GameSquare Holdings, Inc 6-K, filed Jan 14, 2022
GameSquare Holdings, Inc. (GAME)
About this 6-K
GameSquare Holdings, Inc filed this 6-K on January 14, 2022.
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of January, 2022.
Commission File Number: 333-254709
(Exact Name of Registrant as Specified in Charter)
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover 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): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
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): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
INCORPORATION BY REFERENCE
Exhibits 99.1 – 99.2 of this Form 6-K of Engine Gaming and Media, Inc. (the “Company”) are hereby incorporated by reference into the Registration Statement on Form F-10 (File No. 333-254709) of the Company, as amended or supplemented.
SIGNATURE
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.
| ENGINE GAMING AND MEDIA, INC. | ||
| (Registrant) | ||
| Date: January 14, 2022 | By: | /s/ Louis Schwartz |
| Name: | Louis Schwartz | |
| Title: | Chief Executive Officer and Director |
|
EXHIBIT INDEX
Exhibit 99.1
ENGINE GAMING AND MEDIA, INC.
Interim Condensed Consolidated Financial Statements
(Unaudited)
For the three months ended
November 30, 2021 and 2020
(Expressed in United States Dollars)
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) |
 |
Table of Contents
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) |
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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying interim condensed consolidated financial statements of Engine Gaming and Media, Inc., (formerly Engine Media Holdings, Inc.) (the “Company”) are the responsibility of management and the Board of Directors.
The interim condensed consolidated financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the interim condensed consolidated financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the statement of financial position date. In the opinion of management, the interim condensed consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with International Accounting Standard 34 - Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards appropriate in the circumstances.
Management has established processes, which are in place to provide it with sufficient knowledge to support management representations that it has exercised reasonable diligence in that (i) the interim condensed consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of, and for the periods presented by, the interim condensed consolidated financial statements and (ii) the interim condensed consolidated financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of the date of and for the periods presented by the interim condensed consolidated financial statements.
The Board of Directors are responsible for reviewing and approving the interim condensed consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. The Company’s Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the interim condensed consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the interim condensed consolidated financial statements together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Financial Position (Cont’d) (Unaudited) (Expressed in United States Dollars) |
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| Note | November 30, 2021 | August 31, 2021 | ||||||||
| $ | $ | |||||||||
| ASSETS | ||||||||||
| Current | ||||||||||
| Cash | ||||||||||
| Restricted cash | 13 | |||||||||
| Accounts and other receivables | 6 | |||||||||
| Government remittances | ||||||||||
| Publisher advance, current | 6 | |||||||||
| Prepaid expenses and other | ||||||||||
| Total current assets | ||||||||||
| Non-Current | ||||||||||
| Publisher advance, non-current | 6 | |||||||||
| Investment at FVTPL | 7 | |||||||||
| Property and equipment | 8 | |||||||||
| Goodwill | 9 | |||||||||
| Intangible assets | 10 | |||||||||
| Right-of-use assets | 11 | |||||||||
| Total Non-Current | ||||||||||
| Total assets | ||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Financial Position (Cont’d) (Unaudited) (Expressed in United States Dollars) |
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| Note | November 30, 2021 | August 31, 2021 | ||||||||
| $ | $ | |||||||||
| LIABILITIES | ||||||||||
| Current | ||||||||||
| Accounts payable | ||||||||||
| Accrued liabilities | ||||||||||
| Players liability account | 13 | |||||||||
| Deferred revenue | ||||||||||
| Lease obligation, current | 12 | |||||||||
| Long-term debt, current | ||||||||||
| Promissory notes payable | 14 | |||||||||
| Warrant liability | 16 | |||||||||
| Convertible debt, current | 15 | |||||||||
| Arbitration reserve | 21 | |||||||||
| Total current liabilities | ||||||||||
| Convertible debt, non-current | 15 | |||||||||
| Lease obligation, non-current | 12 | |||||||||
| Non-current liabilities | ||||||||||
| Total liabilities | ||||||||||
| SHAREHOLDERS’ EQUITY (DEFICIENCY) | ||||||||||
| Share capital | 17 | |||||||||
| Contributed surplus | ||||||||||
| Foreign currency translation reserve | ( | ) | ( | ) | ||||||
| Deficit | ( | ) | ( | ) | ||||||
| Attributable to shareholders | ||||||||||
| Non-controlling interest | ||||||||||
| Total equity | ||||||||||
| Total liabilities and equity | ||||||||||
| Going concern | 1 | |||||||||
| Commitments and contingencies | 21 | |||||||||
| Subsequent events | 26 | |||||||||
| Approved on Behalf of Board: | “Larry Rutkowski” | “Lou Schwartz” | |
| Director | Director |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Loss and Comprehensive Loss (Unaudited) (Expressed in United States Dollars) |
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| Note | November 30, 2021 | November 30, 2020 | ||||||||
| For the three months ended | ||||||||||
| Note | November 30, 2021 | November 30, 2020 | ||||||||
| $ | $ | |||||||||
| CONTINUING OPERATIONS | ||||||||||
| REVENUE | ||||||||||
| Games development | ||||||||||
| Direct to consumer | ||||||||||
| Software-as-a-service | ||||||||||
| Advertising | ||||||||||
| Professional services | ||||||||||
| Net revenue | ||||||||||
| EXPENSES | ||||||||||
| Salaries and wages | ||||||||||
| Consulting | ||||||||||
| Professional fees | ||||||||||
| Revenue sharing expense | ||||||||||
| Sponsorships and tournaments | ||||||||||
| Advertising and promotion | ||||||||||
| Office and general | ||||||||||
| Technology expenses | ||||||||||
| Amortization and depreciation | 8,10,11 | |||||||||
| Share-based payments | 18, 19 | |||||||||
| Interest expense | ||||||||||
| Loss on foreign exchange | ( | ) | ||||||||
| Transaction costs | - | |||||||||
| Non-operational professional fees | - | |||||||||
| Arbitration settlement reserve | 21 | ( | ) | - | ||||||
| Change in fair value of warrant liability | 16 | ( | ) | ( | ) | |||||
| Change in fair value of convertible debt | 15 | ( | ) | |||||||
| Total | ||||||||||
| ASSOCIATES | ||||||||||
| Share of net loss of associate | - | |||||||||
| Net loss for the period before discontinued operations | ( | ) | ( | ) | ||||||
| DISCONTINUED OPERATIONS | ||||||||||
| Loss on disposal of Motorsports | 22 | - | ( | ) | ||||||
| Loss from discontinued operations | 22 | ( | ) | ( | ) | |||||
| Net loss for the period | ( | ) | ( | ) | ||||||
| Net (income) loss attributable to non-controlling interest | ( | ) | ||||||||
| Net loss attributable to owners of the Company | ( | ) | ( | ) | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||
| Items that may be reclassified subsequently to profit or loss | ||||||||||
| Foreign currency translation differences | ||||||||||
| Comprehensive loss for the period | ( | ) | ( | ) | ||||||
| LOSS PER SHARE | ||||||||||
| Basic loss per share - continuing operations | 5 | ( | ) | ( | ) | |||||
| Basic loss per share - discontinued operations | 5 | ( | ) | ( | ) | |||||
| Basic and diluted loss per share | 5 | ( | ) | ( | ) | |||||
| Weighted average number of shares outstanding - Basic | 5 | |||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Shareholders’ Equity (Deficiency) (Unaudited) (Expressed in United States Dollars) |
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| Share capital: Number | Share capital: Amount | Shares to be issued | Contributed surplus | Foreign currency translation reserve | Deficit | Total equity before non-controlling interest | Non-controlling interest | Total equity | ||||||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Balance, as at August 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Share-based payments | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Shares issued on vesting of RSUs | - | ( | ) | - | - | - | ||||||||||||||||||||||||||||||
| Convertible debt conversion | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common shares issued on exercise of warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Disposal of Motorsports | - | - | ( | ) | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Non-controlling interest in subsidiary | - | - | - | ( | ) | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation differences | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Balance, as at November 30, 2020 | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance, as at August 31, 2021 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Share-based payments | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Shares issued on vesting of RSUs | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||
| Non-controlling interest in subsidiary | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation differences | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Balance, as at November 30, 2021 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Cash Flows (Unaudited) (Expressed in United States Dollars) |
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| Note | November 30, 2021 | November 30, 2020 | ||||||||
| For the three months ended | ||||||||||
| Note | November 30, 2021 | November 30, 2020 | ||||||||
| $ | $ | |||||||||
| OPERATING ACTIVITIES | ||||||||||
| Net loss for the period before non-controlling interest | ( | ) | ( | ) | ||||||
| Items not affecting cash: | ||||||||||
| Amortization and depreciation | 8, 10, 11 | |||||||||
| Arbitration settlement reserve | 21 | ( | ) | - | ||||||
| Loss on disposal of Motorsports | 22 | - | ||||||||
| Share of net loss of associate | - | |||||||||
| Change in fair value of warrant liability | 16 | ( | ) | ( | ) | |||||
| Change in fair value of convertible debt | 15 | ( | ) | |||||||
| Accretion of debt | ||||||||||
| Share-based payments | 18, 19 | |||||||||
| Total Adjustments | ( | ) | ( | ) | ||||||
| Changes in non-cash working capital: | ||||||||||
| Restricted cash | ( | ) | ||||||||
| Accounts and other receivables | ( | ) | ( | ) | ||||||
| Government remittances | ( | ) | ||||||||
| Publisher advance | 6 | - | ||||||||
| Prepaid expenses and other | ||||||||||
| Accounts payable | ( | ) | ( | ) | ||||||
| Accrued liabilities | ||||||||||
| Players liability account | ( | ) | ||||||||
| Deferred revenue | ( | ) | ||||||||
| Changes in non-cash working capital | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||
| INVESTING ACTIVITIES | ||||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||||
| Acquisition of intangible assets | - | ( | ) | |||||||
| Cash from disposal of Motorsports | - | |||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||||
| FINANCING ACTIVITIES | ||||||||||
| Proceeds from convertible debentures | 15 | - | ||||||||
| Net (payments) proceeds from promissory notes payable | 14 | ( | ) | ( | ) | |||||
| Proceeds from exercise of warrants | 16 | - | ||||||||
| Payments on lease financing | 12 | ( | ) | ( | ) | |||||
| Payments on long-term debt | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities | ( | ) | ||||||||
| Impact of foreign exchange on cash | ( | ) | ||||||||
| Change in cash | ( | ) | ( | ) | ||||||
| Cash, beginning of period | ||||||||||
| Cash, end of quarter | ||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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1. Corporate information and going concern
(a) Corporate information
Engine Gaming and Media Inc. (formerly Engine Media Holdings, Inc.) (“Engine” or the “Company”) was incorporated under the Business Corporations Act (Ontario) on April 8, 2011. The registered head office of the Company is 77 King St. West, Suite 3000, PO Box 95, TD Centre – North Tower, Toronto, Ontario, M5K 1G8, Canada.
Pursuant to shareholder approval at the October 6, 2021, shareholders’ meeting, effective October 19, 2021, the Company changed its name to Engine Gaming and Media, Inc. The Company’s common shares trade on the TSX Venture Exchange under the trading symbol GAME.V and NASDAQ under the trading symbol GAME.
The Company focuses on accelerating new, live, immersive esports and interactive gaming experiences for consumers through its partnerships with traditional and emerging media companies and providing online interactive technology and monetization services.
| (b) | Going concern |
These interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements. Such adjustments could be material. It is not possible to predict whether the Company will be able to raise adequate financing or to ultimately attain profit levels of operations.
The
Company has not yet realized profitable operations and has incurred significant losses to date resulting in a cumulative deficit of $
These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.
2. Basis of preparation
(a) Statement of compliance
These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements required by International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These unaudited interim condensed consolidated financial statements are prepared on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the fiscal year ended August 31, 2021; and should be read in conjunction with those audited consolidated financial statements. Interim results are not necessarily indicative of the results expected for the fiscal year.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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These interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of the Company on January 13, 2022.
| (b) | Basis of consolidation |
The interim condensed consolidated financial statements comprise the accounts of the Company and its controlled subsidiaries. The financial statements of subsidiaries are included in the interim condensed consolidated financial statements from the date that control commences until the date that control ceases. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
All transactions and balances between the Company and its subsidiaries are eliminated on consolidation, including unrealized gains and losses on transactions between companies. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
The Company’s material subsidiaries as of November 30, 2021, are as follows:
Schedule of Material Subsidiaries
| Name of Subsidiary | Country of Incorporation | Ownership Percentage |
Functional Currency | |||
Non-controlling interests are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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| 2. | Basis of preparation (cont’d) |
| (c) | Functional and presentation currency |
| The functional currency of the Company is the US Dollar (“USD). The functional currencies of the Company’s subsidiaries are disclosed in Note 2(b). The presentation currency of the interim condensed consolidated financial statements is the US Dollar (“USD”). | |
| (d) | Income taxes |
| The
Company had |
3. Significant judgments, estimates and assumptions
| The preparation of these interim condensed consolidated financial statements requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the interim condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as at the date of the interim condensed consolidated financial statements. | |
| On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenues, and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. Significant estimates and judgments made by management in the preparation of these interim condensed consolidated financial statements are outlined below. | |
| The assessment of the Company’s ability to execute its strategy by funding future working capital requirements involves judgment. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There is a material uncertainty regarding the Company’s ability to continue as a going concern. |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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| 3. | Significant judgments, estimates and assumptions (cont’d) |
| (a) | Significant estimates and critical judgments |
Information about significant estimates and critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the interim condensed consolidated financial statements is included in the following notes:
| Note 1 | Going concern; | |
| Note 25 | Expected credit losses; | |
| Note 16 | Valuation of warrant liability; | |
| Notes 9 and 10 | Goodwill and intangible assets; | |
| Notes 18 and 19 | Valuation of share-based payments; | |
| Note 15 | Valuation of convertible debt; and | |
| Note 21 | Contingencies. |
| (b) | Uncertainty about the effects of COVID-19 |
| In December 2019, a novel strain of coronavirus (“COVID-19”) emerged and has since extensively impacted global health and the economic environment. To contain the spread of COVID-19, domestic and international governments around the world enacted various measures, including orders to close all businesses not deemed “essential,” quarantine orders for individuals to stay in their homes or places of residence, and to practice social distancing when engaging in essential activities. The Company anticipates that these actions and the global health crisis caused by COVID-19 will continue to negatively impact many business activities and financial markets across the globe. | |
| In an effort to protect the health and safety of our employees, much of the Company’s workforce is currently working from home. The Company has implemented business continuity plans and has increased support and resources to enable employees to work remotely and thus far has been able to operate with minimal disruption. | |
| The global COVID-19 pandemic remains an evolving situation. The Company will continue to actively monitor the developments of the pandemic and may take further actions that could alter business operations as may be required by federal, state, local, or foreign authorities, or that management determines are in the best interests of our employees, customers, partners, and shareholders. It is not clear what effects any such potential actions may have on the Company’s business, including the effects on our employees, players and consumers, customers, partners, development and content pipelines, the Company’s reputation, financial condition, results of operations, revenue, cash flows, liquidity, or stock price. | |
4. Changes in significant accounting policies
| Future accounting pronouncements | |
| The following standards have not yet been adopted and are being evaluated to determine their impact on the Company: |
Amendments to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract;
Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use
Amendments to IFRS 3 – Reference to the Conceptual Framework
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or the Company is still assessing what the impact will be to the Company’s financial statements.
| Basic net income (loss) per share is calculated using the weighted-average number of common shares outstanding during each period. Diluted net income (loss) per share assumes the conversion, exercise, or issuance of all potential common share equivalents unless the effect is to reduce the loss or increase the income per share. For purposes of this calculation, stock options, warrants and RSU’s are potential common shares and are only included in the calculation of diluted net income (loss) per share when their effect is dilutive. | |
| Due to the net loss incurred during the three months ended November 30, 2021, and 2020, all outstanding options, restricted share units and warrants were excluded from diluted weighted-average common shares outstanding as their effect was anti-dilutive. Weighted average common shares outstanding for the three months ended November 30, 2021, and 2020 were and , respectively. | |
6. Accounts, other receivables, and customer advance
| (a) | Accounts and other receivables |
The Company’s accounts and other receivables are comprised of the following:
Schedule of Accounts and Other Receivables
| November 30, 2021 | August 31, 2021 | |||||||
| $ | $ | |||||||
| Trade accounts receivable | ||||||||
| Other receivables | ||||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total accounts and other receivables | ||||||||
A continuity of the Company’s allowance for doubtful accounts is as follows:
Schedule of Allowance for Doubtful Accounts
| November
30, 2021 | August
31, 2021 | |||||||
| $ | $ | |||||||
| Allowance for doubtful accounts, August 31 | ( | ) | ( | ) | ||||
| Acquisition of SideQik | - | ( | ) | |||||
| Provision, bad debt expense | - | ( | ) | |||||
| Writeoffs | - | |||||||
| Allowance for doubtful accounts, November 30 | ( | ) | ( | ) | ||||
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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| (b) | Publisher advance |
| On
February 7, 2021, the Company’s subsidiary Frankly Media LLC, amended its commercial agreement with its largest publisher,
which secured a long-term extension. The contract is expected to go through early calendar year 2023. One of the key terms
of the amended agreement required the Company to advance $ |
| (i) | $ | |
| (ii) | $ | |
| (iii) | $ |
The advance is to be recouped through additional withholding on future advertising revenue share payments made to the publisher, beyond Frankly’s share, and is effective for amounts billed for periods February 1, 2021, forward.
As
of November 30, 2021, $
The breakout of the publisher advance into current and non-current portions is based on an estimate of advertising billings over the next twelve months and the resulting additional withholding on the related advertising revenue share payments.
7. Investment at FVTPL
On
August 25, 2020, the Company acquired a
The Company accounted for this investment as an investment in associate under the equity method from acquisition through January 5, 2021. The Company’s share in the loss of One Up for the period from September 1, 2020, to January 5, 2021, amounted to $.
On
January 5, 2021, the Company’s interest in One Up was reduced to
The
fair value of the Company’s investment in One Up is estimated at each reporting period, with reference to valuations underlying
privately placed financing transactions closed by One Up and is classified with a level 3 in the fair value hierarchy (Note 25).
