throughout the websites and video properties. New advertising impressions are generally created when a user opens a website or navigates to a different page, or when they watch a video. They can take on the form of pre-roll video advertisements, banner advertisements, ad-words, “skins” or background advertisements, in-application ads, or other forms of ad units as may be applicable to the respective property.
Enthusiast Gaming derives part of its total revenue from direct advertising campaigns. When a client opts for a direct campaign, Enthusiast Gaming will prepare a marketing plan with the client, consisting of the length of the campaign and set parameters which will define how the ad will be displayed such as, specific countries where the ad will be displayed, on desktop or mobile, whether the ad will click through to another site, etc. Additionally, depending on the campaign, Enthusiast Gaming may guarantee a certain amount of impressions or CTR.
Enthusiast Gaming’s media and content revenue is primarily derived from the sales of ad inventory on its network of digital media properties. Enthusiast Gaming has steadily grown its network of digital media properties and has experienced a corresponding growth in revenue. Due to the steady growth, the fluctuation of spending in the advertising industry has not been obvious from Enthusiast Gaming’s operating results. Ad inventory derives its value from a number of factors, including supply and demand. In preparation for retail-oriented holidays, retail sector advertisers may increase their advertising budgets, thus reducing the availability of ad inventory and increasing its value. Similarly, advertisers in the technology industry may correlate their ad campaigns to the launch of new products.
Online advertisements can be sold in a variety of ways. Enthusiast Gaming enters into agreements with online advertising exchanges, through which advertisers will bid on space and time in Enthusiast Gaming Inventory and the Inventory of companies Enthusiast Gaming represents.
Under its affiliate agreements, Enthusiast Gaming provides advertising sales as a third-party representative, to digital media publishers. Generally, Enthusiast Gaming will receive the right to market and sell all available advertising space within the digital media publisher’s website or video property for the duration of the agreement. In exchange for the opportunity to monetize the digital media publisher’s property, Enthusiast Gaming will compensate the digital media publisher, either in the form of fixed monthly payments subject to page views, or a percentage of ad revenue, or a combination of the two.
The advertising technology space is ever evolving, but like most industries, the race tends to be toward optimal efficiency. Enthusiast Gaming therefore believes, as do many industry experts, that original content production, curation, and publishing will continue to thrive and generate more value given its importance to target consumers. Conversely, as better efficiency is pursued, middle-firms currently exacting fees in between advertisers and publishers, should see their revenues and margins decline. Large advertisers are interested in widely distributed publishers like Enthusiast Gaming, and firms in between will become more secondary.
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 Apex Legends, Rocket League, Splitgate, Rainbox Six Siege, PlayerUnknown’s Battlegrounds (“PUBG”), Call of Duty: Warzone, Super Smash Bros: Melee, Super Smash Bros: Ultimate. 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.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
BUSINESSPRODUCTS AND SERVICES (Continued)
Esportsand Entertainment (Continued)
Enthusiast Gaming’s enterprise is made up of interrelated operations intended to derive revenue from assets acquired by Enthusiast Gaming across the esports value chain. Enthusiast Gaming leverages its esports operations to build content and develop an audience and fan base to facilitate merchandising and subscriptions, pursuant to direct sponsorships, endorsement deals, product placement deals, advertising sales and advertising.
The branding of Enthusiast Gaming and Luminosity Gaming is particularly important to its marketing initiatives and its ability to gain traction in the industry and engage marketing partners such as sponsors. The outcome of any contest, competition, or tournament for the teams and players that Enthusiast Gaming intends to manage and provide services to may affect the ability for Enthusiast Gaming to strengthen its brand. Enthusiast Gaming believes its business depends on identifiable intangible properties such as brand names.
Esports entities that rely on marketing initiatives as a source of revenue will need to have a large following in order to enable marketing partners to generate revenue by leveraging this following. To that end, Enthusiast Gaming has retained a management team that has business acumen, sports and entertainment experience and industry connections. Enthusiast Gaming leverages its direct sales team to not only sell advertising inventory, but to also sell sponsorships for its esports assets.
The Company previously operated a B2C live event named “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 event 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.
As a response to the COVID-19 pandemic, 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 included: Muselk, NickEh30, Fresh, Anomaly, XQC, NFL superstars Richard Sherman and Darius Slay, and musicians ZHU and Goldlink.
The Company is exploring possible dates and locations for a future return of EGLX to a live event.
The Company’s entertainment division is also the operator of over 25 video game networking events across 11 countries, including key markets such as the US and UK. The Company is an industry leader in B2B and consumer mobile gaming events. It owns and operates numerous successful networking events around the world with registered industry attendees and key sponsors and partners. As part of its B2B events, the Company hosts Pocket Gamer Party, Top 50 Developer Guide, Mobile Mixers, the Mobile Games Awards, and a feature event, Pocket Gamer Connects, the largest B2B mobile games conference series, with both virtual events and live events in locations such as London, San Francisco, Helsinki, and Seattle. In November 2021, the Company hosted two new digital conference series, being Pocket Gamer Connects Digital NEXT and Beyond Games, from November 15 – November 19, 2021. These two events focus on topics relevant to the gaming space including non-fungible tokens (“NFTs”), blockchain gaming, and the metaverse. In February 2022, the Company hosted its first major live event in nearly 2 years, Pocket Gamer Connects London, with approximately 1,900 registered attendees, from February 14-15, 2022. In May 2022, the Company hosted Pocket Gamer Connects Seattle, with approximately 900 registered attendees, from May 9-10, 2022. In July 2022, the Company hosted the inaugural Pocket Gamer Connects Toronto, with approximately 800 registered attendees, from July 6-7, 2022. In September 2022, the Company hosted the Pocket Gamer Connects Helsinki, with approximately 1500 registered attendees, from September 27-28, 2022.
Subscription
The Sims Resource (“TSR”) operates a subscription-based model and has a current subscriber base of approximately 190,000 monthly subscribers. TSR’s subscribers pay on average approximately USD$4 per month to access its VIP features.
In May 2021, the Company acquired Vedatis, which owns the web property, Icy Veins, and offers premium subscriptions to the Icy Veins website.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
BUSINESSPRODUCTS AND SERVICES (Continued)
Subscription(Continued)**
In June 2021, the Company acquired Tabwire, which offers monthly premium membership subscriptions to the Tabstats website as well as the Tabwire Twitch channel.
In August 2021, the Company acquired GameKnot, which offers monthly and yearly premium membership subscriptions to the GameKnot website.
In September 2021, the Company acquired Addicting Games, which offers premium membership subscriptions to certain Addicting Games properties including Addicting Games, Shockwave, TeachMe, TypeRacer, and Little Big Snake.
In November 2021, the Company acquired Outplayed, which offers membership subscriptions to the U.GG website.
In April 2022, the Company acquired FFS, which offers membership subscriptions to the FFS and LiveFPL websites.
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 has been an important growth lever, having helped the Company grow and serve approximately 300 million monthly active viewers. The Company believes it has a clear path to further monetize the viewership base through multiple organic growth initiatives including: optimizing CPMs, increasing direct sales, growing subscribers, and deploying digital products to its audience (such as casual games).
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 SSPs relationships that contribute to increased sell through rates and revenue performance. The Company also invests in new adtech tools and expertise and expects to be able to achieve further revenue optimization on the Company’s web platforms.
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 revenue for Q3 2022 was $10.1 million as compared to approximately $6.8 million in Q3 2021. Enthusiast Gaming’s direct sales efforts began in Q1 2020 and continue to see increased success with larger client activations. The Company now has advertising sales and fulfillment professionals in major city centers including New York, Los Angeles, Chicago, Detroit, Toronto, and London.
GrowSubscribers
The Company has more than tripled the number of paid subscribers for its properties from approximately 61,000 in March 2019 to approximately 260,000 in September 2022. In 2021, approximately 48,000 paid subscribers were added through the Mergers and Acquisitions of Vedatis, Tabwire, GameKnot, Addicting Games, and Outplayed. In 2022, approximately 26,000 paid subscribers were added through the Mergers and Acquisitions of FFS. Enthusiast Gaming continues to look for opportunities to grow existing subscription offerings, launch new subscription offerings, and is in the early stages of developing an Enthusiast Gaming platform wide subscription model available to web, video, and esports audiences of the Company.
NFLTuesday Night Gaming
In September 2022, the Company partnered with the National Football League (the “NFL”) to launch a first-of-its-kind gaming collaboration bringing together NFL players and Legends with top gaming content creators from marquee gaming organizations including Luminosity Gaming. This multi-year partnership resulted in the launch of NFL Tuesday Night Gaming (“NFL TNG”). NFL TNG debuted September 13, 2022, on YouTube in the United States and Canada, and airs Tuesdays during the 2022-2023 NFL regular season. The show consists of a rotating roster of NFL players and legends, competing with gaming creators across multiple game titles each week.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
GROWTHSTRATEGIES (Continued)
NFLTuesday Night Gaming (Continued)
The first season will conclude with an All-Star Game coinciding with Super Bowl Week. Fans will choose their favorite NFL players or Legends and gaming content creators to compete in a special edition gaming night. The winning team will receive a cash prize to donate to the charity of their choice.
NFL TNG had approximately 1.9 million views across livestream and video content in Q3 2022.
In addition to the weekly live streamed gameplay, this partnership will also produce daily, always-on content throughout the season, including, pre-and post-game analysis, highlights, plays of the week, and more, leveraging the scale of the NFL and Enthusiast Gaming’s network of gaming assets. For more information on NFL TNG, visit nfltuesdaynightgaming.com.
ContentLicensing
The Company is pursuing opportunities to license its library of content and owned and operated brands to distributors. Enthusiast Gaming already has established partnerships with TikTok, and Snapchat, along with various OTT platforms.
StrategicAcquisitions
The Company’s growth is enhanced by a targeted acquisition strategy. Enthusiast Gaming (including Enthusiast Properties) has successfully acquired or made significant investments in and integrated 24 companies. The Company continues to be disciplined in pursuing value-enhancing, highly-strategic acquisitions. A significant number of independent gaming web and video properties can benefit from Enthusiast Gaming’s viewership base, data and analytics platform, and CPM optimization strategy. Management maintains regular dialogue with these entities resulting in a strong M&A pipeline of highly accretive targets.
ProjectGG
In June 2021, the Company announced its plans to launch a pan-Enthusiast social network and freemium subscription offering, codenamed ProjectGG. Project GG is envisioned as 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 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. Certain technology developed as part of Project GG, such as single sign on, has already been deployed to Company properties.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
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 is expected to reach USD$196.8 billion in 2022.^2^ According to Newzoo, the industry is expected to grow to USD$225.7 billion by 2025.^2^ The proliferation of high-speed internet, accessible technology, and publishers using enhanced live operations and other tools have further accelerated the gaming market. Gaming has amassed a diverse audience who rely on the industry as a form of entertainment and social connection. Increasingly, younger generations are immersing themselves in gaming ecosystems and now choose gaming as their primary form of entertainment.
In 2022, there will be nearly 3.2 billion global gamers, who engage with interactive entertainment using PC, console, mobile device or cloud gaming service, according to Newzoo.^2^ It is expected that gamers will surpass 3.5 billion by 2025.^2^ 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.
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.^3^ 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.^4^ According to eMarketer, USD$90 billion was spent globally on digital advertising in 2012.^5^ This spend increased to USD$378 billion in 2020, representing growth of 319%. Digital advertising is expected to grow to USD$756 billion by 2024.^6^
^2^Based on Newzoo’s 2022 Global Games Market Report published in July 2022.
^3^Based on data provided by eMarketer as of January 2021.
^4^Based on data provided by eMarketer as of January 2021 and March 2021.
^5^Based on data provided by eMarketer as of March 2021.
^6^Based on data provided by eMarketer as of March 2022.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
MARKET(Continued)**
DigitalMedia (Continued)
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.^7^ 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.^8^ Additionally, the number of gaming-related tweets increased from approximately 218 million in 2017 to over 2 billion in 2020, according to Twitter.^9^ Gamers are spending time on gaming websites containing news, reviews, videos, blog posts, tips, chats, message boards, and other content. Furthermore, according to NewZoo, 9 in 10 Gen Alpha and Gen Z are game enthusiasts, among them 50% is willing to spend money on gaming, such as unlocking content, virtual goods, in-game currencies and gear.^10^
Viewers of Enthusiast Gaming’s network of digital media properties are both men and women ages 13 to 65+ with the majority of its users spending, on average, more than 15+ hours gaming per week. These individuals represent a highly sought-after demographic in a number of key advertising categories.
Esports
Esports, or electronic sports, is the evolution of video gaming. “Esports” typically refers to competitive gaming whereby gamers can, individually or in teams, compete against one another. Spectators can typically observe these competitions via different platforms online or in person at live events. The advent of online platforms, such as Twitch, has allowed more and more spectators to watch competitions globally from anywhere in the world and has contributed to the growth in the popularity of esports. Competitive gamers can now participate in regulated leagues, tournaments or other competitions and matches, for various different games on different entertainment systems. Further, competitive gamers, teams, team managers, streamers, game developers, viewing platforms and other participants in the esports industry are able to monetize the attention through different means, including through viewer subscriptions and marketing sponsorships.
Esports is an important component of online video gaming content. Most notably, esports turns competitive video-gaming into a spectator sport. Thousands of viewers will attend live events to watch professional video game players compete in tournaments. Additionally, these tournaments are often streamed online, with viewers logging on to watch from their computers, tablets or mobile devices.
According to Newzoo, by the end of 2022, esports is set to generate nearly USD$1.38 billion in revenues while the global esports audience is expected to reach 532 million.^11^ According to NewZoo, esports is set to generate nearly USD$1.86 billion in revenues while the global esports audience is expected to reach 640.8 million respectively by the end of 2025.^11^
^7^Based on Nielsen’s 2019 Millennials on Millennials: Gaming Media Consumption Report.
^8^Based on an article published by The Verge on December 8 2020 titled “YouTube Gaming had its best year ever with more than 100 billion hours watched” and an article published by YouTube on December 8 2020 titled “2020 is YouTube Gaming’s biggest year ever: 100B watch time hours”.
^9^Based on articles published by Twitter on February 15 2018 and January 11 2021 titled “Gaming and esports are happening on Twitter” and “Over 2 Billion Gaming Tweets in 2020!”, respectively.
^10^Based on Newzoo’s Gamer Insights: Gen Alpha & Gen Z, the Future of Gaming, published in September 2022.
^11^Based on NewZoo’s Global Esports & Live Streaming Market Report published in April 2022.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
SIGNIFICANTANNOUNCEMENTS DURING AND SUBSEQUENT TO THE FIRST, SECOND, AND THIRD QUARTERS OF 2022
| Date | Description |
|---|---|
| January<br> 11, 2022 | The<br> Company announced the new season of “Rising Stars,” a competition series that searches for the next great content<br> creators. This season, e.l.f. Cosmetics (NYSE: ELF) will co-create the series with Enthusiast Gaming, to discover the next<br> gaming superstars from colleges across the United States and Canada. |
| January<br> 17, 2022 | The<br> Company provided an update on its most recent acquisition, League of Legends’ fan community U.GG, which was completed<br> in November 2021. Since the beginning of the new League of Legends season on January 7, 2022, U.GG achieved a peak high of<br> 600,000 daily active users, with 1.1 million users visiting on the first weekend of the new season, from January 7 - January<br> 9, 2022. In addition, U.GG’s recently launched desktop app has been downloaded over 300,000 times since its launch in<br> November 2021. |
| January<br> 31, 2022 | The<br> Company announced that its digital media property reached a record 51.8 million unique visitors in the United States in December<br> 2021, based on recent digital media ratings from Comscore (Comscore Media Metrix®, Desktop 2+ Mobile 13+, December 2021,<br> U.S.). Enthusiast Gaming is joined by Twitch and Roblox as the only gaming companies to rank as Top 100 Internet Properties<br> in 2021 (Comscore Media Metrix®, Desktop 2+ Mobile 13+, December 2021, U.S.). |
| February<br> 15, 2022 | The<br> Company announced the results of its latest custom study with Nielsen, to measure the total social reach and Twitch viewership<br> of the Company’s Luminosity Gaming esports audience. The results of the latest custom Nielsen study for January 2022<br> show that Luminosity Gaming’s total social following is now over 145 million globally, having grown 13% since the last<br> study in October 2021. In addition, the hours watched for Luminosity Gaming’s esports team on Twitch surpassed 32 million<br> globally in January, an increase of 34% since the last study. The results mean that Luminosity Gaming has significantly increased<br> its margin as the world’s most watched esports team on Twitch, with hours watched now 50% greater than the nearest esports<br> competitor. |
| March<br> 2, 2022 | The<br> Company announced a multi-year partnership with Hut 8 Mining Corp. (NASDAQ: HUT; TSX: HUT) (“Hut 8”), one of North<br> America’s largest innovation-focused digital asset mining pioneers, supporting open and decentralized systems since<br> 2018. The partnership marks the first time Hut 8 has come together with a gaming and esports organization, and Enthusiast<br> Gaming’s first partnership with a digital asset miner. As ambitious leaders at the intersection of gaming and digital<br> asset mining, Enthusiast Gaming and Hut 8 will collaborate on new experiences and content within mobile and blockchain gaming,<br> Web 3.0, NFTs, and cryptocurrency. To kick off the partnership, Enthusiast Gaming will release a significant update to its<br> first-person shooter game EV.IO, featuring Hut 8 as a presenting sponsor. Hut 8 will also become a sponsor of Luminosity Gaming,<br> the top esports organization on Twitch with a social following of more than 145 million globally. |
| March<br> 15, 2022 | The<br> Company announced a partnership with Fractal, an NFT marketplace co-founded by Justin Kan, co-founder of Twitch. The<br> partnership marks Enthusiast Gaming’s first with an NFT marketplace, and will see NFTs integrated into one of the Company’s<br> HTML5-based games for the first time. |
| March<br> 22, 2022 | The<br> Company announced that its digital media property ranked as the largest property in the Games category in the United Kingdom<br> and Canada, based on recent digital media ratings from Comscore, a leading third-party media measurement firm. |
| March<br> 24, 2022 | The<br> Company announced a renewed partnership deal with ExitLag. ExitLag will continue to leverage the Company’s extensive<br> Gen Z and Millennial reach, as the Latin America software developer builds its customer base in the United States, with its<br> proprietary technology to improve routing connections for gamers. |
| April<br> 19, 2022 | The<br> Company announced that it will host its next live event under its Pocket Gamer Connects (“PGC”) brand in Seattle,<br> Washington from May 9-10, 2022. More than 120 industry speakers across 17 themed tracks will share insight and knowledge on<br> topics including User Acquisition, Mastering Multiplayer, The Art of Publishing, Ad Insights, Building on Blockchain, Mapping<br> the Metaverse, Incredible Indies, CFO Insider, NFT Know-How, and more. Speakers and sponsors include Xbox, a16z, Fandom, Netflix<br> Games, Addicting Games, Riot Games, InMobi, AppLovin, |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
| Xsolla,<br> and more. Running in parallel to PGC Seattle will be the Blockchain Games Next Summit, a series of speaker panels and content<br> focusing on the next wave of Web3.0 games technology including blockchain games, NFTs, and the metaverse. | |
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| April<br> 27, 2022 | The<br> Company announced that its digital media property surpassed one billion total views per month in the United States, based<br> on recent digital media ratings from Comscore, an independent third-party media measurement firm. Total Views to the Company’s<br> property in the U.S reached 1.1 billion in March 2022, representing a 44% increase versus March 2021 (Comscore Media Metrix®,<br> Desktop 2+ Mobile 13+, March 2022 and March 2021, U.S.). The growth aligned with the highly-anticipated release of Elden Ring<br> by Bandai Namco Entertainment, with a high volume of reviews, guides, forums, and videos delivered across the Company’s<br> platform of video game fan communities. Enthusiast Gaming remains a Top 100 Property in the U.S. based on Unique Visitors,<br> currently ranked #85. Based on Total Views, Enthusiast Gaming ranks even higher among the Top 100 Properties at #39. The Company<br> joins the ranks of Twitter, Netflix, Hulu, and USA Today Network as digital media properties that are also ranked in the 30s<br> for Total Views (Comscore Media Metrix®, Desktop 2+ Mobile 13+, Top 100 Properties, March 2022, U.S.). |
| May<br> 24, 2022 | The<br> Company issued a statement addressing the misleading and baseless letter to the Company’s board of directors (the “Board”)<br> sent by activist investor Greywood Investments, LLC (“Greywood”). Enthusiast Gaming’s exceptionally skilled<br> Board includes highly qualified and actively engaged directors, all of whom know the Company well and are leaders in their<br> respective fields. Under their guidance, and the focused leadership of management, the Company is well positioned for continued<br> growth. |
| June<br> 3, 2022 | The<br> Company announced that on June 2, 2022, the Company settled certain deferred and earn-out payments in connection with its<br> acquisitions of Addicting Games, Outplayed, and Vedatis, through the issuance of an aggregate of 16,168,836 common shares<br> at an implied weighted average value of US$2.47 per share. |
| June<br> 13, 2022 | The<br> Company announced its director nominees for election to the Board at the Company’s upcoming Annual General Meeting (“AGM”).<br> Norton Rose Fulbright Canada LLP is acting as legal counsel to the Company. Canaccord Genuity Corp. is acting as exclusive<br> financial advisor to the Company. Kingsdale Advisors is acting as strategic shareholder advisor and strategic communications<br> advisor to the Company. |
| June<br> 30, 2022 | The<br> Company issued a letter to shareholders ahead of its upcoming AGM scheduled to be held on July 19, 2022. The letter details<br> the Company’s strong growth and achievements under the current leadership. The Company is keen to move past the distraction<br> caused by dissident shareholder Greywood. In this regard, the Company has extended an open offer to Greywood to appoint a<br> nominee of its choosing to join the Board immediately. |
| July<br> 7, 2022 | The<br> Company announced that David Goldhill and Janny Lee, two nominees of Greywood, will join the Company’s Board and stand<br> for election at the Company’s AGM. Greywood has withdrawn its alternative slate of directors and has agreed to fully<br> endorse and vote for the nominees put forward at the AGM by the Company. |
| July<br> 14, 2022 | The<br> Company announced that, further to its press release dated July 7, 2022, it has filed a supplement to its management information<br> circular dated June 16, 2022, which identifies the revised director slate and the names of the 10 director nominees that will<br> stand for election at the Company’s AGM. |
| July<br> 19, 2022 | The<br> Company announced the voting results for the election of its Board which took place at the Company's AGM of Shareholders.<br> All nominees as set forth in the Company’s supplement were elected as directors of the Company at the AGM. |
| August<br> 8, 2022 | The<br> Company announced updates on its senior management team and Board of Directors including (i) Adrian Montgomery will remain<br> in his role as CEO until such time that a successor is named, at which point he will transition to the Chair of the Board<br> of Directors, (ii) Bill Karamouzis has been appointed as President of the Company, and (iii) John Albright has been appointed<br> Chair of the Board of Directors. |
| August<br> 23, 2022 | The<br> Company announced that its newest Web3 game, EV.IO, has sold out its latest NFT drop. The limited edition drop of 2,500 tokens<br> sold out in six hours on the Magic Eden marketplace. |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
| August<br> 24, 2022 | The<br> Company announced the launch of a new inclusivity campaign, Raise Your Game (“RYG”), which was created to support<br> women in gaming and raise awareness for this frequently overlooked, and very powerful, audience segment. |
|---|---|
| August<br> 31, 2022 | The<br> Company and the NFL announced a first-of-its-kind gaming collaboration bringing together NFL players and Legends with top<br> gaming content creators from marquee gaming organizations including Luminosity Gaming. This multi-year partnership will see<br> the launch of NFL TNG, where teams will compete head-to-head across popular video game titles. |
| September<br> 8, 2022 | The<br> Company announced a collaboration with Coinbase Global Inc. (“Coinbase”) (NASDAQ:COIN), one of the world’s<br> largest cryptocurrency platforms and a trusted leader in the Web3 space. The announcement introduces Coinbase as the preferred<br> infrastructure provider to power the Company’s portfolio of Web3-enabled games. |
| September<br> 12, 2022 | The<br> Company announced it has signed a media sponsorship deal with Hulu + Live TV, as the first official media sponsor of NFL TNG. |
| September<br> 13, 2022 | The<br> Company announced the opening week lineup for NFL TNG. A rotating roster of 12 NFL players or Legends and six gaming creators<br> will be split into six teams of three. Teams will compete head-to-head across three game titles each night, including EA SPORTS™<br> Madden NFL, Fall Guys, Fortnite, Rocket League, and other titles to be announced. |
| September<br> 19, 2022 | The<br> Company announced that it has secured an expansion of its existing term credit facility by way of amendment, increasing the<br> size of the facility from $10 million to $20 million. |
| September<br> 26, 2022 | The<br> Company announced it will host its next live event under its PGC brand in Helsinki, Finland from September 27-28. |
| September<br> 29, 2022 | The<br> Company announced the sale of certain video game editorial websites (the “Website Assets”) for a purchase price<br> of approximately $6.8 million, representing a multiple of approximately 4.5x associated revenue. Among the Website<br> Assets included as part of the sale are Destructoid.com, Siliconera.com, Upcomer.com, PCInvasion.com, Operationsports.com<br> and EscapistMagazine.com, together with their respective social media handles and the Company’s rights to certain legacy<br> domains and related content such as NintendoEnthusiast.com. |
| October<br> 24, 2022 | The<br> Company and NFL announced the debut of NFL Family Game Night, a new three-part special series of NFL TNG designed as<br> a platform for families and younger fans to play alongside their favorite players and gamers in a fun and entertaining format.<br> With the support of key new media sponsorships from Nickelodeon and Universal Pictures, alongside existing sponsor Hulu +<br> Live TV, NFL Family Game Night aims to deliver excitement for the entire family. |
| November<br> 4, 2022 | The<br> Company disclosed the receipt of a notice (the “Notice”) on November 3, 2022<br> from the Nasdaq that the Company is not currently in compliance with the USD$1.00 minimum<br> bid price requirement for continued listing of the Company’s common shares on the<br> Nasdaq Global Select Market, as set forth in Nasdaq Listing Rule 5450(a)(1) (the “Minimum<br> Bid Price Requirement”). The Notice indicated that, consistent with Nasdaq Listing<br> Rule 5810(c)(3)(A), the Company has 180 calendar days, or until May 2, 2023 (the “Compliance<br> Deadline”), to regain compliance with the Minimum Bid Price Requirement by having<br> the closing bid price of the common shares meet or exceed USD$1.00 per common share for<br> at least ten consecutive business days.<br><br> <br><br><br> <br>The<br> common shares will continue to trade on the Nasdaq Global Select Market at this time, and neither the Company’s<br> operations nor the Company’s TSX listing are affected by the receipt of the Notice. The Company intends to monitor<br> the closing bid price of the common shares and may, if appropriate, consider implementing available options to regain<br> compliance with the Minimum Bid Price Requirement. In the event the Company does not regain compliance by the Compliance<br> Deadline, the Company may be eligible for an extension to the Compliance Deadline, provided the Company meets any conditions<br> to such extension imposed by Nasdaq in connection therewith. If the Company does not regain compliance within the allotted<br> compliance periods, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the common<br> shares will be subject to delisting, subject to the right of the Company to appeal any such determination to a Nasdaq<br> hearings panel. |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
OVERALLPERFORMANCE
The comparative three months ended September 30, 2021, results below were prior to the Mergers and Acquisitions of Outplayed and FFS and include the results of Vedatis, Tabwire, GameKnot and Addicting Games from their respective date of acquisition. Vedatis was acquired on May 1, 2021, Tabwire was acquired on June 21, 2021, GameKnot was acquired on August 30, 2021, Addicting Games was acquired on September 3, 2021, Outplayed was acquired on November 22, 2021, and FFS was acquired on April 27, 2022. The operating results of these acquired entities have been included in the Company’s consolidated financial statements from the date of their respective acquisition.
