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Exhibit 99.1
ENGINE GAMING AND MEDIA, INC.
Interim Condensed Consolidated Financial Statements
(Unaudited)
For the three and six months ended
February 28, 2022 and February 28, 2021
(Expressed in United States Dollars)
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) |  |
Table of Contents
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) | |
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.
NOTICE TO READER
The Audit Committee, in consultation with management of the Company, has determined that the Company’s previously filed unaudited condensed consolidated interim financial statements and management’s discussion and analysis for the three and six months ended February 28, 2021, and 2020, required restating to classification, measurement and disclosure deficiencies related to the following items:
1. Warrants issued in connection with the private placement of units and conversion of convertible debt having USD exercise price – Adjustments resulted in a decrease to warrant liability of $16,793,280 and increase in contributed surplus of $11,343,367 as of February 28, 2021 and decrease in change in fair value of warrant liability (decrease of expense) of $5,449,914 for the three and six months ended February 28, 2021.
2. Share issuance costs incurred in the private placement of units – Adjustments resulted in decrease to contributed surplus of $582,333 as of February 28, 2021 and decrease to transaction costs of $582,333 for the three and six months ended February 28, 2021.
The previously filed financial statements and management’s discussion and analysis for the financial periods were originally filed by the Company on SEDAR on June 9, 2021.
Each of the Restated Unaudited Condensed Consolidated Interim Financial Statements and Restated MD&A contained within this filing for the three and six months ended February 28, 2021, and 2020 replaces and supersedes the respective previously filed original financial statements and related Management’s Discussion and Analysis. There have been no other changes. This notice supersedes the previously filed version.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Financial Position (Unaudited) (Expressed in United States Dollars) | |
| | | Note | | February 28,
2022 | | | August 31,
2021 | |
| | | | | $ | | | $ | |
| | | | | | | | | |
| ASSETS | | | | | | | | | | |
| Current | | | | | | | | | | |
| Cash | | | | | 5,348,900 | | | | 15,305,996 | |
| Restricted cash | | 13 | | | 326,932 | | | | 331,528 | |
| Accounts and other receivables | | 6 | | | 8,411,835 | | | | 8,646,807 | |
| Government remittances | | | | | 802,311 | | | | 1,070,216 | |
| Publisher advance, current | | 6 | | | 2,487,022 | | | | 3,197,102 | |
| Prepaid expenses and other | | | | | 2,183,642 | | | | 3,006,033 | |
| Assets held for sale - Eden | | 22 | | | 2,796,145 | | | | — | |
| Total current assets | | | | | 22,356,787 | | | | 31,557,682 | |
| Non-Current | | | | | | | | | | |
| Publisher advance, non-current | | 6 | | | 520,870 | | | | 1,337,116 | |
| Investment at FVTPL | | 7 | | | 2,629,851 | | | | 2,629,851 | |
| Property and equipment | | 8 | | | 167,253 | | | | 403,811 | |
| Goodwill | | 9 | | | 18,114,333 | | | | 18,495,121 | |
| Intangible assets | | 10 | | | 10,203,889 | | | | 12,482,244 | |
| Right-of-use assets | | 11 | | | 410,369 | | | | 557,022 | |
| Total Non-Current | | | | | 32,046,565 | | | | 35,905,165 | |
| Total assets | | | | | 54,403,352 | | | | 67,462,847 | |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Financial Position (Unaudited) (Expressed in United States Dollars) | |