The fair value of this investment was $
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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8. Property and equipment
Disclosure of Detailed Information About Property Plant and Equipment
| Cost | Leasehold improvements | Computer equipment | Furniture and fixtures | Total |
| |||||||||||
| $ | $ | $ | $ | |||||||||||||
| August 31, 2020 | ||||||||||||||||
| Additions | - | - | ||||||||||||||
| Disposal of Motorsports | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Effect of foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| November 30, 2020 | ||||||||||||||||
| August 31, 2021 | ||||||||||||||||
| Property and equipment, cost, beginning balance | ||||||||||||||||
| Additions | - | - | ||||||||||||||
| Foreign exchange | ( | ) | ( | ) | ( | ) | ||||||||||
| November 30, 2021 | ||||||||||||||||
| Property and equipment, cost, ending balance | ||||||||||||||||
| Accumulated depreciation | Leasehold improvements | Computer equipment | Furniture and fixtures | Total | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| August 31, 2020 | ||||||||||||||||
| Depreciation | ( | ) | ||||||||||||||
| Disposal of Motorsports | - | ( | ) | ( | ) | ( | ) | |||||||||
| Foreign exchange | ( | ) | ||||||||||||||
| November 30, 2020 | ||||||||||||||||
| August 31, 2021 | ||||||||||||||||
| Accumulated depreciation, beginning balance | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| November 30, 2021 | ||||||||||||||||
| Accumulated depreciation, ending balance | ||||||||||||||||
| Net book value | Leasehold improvements | Computer equipment | Furniture and fixtures | Total | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| August 31, 2021 | ||||||||||||||||
| November 30, 2021 | ||||||||||||||||
| Property and equipment, net book value | ||||||||||||||||
9. Goodwill
Disclosure of Detailed Information About Goodwill
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Balance, August 31, | ||||||||
| Effect of foreign exchange | ( | ) | ||||||
| Balance, November 30, | ||||||||
| Page 15 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
|
10. Intangible assets
A continuity of the Company’s accumulated impairment losses for intangibles is as follows:
Disclosure of Detailed Information About Intangible Assets
| Cost | Patents | Application Platforms | Software | Brand | Customer Lists and Contracts | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| August 31, 2020 | ||||||||||||||||||||||||
| Disposal of Motorsports | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Foreign exchange and other | - | |||||||||||||||||||||||
| November 30, 2020 | ||||||||||||||||||||||||
| August 31, 2021 | ||||||||||||||||||||||||
| Intangible Assets, Balance | ||||||||||||||||||||||||
| Foreign exchange and other | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||
| November 30, 2021 | ||||||||||||||||||||||||
| Intangible Assets, Balance | ||||||||||||||||||||||||
| Accumulated amortization | Patents | Application Platforms | Software | Brand | Customer Lists and Contracts | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| August 31, 2020 | ||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||
| Disposal of Motorsports | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Foreign exchange | - | ( | ) | |||||||||||||||||||||
| November 30, 2020 | ||||||||||||||||||||||||
| August 31, 2021 | ||||||||||||||||||||||||
| Intangible Assets, Amortization, Balance | ||||||||||||||||||||||||
| Amortization | ||||||||||||||||||||||||
| Foreign exchange | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||
| November 30, 2021 | ||||||||||||||||||||||||
| Intangible Assets, Amortization, Balance | ||||||||||||||||||||||||
| Net book value | Patents | Application Platforms | Software | Brand | Customer Lists and Contracts | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| August 31, 2021 | ||||||||||||||||||||||||
| November 30, 2021 | ||||||||||||||||||||||||
| Intangible assets other than goodwill | ||||||||||||||||||||||||
| Page 16 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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11. Right-of-use assets
Disclosure of Detailed Information about Right-of-Use Assets
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Balance, August 31, | ||||||||
| Acquired | ||||||||
| Depreciation | ( | ) | ( | ) | ||||
| Effect of foreign exchange | ( | ) | ( | ) | ||||
| Balance, November 30, | ||||||||
Right of use assets consist primarily of leases for corporate office facilities and are amortized monthly over the term of the lease, or useful life, if shorter.
12. Lease liabilities
Lease liabilities are measured at the present value of the lease payments that were not paid at that date. The lease payments are discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. The continuity of the lease liabilities is presented in the table below:
Disclosure of Detailed Information About Continuity of the Lease Liabilities
| Equipment | Office lease | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Balance, August 31, 2020 | ||||||||||||
| Interest expense | ||||||||||||
| Payments | ( | ) | ( | ) | ( | ) | ||||||
| Effect of foreign exchange | ( | ) | ( | ) | ||||||||
| Balance, November 30, 2020 | ||||||||||||
| Balance, August 31, 2021 | ||||||||||||
| Interest expense | ||||||||||||
| Payments | ( | ) | ( | ) | ( | ) | ||||||
| Effect of foreign exchange | ( | ) | ( | ) | ||||||||
| Balance, November 30, 2021 | ||||||||||||
| Page 17 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
|
The Company’s lease obligation is classified between current and non-current liabilities as follows:
| Equipment | Office lease | Total | ||||||||||
| $ | $ | $ | ||||||||||
| As of November 30, 2020: | ||||||||||||
| Less than one year | ||||||||||||
| Greater than one year | ||||||||||||
| Total lease obligation | ||||||||||||
| Equipment | Office lease | Total | ||||||||||
| $ | $ | $ | ||||||||||
| As of November 30, 2021: | ||||||||||||
| Less than one year | ||||||||||||
| Greater than one year | ||||||||||||
| Total lease obligation | ||||||||||||
The future minimum undiscounted lease payments as of November 30, 2021, are presented below:
Disclosure of Detailed Information About Future Minimum Undiscounted Lease Payments
| Total | ||||
| $ | ||||
| Current | ||||
| 2 years | ||||
| 3 years | ||||
| 4 years | ||||
| Total undiscounted lease obligation | ||||
13. Players liability account
| The Players liability account consists of UMG and Winview cash deposited by players, plus any prize winnings, less any fees for match game play and withdrawal requests processed to date. As of November 30, 2021, the players liability account balance is the total amount payable if all players were to request closure of their accounts. As of November 30, 2021, the players account liability and corresponding restricted cash balances were the same. |
14. Promissory notes payable and other borrowings
| (a) | Promissory notes |
| The
Company has promissory notes with a balance of $ | |
| The
Company, through its WinView subsidiary, has a secured promissory note outstanding for amounts due for the provision of services
by the noteholder. As of November 30, 2021, $ | |
| (b) | Paycheck Protection Program (the “PPP”) loans |
| During
April and May 2020, the Company entered into promissory notes (the “Notes”) with three banks. The Notes evidence loans
to the Company of $ |
| Page 18 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
|
Interest
will accrue on the outstanding balance of the Notes at a rate of
Subject
to any forgiveness granted under the PPP,
Upon
the receipt of the proceeds of $
15. Convertible debt
The continuity of convertible debt for the three months ended November 30, 2021, and 2020, is as follows:
Disclosure of Detailed Information About Continuity of Convertible Debt
| 2019 Series | 2020 Series | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Balance, August 31, 2020 | ||||||||||||
| Issuances | - | |||||||||||
| Conversion - common shares issued | ( | ) | - | ( | ) | |||||||
| Conversion - warrants issued | ( | ) | - | ( | ) | |||||||
| Interest expense | ||||||||||||
| Accrued interest on conversion | ( | ) | - | ( | ) | |||||||
| Effect of foreign exchange | - | |||||||||||
| Change in fair value | ||||||||||||
| Balance, November 30, 2020 | ||||||||||||
| 2019 Series | 2020 Series | EB CD | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Balance, August 31, 2021 | ||||||||||||||||
| Total convertible debt obligation beginning balance | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Accrued interest on conversion / interest payments | - | - | ( | ) | ( | ) | ||||||||||
| Effect of foreign exchange | ( | ) | - | - | ( | ) | ||||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, November 30, 2021 | ||||||||||||||||
| 2019 Series | 2020 Series | EB CD | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| As of November 30, 2021: | ||||||||||||||||
| Less than one year | - | |||||||||||||||
| Greater than one year | - | - | ||||||||||||||
| Total convertible debt obligation | ||||||||||||||||
| (a) | 2019 Series |
As of November 30, 2021, the fair value of the 2019 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:
Disclosure of Detailed Information About Fair Value of Convertible Debentures
| 2019 Series | November 30, 2021 (CA$) | August 31, 2021 (CA$) | ||||||
| Share price | ||||||||
| Conversion price | ||||||||
| Warrant exercise price | ||||||||
| Term, in years | | | ||||||
| Interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Exchange rate | ||||||||
| Expected dividend yield | % | % | ||||||
| Page 19 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
|
| (b) | 2020 Series |
The
2020 Series debentures will
The
2020 Series debenture holders may convert all or a portion of the principal amount of the debentures into units (“Units”)
of the Company at a price (the “Conversion Price”) equal to the lesser of (a) $
Notwithstanding
the foregoing, if by December 19, 2020, the Company has not obtained registration rights in the United States to allow sale in the United
States of the common shares (“Common Shares”) of the Company and the exercise of warrants (the “Warrants”) of
the Company to be issued pursuant to the conversion of the 2020 Series debentures, holders of 2020 Series debentures may convert such
debentures into Units at $
Each
Unit is comprised of one common share and one-half of one Warrant, with each Warrant exercisable into one common share of the Company
at an exercise price of $
In
the event that the Company’s common shares are listed for trading on the NASDAQ Capital Market and the Company completes a Public
Offering for an aggregate amount of at least US$
| (c) | 2020 Series - One Up |
These
convertible debentures (the “2020 Series One Up” debentures) have identical terms as the 2020 Series debentures except that
the minimum conversion price of $
| (d) | 2020 Series – Standby |
In
September 2020, the Company entered into an $
The
proceeds of $
| Page 20 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
|
The
remaining $
As of November 30, 2021, the fair value of the 2020 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:
Disclosure of Detailed Information About Fair Value of Convertible Debentures
| 2020 Series | November 30, 2021 (US$) | August 31, 2021 (US$) | ||||||
| Share price | ||||||||
| Conversion price | ||||||||
| Warrant exercise price | ||||||||
| Term, in years | ||||||||
| Interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| (e) | EB CD |
On
February 24, 2021, the Company extinguished the Amended EB Loan and issued the Lender a secured convertible debenture in the principal
amount of $
| Page 21 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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As of November 30, 2021, the fair value of the EB CD convertible debenture was estimated using the binomial lattice model with the below assumptions:
Disclosure of Detailed Information About Fair Value of Convertible Debentures
| EB CD | November 30, 2021 (US$) | August 31, 2021 (US$) | ||||||
| Share price | ||||||||
| Conversion price | ||||||||
| Warrant exercise price | ||||||||
| Term, in years | ||||||||
| Interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Page 22 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
|
| (f) | Fair value |
The following table gives information about how the fair values of these financial liabilities are determined (in particular, the valuation technique and key inputs used).
Disclosure of Key Inputs of Convertible Debt
| Financial assets / financial liabilities | Valuation technique | Key Inputs | Relationship and sensitivity of unobservable inputs to fair value to fair value | |||
| Convertible debt | The fair value of the convertible debentures as of November 30, 2021 has been calculated using a binomial lattice methodology. | Key observable inputs | The estimated fair value would increase (decrease) if: | |||
| Share price CAD $ (USD $) | The share price was higher (lower) | |||||
| Risk-free
interest rate ( |
The risk-free interest rate was higher (lower) | |||||
| Dividend
yield ( |
The dividend yield was lower (higher) | |||||
| Key unobservable inputs | ||||||
| Credit
spread ( |
The credit spread was lower (higher) | |||||
| Discount
for lack of marketability ( |
The discount for lack of marketability was lower (higher) | |||||
| Convertible debt | The fair value of the convertible debentures as of August 31, 2021 has been calculated using a binomial lattice methodology. | Key observable inputs | The estimated fair value would increase (decrease) if: | |||
| Share price CAD$ (USD $) | The share price was higher (lower) | |||||
| Risk-free
interest rate ( |
The risk-free interest rate was higher (lower) | |||||
| Dividend
yield ( |
The dividend yield was lower (higher) | |||||
| Key unobservable inputs | ||||||
| Credit
spread ( |
The credit spread was lower (higher) | |||||
| Discount
for lack of marketability ( |
The discount for lack of marketability was lower (higher) |
| Page 23 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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16. Warrant liability
Liability measured warrants having CAD exercise price
The following tables reflect the continuity of the Company’s liability measured warrants for the three months ended November 30, 2021, and 2020:
Schedule of Measured Warrants
| Amount | ||||
| $ | ||||
| Balance at August 31, 2020 | ||||
| Issued on conversion of convertible debt | ||||
| Issued in private convertible debt | ||||
| Exercised | ( | ) | ||
| Change in fair value | ( | ) | ||
| Foreign exchange | ||||
| Balance, November 30, 2020 | ||||
| Amount | ||||
| $ | ||||
| Balance at August 31, 2021 | ||||
| Beginning Balance | ||||
| Change in fair value | ( | ) | ||
| Foreign exchange | ( | ) | ||
| Balance, November 30, 2021 | ||||
| Ending Balance | ||||
Schedule of Outstanding Warrants
| Number of warrants | Weighted-average exercise price CAD | |||||||
| # | $ | |||||||
| Outstanding, August 31, 2020 | ||||||||
| Issued on conversion of convertible debt | ||||||||
| Issued in private placement of convertible debentures | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding as at November 30, 2020 | ||||||||
| Weighted-average | ||||||||
| Number of | exercise price | |||||||
| warrants | CAD | |||||||
| # | $ | |||||||
| Outstanding, August 31, 2021 | ||||||||
| Issued in private placement of convertible debentures | ||||||||
| Outstanding as at November 30, 2021 | ||||||||
| Page 24 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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The following table reflects the liability measured warrants issued and outstanding as of November 30, 2021:
| Warrants outstanding | ||||||||||||
| Expiry date | Number outstanding | Average exercise price CAD | Average remaining contractual life (years) | |||||||||
| $ | ||||||||||||
As
at November 30, 2021, the fair value of the warrants outstanding (August 31, 2021 – ) was determined to be $
Equity measured warrants having USD exercise price
The Company’s equity measured warrants as of November 30, 2021, and August 31, 2021, had an average weighted-average exercise price of $.
The following table reflects the equity measured warrants issued and outstanding as of November 30, 2021:
| Warrants outstanding | ||||||||||||
| Expiry date | Number outstanding | Average exercise price USD | Average remaining contractual life (years) | |||||||||
| $ | ||||||||||||
If
all equity measured warrants outstanding and exercisable as of November 30, 2021, were exercised, the Company would receive cash from
exercise of approximately $
| Page 25 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
|
| (a) | Authorized |
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares.
| (b) | Issued and outstanding, common shares |
| Shares | Consideration | |||||||
| # | $ | |||||||
| Balance, August 31, 2020 | ||||||||
| Shares issued on vesting of RSUs | ||||||||
| Convertible debt conversion | ||||||||
| Common shares issued on exercise of warrants | ||||||||
| Balance, November 30, 2020 | ||||||||
| Shares | Consideration | |||||||
| # | $ | |||||||
| Balance, August 31, 2021 | ||||||||
| Shares issued on vesting of RSUs | ||||||||
| Balance, November 30, 2021 | ||||||||
| (c) | Activity for the period |
During the three months ended November 30, 2021, the Company issued common shares upon vesting of an equal number of RSUs (Note 19).
On October 6, 2021, the Company adopted an amended and restated equity incentive plan (“Omnibus Plan”), which amends and restates the equity incentive plan which was previously established as of July 15, 2020. Under the amendments, there were no changes in the terms of previously issued awards. Under the Omnibus Plan, the total number of common shares reserved and available for grant and issuance pursuant to stock options shall not exceed % of the then issued and outstanding shares.
Options may be exercisable over periods of up to years as determined by the Board of Directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval.
| Page 26 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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Disclosure of Detailed Information About Number and Weighted Average Exercise Prices of Share Options
| Weighted-average | ||||||||||||||||
| Number of stock options | Exercise price | Grant-date fair value | Remaining contractual term | |||||||||||||
| # | $ | $ | (yrs.) | |||||||||||||
| Balance, August 31, 2020 | ||||||||||||||||
| Expired/Cancelled | ( | ) | ||||||||||||||
| Balance, November 30, 2020 | ||||||||||||||||
| Balance, August 31, 2021 | ||||||||||||||||
| Granted | ||||||||||||||||
| Issued on exercise of options | - | - | - | |||||||||||||
| Expired/Cancelled | - | - | - | |||||||||||||
| Balance, November 30, 2021 | ||||||||||||||||
| Exercisable as at November 30, 2021 | ||||||||||||||||
| Page 27 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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Disclosure of Detailed Information About Options Issued and Outstanding
| Outstanding | Weighted average exercise price | Weighted average remaining contractual term | ||||||||||||||
| Expiry date | options | CAD | USD | (Years) | ||||||||||||
Of the options outstanding as of November 30, 2021 (August 31, 2021 – ), are exercisable as of November 30, 2021 (August 31, 2020 – ). During the three months ended November 30, 2021, share-based compensation expense for the Company’s stock options was $ (2020 – $).
The Omnibus Plan allows the Company to award restricted share units to officers, employees, directors and consultants of the Company and its subsidiaries upon such conditions as the Board may establish, including the attainment of performance goals recommended by the Company’s compensation committee. The purchase price for common shares of the Company issuable under each Restricted Share Unit (“RSU”) award, if any, shall be established by the Board at its discretion. Common shares issued pursuant to any RSU award may be made subject to vesting conditions based upon the satisfaction of service requirements, conditions, restrictions, time periods or performance goals established by the board.
The TSXV requires the Company to fix the number of common shares to be issued in settlement of awards that are not options. The maximum number of common shares available for issuance pursuant to the settlement of RSUs shall be an aggregate of common shares.
| Page 28 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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The Company’s outstanding RSUs are as follows:
Disclosure of Detailed Information About Restricted Stock Units Outstanding
| Number | ||||
| # | ||||
| Balance, August 31, 2020 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Cancelled | ||||
| Balance, November 30, 2020 | ||||
| Balance, August 31, 2021 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Cancelled | ( | ) | ||
| Balance, November 30, 2021 | ||||
In October 2021, the Company granted to members of the board of directors pursuant to the Company’s incentive plan. The fair value of the RSUs will be recognized as stocked-based compensation expense over the vesting period, which is approximately ten months.
During the three months ended November 30, 2021, share-based compensation expense for the Company’s RSUs was $ (2020 – $).
20. Capital management
The Company considers its capital to be its shareholders’ equity.
As
of November 30, 2021, the Company had shareholders’ equity (deficit) before non-controlling interests of $
The Company may also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines any of these to be an effective method of achieving the above objective. The Company does not use ratios in the management of its capital. There have been no changes to management’s approach to managing its capital during the three months ended November 30, 2021, and 2020.
| Page 29 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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21. Commitments and contingencies
Litigation and arbitration
In
April 2020, the Company announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provided for the
acquisition of
In
response, in November 2020, the shareholders of Allinsports commenced arbitration in Alberta, Canada seeking, among other things, to
compel the Company to complete the acquisition of Allinsports without the audited financial statements, and to issue common shares
of the Company to those shareholders. As alternative relief, the shareholders of Allinsports sought up to US$
Separately,
in April of 2021, the Company received a copy of a complaint filed by 3CI Holdings, LLP in the Circuit Court for the 11th Judicial Circuit
for Miami-Dade naming Allinsports, A1 Simulation LLC (an entity purported to be a subsidiary of Allinsports), and the Company, seeking
to hold the parties, including Company, responsible for unpaid rent under a lease agreement between 3CI’s predecessors in interest
and A1 Simulation, and seeking damages of at least $
On January 21, 2021, eight former shareholders of Winview filed a Complaint in Delaware Chancery Court against four Winview directors (David Lockton, et al. v. Thomas S. Rogers, et al.) alleging that the defendants breached their fiduciary duties in connection with the sale of Winview to Engine. The relief sought includes rescission of the sale of Winview to Engine and compensatory damages. The defendants have filed a motion to dismiss the claims, which is pending. Neither the Company nor Winview have been named as parties to this action. Under the March 9, 2020, Business Combination Agreement pursuant to which the Company acquired Winview, the Company agreed to indemnify Winview’s directors for any claims arising out of their service as directors for Winview.
In July of 2021, Winview Inc. filed separate patent infringement lawsuits against DraftKings Inc. and FanDuel, Inc in the United States District Court for the District of New Jersey, alleging that Sportsbook and Daily Fantasy Sports offerings of DraftKings and FanDuel infringe four of Winview’s patents. These actions seek the recovery of damages and other appropriate relief. Draft Kings and FanDuel have filed motions to dismiss, which are pending. While potential damages may be significant if these lawsuits are wholly or partially successful, at this time the Company cannot predict the outcome of the suits or determine the extent of potential damages if they are successful in whole or in part.