Summaryof Financial and Operating Results
Forthe Three Months Ended September 30, 2022 and 2021
Selected financial information for the Company for the indicated period is provided below:
| Unaudited | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 |
|---|---|---|
| $ | $ | |
| Total<br> revenue | 50,578,758 | 43,341,907 |
| Cost<br> of sales | 34,018,169 | 33,216,294 |
| Gross<br> profit | 16,560,589 | 10,125,613 |
| Interest<br> income | (5,257) | (9,315) |
| Operating<br> expenses | 26,600,236 | 21,354,332 |
| Net<br> loss and comprehensive loss for the period | (30,189,879) | (12,302,971) |
| Net<br> loss per share – basic and diluted | (0.25) | (0.10) |
Revenue for the three months ended September 30, 2022 and 2021, was $50,578,758 and $43,341,907, respectively. The table below provides a breakdown of the revenue for the indicated period:
| Unaudited | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 |
|---|---|---|
| $ | $ | |
| Media<br> and content (a) | 44,497,111 | 38,704,379 |
| Esports<br> and entertainment (b) | 2,267,668 | 2,111,217 |
| Subscriptions<br> (c) | 3,813,979 | 2,526,311 |
| Total revenue | 50,578,758 | 43,341,907 |
Notes:
| (a) | Media<br> and content revenue predominantly consists of advertising revenue on the Company’s<br> web, video, and casual gaming platforms, and content licensing revenue. Q3 2022 media<br> and content revenue attributable to the video platform is $28.8 million, which decreased<br> $1.4 million compared to $30.2 million in Q3 2021. The decrease in media and content<br> revenue for Q3 2022, relating to the video platform, is mainly attributable to a decrease<br> in video views of 15% in Q3 2022 compared to Q3 2021, however, the revenue per thousand<br> impressions (“RPM”) for the video platform was 13% higher in Q3 2022 compared<br> to Q3 2021 due to an increase in the percentage of views monetized, which offset the<br> impact from the decrease in video views. Q3 2022 media and content revenue, excluding<br> the video platform, is $15.7 million, which increased $7.2 million compared to $8.5 million<br> in Q3 2021. The increase in media and content revenue for Q3 2022, when excluding the<br> video platform, is mainly due to an increase in direct sales attributable to the web<br> platform in Q3 2022, an increase in web pageviews of 38%, and the Mergers and Acquisitions<br> which contributed $2.3 million to Q3 2022 media and content revenue. The increase in<br> media and content revenue, excluding the video platform, was offset by a web RPM which<br> was 12% lower in Q3 2022 compared to Q3 2021, due to a decrease in spending from DSPs<br> in Q3 2022 compared to Q3 2021. |
|---|---|
| 17 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
Forthe Three Months Ended September 30, 2022 and 2021 (Continued)
| (a) | (Continued) |
|---|
The increase in direct sales and the Mergers and Acquisitions are significant drivers for the increase in gross profit as a percent of total revenue from 23.3% in Q3 2021 to 32.7% in Q3 2022. Video views (see Select Operating Metrics) were 6.1 billion in Q3 2022, compared to 7.2 billion in Q3 2021. In Q2 2022 certain large partner channels left the video network, which the Company elected for in order to reduce operating costs relating to these channels. In Q3 2022, the impact of the easing of COVID-19 restrictions from Q3 2021 on video views was offset by the Company deploying new content to TikTok. Web pageviews (see Select OperatingMetrics) were 3.6 billion in Q3 2022 compared to 2.6 billion in Q3 2021. The increase in web pageviews is mainly driven by the release of Elden Ring in February 2022 and the Mergers and Acquisitions.
| (b) | Esports<br> revenue is generated through sponsorships, prize money, merchandise sales, and other<br> esports related sources. Entertainment revenue mainly relates to PGC mobile gaming events<br> which occur throughout each year. Entertainment revenue increased to $1.5 million in<br> Q3 2022 compared to $0.8 million in Q3 2021, an increase of $0.7 million. The increase<br> in entertainment revenue is mainly attributable to PGC Toronto, which was an inaugural<br> live event held from July 6-7, 2022, and PGC Helsinki, which was a live event held from<br> September 27-28, 2022, whereas in Q3 2021, PGC Helsinki was a virtual event. Esports<br> revenue decreased to $0.8 million in Q3 2022 compared to $1.4 million in Q3 2021, a decrease<br> of $0.6 million. The decrease in esports revenue is mainly attributable to a decrease<br> in sponsorship revenue. |
|---|---|
| (c) | Subscription<br> revenue is generated from paid subscribers (see Select Operating Metrics) on the<br> Company’s web properties including TSR, Icy Veins, Tabstats, GameKnot, Addicting<br> Games, Shockwave, TeachMe, TypeRacer, Little Big Snake, U.GG, and FFS. As of September<br> 30, 2022, the Company has approximately 260,000 paid subscribers, compared to approximately<br> 207,000 paid subscribers as of September 30, 2021. The increase in subscription revenue<br> is primarily attributable to an increase in paid subscribers on TSR and Merger and Acquisitions.<br> TSR had approximately 168,000 paid subscribers as of September 30, 2021, this number<br> increased to approximately 190,000 paid subscribers as of September 30, 2022. TSR’s<br> subscribers pay on average approximately USD$4 per month to access its VIP features.<br> The cost of sales attributable to subscription revenue is nominal. |
| --- | --- |
Operating expenses for the three months ended September 30, 2022 and 2021, were $26,600,236 and $21,354,332 respectively. The table below provides a breakdown of operating expenses for the indicated period:
| Unaudited | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 |
|---|---|---|
| $ | $ | |
| Professional<br> fees (a) | 766,057 | 434,862 |
| Consulting<br> fees (b) | 1,338,329 | 725,408 |
| Advertising<br> and promotion (c) | 662,279 | 609,587 |
| Office<br> and general (d) | 2,288,057 | 1,963,965 |
| Annual<br> general meeting legal and advisory costs (e) | 1,149,396 | - |
| Salaries<br> and wages (f) | 9,325,237 | 6,574,338 |
| Technology<br> support, web development and content (g) | 6,050,270 | 3,146,453 |
| Esports<br> player, team and game expenses (h) | 623,913 | 1,615,655 |
| Foreign<br> exchange gain (i) | (480,528) | (1,060,724) |
| Share-based<br> compensation (j) | 821,811 | 4,971,949 |
| Amortization<br> and depreciation (k) | 4,055,415 | 2,372,839 |
| Total operating expenses | 26,600,236 | 21,354,332 |
Notes:
| (a) | Professional<br> fees relate to corporate activities and are mainly comprised of legal, audit, tax and<br> accounting fees. Professional fees increased $0.3 million in Q3 2022 as compared to Q3<br> 2021 due to increased corporate activity. |
|---|---|
| 18 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
Forthe Three Months Ended September 30, 2022 and 2021 (Continued)
| (b) | Consulting<br> fees include management consultants, investor relations services, and technology and<br> data evaluation services. Consulting fees increased by $0.6 million in Q3 2022 as compared<br> to Q3 2021 largely due to additional consulting fees for technology development relating<br> to the Mergers and Acquisitions. |
|---|---|
| (c) | Advertising<br> and promotion expense relates to corporate marketing, brand marketing, and brand ambassadors.<br> Advertising and promotion expense were relatively consistent in Q3 2022 as compared to<br> Q3 2021. |
| --- | --- |
| (d) | Office<br> and general costs increased by $0.3 million in Q3 2022 as compared to Q2 2021 mainly<br> due to the Mergers and Acquisitions. The Company maintains two offices in Toronto, Ontario,<br> two offices in Los Angeles, California, and one office in Austin, Texas. Two of these<br> offices were added in 2021 as part of the Mergers and Acquisitions. Occupancy costs are<br> included in office and general. |
| --- | --- |
| (e) | Annual<br> general meeting legal and advisory costs relate to non-recurring legal, advisory, and<br> other expenses incurred in relation to the Company’s contested 2022 AGM (see Significant Announcements During and Subsequent to the First, Second and Third Quarters of 2022). |
| --- | --- |
| (f) | The<br> Company has a staff of approximately 220 employees as of September 30, 2022, compared<br> to a staff of approximately 180 employees as of September 30, 2021. A significant portion<br> of the increase in staffing levels is attributable to the hiring of content, sales, sales<br> support employees, and the Mergers and Acquisitions. Furthermore, the increase was contributed<br> to from the Company adding a number of senior level roles in 2021, including several<br> EVP, SVP, and VP level positions. Salaries and wages also include commissions on direct<br> sales. Increased direct sales contributed to the increase in salaries and wages as direct<br> sales were $10.1 million in Q3 2022 compared to $6.8 million in Q3 2021. |
| --- | --- |
| (g) | Technology<br> support, web development and content costs relate to Media and Content and Esports and<br> Entertainment. Technology support, web development and content costs increased by $2.9<br> million in Q3 2022 as compared to Q3 2021 due to an increase in content and design costs<br> incurred on new and existing properties including NFL TNG and the integration of the<br> Mergers and Acquisitions. Technology support, web development and content costs include<br> $2.0 million of expenses relating to NFL TNG in Q3 2022, as compared to $Nil in Q3 2021. |
| --- | --- |
| (h) | Esports<br> player, team, and game expenses primarily relate to Luminosity Gaming, including but<br> not limited to player and influencer salaries, team housing, and team travel. Esports<br> player, team and games expense decreased $1.0 million in Q3 2022 compared to Q3 2021,<br> mainly due to lower average player and influencer salaries in Q3 2022 compared to Q3<br> 2022 despite headcount remaining relatively consistent. Additionally, channel partner<br> bonuses have decreased in Q3 2022 due to less new channel partners with signing bonus<br> being added in Q3 2022 compared to Q3 2021. |
| --- | --- |
| (i) | The<br> Company and its subsidiaries commonly transact and carry assets and liabilities in currencies<br> other than respective functional currencies. Foreign exchange gains or losses are caused<br> by movements in exchange rates. Therefore, the Company expects continued gains and losses<br> due to fluctuating exchange rates. |
| --- | --- |
| (j) | Share-based<br> compensation is a non-cash expense which relates to options and restricted share units<br> granted to directors, officers, employees, and consultants of the Company, which are<br> expensed over their respective vesting periods. Share-based compensation expense decreased<br> by $4.2 million in Q3 2022 as compared to Q3 2021 largely due to forfeitures, but also<br> driven by vesting periods, and black-scholes option pricing model inputs. In January<br> 2021, the Company issued 743,671 options and 1,251,162 restricted share units. In April<br> 2021, the Company issued 855,234 options and 1,242,577 restricted share units. In April<br> 2022, the Company issued 1,560,697 options and 1,922,877 restricted share units. |
| --- | --- |
| (k) | Amortization<br> and depreciation are significantly comprised of amortization of intangible assets arising<br> from the Mergers and Acquisitions. Amortization and depreciation expense increased by<br> $1.7 million in Q3 2022 as compared to Q3 2021 mainly due to the amortization of intangible<br> assets recognized upon the acquisitions of Vedatis and Tabwire in Q2 2021, GameKnot and<br> Addicting Games in Q3 2021, Outplayed in Q4 2021, and FFS in Q2 2022. |
| --- | --- |
| 19 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
Forthe Nine Months Ended September 30, 2022 and 2021
Selected financial information for the Company for the indicated period is provided below:
| Unaudited | Nine Months Ended September 30, 2022 | Nine Months EndedSeptember 30, 2021 |
|---|---|---|
| $ | $ | |
| Total<br> revenue | 148,865,324 | 110,421,843 |
| Cost<br> of sales | 103,470,191 | 86,345,922 |
| Gross<br> profit | 45,395,133 | 24,075,921 |
| Interest<br> income | (7,978) | (50,546) |
| Operating<br> expenses | 80,540,373 | 59,639,958 |
| Net<br> loss and comprehensive loss for the period | (56,243,171) | (38,703,612) |
| Net<br> loss per share – basic and diluted | (0.46) | (0.33) |
Revenue for the nine months ended September 30, 2022 and 2021, was $148,865,324 and $110,421,843 respectively. The table below provides a breakdown of revenue for the indicated period:
| Unaudited | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 |
|---|---|---|
| $ | $ | |
| Media<br> and content (a) | 131,752,864 | 99,145,101 |
| Esports<br> and entertainment (b) | 6,421,341 | 4,887,685 |
| Subscriptions<br> (c) | 10,691,119 | 6,389,057 |
| Total revenue | 148,865,324 | 110,421,843 |
Notes:
| (a) | Media<br>and content revenue predominantly consists of advertising revenue on the Company’s web, video and casual gaming platforms,<br>and content licensing revenue. For the nine months ended September 30, 2022, media and content revenue attributable to the video<br>platform is $82.3 million, which increased $5.3 million compared to $77.0 million for the nine months ended September 30, 2021.<br>The increase in media and content revenue for the nine months ended September 30, 2022, relating to the video platform, is mainly<br>attributable to an RPM which was 20% higher in the nine months ended September 30, 2022, compared to September 30, 2021. For the<br>nine months ended September 30, 2022, media and content revenue, excluding the video platform, is $49.5 million, which increased<br>$27.4 million compared to $22.1 million for the nine months ended September 30, 2021. The increase in media and content revenue<br>for the nine months ended September 30, 2022, when excluding the video platform, is mainly due to an increase in direct sales<br>attributable to the web platform in the nine months ended September 30, 2022, compared to September 30, 2021, a web RPM which<br>was 23% higher in the nine months ended September 30, 2022, compared to September 30, 2021, and the Mergers and Acquisitions contributed<br>$9.7 million to media and content revenue in the nine months ended September 30, 2022. The web RPM for the nine months ended September<br>30, 2021 was noticeably lower which the Company attributes to the COVID-19 pandemic and the effects of the prices of digital advertisements,<br>which have recovered in subsequent periods. |
|---|---|
| 20 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
Forthe Nine Months Ended September 30, 2022 and 2021 (Continued)
| (a) | (Continued) |
|---|
The increase in direct sales and the Mergers and Acquisitions are the main drivers for the increase in gross profit as a percent of total revenue from 21.8% for the nine months ended September 30, 2021 to 30.5% for the nine months ended September 30, 2022. Video views (see Select Operating Metrics) were 19.2 billion in the nine months ended September 30, 2022, compared to 22.4 billion in the nine months ended September 30, 2021, the decrease in video views offset the higher RPM on the video platform. Video views for the nine months ended September 30, 2021, were noticeably higher which the Company attributes to the COVID-19 pandemic and the related stay-at-home orders being enacted by governments worldwide, combined with the closing of schools in most jurisdictions. In addition, in the nine months ended September 30, 2022, certain large partner channels left the video network, which the Company elected for to reduce operating costs relating to these channels. Web pageviews (see Select Operating Metrics) were 11.8 billion in the nine months ended September 30, 2022 compared to 7.7 billion in the nine months ended September 30, 2021, the increase is mainly driven by the release of Elden Ring in February 2022 and the Mergers and Acquisitions.