| | | Note | | February 28,
2022 | | | August 31,
2021 | |
| | | | | $ | | | $ | |
| LIABILITIES | | | | | | | | |
| Current | | | | | | | | | | |
| Accounts payable | | | | | 12,649,445 | | | | 10,403,665 | |
| Accrued liabilities | | | | | 5,815,949 | | | | 5,722,470 | |
| Players liability account | | 13 | | | 326,932 | | | | 331,528 | |
| Deferred revenue | | | | | 1,175,563 | | | | 2,644,948 | |
| Lease obligation, current | | 12 | | | 155,543 | | | | 222,583 | |
| Long-term debt, current | | | | | - | | | | 96,664 | |
| Promissory notes payable | | 14 | | | 783,823 | | | | 821,948 | |
| Liabilities held for sale - Eden | | 22 | | | 1,651,793 | | | | - | |
| Warrant liability | | 16 | | | 859,187 | | | | 4,868,703 | |
| Convertible debt, current | | 15 | | | 2,584,800 | | | | 914,427 | |
| Arbitration reserve | | 21 | | | 2,519,722 | | | | 6,468,330 | |
| Total current liabilities | | | | | 28,522,757 | | | | 32,495,266 | |
| | | | | | | | | | | |
| Convertible debt, non-current | | 15 | | | 5,365,089 | | | | 9,037,069 | |
| Lease obligation, non-current | | 12 | | | 285,742 | | | | 364,968 | |
| Non-current liabilities | | | | | 5,650,831 | | | | 9,402,037 | |
| Total liabilities | | | | | 34,173,588 | | | | 41,897,303 | |
| | | | | | | | | | | |
| SHAREHOLDERS’ EQUITY (DEFICIENCY) | | | | | | | | | | |
| Share capital | | 17 | | | 123,422,989 | | | | 122,741,230 | |
| Contributed surplus | | | | | 19,714,586 | | | | 17,819,933 | |
| Foreign currency translation reserve | | | | | (2,219,166 | ) | | | (2,324,025 | ) |
| Deficit | | | | | (120,900,662 | ) | | | (112,814,973 | ) |
| Attributable to shareholders | | | | | 20,017,747 | | | | 25,422,165 | |
| Non-controlling interest | | | | | 212,017 | | | | 143,379 | |
| Total equity | | | | | 20,229,764 | | | | 25,565,544 | |
| Total liabilities and equity | | | | | 54,403,352 | | | | 67,462,847 | |
| Going concern | | 1 | | | | | | | | |
| Commitments and contingencies | | 21 | | | | | | | | |
| Subsequent events | | 27 | | | | | | | | |
| 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.
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) | |
| | | Note | | | February 28,
2022 | | | February 28,
2021 | | | February 28,
2022 | | | February 28,
2021 | |
| | | | | | For the three months ended | | | For the six months ended | |
| | | Note | | | February 28,
2022 | | | February 28,
2021 | | | February 28,
2022 | | | February 28,
2021 | |
| CONTINUING OPERATIONS | | | | | | | $ | | | | $ | | | | $ | | | | $ | |
| REVENUE | | | | | | | | | | | | | | | | | | | | |
| Direct to consumer | | | | | | | 267,035 | | | | 133,942 | | | | 299,885 | | | | 183,774 | |
| Software-as-a-service | | | | | | | 1,811,573 | | | | 1,444,934 | | | | 3,892,283 | | | | 2,881,931 | |
| Advertising | | | | | | | 7,125,160 | | | | 6,005,573 | | | | 17,167,894 | | | | 11,458,043 | |
| Professional services | | | | | | | 61,293 | | | | 114,958 | | | | 152,351 | | | | 142,095 | |
| Net revenue | | | | | | | 9,265,061 | | | | 7,699,407 | | | | 21,512,413 | | | | 14,665,843 | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Salaries and wages | | | | | | | 4,682,243 | | | | 3,854,091 | | | | 8,789,869 | | | | 6,763,991 | |
| Consulting | | | | | | | 975,523 | | | | 557,120 | | | | 1,872,076 | | | | 1,295,056 | |
| Professional fees | | | | | | | 828,948 | | | | 442,055 | | | | 1,567,741 | | | | 1,127,907 | |
| Revenue sharing expense | | | | | | | 6,291,112 | | | | 5,117,302 | | | | 15,257,848 | | | | 9,608,729 | |
| Sponsorships and tournaments | | | | | | | 236,046 | | | | 87,247 | | | | 685,132 | | | | 451,476 | |