The outcomes of pending litigations in which the Company is involved are necessarily uncertain as are the Company’s expenses in prosecuting and defending these actions. From time to time the Company may modify litigation strategy and/or the terms on which it retains counsel and other professionals in connection with such actions, which may affect the outcomes of and/or the expenses incurred in connection with such actions.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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The Company is subject to various other claims, lawsuits and other complaints arising in the ordinary course of business. The Company records provisions for losses when claims become probable, and the amounts are estimable. Although the outcome of such matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, operations, or liquidity.
22. Discontinued operations
On November 3, 2020, the Company, following a detailed strategic review in connection with the merger of Torque Esports, Frankly and WinView, announced that it has completed the sale of IDEAS+CARS, The Race Media, WTF1, Driver DataDB and Lets Go Racing (collectively the “Motorsport Group”) to Ideas + Cars Holdings Limited, a third party investment group based in the UK. As a result, the Company is eliminating its funding obligations related to the cost of maintaining and growing these auto media businesses and certain accrued liabilities. Accordingly, the operational results for this group have been presented as a discontinued operation.
Consideration transferred for the Motorsport Group was as follows:
Schedule of Loss on Disposal
| Amount | ||||
| $ | ||||
| Consideration received or receivable: | ||||
| Accounts payable assumed | ||||
| Deferred purchase consideration of LGR | ||||
| Fair value of contingent consideration | ||||
| Total disposal consideration | ||||
| Carrying amount of net assets sold | ( | ) | ||
| Loss on disposal before income tax and reclassification of foreign currency translation reserve | ( | ) | ||
| Reclassification of foreign currency translation reserve | ( | ) | ||
| Loss on disposal of Motorsports | ( | ) | ||
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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The net assets of the Motorsport Group as at the date of sale were as follows:
Disclosure of Net Asset
| Amount | ||||
| $ | ||||
| Carrying amounts of assets as at the date of sale: | ||||
| Cash and cash equivalents | ( | ) | ||
| Accounts and other receivables | ||||
| Government remittances | ||||
| Prepaid expenses and other | ||||
| Property and equipment | ||||
| Intangible assets | ||||
| Total assets of disposal group | ||||
| Carrying amount of liabilities directly associated with assets as at the date of sale: | ||||
| Accounts payable | ||||
| Accrued liabilities | ||||
| Total liabilities of disposal group | ||||
| Net assets of disposal group | ||||
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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The operating results and net cash flows of the Motorsports Group for the three months ended November 30, 2021, and 2020 are presented as discontinued operations as follows:
Schedule of Discontinued Operations
| Nov 30, 2021 | Nov 30, 2020 | |||||||
| For the three months ended | ||||||||
| Nov 30, 2021 | Nov 30, 2020 | |||||||
| $ | $ | |||||||
| Revenues | ||||||||
| Advertising revenue | - | |||||||
| Operating expenses | ||||||||
| Salaries and wages | - | |||||||
| Consulting | - | |||||||
| Professional fees | - | |||||||
| Sponsorships and tournaments | - | |||||||
| Advertising and promotion | - | |||||||
| Office and general | - | |||||||
| Technology expenses | - | |||||||
| Amortization and depreciation | - | |||||||
| Interest expense | - | |||||||
| (Gain) loss on foreign exchange | ||||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||
23. Segmented information
Information reported to the Company’s Chief Executive Officer, the Chief Operating Decision Maker (“CODM”), for the purposes of resource allocation and assessment of segment performance is focused on the category of services for each type of activity. The principal categories of services are E-Sports, Media and Advertising, and Corporate and Other. The Group’s reportable segments under IFRS 8 are therefore as follows:
| Gaming | - | Services related to competitive organized video gaming or sporting events; |
| Media | - | Platform and advertising services provided to other broadcasters, primarily local TV and radio broadcasters; |
| Corporate and Other | - | Services provided to other businesses and other revenues; |
The Corporate and Other segment primarily consists of support costs not allocated to the two other segments.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended November 30, 2021:
Schedule of Segment Reporting
| Gaming | Media | Corporate and Other | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue | ||||||||||||||||
| External sales | ||||||||||||||||
| Results | ||||||||||||||||
| Segment loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Central administration costs | ||||||||||||||||
| Other gains and losses | ( | ) | ( | ) | ( | ) | ||||||||||
| Finance costs | ||||||||||||||||
| Income (loss) before tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax | ||||||||||||||||
| Gain (Loss) for the year from: | ||||||||||||||||
| Share of net loss of associate | ( | ) | ( | ) | ||||||||||||
| Discontinued operations | ( | ) | ( | ) | ||||||||||||
| Non-controlling interest in net loss | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended November 30, 2020:
| Gaming | Media | Corporate and Other | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue | ||||||||||||||||
| External sales | ||||||||||||||||
| Results | ||||||||||||||||
| Segment loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Central administration costs | ||||||||||||||||
| Other gains and losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Finance costs | ||||||||||||||||
| Loss before tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax | ||||||||||||||||
| Gain (Loss) for the year from: | ||||||||||||||||
| Share of net loss of associate | ( | ) | ( | ) | ||||||||||||
| Discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Non-controlling interest in net loss | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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Geographical breakdown
| North America | European Union | Total | ||||||||||
| $ | $ | $ | ||||||||||
| August 31, 2021 | ||||||||||||
| Assets | ||||||||||||
| Long-term assets | ||||||||||||
| November 30, 2021 | ||||||||||||
| Assets | ||||||||||||
| Long-term assets | ||||||||||||
24. Related party transactions and balances
| (a) | Key management compensation |
Key management includes the Company’s directors, officers and any consultants with the authority and responsibility for planning, directing, and controlling the activities of an entity, directly or indirectly. Compensation awarded to key management for the three months ended November 30, 2021 includes the following:
Schedule of Compensation Award to Key Management
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| $ | $ | |||||||
| Total compensation paid to key management | ||||||||
| Share based payments | ||||||||
Total compensation paid to key management is recorded in consulting fees, salaries and wages and share based payments in the consolidated statement of loss and comprehensive loss for the three months ended November 30, 2021, and 2020.
Amounts
due to related parties as of November 30, 2021, with respect to the above fees were $
Commitment to former holders of WinView to proceeds from the patent portfolio enforcement action
Pursuant
to the Business Combination agreement dated March 9, 2020, among the Company, Frankly Inc. and Winview Inc., the Company is required
to pay to certain former Winview securities holders (“Stubholders”) fifty percent (
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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25. Financial instruments and risk management
| (a) | Financial risk management objectives and policies |
The Company’s activities expose it to a variety of financial risks including foreign currency risk, interest rate risk, credit risk, and liquidity risk. These financial instrument risks are actively managed by the Company under the policies approved by the Board of Directors. The principal financial risks are managed by the Company’s finance department, within Board approved policies and guidelines. On an ongoing basis, the finance department actively manages market conditions with a view to minimizing the exposure of the Company to changing market factors, while at the same time limiting the funding costs to the Company.
| (b) | Credit risk |
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company uses information supplied by independent rating agencies where available, and if not available, the Company uses other publicly available financial information and its own records to rate its customers.
Credit risk arises from cash and deposits with banks as well as credit exposure to outstanding receivables, the carrying amounts represent the Company’s maximum exposure to credit risk.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Company establishes an allowance for doubtful accounts that represents its estimate of expected losses in respect of accounts receivable. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.
The Company’s accounts receivable are concentrated among customers in the media and broadcasting industry, which may be affected by adverse economic factors impacting that industry. The Company performs ongoing credit evaluations of its major customers, maintains reserves for expected credit losses, and does not require any collateral deposits.
As
of November 30, 2021, one customer (August 31, 2021 – one) accounted for greater than
The below table reflects the aging of the Company’s aging by invoice date of gross trade accounts receivable and allowance for doubtful accounts as of November 30, 2021:
Schedule of Gross Trade Accounts Receivable and Allowance for Doubtful Accounts
| 0 - 30 | 31 - 60 | 61 - 90 | 91+ | Total | ||||||||||||||||
| Trade accounts receivable | ||||||||||||||||||||
| Allowance for doubtful accounts | ||||||||||||||||||||
| % Allowance | % | % | % | % | % | |||||||||||||||
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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| (c) | Liquidity risk |
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Company manages liquidity risk by continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets and liabilities. The Company seeks to ensure that it has sufficient capital to meet short term financial obligations after considering its operating obligations and cash on hand.
The Company’s policy is to seek to ensure adequate funding is available from operations and other sources, including debt and equity capital markets, as required.
Schedule of Funding Available From Operations and Other Sources
| < 1 year | 1-2 years | 2-5 years | ||||||||||
| $ | $ | $ | ||||||||||
| Accounts payable | ||||||||||||
| Accrued liabilities | ||||||||||||
| Players liability account | ||||||||||||
| Lease obligation | ||||||||||||
| Long-term debt | ||||||||||||
| Promissory notes payable | ||||||||||||
| Convertible debt | ||||||||||||
| (d) | Interest rate risk |
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to fair value risk with respect to debt which bear interest at fixed rates.
| (e) | Foreign exchange rates |
The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to fluctuations of financial instruments related to cash, accounts and other receivables, and accounts payable denominated in Euros and GBP, as well as debt denominated in Canadian dollars.
| (f) | Fair value hierarchy |
The following tables combine information about:
| ● | classes of financial instruments based on their nature and characteristics; | |
| ● | the carrying amounts of financial instruments; | |
| ● | fair values of financial instruments (except financial instruments when carrying amount approximates their fair value); and | |
| ● | fair value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed. |
Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable.
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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Schedule of Fair Value Measurement
| Carrying value at November 30, 2021 | FVTPL - mandatorily measured | Amortized cost | ||||||
| $ | $ | |||||||
| Financial assets: | ||||||||
| Cash | ||||||||
| Restricted cash | ||||||||
| Accounts and other receivables | ||||||||
| Government remittances | ||||||||
| Publisher advance | ||||||||
| Investment at FVTPL | ||||||||
| Carrying value at November 30, 2021 | FVTPL
- mandatorily measured | FVTPL
- designated | Amortized cost | |||||||||
| $ | $ | $ | ||||||||||
| Financial liabilities: | ||||||||||||
| Accounts payable | ||||||||||||
| Accrued liabilities | ||||||||||||
| Players liability account | ||||||||||||
| Arbitration reserve | ||||||||||||
| Long-term debt | ||||||||||||
| Promissory notes payable | ||||||||||||
| Warrant liability | ||||||||||||
| Convertible debt | ||||||||||||
| Carrying value at August 31, 2021 | FVTPL - mandatorily measured | Amortized cost | ||||||
| $ | $ | |||||||
| Financial assets: | ||||||||
| Cash | - | |||||||
| Restricted cash | - | |||||||
| Accounts and other receivables | - | |||||||
| Government remittances | - | |||||||
| Publisher advance | - | |||||||
| Investment at FVTPL | - | |||||||
| Financial assets | ||||||||
| Page 38 of 39 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three months ended November 30, 2021 and 2020 (Unaudited) (Expressed in United States Dollars) |
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| Carrying value at August 31, 2021 | FVTPL
- mandatorily measured | FVTPL
- designated | Amortized cost | |||||||||
| $ | $ | $ | ||||||||||
| Financial liabilities: | ||||||||||||
| Accounts payable | - | - | ||||||||||
| Accrued liabilities | - | - | ||||||||||
| Players liability account | - | - | ||||||||||
| Arbitration reserve | - | - | ||||||||||
| Long-term debt | - | - | ||||||||||
| Promissory notes payable | - | - | ||||||||||
| Warrant liability | - | - | ||||||||||
| Convertible debt | - | - | ||||||||||
| Financial liabilities | ||||||||||||
A summary of instruments, with their classification in the fair value hierarchy is as follows:
Schedule of Hierarchy Levels of Fair Value
| Level 1 | Level 2 | Level 3 | Fair value as of November 30, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Warrant liability | - | - | ||||||||||||||
| Convertible debt | - | - | ||||||||||||||
| Investment at FVTPL | - | - | ||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair value as of August 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Warrant liability | - | - | ||||||||||||||
| Convertible debt | - | - | ||||||||||||||
| Investment at FVTPL | - | - | ||||||||||||||
Some of the Company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period.
26. Subsequent events
The Company has evaluated subsequent events from the balance sheet date through January 14, 2022, the date at which the interim condensed consolidated financial statements were available to be issued and determined there were no additional items to be disclosed.
| Page 39 of 39 |
Exhibit 99.2
ENGINE GAMING AND MEDIA, INC.
(formerly Engine Media Holdings, Inc.)
Management’s Discussion and Analysis
For the three months ended
November 30 2021 and 2020
(Expressed in United States Dollars)
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Introduction
The following Management’s Discussion and Analysis (“MD&A”) is provided to enable a reader to assess the results of operations and financial condition of Engine Gaming and Media, Inc., (formerly Engine Media Holdings, Inc.) for the three months ended November 31, 2021, and 2020 and should be read in conjunction with the Company’s Interim Consolidated Financial Statements and accompanying notes. The words “we”, “our”, “us”, “Company”, and “Engine” refer to Engine Gaming and Media, Inc., and its subsidiaries and/or the management and employees of the Company (as the context may require). This MD&A has taken into account information available up to and including January 14, 2022.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains certain “forward-looking information” and “forward-looking statements” as defined under applicable Canadian and U.S. securities laws (collectively, “forward-looking statements”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions, and beliefs. Such statements can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, or “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. Such forward-looking statements are made as of the date of this MD&A. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to:
| ● | financial, operational, and other projections and outlooks as well as statements or information concerning future operation plans, objectives, performance, revenues, growth, acquisition strategy, profits or operating expenses; |
| ● | our ability to successfully execute our business plan; |
| ● | our intent to complete a private placement of our common shares and common share purchase warrants, and to have a substantial portion of its convertible debt converted to common shares; |
| ● | any expectation of regulatory approval and receipt of certifications with respect to the Company’s current and proposed business transactions; |
| ● | expectations regarding existing products and plans to develop, implement, or adopt new technology or products; |
| ● | expectations regarding the successful integration of recent acquisitions of WinView, Inc. (“WinView”) Frankly Inc. (“Frankly”) and SideQik, Inc. (“SideQik”); |
| ● | the expectation of obtaining new customers for the Company’s products and services, as well as expectations regarding expansion and acceptance of the Company’s brand and products to new markets; |
| ● | estimates and projections regarding the industry in which the Company operates and adoption of technologies, including expectations regarding the growth and impact of esports; |
| ● | requirements for additional capital and future financing options; |
| ● | the risks inherent in international operations; |
| ● | marketing plans; |
| ● | our ability to compete with our competitors and their technologies; |
| ● | our reliance on key executives and the ability to attract and retain qualified personnel; |
| ● | the availability of intellectual property protection for the Company’s products, and our ability to expand and exploit our intellectual property; |
| ● | statements related to the expected or potential impact of the novel coronavirus (“COVID-19”) pandemic; |
| ● | the completion of and our use of the proceeds of any offering; and other expectations of the Company. |
| Page 2 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Forward-looking statements contained in this MD&A are based on the assumptions described in this MD&A. Although management believes the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are based on the opinions, assumptions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors, both known and unknown, that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include, but are not limited to:
| ● | our ability to obtain additional financing to fund near term operating cash flow deficits and to continue as a going concern; |
| ● | that the projections relating to growth and trends in the industry of the Company and adoption of the technologies underlying the Company’s products are accurate; |
| ● | execution of business plan; |
| ● | the integration of recent acquisitions; |
| ● | the management of growth; |
| ● | reduced cash reserves from future operating losses; |
| ● | failure to compete successfully in various markets; |
| ● | the development of high-quality products; |
| ● | rapid technological changes; |
| ● | proprietary protection and intellectual property disputes; |
| ● | transmission of user data; |
| ● | data collection risk; |
| ● | mobile gaming and the free-to-play business model; |
| ● | the condition of the global economy; |
| ● | risks inherent in foreign/international operations; |
| ● | changing governmental regulations; |
| ● | COVID-19 related risks; |
| ● | volatility in the market price of the Common Shares; |
| ● | those risks discussed in this MD&A under the heading “Risk Factors”. |
These factors are not intended to represent a complete list of the factors that could affect the Company. A more detailed assessment of the risks that could cause actual events or results to materially differ from our current expectations can be found under the heading “Risks and Uncertainties” in this MD&A.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated, or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Although the Company has attempted to identify important factors that could cause actual results to differ materially from forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, described or intended.
A number of factors could cause actual events, performance, or results to differ materially from what is projected in forward- looking statements. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. You should not place undue reliance on forward-looking statements contained in this MD&A or in any document incorporated by reference herein.
Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. We undertake no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
We qualify all the forward-looking statements contained in this MD&A by the foregoing cautionary statements.
| Page 3 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Corporate Profile
Engine Gaming and Media, Inc. is addressing massive market opportunities in esports, gaming, data, and streaming content distribution. The three-way merger of Torque Esports, Frankly Media and WinView Games which closed on May 8, 2020 brings together a unique combination of technology assets that include (i) a market leading video gaming competition platform – UMG; (ii) a skills-based mobile engagement platform for traditional sports and esports – WinView; (iii) a data intelligence platform – Stream Hatchet; (iv) a content management and streaming video platform that supports over 1,200 news sites and engages over 100 million monthly active users across some of the top media companies in the world - Frankly; (v) a development studio that’s dedicated to making the best racing games for mobile – Eden Games and (vi) a social media influencer marketing platform – SideQik. The Company is a publicly traded company listed on the TSX Venture Exchange (“TSXV”) under the symbol “GAME.V”. It is also dual listed in the United States on the NASDAQ market under the symbol “GAME”. The registered head office of the Company is 3000-77 King Street, West, P.O. Box 95, TD Centre North Tower, Toronto, Ontario, Canada M5K 1G8.
Market Opportunity
Video gaming is one of the largest and fastest growing markets in the entertainment sector, with an estimated 3.2 billion gamers globally with esports being the major source of growth. Esports is a term that comprises a diverse offering of competitive electronic games that gamers play against each other. One of the biggest differences between esports and video games of old is the community and spectator nature of esports, whereby competitive play against another person, either one-on-one or in teams, this is a central feature of esports. Since players play against each other online, a global network of players and viewers has developed as these players compete against each other worldwide. Additionally, game developers have greatly increased the entertainment value of games, which has made the spectator aspect of gaming much more prevalent and further drives expansion of the gaming market.
The expanded reach of broadband service and the computer technology advances in the last decade have also greatly accelerated the growth of esports. Esports has become so popular that many high schools and colleges now offer programs to support students’ interest in esports, as well as tournaments and scholarships. The best-known esports teams are receiving marquee sponsorships and are being purchased or invested in by a range of financial and strategic partners. The highest profile esports gamers have significant online audiences as they stream themselves playing against other players online and potentially can generate millions of dollars in sponsorship money and affiliate fees from their online streaming channels. It is projected that by 2024, approximately 577 million people will be watching esports globally. Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services, including Twitch.tv, Youtube.com and Facebook Gaming.