| (b) | Esports<br>revenue is generated through the provision of management services to other esports entities, sponsorships, prize money, merchandise<br>sales, and other esports related sources. Entertainment revenue mainly relates to Pocket Gamer Connects mobile gaming events which<br>occur throughout each year. The increase in esports and entertainment revenue was caused by entertainment revenue increasing from<br>$1.4 million for the nine months ended September 30, 2021 to $3.6 million for the nine months ended September 30, 2022, an increase<br>of $2.2 million. This increase in entertainment revenue is mainly attributable to PGC London, Seattle, and Helsinki, the latter<br>two of which were live events in 2022 compared to virtual events in 2021, and the debut of PGC Toronto, held in July 2022. Live<br>events result in significantly more revenue and cost of sales compared to virtual events. Esports revenue decreased to $2.8 million<br>in nine months ended September 30, 2022 compared to $3.4 million in the nine months ended September 30, 2021, a decrease of<br>$0.6 million. This decrease in esports revenue is primarily driven by the termination of the CSE management agreement on April<br>1, 2021. |
|---|---|
| (c) | Subscription<br> revenue is generated from paid subscribers (see Select Operating Metrics) on the<br> Company’s web properties TSR, Icy Veins, Tabstats, GameKnot, Addicting Games, Shockwave,<br> TeachMe, TypeRacer, Little Big Snake, U.GG and FFS. As of September 30, 2022, the Company<br> has approximately 260,000 paid subscribers, compared to approximately 207,000 as of September<br> 30, 2021. The increase in subscription revenue is primarily attributable to an increase<br> in paid subscribers on TSR and the Merger and Acquisitions. TSR had approximately 168,000<br> paid subscribers as at September 30, 2021, this number increased to approximately 190,000<br> paid subscribers as at September 30, 2022. TSR’s subscribers pay on average approximately<br> USD$4 per month to access its VIP features. The cost of sales attributable to subscription<br> revenue is nominal. |
| --- | --- |
| 21 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
Forthe Nine Months Ended September 30, 2022, and 2021 (Continued)
Operating expenses for the nine months ended September 30, 2022 and 2021 were $80,540,373 and $59,639,958 respectively. The table below provides a breakdown of operating expenses for the indicated period:
| Unaudited | Nine Months Ended September 30, 2022 | NineMonths Ended September 30, 2021 |
|---|---|---|
| $ | $ | |
| Professional<br> fees (a) | 2,358,559 | 2,385,837 |
| Consulting<br> fees (b) | 4,593,506 | 3,111,761 |
| Advertising<br> and promotion (c) | 1,417,344 | 2,465,529 |
| Office<br> and general (d) | 7,232,551 | 4,836,416 |
| Annual<br> general meeting legal and advisory costs (e) | 3,386,596 | - |
| Salaries<br> and wages (f) | 27,135,015 | 16,768,850 |
| Technology<br> support, web development and content (g) | 13,309,341 | 7,239,996 |
| Esports<br> player, team and game expenses (h) | 3,618,761 | 4,609,978 |
| Foreign<br> exchange gain (i) | (1,105,730) | (2,136,979) |
| Share-based<br> compensation (j) | 5,336,617 | 14,690,294 |
| Amortization<br> and depreciation (k) | 13,257,813 | 5,668,276 |
| Total operating expenses | 80,540,373 | 59,639,958 |
Notes:
| (a) | Professional<br> fees relate to corporate activities and are mainly comprised of legal, audit, tax and<br> accounting fees. There was no significant change in professional fees in the nine months<br> ended September 30, 2022, compared to the nine months ended September 30, 2021. |
|---|---|
| (b) | Consulting<br> fees include management consultants, investor relations services, and technology and<br> data evaluation services, as well as fees pursuant to the Master Services Agreement with<br> the Vancouver Arena Limited Partnership (see Related Party Transactions). Consulting<br> fees increased by $1.5 million in the nine months ended September 30, 2022 as compared<br> to the nine months ended September 30, 2021 mainly due to additional consulting fees<br> for technology development, relating to the Mergers and Acquisition, and fees incurred<br> relating to the settlement of the deferred payment liability with Addicting Games and<br> Outplayed. This increase was offset by the termination of the Master Services Agreement<br> with Vancouver Arena Limited Partnership on April 1, 2021. |
| --- | --- |
| (c) | Advertising<br> and promotion expense relates to corporate marketing, brand marketing, and brand ambassadors.<br> Advertising and promotion expense decreased by $1.0 million in the nine months ended<br> September 30, 2022, as compared to the nine months ended September 30, 2021, due to a<br> decrease in corporate and brand marketing initiatives in the nine months ended September<br> 30, 2022, as compared to the nine months ended September 30, 2021. |
| --- | --- |
| (d) | Office<br> and general costs increased by $2.4 million in the nine months ended September 30, 2022,<br> as compared to the nine months ended September 30, 2021, mainly due to substantial increases<br> in insurance expense relating to the listing of the Company’s common shares on<br> the Nasdaq in April 2021 and the Mergers and Acquisitions. The Company also incurred<br> listing and sustaining fees as a result of the Nasdaq listing which are recognized into<br> office and general costs. These expenses commenced in April 2021 and are expected to<br> continue to be incurred. The Company maintains two offices in Toronto, Ontario, two offices<br> in Los Angeles, California, and one office in Austin, Texas. Two of these offices were<br> added in 2021 as part of the Mergers and Acquisitions. Occupancy costs are included in<br> office and general. |
| --- | --- |
| (e) | Annual<br> general meeting legal and advisory costs relate to non-recurring legal, advisory, and<br> other expenses incurred in relation to the Company’s contested 2022 AGM (see Significant Announcements During and Subsequent to the First, Second and Third Quarters of 2022). |
| --- | --- |
| 22 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
OVERALLPERFORMANCE (Continued)
Summaryof Financial and Operating Results (Continued)
Forthe Nine Months Ended September 30, 2022, and 2021 (Continued)
| (f) | The<br> Company has a staff of approximately 220 employees as of September 30, 2022, compared<br> to a staff of approximately 180 employees as of September 30, 2021. A significant portion<br> of the increase in staffing levels is attributable to the hiring of content, sales, sales<br> support employees, the commencement of Project GG in Q2 2021, and the Mergers and Acquisitions.<br> Furthermore, the increase was contributed to from the Company adding a number of senior<br> level roles in 2021, including several EVP, SVP, and VP level positions. Salaries and<br> wages also include commissions on direct sales. Increased direct sales contributed to<br> the increase in salaries and wages as direct sales were $24.6 million in the nine months<br> ended September 30, 2022, compared to $13.4 million in the nine months ended September<br> 30, 2021. |
|---|---|
| (g) | Technology<br> support, web development and content costs relate to Media and Content and Esports and<br> Entertainment. Technology support, web development and content costs increased by $6.1<br> million in the nine months ended September 30, 2022, as compared to the nine months ended<br> September 30, 2021, due to an increase in content and design costs incurred on new and<br> existing properties such as NFL TNG and increase in technology costs mainly due to the<br> integration of the Mergers and Acquisitions, and increased business activity. Technology<br> support, web development and content costs include $2.0 million of expenses relating<br> to NFL TNG for the nine months ended September 30, 2022, as compared to $Nil for September<br> 30, 2021. |
| --- | --- |
| (h) | Esports<br> player, team and game expenses relate to primarily to Luminosity Gaming, including but<br> not limited to player and influencer salaries, team housing, and team travel. There was<br> a decrease of $1.0 million in game expenses in the nine months ended September 30, 2022,<br> compared to the nine months ended September 30, 2021, mainly due to lower average salary<br> for players while maintaining a relatively consistent headcount. Additionally, channel<br> partner bonuses have decreased in the nine months ended September 30, 2022 due to less<br> new channel partners with signing bonus being added in the nine months ended September<br> 30, 2022 compared to September 30, 2021. |
| --- | --- |
| (i) | The<br> Company and its subsidiaries commonly transact and carry assets and liabilities in currencies<br> other than respective functional currencies. Foreign exchange gains or losses are caused<br> by movements in exchange rates. Therefore, the Company expects continued gains and losses<br> due to fluctuating exchange rates. |
| --- | --- |
| (j) | Share-based<br> compensation is a non-cash expense which relates to options and restricted share units<br> granted to directors, officers, employees, and consultants of the Company, which are<br> expensed over their respective vesting periods. Share-based compensation expense decreased<br> by $9.4 million in the nine months ended September 30, 2022, as compared to the nine<br> months ended September 30, 2021, largely due to forfeitures, but also driven by vesting<br> periods, and black-scholes option pricing model inputs. In January 2021, the Company<br> issued 743,671 options and 1,251,162 restricted share units. In April 2021, the Company<br> issued 855,234 options and 1,242,577 restricted share units. In April 2022, the Company<br> issued 1,560,697 options and 1,922,877 restricted share units. |
| --- | --- |
| (k) | Amortization<br> and depreciation are significantly comprised of amortization of intangible assets arising<br> from the Mergers and Acquisitions. Amortization and depreciation expense increased by<br> $7.6 million in the nine months ended September 30, 2022, as compared to the nine months<br> ended September 30, 2021, mainly due to the amortization of intangible assets recognized<br> upon the acquisitions of Vedatis and Tabwire in Q2 2021, GameKnot and Addicting Games<br> in Q3 2021, Outplayed in Q4 2021, and FFS in Q2 2022. |
| --- | --- |
| 23 | |
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
SELECTOPERATING METRICS
Financial results include the results of the Mergers and Acquisitions from the respective closing date of the acquisition transaction. Paid subscribers for Vedatis and Tabwire are included beginning in Q2 2021, paid subscribers for GameKnot and Addicting Games are included beginning in Q3 2021, paid subscribers for U.GG are included beginning in Q4 2021, and paid subscribers for FFS are included beginning in Q2 2022. The figures below do not include pro forma adjustments for Vedatis, Tabwire, GameKnot, Addicting Games, Outplayed and FFS.
| Quarterly Select Operating Metrics | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | Q4 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 |
| Total views (millions) | 9,852 | 9,896 | 10,395 | 9,825 | 9,576 | 11,251 | 10,048 | 9,729 |
| Web pageviews | 2,522 | 2,596 | 2,516 | 2,606 | 2,866 | 4,137 | 4,074 | 3,617 |
| Video views | 7,330 | 7,300 | 7,879 | 7,219 | 6,710 | 7,114 | 5,974 | 6,112 |
| Paid subscribers (thousands – as of end of period) | 122 | 137 | 155 | 207 | 220 | 233 | 258 | 260 |
Web pageviews relate historically to Enthusiast Properties. The Company seeks to grow existing properties, create or acquire new properties, and add new partner properties to the web platform. The web pageviews remained relatively consistent from Q4 2020 to Q3 2021. Web pageviews began to rise again in Q4 2021 and increased 44% in Q1 2022 compared to Q4 2021. Management attributes this increase to organic growth in traffic driven by content related to new game releases on both owned-and-operated and represented web properties, such as the Elden Ring game released in February 2022, as well as launch of desktop app for Outplayed. Web pageviews decreased 11.6% in Q3 2022 compared to Q2 2022, which management attributes to a decrease in traffic relating to the Elden Ring game following its initial surge upon launch.
Video views relate historically to Omnia which was acquired in Q3 2020. The video views remained relatively stable from Q4 2020 to Q1 2021. The video views 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. The video views decreased to 7.2 billion in Q3 2021, which the Company attributed to students returning back to school in Q3 2021. The video views decreased to 6.7 billion in Q4 2021, which the Company attributes to the Company shifting to video properties with a higher yield and the lingering effect of students returning to school and the continued easing of COVID-19 pandemic restrictions. The video views increased to 7.1 billion in Q1 2022 which the Company attributes to higher viewership on the video network and the Company deploying new content on TikTok. The video views decreased to 5.9 billion in Q2 2022, or 16.0% decrease from Q1 2022. This decrease specifically relates to certain large partner channels leaving the video network, which the Company elected for in order to reduce operating costs relating to these channels. Management also attributes the decrease to the reduction in the gaming category views across YouTube primarily driven from relaxed COVID-19 restrictions. The video views increased to 6.1 billion in Q3 2022, or 2.3% increase from Q2 2022, primarily driven from new content on TikTok in Q3 2022 and launch of NFL TNG in September 2022.
Paid subscribers relate primarily to TSR. TSR was acquired by Enthusiast Properties in Q1 2019. In Q4 2019 the Company began initiatives to increase the numbers of paid subscribers, including pricing analysis, promotional events, and marketing initiatives. In Q3 and Q4 2020 the Company established a team of employees focused exclusively on subscription efforts, and the Company attributes the additional increase in the number of paid subscribers observed in the table above primarily to these initiatives as well as the Mergers and Acquisitions. Across 2021 and 2022, approximately 74,000 paid subscribers were added from the Mergers and Acquisitions, with the remaining subscription growth being organic.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
QUARTERLYRESULTS OF OPERATIONS
| (Unaudited) | Q4 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 |
|---|---|---|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | $ | $ | $ | |
| Total<br> revenue | 42,471,103 | 30,022,335 | 37,057,601 | 43,341,907 | 56,942,443 | 47,167,538 | 51,119,028 | 50,578,758 |
| Interest<br> income | 10,853 | 18,320 | 22,911 | 9,315 | 983 | 1,401 | 1,320 | 5,257 |
| Operating<br> expenses | 12,524,904 | 18,734,942 | 19,550,684 | 21,354,332 | 25,679,125 | 24,822,370 | 29,117,767 | 26,600,236 |
| Net<br> loss and comprehensive loss | (6,949,471) | (13,565,128) | (12,835,513) | (12,302,971) | (12,861,272) | (12,241,359) | (13,811,933) | (30,189,879) |
| Loss<br> per share – basic and diluted | (0.06) | (0.12) | (0.11) | (0.10) | (0.10) | (0.08) | (0.12) | (0.25) |
The Company has been expanding its operations since the acquisition of Omnia in Q3 2020, which is the primary driver of the increase in total revenue and operating expenses from Q4 2020 through Q3 2022. The Mergers and Acquisitions contributed to the increase in total revenue and operating expenses observed in Q2 2021 through Q3 2022. In Q3 2022, the Company recognized a goodwill impairment charge on the Omnia cash-generating unit (“CGU”) and Addicting Games CGU which caused a significant increase in net loss and comprehensive loss observed in Q3 2022, see Goodwill Impairment.
For the closing dates of the Mergers and Acquisitions, see Description of Enthusiast Gaming Holdings.
Period-to-period results are also impacted by certain operating metrics (see Select Operating Metrics) and seasonality (see Seasonality).
SEASONALITY
The Company’s media and content division is impacted by seasonality which is linked to advertiser spend and consumer events. Advertising seasonality is driven by two main factors, RPM and traffic, which are interlinked factors that are tied to seasonal periods of time throughout the year. These seasonal periods of time are linked to cultural holidays, commercial holidays, or ad hoc events (e.g., election years).
Advertiser spend is impacted by their annual budgets, financial year-end date, cultural holidays, commercial holidays, ad hoc events, new brands, new campaigns and new products. Advertiser spend normally increases significantly for consumer spending events such as Black Friday, Christmas, Back to School, Valentine’s Day, and Easter which result in a corresponding increase in RPM. Advertiser spend increases substantially in Q4 as Black Friday and the December holiday season approaches. Advertiser spend can differ from consumer spend as consumers have different spending patterns and important events.
Q1 is typically the slowest part of the year historically, as most media spending occurs in Q4. As a result, Q1 normally reports the lowest media and content revenue and Q4 the highest media and content revenue. Q2 and Q3 media and content revenue varies depending on an advertiser’s financial year end, budgeted advertiser spends remaining and new brands, campaigns, and products being promoted.
Due to seasonality, the results of operations for any quarter are not necessarily indicative of the results of operations for the fiscal year.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
GOODWILLIMPAIRMENT
The Company performs its annual impairment tests at December 31 or at an interim date when events or changes in the business environment (triggering events) would more likely than not reduce the fair value of a CGU below its carrying value. During the nine months ended September 30, 2022, the Company concluded that there were triggering events requiring an impairment assessment due to overall macroeconomic conditions including but not limited to increasing interest rates, high inflation, and softening of digital advertisement demand and spending due to uncertain market economic outlook. In addition, during the three months ended September 30, 2022, there was a decline in the Company’s share price resulting in market capital being lower than the net assets of the Company as of September 30, 2022. As a result, the Company performed impairment testing as of September 30, 2022, and determined that impairment charges were necessary for the Omnia CGU of $14,082,162 (December 31, 2021 - $Nil) and the Addicting Games CGU of $17,199,124 (December 31, 2021 - $Nil) due to overall macroeconomic conditions. The Company’s analysis showed the value of Enthusiast Properties, TSR, Luminosity, Steel Media and Outplayed CGUs exceeds their carrying amount, ranging between 22% to 335% of recoverable amount compared to the carrying amount of the net assets. For key assumptions used to determine the recoverable amount of goodwill based on each CGU’s value-in-use refer to Note 10 of the Company’s condensed consolidated interim financial statements for the three and nine months ended September 30, 2022 and 2021.
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cashflow for the Nine Months Ended September 30, 2022
Net cash used in operating activities for the nine months ended September 30, 2022, was $19,504,360 (September 30, 2021 – $20,241,241). This was due to the net loss of $65,007,376 and was decreased by items not affecting cash such as goodwill impairment of $31,281,286, amortization and depreciation of $13,257,813, share-based compensation of $5,336,617, interest and accretion of $2,266,161, a loss on settlement of deferred payment liability of $3,302,824, and loss on derecognition of long-term debt of $482,282, and increased by items not affecting cash such as deferred tax recovery of $1,902,714, foreign exchange gain of $1,416,264, a gain on player buyouts of $505,197, a gain on revaluation of deferred payment liability $539,555, share of income from investment in associates and joint ventures $1,001,002, gain on settlement of accounts payable of $587,769, and gain on sale of intangible assets of $4,876,659. These non-cash items for the nine months ended September 30, 2022 were offset by changes in working capital including an increase in trade and other receivables of $2,476,193, an increase in prepaid expenses of $645,919, an increase in accounts payable and accrued liabilities of $2,479,331, and an increase in contract liabilities of $559,566. For the nine months ended September 30, 2021, net cash used in operating activities was significantly attributable to the net loss of $38,707,191 which was decreased by items not affecting cash such as amortization and depreciation of $5,668,276, share-based compensation of $14,690,294, interest and accretion of $606,060, a loss on settlement of vendor-take-back loan of $316,241, loss on revaluation of deferred payment liability of $122,346, shares for services of $110,565, change in fair value of investment of $444,764, and share of loss from investment in associates and joint ventures of $230,675, and increased by items not affecting cash such as deferred tax recovery of $255,273, and foreign exchange gain of $101,302. These non-cash items for the nine months ended September 30, 2021, were collectively offset by changes in working capital including an increase in trade and other receivables of $3,896,016, an increase in prepaid expenses of $2,584,504, an increase in accounts payable and accrued liabilities of $2,383,538, and an increase in contract liabilities of $881,756.
Net cash provided by financing activities for the nine months ended September 30, 2022, was $7,610,764 (September 30, 2021 – $76,167,144). This was predominantly attributable to proceeds from the long-term debt, net of transaction costs of $13,621,717, offset by repayment of long-term debt of $5,362,673, and lease payments of $705,075. For the nine months ended September 30, 2021, net cash provided by financing activities was significantly attributable to proceeds from the issuance of shares for offerings, net of transaction costs, of $95,150,810, proceeds from the exercise of options of $784,431, proceeds from long-term debt, net of transaction costs, of $944,787, which were collectively offset by repayment of long-term debt of $14,023,470, repayment of vendor-take-back loan of $6,158,329, and lease payments of $531,085.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
Cashflow for the Nine Months Ended September 30, 2022 (Continued)
Net cash from investing activities for the nine months ended September 30, 2022, was $4,299,160 (September 30, 2021 – cash used of $26,710,467). This was attributable to cash paid for mergers and acquisitions of $2,937,520, repayment of deferred payment liability of $472,833, which were collectively offset by cash acquired from mergers and acquisitions of $1,748,602, proceeds from sale of intangible assets of $5,460,959, proceeds from player buyouts, net of transaction costs, of $505,197. Net cash used in investing activities for the nine months ended September 30, 2021, was $26,710,467, which was primarily due to cash paid for acquisitions of $27,071,176, offset by cash acquired through mergers and acquisition of $489,107.
For the nine months ended September 30, 2022, and 2021, the Company had a net decrease in cash of $6,838,402 and a net increase in cash of $29,202,711, respectively. As a result, the Company had a cash balance as of September 30, 2022, and 2021, of $15,815,860 and $33,526,534, respectively.
Liquidity
Selected financial information about the Company’s financial position as of the indicated dates is provided below:
| (Unaudited) | September 30, 2022 | December 31, 2021 |
|---|---|---|
| $ | $ | |
| Cash | 15,815,860 | 22,654,262 |
| Total<br> assets | 354,120,384 | 387,783,170 |
| Total<br> liabilities | 89,663,929 | 125,014,849 |
| Share<br> capital, contributed surplus and accumulated other comprehensive income | 479,785,985 | 413,100,475 |
| Retained<br> earnings (deficit) | (215,339,530) | (150,332,154) |
| Working<br> capital (deficiency) | 12,010,278 | (9,181,911) |
Total liabilities at each reporting date are broken down as follows:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| (Unaudited) | (Audited) | |
| $ | $ | |
| Accounts<br> payable and accrued liabilities | 34,433,167 | 34,391,221 |
| Contract<br> liabilities | 4,797,857 | 3,890,569 |
| Income<br> tax payable | 403,375 | 114,094 |
| Current<br> portion of long-term debt | 2,000,000 | 2,000,000 |
| Current<br> portion of deferred payment liability | 2,172,633 | 27,244,146 |
| Current<br> portion of lease contract liabilities | 849,051 | 796,835 |
| Current<br> portion of other long-term debt | 8,016 | 11,121 |
| Long-term<br> debt | 16,547,428 | 7,681,867 |
| Long-term<br> lease contract liabilities | 1,410,008 | 2,213,512 |
| Long-term<br> portion of deferred payment liability | 1,752,038 | 20,794,275 |
| Other<br> long-term debt | 146,769 | 136,324 |
| Deferred<br> tax liability | 25,143,587 | 25,740,885 |
| Total liabilities | 89,663,929 | 125,014,849 |
During the nine months ended September 30, 2022, the Company incurred a net loss and comprehensive loss of $56,243,171 (September 30, 2021 – $38,703,612) and, as of that date, the Company had accumulated a deficit of $215,339,530 (December 31, 2021 – $150,332,154) and negative cash flows from operations of $19,504,360 (September 30, 2021 – $20,241,241). Whether and when the Company can attain profitability and positive cash flows from operations is uncertain.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
Liquidity(Continued)**
The Company has not yet realized profitable operations and has mainly relied on non-operational sources of financing to fund operations. Management has been able to raise sufficient funds to finance the Company’s operations, growth, and mergers and acquisitions in the past and may need to continue to do so to fund these activities in the future.
As of September 30, 2022, the Company has current assets of $56,674,377 (December 31, 2021 - $59,266,075) and current liabilities of $44,664,099 (December 31, 2021 - $68,447,986) resulting in a working capital of $12,010,278 (December 31, 2021 – working capital deficiency of $9,181,911).
As of September 30, 2022, the Company’s working capital of $12,010,278 includes contract liabilities of $4,797,857 and the current portion of deferred payment liability of $2,172,633, of which $1,448,422 can be settled through issuance of common shares at Company’s option. The working capital will be used to finance operations, growth, and mergers and acquisitions over the next 12 months. The Company also has other cash commitments of $733,000 (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 an operating credit consisting of an authorized amount of up to $5 million available to draw upon. As of September 30, 2022, the balance on this operating credit is $Nil. For a detail on the operating credit see Note 13 of the condensed consolidated interim financial statements for the nine months ended September 30, 2022. The Company has not identified any legal or practical restrictions on its ability to meet its obligations.
CapitalManagement
The Company considers its capital structure to consist of shareholders’ equity, long-term debt, and deferred payment liability. The Company manages its capital structure and makes adjustments to it in order to have the funds available to support the acquisition and development of its business. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The Company is dependent on external 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 nine months ended September 30, 2022. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements aside from the covenants described in Note 13 of the condensed consolidated interim financial statements for the nine months ended September 30, 2022.
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.