| Advertising and promotion | | | | | | | 556,772 | | | | 515,704 | | | | 1,069,137 | | | | 1,375,530 | |
| Office and general | | | | | | | 1,385,844 | | | | 510,480 | | | | 2,800,153 | | | | 1,088,009 | |
| Technology expenses | | | | | | | 706,302 | | | | 645,803 | | | | 1,437,373 | | | | 1,226,657 | |
| Amortization and depreciation | | | 8,10,11 | | | | 907,224 | | | | 873,020 | | | | 1,836,976 | | | | 1,728,890 | |
| Impairment expense | | | 8, 10 | | | | 266,470 | | | | - | | | | 266,470 | | | | - | |
| Restructuring Costs | | | 26 | | | | 126,286 | | | | - | | | | 126,286 | | | | - | |
| Share-based payments | | | 18, 19 | | | | 1,255,326 | | | | 690,300 | | | | 2,576,412 | | | | 1,779,688 | |
| Interest expense | | | | | | | 212,278 | | | | 563,904 | | | | 422,934 | | | | 953,678 | |
| (Gain) loss on foreign exchange | | | | | | | (10,431 | ) | | | 161,662 | | | | 123,016 | | | | 263,783 | |
| Loss on extinguishment of debt | | | | | | | - | | | | 2,428,900 | | | | - | | | | 2,428,900 | |
| Gain on retained interest in former associate | | | | | | | - | | | | (99,961 | ) | | | - | | | | (99,961 | ) |
| Transaction costs | | | | | | | 349,404 | | | | — | | | | 356,523 | | | | — | |
| Non-operational professional fees | | | | | | | 625,944 | | | | - | | | | 1,600,391 | | | | - | |
| Arbitration settlement reserve | | | 21 | | | | (1,208,556 | ) | | | - | | | | (3,948,608 | ) | | | - | |
| Change in fair value of warrant liability | | | 16 | | | | (998,757 | ) | | | 4,924,789 | | | | (3,940,303 | ) | | | 165,013 | |
| Change in fair value of convertible debt | | | 15 | | | | (293,762 | ) | | | 6,539,904 | | | | (1,976,934 | ) | | | 7,863,649 | |
| Total | | | | | | | 16,894,216 | | | | 27,812,320 | | | | 30,922,492 | | | | 38,020,995 | |
| ASSOCIATES | | | | | | | | | | | | | | | | | | | | |
| Share of net loss of associate | | | | | | | - | | | | 37,244 | | | | - | | | | 103,930 | |
| Net loss for the period before discontinued operations | | | | | | | (7,629,155 | ) | | | (20,150,157 | ) | | | (9,410,079 | ) | | | (23,459,082 | ) |
| Income tax expense | | | | | | | | | | | | | | | - | | | | - | |
| Net loss after taxes | | | | | | | (7,629,155 | ) | | | (20,150,157 | ) | | | (9,410,079 | ) | | | (23,459,082 | ) |
| DISCONTINUED OPERATIONS | | | | | | | | | | | | | | | | | | | | |
| Loss on disposal of Motorsports | | | 22 | | | | - | | | | - | | | | - | | | | (678,931 | ) |
| Gain (Loss) from discontinued operations | | | 22 | | | | 940,860 | | | | (1,227,748 | ) | | | 1,393,028 | | | | (3,270,355 | ) |
| Net loss for the period | | | | | | | (6,688,295 | ) | | | (21,377,905 | ) | | | (8,017,051 | ) | | | (27,408,368 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net (income) loss attributable to non-controlling interest | | | | | | | (43,874 | ) | | | 30,640 | | | | (68,638 | ) | | | 61,670 | |
| Net loss attributable to owners of the Company | | | | | | | (6,732,169 | ) | | | (21,347,265 | ) | | | (8,085,689 | ) | | | (27,346,698 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | | | | | | | | | | | | | | |
| Items that may be reclassified subsequently to profit or loss | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation differences | | | | | | | (64,559 | ) | | | (138,444 | ) | | | 104,859 | | | | (4,599 | ) |
| Comprehensive loss for the period | | | | | | | (6,796,728 | ) | | | (21,485,709 | ) | | | (7,980,830 | ) | | | (27,351,297 | ) |
| INCOME (LOSS) PER SHARE | | | | | | | | | | | | | | | | | | | | |
| Basic loss per share - continuing operations | | | 5 | | | | (0.49 | ) | | | (1.99 | ) | | | (0.61 | ) | | | (2.63 | ) |