Strategy for Growth
Engine generates revenue through a combination of (i) direct-to-consumer fees (subscription, rake, advertising and sponsorship, and merchandise sales); (ii) business-to-business software-as-a-service (“SaaS”) subscription and professional service fees; and (iii) programmatic advertising sales and brand sponsorships. The Company is uniquely positioned with a base of predictable business-to-business revenues and an extensive network of media and gaming publisher relationships. These media and gaming publishers engage over one hundred (100) million monthly active users. Leveraging these relationships to efficiently create awareness for our gaming competition platform, where players and fans can play, watch and engage with other members of the esports community, is key to our long-term growth strategy.
| Page 4 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Our Brands
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Frankly Media
Frankly Media provides a complete suite of content management, video streaming and engagement solutions that give broadcasters and publishers a unified workflow for the creation, management, publishing and monetization of digital content to any device, while maximizing audience value and revenue. Frankly delivers publishers and their audiences the solutions and services to meet the dynamic challenges of a multi-screen content distribution world. Frankly Media’s products include a groundbreaking online video platform for Live, VOD and Live-to-VOD workflows, a full-featured CMS with rich storytelling capabilities, as well as native apps for iOS, Android, Apple TV, Fire TV and Roku. Additionally, Frankly’s in-house team of digital advertising sales and operations experts monetize billions of monthly display and video advertising impressions through programmatic and direct brand sales across client and owned and operated media properties. Frankly has over 1,200 radio, TV and print media brands, including CNN, Newsweek and Vice Media; TV affiliates of NBC, CBS, FOX and ABC, and radio station groups such as Cumulus. |
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Eden Games
Eden Games is a game developer with market-leading competency in building mobile racing games. They are well-known in the industry for the multiple racing franchises they have created and are considered experts in the fields of licensing and racing technology. Founded in 1998 in Lyon, France, by two experienced Atari developers, Eden Games is a household name in development circles and has both a storied history of success and a strong pipeline of future engagements. Its current development deals are for the official F1 mobile game and porting its Gear.Club franchise onto the hugely successful Nintendo Switch. These two contracts provide regular revenue contracted from third parties and a share of the revenue from game sales or in-app purchases.
Eden has produced the following video game titles: V-Rally (1998); V-Rally 2 (1999); Need for Speed: Porsche (2000); V- Rally 3 (2002); KYA: Dark Lineage (2003); TITEUF: Mega Compet’ (2004); Test Drive Unlimited (2006); Alone in the Dark (2008); Test Drive Unlimited 2 (2011); TDU2 Casino Online (2011); Gear.Club Mobile (2016 – 2020); Gear.Club Unlimited (2017); F1 Mobile (2018 – 2020); and Gear.Club Unlimited 2 (2018 – 2020). |
| Page 5 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Stream Hatchet
Stream Hatchet is a data analytics company based in Terrassa, Spain, providing intelligence for persons and entities involved in video game streaming. Stream Hatchet provides real-time data analytics and viewership information that assists in the development and marketing decisions of the Company’s initiatives. These unique data analytic capabilities provide the Company an edge in accessing sponsorships and promotions from major brands focused on esports, as the Company has proprietary data on esports viewership, brand exposure and sponsorship valuation to quantify the value of our brand exposure on multiple streaming platforms around the globe.
Stream Hatchet, through a SaaS offering, also generates significant independent revenue for the Company as a standalone unit without infringing upon its strategic value to the Company. Stream Hatchet provides holistic data to its users, which include streamers, esports organizations and video game producers. Stream Hatchet provides a clearly delineated product offering with a high degree of automation, and a strong pipeline of clients and brands looking for intelligence in the esports & gaming landscape. Stream Hatchet’s innovative reporting and data analytics are unique in the industry, with services and reporting having been sold to major brands in the technology space. Stream Hatchet’s customers include industry leaders such as Microsoft, Allied Esports, Activision and Twitch. |
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UMG
UMG is a premier esports company in North America, offering live gaming entertainment events and online play. UMG provides online and live tournaments as well as the creation and distribution of original esports content.
UMG, through its wholly owned subsidiary UMG Events LLC, which was founded in 2012, is actively involved in many aspects of the esports industry. UMG is deeply ingrained in the gaming community and very well established within the competitive gaming sector with approximately 2.1 million registered users and over 18 million matches played live and online through its platform.
UMG is a diversified esports company that has operations involved in:
● Live tournaments ● Online contests ● Creation and distribution of original content ● Esports tournament operations through its proprietary tournament management app
UMG TV by UMG Gaming is a live 24/7 linear and on-demand streaming video channel dedicated to gaming, esports and entertainment audiences. UMG TV is distributed across a broad range of media platforms including Twitch, YouTube, Apple TV, Roku, Amazon Fire, VIZIO and more. Some of the featured programming on UMG TV includes the following: UMG Rewind, The Race, Collegiate Clash, Emergence Days, Valorant, and UMG Classic. |
| Page 6 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Sideqik
Sideqik is an influencer marketing platform that offers brands, direct marketers, and agencies tools to discover, connect and execute marketing campaigns with content creators. Sideqik’s end-to-end solutions offer marketers advanced capabilities to discover influencers with demographic and content filtering; connect and message influencers; share marketing collateral such as campaign briefs, photos, logos, videos; measure reach, sentiment, and engagement across all major social media platforms; and evaluate earned media value and return on investment across the entire campaign.
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WinView Games
WinView Games is a digital technology company that pioneered second-screen interactive television technologies and holds foundational patents on the synchronized second-screen experience. WinView plans to leverage its extensive experience in pioneering real-time interactive television games played on the mobile second-screen, its foundational patents and unique business model. The WinView app is currently an end-to-end two screen TV synchronization platform for both television programming and commercials. The paid entry, skill-based games app uniquely enhances TV viewing enjoyment and rewards sports fans with prizes as they answer in-game questions while competing in real-time during live televised sports. WinView has a portfolio of more than 68 issued patents on mobile sports gaming technologies and distributed entertainment systems.
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Disposition of Motorsport Assets
In November 2020, following a detailed strategic review in connection with the merger of Torque Esports, Frankly Media and WinView Games, the Company sold IDEAS+CARS, The Race Media, WTF1 and Driver DataBase (collectively the “Motorsport Assets”) to Ideas + Cars Holdings Limited, a third-party investment group based in the UK. As a result, Engine is eliminating its funding obligations related to the cost of maintaining and growing these auto media businesses and certain accrued liabilities. These auto-related businesses sold are not focused on gaming but instead, are developing esport and traditional sport racing audiences with the creation and production of auto racing content. While reducing its cost base, Engine will maintain the ability to work with the Motorsports Assets. Engine will continue to support racing as a category through its competitive gaming platform, UMG, as it expands relationships across the entire esports sector as the leading destination for tournament play. For the year ended August 31, 2020, the Motorsport Assets had revenue of approximately $0.56 million and an operating loss of $5.86 million.
As part of the disposition of the Motorsport Assets, Darren Cox resigned as co-CEO of the Company, which enabled Engine to reorganize its leadership team by moving to a single CEO role under Lou Schwartz, with Tom Rogers remaining Executive Chairman.
| Page 7 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Capital Allocation & Investment
WinView Games - The company is building numerous product enhancements to drive increased player economics. The company plans to release new gaming experiences such as social cash entry gaming for friends and family competitions, enhanced loyalty programs, and curated fan competitions. The business recently released a substantial product update enabling players to compete in numerous contests at one time, both before and during a live game. Lastly, the organization continues to invest in technology that will enable integration in third-party ecosystems to further scale the platform, such as a Winview Twitch extension.
UMG - The business is investing in solutions to expand operations beyond its presently served gaming communities, as well as remove numerous friction points in the player journey. Such solutions include skill-based competition between players to remove shark-vs-minnow issues in competitive play, as well as enhanced player data to support player development to help players become better competitors.
Stream Hatchet - The business continues to invest in developing best in class measurement and analytical tools to serve the gaming live-streaming industry. The business plans to release a series of media valuation and activation solutions, removing major barriers for brands looking to enter the gaming sector and to market behind gaming influencers.
Sideqik - The company continues to invest in integration with Stream Hatchet, including offering the market a best in class, and first of its kind, one-stop-shop solution for influencer marketing activations and measurement across the combination of all major live streaming and social platforms. In addition, the company continues to invest in social commerce technology, enabling additional modes of monetization including campaign performance.
Eden Games - The business is investing in moving further towards developing its own intellectual property to enhance its direct-to-consumer offerings and drive revenue beyond partner developer projects.
Senior Management Team
Engine has a deep and cohesive executive management team with diverse skillsets and unparalleled understanding of the gaming industry. This experience provides a powerful competitive edge against our competitors, as it enables our team to anticipate patterns before they become trends, to identify influential shifts as they develop and to adjust strategy accordingly.
Tom Rogers
Executive Chairman & Director
Mr. Tom Rogers is a media/technology executive who has shaped the communications industry over the past 40 years. He was the former chairman of Frankly Media, executive chairman of WinView Games and the previous president and CEO of Tivo. Rogers was the founder of CNBC and established MSNBC. He was inducted into the Broadcasting Hall of Fame & the Cable Hall of Fame and an Emmy Award winner for the development of advanced TV.
Lou Schwartz
Chief Executive Officer & Director
Mr. Lou Schwartz is a seasoned technology and digital media executive and pioneer in internet video management and over-the-top (“OTT”) video delivery. At WWE, he oversaw all digital platforms and helped lead the development of the WWE Network. He was also CEO of UUX, where he successfully led the merger of Totalmovie, a leading Latin American retail OTT service, with OTT Networks. Previously, Schwartz was CEO of the Americas and General Counsel for Piksel and he co-founded Multicast Media Technologies, one of the first Internet video platform companies, which sold to Piksel in 2010.
| Page 8 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Mike Munoz
Chief Financial Officer
Mr. Mike Munoz has served as the Chief Financial Officer of the Company from May 2020 to present; Chief Financial Officer of Frankly from April 2018 to May 2020; Controller of Frankly from January 2016 to April 2018; Assistant Controller of Frankly from September 2015 to January 2016.
Impact of the Global COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (“COVID-19”) emerged and has since extensively impacted global health and the economic environment. To contain the spread of COVID-19, domestic and international governments around the world enacted various measures, including orders to close all businesses not deemed “essential,” quarantine orders for individuals to stay in their homes or places of residence, and to practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will continue to negatively impact many business activities and financial markets across the globe.
In an effort to protect the health and safety of our employees, the majority of our workforce is currently working from home, and we have placed restrictions on non-essential business travel. We have implemented business continuity plans and have increased support and resources to enable employees to work remotely and thus far have been able to operate with minimal disruption.
The global COVID-19 pandemic remains a rapidly evolving situation. We will continue to actively monitor the developments of the pandemic and may take further actions that could alter our business operations as may be required by federal, state, local, or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and shareholders. It is not clear what effects any such potential actions may have on our business, including the effects on our employees, players and consumers, customers, partners, development and content pipelines, our reputation, financial condition, results of operations, revenue, cash flows, liquidity or stock price.
Presentation of financial information
Unless otherwise specified within, financial results, including historical comparatives, contained in this MD&A are based on Engine’s audited consolidated financial statements which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Unless otherwise specified, amounts are in U.S. dollars and percentage changes are calculated using whole numbers.
Key Metrics
In addition to measures of financial performance presented in our consolidated financial statements, we monitor the key metrics set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies.
Adjusted EBITDA
We monitor Adjusted EBITDA, a non-IFRS financial measure, to analyze our financial results and believe that it is useful to investors, as a supplement to IFRS measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. We believe that Adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude in Adjusted EBITDA. Furthermore, we use this measure to establish budgets and operational goals for managing our business and evaluating our performance. We also believe that Adjusted EBITDA provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry.
Adjusted EBITDA is not a recognized financial measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, it may not be comparable to similar financial measures presented by other issuers. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with IFRS. We calculate Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense, depreciation and amortization, further, adjusted to exclude certain non-cash charges and other items that we do not believe are reflective of our ongoing operating results.
| Page 9 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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The following unaudited table presents the reconciliation of net loss to Adjusted EBITDA for the three months ended November 30, 2021, and 2020.
| For the three months ended | ||||||||||||
| Note | November 30, 2021 | November 30, 2020 | ||||||||||
| $ | $ | |||||||||||
| Net loss attributable to owners of the Company | (1,353,520 | ) | (5,999,433 | ) | ||||||||
| Interest expense | 214,608 | 408,089 | ||||||||||
| Amortization and depreciation | (a) | 1,042,847 | 1,416,140 | |||||||||
| Share-based payments | (a) | 1,321,038 | 1,088,638 | |||||||||
| Loss on foreign exchange | 166,251 | (37,249 | ) | |||||||||
| Transaction costs | 7,119 | - | ||||||||||
| Non-operational professional fees | 974,447 | - | ||||||||||
| Arbitration settlement reserve | (a) | (2,740,052 | ) | - | ||||||||
| Change in fair value of warrant liability | (a) | (2,941,546 | ) | (4,759,776 | ) | |||||||
| Change in fair value of convertible debt | (a) | (1,683,172 | ) | 1,323,745 | ||||||||
| Share of net loss of associate | (a) | - | 66,686 | |||||||||
| Loss on disposal of Motorsports | (a) | - | 678,931 | |||||||||
| Loss from discontinued operations | 9,656 | 950,215 | ||||||||||
| Adjusted EBITDA | (4,982,324 | ) | (4,864,014 | ) | ||||||||
Note a – Items are non-cash expense (income)
Limitations of Adjusted EBITDA
Adjusted EBITDA, a non-IFRS financial measure, has limitations as an analytical tool, and should not be considered in isolation from or as a substitute for measures presented in accordance with IFRS. Some of these limitations are:
| ● | Adjusted EBITDA does not reflect certain cash and non-cash charges that are recurring; | |
| ● | Adjusted EBITDA does not reflect income tax payments that would reduce cash available to us; | |
| ● | Adjusted EBITDA excludes depreciation and amortization of property and equipment and intangible assets, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and | |
| ● | Other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces their usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including revenues, net income (loss) and our financial results presented in accordance with IFRS.
Results from operations
Selected Quarterly Information
| For the three months ended | ||||||||
| Nov 30, 2021 | Nov 30, 2020 | |||||||
| Operating results | ||||||||
| Total revenues | $ | 14,349,478 | $ | 7,466,391 | ||||
| Total expenses | 15,668,578 | 11,801,022 | ||||||
| Total net income (loss) from continuing operations | (1,343,864 | ) | (4,370,287 | ) | ||||
| Total net loss from discontinued operations | (9,656 | ) | (1,629,146 | ) | ||||
| Total net income (loss) from continuing operations | (1,353,520 | ) | (5,999,433 | ) | ||||
| Comprehensive income (loss) | (1,184,102 | ) | (5,865,588 | ) | ||||
| Loss per share – Continuing operations | ||||||||
| Basic and diluted loss per share | $ | (0.09 | ) | $ | (0.57 | ) | ||
| Loss per share – Discontinued operations | ||||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.21 | ) | ||
| Page 10 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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The total expenses above for the three months ended November 30, 2021, include a non-cash increase in the fair value of warrant liability of $2.9 million, discussed in more detail below.