Refer to Significant Announcements During and Subsequent to the First, Second and Thirds Quarters of 2022 for a Notice received from the Nasdaq that the Company is not currently in compliance with the USD$1.00 minimum bid price requirement for continued listing of the Company’s common shares on the Nasdaq Global Select Market and the Company’s planned course of action regarding the Notice.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
ShareCapital
Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
During the period ended September 30, 2022:
| (i) | On<br> February 14, 2022, the Company issued the remaining 35,770 common shares to be issued<br> relating to the Outplayed SPA. |
|---|---|
| (ii) | On<br> February 28, 2022, the Company issued 111,267 common shares to settle the GameKnot Deferred<br> Payment liability (see Note 15 of the condensed consolidated interim financial statements<br> for the three and nine months ended September 30, 2022). |
| --- | --- |
| (iii) | The<br> Company received proceeds of $69,821 from the exercise of 74,051 stock options. The fair<br> value assigned to these stock options of $239,899 was reclassified from contributed surplus<br> to share capital. |
| --- | --- |
| (iv) | On<br> June 2, 2022, the Company issued 348,852 common shares to settle the Vedatis Deferred<br> Payment liability (see Note 15 of the condensed consolidated interim financial statements<br> for the three and nine months ended September 30, 2022). |
| --- | --- |
| (v) | On<br> June 2, 2022, the Company issued 4,319,996 common shares to settle the Addicting Games<br> Deferred Payment liability (see Note 15 of the condensed consolidated interim financial<br> statements for the three and nine months ended September 30, 2022). |
| --- | --- |
| (vi) | On<br> June 2, 2022, the Company issued 11,499,998 common shares to settle the Outplayed Deferred<br> Payment liability and Outplayed Earn-Out Payment liability (see Note 15 of the condensed<br> consolidated interim financial statements for the three and nine months ended September30,<br> 2022). |
| --- | --- |
| (vii) | On<br> July 25, 2022 the Company issued 307,692 common shares to settle accounts payable of<br> $800,000 related to annual general meeting costs. The Company recorded a gain on settlement<br> of accounts payable of $95,385 based on a share price of $2.29 per share. This gain been<br> netted against the annual general meeting legal and advisory costs in the condensed consolidated<br> interim statement of loss and comprehensive loss. |
| --- | --- |
| (viii) | On<br> September 19, 2022 the Company issued 790,633 common shares to settle accounts payable<br> of $1,757,396 related to annual general meeting legal and advisory costs and consulting<br> fees. The Company recorded a gain on settlement of accounts payable of $492,383 based<br> on a share price of $1.60 per share. A gain of $288,679 has been netted against the annual<br> general meeting legal and advisory costs and the remaining gain of $203,704 has been<br> netted against the consulting fees in the condensed consolidated interim statement of<br> loss and comprehensive loss. |
| --- | --- |
During the nine months ended September 30, 2021:
| (i) | The<br> Company received proceeds of $784,431 from the exercise of 363,176 stock options. The<br> fair value assigned to these stock options of $620,892 was reclassified from contributed<br> surplus to share capital. |
|---|---|
| (ii) | The<br> Company issued 2,835,289 common shares from the conversion of convertible debentures. |
| --- | --- |
| (iii) | On<br> January 20, 2021, the Company issued 429,354 common shares to settle the remaining Steel<br> Media deferred payment liability (see Note 15 of the condensed consolidated interim financial<br> statements for the three and nine months ended September 30, 2021). |
| --- | --- |
| (iv) | On<br> 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<br> cash share issuance cost of $2,704,571 relating to the February Offering. |
| --- | --- |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
FINANCIALCONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
ShareCapital (Continued)
During the period ended September 30, 2021: (Continued)
| (v) | On<br> May 4, 2021, the Company issued 226,563 common shares in connection with the closing<br> of the Vedatis SPA. |
|---|---|
| (vi) | In<br> June 2021, the Company offered and sold a total of 8,600,000 common shares resulting<br> in gross proceeds of $60,137,755 (USD $49,450,000) (the “June Offering”).<br> The Company incurred cash share issuance cost of $4,734,624 relating to the June Offering. |
| --- | --- |
| (vii) | On<br> June 21, 2021, the Company issued 790,094 common shares in connection with the closing<br> of the Tabwire EPA. |
| --- | --- |
| (viii) | On<br> August 30, 2021, the Company issued 165,425 common shares in connection with the closing<br> of the GameKnot EPA. |
| --- | --- |
| (ix) | On<br> September 3, 2021, the Company issued 2,661,164 common shares in connection with the<br> closing of the Addicting Games SPA. |
| --- | --- |
DISCLOSUREOF OUTSTANDING SHARE DATA
The Company had the following shares and securities convertible into shares outstanding as of the following dates:
| November 14, 2022 | September 30, 2022 | December 31, 2021 | |
|---|---|---|---|
| Common<br> shares | 151,055,477 | 151,037,518 | 133,549,269 |
| Options,<br> convertible into common shares | 4,835,062 | 4,891,021 | 3,923,491 |
| Restricted<br> share units | 3,755,896 | 3,773,526 | 2,455,697 |
| Total | 159,646,435 | 159,702,065 | 139,928,457 |
RELATEDPARTY TRANSACTIONS
The Company's key management personnel have authority and responsibility for overseeing, planning, directing and controlling the activities of the Company. Key management personnel include members of the Board of Directors, Chief Executive Officer, Chief Financial Officer, former Chief Corporate Officer, Chief Corporate Officer and 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 three and nine months ended September 30, 2022, and 2021 is as follows:
| (Unaudited) | For the three months ended | For the nine months ended | ||
|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| $ | $ | $ | $ | |
| Short-term<br> benefits | 369,398 | 648,419 | 2,637,648 | 1,925,223 |
| Share-based<br> compensation | 185,344 | 2,864,207 | 3,603,210 | 10,896,188 |
| Total | 554,742 | 3,512,626 | 6,240,858 | 12,821,411 |
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| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
RELATEDPARTY TRANSACTIONS (Continued)
A summary of other related party transactions during the three and nine months ended September 30, 2022, and 2021 is as follows:
| (Unaudited) | For the three months ended | For the nine months ended | ||
|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| $ | $ | $ | $ | |
| Total<br> transactions during the year: | ||||
| Revenue | - | 9,361 | 702,066 | |
| Expenses | ||||
| Consulting<br> fees | 160,226 | 129,350 | 446,150 | 810,214 |
| Interest<br> and accretion | - | - | - | 282,838 |
| Loss<br> on settlement of vendor-take-back loan | - | - | - | 316,241 |
| Share<br> of (income) loss from investment in associates and joint ventures | 67,719 | 133,145 | (1,160,223) | 205,405 |
A summary of related party balances as of September 30, 2022, and December 31, 2021 is as follows:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| (Unaudited) | (Audited) | |
| $ | $ | |
| Balances<br> receivable (payable): | ||
| Trade<br> and other receivables | 67,184 | 3,734,410 |
| Loans<br> receivable | - | 125,995 |
| Investment<br> in associates and joint ventures | 43,292 | 885,269 |
| Accounts<br> payable and accrued liabilities | (388,993) | (382,794) |
| Contract<br> liabilities | - | (55,434) |
On On August 27, 2019, the Company entered into a Management Services Agreement (the “Management SA”) with AIG eSports LP, a former related party by nature of it being under the control or direction of the former Chairman of the Company, as well as a Master Services Agreement (the “Master SA”) with Vancouver Arena Limited Partnership, a former related party by nature of it being under the control or direction of the former 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 nine months ended September 30, 2022, the Company recognized management revenue of $Nil (September 30, 2021 - $379,125) relating to the Management SA, and recognized consulting expenses of $Nil (September 30, 2021 - $379,125) relating to the Master SA. As of December 31, 2021, a balance of $452,730 is included in trade and other receivables.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
RELATEDPARTY TRANSACTIONS (Continued)
On April 6, 2020, the Company entered into an Exchange of Marketing Rights and Benefits Agreement with AIG eSports LP and Surge eSports LLC, former related parties by nature of them being under the control or direction of the former 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 nine months ended September 30, 2022, the Company recognized media advertising revenue of $Nil (September 30, 2021 - $16,578) pursuant to the Exchange of Marketing Rights and Benefits Agreement. As of December 31, 2021, a balance of $55,434 is included in contract liabilities for media advertising services to be provided by the Company to AIG eSports and Surge eSports LLC.
As of December 31, 2021, a balance of $29,952 and $24,427 is due to AIG eSports LP and Surge eSports LLC, respectively, which is included in accounts payable and accrued liabilities, relating to team sponsorship fees payable
As of December 31, 2021, trade and other receivables include $3,225,177 of amounts advanced to Surge eSports LLC, a former related party by nature of it being under the control or direction of the former 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 from Blue Ant Media Solutions Inc. (“Blue Ant”), following the acquisition Blue Ant and its affiliated companies are related parties to the Company. As of July 19, 2021, Blue Ant held less than 10% of the issued outstanding common shares of the Company and is no longer a related party of the Company. During the period from January 1, 2021 to September 30, 2021, the Company earned media revenue of $306,363 from Blue Ant and its affiliated companies.
A vendor-take-back (“VTB”) loan payable to Blue Ant of $5,750,000 arose on the acquisition of Omnia on August 30, 2020. On June 17, 2021, the Company settled the VTB by paying the principal balance of $5,750,000 and accrued interest of $408,329. During the nine months ended September 30, 2021, the Company recognized $255,792 of interest expense and $27,046 of accretion expense on the VTB loan which is included in interest and accretion expenses in the condensed consolidated interim statement of loss and comprehensive loss. During the nine months ended September 30, 2021, the Company also recognized a loss on settlement of the VTB loan of $316,241 which is included in the condensed consolidated interim statement of loss and comprehensive loss.
During the nine months ended September 30, 2022, the Company recognized consulting expenses of $50,062 (September 30, 2021 - $56,212) to Rivonia Capital Inc., a company in which a director of the Company is a principal. As of September 30, 2022, a balance of $7,063 (December 31, 2021 - $7,063) is included in account payable and accrued liabilities.
During the nine months ended September 30, 2022, the Company recognized consulting expense of $Nil (September 30, 2021 - $74,253) to Franchise Agency LLC, an agency which represents a director of the Company. As of September 30, 2022, a balance of $Nil (December 31, 2021 - $55,654) is included in account payable and accrued liabilities.
During the nine months ended September 30, 2022 the Company recognized $396,088 (September 30, 2021 - $300,624) in consulting fees relating to Board of Director and committee fees to certain directors. As of September 30, 2022, a balance of $381,930 (December 31, 2021
- $265,698) is included in account payable and accrued liabilities.
As of September 30, 2022, a balance of $67,184 (December 31, 2021 - $56,503) is included in trade and other receivables from AFK, a related party by nature of it having common management as the Company, refer to Note 7 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022.
As of September 30, 2022, the Company has loans receivable due from the former President and Chief Corporate Officer of $Nil (December 31, 2021 - $80,297) and $Nil (December 31, 2021 - $45,698) respectively. The loans receivable were non-interest bearing and due on demand.
See Note 7 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022for information relating to an investment in associates controlled by a former related party. The investment in associates are no longer a related party as of July 19, 2022. During the period from January 1, 2021 to July 19, 2022, the Company’s share of net income from investment is associates is $1,160,223 (September 30, 2021 – net loss of $205,405).
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
RELATEDPARTY TRANSACTIONS (Continued)
See Note 7 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022, for information relating to an investment in a joint venture under common management as the Company.
See Note 17 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022, for information relating to stock options issued to officers and directors of the Company.
See Note 18 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022, for information relating to restricted share units issued to officers and directors of the Company.
SUBSEQUENTEVENT
| (i) | On<br> October 28, 2022, 17,959 stock options exercisable at $0.80 were exercised. |
|---|
OFF-BALANCESHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.
SEGMENTEDINFORMATION
The Company operates in one industry segment of digital media and entertainment. The majority of the Company’s assets are located in Canada and the United States of America (“USA”). The Company sells into three major geographic centers: USA, Canada and other foreign countries. The Company has determined that it has a single reportable segment as the Company’s decision makers reviews information on a consolidated basis.
Revenues by pillar for the three and nine months ended September 30, 2022 and 2021 is as follows:
| (Unaudited) | For the three months ended | For the nine months ended | ||
|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| $ | $ | $ | $ | |
| Media<br> and content | 44,497,111 | 38,704,379 | 131,752,864 | 99,145,101 |
| Esports<br> and entertainment | 2,267,668 | 2,111,217 | 6,421,341 | 4,887,685 |
| Subscription | 3,813,979 | 2,526,311 | 10,691,119 | 6,389,057 |
| Total | 50,578,758 | 43,341,907 | 148,865,324 | 110,421,843 |
Revenue, in Canadian dollars, in each of these geographic locations for the three and nine ended September 30, 2022 and 2021 is as follows:
| (Unaudited) | For the three months ended | For the nine months ended | ||
|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| $ | $ | $ | $ | |
| Canada | 1,100,958 | 485,943 | 2,975,656 | 1,700,626 |
| USA | 42,971,739 | 38,451,296 | 128,133,302 | 97,337,615 |
| England<br> and Wales | 3,082,577 | 1,868,814 | 7,712,577 | 4,239,601 |
| All<br> other countries | 3,423,484 | 2,535,854 | 10,043,789 | 7,144,001 |
| Total | 50,578,758 | 43,341,907 | 148,865,324 | 110,421,843 |
| 33 | ||||
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
SEGMENTEDINFORMATION (Continued)
The non-current assets, in Canadian dollars, in each of the geographic locations as of September 30, 2022 and December 31, 2021 is as follows:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| (Unaudited) | (Audited) | |
| $ | $ | |
| Canada | 153,860,378 | 169,761,447 |
| USA | 134,578,561 | 153,549,460 |
| France | 3,387,020 | 3,453,744 |
| England<br> and Wales | 5,620,048 | 1,752,444 |
| Total | 297,446,007 | 328,517,095 |
ADOPTIONOF NEW OR AMENDED IFRS ACCOUNTING STANDARDS
No new IFRS accounting standards, interpretations or amendments were adopted during the nine months ended September 30, 2022.
SIGNIFICANTACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated interim financial statements and notes to the condensed consolidated interim financial statements. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the estimates are revised. Significant areas requiring the Company to make estimates include goodwill impairment testing and recoverability of assets, identification and valuation of intangible assets acquired in business combinations, estimated useful life of long-lived assets, income taxes, the fair value of share-based payments, provisions for expected credit losses, fair value measurement of an investment not quoted in an active market and recognition of revenue on a gross versus net basis. These estimates and judgments are further discussed below:
| (a) | Goodwill<br> impairment testing and recoverability of assets |
|---|
In evaluating impairment, the Company determines the recoverable amount based on an assessment of value-in-use using a discounted cash flow approach. In determining the estimated recoverable amount, the Company’s significant assumptions include expected future cash flows, terminal growth rates and discount rates. The approach uses cash flow projections based upon a financial forecast approved by management, covering a five-year period. Cash flows for the years thereafter are extrapolated using the estimated terminal growth rate. The risk premiums expected by market participants related to uncertainties about the industry and assumptions relating to future cash flows may differ or change quickly, depending on economic conditions and other events.
| (b) | Identification<br> 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.
| 34 |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
SIGNIFICANTACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)
| (c) | Estimated<br> 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<br> 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<br> payments |
|---|
The fair value of all share-based payments granted are determined using the Black-Scholes option pricing model which incorporates assumptions regarding risk-free interest rates, dividend yield, expected volatility, estimated forfeitures, and the expected life of options. The Company has a significant number of options outstanding and expects to continue to make option grants.
| (f) | Provision<br> for expected credit losses (“ECLs”) |
|---|
The Company performs impairment testing annually for trade receivables in accordance with IFRS 9. The ECL model requires considerable judgment, including consideration of how changes in economic factors affect ECLs, which are determined on a probability-weighted basis. IFRS 9 outlines a three-stage approach to recognizing ECLs which is intended to reflect the increase in credit risks of a financial instrument based on i) 12-month expected credit losses, or ii) 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.
| (g) | Recognition<br> of revenue on a gross versus net basis |
|---|
The Company follows the guidance provided in IFRS 15, Revenue from Contracts with Customers, for determining whether the Company is the principal or an agent in arrangements with customers that involve another party that contributes to providing a specified service to a customer. In these instances, the Company determines whether it controls the promised specified service itself (as principal) or arranges for the specified service to be provided by another party (as an agent). This determination depends on the facts and circumstances of each arrangement and, in some instances, involves significant judgment.
ACCOUNTINGSTANDARDS AND AMENDMENTS ISSUED BUT 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 Nine Months Ended September 30, 2022
FINANCIALINSTRUMENTS AND RISK MANAGEMENT
Fairvalues
The fair values of cash, investments, trade and other receivables, loans receivable, accounts payable and accrued liabilities and contract liabilities approximate their carrying values due to the relatively short-term nature of these financial instruments. The fair value of long-term debt, lease contract liabilities, deferred payment liability and other long-term debt loan is based on observable market data and the calculation of discounted cash flows. Discount rates were determined based on current terms and conditions observed in the credit market.
The Company follows a three-tier categorization for its financial instruments as a framework for disclosing fair value based upon inputs used to value the Company’s investments. The hierarchy is summarized as:
| ● | Level<br>1 – quoted prices (unadjusted) in active markets for identical assets and liabilities |
|---|---|
| ● | Level<br>2 – inputs that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices)<br>from observable market data |
| --- | --- |
| ● | Level<br>3 – inputs for assets and liabilities not based upon observable market data |
| --- | --- |
As of September 30, 2022, the Vedatis Earn-Out Payment liability is classified as a Level 3 financial instrument (see Note 15 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022).
Total interest income and interest expense for the three and nine months ended September 30, 2022, and 2021 for financial assets or financial liabilities that are not at fair value through profit or loss can be summarized as follows:
| (Unaudited) | For the three months ended | For the nine months ended | ||
|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| $ | $ | $ | $ | |
| Interest<br> income | (5,257) | (9,315) | (7,978) | (50,546) |
| Interest<br> and accretion expense | 414,203 | 430,538 | 2,963,981 | 1,702,839 |
| Net interest expense | 408,946 | 421,223 | 2,956,003 | 1,652,293 |
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:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| (Unaudited) | (Audited) | |
| $ | $ | |
| Trade<br> receivables aging: | ||
| 0-30<br> days | 24,582,051 | 26,263,555 |
| 31-60<br> days | 1,247,477 | 685,112 |
| 61-90<br> days | 1,478,140 | 868,473 |
| Greater<br> than 90 days | 2,841,559 | 2,217,521 |
| Total trade receivables | 30,149,227 | 30,034,661 |
| Expected<br> credit loss provision | (59,181) | (58,472) |
| Net trade receivables | 30,090,046 | 29,976,189 |
| 36 | ||
| --- |
Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
FINANCIALINSTRUMENTS AND RISK MANAGEMENT (Continued)
Credit risk (Continued)
The movement in the expected credit loss provision can be reconciled as follows:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| (Unaudited) | (Audited) | |
| $ | $ | |
| Expected<br> credit loss provision: | ||
| Expected<br> credit loss provision, beginning balance | (58,472) | (67,466) |
| Recoveries | - | 8,504 |
| Effect<br> of movement in exchange rates | (709) | 490 |
| Expected credit loss provision, ending balance | (59,181) | (58,472) |
The following default rates, determined based on historical default rates based on the aging of trade receivables, are used to calculate the expected credit loss provision on trade receivables as of September 30, 2022:
| (Unaudited) | Total | Not past due | Over 30 days past due | Over 60 days past due | Over 90 days past due |
|---|---|---|---|---|---|
| Default<br> rates | 0.05% | 0.32% | 0.82% | 1.04% | |
| Trade<br> receivables | 30,149,227 | 24,582,051 | 1,247,477 | 1,478,140 | 2,841,559 |
| Expected<br> credit loss provision | 59,181 | 13,300 | 4,054 | 12,137 | 29,690 |
All of the Company’s cash is held with major financial institutions and thus the exposure to credit risk is considered insignificant. Management actively monitors the Company’s exposure to credit risk under its financial instruments.
Concentrationrisk
The Company has one customer which makes up more than 10% of revenue. This customer accounts for approximately 31.52% (December 31, 2021 – 46.58%) of trade receivables as of September 30, 2022, 55.93% (September 30, 2021 – 67.24%) of revenues for the three months ended September 30, 2022 and 56.20% (September 30, 2021 – 70.91%) of revenues for the nine months ended September 30, 2022.
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.
| (Unaudited) | Less than one year | One to two years | Two to three years | More than three years | Total |
|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | |
| Accounts<br> payable and accrued liabilities | 34,433,167 | - | - | - | 34,433,167 |
| Contract<br> liabilities | 4,797,857 | - | - | - | 4,797,857 |
| Income<br> tax payable | 403,375 | - | - | - | 403,375 |
| Deferred<br> payment liability ^(1)^ | 2,264,700 | 75,490 | - | 1,722,044 | 4,062,234 |
| Lease<br> contract liabilities | 952,681 | 858,261 | 554,324 | 425,027 | 2,790,293 |
| Long-term<br> debt | 2,000,000 | 16,500,000 | - | - | 18,500,000 |
| Other<br> Long-term debt | 8,016 | 12,024 | 12,024 | 385,810 | 417,874 |
| Total | 44,859,796 | 17,445,775 | 566,348 | 2,532,881 | 65,404,800 |
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
FINANCIALINSTRUMENTS AND RISK MANAGEMENT (Continued)
Liquidity Risk (Continued)
Notes:
| (1) | The<br> Company has, at its option, the ability to settle $1,509,800 of the deferred payment<br> liability amounts due in less than one year either in cash or common shares. The Company<br> has, at its option, the ability to settle the deferred payment liability amounts due<br> in more than three years half in cash and half in common shares. |
|---|
Foreign currency risk
A large portion of the Company’s transactions occur in foreign currencies (including US dollars, UK pound sterling, and Euro) and, therefore, the Company is exposed to foreign currency risk at the end of the reporting period through its US dollars, UK pound sterling, and Euro denominated trade and other receivables, accounts payable and accrued liabilities, deferred payment liability and cash. As of September 30, 2022, a 10% depreciation or appreciation of the US dollar, UK pound sterling, and Euro against the Canadian dollar would have resulted in an approximate $436,000, $238,000 and $83,000 decrease or increase, respectively, in total net loss and comprehensive loss.
Interest rate risk
The Company’s long-term debt bears interest at Banker’s Acceptance fee equal to CDOR rate plus 7.5%. Fluctuations in the Banker’s Acceptance fee equal to CDOR rate will result in changes to the months interest expense. A change in the annual interest rate of 0.50% would approximately result in a $84,000 change in the annual interest expense.
COMMITMENTS
In addition to the financial liabilities summarized above, as of September 30, 2022, the Company has the following payment commitments with respect to consulting and other contractual obligations:
| (Unaudited) | $ |
|---|---|
| Not<br> later than one year | 733,000 |
| Later<br> than one year and not later than five years | 860,000 |
| Total | 1,593,000 |
Further, the Company is subject to capital commitments pursuant to its investments in AIG Canada and AIG USA, see Note 7 of the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022, as well as Surge eSports LLC which is being established under a similar structure. If the Company fails to make any capital contributions, as required, it may be subject to certain actions including the loss of rights or a reduction in equity ownership in order to satisfy the capital contribution requirements.
CONTROLSAND PROCEDURES
DisclosureControls and Procedures
Management is responsible for the design and effectiveness of disclosure controls and procedures to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, which is required to be disclosed by the Company in its filings or required to be submitted by the Company under securities legislation is recorded, processed, and summarized and reported within specified time periods. The Company’s Chief Executive Officer and Chief Financial Officer have each evaluated the design of the Company’s disclosure controls and procedures as of September 30, 2022 and have concluded that these controls and procedures were appropriately designed.
InternalControls over Financial Reporting
There have been no material changes in the Company’s internal control over financial reporting during the nine months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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Enthusiast Gaming Holdings Inc.
Management Discussion and Analysis
For the Three and Nine Months Ended September 30, 2022
RISKSAND UNCERTAINTIES
The securities of Enthusiast Gaming should be considered highly speculative due to the nature of the Company’s businesses and the current stage of its development. Risks and uncertainties are discussed in great detail in the Company’s Annual Information Form available on SEDAR at www.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 interim financial statements for the three and nine months ended September 30, 2022, 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’SRESPONSIBILITY FOR FINANCIAL STATEMENTS
The information provided in this report, is the responsibility of management. During the preparation of financial statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the accompanying financial statements.
Management maintains a system of internal controls to provide reasonable assurance that the Company’s assets are safeguarded and to facilitate the preparation of relevant and timely information.