| Basic Income (loss) per share - discontinued operations | | | 5 | | | | 0.06 | | | | (0.12 | ) | | | 0.09 | | | | (0.44 | ) |
| Basic and diluted loss per share | | | 5 | | | | (0.43 | ) | | | (2.11 | ) | | | (0.52 | ) | | | (3.08 | ) |
| Weighted average number of shares outstanding - Basic | | | 5 | | | | 15,634,944 | | | | 10,095,276 | | | | 15,600,100 | | | | 8,890,974 | |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Shareholders’ Equity (Deficiency) (Unaudited) (Expressed in United States Dollars) | |
| | | 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 | | | 7,746,136 | | | | 69,380,807 | | | | 1,059,214 | | | | 4,034,323 | | | | (2,334,275 | ) | | | (72,094,162 | ) | | | 45,907 | | | | 217,385 | | | | 263,292 | |
| Share-based payments | | | - | | | | - | | | | - | | | | 1,778,633 | | | | - | | | | - | | | | 1,778,633 | | | | - | | | | 1,778,633 | |
| Shares issued on vesting of RSUs | | | 142,610 | | | | 970,366 | | | | - | | | | (790,366 | ) | | | - | | | | - | | | | 180,000 | | | | - | | | | 180,000 | |
| Convertible debt conversion | | | 1,542,184 | | | | 11,911,875 | | | | - | | | | 4,121,208 | | | | - | | | | - | | | | 16,033,083 | | | | - | | | | 16,033,083 | |
| Common shares issued on private placement, net of costs | | | 4,435,433 | | | | 24,225,901 | | | | - | | | | 6,791,473 | | | | - | | | | - | | | | 31,017,374 | | | | - | | | | 31,017,374 | |
| Warrants issued in private placement of convertible debt | | | - | | | | - | | | | - | | | | 618,916 | | | | - | | | | - | | | | 618,916 | | | | - | | | | 618,916 | |
| EB bonus shares | | | 6,666 | | | | 54,061 | | | | - | | | | - | | | | - | | | | - | | | | 54,061 | | | | - | | | | 54,061 | |
| Shares for debt | | | 40,000 | | | | 226,556 | | | | - | | | | - | | | | - | | | | - | | | | 226,556 | | | | - | | | | 226,556 | |
| Common shares issued on exercise of warrants | | | 37,991 | | | | 367,159 | | | | - | | | | - | | | | - | | | | - | | | | 367,159 | | | | - | | | | 367,159 | |
| Disposal of Motorsports | | | - | | | | - | | | | (1,059,214 | ) | | | - | | | | - | | | | - | | | | (1,059,214 | ) | | | - | | | | (1,059,214 | ) |
| Non-controlling interest in subsidiary | | | - | | | | - | | | | - | | | | (7,398 | ) | | | - | | | | - | | | | (7,398 | ) | | | - | | | | (7,398 | ) |
| Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | (27,346,698 | ) | | | (27,346,698 | ) | | | (61,670 | ) | | | (27,408,368 | ) |
| Foreign currency translation differences | | | - | | | | - | | | | - | | | | - | | | | (4,599 | ) | | | - | | | | (4,599 | ) | | | - | | | | (4,599 | ) |
| Balance, as at February 28, 2021 | | | 13,951,020 | | | | 107,136,725 | | | | - | | | | 16,546,789 | | | | (2,338,874 | ) | | | (99,440,860 | ) | | | 21,903,780 | | | | 155,715 | | | | 22,059,495 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, as at August 31, 2021 | | | 15,543,309 | | | | 122,741,230 | | | | - | | | | 17,819,933 | | | | (2,324,025 | ) | | | (112,814,973 | ) | | | 25,422,165 | | | | 143,379 | | | | 25,565,544 | |
| Share-based payments | | | - | | | | - | | | | - | | | | 2,576,412 | | | | - | | | | - | | | | 2,576,412 | | | | - | | | | 2,576,412 | |
| Shares issued on vesting of RSUs | | | 91,635 | | | | 681,759 | | | | - | | | | (681,759 | ) | | | - | | | | - | | | | - | | | | - | | | | - | |
| Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | (8,085,689 | ) | | | (8,085,689 | ) | | | 68,638 | | | | (8,017,051 | ) |
| Foreign currency translation differences | | | - | | | | - | | | | - | | | | - | | | | 104,859 | | | | - | | | | 104,859 | | | | - | | | | 104,859 | |