| Note | Nov 30, 2021 | Aug 31, 2021 | ||||||||
| Financial position | ||||||||||
| Total assets | $ | 61,138,576 | $ | 67,462,847 | ||||||
| Total liabilities | 35,411,284 | 41,897,303 | ||||||||
| Working capital deficiency | (i) | (2,399,005 | ) | (937,584 | ) | |||||
| Total debt | (ii) | 9,533,017 | 11,457,659 | |||||||
| Other metrics | ||||||||||
| Debt to total assets | (iii) | 16 | % | 17 | % | |||||
| (i) | Working capital deficiency is defined as total current assets less total current liabilities. |
| (ii) | Total debt is defined as the aggregate total of convertible debt, line of credit, promissory notes, long-term debt and lease obligations. |
| (iii) | Debt to total assets is calculated as total debt divided by total assets. |
Revenue
| Increase | ||||||||||||
| For the three months ended November 30, | 2021 | 2020 | (decrease) | |||||||||
| $ | $ | $ | ||||||||||
| Games development | 2,102,126 | 499,955 | 1,602,171 | |||||||||
| Direct to consumer | 32,850 | 49,832 | (16,982 | ) | ||||||||
| Software-as-a-service | 2,080,710 | 1,436,997 | 643,713 | |||||||||
| Advertising | 10,042,734 | 5,122,090 | 4,920,644 | |||||||||
| Professional services | 91,058 | 357,517 | (266,459 | ) | ||||||||
| 14,349,478 | 7,466,391 | 6,883,087 | ||||||||||
| ● | Games development for the three months ended November 30, 2021, was $2,102,126 in comparison to $499,955 for the three months ended November 30, 2020, the increase of $1,602,171 was due to Eden Games reaching milestones on several large contracts. |
| ● | Direct to consumer income for the three months ended November 30, 2021, was $32,850 which is comparable to $49,832 for the three months ended November 30, 2020. |
| ● | Software-as-a-service revenue for the three months ended November 30, 2021, was $2,080,710 in comparison to $1,436,997 for the three months ended November 30, 2020. The increase of $643,713 was primarily due to inclusion of revenue from the SideQik acquisition. |
| ● | Advertising revenue for the three months ended November 30, 2021, was $10,042,734 in comparison to $5,122,090 for the three months ended November 30, 2020. The increase was primarily due to significant growth from Frankly’s largest client, which saw significant growth in traffic to its various digital properties. |
| ● | Professional services revenue for the three months ended November 30, 2021, was $91,058, a $266,459 decline from November 30, 2020. |
Expenses
| For the three months ended November 30, | 2021 | 2020 | Increase (decrease) | |||||||||
| $ | $ | $ | ||||||||||
| Salaries and wages | 5,000,546 | 3,777,476 | 1,223,070 | |||||||||
| Consulting | 1,318,638 | 895,952 | 422,686 | |||||||||
| Professional fees | 738,793 | 685,852 | 52,941 | |||||||||
| Revenue sharing expense | 8,966,736 | 4,491,427 | 4,475,309 | |||||||||
| Sponsorships and tournaments | 449,086 | 364,229 | 84,857 | |||||||||
| Advertising and promotion | 512,365 | 859,826 | (347,461 | ) | ||||||||
| Office and general | 1,589,803 | 705,819 | 883,984 | |||||||||
| Technology expenses | 731,071 | 580,854 | 150,217 | |||||||||
| Amortization and depreciation | 1,042,847 | 1,416,140 | (373,293 | ) | ||||||||
| Share-based payments | 1,321,038 | 1,088,638 | 232,400 | |||||||||
| Interest expense | 214,608 | 408,089 | (193,481 | ) | ||||||||
| Loss on foreign exchange | 166,251 | (37,249 | ) | 203,500 | ||||||||
| Transaction costs | 7,119 | - | 7,119 | |||||||||
| Non-operational professional fees | 974,447 | - | 974,447 | |||||||||
| Arbitration settlement reserve | (2,740,052 | ) | - | (2,740,052 | ) | |||||||
| Change in fair value of warrant liability | (2,941,546 | ) | (4,759,776 | ) | 1,818,230 | |||||||
| Change in fair value of convertible debt | (1,683,172 | ) | 1,323,745 | (3,006,917 | ) | |||||||
| 15,668,578 | 11,801,022 | 3,867,556 |
| ● | Salaries and wages for the three months ended November 30, 2021, was $5,000,546 in comparison to $3,777,476 for the three months ended November 30, 2020. The increase of $1,223,070 was primarily due to the acquisition of SideQik which didn’t impact the three months ended November 30, 2020, as well as minor headcount increases across several business units. |
| Page 11 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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| ● | Consulting for the three months ended November 30, 2021, was $1,318,618 in comparison to $895,952 for the three months ended November 30, 2020. The increase of $423,686 was due to an increase in contractor usage on several gaming projects and a platform revamping project. |
| ● | Revenue sharing for the three months ended November 30, 2021, was $8,996,736 in comparison to $4,491,427 for the three months ended November 30, 2020. These costs represent the portion of our gross advertising revenue earned by Frankly’s customers. |
| ● | Advertising and promotion for the three months ended November 30, 2021, was $512,365 in comparison to $859,826 for the three months ended November 30, 2020. The decrease of $347,461 was due to promotion costs relating to the Engine brand in Canada, which did not recur in 2021, somewhat offset by increased marketing efforts at Winview. |
| ● | Office and general for the three months ended November 30, 2021, was $1,589,803 in comparison to $705,819 for the three months ended November 30, 2020. The increase of $883,984 was related to the NASDAQ up-listing as well as office and general expenses from the SideQik acquisition. |
| ● | Technology for the three months ended November 30, 2021, was $731,071 in comparison to $580,854 for the three months ended November 30, 2020. The increase of $150,217 was primarily due to integration of the SideQik business. |
| ● | Amortization and depreciation for the three months ended November 30, 2021, was $1,042,847 in comparison to $1,416,140 for the three months ended November 30, 2020. The decrease of $373,293 was primarily due to several large intangibles related to the Stream Hatchet and Eden acquisitions reaching full amortization. |
| ● | Share-based payments expense for the three months ended November 30, 2021, was $1,321,038 in comparison to $1,088,638 for the three months ended November 30, 2020. The increase of $232,400 was due to stock options and restricted stock units granted to officers and directors, during the quarter, as well as stock option grants related to additional eligible participants from the SideQik acquisition. |
| ● | Interest expense for the three months ended November 30, 2021, was $214,608 in comparison to $408,089 for the three months ended November 31, 2020. The decrease of $490,955 was primarily due to approximately 50% lower average principal balance during fiscal 2022 than 2021. |
| ● | Loss on foreign exchange for the three months ended November 30, 2021, was $166,251 in comparison to a gain of $37,249 for the three months ended November 30, 2020. The increase of $203,500 was due to the strengthening of the Canadian dollar against USD during fiscal 2022 compared to 2021. |
| ● | Non-operational professional fees for the three months ended November 30, 2021, was $974,447, in comparison to $0 for the three months ended November 30, 2020. The increase of $974,447 was driven by costs incurred on the Winview patent portfolio. |
| ● | Arbitration settlement reserve for the three months ended November 30, 2021, was a gain of $2,740,052, in comparison to $0 for the three months ended November 30, 2020. The gain is the result of marking the arbitration ruling liability relating to AIS to fair value. This liability will be adjusted to fair value at the end of each reporting period until resolution. |
| ● | Change in fair value of warrant liability for the three months ended November 30, 2021, decreased expense by $2,941,546 in comparison to decreasing expense by $4,759,776 for the three months ended November 30, 2020. The change of $1,818,230 in the Change in fair value of warrant liability is a result of the revaluation of the Company’s warrant obligation at each period end, with a lower share price on November 30, 2021, than the comparable period. In addition, the change was impacted by a decrease in warrants outstanding on November 30, 2021. |
| ● | Change in fair value of convertible debt for the three months ended November 30, 2021, decreased expense by $1,683,172 in comparison to an increase in expense of $1,323,745 for the three months ended November 30, 2020. The change of $3,006,917 is a result of the revaluation of the Company’s convertible debt at each period end, with a lower share price on November 30, 2021, than the comparable period. In addition, the change was impacted by a decrease in outstanding convertible debt on November 30, 2021. |
| Page 12 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Other items
| For the three months ended November 30, | 2021 | 2020 | Increase (decrease) | |||||||||
| $ | $ | $ | ||||||||||
| Share of net loss of associate | - | 66,686 | (66,686 | ) | ||||||||
| Discontinued Operations - Loss on disposal of Motorsports | - | (678,931 | ) | 678,931 | ||||||||
| Discontinued Operations | (9,656 | ) | (950,215 | ) | 940,559 | |||||||
| Net loss attributable to non-controlling interest | (24,764 | ) | 31,030 | (55,794 | ) | |||||||
| Foreign currency translation differences | 169,418 | 133,845 | 35,573 |
| ● | The discontinued operations-loss on disposal of Motorsports was a fiscal 2021 event. |
| Page 13 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Segmented analysis
For the three months ended November 30, 2021
| Gaming | Media | Corporate and Other | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue | ||||||||||||||||
| External sales | 2,537,394 | 11,812,084 | - | 14,349,478 | ||||||||||||
| Results | ||||||||||||||||
| Segment loss | (2,511,025 | ) | (1,981,915 | ) | - | (4,492,940 | ) | |||||||||
| Central administration costs | - | - | 2,828,505 | 2,828,505 | ||||||||||||
| Other gains and losses | 1,006,452 | (1,643 | ) | (7,221,762 | ) | (6,216,953 | ) | |||||||||
| Finance costs | 17,357 | 375 | 196,876 | 214,608 | ||||||||||||
| Income (loss) before tax | (3,534,834 | ) | (1,980,647 | ) | 4,196,381 | (1,319,100 | ) | |||||||||
| Income tax | - | - | - | - | ||||||||||||
| Gain (Loss) for the period from: | ||||||||||||||||
| Discontinued operations | (9,656 | ) | - | - | (9,656 | ) | ||||||||||
| Non-controlling interest in net loss | - | - | (24,764 | ) | (24,764 | ) | ||||||||||
| Net income (loss) | (3,544,490 | ) | (1,980,647 | ) | 4,171,617 | (1,353,520 | ) | |||||||||
For the three months ended November 30, 2020
| Gaming | Media | Corporate and Other | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue | ||||||||||||||||
| External sales | 762,941 | 6,703,450 | - | 7,466,391 | ||||||||||||
| Results | ||||||||||||||||
| Segment loss | (2,697,438 | ) | (1,392,595 | ) | - | (4,090,033 | ) | |||||||||
| Central administration costs | - | - | 3,309,789 | 3,309,789 | ||||||||||||
| Other gains and losses | (2,352 | ) | (3,693 | ) | (3,467,235 | ) | (3,473,280 | ) | ||||||||
| Finance costs | 59,571 | 186,990 | 161,528 | 408,089 | ||||||||||||
| Loss before tax | (2,754,657 | ) | (1,575,892 | ) | (4,082 | ) | (4,334,631 | ) | ||||||||
| Income tax | - | - | - | - | ||||||||||||
| Gain (Loss) for the period from: | ||||||||||||||||
| Share of net loss of associate | - | - | (66,686 | ) | (66,686 | ) | ||||||||||
| Discontinued operations | (950,215 | ) | - | (678,931 | ) | (1,629,146 | ) | |||||||||
| Non-controlling interest in net loss | - | - | 31,030 | 31,030 | ||||||||||||
| Net loss | (3,704,872 | ) | (1,575,892 | ) | (718,669 | ) | (5,999,433 | ) | ||||||||
| ● | Gaming net loss for the three months ended November 30, 2021, was $3,544,490 which is comparable to $3,704,872 for the three months ended November 30, 2020. |
| Page 14 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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| ● | Media net loss for the three months ended November 30, 2021, was $1,980,647 in comparison to $1,575,892 for the three months ended November 30, 2020. The increase of $404,755 was primarily due to operating the Sideqik business which was acquired in the fourth quarter of fiscal year 2021. |
| ● | Corporate and Other net income for the three months ended November 30, 2021, was $ 4,171,617 in comparison to a loss of $718,669 for the three months ended November 30, 2020. The increase of $4,890,286 was primarily due to the change in fair value of convertible debt of $3.0 million, and a decrease in arbitration reserve of $2.7 million. This was somewhat offset by the change in fair value of warrant liability of approximately $1.8 million, as well an increase in share-based compensation expense of $.2 million. |
| From continuing operations | ||||||||||||||||
| Three-month period ended | Total revenue | Total loss | Basic income (loss) per share | Total assets | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| November 30, 2021 | 14,349,478 | (1,343,864 | ) | (0.09 | ) | 61,138,576 | ||||||||||
| August 31, 2021 | 11,756,766 | (13,557,725 | ) | (0.43 | ) | 67,462,847 | ||||||||||
| May 31, 2021 | 9,609,833 | 6,207,783 | 0.43 | 71,339,843 | ||||||||||||
| February 28, 2021 | 8,387,880 | (27,376,542 | ) | (2.69 | ) | 70,344,899 | ||||||||||
| November 30, 2020 | 7,466,391 | (4,370,287 | ) | (0.57 | ) | 47,362,028 | ||||||||||
| August 31, 2020 | 7,024,238 | (8,661,786 | ) | (1.15 | ) | 53,415,477 | ||||||||||
| May 31, 2020 | 2,089,323 | (10,380,228 | ) | (3.22 | ) | 42,747,189 | ||||||||||
| February 29, 2020 | 623,994 | (1,413,392 | ) | (2.91 | ) | 12,664,332 | ||||||||||
Quarterly revenues increased from the quarter ended February 29, 2020, and increased further in the quarter ended August 31, 2020, primarily due to inclusion of the revenues of Frankly for one month after the May 8, 2020, acquisition and for the full quarter for the quarters ended August 31, 2020, November 30, 2020, February 28, 2021, and May 31, 2021. The quarters ended August 31 and November 30, 2021, benefited from increased Games and Media revenues as customer confidence is returning to pre COVID 19 levels and revenues from the SideQik acquisition, that occurred during the quarter ended August 31, 2021.
For the quarter ended May 31, 2020, the change in fair value of warrant liability added $7.0 million to the loss. For the quarter ended August 31, 2020, an impairment on investments and advances of $2.6 million and changes in the fair value of warrant liability and convertible debt of $1.3 million added to the quarterly loss. For the quarter ended February 28, 2021, the loss much was larger due to the change in fair value of the warrant liability and convertible debt which increased the quarter loss by $19,465,214 as compared to the quarter ended November 30, 2020. For the quarter ended May 31, 2021, the profit was much larger due to the change in fair value of the warrant liability as compared to the quarter ended February 28, 2021. For the quarter ended August 31, 2021, the loss was significantly higher due to changes in the fair value of warrant liability, an accrual for the AIS related arbitration liability and a full impairment of UMG goodwill and partial impairment of UMG intangible assets. The loss for the quarter ended November 30, 2021, reduced significantly due primarily to a reduction in the AIS related arbitration liability, decrease in fair value of warrant liability and the decrease in fair value of convertible debt.
| Page 15 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Liquidity and cash management
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company’s liquidity and operating results may be adversely affected if the Company’s access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or as a result of conditions specific to the Company.
The Company regularly evaluates its cash position to ensure preservation and security of capital as well as maintenance of liquidity. As the Company does not presently generate sufficient revenue to cover its costs, managing liquidity risk is dependent upon the ability to reduce its monthly operating cash outflow and secure additional financing. The recoverability of the carrying value of the assets and the Company’s continued existence is dependent upon the ability of the Company to raise financing in the near term, and ultimately the achievement of profitable operations.
As of November 30, 2021, the Company had current assets of $27,058,588 (August 31, 2021: $31,557,682) and current liabilities of $29,457,593 (August 31, 2021: $32,495,266). This represents a working capital deficiency of $2,399,005 (August 31, 2021: deficiency of $937,584) which is comprised of current assets less current liabilities. The working capital deficiency on November 30, 2021, includes a warrant liability of $1,851,311 which will not be settled in cash. The Company has not yet realized profitable operations and has incurred significant losses to date resulting in a cumulative deficit of $114,168,493 as of November 30, 2021 (August 31, 2021: $112,814,973).
Following the acquisitions of Frankly and WinView on May 8, 2020, the Company undertook a strategic review of the business. As a result of this review, on November 3, 2020, the Company divested its Motorsports Group. This divestiture reduced accounts payable and accrued liabilities by $0.9 million and will substantially reduce the Company’s monthly cash outflow. The Company also made targeted spending cuts to further reduce the monthly cash outflow. In January 2021, the Company completed convertible debenture settlements of an aggregate principal amount of $10,726,393 of its convertible debentures in exchange for the issuance of 1,430,186 units at a deemed price of $7.50 per unit, with each such unit consisting of a common share and three-quarters (3/4) of a warrant, with each whole warrant exercisable into a common share at an exercise price of $15 per share for a period of three years.
In January and February 2021, the Company closed on the issuance of 4,371,767 units (the “Units”) for gross proceeds of $32,788,253 of non-brokered private placements. Each Unit consists of one common share of the Company and one-half of one common share purchase warrant (a “Warrant”). Each whole Warrant entitles the holder to acquire one additional share of the Company at a price of $15.00 per share for a period of 3 years. The proceeds of the offering was allocated to marketing and advertising of the Company’s product offerings, product development initiatives for UMG, WinView and Stream Hatchet, and general working capital purposes.
The Company has plans to raise additional funds. While management has been historically successful in raising the necessary capital, it cannot provide assurance that it will be able to execute on its business strategy or be successful in future financing activities.
Our ability to maintain sufficient liquidity could be affected by various risks and uncertainties including, but not limited to, our ability to raise additional funds through financing, those related to consumer demand and acceptance of our products and services, our ability to collect payments as they become due, achieving our internal forecasts and objectives, the economic conditions of the United States and abroad. These risk factors are described in Risks and uncertainties section of this MD&A.
| Page 16 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Capital management framework
The Company considers its capital to be its shareholders’ equity. As at November 30, 2021, the Company had shareholders’ equity of $25,559,149 (August 31, 2021: shareholders’ equity of $25,422,165).
The Company’s objective when managing its capital is to seek continuous improvement in the return to its shareholders while maintaining a moderate to high tolerance for risk. The objective is achieved by prudently managing the capital generated through internal growth and profitability, using lower cost capital, including raising share capital or debt when required to fund opportunities as they arise.
The Company may also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines any of these to be an effective method of achieving the above objective. The Company does not use ratios in the management of its capital.
There have been no changes to management’s approach to managing its capital for the three months ended November 30, 2021.
Financing
The proceeds of the financings disclosed below were intended to be used primarily for working capital and future operating needs. The proceeds received have been used primarily for those purposes.
Equity
During the three months ended November 30, 2021, the Company issued 91,635 common shares upon vesting of an equal number of RSUs
Debt
Promissory Notes
The Company has promissory notes with a balance of $200,000 (August 31, 2021 – $200,000) that are unsecured, due on demand, and bear interest at 18%. As of November 30, 2021, interest of $154,721 has been accrued (August 31, 2021 – $139,644).
The Company, through its WinView subsidiary, has a secured promissory note outstanding for amounts due for the provision of services by the noteholder. As of November 30, 2021, $398,931 was due under the note (August 31, 2021 – $482,3042). The note is secured by the assets of WinView, bears interest at 8%, and is currently due.
Paycheck Protection Program (“PPP”) loans
In April and May 2020, the Company entered into promissory notes (the “Notes”) with three banks. The Notes evidence loans to the Company of $1,589,559 pursuant to the PPP of the CARES Act administered by the U.S. Small Business Administration (the “SBA”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the loans exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs, as further detailed in the CARES Act and applicable guidance issued by the SBA.
Interest will accrue on the outstanding balance of the Notes at a rate of 1.00% per annum. However, the Company expects to apply for and receive forgiveness of up to all amounts due under the Notes, in an amount equal to the sum of qualified expenses under the PPP during the twenty-four weeks following disbursement.
| Page 17 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Subject to any forgiveness granted under the PPP, the Notes are scheduled to mature in April 2022 and require 18 equal monthly payments of principal and interest beginning November 2020. The Notes may be prepaid at any time prior to maturity with no prepayment penalties. The Notes provide for customary events of default, including, among others, those relating to failure to make payments, bankruptcy, breaches of representations, significant changes in ownership, and material adverse effects. The Company’s obligations under the Notes are not secured by any collateral.
Upon the receipt of the proceeds of $1,589,559 from the Notes, the Company accounted for the Notes as a grant in the form of forgivable loan and recorded the amount as a deferred income liability. The liability was reduced as the Company recognized expenses which qualified for forgiveness of the loan. As of August 31, 2020, the Company had incurred greater than $1,589,559 of qualifying expenses and therefore had a remaining deferred income liability of $nil. The Company recognized the impact of the loan forgiveness as an offset against related salaries and wages expense, in the consolidated statement of loss and comprehensive loss for the year ended August 31, 2020. As of November 30, 2021, $209,875 has not been formally forgiven.
Convertible debt
| 2019 Series | 2020 Series | Amended EB Loan | EB CD | Total | ||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Balance, August 31, 2021 | 914,428 | 2,097,127 | - | 6,939,941 | 9,951,496 | |||||||||||||||
| Interest expense | 6,622 | 49,863 | - | 125,000 | 181,485 | |||||||||||||||
| Accrued interest on conversion / interest payments | - | - | - | (250,000 | ) | (250,000 | ) | |||||||||||||
| Effect of foreign exchange | (14,245 | ) | - | - | - | (14,245 | ) | |||||||||||||
| Change in fair value | (292,982 | ) | (203,308 | ) | - | (1,186,882 | ) | (1,683,172 | ) | |||||||||||
| Balance, November 30, 2021 | 613,823 | 1,943,682 | - | 5,628,059 | 8,185,564 | |||||||||||||||
2019 Series | 2020 Series | EB CD | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| As of November 30, 2021: | ||||||||||||||||
| Less than one year | 613,823 | 1,943,682 | - | 2,557,505 | ||||||||||||
| Greater than one year | - | - | 5,628,059 | 5,628,059 | ||||||||||||
| Total convertible debt obligation | 613,823 | 1,943,682 | 5,628,059 | 8,185,564 | ||||||||||||
| Page 18 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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| (a) | 2019 Series |
As of November 30, 2021, the fair value of the 2019 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:
| 2019 Series | November
30, 2021 (CA$) | August
31, 2021 (CA$) | ||||||
| Share price | 4.93 | 8.42 | ||||||
| Conversion price | 7.50 | 7.50 | ||||||
| Warrant exercise price | 7.50 | 7.50 | ||||||
| Term, in years | .60 - .69 | .85 - .94 | ||||||
| Interest rate | 6 | % | 6 | % | ||||
| Expected volatility | 85.00 | % | 90.00 | % | ||||
| Risk-free interest rate | 0.43% - 0.50 | % | 0.25% - 0.26 | % | ||||
| Exchange rate | 0.7817 | 0.7947 | ||||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| (b) | 2020 Series |
The 2020 Series debentures will mature twenty-four (24) months from the date of issuance and bear interest at a rate of 5% per annum (subject to adjustment as described below), payable on maturity. At the Company’s option, interest under the 2020 Series debentures is payable in kind in common shares at an issue price which would be based on the trading price of the common shares at the time of such interest payment. The interest rate under the 2020 Series debentures will increase from 5% to 10% per annum on a prospective basis on December 19, 2020, if a public offering has not occurred by that date.
The 2020 Series debenture holders may convert all or a portion of the principal amount of the debentures into units (“Units”) of the Company at a price (the “Conversion Price”) equal to the lesser of (a) $11.25 per Unit, and (b) if such conversion occurs after a public offering of securities by the Company (the “Public Offering”), a fifteen percent (15%) discount to the public offering price, provided that such conversion price shall not be less than $7.50 per Unit.
Notwithstanding the foregoing, if by December 19, 2020, the Company has not obtained registration rights in the United States to allow sale in the United States of the common shares (“Common Shares”) of the Company and the exercise of warrants (the “Warrants”) of the Company to be issued pursuant to the conversion of the 2020 Series debentures, holders of 2020 Series debentures may convert such debentures into Units at $7.50 per Unit.
Each Unit is comprised of one common share and one-half of one Warrant, with each Warrant exercisable into one common share of the Company at an exercise price of $15.00 per share for a period of three years from the issuance of the 2020 Series debentures. Under certain circumstances, the Company shall be entitled to call for the exercise of any outstanding Warrants in the event that the closing trading price of the Company common shares on the NASDAQ is above $30.00 per share for fifteen (15) consecutive trading days.