The Company’s Board of Directors follows recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders. The Company’s Audit Committee meets with management quarterly to review the financial statement results, including the MD&A, and to discuss other financial, operating, and internal control matters. The Audit Committee receives a report from the independent auditors quarterly and is free to meet with them throughout the year.
ADDITIONALINFORMATION
Additional information relating to the Company is available in the condensed consolidated interim financial statements of the Company for the three and nine months ended September 30, 2022. 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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Exhibit99.2
| Enthusiast<br> Gaming Holdings Inc.<br><br> <br>Condensed Consolidated<br> Interim Financial Statements<br><br> <br>For the Three and Nine<br> Months Ended September 30, 2022<br><br> <br>(Expressed In Canadian<br> Dollars)<br><br> <br>Unaudited |
|---|
| Q3 2022 |
| --- |
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| Note | September 30, 2022 | December 31, 2021 | |
|---|---|---|---|
| ASSETS | |||
| Current | |||
| Cash | $ 15,815,860 | $ 22,654,262 | |
| Trade and other receivables | 6 | 37,579,516 | 33,801,990 |
| Investments | 131,858 | 131,342 | |
| Loans receivable | 19 | 50,935 | 176,931 |
| Income tax receivable | 305,105 | 356,366 | |
| Prepaid expenses | 2,791,103 | 2,145,184 | |
| Total current assets | 56,674,377 | 59,266,075 | |
| Non-current | |||
| Property and equipment | 8 | 198,528 | 247,988 |
| Right-of-use assets | 11 | 2,355,477 | 2,885,662 |
| Investment in associates and joint ventures | 7 | 1,886,271 | 885,269 |
| Long-term portion of prepaid expenses | 283,181 | 261,922 | |
| Intangible assets | 9 | 120,526,179 | 129,138,595 |
| Goodwill | 10 | 172,196,371 | 195,097,659 |
| Total Assets | $ 354,120,384 | $ 387,783,170 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||
| Current | |||
| Accounts payable and accrued liabilities | 12 | $ 34,433,167 | $ 34,391,221 |
| Contract liabilities | 4,797,857 | 3,890,569 | |
| Income tax payable | 403,375 | 114,094 | |
| Current portion of long-term debt | 13 | 2,000,000 | 2,000,000 |
| Current portion of deferred payment liability | 15 | 2,172,633 | 27,244,146 |
| Current portion of lease contract liabilities | 11 | 849,051 | 796,835 |
| Current portion of other long-term debt | 14 | 8,016 | 11,121 |
| Total current liabilities | 44,664,099 | 68,447,986 | |
| Non-current | |||
| Long-term debt | 13 | 16,547,428 | 7,681,867 |
| Long-term portion of deferred payment liability | 15 | 1,410,008 | 20,794,275 |
| Long-term portion of lease contract liabilities | 11 | 1,752,038 | 2,213,512 |
| Other long-term debt | 14 | 146,769 | 136,324 |
| Deferred tax liability | 25,143,587 | 25,740,885 | |
| Total liabilities | $ 89,663,929 | $ 125,014,849 | |
| Shareholders’ Equity | |||
| Share capital | 16 | 439,922,535 | 387,087,948 |
| Contributed surplus | 17, 18 | 30,582,079 | 25,485,361 |
| Accumulated other comprehensive income | 9,291,371 | 527,166 | |
| Deficit | (215,339,530) | (150,332,154) | |
| Total shareholders’ equity | 264,456,455 | 262,768,321 | |
| Total liabilities and shareholders’ equity | $ 354,120,384 | $ 387,783,170 |
Commitments (Note 22)
Subsequent event (Note 24)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| For the three months ended | For the nine months ended | ||||
|---|---|---|---|---|---|
| Note | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| Revenue | 23 | $ 50,578,758 | $ 43,341,907 | $ 148,865,324 | $ 110,421,843 |
| Cost of sales | 34,018,169 | 33,216,294 | 103,470,191 | 86,345,922 | |
| Gross margin | 16,560,589 | 10,125,613 | 45,395,133 | 24,075,921 | |
| Operating expenses | |||||
| Professional fees | 766,057 | 434,862 | 2,358,559 | 2,385,837 | |
| Consulting fees | 16, 19 | 1,338,329 | 725,408 | 4,593,506 | 3,111,761 |
| Advertising and promotion | 662,279 | 609,587 | 1,417,344 | 2,465,529 | |
| Office and general | 2,288,057 | 1,963,965 | 7,232,551 | 4,836,416 | |
| Annual general meeting legal and advisory costs | 16 | 1,149,396 | - | 3,386,596 | - |
| Salaries and wages | 19 | 9,325,237 | 6,574,338 | 27,135,015 | 16,768,850 |
| Technology support, web development and content | 6,050,270 | 3,146,453 | 13,309,341 | 7,239,996 | |
| Esports player, team and game expenses | 623,913 | 1,615,655 | 3,618,761 | 4,609,978 | |
| Foreign exchange gain | (480,528) | (1,060,724) | (1,105,730) | (2,136,979) | |
| Share-based compensation | 17, 18 | 821,811 | 4,971,949 | 5,336,617 | 14,690,294 |
| Amortization and depreciation | 8, 9, 11 | 4,055,415 | 2,372,839 | 13,257,813 | 5,668,276 |
| Total operating expenses | 26,600,236 | 21,354,332 | 80,540,373 | 59,639,958 | |
| Other expenses (income) | |||||
| Goodwill impairment | 10 | 31,281,286 | - | 31,281,286 | - |
| Transaction costs | 5 | - | 301,343 | 114,853 | 510,472 |
| Share of net (income) loss from investment in associates and joint ventures | 7 | 226,940 | 158,415 | (1,001,002) | 230,675 |
| Interest and accretion | 11, 13, 14, 15 | 414,203 | 430,538 | 2,963,981 | 1,702,839 |
| Loss on settlement of deferred payment liability | 15 | - | - | 3,302,824 | - |
| Loss (gain) on revaluation of deferred payment liability | 15 | 332,208 | 33,162 | (539,555) | 122,346 |
| Loss on derecognition of long-term debt | 13 | 482,282 | - | 482,282 | - |
| Gain on repayment of long-term debt | - | - | - | (39,502) | |
| Gain on sale of intangible assets | 9 | (4,836,075) | - | (4,836,075) | - |
| Gain on player buyouts | (24,660) | - | (505,197) | - | |
| Change in fair value of investment | - | 288,093 | - | 444,764 | |
| Loss on settlement of vendor-take-back loan | - | - | - | 316,241 | |
| Interest income | (5,257) | (9,315) | (7,978) | (50,546) | |
| Net loss before income taxes | (37,910,574) | (12,430,955) | (66,400,659) | (38,801,326) | |
| Income taxes | |||||
| Current tax expense | 202,185 | 127,101 | 509,431 | 161,138 | |
| Deferred tax recovery | (1,018,542) | (130,212) | (1,902,714) | (255,273) | |
| Net loss for the period | (37,094,217) | (12,427,844) | (65,007,376) | (38,707,191) | |
| Other comprehensive income | |||||
| Items that may be reclassified to profit or loss | |||||
| Foreign currency translation adjustment | 6,904,338 | 124,873 | 8,764,205 | 3,579 | |
| Net loss and comprehensive loss for the period | $ (30,189,879) | $ (12,302,971) | $ (56,243,171) | $ (38,703,612) | |
| Net loss per share, basic and diluted | $ (0.25) | $ (0.10) | $ (0.46) | $ (0.33) | |
| Weighted average number of common shares outstanding, basic and diluted | 150,257,804 | 126,395,192 | 140,930,554 | 118,514,822 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| Note | Number of shares | Share capital | Contributed surplus | Accumulated other comprehensive income | Deficit | Total shareholders’ equity | |
|---|---|---|---|---|---|---|---|
| Balance, January 1, 2021 | 104,930,981 | $ 232,616,997 | $ 7,494,164 | $ 45,428 | $ (98,285,532) | $ 141,871,057 | |
| Issuance of shares for the Offerings, net of transaction costs | 16 | 15,983,000 | 95,150,810 | - | - | - | 95,150,810 |
| Issuance of shares to effect the Vedatis acquisition | 16 | 226,563 | 2,374,380 | - | - | 2,374,380 | |
| Issuance of shares to effect the Tabwire acquisition | 16 | 790,094 | 5,238,323 | - | - | - | 5,238,323 |
| Issuance of shares to effect the GameKnot acquisition | 16 | 165,425 | 921,417 | - | - | - | 921,417 |
| Issuance of shares to effect the Addicting Games acquisition | 16 | 2,661,164 | 14,636,402 | - | - | - | 14,636,402 |
| Shares issued upon exercise of options | 16 | 363,176 | 1,405,323 | (620,892) | - | - | 784,431 |
| Shares issued upon conversion of convertible debentures | 16 | 2,835,289 | 7,626,957 | - | - | - | 7,626,957 |
| Shares issued for settlement of deferred payment liability | 15, 16 | 429,354 | 632,800 | - | - | - | 632,800 |
| Share-based compensation | 17, 18 | - | - | 14,690,294 | - | - | 14,690,294 |
| Other comprehensive income for the period | - | - | - | 3,579 | - | 3,579 | |
| Net loss for the period | - | - | - | - | (38,707,191) | (38,707,191) | |
| Balance, September 30, 2021 | 128,385,046 | $ 360,603,409 | $ 21,563,566 | $ 49,007 | $ (136,992,723) | $ 245,223,259 | |
| Balance, January 1, 2022 | 133,549,269 | $ 387,087,948 | $ 25,485,361 | $ 527,166 | $ (150,332,154) | $ 262,768,321 | |
| Issuance of shares to effect the Outplayed acquisition | 16 | 35,770 | 181,389 | - | - | - | 181,389 |
| Shares issued upon exercise of options | 16 | 74,051 | 309,720 | (239,899) | - | - | 69,821 |
| Shares issued for settlement of deferred payment liability | 15, 16 | 16,280,103 | 50,373,851 | - | - | - | 50,373,851 |
| Shares issued for settlement of accounts payable | 16 | 1,098,325 | 1,969,627 | - | - | - | 1,969,627 |
| Share-based compensation | 17, 18 | - | - | 5,336,617 | - | - | 5,336,617 |
| Other comprehensive income for the period | - | - | - | 8,764,205 | - | 8,764,205 | |
| Net loss for the period | - | - | - | - | (65,007,376) | (65,007,376) | |
| Balance, September 30, 2022 | 151,037,518 | $ 439,922,535 | $ 30,582,079 | $ 9,291,371 | $ (215,339,530) | $ 264,456,455 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| For the nine months ended | |||
|---|---|---|---|
| Note | September 30, 2022 | September 30, 2021 | |
| Cash flows from operating activities | |||
| Net loss for the period | $ (65,007,376) | $ (38,707,191) | |
| Items not affecting cash: | |||
| Goodwill impairment | 31,281,286 | - | |
| Amortization and depreciation | 8, 9, 11 | 13,257,813 | 5,668,276 |
| Share-based compensation | 17, 18 | 5,336,617 | 14,690,294 |
| Interest and accretion | 11, 13, 14, 15 | 2,266,161 | 606,060 |
| Deferred tax recovery | (1,902,714) | (255,273) | |
| Share of net (income) loss from investment in associates and joint ventures | 7 | (1,001,002) | 230,675 |
| Gain on sale of intangible assets | 9 | (4,876,659) | - |
| Loss on settlement of deferred payment liability | 15 | 3,302,824 | - |
| (Gain) loss on revaluation of deferred payment liability | 15 | (539,555) | 122,346 |
| Foreign exchange gain | (1,416,264) | (101,302) | |
| Gain on player buyouts | (505,197) | - | |
| Gain on settlement of accounts payable | 16 | (587,769) | - |
| Loss on derecognition of long-term debt | 13 | 482,282 | - |
| Gain on repayment of long-term debt | - | (39,502) | |
| Loss on settlement of vendor-take-back loan | - | 316,241 | |
| Shares for services | 84,388 | 110,565 | |
| Change in fair value of investment | - | 444,764 | |
| Changes in working capital: | |||
| Changes in trade and other receivables | (2,476,193) | (3,896,016) | |
| Changes in prepaid expenses | (645,919) | (2,584,504) | |
| Changes in loans receivable | 125,995 | 37,500 | |
| Changes in accounts payable and accrued liabilities | 2,479,331 | 2,383,538 | |
| Changes in contract liabilities | 559,566 | 881,756 | |
| Changes in income tax | 371,458 | 209,890 | |
| Income tax paid | (93,433) | (359,358) | |
| Net cash used in operating activities | (19,504,360) | (20,241,241) | |
| Cash flows from investing activities | |||
| Cash paid for mergers and acquisitions | 5 | (2,937,520) | (27,071,176) |
| Cash acquired from mergers and acquisitions | 5 | 1,748,602 | 489,107 |
| Proceeds from sale of intangible assets | 9 | 5,460,959 | - |
| Proceeds from player buyouts, net of transaction costs | 505,197 | - | |
| Repayment of deferred payment liability | 15 | (472,833) | - |
| Investment in associates and joint venture | - | (125,000) | |
| Acquisition of property and equipment | 8 | (5,245) | (3,398) |
| Net cash provided by (used in) investing activities | 4,299,160 | (26,710,467) | |
| Cash flows from financing activities | |||
| Proceeds from the issuance of shares for Offerings, net of transaction costs | 16 | - | 95,150,810 |
| Proceeds from long-term debt, net of transaction costs | 13 | 9,759,047 | 944,787 |
| Repayment of long-term debt | 13 | (1,500,003) | (14,023,470) |
| Proceeds from exercise of options | 16 | 69,821 | 784,431 |
| Repayment of vendor-take-back loan | - | (6,158,329) | |
| Repayment of other long-term debt | 14 | (13,026) | - |
| Lease payments | 11 | (705,075) | (531,085) |
| Net cash provided by financing activities | 7,610,764 | 76,167,144 | |
| Foreign exchange effect on cash | 756,034 | (12,725) | |
| Net change in cash | (6,838,402) | 29,202,711 | |
| Cash, beginning of period | 22,654,262 | 4,323,823 | |
| Cash, end of period | $ 15,815,860 | $ 33,526,534 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 1. | Nature of operations |
|---|
Enthusiast Gaming Holdings Inc. (the “Company” or “Enthusiast”) was incorporated under the Business Corporation Act (British Columbia) on June 27, 2018. The Company is publicly traded on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Select Market (“Nasdaq”) under the symbol “EGLX”. The Company maintains its registered office at 510 West Georgia Street, Suite 1800, Vancouver, British Columbia and its executive office at 90 Eglinton Avenue East, Suite 805, Toronto, Ontario, M4P 2Y3.
The Company’s principal business activities are comprised of media and content, entertainment and esports. The Company’s digital media platform includes video gaming related websites, YouTube channels and a library of casual games. The Company’s esports division, Luminosity Gaming Inc., is a leading global esports franchise that consists of professional esports teams under ownership and management, including the Vancouver Titans Overwatch team and the Seattle Surge Call of Duty team. The Company’s entertainment business owns and operates Canada’s largest gaming expo, Enthusiast Gaming Live Expo, EGLX, and the largest mobile gaming event in Europe, Pocket Gamer Connects.
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. (“Media US”), 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.
On August 30, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all of the issued and outstanding membership interest of GameKnot LLC (“GameKnot”) pursuant to an equity purchase agreement dated August 30, 2021 (the “GameKnot EPA”). The GameKnot EPA is accounted for in accordance with IFRS 3, as the operations of GameKnot constitute a business.
On September 3, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all of the issued and outstanding shares of Addicting Games, Inc. and TeachMe, Inc. (“TeachMe”, which together with Addicting Games, Inc., is herein referred to as “Addicting Games”) pursuant to a share purchase agreement dated September 3, 2021 (the “Addicting Games SPA”). The Addicting Games SPA is accounted for in accordance with IFRS 3, as the operations of Addicting Games constitute a business.
On November 22, 2021, the Company, through its wholly-owned subsidiary, Media US, acquired all of the issued and outstanding shares of Outplayed, Inc. (“Outplayed”) pursuant to a merger agreement dated November 22, 2021 (the “Outplayed MA”). Pursuant to the Outplayed MA between Enthusiast Acquisition Corp. (“Acquisition Corp”), a subsidiary of Media US incorporated to facilitate this transaction, and Outplayed, Outplayed merged with and into Acquisition Corp and Acquisition Corp changed its name to Outplayed, Inc. The Outplayed MA is accounted for in accordance with IFRS 3, as the operations of Outplayed constitute a business.
On April 28, 2022, the Company, through its wholly-owned subsidiary, Steel Media Limited, acquired all of the issued and outstanding treasury shares of Fantasy Media Ltd (“FML”) and Fantasy Football Scout Limited (“FFS”, which together with “FML” is herein referred to as “FFS”), pursuant to a share purchase agreement dated April 28, 2022 (the “FFS SPA”). The FFS SPA is accounted for in accordance with IFRS 3, as the operations of FFS constitute a business.
The Vedatis SPA, Tabwire EPA, GameKnot EPA, Addicting Games SPA, Outplayed MA and FFS SPA are collectively called the “Mergers and Acquisitions” in these condensed consolidated interim financial statements. For information relating to the accounting of the Vedatis SPA, Tabwire EPA, GameKnot EPA, Addicting Games SPA and Outplayed MA refer to Note 5 of the audited consolidated financial statements of the Company for the year ended December 31, 2021. For information relating to the accounting of the FFS SPA see Note 5.
Approval of Financial Statements
These condensed consolidated interim financial statements were authorized for issuance by the Board of Directors of the Company on November 14, 2022.
5
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 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 FinancialReporting. 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, 2021, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board (“IASB”) and interpretations by the IFRS Interpretations Committee.
| (ii) | Basis of presentation |
|---|
The consolidated 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.
| (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 consolidated financial statements from the date control is obtained until the date control ceases. All intercompany balances, transactions, income and expenses have been eliminated on consolidation.
These condensed consolidated interim financial statements include the accounts of Enthusiast Gaming Holdings Inc. and its wholly-owned subsidiaries. The accounts of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The table below lists the Company’s wholly-owned subsidiaries:
| Name of Subsidiary | Jurisdiction | Functional Currency | Accounting Method |
|---|---|---|---|
| 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 | Canadian dollars | Consolidation |
| Enthusiast Gaming Live Inc. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming Media (US) Inc. | USA | U.S. dollars | Consolidation |
| Tabwire LLC | USA | U.S. dollars | Consolidation |
| GameKnot LLC | USA | U.S. dollars | Consolidation |
| Addicting Games, Inc. | USA | U.S. dollars | Consolidation |
| TeachMe, Inc. | USA | U.S. dollars | Consolidation |
| Outplayed, Inc. | USA | U.S. dollars | Consolidation |
| Storied Talent, LLC | USD | U.S. dollars | Consolidation |
| Enthusiast Gaming Media Holdings Inc. | Canada | Canadian dollars | Consolidation |
| Enthusiast Gaming (TSR) Inc. | Canada | Canadian 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 |
| Fantasy Media Ltd. | England and Wales | UK Pound Sterling | Consolidation |
| Fantasy Football Scout Limited | England and Wales | UK Pound Sterling | Consolidation |
| Omnia Media Inc. | USA | U.S. dollars | Consolidation |
| Vedatis SAS | France | Euro | Consolidation |
Refer to Note 7 for the Company’s investment in associates and joint ventures.
| 3. | Significant accounting policies |
|---|
The Company’s accounting policies as described in Note 3, Significant Accounting Policies, of the Company’s audited consolidated financial statements for the year ended December 31, 2021, have been applied consistently to all periods presented in these condensed consolidated interim financial statements. Refer to those audited consolidated financial statements for the significant accounting policies which remain unchanged as of September 30, 2022.
No new standards, interpretations or amendments were adopted for the first time from January 1, 2022.
6
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(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, 2021.
| 5. | Mergers and Acquisitions |
|---|
FFS SPA
As described in Note 1, on April 28, 2022, the Company, through its wholly-owned subsidiary, Steel Media Limited, completed the acquisition of FFS. Based in England and Wales, FFS owns the web property Fantasy Football Scout. Pursuant to the terms of the FFS SPA, the Company acquired all of the outstanding treasury shares of FFS in exchange for (i) a cash payment of $2,937,520 (GBP £1,825,000) on closing, which includes an agreed upon cash excess amount of $523,120 (GBP £325,000), (ii) a payment of $1,609,600 (GBP £1,000,000) on the first anniversary of closing which may be paid in cash or common shares at the option of the Company, (iii) an earn-out cash payment $804,800 (GBP £500,000) on the first anniversary of closing, based on the renewal of a Fantasy Premier League agreement, subject to adjustments, and (iv) a cash payment of $80,480 (GBP £50,000) on the second anniversary of closing, subject to adjustments.
The earn-out cash payment of $804,800 (GBP £500,000) will be paid if the Fantasy Premier League agreement, which expired on August 1, 2022, is renewed for an additional three-year period, on substantially similar or more favourable terms.
Following the acquisition, the Company controls FFS and for accounting purposes the Company is deemed the acquirer. The FFS SPA is accounted for in accordance with IFRS 3 as the operations of FFS constitute a business. As a result, the business combination is accounted for using the acquisition method of accounting and FFS’ identifiable net assets acquired are recognized at their fair value.
The FFS SPA has been accounted for at the fair value of the consideration provided to FFS, consisting of cash and the deferred payment liability. The Company’s deferred payment liability to the former shareholder of FFS is carried at fair value. Management uses current and historical operational results of the acquired business, estimates and probabilities of the Fantasy Premier League agreement renewal to estimate the earn-out payment, see Note 15.
7
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 5. | Mergers and acquisitions (continued) |
|---|
FFS SPA (continued)
At the time of issuance of these condensed consolidated interim financial statements, the valuation of certain intangible asset is 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 | $ 1,748,602 |
| Trade and other receivables | 85,031 |
| Intangible assets | 2,573,000 |
| Goodwill | 2,053,293 |
| Accounts payable and accrued liabilities | (193,030) |
| Contract liabilities | (347,722) |
| Income tax payable | (62,517) |
| Deferred tax liability | (603,098) |
| $ 5,253,559 | |
| Purchase Price | |
| Consideration: | |
| Cash^(a)^ | $ 2,937,520 |
| Deferred payment liability^(b)^ | 2,316,039 |
| $ 5,253,559 | |
| a. | Cash consists of the $2,937,520 (GBP £1,825,000) amount paid on closing. |
| --- | --- |
| b. | The fair value of the deferred payment liability consists of the present value of the payment of $1,609,600<br>(GBP £1,000,000) due on the first anniversary of closing, the present value of earn-out cash payment of $804,800 (GBP £500,000)<br>due on the first anniversary of closing and the present value of the cash payment of $80,480 (GBP £50,000) due on the second anniversary<br>of closing, see note 15. |
| --- | --- |
Trade receivables have been recorded at fair value which represent gross contractual amounts receivable. Goodwill represents intangible assets that cannot be measured directly such as brand name, subscriber and sponsorship relationships and website technology, and synergies expected to be achieved from integrating FFS into the Company’s existing business. Goodwill is not expected to be deductible for tax purposes.