| Balance, as at February 28, 2022 | | | 15,634,944 | | | | 123,422,989 | | | | - | | | | 19,714,586 | | | | (2,219,166 | ) | | | (120,900,662 | ) | | | 20,017,747 | | | | 212,017 | | | | 20,229,764 | |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Cash Flows (Unaudited) (Expressed in United States Dollars) | |
| | | Note | | February 28,
2022 | | | February 28,
2021 | |
| | | | | For the six months ended | |
| | | Note | | February 28,
2022 | | | February 28,
2021 | |
| | | | | | $ | | | | $ | |
| OPERATING ACTIVITIES | | | | | | | | | | |
| Net loss for the period before non-controlling interest | | | | | (8,017,051 | ) | | | (27,408,368 | ) |
| Items not affecting cash: | | | | | | | | | | |
| Amortization and depreciation | | 8,10,11 | | | 2,059,965 | | | | 3,148,259 | |
| Impairment expense | | | | | 266,470 | | | | - | |
| Arbitration settlement reserve | | 21 | | | (3,948,608 | ) | | | - | |
| Loss on disposal of Motorsports | | 22 | | | - | | | | 678,931 | |
| Loss on disposal of P&E | | | | | - | | | | 9,767 | |
| Loss on extinguishment of debt | | | | | - | | | | 2,428,900 | |
| Gain on retained interest in former associate | | | | | - | | | | (99,961 | ) |
| Share of net loss of associate | | | | | - | | | | 103,930 | |
| Change in fair value of warrant liability | | 16 | | | (3,940,303 | ) | | | 165,013 | |
| Change in fair value of convertible debt | | 15 | | | (1,976,934 | ) | | | 7,863,649 | |
| Accretion of debt | | | | | 4,610 | | | | 99,231 | |
| Share-based payments | | 18,19 | | | 2,576,412 | | | | 1,778,633 | |
| Total Adjustments | | | | | (12,975,439 | ) | | | (11,232,016 | ) |
| Changes in non-cash working capital: | | | | | | | | | | |
| Restricted cash | | | | | 4,596 | | | | 67,458 | |
| Accounts and other receivables | | | | | (884,149 | ) | | | (1,205,489 | ) |
| Government remittances | | | | | (393,867 | ) | | | 146,973 | |
| Publisher advance | | 6 | | | 1,526,326 | | | | (4,858,645 | ) |
| Prepaid expenses and other | | | | | 784,145 | | | | 391,278 | |
| Held for sale - Eden | | | | | (275,191 | ) | | | - | |
| Accounts payable | | | | | 2,923,555 | | | | (480,988 | ) |
| Accrued liabilities | | | | | 942,053 | | | | 592,225 | |
| Players liability account | | | | | (4,596 | ) | | | (67,458 | ) |
| Deferred revenue | | | | | (1,469,385 | ) | | | 735,943 | |
| Changes in non-cash working capital | | | | | 3,153,487 | | | | (4,678,703 | ) |
| Net cash used in operating activities | | | | | (9,821,952 | ) | | | (15,910,719 | ) |
| INVESTING ACTIVITIES | | | | | | | | | | |
| Purchase of property and equipment | | | | | (47,671 | ) | | | (90,013 | ) |
| Cash from disposal of Motorsports | | | | | - | | | | 24,348 | |
| Net cash used in investing activities | | | | | (47,671 | ) | | | (65,665 | ) |
| FINANCING ACTIVITIES | | | | | | | | | | |
| Net proceeds from issuance of Units | | 15 | | | - | | | | 31,017,374 | |
| Proceeds from convertible debentures | | | | | - | | | | 4,901,393 | |
| Net (payments) proceeds from promissory notes payable | | 14 | | | (38,125 | ) | | | (2,478,080 | ) |
| Proceeds from exercise of warrants | | 16 | | | - | | | | 258,156 | |
| Payments on lease financing | | 12 | | | (141,077 | ) | | | (109,875 | ) |
| Payments on long-term debt | | | | | (50,714 | ) | | | (107,967 | ) |
| Net cash provided by financing activities | | | | | (229,916 | ) | | | 33,481,001 | |
| Impact of foreign exchange on cash | | | | | 142,443 | | | | 13,986 | |
| Change in cash | | | | | (9,957,096 | ) | | | 17,518,603 | |
| | | | | | | | | | | |
| Cash, beginning of period | | | | | 15,305,996 | | | | 5,243,278 | |
| Cash, end of quarter | | | | | 5,348,900 | | | | 22,761,881 | |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) (Expressed in United States Dollars) | |