In the event that the Company’s common shares are listed for trading on the NASDAQ Capital Market and the Company completes a Public Offering for an aggregate amount of at least US$30,000,000, the Company may cause the 2020 Series debentures to be converted at the Conversion Price by the Company delivering a notice to the holder not less than a minimum of 30 days and a maximum 60 days prior to the forced conversion date.
| (c) | 2020 Series - One Up |
These convertible debentures (the “2020 Series One Up” debentures) have identical terms as the 2020 Series debentures except that the minimum conversion price of $7.50 per Unit (as described above) will be US$9.50 per Unit. The 2020 Series One Up convertible debentures had a fair value at issuance of $3,078,550.
| Page 19 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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| (d) | 2020 Series – Standby |
In September 2020, the Company entered into an $8,000,000 stand-by convertible debenture facility (the “2020 Series Standby” debentures). The 2020 Series Standby Debenture has substantially similar terms as the 2020 Series debentures, except (i) the references to a minimum $7.50 conversion price (as described above) have been changed to $8.90; and (ii) the 2020 Series Standby debentures are only convertible into common shares of the Company, not units.
In November 2020, the Company issued 224,719 warrants in connection with this first draw of $2,000,000 of the Standby Debentures, with each warrant exercisable into one common share the Company at an exercise price of $15.00 per share for a period of two years, subject to the same acceleration clause as the warrants underlying the 2020 Series debentures.
The remaining $6,000,000 of convertible debentures that are issuable under this facility have substantially similar terms as the 2020 Series debentures, including conversion into units consisting of one share and one-half warrant, provided that the conversion price of any additional convertible debentures will be based on the market price of the common shares at the time of such subscriptions and are subject to TSX-V approval.
$6,000,000 of convertible debentures that are issuable under this facility have substantially similar terms as the 2020 Series debentures, including conversion into units consisting of one share and one-half warrant, provided that the conversion price of any additional convertible debentures will be based on the market price of the common shares at the time of such subscriptions and are subject to TSX-V approval.
| 2020 Series | November
30, 2021 (US$) | August
31, 2021 (US$) | ||||||
| Share price | 3.85 | 6.66 | ||||||
| Conversion price | 8.90 | 8.90 | ||||||
| Warrant exercise price | - | - | ||||||
| Term, in years | 1.26 | 1.26 | ||||||
| Interest rate | 10 | % | 10 | % | ||||
| Expected volatility | 85.00 | % | 90.00 | % | ||||
| Risk-free interest rate | 0.23 | % | 0.10 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| (e) | EB CD |
On February 24, 2021, the Company extinguished the Amended EB Loan and issued the Lender a secured convertible debenture in the principal amount of $5 million (the “EB CD”). The EB CD is convertible into units of the Company at a conversion price of $10.25 per unit, with each unit comprised of one common share and one-half of a warrant, with each whole warrant exercisable into a common share at an exercise price of $15.00 per share for a period of three years from the issuance of the EB CD. The EB CD has a term of three years. The convertible debenture is secured by the Company’s real and personal property, fixtures, leasehold improvements, trade fixtures, equipment, and other personal property as well as all general intangibles relating to or arising from the personal property.
| Page 20 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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As of November 30, 2021, the fair value of the EB CD convertible debenture was estimated using the binomial lattice model with the below assumptions:
| EB CD | November
30, 2021 (US$) | August
31, 2021 (US$) | ||||||
| Share price | 3.85 | 6.66 | ||||||
| Conversion price | 10.25 | 10.25 | ||||||
| Warrant exercise price | 15.00 | 15.00 | ||||||
| Term, in years | 2.24 | 1.26 | ||||||
| Interest rate | 10 | % | 10 | % | ||||
| Expected volatility | 85.00 | % | 90.00 | % | ||||
| Risk-free interest rate | 0.59 | % | 0.30 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| Page 21 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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| (f) | Fair value |
The following table gives information about how the fair values of these financial liabilities are determined (in particular, the valuation technique and key inputs used).
| Financial assets / financial liabilities | Valuation technique | Key Inputs | Relationship and sensitivity of unobservable inputs to fair value to fair value | |||
| Convertible debt | The fair value of the convertible debentures as of November 30, 2021 has been calculated using a binomial lattice methodology. | Key observable inputs | The estimated fair value would increase (decrease) if: | |||
| Share price CAD $4.93 (USD $3.85) | The share price was higher (lower) | |||||
| Risk-free interest rate (0.23% to 0.59%) | The risk-free interest rate was higher (lower) | |||||
| Dividend yield (0%) | The dividend yield was lower (higher) | |||||
| Key unobservable inputs | ||||||
| Credit spread (7.69% to 9.88%) | The credit spread was lower (higher) | |||||
| Discount for lack of marketability (0%) | The discount for lack of marketability was lower (higher) | |||||
| Convertible debt | The fair value of the convertible debentures as of August 31, 2021 has been calculated using a binomial lattice methodology. | Key observable inputs | The estimated fair value would increase (decrease) if: | |||
| Share price CAD$8.42 (USD $6.66) | The share price was higher (lower) | |||||
| Risk-free interest rate (0.10% to 0.30%) | The risk-free interest rate was higher (lower) | |||||
| Dividend yield (0%) | The dividend yield was lower (higher) | |||||
| Key unobservable inputs | ||||||
| Credit spread (1.14% to 8.45%) | The credit spread was lower (higher) | |||||
| Discount for lack of marketability (0%) | The discount for lack of marketability was lower (higher) |
| Page 22 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Commitments and contingencies
Litigation and arbitration
In April 2020, the Company announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provided for the acquisition of 100% of Allinsports in exchange for the issuance of 966,667 common shares of the Company and other consideration, including payments of $1,200,000 as a portion of the purchase consideration. In September 2020, the Company advised the shareholders of Allinsports that closing conditions of the transaction, including the requirement to provide audited financial statements, had not been satisfied.
In response, in November 2020, the shareholders of Allinsports commenced arbitration in Alberta, Canada seeking, among other things, to compel the Company to complete the acquisition of Allinsports without the audited financial statements, and to issue 966,667 common shares of the Company to those shareholders. As alternative relief, the shareholders of Allinsports sought up to US$20,000,000 in damages. As of August 31, 2020, the Company had recorded an impairment against the entire balance of advances to Allinsports, amounting to $2,625,657. A hearing in this matter was held in May of 2021, and by a decision dated September 30, 2021, the Arbitrator determined that the closing of the transaction had previously occurred and directed the Company to issue the 966,667 common shares. The Company is pursuing regulatory approval to issue the shares and is also pursuing relief against the Allinsports shareholders for various alleged breaches of the share purchase agreement. The Company recognized a liability for the arbitration ruling of $3,728,278, which represents the fair value of the common shares directed to be delivered as of November 30, 2021. The liability is recorded as Arbitration reserve on the Company’s Consolidated Statements of Financial Position. This liability will be adjusted to fair value at the end of each reporting period.
Separately, in April of 2021, the Company received a copy of a complaint filed by 3CI Holdings, LLP in the Circuit Court for the 11th Judicial Circuit for Miami-Dade naming Allinsports, A1 Simulation LLC (an entity purported to be a subsidiary of Allinsports), and the Company, seeking to hold the parties, including Company, responsible for unpaid rent under a lease agreement between 3CI’s predecessors in interest and A1 Simulation, and seeking damages of at least $2,890,000. On July 6, 2021, the Company filed motion to dismiss the complaint in this matter.
On January 21, 2021, eight former shareholders of Winview filed a Complaint in Delaware Chancery Court against four Winview directors (David Lockton, et al. v. Thomas S. Rogers, et al.) alleging that the defendants breached their fiduciary duties in connection with the sale of Winview to Engine. The relief sought includes rescission of the sale of Winview to Engine and compensatory damages. The defendants have filed a motion to dismiss the claims, which is pending. Neither the Company nor Winview have been named as parties to this action. Under the March 9, 2020, Business Combination Agreement pursuant to which the Company acquired Winview, the Company agreed to indemnify Winview’s directors for any claims arising out of their service as directors for Winview.
In July of 2021, Winview Inc. filed separate patent infringement lawsuits against DraftKings Inc. and FanDuel, Inc in the United States District Court for the District of New Jersey, alleging that Sportsbook and Daily Fantasy Sports offerings of DraftKings and FanDuel infringe four of Winview’s patents. These actions seek the recovery of damages and other appropriate relief. Draft Kings and FanDuel have filed motions to dismiss, which are pending. While potential damages may be significant if these lawsuits are wholly or partially successful, at this time the Company cannot predict the outcome of the suits or determine the extent of potential damages if they are successful in whole or in part.
The outcomes of pending litigations in which the Company is involved are necessarily uncertain as are the Company’s expenses in prosecuting and defending these actions. From time to time the Company may modify litigation strategy and/or the terms on which it retains counsel and other professionals in connection with such actions, which may affect the outcomes of and/or the expenses incurred in connection with such actions.
| Page 23 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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The Company is subject to various other claims, lawsuits and other complaints arising in the ordinary course of business. The Company records provisions for losses when claims become probable, and the amounts are estimable. Although the outcome of such matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, operations, or liquidity.
Financial instruments and risk management
| (a) | Financial risk management objectives and policies |
The Company’s activities expose it to a variety of financial risks including foreign currency risk, interest rate risk, credit risk, and liquidity risk. These financial instrument risks are actively managed by the Company under the policies approved by the Board of Directors. On an ongoing basis, the finance department actively manages market conditions with a view to minimizing the exposure of the Company to changing market factors, while at the same time limiting the funding costs to the Company.
| (b) | Credit risk |
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company uses information supplied by independent rating agencies where available, and if not available, the Company uses other publicly available financial information and its own records to rate its customers.
Credit risk arises from cash with banks as well as credit exposure to outstanding receivables. The carrying amounts represent the Company’s maximum exposure to credit risk.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Company establishes an allowance for doubtful accounts that represents its estimate of expected losses in respect of accounts receivable. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.
The Company’s accounts receivable are concentrated among customers in the media and broadcasting industry, which may be affected by adverse economic factors impacting that industry. The Company performs ongoing credit evaluations of its major customers, maintains reserves for expected credit losses, and does not require any collateral deposits.
As of November 30, 2021, one customer (August 31, 2021 – one) accounted for greater than 10% of the Company’s accounts receivable balance. In total, this one customer (August 31, 2021 – one) accounted for 13% of the Company’s accounts and other receivables balance as of November 30, 2021 (August 31, 2021 – 13%). During the three months ended November 30, 2021, one (2020 – one) customers represented 61% (2020 – 58%) of total revenue.
| Page 24 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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The below table reflects the aging of the Company’s aging by invoice date of gross trade accounts receivable and allowance for doubtful accounts as of November 30, 2021:
| 0 - 30 | 31 - 60 | 61 - 90 | 91+ | Total | ||||||||||||||||
| Trade accounts receivable | 8,579,042 | 250,750 | 235,950 | 2,030,380 | 11,096,122 | |||||||||||||||
| Allowance for doubtful accounts | 3,500 | 1,500 | - | 1,079,305 | 1,084,305 | |||||||||||||||
| % Allowance | 0 | % | 1 | % | 0 | % | 53 | % | 10 | % | ||||||||||
| (c) | Liquidity risk |
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Company manages liquidity risk by continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets and liabilities. The Company seeks to ensure that it has sufficient capital to meet short term financial obligations after considering its operating obligations and cash on hand.
The Company’s policy is to seek to ensure adequate funding is available from operations and other sources, including debt and equity capital markets, as required.
| < 1 year | 1-2 years | 2-5 years | ||||||||||
| $ | $ | $ | ||||||||||
| Accounts payable | 9,610,276 | - | - | |||||||||
| Accrued liabilities | 8,568,864 | - | - | |||||||||
| Players liability account | 360,372 | - | - | |||||||||
| Lease obligation | 198,663 | 325,631 | - | |||||||||
| Long-term debt | 69,507 | - | - | |||||||||
| Promissory notes payable | 753,652 | - | - | |||||||||
| Convertible debt | 2,557,505 | - | 5,628,059 | |||||||||
| (d) | Interest rate risk |
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to fair value risk with respect to debt which bears interest at fixed rates.
| (e) | Foreign exchange rates |
The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to fluctuations of financial instruments related to cash, accounts and other receivables, and accounts payable denominated in Euros and GBP, as well as debt denominated in Canadian dollars.
| (f) | Fair value hierarchy |
The following tables combine information about:
| ● | classes of financial instruments based on their nature and characteristics; |
| ● | the carrying amounts of financial instruments; |
| ● | fair values of financial instruments (except financial instruments when carrying amount approximates their fair value); and |
| ● | fair value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed. |
| Page 25 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable.
| Carrying value at November 30, 2021 | FVTPL
- mandatorily measured | FVOCI
- mandatorily measured | FVOCI
- designated | Amortized cost | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash | - | - | - | 9,678,803 | ||||||||||||
| Restricted cash | - | - | - | 360,372 | ||||||||||||
| Accounts and other receivables | - | - | - | 10,061,734 | ||||||||||||
| Government remittances | - | - | - | 1,195,102 | ||||||||||||
| Publisher advance | - | - | - | 3,631,052 | ||||||||||||
| Investment at FVTPL | 2,629,851 | - | - | - | ||||||||||||
| 2,629,851 | - | - | 24,927,063 | |||||||||||||
| Carrying value at November 30, 2021 | FVTPL
- mandatorily measured | FVTPL
- designated | Amortized cost | |||||||||
| $ | $ | $ | ||||||||||
| Financial liabilities: | ||||||||||||
| Accounts payable | - | - | 9,610,276 | |||||||||
| Accrued liabilities | - | - | 8,568,864 | |||||||||
| Players liability account | - | - | 360,372 | |||||||||
| Arbitration reserve | - | 3,728,278 | - | |||||||||
| Long-term debt | - | - | 69,507 | |||||||||
| Promissory notes payable | - | - | 753,652 | |||||||||
| Warrant liability | 1,851,311 | - | - | |||||||||
| Convertible debt | - | 8,185,564 | - | |||||||||
| 1,851,311 | 11,913,842 | 19,362,671 | ||||||||||
| Carrying value at August 31, 2021 | FVTPL
- mandatorily measured | FVOCI
- mandatorily measured | FVOCI
- designated | Amortized cost | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash | - | - | - | 15,305,996 | ||||||||||||
| Restricted cash | - | - | - | 331,528 | ||||||||||||
| Accounts and other receivables | - | - | - | 8,646,807 | ||||||||||||
| Government remittances | - | - | - | 1,070,216 | ||||||||||||
| Publisher advance | - | - | - | 4,534,218 | ||||||||||||
| Investment at FVTPL | 2,629,851 | - | - | - | ||||||||||||
| 2,629,851 | - | - | 29,888,765 | |||||||||||||
| Page 26 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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| Carrying value at August 31, 2021 | FVTPL
- mandatorily measured | FVTPL
- designated | Amortized cost | |||||||||
| $ | $ | $ | ||||||||||
| Financial liabilities: | ||||||||||||
| Accounts payable | - | - | 10,403,665 | |||||||||
| Accrued liabilities | - | - | 5,722,470 | |||||||||
| Players liability account | - | - | 331,528 | |||||||||
| Arbitration reserve | - | 6,468,330 | - | |||||||||
| Long-term debt | - | - | 96,664 | |||||||||
| Promissory notes payable | - | - | 821,948 | |||||||||
| Warrant liability | 4,868,703 | - | - | |||||||||
| Convertible debt | - | 9,951,496 | - | |||||||||
| 4,868,703 | 16,419,826 | 17,376,275 | ||||||||||
A summary of instruments, with their classification in the fair value hierarchy is as follows:
| Level 1 | Level 2 | Level 3 | Fair
value as of November 30, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Warrant liability | - | 1,851,311 | - | 1,851,311 | ||||||||||||
| Convertible debt | - | - | 8,185,564 | 8,185,564 | ||||||||||||
| Investment at FVTPL | - | 2,629,851 | 2,629,851 | |||||||||||||
| Level 1 | Level 2 | Level 3 | Fair
value as of August 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Warrant liability | - | 4,868,703 | - | 4,868,703 | ||||||||||||
| Convertible debt | - | - | 9,951,496 | 9,951,496 | ||||||||||||
| Investment at FVTPL | - | 2,629,851 | 2,629,851 | |||||||||||||
Off-balance sheet arrangements
As of the date of this MD&A, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the results of operations or financial condition of the Company including, without limitation, such considerations as liquidity and capital resources.
| Page 27 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Related party transactions and balances
Related party transactions policy
Our Board of Directors has adopted a policy that describes the procedures used to process, evaluate, and if necessary, disclose transactions between the Company and its directors, officers, or greater than 5% beneficial owners. We review any transaction or series of transactions in which any related parson has a direct or indirect interest. Once a transaction has been identified, senior management and the audit committee will review the transaction and ensure appropriate disclosure in the Company’s financial statements and management’s discussion and analysis
Key management compensation
Key management includes the Company’s directors, officers and any consultants with the authority and responsibility for planning, directing, and controlling the activities of an entity, directly or indirectly. Compensation awarded to key management includes the following:
Compensation awarded to key management includes the following:
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| $ | $ | |||||||
| Total compensation paid to key management | 347,256 | 534,738 | ||||||
| Share based payments | 153,671 | 895,814 | ||||||
Total compensation paid to key management is recorded in consulting fees and salaries and wages in the statement of loss and comprehensive loss for the three months ended November 30, 2021, and 2020.
Related party balances
Amounts due to related parties as of November 30, 2021, with respect to the above fees were $0 (August 31, 2021 - $33,439). These amounts are unsecured, non-interest bearing and due on demand.
Commitment to former holders of WinView to proceeds from the patent portfolio enforcement action
Pursuant to the Business Combination agreement dated March 9, 2020, among the Company, Frankly Inc. and Winview Inc., the Company is required to pay to certain former Winview securities holders (“Stubholders”) fifty percent (50%) of the net license fees, damages awards or settlement amounts collected from third parties in connection with the Winview Patent Portfolio, after deduction of certain expenses. Company directors, Tom Rogers and Hank Ratner, are among the pool of Stubholders.
While the Company does not believe that the interests of Messrs. Rogers and Ratner, as Stubholders, are sufficiently material or adverse to the Company’s interests to create an actual or potential conflict of interest with respect to the management of the Winview Patent Portfolio, the Company nevertheless has formed a Patent Committee, that excludes Messrs. Rogers and Ratner, to make recommendations to the Company’s Board regarding matters involving the Winview Patent Portfolio.
| Page 28 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Changes in accounting policies
Future accounting pronouncements
The following standards have not yet been adopted and are being evaluated to determine their impact on the Company:
Amendments to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract;
Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before intended Use
Amendments to IFRS 3 – Reference to the Conceptual Framework
Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or the Company is still assessing what the impact will be to the Company’s financial statements.
Current global financial conditions and trends
Securities of gaming and technology companies have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macroeconomic developments globally and market perceptions of the attractiveness of particular industries.
The price of the securities of companies is also significantly affected by short-term currency exchange fluctuation and the political environment in the countries in which the Company does business. As of August 31, 2021, the global economy continues to be in a period of significant economic volatility, in large part due to the COVID-19 pandemic discussed previously, as well US and European economic and political concerns which have impacted global economic growth.
Risks and uncertainties
Liquidity concerns and future financings
Although we have been successful in the past in financing our activities, there can be no assurance that we will be able to obtain additional financing as and when needed in the future to execute our business plan and future operations. Our ability to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as our business performance. It may be difficult or impossible for us to obtain financing on commercially acceptable terms. This may be further complicated by the limited market liquidity for shares of smaller companies such as us, restricting access to some institutional investors. There is a risk that interest rates will increase given the current historical low level of interest rates. An increase in interest rates could result in a significant increase in the amount that we pay to service future debt incurred by us and affect our ability to fund ongoing operations.