The acquisition of FFS 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 $114,853 relating to the FFS SPA which are included in net loss and comprehensive loss.
Since the date of acquisition of FFS, revenue of $717,251 and net income of $188,439 have been included in the condensed consolidated interim statement of loss and comprehensive loss for the nine months ended September 30, 2022. If the FFS acquisition had occurred on January 1, 2022, pro-forma revenue and net loss would have been $149,670,071 and $64,543,314 respectively for nine months ended September 30, 2022.
8
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 6. | Trade and other receivables |
|---|
A summary of trade and other receivables is as follows:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| Trade receivables (Note 19, 21) | $ 30,149,227 | $ 30,034,661 |
| HST and VAT receivables | 334,828 | 142,699 |
| Other receivables (Note 9, 19) | 7,154,642 | 3,683,102 |
| Expected credit loss provision (Note 21) | (59,181) | (58,472) |
| $ 37,579,516 | $ 33,801,990 | |
| 7. | Investment in associates and joint ventures | |
| --- | --- | |
| (i) | Investment in associates | |
| --- | --- |
On August 30, 2019, pursuant to an investment agreement between Aquilini GameCo Inc. (“GameCo”) and Aquilini Properties LP (a former related party by nature of it being under the control or direction of the former Chairman of the Company), GameCo acquired 100 class B common shares of AIG eSports Canada Holdings Ltd. (“AIG Canada”) 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.
A summary of the Company’s investment in associates is as follows:
| AIG Canada | AIG USA | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2021 | $ | 665,991 | $ | 360,919 | $ | 1,026,910 | |||
| Share of net loss from investment in associate | (3,138 | ) | (197,412 | ) | (200,550 | ) | |||
| Balance, December 31, 2021 | $ | 662,853 | $ | 163,507 | $ | 826,360 | |||
| Share of net income from investment in associate | 796,121 | 220,499 | 1,016,620 | ||||||
| Balance, September 30, 2022 | $ | 1,458,974 | $ | 384,006 | $ | 1,842,980 | |||
| (ii) | Investment in joint ventures | ||||||||
| --- | --- |
On July 7, 2021, the Company, through its wholly-owned subsidiary, Enthusiast Gaming Inc., entered into a joint venture with Toronto Star Newspapers Limited (“Torstar”) to create an original online news platform and community for gamers named AFK Media Partnership (“AFK”). The Company and Torstar each hold a 50% interest in this joint venture. The Company and Torstar have each invested $125,000 into AFK as startup capital.
A summary of the Company’s investment in AFK is as follows:
| Amount | |
|---|---|
| Balance, January 1, 2021 | $ - |
| Contributions – cash | 125,000 |
| Share of net loss from investment in joint venture | (66,091) |
| Balance, December 31, 2021 | $ 58,909 |
| Share of net loss from investment in joint venture | (15,618) |
| Balance, September 30, 2022 | $ 43,291 |
9
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 7. | Investment in associates and joint ventures (continued) |
|---|
A summary of the Company’s investment in associates and joint ventures is as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| AIG Canada | $ | 1,458,974 | $ | 662,853 | |||||||||||
| AIG USA | 384,006 | 163,507 | |||||||||||||
| AFK | 43,291 | 58,909 | |||||||||||||
| Total investment in associates and joint ventures | $ | 1,886,271 | $ | 885,269 | |||||||||||
| 8. | Property and equipment | ||||||||||||||
| --- | --- | ||||||||||||||
| Furniture and fixtures | Computer equipment | Leasehold improvements | Production equipment | Total | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Cost | |||||||||||||||
| Balance, January 1, 2021 | $ | 183,094 | $ | 183,877 | $ | 87,207 | $ | 45,934 | $ | 500,112 | |||||
| Mergers and Acquisitions | 3,717 | 4,856 | - | - | 8,573 | ||||||||||
| Additions | - | 3,398 | - | - | 3,398 | ||||||||||
| Effect of movement in exchange rates | (566 | ) | (1,038 | ) | (288 | ) | (195 | ) | (2,087 | ) | |||||
| Balance, December 31, 2021 | $ | 186,245 | $ | 191,093 | $ | 86,919 | $ | 45,739 | $ | 509,996 | |||||
| Additions | 225 | 5,020 | - | - | 5,245 | ||||||||||
| Effect of movement in exchange rates | 10,054 | 10,911 | 5,496 | 3,713 | 30,174 | ||||||||||
| Balance, September 30, 2022 | $ | 196,524 | $ | 207,024 | $ | 92,415 | $ | 49,452 | $ | 545,415 | |||||
| Accumulated depreciation | |||||||||||||||
| Balance, January 1, 2021 | $ | 34,085 | $ | 78,848 | $ | 24,558 | $ | 7,771 | $ | 145,262 | |||||
| Depreciation | 33,712 | 52,812 | 17,053 | 12,808 | 116,385 | ||||||||||
| Effect of movement in exchange rates | 148 | 32 | 68 | 113 | 361 | ||||||||||
| Balance, December 31, 2021 | $ | 67,945 | $ | 131,692 | $ | 41,679 | $ | 20,692 | $ | 262,008 | |||||
| Depreciation | 21,994 | 22,188 | 13,020 | 9,180 | 66,382 | ||||||||||
| Effect of movement in exchange rates | 4,473 | 8,380 | 3,336 | 2,308 | 18,497 | ||||||||||
| Balance, September 30, 2022 | $ | 94,412 | $ | 162,260 | $ | 58,035 | $ | 32,180 | $ | 346,887 | |||||
| Net book value | |||||||||||||||
| Balance, December 31, 2021 | $ | 118,300 | $ | 59,401 | $ | 45,240 | $ | 25,047 | $ | 247,988 | |||||
| Balance, September 30, 2022 | $ | 102,112 | $ | 44,764 | $ | 34,380 | $ | 17,272 | $ | 198,528 |
10
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 9. | Intangibles | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Domain<br> names | Application<br> & technology development & website content | Brand name | Subscriber<br> & sponsorship relationships | Player<br> contracts | Multi channel<br> network license | Talent<br> management & owned & operated content brand | Talent<br> contracts & digital content | Game application<br> & technology development | Total | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, January 1, 2021 | $ | 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 | 9,779,000 | 13,684,000 | 25,928,000 | 1,070,000 | - | - | - | - | 5,988,000 | 56,449,000 | ||||||||||||||
| Effect<br> of movement in foreign exchange rates | 125,054 | 20,256 | 43,569 | 11,759 | - | - | - | - | 75,887 | 276,525 | ||||||||||||||
| Balance, December 31, 2021 | $ | 50,834,054 | $ | 16,955,178 | $ | 34,574,132 | $ | 7,914,405 | $ | 311,200 | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,063,887 | $ | 142,271,856 | ||||
| Mergers and Acquisitions (Note 5) | - | 837,000 | 845,000 | 891,000 | - | - | - | - | - | 2,573,000 | ||||||||||||||
| Disposals | (1,955,000 | ) | (340,000 | ) | - | - | (311,200 | ) | - | - | - | - | (2,606,200 | ) | ||||||||||
| Effect<br> of movement in foreign exchange rates | 803,855 | 962,581 | 1,784,924 | 12,890 | - | - | - | - | 327,651 | 3,891,901 | ||||||||||||||
| Balance,<br> September 30, 2022 | $ | 49,682,909 | $ | 18,414,759 | $ | 37,204,056 | $ | 8,818,295 | $ | - | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,391,538 | $ | 146,130,557 | ||||
| Accumulated amortization | ||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | - | $ | 2,021,324 | $ | - | $ | 955,500 | $ | 311,200 | $ | 365,200 | $ | - | $ | 787,100 | $ | - | $ | 4,440,324 | ||||
| Amortization | - | 2,366,160 | - | 899,727 | - | 1,074,920 | - | 2,316,840 | 2,014,866 | 8,672,513 | ||||||||||||||
| Effect<br> of movement in foreign exchange rates | - | 7,282 | - | 1,008 | - | - | - | - | 12,134 | 20,424 | ||||||||||||||
| Balance, December 31, 2021 | $ | - | $ | 4,394,766 | $ | - | $ | 1,856,235 | $ | 311,200 | $ | 1,440,120 | $ | - | $ | 3,103,940 | $ | 2,027,000 | $ | 13,133,261 | ||||
| Amortization | - | 5,615,207 | - | 981,711 | - | 806,190 | - | 1,608,070 | 3,486,436 | 12,497,614 | ||||||||||||||
| Disposals | - | (340,000 | ) | - | - | (311,200 | ) | - | - | - | - | (651,200 | ) | |||||||||||
| Effect<br> of movement in foreign exchange rates | - | 350,956 | - | 23,931 | - | - | - | - | 249,816 | 624,703 | ||||||||||||||
| Balance,<br> September 30, 2022 | $ | - | $ | 10,020,929 | $ | - | $ | 2,861,877 | $ | - | $ | 2,246,310 | $ | - | $ | 4,712,010 | $ | 5,763,252 | $ | 25,604,378 | ||||
| Balance, December 31, 2021 | $ | 50,834,054 | $ | 12,560,412 | $ | 34,574,132 | $ | 6,058,170 | $ | - | $ | 9,308,880 | $ | 9,363,000 | $ | 2,403,060 | $ | 4,036,887 | $ | 129,138,595 | ||||
| Balance,<br> September 30, 2022 | $ | 49,682,909 | $ | 8,393,830 | $ | 37,204,056 | $ | 5,956,418 | $ | - | $ | 8,502,690 | $ | 9,363,000 | $ | 794,990 | $ | 628,286 | $ | 120,526,179 |
During the period ended September 30, 2022, the Company derecognized $311,200 of player contracts, which were fully amortized, for players no longer on the Company’s active roster.
During the period ended September 30, 2022, the Company sold certain web properties for gross proceeds of $6,831,659 (USD $5,000,000) pursuant to an asset purchase agreement dated September 29, 2022. As of September 30, 2022, the Company has a promissory note receivable for $1,370,700 (USD $1,000,000) of the gross proceeds which is included in trade and other receivables. The promissory note is non-interest bearing and due by September 29, 2023. The Company derecognized $1,955,000 of domain names and $340,000 of application and technology development and website content, which was fully amortized, as a result of the asset sale. The Company recognized a gain on sale of intangible assets of $4,836,075, net of $40,584 of transaction costs, which is included in the condensed consolidated interim statement of loss and comprehensive loss.
11
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 10. | 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 Gaming Properties Inc. (“Enthusiast Properties”) on August 30, 2019; (iii) Steel Media Limited (“Steel Media”) on October 3, 2019; (iv) Omnia Media Inc. (“Omnia”) on August 30, 2020; (v) Vedatis on May 1, 2021; and (vi) Tabwire on June 21, 2021 (vii) GameKnot on August 30, 2021 (viii) Addicting Games on September 2, 2021, (ix) Outplayed on November 22, 2021 and (x) FFS on April 28, 2022.
In April 2019, Enthusiast Properties acquired 100% of the assets of The Sims Resource (“TSR”) from Generatorhallen AB and IBIBI HB. TSR is identified as a separate CGU from Enthusiast Properties based on the nature of the business and the assessment that TSR generates cash flows that are largely independent of the cash flows from other assets deployed in Enthusiast Properties. The Company has included Vedatis, Tabwire and GameKnot within the Enthusiast Properties CGU based on the nature of these businesses and the assessment that they generate cash flows that are not largely independent of the cash flows from other assets deployed in Enthusiast Properties. The Company has included FFS within the Steel Media CGU based on the nature of these businesses and the assessment that they generate cash flows that are not largely independent of the cash flows from other assets deployed in Steel Media.
A summary goodwill by CGU is as follows:
| Enthusiast Properties | TSR | Luminosity | Steel Media | Omnia | Addicting Games | Outplayed | Total | |
|---|---|---|---|---|---|---|---|---|
| Balance,<br> January 1, 2021 | $ 54,467,041 | $ 20,898,598 | $ 6,003,150 | $1,890,627 | $ 22,921,670 | $ - | $ - | $ 106,181,086 |
| Mergers<br> and Acquisitions | 21,496,335 | - | - | - | - | 28,947,665 | 37,844,194 | 88,288,194 |
| Effect<br> of movement in foreign exchange rates | 299,900 | - | - | - | - | 334,749 | (6,270) | 628,379 |
| Balance, December 31, 2021 | $ 76,263,276 | $ 20,898,598 | $ 6,003,150 | $1,890,627 | $ 22,921,670 | $ 29,282,414 | $ 37,837,924 | $ 195,097,659 |
| Mergers<br> and Acquisitions (Note 5) | - | - | - | 2,053,293 | - | - | - | 2,053,293 |
| Goodwill<br> impairment | (14,082,162) | (17,199,124) | (31,281,286) | |||||
| Effect<br> of movement in foreign exchange rates | 1,008,950 | - | - | (204,300) | - | 2,151,438 | 3,370,617 | 6,326,706 |
| Balance, September 30, 2022 | $ 77,272,226 | $ 20,898,598 | $ 6,003,150 | $3,739,620 | $ 8,839,508 | $ 14,234,728 | $ 41,208,541 | $ 172,196,371 |
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 nine months ended September 30, 2022, the Company concluded that there were triggering events requiring an impairment assessment due to overall macroeconomic conditions including but not limited to increasing interest rates, high inflation, and softening of the digital advertisement demand and spending due to uncertain market economic outlook. In addition, during the three months ended September 30, 2022, there was a decline in the Company’s share price resulting in market capital being lower than the net assets of the Company as of September 30, 2022. As a result, the Company performed impairment testing as of September 30, 2022, and determined that impairment charges were necessary for the Omnia CGU of $14,082,162 (December 31, 2021 - $Nil) and the Addicting Games CGU of $17,199,124 (December 31, 2021 - $Nil) due to the overall macroeconomic conditions. The Company determined the recoverable amount based on the value-in-use approach to assess the value of Enthusiast Properties, TSR, Luminosity, Steel Media, Omnia, Addicting Games, and Outplayed CGUs. The recoverable amount of the Company’s CGUs was estimated based on an assessment of their value-in-use using a discounted cash flow approach. The approach uses cash flow projections based upon a financial forecast approved by management and the Board of Directors, 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.
The Company has made certain assumptions in determining the expected future cash flows based on budgets approved by management and include management’s best estimate of expected market conditions. Accordingly, it is possible that future changes in assumptions may negatively impact future valuations of goodwill and the Company would be required to recognize an impairment loss.
12
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 10. | Goodwill (continued) |
|---|
At September 30, 2022, the following are key assumptions on which management based its determinations of the recoverable amount for goodwill based on each CGU’s value-in-use:
| Enthusiast Properties | TSR | Luminosity | Steel Media | Omnia | Addicting Games | Outplayed | |
|---|---|---|---|---|---|---|---|
| Average revenue growth rates | 14.3% | 2.7% | 41.5% | 19.4% | 10.0% | 23.7% | 31.4% |
| Terminal revenue growth rates | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% |
| Pre-tax discount rate | 24.8% | 25.3% | 22.7% | 23.8% | 27.1% | 25.6% | 22.8% |
At December 31, 2021, the following are key assumptions on which management based its determinations of the recoverable amount for goodwill based on each CGU’s value-in-use:
| Enthusiast Properties | TSR | Luminosity | Steel Media | Omnia | Addicting Games | Outplayed | |
|---|---|---|---|---|---|---|---|
| Average revenue growth rates | 32.9% | 7.7% | 62.3% | 21.5% | 14.7% | 90.9% | 146.4% |
| Terminal revenue growth rates | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% |
| Pre-tax discount rate | 17.6% | 25.2% | 17.4% | 20.4% | 25.9% | 20.3% | 23.3% |
The Company determined the revenue growth rate, the terminal revenue growth rate based on past performance and its expectations for market development. The pre-tax discount rates used reflect specific risks in relation to the CGU.
| 11. | Right-of-use assets and lease contract liabilities |
|---|
The Company’s leased assets consist of office premises. When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using incremental borrowing rates of 4.20% to 5.00%.
A summary of right-of-use assets is as follows:
| Amount | |
|---|---|
| Balance, January 1, 2021 | ****$ 2,848,400 |
| Office lease additions - cost, mergers and acquisitions | 775,392 |
| Depreciation | (729,573) |
| Effect of movement in exchange rates | (8,557) |
| Balance, December 31, 2021 | $ 2,885,662 |
| Depreciation | (693,817) |
| Effect of movement in exchange rates | 163,632 |
| Balance, September 30, 2022 | $ 2,355,477 |
A summary of lease contract liabilities is as follows:
| Amount | |
|---|---|
| Balance, January 1, 2021 | $ 2,886,666 |
| Office lease additions - finance cost, mergers and acquisitions | 808,095 |
| Payments | (802,013) |
| Accretion | 119,476 |
| Effect of movement in exchange rates | (1,877) |
| Balance, December 31, 2021 | $ 3,010,347 |
| Payments | (705,075) |
| Accretion | 78,277 |
| Effect of movement in exchange rates | 217,540 |
| Balance, September 30, 2022 | 2,601,089 |
| Current portion of contract lease liabilities | 849,051 |
| Long-term portion of contract lease liabilities | $ 1,752,038 |
13
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 11. | Right-of-use assets and lease contract liabilities (continued) |
|---|
Note 21 provides a summary of undiscounted lease payments to be made as of the statement of financial position date. Variable lease payments during the nine months ended September 30, 2022, which are not included in lease liabilities are $198,055 (September 30, 2021 - $170,947). The total cash outflow for leases during the nine months ended September 30, 2022 is $903,130 (September 30, 2021 - $702,032).
| 12. | Accounts payable and accrued liabilities |
|---|
A summary of accounts payable and accrued liabilities is as follows:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| Accounts payable | $ 23,727,504 | $ 25,247,351 |
| Accrued liabilities | 10,705,663 | 9,143,870 |
| $ 34,433,167 | $ 34,391,221 |
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.
| 13. | Long-term debt |
|---|
Under the terms of a commitment letter (the “Commitment Letter”) dated December 3, 2021, an arm’s length lender (the “Bank”) agreed to provide the Company, as borrower, and certain Canadian and U.S. subsidiaries of the Company, as guarantors, with a non-revolving term facility (the “Term Credit”) and an operating line (the “Operating Credit”).
The Term Credit consists of an authorized credit limit amount of $10,000,000, bearing interest at the Banker’s Acceptance fee equal to CDOR rate plus 7.5% per annum, with interest payable monthly. The Term Credit is repayable in up to 24 equal monthly instalments of principal based on an amortization period of 60 months, with final payment of the remaining principal then outstanding due 24 months from the initial drawdown date of advance. On December 17, 2021 the Company was advanced $10,000,000 which was used to extinguish a prior long-term debt. The Term Credit will be used for purposes of (i) working capital and (ii) to finance future acquisitions.
The Operating Credit consists of an authorized amount of $5,000,000, subject to a borrowing base, bearing interest at the greater of (i) the Bank’s prime lending rate plus 1.25%, and (ii) 2.45% per annum, with interest payable monthly. The Operating Credit is repayable no later than 24 months from the date of the satisfaction or waiver of conditions precedent. The Operating Credit will be used for purposes of (i) general operating requirement, and (ii) to finance future acquisitions.
The aggregate of all advances under the Operating Credit and Bank credit cards are not to exceed the lesser of (i) the Operating Credit, and (ii) the borrowing base. The borrowing base is based on a percentage of eligible accounts receivable less certain accounts payable for material subsidiaries of the Company.
Subject to the Bank’s approval, the Company can exercise an option to extend the maturity date of both the Term Credit and Operating Credit for an additional 12-month period. The Term Credit and Operating Credit are secured by substantially all of the assets of the Company and the guarantor subsidiaries. The Company will be entitled to prepay all or part of the Term Credit and Operating Credit at any time with penalty.
During the year ended December 31, 2021, the Company received Term Credit advances of $10,000,000 and incurred transaction cost of $325,183 relating to the Commitment Letter. The Term Credit under the Commitment Letter is amortized at an effective interest rate of 10.18% following the transaction cost recognized.
On September 12, 2022, the Company entered into an amendment to commitment letter (the “Amended Commitment Letter”) which increased the total amount of the Term Credit to a maximum amount of $20,000,000. On September 16, 2022, the Company was advanced an incremental $10,000,000 pursuant to the Amended Commitment Letter. The Company incurred transaction costs of $240,953 in connection with the Amended Commitment Letter.
As the terms of the Amended Commitment Letter were substantially different from the terms of the Commitment Letter, the amendment is determined to be derecognition of debt in accordance with IFRS 9, Financial Instruments. A loss on derecognition of long-term debt in the amount of $482,282 is recognized in the condensed consolidated interim statement of loss and comprehensive loss during the nine months ended September 30, 2022.
14
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 13. | Long-term debt (continued) |
|---|
The Term Credit under the Amended Commitment Letter is amortized at an effective interest rate of 10.98% following the transaction costs and loss on derecognition of debt recognized pursuant to the amendment.
As of December 31, 2021 and September 30, 2022, no amounts were drawn upon on the Operating Credit.
During the nine months ended September 30, 2022, the Company recognized $688,374 (September 30, 2021 – interest and success fee expense of $1,042,379) of interest expense and $124,235 (September 30, 2021 – accretion income of $17,711) of accretion expense which are included in interest and accretion in the condensed consolidated interim statement of loss and comprehensive loss.
The following tables shows the movement of the Term Credit balance during the period:
| Amount | |
|---|---|
| Balance, January 1, 2021 | $ - |
| Advances | 10,000,000 |
| Transaction costs | (325,183) |
| Accretion | 7,050 |
| Balance, December 31, 2021 | $ 9,681,867 |
| Advances | 10,000,000 |
| Repayments | (1,500,003) |
| Accretion | 124,235 |
| Transaction costs | (240,953) |
| Loss on derecognition of long-term debt | 482,282 |
| Balance, September 30, 2022 | 18,547,428 |
| Current portion of long-term debt | 2,000,000 |
| Long-term debt | $ 16,547,428 |
The Amended Commitment Letter contains certain covenants that the Company must comply with, including (i) maintaining a minimum funded debt to gross profit ratio, which varies by quarter, (ii) at all times, a cash runway ratio of a minimum of 4 months, tested quarterly, until the quarter ending March 31, 2023, and then a cash runway ratio of a minimum of 6 months, tested quarterly, until the quarter ending December 31, 2023, and (iii) beginning December 31, 2023, a minimum funded debt to EBITDA ratio of no more than 4.0x, calculated based on the trailing 12 months and tested quarterly. The Company was in compliance with the applicable covenants as of September 30, 2022.
| 14. | Other long-term debt |
|---|
Upon the acquisition of Addicting Games, the Company obtained a USD $150,000 United States of America Small Business Administration loan (“SBA Loan”). The SBA Loan has a term which is thirty years from the date of the initial advance, expiring July 2, 2050. The SBA loan bears interest at 3.75% per annum, is repayable in monthly installment payments until maturity of USD $731, which includes principal and interest, the remaining outstanding principal amount will be repaid on July 2, 2050. The SBA Loan is secured by Addicting Games’ assets.