Failure to obtain additional financing on a timely basis could also result in delay or indefinite postponement of further development of its products. Such delay would have a material and adverse effect on our business, financial condition and results of operations.
We may not be able to successfully execute our business plan
The execution of our business plan poses many challenges and is based on a number of assumptions. We may not be able to successfully execute our business plan. If our business plan is more costly than we anticipate or we have significant cost overruns, certain products and development activities may be delayed or eliminated or we may be compelled to secure additional funding (which may or may not be available) to execute our business plan. We cannot predict with certainty our future revenues or results from our operations. If the assumptions on which our revenue or expenditure forecasts are based change, the benefits of our business plan may change as well. In addition, we may consider expanding our business beyond what is currently contemplated in our business plan. Depending on the financing requirements of a potential acquisition or new product opportunity, we may be required to raise additional capital through the issuance of equity or debt. If we are unable to raise additional capital on acceptable terms, we may be unable to pursue a potential acquisition or new product opportunity.
| Page 29 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Difficulties integrating acquisitions and strategic investments
We have acquired businesses, personnel, and technologies in the past and we expect to continue to pursue acquisitions, such as the completed acquisitions of Frankly, WinView, UMG, Eden Games, Stream Hatchet and other investments that are complementary to our existing business and expanding our employee base and the breadth of our offerings. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, the ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions. Since we expect the esports industry to consolidate in the future, we may face significant competition in executing our growth strategy. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of debt, and contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits.
The above risks and difficulties, if they materialize, could disrupt our ongoing business, distract management, result in the loss of key personnel, increase expenses and otherwise have a material adverse effect on our business, results of operations and financial performance.
Management of growth
We have grown rapidly since our inception, and we plan to continue to grow at a rapid pace. This growth has put significant demands on our processes, systems, and personnel.
We may be subject to growth-related risks including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Managing our growth will require significant expenditures and allocation of valuable management resources. Our inability to deal with this growth may have a material adverse effect on our business, financial condition, results of operations and prospects.
We may continue to have reduced cash reserves
We expect our cash reserves will be reduced due to future operating losses, working capital requirements, capital expenditures, and potential acquisitions and other investments by our business, and we cannot provide certainty as to how long our cash reserves will last or that we will be able to access additional capital when necessary.
| Page 30 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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We expect to incur continued losses and generate negative cash flow until we can produce sufficient revenues to cover our costs. We may never become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future. For the reasons discussed in more detail below, there are substantial uncertainties associated with our achieving and sustaining profitability. We expect our cash reserves will be reduced due to future operating losses, and working capital requirements, and we cannot provide certainty as to how long our cash reserves will last or that we will be able to access additional capital if and when necessary.
Competition
Our potential failure to compete successfully in the various markets we participate in could have a material adverse effect on our business, financial condition, and results of operations. The market for the various types of product and service offerings we provide is very competitive and rapidly changing. We face competition from other esports businesses, many of which are larger and better funded than us. There can be no guarantee that our current and future competitors will not develop similar or superior services to our products and services which may render us uncompetitive. Increasing competition could result in fewer future customers, reduced revenue, reduced sales margins and loss of market share, any one of which could harm our business.
Players in the current market face a vast array of entertainment choices. Other forms of entertainment, such as offline, traditional online, personal computer and console games, television, movies, sports and the internet are much larger and more well- established markets and may be perceived by our customers to offer greater variety, affordability, interactivity and enjoyment. These other forms of entertainment compete for the discretionary time and income of our customers. If we are unable to sustain sufficient interest in our games in comparison to other forms of entertainment, including new forms, our business model may no longer be viable.
The development of high-quality products requires substantial up-front expenditures
Consumer preferences for games are usually cyclical and difficult to predict, and even the most successful titles remain popular for only limited periods of time, unless refreshed with new content or otherwise enhanced. In order to remain competitive, we must continuously develop new products or enhancements to existing products. The amount of lead time and cost involved in the development of high-quality products is increasing, and the longer the lead time involved in developing a product and the greater the allocation of financial resources to such product, the more critical it is that we accurately predict consumer demand for such product. If its future products do not achieve expected consumer acceptance or generate sufficient revenues upon introduction, we may not be able to recover the substantial development and marketing costs associated with those products.
Rapid technological changes
Rapid technological changes may increase competition and render our technologies, products or services obsolete or cause us to lose market share. The online gaming software industry is subject to rapid and significant changes in technology, frequent new service introductions and evolving industry standards. Such changes may adversely affect our revenue. There can be no assurance that we can improve the features, functionality, reliability, and responsiveness of infrastructure. Similarly, the technologies that we employ may become obsolete or subject to intense competition from new technologies in the future. If we fail to develop, or obtain timely access to, new technologies, or if we fail to obtain the necessary licenses for the provision of services using these new technologies, we may lose market share, and our results of operations would be adversely affected.
| Page 31 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Proprietary protection and intellectual property disputes
Protection of our trade secrets, copyrights, trademarks, domain names and other product rights are important to our success. We protect our intellectual property rights by relying on trademark protection, common law rights as well as contractual restrictions. However, many of our proprietary technologies are currently unpatented nor have we made any applications for such intellectual property registrations, and we have no present intention to do so in the near future. As such, the current steps that it takes to protect our intellectual property, including contractual arrangements, may not be sufficient to prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.
Should we decide to register our intellectual property in one or more jurisdictions, it will be an expensive and time consuming process and there is no assurance that we will be successful in any or all of such jurisdictions. The absence of registered intellectual property rights, or the failure to obtain such registrations in the future, may result in us being unable to successfully prevent our competitors from imitating our solutions or using some or all of our processes. Even if patents and other registered intellectual property rights were to be issued to us, our intellectual property rights may not be sufficiently comprehensive to prevent our competitors from developing similar competitive products and technologies.
With our acquisition of WinView, we acquired WinView’s intellectual property portfolio. WinView’s patent portfolio is an important asset to us, and we intend to further develop and protect it and our technologies. Litigation may be necessary to enforce our intellectual property rights. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or diversion of management and technical resources, any of which could adversely affect our business and operating results. Moreover, due to the differences in foreign patent, trademark, copyright and other laws concerning proprietary rights, our intellectual property may not receive the same degree of protection in foreign countries as it would in Canada or the United States. Our failure to possess, obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
We may also face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors and former employers of our personnel. Whether a product infringes a patent or other intellectual property right involves complex legal and factual issues, the determination of which is often uncertain. As the result of any court judgment or settlement, we may be obligated to cancel the launch of a new game or product offering, cease offering a game or certain features of a game, pay royalties or significant settlement costs, purchase licenses or modify our software and features, or develop substitutes. We have already had communication from trademark trolls in this respect. At this time these actions are a nuisance rather than a quantifiable business risk.
In addition, we use open-source software in our games, and we expect to continue to use open-source software in the future. From time to time, we may face claims from companies that incorporate open-source software into their products, claiming ownership of, or demanding release of, the source code, the open-source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our games, any of which would have a negative effect on our business and operating results.
Transmission of User Data
In connection with our operations, we transmit and store data. We are subject to legislation and regulations on the collection, storage, retention, transmission and use of user-data that we collect. Our efforts to protect the personal information of our users, partners and clients may be unsuccessful due to the actions of third parties, software bugs or technical malfunctions, employee error or malfeasance, or other factors.
| Page 32 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data, our users’ data, our partners’ data or our clients’ data. If any of these events occur, users’, partners’ or clients’ information could be accessed or disclosed improperly. Any incidents involving the unauthorized access to or improper use of the information of users or incidents involving violation of our terms of service or policies could damage our reputation and brands and diminish our competitive position.
Moreover, affected users, clients or governmental authorities could initiate legal or regulatory action against us in connection with such incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices and remediate the effects of any such incidents of unauthorized access or use. Any of these events could have a material adverse effect on our prospects, businesses, financial condition or results of operations.
Data collection risks
We partially rely on data captured by Stream Hatchet for our revenues and for assessing the performance of some of our brands. Capturing accurate data is subject to various limitations. For example, Stream Hatchet may need to collect certain data from mobile carriers or other third parties such as various viewing platforms, which limits its ability to verify the reliability of such data. Further, Stream Hatchet may not be able to collect any data from third parties at all. Failure to capture accurate data or an incorrect assessment of this data may materially harm business and operating results.
Mobile gaming and the free-to-play business model
Eden Games is partially reliant on the free-to-play business model where monetization is through in-app purchases. The risks of that business model include the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game, including the current title, Gear.Club. If we increase our reliance on the free-to-play model, we may be exposed to increased risk. For example, we may invest in the development of new free-to-play interactive entertainment products that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs. Further, if: (1) we fail to offer monetization features that appeal to our consumers; (2) these consumers do not continue to play our free-to-play games or purchase virtual items at the same rate; (3) our platform providers make it more difficult or expensive for players to purchase our virtual currency; or (4) we cannot encourage significant additional consumers to purchase virtual items in our free-to-play games, our business may be negatively impacted.
Retention and acquisition of new CMS platform customers
Our financial performance and operations are dependent in part on retaining our current CMS platform customers and acquiring new CMS platform customers. We currently serve a large number of customers with our CMS platform and a typical customer contract runs for multiple years. However, we compete with the other technology providers in the market and increasing competition may affect our ability to retain current and acquire new customers. Any number of factors could potentially negatively affect our customer retention or acquisition. For example, a current customer may request products or services that we currently do not provide and may be unwilling to wait until we can develop or source such additional features. Other factors that affect our ability to retain or acquire new CMS platform customers include:
| ● | customers increasingly use competing products or services; | |
| ● | we fail to introduce new and improved products or if we introduce new products or services that are not favorably received; | |
| ● | we are unable to continue to develop new products and services that work with a variety of mobile operating systems and networks and/or that have a high level of market acceptance; | |
| ● | there are changes in customer preference; | |
| ● | there is consolidation or vertical integration of our customers; | |
| ● | there are changes in customer sentiment about the quality or usefulness of our products and services; |
| Page 33 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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| ● | there are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including settlements or consent decrees; | |
| ● | technical or other problems prevent us from delivering our products in a rapid and reliable manner; | |
| ● | we fail to provide adequate customer service to our customers; or | |
| ● | we, our software developers, or other companies in our industry are the subject of adverse media reports or other negative publicity. |
Exposure to advertising marketplace
A significant portion of our projected revenue is generated from the sale of national and local online advertising inventory, which is dependent on available advertising inventory and market demand and prices for such inventory. A decline in available supply of advertising inventory, general demand for advertising inventory and general economic conditions may materially and adversely affect our advertising revenue.
A significant portion of our projected revenue is generated from the sale of national and local online advertising inventory, the majority of which we sell on an automated basis through real-time bidding. We also sell a small portion of our inventory to premium direct advertising customers to whom we provide guaranteed advertisement inventory. Our advertising revenue is dependent on the amount of advertising inventory that is available to us to sell and market demand and prices for such inventory.
The amount of advertising inventory available for us to sell is affected by many variables including but not limited to:
| ● | the negotiated amount of inventory we receive from our current CMS customers; | |
| ● | the amount of additional inventory our current CMS customers permit us to sell on their behalf; | |
| ● | our ability to acquire inventory to sell on behalf of parties that are not customers of our CMS; |
| ● | the amount of inventory available on our owned and operated properties; | |
| ● | the amount of end-user traffic to our customers’ and our online properties; and | |
| ● | the specific type of advertising to be sold, such as display, video or mobile advertising. |
While we endeavor to maximize the amount of inventory, we are able to sell, some of the foregoing variables, and by extension the amount of inventory we may sell, are affected by market forces and other contingencies that we do not control.
The other principal component of gross advertising revenue is the price at which advertising inventory may be sold. To a large extent, the prices we are able to achieve for our advertising inventory are a product of the market supply and demand, which may vary based on several factors including ad size, ad type, geographic region and time of year. At a macro level, advertising spending is also sensitive to overall economic conditions, and our advertising revenues will be adversely affected if advertisers respond to weak and uncertain economic conditions, for example as a result of disruptions from COVID-19, by reducing their budgets or changing their spending patterns. There are limitations on the amount that we can compensate for fluctuations in the prevailing market prices for advertising inventory. Any reduction in spending by existing or potential advertisers and a decline in available advertising inventory or demand for such inventory would negatively affect our advertising revenue and could affect our ability to grow our advertising customer base.
| Page 34 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Global economy
Our business is subject to general economic conditions. Adverse changes in general economic and market conditions could adversely impact demand for our products, prices, revenue, operating costs, results of financing efforts, and the timing and extent of capital expenditures.
Foreign operational risks
A significant portion of our business and operations is conducted in foreign jurisdictions, including the United States, Spain and France. As such, our business and operations may be adversely affected by changes in foreign government policies and legislation or social instability and other factors which are not within our control, including, but not limited to, renegotiation or nullification of existing contracts or licenses, changes in policies, regulatory requirements or the personnel administering them, economic sanctions, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, volatility of financial markets, labor disputes and other risks arising out of foreign governmental sovereignty over the areas in which our business is conducted. Our operations may also be adversely affected by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment.
If our operations are disrupted and/or the economic integrity of our contracts is threatened for unexpected reasons, our business may be harmed. In the event of a dispute arising in connection with our operations in a foreign jurisdiction where we conduct or will conduct our business, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. We may also be hindered or prevented from enforcing our rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, our activities in foreign jurisdictions could be substantially affected by factors beyond our control, any of which could have a material adverse effect on our business. We believe that our management is sufficiently experienced to manage these risks.
Regulation
We are subject to general business regulations and laws as well as regulations and laws specifically governing the internet, gaming, e-commerce and electronic devices. Existing and future laws and regulations may impede our growth or strategy. These regulations and laws cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, consumer protection, web services, wagering, the provision of online payment services, websites and the characteristics and quality or products and services. Unfavorable changes in regulations and laws could decrease demand for our events, online offering, and merchandise, increase our cost of doing business or otherwise have a material adverse effect on our reputation, popularity, results of operations and financial condition.
Share price fluctuations
The market price of our shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of our and our subsidiaries, divergence in financial results from analysts’ expectations, changes in earnings estimates by stock market analysts, changes in the business prospects of our and our subsidiaries, trading activities of market participants, including short sellers, general economic conditions, legislative changes, and other events and factors outside of our control. In addition, stock markets have from time-to-time experienced extreme price and volume fluctuations, which, as well as general economic and political conditions, could adversely affect the market price for our shares.
Limited market for Securities
There can be no assurance that an active and liquid market for our shares will be maintained, and an investor may find it difficult to resell our shares.
| Page 35 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
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Volatility of Revenues and Expenses
We may experience wide fluctuations in reported revenue and earnings from one period to another due to seasonality in revenue streams, short-term nature of some customer agreements and engagements, gain or loss of customer agreements, one-time other non-recurring revenues and expenses. Additionally, we may experience wide-fluctuations in revenues and expenses due to required accounting treatment of certain non-cash items, including the accounting treatment of the liability for our outstanding warrants and convertible debt. Because of the nascent nature and stage of some of our assets, investments, and intangibles, and difficulty in assessing their valuation, we may be required from time to time to impair, write down or otherwise adjust the carrying value of these assets, investments and intangibles, and such impairments and write-downs may have a material impact on our reported earnings.
Emerging diseases, like COVID-19, may adversely affect our operations, our suppliers, or our customers
Emerging diseases, like COVID-19, and government actions to address them, may adversely affect our operations, our suppliers, or our customers. The COVID-19 pandemic continues to evolve rapidly and, as a result, it is difficult to assess its continued magnitude, outcome and duration accurately, but it could:
| ● | worsen economic conditions, which could negatively impact access to capital; |
| ● | reduce consumer spending; |
Emerging diseases, like COVID-19, may adversely affect our operations, our suppliers, or our customers (cont’d)
| ● | limit our employees from travelling which could affect the execution of our business plan given the Company is multi- jurisdictional; or |
| ● | result in governmental regulation adversely impacting our business |
all of which could have a material adverse effect on our business, financial condition and results of operations, which could be rapid and unexpected.
Cybersecurity threats
A cyber incident is an intentional or unintentional event that could threatens the integrity, confidentiality or availability of the Company’s information resources. These events include, but are not limited to, unauthorized access to information systems, a disruption to our information systems, or loss of confidential information. Real’s primary risks that could result directly from the occurrence of a cyber incident include operational interruption, damage to our public image and reputation, and/or potentially impact the relationships with our customers.
We have implemented processes, procedures and controls to mitigate these risks, including, but not limited to, firewalls and antivirus programs and training and awareness programs on the risks of cyber incidents. These procedures and controls do not guarantee that the financial results may not be negatively impacted by such an incident.
Subsequent events
The Company has evaluated subsequent events from the balance sheet date through January 14, 2022, the date at which the unaudited interim condensed consolidated financial statements were available to be issued and determined there were no additional items to be disclosed.
| Page 36 of 37 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Management’s Discussion and Analysis (Expressed in United States Dollars) |
|
Management’s Responsibility for Financial Information
The Company’s financial statements and the other financial information included in this management report are the responsibility of the Company’s management and have been examined and approved by the Company’s audit committee and Board of Directors. The accompanying financial statements are prepared by management in accordance with IFRS and include certain amounts based on management’s best estimates using careful judgment. The selection of accounting principles and methods is management’s responsibility.
Management recognizes its responsibility for conducting the Company’s affairs in a manner to comply with the requirements of applicable laws and established financial standards and principles, and for maintaining proper standards of conduct in its activities. The Board of Directors supervises the financial statements and other financial information through its audit committee, which is comprised of four non-management directors.
This committee’s role is to examine the financial statements and recommend that the Board of Directors approve them, to examine the internal control and information protection systems and all other matters relating to the Company’s accounting and finances. In order to do so, the audit committee meets annually with the external auditors, with or without the Company’s management, to review their respective audit plans and discuss the results of their examination. This committee is responsible for recommending the appointment of the external auditors or the renewal of their engagement.
Additional information
This MD&A, as well as additional information regarding Engine, have been filed electronically with the Canadian securities regulators through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and may be accessed through SEDAR’s website at www.sedar.com and the Securities Exchange Commission (“SEC”) and may be accessed through the SEC’s website EDGAR at www.sec.gov.
| Page 37 of 37 |
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Louis Schwartz, Chief Executive Officer of Engine Gaming and Media, Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Engine Gaming and Media, Inc. (the “issuer”) for the interim period ended November 30, 2021.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial 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 other certifying officer(s) and I have, as at the end of the period covered by the interim filings
| a. | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| i. | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | |
| ii. | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| b. | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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 I used to design the issuer’s ICFR is Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 N/A
5.3 N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on August 31, 2021 and ended on November 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
| Date: January -14, 2022. | |
| “Louis Schwartz” | |
| Louis Schwartz | |
| Chief Executive Officer |
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Michael Munoz, Chief Financial Officer of Engine Gaming and Media, Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Engine Gaming and Media, Inc. (the “issuer”) for the interim period ended November 30, 2021.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial 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 other certifying officer(s) and I have, as at the end of the period covered by the interim filings
| a. | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| i. | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | |
| ii. | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| b. | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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 I used to design the issuer’s ICFR is Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 N/A
5.3 N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on August 31, 2021 and ended on November 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
| Date: January -14, 2022. | |
| “Michael Munoz” | |
| Michael Munoz | |
| Chief Financial Officer |
Exhibit 99.5
Engine Gaming & Media, Inc. Reports First Quarter Fiscal Year 2022 Financial Results
FY Q1’2022 Revenue of $14.3 million, up from $7.5 million in FY Q1’2021, an increase of 92% YoY
Sequential Quarterly revenue growth of 22% from $11.8 million in FY Q4’2021
to $14.3 million in FY Q1’2022
Cash position of $9.7 million with another $10.1 million in receivables
NEW YORK, January 13, 2022 — Engine Gaming and Media, Inc. (“Engine” or the “Company”; NASDAQ: GAME; TSX-V: GAME), an esports/sports social gaming, influencer marketing, and next-generation media solutions company, today announced results for its first quarter of fiscal year 2022 ended November 30, 2021. All amounts are stated in US dollars unless otherwise indicated.