The SBA Loan was included in Addicting Games’ identifiable net assets acquired at an initial fair value of $144,948 based on a discounted valuation using a 7.10% discount rate. The SBA Loan is being amortized at an effective interest rate of 7.10%.
15
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 14. | Other long-term debt (continued) |
|---|
The following table shows the movement of the SBA Loan during the period:
| Amount | |
|---|---|
| Balance, January 1, 2021 | $ - |
| Initial fair value of other long-term debt | 144,948 |
| Accretion | 3,424 |
| Payments | (5,561) |
| Effect of movement in exchange rates | 4,634 |
| Balance, December 31, 2021 | $ 147,445 |
| Accretion | 8,399 |
| Payments | (13,026) |
| Effect of movement in exchange rates | 11,967 |
| Balance, September 30, 2022 | 154,785 |
| Current portion of other long-term debt | 8,016 |
| Other long-term debt | $ 146,769 |
| 15. | Deferred payment liability |
| --- | --- |
The deferred payment liability relates to the acquisitions of (i) Steel Media on October 3, 2019, (ii) Vedatis on May 1, 2021, (iii) GameKnot on August 30, 2021, (iv) Addicting Games on September 3, 2021 (v) Outplayed on November 22, 2021, and (vi) FFS on April 28, 2022.
| (i) | Steel Media deferred payment liability |
|---|
The Steel Media deferred payment liability consisted of the present value of 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 had, at its option, the ability to settle the 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 had, 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 was conclusively determined.
The expected Steel Media Earn-Out Payment was calculated on a dollar-for-dollar basis to the extent the average annualized normalized gross revenue of Steel Media for the period from January 1, 2020 to December 31, 2021 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 were amortized at an effective interest rate of 9.54% and 13.15% respectively.
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 of the Company through the exercise of the Company’s option.
During the nine months ended September 30, 2022, the Steel Media Earn-Out Payment was determined to be $461,891 (USD $369,631) resulting in gain on revaluation of deferred payment liability of $149,399 (September 30, 2021 - $Nil). On April 29, 2022, the Company settled the Steel Media Earn-Out Payment through a cash payment of $472,833 (USD $369,631).
16
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 15. | Deferred payment liability (continued) |
|---|---|
| (i) | Steel Media deferred payment liability (continued) |
| --- | --- |
The following table shows the movement of the Steel Media deferred payment liability during the period:
| Steel Media<br> <br>Deferred<br> <br>Payment | Steel Media<br> <br>Earn-Out<br> <br>Payment | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2021 | $ | 636,600 | $ | 529,124 | $ | 1,165,724 | |||
| Accretion | - | 77,415 | 77,415 | ||||||
| Payment – shares | (632,800 | ) | - | (632,800 | ) | ||||
| Effect of movement in exchange rates | (3,800 | ) | (6,031 | ) | (9,831 | ) | |||
| Balance, December 31, 2021 | $ | - | $ | 600,508 | $ | 600,508 | |||
| Accretion | - | 20,698 | 20,698 | ||||||
| Payment – cash | - | (472,833 | ) | (472,833 | ) | ||||
| Gain on revaluation of deferred payment liability | - | (149,399 | ) | (149,399 | ) | ||||
| Effect of movement in exchange rates | - | 1,026 | 1,026 | ||||||
| Balance, September 30, 2022 | - | - | - | ||||||
| Current portion of deferred payment liability | - | - | - | ||||||
| Long-term portion of deferred payment liability | $ | - | $ | - | $ | - | |||
| (ii) | Vedatis deferred payment liability | ||||||||
| --- | --- |
The Vedatis deferred payment liability consists of the present value of a Euro €750,000 payment (the “Vedatis Deferred Payment”) to be paid on May 1, 2022 and the present value of the estimated earn-out payment (the “Vedatis Earn-Out Payment”) expected to be paid based on the performance of Vedatis by August 29, 2025.
The Vedatis Earn-Out Payment, subject to certain conditions, is equal to the sum of earnings before interest, taxes, depreciation and amortization for the best four consecutive quarters of the existing Vedatis business at the time of closing excluding new business generated or enhanced by the Company. The earn-out period is for four years following May 1, 2021.
The Company had, at its option, the ability to settle the Vedatis Deferred Payment of Euro €750,000 either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the two trading days immediately prior to May 1, 2022. On June 2, 2022, the Vedatis Deferred Payment has been settled by the Company issuing 348,852 common shares of the Company through the exercise of the Company’s option (Note 16).
The Company has, at its option, the ability to settle the Vedatis Earn-Out Payment half in cash and half in common shares, the share payment portion will be settled by the allotment and issuance of such number of common shares determined by the volume weighted average price for the two trading days immediately prior to May 1, 2025.
The Company uses Monte-Carlo simulation valuation techniques to estimate the net present value of the Vedatis Earn-Out Payment. The cash portion and equity portion are present valued separately based on the outcomes of the Monte-Carlo simulation. The Vedatis Earn-Out Payment is revalued each reporting period with changes in fair value of the Vedatis Earn-Out Payment recorded in the 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, upon initial valuation, was amortized at an effective interest rate of 5.86% and the cash portion of the Vedatis Earn-Out Payment was amortized at an effective interest rate of 8.19%.
On September 30, 2022, the Vedatis Earn-Out Payment was revalued at $1,342,629 based on a discounted valuation using a 15.29% and 3.66% discount rate for the cash settled and equity settled portion, respectively, and an expectation that a Vedatis Earn-Out Payment of $1,744,562 is probable. Following the September 30, 2022 revaluation, the cash portion of the Vedatis Earn-Out Payment is amortized at an effective interest rate of 15.39% (December 31, 2021 – 9.83%).
17
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 15. | Deferred payment liability (continued) |
|---|---|
| (ii) | Vedatis deferred payment liability (continued) |
| --- | --- |
The fair value of the Vedatis Earn-Out Payment at period end was calculated using the following inputs:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| Payment date<br><br>Time to m4aturity | August 29, 2025<br><br> <br>2.92 years | August 29, 2025<br><br> <br>3.66 years |
| Required metric risk premium | 21.75% | 21.75% |
| EBITDA volatility | 17.00% | 17.00% |
| Senior credit rating | B- | B- |
| Earn-out payment credit rating | CCC+ | CCC+ |
| Drift rate | 3.67% | 1.15% |
| Discount rate (risk free rate) for equity-based payment | 3.66% | 1.16% |
| Discount rate (risk adjusted rate) for<br>cash payment<br><br>Discount rate for lack of marketability | 15.29%<br><br> <br>Nil% | 9.79%<br><br> <br>Nil% |
The following table shows the movement of the Vedatis deferred payment liability during the period:
| Vedatis<br> <br>Deferred<br> <br>Payment | Vedatis<br> <br>Earn-Out<br> <br>Payment | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2021 | $ | - | $ | - | $ | - | |||
| Initial fair value of deferred payment liability | 1,047,028 | 1,602,902 | 2,649,930 | ||||||
| Accretion | 41,705 | 39,830 | 81,535 | ||||||
| Loss on revaluation of deferred payment liability | - | 181,707 | 181,707 | ||||||
| Effect of movement in exchange rates | (29,944 | ) | (50,103 | ) | (80,047 | ) | |||
| Balance, December 31, 2021 | $ | 1,058,789 | $ | 1,774,336 | $ | 2,833,125 | |||
| Accretion | 21,117 | 42,164 | 63,281 | ||||||
| Payment – shares | (1,013,400 | ) | - | (1,013,400 | ) | ||||
| Gain on revaluation of deferred payment liability | - | (390,156 | ) | (390,156 | ) | ||||
| Effect of movement in exchange rates | (66,506 | ) | (83,715 | ) | (150,221 | ) | |||
| Balance, September 30, 2022 | - | 1,342,629 | 1,342,629 | ||||||
| Current portion of deferred payment liability | - | - | - | ||||||
| Long-term portion of deferred payment liability | $ | - | $ | 1,342,629 | $ | 1,342,629 | |||
| (iii) | GameKnot deferred payment liability | ||||||||
| --- | --- |
The GameKnot deferred payment liability consisted of the present value of a USD $500,000 six-month anniversary payment (the “GameKnot Deferred Payment”) to be paid on February 28, 2022.
The Company had, at its option, the ability to settle the GameKnot Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to August 30, 2021. The GameKnot Deferred Payment was included in GameKnot’s total purchase price consideration at an initial fair value of $613,129 based on a discounted valuation using a 6.00% discount rate. The GameKnot Deferred Payment was amortized at an effective interest rate of 6.01%.
On February 28, 2022, the GameKnot Deferred Payment has been settled by the Company issuing 111,267 common shares of the Company through the exercise of the Company’s option (Note 16).
18
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 15. | Deferred payment liability (continued) |
|---|---|
| (iii) | GameKnot deferred payment liability (continued) |
| --- | --- |
The following table shows the movement of the GameKnot deferred payment liability during the period:
| GameKnot Deferred Payment | |||
|---|---|---|---|
| Balance, January 1, 2021 | $ | - | |
| Initial fair value of deferred payment liability | 613,129 | ||
| Accretion | 12,490 | ||
| Effect of movement in exchange rates | 2,162 | ||
| Balance, December 31, 2021 | $ | 627,781 | |
| Accretion | 6,111 | ||
| Payment – shares | (634,900 | ) | |
| Effect of movement in exchange rates | 1,008 | ||
| Balance, September 30, 2022 | - | ||
| Current portion of deferred payment liability | - | ||
| Long-term portion of deferred payment liability | $ | - | |
| (iv) | Addicting Games deferred payment liability | ||
| --- | --- |
The Addicting Games deferred payment liability consisted of the present value of a USD $7,000,000 first anniversary payment (the “Addicting Games First Anniversary Deferred Payment”) to be paid on September 3, 2022 and the present value of a USD $3,800,000 second anniversary payment (the “Addicting Games Second Anniversary Deferred Payment”) to be paid on September 3, 2023 (collectively the “Addicting Games Deferred Payment”).
The Company had, at its option, the ability to settle the Addicting Games Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the payment due dates.
The Addicting Games First Anniversary Deferred Payment was included in Addicting Games’ total purchase price consideration at an initial fair value of $8,181,699 based on a discounted valuation using a 7.10% discount rate. The Addicting Games Second Anniversary Deferred Payment was included in Addicting Games’ total purchase price consideration at an initial fair value of $4,147,054 based on a discounted valuation using a 7.10% discount rate.
The Addicting Games First Anniversary Deferred Payment and Addicting Games Second Anniversary Deferred Payment were amortized at an effective interest rate of 6.88% and 6.88% respectively.
On May 25, 2022, the Company and former shareholders of Addicting Games entered into an amending agreement to the Addicting Games SPA to satisfy the settlement of the Addicting Games Deferred Payment by the Company issuing 4,320,000 common shares of the Company. On June 2, 2022, the Addicting Games Deferred Payment has been settled by the Company issuing 4,319,996 common shares of the Company (Note 16) resulting on a loss on settlement of deferred payment liability of $248,358. The common shares issued were 4 common shares less than 4,320,000 common shares to be issued due the elimination of fractional common shares.
19
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 15. | Deferred payment liability (continued) |
|---|---|
| (iv) | Addicting Games deferred payment liability (continued) |
| --- | --- |
The following table shows the movement of the Addicting Games deferred payment liability during the period:
| Addicting Games Deferred Payment | |||
|---|---|---|---|
| Balance, January 1, 2021 | $ | - | |
| Initial fair value of deferred payment liability | 12,328,753 | ||
| Accretion | 280,700 | ||
| Effect of movement in exchange rates | 159,266 | ||
| Balance, December 31, 2021 | $ | 12,768,719 | |
| Accretion | 372,915 | ||
| Payment - shares | (13,305,588 | ) | |
| Loss on settlement of deferred payment liability | 248,358 | ||
| Effect of movement in exchange rates | (84,404 | ) | |
| Balance, September 30, 2022 | - | ||
| Current portion of deferred payment liability | - | ||
| Long-term portion of deferred payment liability | $ | - | |
| (v) | Outplayed deferred payment liability | ||
| --- | --- |
The Outplayed deferred payment liability consisted of the present value of a USD $8,500,000 first anniversary payment (the “Outplayed First Anniversary Deferred Payment”) to be paid on November 22, 2022, the present value of a USD $8,500,000 second anniversary payment (the “Outplayed Second Anniversary Deferred Payment”) to be paid on November 22, 2023 (collectively, the “Outplayed Deferred Payment”), the present value of the first anniversary earn-out payment USD $6,000,000 (the “Outplayed First Anniversary Earn-Out Payment”) expected to be paid based on the performance of Outplayed by December 22, 2022, and the present value of the second anniversary earn-out payment USD $6,000,000 (the “Outplayed Second Anniversary Earn-Out Payment”) expected to be paid based on the performance of Outplayed by December 22, 2023 (collectively, the “Outplayed Earn-Out Payment”).
The Outplayed Earn-Out Payment, subject to certain conditions, will be paid if certain site traffic based targets are met in the first and second years of operations. The first anniversary earn-out period is for one year from the closing date and the second anniversary earn-out period is for one year from the end of the first anniversary earn-out period.
The Company had, at its option, the ability to settle the Outplayed Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days two business days prior to the anniversary payment due dates. The Company had, at its option, the ability to settle the Outplayed Earn-Out Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the date the applicable earn-out is achieved.
The Outplayed First Anniversary Deferred Payment was included in Outplayed’s total purchase price consideration at an initial fair value of $10,013,937 based on a discounted valuation using a 7.63% discount rate. The Outplayed Second Anniversary Deferred Payment was included in Outplayed’s total purchase price consideration at an initial fair value of $9,304,038 based on a discounted valuation using a 7.63% discount rate. The Outplayed First Anniversary Earn-Out Payment was included in Outplayed’s total purchase price consideration at an initial fair value of $6,272,711 based on a discounted valuation using a 19.50% discount rate with an expectation that payment of the full earn-out of USD $6,000,000 is probable. The Outplayed Second Anniversary Earn-Out Payment was included in Outplayed’s total purchase price consideration at an initial fair value of $5,249,130 based on a discounted valuation using a 19.50% discount rate with an expectation that payment of the full earn-out of USD $6,000,000 is probable.
The Outplayed First Anniversary Earn-Out Payment, the Outplayed Second Anniversary Earn-Out Payment, Outplayed First Anniversary Earn-Out Payment and the Outplayed Second Anniversary Earn-Out Payment were amortized at an effective interest rate of 7.38%, 7.38%, 17.97% and 17.96% respectively.
20
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 15. | Deferred payment liability (continued) |
|---|---|
| (v) | Outplayed deferred payment liability (continued) |
| --- | --- |
On May 25, 2022, the Company and former shareholders of Outplayed entered into an amending agreement to the Outplayed MA to satisfy the settlement of the Outplayed Deferred Payment and Outplayed Earn-Out Payment by the Company issuing 11,500,000 common shares of the Company. On June 2, 2022, the Outplayed Deferred Payment and Outplayed Earn-Out Payment has been settled by the Company issuing 11,499,988 common shares of the Company (Note 16) resulting on a loss on settlement of deferred payment liability of $2,900,068. The common shares issued were 12 common shares less than 11,500,000 common shares to be issued due the elimination of fractional common shares.
The following table shows the movement of the Outplayed deferred payment liability during the period:
| Outplayed Deferred Payment | Outplayed Earn-Out Payment | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2021 | $ | - | $ | - | $ | - | |||
| Initial fair value of deferred payment liability | 19,317,976 | 11,521,841 | 30,839,817 | ||||||
| Accretion | 151,319 | 219,808 | 371,127 | ||||||
| Effect of movement in exchange rates | (2,147 | ) | (509 | ) | (2,656 | ) | |||
| Balance, December 31, 2021 | $ | 19,467,148 | $ | 11,741,140 | $ | 31,208,288 | |||
| Accretion | 610,138 | 912,424 | 1,522,562 | ||||||
| Payment – shares | (20,763,426 | ) | (14,656,537 | ) | (35,419,963 | ) | |||
| Loss on settlement of deferred payment liability | 815,138 | 2,084,930 | 2,900,068 | ||||||
| Effect of movement in exchange rates | (128,998 | ) | (81,957 | ) | (210,955 | ) | |||
| Balance, September 30, 2022 | - | - | - | ||||||
| Current portion of deferred payment liability | - | - | - | ||||||
| Long-term portion of deferred payment liability | $ | - | $ | - | $ | - | |||
| (vi) | FFS deferred payment liability | ||||||||
| --- | --- |
The FFS deferred payment liability consists of the present value of a $1,609,600 (GBP £1,000,000) first anniversary payment (the “FFS First Anniversary Deferred Payment”) to be paid on April 28, 2023, the present value of a $80,480 (GBP £50,000) second anniversary payment (the “FFS Second Anniversary Payment”) to be paid April 28, 2024 (collectively, the “FFS Deferred Payment”) and the present value of the first anniversary earn-out payment of $804,800 (GBP £500,000) (the “FFS Earn-Out Payment”) expected to be on April 28, 2023.
The FFS Earn-Out Payment will be paid if the Fantasy Premier League agreement, which expired on August 1, 2022, is renewed for an additional three-year period, on substantially similar or more favourable terms.
The Company has, at its option, the ability to settle the FFS First Anniversary Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the payment due date.
The FFS First Anniversary Deferred Payment was included in FFS’ total purchase price consideration at an initial fair value of $1,497,581 based on a discounted valuation using a 7.48% discount rate. The FFS Second Anniversary Deferred Payment was included in FFS’ total purchase price consideration at an initial fair value of $69,668 based on a discounted valuation using a 7.48% discount rate. The FFS Earn-Out Payment was included in FFS’ total purchase price consideration at an initial fair value of $748,790 based on a discounted valuation using a 7.48% discount rate with an expectation that payment of the full earn-out of GBP £500,000 is probable.
The FFS First Anniversary Deferred Payment, FFS Second Anniversary Deferred Payment and FFS Earn-Out Payment are amortized at an effective interest rate of 7.23%, 7.23% and 7.23% respectively.
21
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 15. | Deferred payment liability (continued) |
|---|---|
| (vi) | FFS deferred payment liability (continued) |
| --- | --- |
The following table shows the movement of the FFS deferred payment liability during the period:
| FFS Deferred Payment | FFS Earn-Out Payment | Total | |
|---|---|---|---|
| Balance, December 31, 2021 | $ - | $ - | $ - |
| Initial fair value of deferred payment liability | 1,567,249 | 748,790 | 2,316,039 |
| Accretion | 47,153 | 22,530 | 69,683 |
| Effect of movement in exchange rates | (98,601) | (47,109) | (145,710) |
| Balance, September 30, 2022 | 1,515,801 | 724,211 | 2,240,012 |
| Current portion of deferred payment liability | 1,448,422 | 724,211 | 2,172,633 |
| Long-term portion of deferred payment liability | $ 67,379 | $ - | $ 67,379 |
The following table shows the aggregate movement of the deferred payment liability during the nine months ended September 30, 2022 and year ended December 31, 2021:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| Beginning balance | $ 48,038,421 | $ 1,165,724 |
| Initial fair value of deferred payment liability | 2,316,039 | 46,431,629 |
| Accretion | 2,055,250 | 823,267 |
| Payment – cash | (472,833) | - |
| Payment – shares | (50,373,851) | (632,800) |
| Loss on settlement of deferred payment liability | 3,148,426 | - |
| (Gain) loss on revaluation of deferred payment liability | (539,555) | 181,707 |
| Effect of movement in exchange rates | (589,256) | 68,894 |
| Ending balance | 3,582,641 | 48,038,421 |
| Current portion of deferred payment liability | 2,172,633 | 27,244,146 |
| Long-term portion of deferred payment liability | $ 1,410,008 | $ 20,794,275 |
The Company had a working capital adjustment receivable from the acquisition of Addicting Games of $154,398 which was settled as part of the amending agreement to the Addicting Games SPA and is included in the loss of settlement of deferred payment liability in the condensed consolidated interim statement of loss and comprehensive loss resulting in a total loss on settlement of deferred payment liability of $3,302,824.
22
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 16. | Share capital |
|---|
Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
During the period ended September 30, 2022:
| (i) | On February 14, 2022, the Company issued the remaining 35,770 common shares to be issued relating to the<br>Outplayed SPA. |
|---|---|
| (ii) | On February 28, 2022, the Company issued 111,267 common shares to settle the GameKnot Deferred Payment<br>liability (Note 15). |
| --- | --- |
| (iii) | On March 31, 2022, the Company received proceeds of $69,821 from the exercise of 74,051 stock options.<br>The fair value assigned to these stock options of $239,899 was reclassified from contributed surplus to share capital. |
| --- | --- |
| (iv) | On June 2, 2022, the Company issued 348,852 common shares to settle the Vedatis Deferred Payment liability<br>(Note 15). |
| --- | --- |
| (v) | On June 2, 2022, the Company issued 4,319,996 common shares to settle the Addicting Games Deferred Payment<br>liability (Note 15). |
| --- | --- |
| (vi) | On June 2, 2022, the Company issued 11,499,988 common shares to settle the Outplayed Deferred Payment<br>liability and Outplayed Earn-Out Payment liability (Note 15). |
| --- | --- |
| (vii) | On July 25, 2022 the Company issued 307,692 common shares to settle accounts payable of $800,000 related<br>to annual general meeting costs. The Company recorded a gain on settlement of accounts payable of $95,385 based on a share price of $2.29<br>per share. This gain been netted against the annual general meeting legal and advisory costs in the condensed consolidated interim statement<br>of loss and comprehensive loss. |
| --- | --- |
| (viii) | On September 19, 2022 the Company issued 790,633 common shares to settle accounts payable of $1,757,396<br>related to annual general meeting legal and advisory costs and consulting fees. The Company recorded a gain on settlement of accounts<br>payable of $492,383 based on a share price of $1.60 per share. A gain of $288,679 has been netted against the annual general meeting legal<br>and advisory costs and the remaining gain of $203,704 has been netted against the consulting fees in the condensed consolidated interim<br>statement of loss and comprehensive loss. |
| --- | --- |
During the period ended September 30, 2021:
| (i) | The Company received proceeds of $784,431 from the exercise of 363,176 stock options. The fair value assigned<br>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. |
| --- | --- |
| (iii) | On January 20, 2021, the Company issued 429,354 common shares to settle the remaining Steel Media Deferred<br>Payment liability (Note 15). |
| --- | --- |
| (iv) | On February 10, 2021, the Company offered and sold a total of 7,383,000 common shares resulting in gross<br>proceeds of $42,452,250 (the “February Offering”). The Company incurred cash share issuance cost of $2,704,571 relating to<br>the February Offering. |
| --- | --- |
| (v) | On May 4, 2021, the Company issued 226,563 common shares in connection with the closing of the Vedatis<br>SPA. |
| --- | --- |
| (vi) | In June 2021, the Company offered and sold a total of 8,600,000 common shares resulting in gross proceeds<br>of $60,137,755 (USD $49,450,000) (the “June Offering”). The Company incurred cash share issuance cost of $4,734,624 relating<br>to the June Offering. |
| --- | --- |
| (vii) | On June 21, 2021, the Company issued 790,094 common shares in connection with the closing of the Tabwire<br>EPA. |
| --- | --- |
| (viii) | On August 30, 2021, the Company issued 165,425 common shares in connection with the closing of the GameKnot<br>EPA. |
| --- | --- |
| (ix) | On September 3, 2021, the Company issued 2,661,164 common shares in connection with the closing of the<br>Addicting Games SPA. |
| --- | --- |
23
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 17. | Stock options |
|---|
On January 20, 2021, the shareholders of the Company approved and ratified the adoption of the stock option plan (the “Stock Option Plan”) which allows the Board of Directors to grant stock options to directors, officers, employees and consultants of the Company as performance incentives. The maximum number of common shares issuable under the Stock Option Plan is limited to 10% of the issued and outstanding common shares of the Company. There are also limitations on the number of common shares issuable to insiders. At the time of granting a stock option, the Board of Directors must approve: (i) the exercise price, being not less than the market value of the common shares; (ii) the vesting provisions; and (iii) the expiry date, generally being no more than ten years after the grant date.