Total revenue for FY Q1’2022 was $14.3 million, up from $7.5 million in FY Q1’2021, an increase of 92% YoY, and 22% higher than sequential FY Q4’2021 of $11.8 million.
For the 1st quarter ended November 30, 2021, Net loss was $(1.3) million, a decrease in loss of $4.7 million from FY Q1’2021 Net loss of $(6.0) million.
For the 1st quarter ended November 30, 2021, Adjusted EBITDA was $(5.0) million, an increase in loss of $100 thousand from FY Q1’2021 Adjusted EBITDA of $(4.9) million.
The Company had cash of $9.7 million and $10.1 million in receivables as of November 30, 2021. In addition, the Company had working capital surplus of $3.2 million after excluding non-cash warrant liability and arbitration reserve.
Key segment revenue growth that contributed to the strong revenue performance:
| ● | Software-as-a-Service: SaaS revenue for FY Q1’22 was $2.1 million, up from $1.4 million in FY Q1’21, an increase of 45% YoY and, 7% higher than sequential FY Q4’21 of $2.0 million. | |
| ● | Advertising: Advertising revenue for FY Q1’22 was $10.0 million. Advertising revenues grew 84% YoY, with FY Q1’21 revenues of $5.5 million and 14% quarter-over-quarter, with FY Q4’21 revenues of $8.8 million. | |
| ● | Games Development: Game development revenues for FY Q1’22 was $2.1 million. Game development revenues grew 320% YoY, with FY Q1’21 revenues of $0.5M and 157% quarter-over-quarter, with FY Q4’21 revenues of $0.8 million. |
Lou Schwartz, Chief Executive Officer of Engine, stated, “We are extremely gratified by the very significant revenue growth we have created throughout the Company. The continued significant year over year and quarter over quarter revenue growth, almost doubling from a year earlier, and almost all organic, is a real testament to the Engine teams’ efforts in driving the business forward on an accelerated basis”.
Tom Rogers, Executive Chairman of the Company added, “As social engagement increasingly defines both video game interaction and digital marketing innovation, our collection of assets continues to bring increasing focus of that attribute to the fore. Winview, UMG, Eden, Stream Hatchet and Sideqik all continue to differentiate their offerings relative to social gaming and marketing. With our continued, significant revenue growth, and investment in product enhancements to sustain that growth, in the course of one-year we have begun to show what the Engine assets are capable of representing in terms of substantially enhanced asset value. We believe with our plans for sustainable cash infusion, as the businesses begin to move toward profitability, the market will recognize the substantial opportunity for appreciation as the Engine “revs.”
Recent highlights from the Company’s operating businesses include:
| ● | Frankly Media - Frankly Media renewed its digital media agreement with its largest radio station operator that serves hundreds of owned and operated stations delivering premium content to over a quarter billion people each month. In addition, Frankly renewed its advertising representation agreement with Westwood One, which offers nationally syndicated sports, news and entertainment content to more than 250 million monthly listeners across an audio network of over 7,000+ affiliated broadcast radio stations and media partners. Lastly, advertising CPMs and RPMs increased by 25% and 75% respectively year-over-year | |
| ● | Sideqik - Sideqik’s leading influencer marketing and social commerce platform continues to scale, signing a multi-year extension with leading gaming hardware brand HyperX, recently acquired by HP, as well as onboarding global apparel leader Nike and multinational computer and phone hardware company ASUS to its long list of partners and clients. | |
| ● | Stream Hatchet - Stream Hatchet released its new sponsorship measurement technology, which contextualizes brand activations instream, providing partners tools to track, measure, and optimize activations within live-streaming environments, such as logo impressions on platforms like YouTube and Twitch. A major esports and AAA game publisher has already begun to utilize this new technology. In addition, Stream Hatchet has continued to grow its expanding client list, including StreamElements, the fastest growing provider of production, monetization, audience engagement, sponsorship, and influencer marketing tools and services for livestreams across Twitch, YouTube Live, Facebook Gaming, and Trovo. | |
| ● | UMG Gaming - UMG Gaming’s greatly enhanced production of Microsoft’s Gears Esports competition series debuted on the official Xbox Channel, driving over 250,000 of hours watched within the first split. In addition, Thrustmaster, a leading peripheral manufacturer, has joined Gears Esports, naming the ESWAP x PRO CONTROLLER as the official controller of Gears Esports, as well as taking title sponsorship of Play of the Day moments. |
| ● | Eden Games - Eden continues to extend its expertise in mobile gaming’s motorsport category, beginning development on a variety of different racing experiences with major game partners. In addition, Eden has received substantial interest from numerous parties since announcing its strategic process. | |
| ● | Winview - Since releasing, Pregame, a game mode that enables players to compete in game-of-skill contests prior to the start of a live sporting event, thus complementing its live play-along experience, player engagement has increased by 30%+. |
The Company also announced the addition of highly respected private equity fund manager Stu Porter, CEO of Denham Capital, and one of the Company’s largest investors, to its board of directors.
Additionally, the Company will host a conference call on Thursday January 13, 2022 at 4:30 p.m. Eastern Time to discuss its financial results in further detail. The conference call can be accessed at 877-407-0784 or for international callers at +1-201-689-8560
Engine Gaming and Media, Inc.
| Interim Condensed Consolidated Statements of Financial Position | November 30, 2021 | August 31, 2021 | ||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Current | ||||||||
| Cash | 9,678,803 | 15,305,996 | ||||||
| Restricted cash | 360,372 | 331,528 | ||||||
| Accounts and other receivables | 10,061,734 | 8,646,807 | ||||||
| Government remittances | 1,195,102 | 1,070,216 | ||||||
| Publisher advance, current | 3,055,401 | 3,197,102 | ||||||
| Prepaid expenses and other | 2,707,176 | 3,006,033 | ||||||
| 27,058,588 | 31,557,682 | |||||||
| Non-Current | ||||||||
| Publisher advance, non-current | 575,651 | 1,337,116 | ||||||
| Investment at FVTPL | 2,629,851 | 2,629,851 | ||||||
| Property and equipment | 389,104 | 403,811 | ||||||
| Goodwill | 18,466,209 | 18,495,121 | ||||||
| Intangible assets | 11,528,591 | 12,482,244 | ||||||
| Right-of-use assets | 490,582 | 557,022 | ||||||
| 34,079,988 | 35,905,165 | |||||||
| 61,138,576 | 67,462,847 | |||||||
| LIABILITIES | ||||||||
| Current | ||||||||
| Accounts payable | 9,610,276 | 10,403,665 | ||||||
| Accrued liabilities | 8,568,864 | 5,722,470 | ||||||
| Players liability account | 360,372 | 331,528 | ||||||
| Deferred revenue | 1,759,166 | 2,644,948 | ||||||
| Lease obligation, current | 198,663 | 222,583 | ||||||
| Long-term debt, current | 69,507 | 96,664 | ||||||
| Promissory notes payable | 753,652 | 821,948 | ||||||
| Warrant liability | 1,851,311 | 4,868,703 | ||||||
| Convertible debt, current | 2,557,504 | 914,427 | ||||||
| Arbitration reserve | 3,728,278 | 6,468,330 | ||||||
| 29,457,593 | 32,495,266 | |||||||
| Convertible debt, non-current | 5,628,060 | 9,037,069 | ||||||
| Lease obligation, non-current | 325,631 | 364,968 | ||||||
| 5,953,691 | 9,402,037 | |||||||
| 35,411,284 | 41,897,303 | |||||||
| SHAREHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
| Share capital | 123,422,989 | 122,741,230 | ||||||
| Contributed surplus | 18,459,260 | 17,819,933 | ||||||
| Foreign currency translation reserve | (2,154,607 | ) | (2,324,025 | ) | ||||
| Deficit | (114,168,493 | ) | (112,814,973 | ) | ||||
| 25,559,149 | 25,422,165 | |||||||
| Non-controlling interest | 168,143 | 143,379 | ||||||
| 25,727,292 | 25,565,544 | |||||||
| 61,138,576 | 67,462,847 | |||||||
Engine Gaming and Media, Inc.
| For the three months ended | ||||||||
| Interim Condensed Consolidated Statements of Loss and Comprehensive Loss | November 30, 2021 | November 30, 2020 | ||||||
| CONTINUING OPERATIONS | $ | $ | ||||||
| REVENUE | ||||||||
| Games development | 2,102,126 | 499,955 | ||||||
| Direct to consumer | 32,850 | 49,832 | ||||||
| Software-as-a-service | 2,080,710 | 1,436,997 | ||||||
| Advertising | 10,042,734 | 5,122,090 | ||||||
| Professional services | 91,058 | 357,517 | ||||||
| 14,349,478 | 7,466,391 | |||||||
| EXPENSES | ||||||||
| Salaries and wages | 5,000,546 | 3,777,476 | ||||||
| Consulting | 1,318,638 | 895,952 | ||||||
| Professional fees | 738,793 | 685,852 | ||||||
| Revenue sharing expense | 8,966,736 | 4,491,427 | ||||||
| Sponsorships and tournaments | 449,086 | 364,229 | ||||||
| Advertising and promotion | 512,365 | 859,826 | ||||||
| Office and general | 1,589,803 | 705,819 | ||||||
| Technology expenses | 731,071 | 580,854 | ||||||
| Amortization and depreciation | 1,042,847 | 1,416,140 | ||||||
| Share-based payments | 1,321,038 | 1,088,638 | ||||||
| Interest expense | 214,608 | 408,089 | ||||||
| Loss on foreign exchange | 166,251 | (37,249 | ) | |||||
| Transaction costs | 7,119 | - | ||||||
| Non-operational professional fees | 974,447 | - | ||||||
| Arbitration settlement reserve | (2,740,052 | ) | - | |||||
| Change in fair value of warrant liability | (2,941,546 | ) | (4,759,776 | ) | ||||
| Change in fair value of convertible debt | (1,683,172 | ) | 1,323,745 | |||||
| 15,668,578 | 11,801,022 | |||||||
| ASSOCIATES | ||||||||
| Share of net loss of associate | - | 66,686 | ||||||
| Net loss for the year before discontinued operations | (1,319,100 | ) | (4,401,317 | ) | ||||
| DISCONTINUED OPERATIONS | ||||||||
| Loss on disposal of Motorsports | - | (678,931 | ) | |||||
| Loss from discontinued operations | (9,656 | ) | (950,215 | ) | ||||
| Net loss | (1,328,756 | ) | (6,030,463 | ) | ||||
| Net (income) loss attributable to non-controlling interest | (24,764 | ) | 31,030 | |||||
| Net loss attributable to owners of the Company | (1,353,520 | ) | (5,999,433 | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Items that may be reclassified subsequently to profit or loss | ||||||||
| Foreign currency translation differences | 169,418 | 133,845 | ||||||
| Comprehensive loss for the year | (1,184,102 | ) | (5,865,588 | ) | ||||
| LOSS PER SHARE | ||||||||
| Basic loss per share - continuing operations | (0.09 | ) | (0.57 | ) | ||||
| Basic loss per share - discontinued operations | (0.00 | ) | (0.21 | ) | ||||
| Basic and diluted loss per share | (0.09 | ) | (0.78 | ) | ||||
| Weighted average number of shares outstanding - Basic | 15,565,638 | 7,699,907 | ||||||
Non-IFRS Measures
The Company reports earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA, which are not financial measures calculated and presented in accordance with International Financial Reporting Standards (“IFRS”) and therefore may not be comparable to similar measures presented by other issuers. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute to net income (loss) or any other financial measures of performance or liquidity calculated and presented in accordance with IFRS. The Company defines Adjusted EBITDA as EBITDA, adjusted to exclude certain non-cash charges and other items that we do not believe are reflective of our ongoing operating results. The Company utilizes Adjusted EBITDA internally for purposes of forecasting, determining compensation, and assessing the performance of our business, therefore, we believe this measure provides useful supplemental information that may assist investors in assessing an investment in the Company.
The following unaudited table presents the reconciliation of net loss to Adjusted EBITDA for the three months ended November 30, 2021 and 2020, respectively.
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| $ | $ | |||||||
| Net loss attributable to owners of the Company | (1,353,520 | ) | (5,999,433 | ) | ||||
| Interest expense | 214,608 | 408,089 | ||||||
| Amortization and depreciation | 1,042,847 | 1,416,140 | ||||||
| Share-based payments | 1,321,038 | 1,088,638 | ||||||
| Loss on foreign exchange | 166,251 | (37,249 | ) | |||||
| Transaction costs | 7,119 | - | ||||||
| Non-operational professional fees | 974,447 | - | ||||||
| Arbitration settlement reserve | (2,740,052 | ) | - | |||||
| Change in fair value of warrant liability | (2,941,546 | ) | (4,759,776 | ) | ||||
| Change in fair value of convertible debt | (1,683,172 | ) | 1,323,745 | |||||
| Share of net loss of associate | - | 66,686 | ||||||
| Loss on disposal of Motorsports | - | 678,931 | ||||||
| Loss from discontinued operations | 9,656 | 950,215 | ||||||
| Adjusted EBITDA | (4,982,324 | ) | (4,864,014 | ) | ||||
This earnings release should be read in conjunction with the Company’s Interim Condensed Consolidated Financial Statements and accompanying notes that will be made available on Engine’s investor relations site on January 14, 2022 which can be found at https://ir.enginemediainc.com/.
About Engine Gaming and Media, Inc.
Engine Gaming and Media, Inc. is traded publicly under the ticker symbol (NASDAQ: GAME) (TSX-V: GAME). Engine provides premium social sports and esports gaming experiences, as well as unparalleled data analytics, marketing, advertising, and intellectual property to support its owned and operated direct-to-consumer properties while also providing these services to enable its clients and partners. The company’s subsidiaries include Stream Hatchet, the global leader in gaming video distribution analytics; Sideqik, a social influencer marketing discovery, analytics, and activation platform; Eden Games, a premium motorsport video game developer and publisher across console and mobile gaming; WinView Games, a social predictive play-along gaming platform for viewers to play while watching live events; UMG, an end-to-end competitive esports platform powering and broadcasting major esports events, as well as daily community tournaments, matches, and ladders; and Frankly Media, a digital publishing platform used to create, distribute and monetize content across all digital channels. Engine Media generates revenue through a combination of direct-to-consumer and subscription fees, streaming technology and data SaaS-based offerings, programmatic advertising, and sponsorships.
Cautionary Statement on Forward-Looking Information
This news release contains forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Engine to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. In respect of the forward-looking information contained herein, Engine has provided such statements and information in reliance on certain assumptions that management believed to be reasonable at the time. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements stated herein to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Actual results could differ materially from those currently anticipated due to a number of factors and risks. Accordingly, readers should not place undue reliance on forward-looking information contained in this news release.
The forward-looking statements contained in this news release are made as of the date of this release and, accordingly, are subject to change after such date. Engine does not assume any obligation to update or revise any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf, except as required by applicable law.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Contacts
Investors
Ryan Lawrence, ICR
Ryan.Lawrence@icrinc.com
332-242-4321
Media
James Goldfarb, Sloane & Company
jgoldfarb@sloanepr.com
212-446-1869
Exhibit 99.6
Engine Gaming and Media Announces the Appointment of Stu Porter to the Board of Directors
NEW YORK, NY – January 13, 2022 – Engine Gaming and Media, Inc. (“Engine” or the “Company”; NASDAQ: GAME; TSX-V: GAME), an esports/sports social gaming, influencer marketing, and next-generation media solutions company, today announced the appointment of highly respected private equity fund manager Stuart “Stu” Porter to its Board of Directors, effective January 17th.
“We are excited to have Stu join Engine’s board as an independent director,” said Tom Rogers, Engine’s Executive Chairman. “Stu is one of Engine’s largest investors who brings more than three decades of experience as a highly successful investor who will provide very valuable perspective for the Engine board. I have found Stu’s insights to be extremely helpful as we continue to navigate the public markets, and look forward to relying on his service as we continue to grow Engine’s various businesses.”
Lori Conkling is resigning as a director due to expanded responsibility at YouTube that presents a potential conflict of interest in terms of the areas she oversees. Conkling stated, “While my time on the Board was short in tenure, I remain a long-term champion of the company.”
About Stuart “Stu” Porter
Stu Porter founded Denham Capital in 2004 and is its Chief Executive Officer and Chief Investment Officer. Mr. Porter holds a Bachelor of Arts from the University of Michigan and a Master of Business Administration from the University of Chicago Booth School of Business.
Mr. Porter brings three plus decades of experience evaluating, investing and advising companies. Additionally, Mr. Porter has significant global experience, managing offices in London and Perth Australia for Denham Capital as well as deploying investment capital across more than 75 portfolio companies in Africa, Australasia, and North and South America. In Mr. Porter’s previous roles as a founding partner of Sowood Capital Management LP and Vice President and Portfolio Manager at Harvard Management Company, Inc., as well as roles at Bacon Investments, J. Aron, a division of Goldman Sachs, and Cargill, he oversaw both trading and investment portfolios in energy in both the public and private sectors.
About Engine Gaming and Media, Inc.
Engine Gaming and Media, Inc. is traded publicly under the ticker symbol (NASDAQ: GAME) (TSX-V: GAME). Engine provides premium social sports and esports gaming experiences, as well as unparalleled data analytics, marketing, advertising, and intellectual property to support its owned and operated direct-to-consumer properties while also providing these services to enable its clients and partners. The Company’s subsidiaries include Stream Hatchet, the global leader in gaming video distribution analytics; Sideqik, a social influencer marketing discovery, analytics, and activation platform; Eden Games, a premium motorsport video game developer and publisher across console and mobile gaming; WinView Games, a social predictive play-along gaming platform for viewers to play while watching live events; UMG, an end-to-end competitive esports platform powering and broadcasting major esports events, as well as daily community tournaments, matches, and ladders; and Frankly Media, a digital publishing platform used to create, distribute and monetize content across all digital channels. Engine Media generates revenue through a combination of direct-to-consumer and subscription fees, streaming technology and data SaaS-based offerings, programmatic advertising, and sponsorships.
Cautionary Statement on Forward-Looking Information
This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws (together, “forward-looking information”). Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Engine to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. In respect of the forward-looking information contained herein, Engine has provided such information in reliance on certain assumptions that management believed to be reasonable at the time. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements stated herein to be materially different from any future results, performance or achievements expressed or implied by forward-looking information. Actual results could differ materially from those currently anticipated due to a number of factors and risks. Accordingly, readers should not place undue reliance on forward-looking information contained in this news release.
The forward-looking information contained in this news release are made as of the date of this release and, accordingly, are subject to change after such date. Engine does not assume any obligation to update or revise any forward-looking information, whether written or oral, that may be made from time to time by Engine or on its behalf, except as required by applicable law.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Contacts
Investors
Ryan Lawrence, ICR
Ryan.Lawrence@icrinc.com
332-242-4321
Media
James Goldfarb, Sloane & Company
jgoldfarb@sloanepr.com
212-446-1869