The following table reflects the continuity of stock options as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||
|---|---|---|---|---|
| Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | |
| Beginning balance | 3,923,491 | $ 3.35 | 2,734,073 | $ 1.61 |
| Granted | 1,560,967 | 2.75 | 1,598,905 | 6.17 |
| Exercised | (74,051) | (0.94) | (363,176) | (2.16) |
| Forfeited | (519,386) | (4.56) | (46,311) | (7.28) |
| Ending balance | 4,891,021 | $ 3.07 | 3,923,491 | $ 3.35 |
| Exercisable | 3,052,083 | $ 2.43 | 2,668,573 | $ 1.71 |
The weighted average share price on the date of exercise is $2.55 (December 31, 2021 - $7.25).
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%.
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%.
On April 20, 2022, the Company issued 1,560,697 stock options to directors, officers, employees and consultants, of which 902,141 were issued to directors and officers. These stock options are exercisable at $2.75, expire April 20, 2027 and vest as follows: (i) 34,000 on April 20, 2022, (ii) 503,308 on January 1, 2023, (iii) 17,000 on April 20, 2023, (iv) 503,308 on January 1, 2024, and (v) 503,351 on January 1, 2025. The fair value of these stock options issued was $2.07 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $2.75; exercise price - $2.75; expected life in years – 5 years; expected volatility – 105.61% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 3.55%; and, risk-free interest rate – 2.74%.
The Company recorded share-based compensation expense of $1,814,961 (September 30, 2021- $4,468,066) for stock options vesting during the nine months ended September 30, 2022.
24
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 17. | Stock options (continued) |
|---|
The Company has the following stock options outstanding as of September 30, 2022:
| Expiry date | Number of stock options outstanding | Exercise price | Number of stock options exercisable | Weighted average remaining life (years) | ||||
|---|---|---|---|---|---|---|---|---|
| October 17, 2022 | 17,959 | $ | 0.80 | 17,959 | 0.05 | |||
| November 18, 2022 | 821,607 | 0.37 | 821,607 | 0.13 | ||||
| November 14, 2023 | 13,187 | 2.37 | 13,187 | 1.12 | ||||
| March 29, 2024 | 303,310 | 2.37 | 303,310 | 1.50 | ||||
| August 27, 2024 | 868,750 | 2.40 | 868,750 | 1.91 | ||||
| December 9, 2025 | 706,244 | 3.20 | 548,397 | 3.19 | ||||
| January 1, 2026 | 661,381 | 8.75 | 254,873 | 3.26 | ||||
| April 20, 2027 | 1,308,583 | 2.75 | 34,000 | 4.56 | ||||
| December 12, 2028 | 190,000 | 1.00 | 190,000 | 6.21 | ||||
| 4,891,021 | $ | 3.07 | 3,052,083 | 2.82 | ||||
| 18. | 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 consultants, 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 1, 2022, January 1, 2023 and January 1, 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.
On July 19, 2021, the Company modified the vesting dates of 178,293 restricted share units issued to consultants on April 13, 2021. These 178,293 restricted share units were modified to vest 100% on October 31, 2021. Share-based compensation expense is recognized based on the modified vesting term.
On April 20, 2022, the Company issued 1,922,877 restricted share units to directors, officers, employees and consultants, of which 1,531,349 were issued to directors and officers. These restricted share units are expected to be settled through issuance of 1,922,877 common shares of the Company. These restricted share units vest as follows: (i) 166,666 on April 20, 2022; (ii) 557,608 on January 1, 2023; (iii) 83,334 on April 20, 2023; (iv) 557,608 on January 1, 2024; and (v) 557,661 on January 1, 2025. These restricted share units have been fair valued based on the quoted market price on the date of issuance of $2.75 per common share.
The Company recorded share-based compensation expense of $3,521,656 (September 30, 2021 - $10,222,228) for restricted share units vesting during the nine months ended September 30, 2022.
25
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 18. | Share units (continued) |
|---|
The Company has the following restricted share units outstanding as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||
|---|---|---|---|---|---|---|
| Beginning balance | 2,455,697 | - | ||||
| Granted | 1,922,877 | 2,493,739 | ||||
| Forfeited | (605,048 | ) | (38,042 | ) | ||
| Ending balance | 3,773,526 | 2,455,697 | ||||
| Vested | 1,633,893 | 711,452 | ||||
| 19. | Related party transactions and balances | |||||
| --- | --- |
The Company's key management personnel have authority and responsibility for overseeing, planning, directing and controlling the activities of the Company. Key management personnel include members of the Board of Directors, Chief Executive Officer, former Chief Operating Officer, Chief Financial Officer, Chief Corporate Officer and 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 three and nine months ended September 30, 2022 and 2021 is as follows:
| For the three months ended | For the nine months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||
| Short-term benefits | $ | 369,398 | $ | 648,419 | $ | 2,637,648 | $ | 1,925,223 |
| Share-based compensation | 185,344 | 2,864,207 | 3,603,210 | 10,896,188 | ||||
| $ | 554,742 | $ | 3,512,626 | $ | 6,240,858 | $ | 12,821,411 |
A summary of other related party transactions during the three and nine months ended September 30, 2022 and 2021 is as follows:
| For the three months ended | For the nine months ended | |||
|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| Total transactions during the period: | ||||
| Revenue | $ - | $ 9,361 | $ - | $ 702,066 |
| Expenses | ||||
| Consulting fees | 160,226 | 129,350 | 446,150 | 810,214 |
| Interest and accretion | - | - | - | 282,838 |
| Loss on settlement of vendor-take-back loan | - | - | - | 316,241 |
| Share of (income) loss from investment in associates and joint ventures | 67,719 | 133,145 | (1,160,223) | 205,405 |
A summary of related party balances as of September 30, 2022 and December 31, 2021 is as follows:
| September 30, 2022 | December 31, 2021 | |||||
|---|---|---|---|---|---|---|
| Balances receivable (payable): | ||||||
| Trade and other receivables | $ | 67,184 | $ | 3,734,410 | ||
| Loans receivable | - | 125,995 | ||||
| Investment in associates and joint ventures | 43,292 | 885,269 | ||||
| Accounts payable and accrued liabilities | (388,993 | ) | (382,794 | ) | ||
| Contract liabilities | - | (55,434 | ) |
26
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 19. | 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 former related party by nature of it being under the control or direction of the former Chairman of the Company, as well as a Master Services Agreement (the “Master SA”) with Vancouver Arena Limited Partnership, a former related party by nature of it being under the control or direction of the former 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 nine months ended September 30, 2022, the Company recognized management revenue of $Nil (September 30, 2021 - $379,125) relating to the Management SA, and recognized consulting expenses of $Nil (September 30, 2021 - $379,125) relating to the Master SA. As of December 31, 2021, a balance of $452,730 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, former related parties by nature of them being under the control or direction of the former 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 nine months ended September 30, 2022, the Company recognized media advertising revenue of $Nil (September 30, 2021 - $16,578) pursuant to the Exchange of Marketing Rights and Benefits Agreement. As of December 31, 2021, a balance of $55,434 is included in contract liabilities for media advertising services to be provided by the Company to AIG eSports and Surge eSports LLC.
As of December 31, 2021 a balance of $29,952 and $24,427 is due to AIG eSports LP and Surge eSports LLC, respectively, which is included in accounts payable and accrued liabilities, relating to team sponsorship fees payable.
As of December 31, 2021, trade and other receivables include $3,225,177 of amounts advanced to Surge eSports LLC, a former related party by nature of it being under the control or direction of the former 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 from Blue Ant Media Solutions Inc. (“Blue Ant”), following the acquisition Blue Ant and its affiliated companies are related parties to the Company. As of July 19, 2021, Blue Ant held less than 10% of the issued outstanding common shares of the Company and is no longer a related party of the Company. During the period from January 1, 2021 to September 30, 2021, the Company earned media revenue of $306,363 from Blue Ant and its affiliated companies.
A vendor-take-back (“VTB”) loan payable to Blue Ant of $5,750,000 arose on the acquisition of Omnia on August 30, 2020. On June 17, 2021, the Company settled the VTB by paying the principal balance of $5,750,000 and accrued interest of $408,329. During the nine months ended September 30, 2021, the Company recognized $255,792 of interest expense and $27,046 of accretion expense on the VTB loan which is included in interest and accretion expenses in the condensed consolidated interim statement of loss and comprehensive loss. During the nine months ended September 30, 2021, the Company also recognized a loss on settlement of the VTB loan of $316,241 which is included in the condensed consolidated interim statement of loss and comprehensive loss.
During the nine months ended September 30, 2022, the Company recognized consulting expenses of $50,062 (September 30, 2021 - $56,212) to Rivonia Capital Inc., a company in which a director of the Company is a principal. As of September 30, 2022, a balance of $7,063 (December 31, 2021 - $7,063) is included in account payable and accrued liabilities.
During the nine months ended September 30, 2022, the Company recognized consulting expense of $Nil (September 30, 2021 - $74,253) to Franchise Agency LLC, an agency which represents a director of the Company. As of September 30, 2022, a balance of $Nil (December 31, 2021 - $55,654) is included in account payable and accrued liabilities.
27
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
During the nine months ended September 30, 2022 the Company recognized $396,088 (September 30, 2021 - $300,624) in consulting fees relating to Board of Director and committee fees to certain directors. As of September 30, 2022, a balance of $381,930 (December 31, 2021 - $265,698) is included in account payable and accrued liabilities.
| 19. | Related party transactions and balances (continued) |
|---|
As of September 30, 2022, a balance of $67,184 (December 31, 2021 - $56,503) is included in trade and other receivables from AFK, a related party by nature of it having common management as the Company, refer to Note 7.
As of September 30, 2022, the Company has loans receivable due from the former President and Chief Corporate Officer of $Nil (December 31, 2021 - $80,297) and $Nil (December 31, 2021 - $45,698) respectively. The loans receivable were non-interest bearing and due on demand.
See Note 7 for information relating to an investment in associates controlled by a former related party. The investment in associates are no longer a related party as of July 19, 2022. During the period from January 1, 2021 to July 19, 2022, the Company’s share of net income from investment is associates is $1,160,223 (September 30, 2021 – net loss of $205,405).
See Note 7 for information relating to an investment in a joint venture under common management as the Company.
See Note 17 for information relating to stock options issued to officers and directors of the Company.
See Note 18 for information relating to restricted share units issued to officers and directors of the Company.
| 20. | 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 nine months ended September 30, 2022. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements aside from the covenants described in Note 13.
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.
| 21. | 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 and other long-term debt is based on observable market data and the calculation of discounted cash flows. Discount rates were determined based on current terms and conditions observed in the credit market.
The Company follows a three-tier categorization for its financial instruments as a framework for disclosing fair value based upon inputs used to value the Company's investments. The hierarchy is summarized as:
| · | Level 1 – quoted prices (unadjusted) in<br>active markets for identical assets and liabilities |
|---|---|
| · | Level 2 – inputs that are observable for<br>the asset or liability, either directly (prices) or indirectly (derived from prices) from observable market data |
| --- | --- |
| · | Level 3 – inputs for assets<br>and liabilities not based upon observable market data |
| --- | --- |
As of September 30, 2022 the Vedatis Earn-Out Payment liability is classified as a Level 3 financial instrument, see Note 15.
28
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 21. | Financial instruments (continued) |
|---|
Fair values (continued)
Total interest income and interest expense for the three and nine months ended September 30, 2022 and 2021 for financial assets or financial liabilities that are not at fair value through profit or loss is as follows:
| For the three months ended | For the nine months ended | |||
|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |
| Interest income | $ (5,257) | $ (9,315) | $ (7,978) | $ (50,546) |
| Interest and accretion expense | 414,203 | 430,538 | 2,963,981 | 1,702,839 |
| Net interest expense | $ 408,946 | $ 421,223 | $ 2,956,003 | $ 1,652,293 |
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:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| Trade receivables aging: | ||
| 0-30 days | $ 24,582,051 | $ 26,263,555 |
| 31-60 days | 1,247,477 | 685,112 |
| 61-90 days | 1,478,140 | 868,473 |
| Greater than 90 days | 2,841,559 | 2,217,521 |
| 30,149,227 | 30,034,661 | |
| Expected credit loss provision | (59,181) | (58,472) |
| Net trade receivables | $ 30,090,046 | $ 29,976,189 |
The movement in the expected credit loss provision can be reconciled as follows:
| September 30, 2022 | December 31, 2021 | |
|---|---|---|
| Expected credit loss provision: | ||
| Expected credit loss provision, beginning balance | $ (58,472) | $ (67,466) |
| Recoveries | - | 8,504 |
| Effect of movement in exchange rates | (709) | 490 |
| Expected credit loss provision, ending balance | $ (59,181) | $ (58,472) |
The following default rates, determined based on historical default rates based on the aging of trade receivables, are used to calculate the expected credit loss provision on trade receivables as of September 30, 2022:
| Total | Not past due | Over 30 days past due | Over 60 days past due | Over 90 days past due | |
|---|---|---|---|---|---|
| Default rates | 0.05% | 0.32% | 0.82% | 1.04% | |
| Trade receivables | $ 30,149,227 | $ 24,582,051 | $ 1,247,477 | $ 1,478,140 | $ 2,841,559 |
| Expected credit loss provision | $ 59,181 | $ 13,300 | $ 4,054 | $ 12,137 | $ 29,690 |
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.
29
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 21. | Financial instruments (continued) |
|---|
Concentration risk
The Company has one customer which makes up more than 10% of revenue. This customer accounts for approximately 31.52% (December 31, 2021 – 46.58%) of trade receivables as of September 30, 2022, 55.93% (September 30, 2021 – 67.24%) of revenues for the three months ended September 30, 2022 and 56.20% (September 30, 2021 – 70.91%) of revenues for the nine months ended September 30, 2022.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements.
The Company holds sufficient cash and working capital which is maintained through stringent cash flow management to ensure sufficient liquidity is maintained. The table below summarizes the Company's contractual obligations into relevant maturity groups at the statement of financial position date based on the expected contractual maturity date. The amounts disclosed in the table are the contractual undiscounted payments.
| Less than one year | One to two years | Two to three years | More than three years | Total | |
|---|---|---|---|---|---|
| Accounts payable and accrued liabilities | $ 34,433,167 | $ - | $ - | $ - | $ 34,433,167 |
| Contract liabilities | 4,797,857 | - | - | - | 4,797,857 |
| Income tax payable | 403,375 | - | - | - | 403,375 |
| Deferred payment liability | 2,264,700 | 75,490 | - | 1,722,044 | 4,062,234 |
| Lease contract liabilities | 952,681 | 858,261 | 554,324 | 425,027 | 2,790,293 |
| Long-term debt | 2,000,000 | 16,500,000 | - | - | 18,500,000 |
| Other long-term debt | 8,016 | 12,024 | 12,024 | 385,810 | 417,874 |
| $ 44,859,796 | $ 17,445,775 | $ 566,348 | $ 2,532,881 | $ 65,404,800 |
Foreign currency risk
A large portion of the Company’s transactions occur in foreign currencies (including US dollars, UK pound sterling and Euro) and, therefore, the Company is exposed to foreign currency risk at the end of the reporting period through its US dollars, UK pound sterling and Euro denominated trade and other receivables, accounts payable and accrued liabilities, deferred payment liability and cash. As of September 30, 2022, a 10% depreciation or appreciation of the US dollar, UK pound sterling and Euro against the Canadian dollar would have resulted in an approximate $473,000, $238,000 and $83,000 decrease or increase, respectively, in total net loss and comprehensive loss.
Interest rate risk
The Company’s long-term debt bears interest at Banker’s Acceptance fee equal to CDOR rate plus 7.5%. Fluctuations in the Banker’s Acceptance fee equal to CDOR rate will result in changes to the months interest expense. A change in the annual interest rate of 0.50% would approximately result in a $84,000 change in the annual interest expense.
| 22. | Commitments |
|---|
As of September 30, 2022, the Company has the following payment commitments with respect to consulting and other contractual obligations:
| Not later than one year | $ | 733,000 |
|---|---|---|
| Later than one year and not later than five years | 860,000 | |
| $ | 1,593,000 |
Further, the Company is subject to capital commitments pursuant to its investments in AIG Canada and AIG USA, see Note 7, 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.
30
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of September 30, 2022 and December 31, 2021
(Unaudited - Expressed in Canadian Dollars)
| 23. | 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 for the three and nine months ended September 30, 2022 and 2021 is as follows:
| For the three months ended | For the nine months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||
| Media and content | $ | 44,497,111 | $ | 38,704,379 | $ | 131,752,864 | $ | 99,145,101 |
| Esports and entertainment | 2,267,668 | 2,111,217 | 6,421,341 | 4,887,685 | ||||
| Subscription | 3,813,979 | 2,526,311 | 10,691,119 | 6,389,057 | ||||
| $ | 50,578,758 | $ | 43,341,907 | $ | 148,865,324 | $ | 110,421,843 |
Revenues, in Canadian dollars, in each of these geographic location for the three and nine months ended September 30, 2022 and 2021 is as follows:
| For the three months ended | For the nine months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||
| Canada | $ | 1,100,958 | $ | 485,943 | $ | 2,975,656 | $ | 1,700,626 |
| USA | 42,971,739 | 38,451,296 | 128,133,302 | 97,337,615 | ||||
| England and Wales | 3,082,577 | 1,868,814 | 7,712,577 | 4,239,601 | ||||
| All other countries | 3,423,484 | 2,535,854 | 10,043,789 | 7,144,001 | ||||
| $ | 50,578,758 | $ | 43,341,907 | $ | 148,865,324 | $ | 110,421,843 |
The non-current assets, in Canadian dollars, in each of the geographic locations as of September 30, 2022 and December 31, 2021 is as follows:
| September 30, 2022 | December 31, 2021 | |||
|---|---|---|---|---|
| Canada | $ | 153,860,378 | $ | 169,761,447 |
| USA | 134,578,561 | 153,549,460 | ||
| France | 3,387,020 | 3,453,744 | ||
| England and Wales | 5,620,048 | 1,752,444 | ||
| $ | 297,446,007 | $ | 328,517,095 | |
| 24. | Subsequent event | |||
| --- | --- | |||
| (i) | On October 28, 2022, 17,959 stock options exercisable at $0.80 were exercised. | |||
| --- | --- |
31
Exhibit 99.3
Form 52-109F2
Certificationof Interim Filings
FullCertificate
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”)<br> for the interim period ended September 30, 2022. |
|---|---|
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,<br> the interim filings do not contain any untrue statement of a material fact or omit to state<br> a material fact required to be stated or that is necessary to make a statement not misleading<br> 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<br> fairly present in all material respects the financial condition, financial performance and<br> 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 establishing<br> and maintaining disclosure controls and procedures (DC&P) and internal control over financial<br> reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the 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<br> filings |
| --- | --- |
| (a) | designed<br> DC&P, or caused it to be designed under our supervision, to provide reasonable assurance<br> that |
| --- | --- |
| (i) | material<br> information relating to the issuer is made known to us by others, particularly during the<br> period in which the interim filings are being prepared; and |
| --- | --- |
| (ii) | information<br> 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<br> and reported within the time periods specified in securities legislation; and |
| --- | --- |
| (b) | designed<br> ICFR, or caused it to be designed under our supervision, to provide reasonable assurance<br> regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with the issuer’s GAAP. |
|---|---|
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and<br> I used to design the issuer’s ICFR is the COSO Internal Control – Independent<br> Framework (2013), published by the Committee of Sponsoring Organizations of the Treadway<br> 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 the<br> issuer’s ICFR that occurred during the period beginning on July 1, 2022 and ended on<br> September 30, 2022 that has materially affected, or is reasonably likely to materially affect,<br> the issuer’s ICFR. |
| --- | --- |
Date: November 14, 2022.
/s/ Alex Macdonald
Alex Macdonald
Chief Financial Officer
Exhibit 99.4
Form 52-109F2
Certificationof Interim Filings
FullCertificate
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”)<br> for the interim period ended September 30, 2022. |
|---|---|
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,<br> the interim filings do not contain any untrue statement of a material fact or omit to state<br> a material fact required to be stated or that is necessary to make a statement not misleading<br> in light of the circumstances under which it was made, with respect to the period covered<br> by the interim filings. |
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| 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<br> fairly present in all material respects the financial condition, financial performance and<br> cash flows of the issuer, as of the date of and for the periods presented in the interim<br> filings. |
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| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing<br> and maintaining disclosure controls and procedures (DC&P) and internal control over financial<br> reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
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| 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<br> filings |
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| (a) | designed<br> DC&P, or caused it to be designed under our supervision, to provide reasonable assurance<br> that |
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| (i) | material<br> information relating to the issuer is made known to us by others, particularly during the<br> period in which the interim filings are being prepared; and |
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| (ii) | information<br> 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<br> and reported within the time periods specified in securities legislation; and |
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| (b) | designed<br> ICFR, or caused it to be designed under our supervision, to provide reasonable assurance<br> regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with the issuer’s GAAP. |
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| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and<br> I used to design the issuer’s ICFR is the COSO Internal Control – Independent<br> Framework (2013), published by the Committee of Sponsoring Organizations of the Treadway<br> Commission. |
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| 5.2 | ICFR – material weakness relating to design: N/A |
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| 5.3 | Limitation on scope of design: N/A |
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| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the<br> issuer’s ICFR that occurred during the period beginning on July 1, 2022 and ended on<br> September 30, 2022 that has materially affected, or is reasonably likely to materially affect,<br> the issuer’s ICFR. |
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Date: November 14, 2022.
/s/ Adrian Montgomery
Adrian Montgomery
Chief Executive Officer