| 1. | Corporate information and going concern |
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.
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 $120,900,662 as of February 28, 2022 (August 31, 2021 –$112,814,973). The recoverability of the carrying value of the assets and the Company’s continued existence is dependent upon the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary. 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. On April 7, 2022, the Company announced the completion of the sale of the Eden Games Business. The proceeds from this sale when combined with cash on hand will be more than sufficient to meet the Company’s current operational and debt service cash needs. As of February 28, 2022, the Company had a working capital deficiency of $6,165,970 (August 31, 2021 – working capital deficiency of $937,584) which is comprised of current assets minus current liabilities. The Company also faces uncertain future impacts from COVID-19, see Note 3(b).
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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| (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.
These interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of the Company on April 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 February 28, 2022, are as follows:
Schedule of material subsidiaries
| Name of Subsidiary | | Country of Incorporation | | Ownership Percentage | | Functional Currency |
| Frankly Inc. | | Canada | | 100% | | Canadian Dollar |
| UMG Media Ltd. | | Canada | | 100% | | Canadian Dollar |
| Eden Games S.A. | | France | | 96% | | Euro |
| Stream Hatchet S.L. | | Spain | | 100% | | Euro |
| SideQik, Inc. | | USA | | 100% | | US Dollar |
| WinView, Inc. | | USA | | 100% | | US Dollar |
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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| (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”).
The Company had no income tax expense for the three and six months ended February 28, 2022, and 2021. As of February 28, 2022, deferred tax assets have not been recognized because it has not been determined as probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.
| 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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| (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 |
Accounting pronouncements adopted during the period
IFRS 37 Provisions, Contingent Liabilities and Contingent Assets (“IFRS 37”)
In May 2020 the International Accounting Standards Board issued Onerous Contracts-Cost of Fulfilling a Contract. This amended IFRS 37 to clarify that for the purpose of assessing whether a contract is onerous, the cost of fulfilling the contract includes both the incremental costs of fulfilling that contract and an allocation of other costs that relate directly to fulfilling contracts. This Standard defines an onerous contract as a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. If an entity has a contract that is onerous, the present obligation under the contract shall be recognized and measured as a provision. The amended standard was adopted on January 1, 2022, resulting in no changes to the Company’s condensed interim consolidated financial statements.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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 1 - Classification of liabilities as current or non-current
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies
Amendments to IAS 8 - Definition of Accounting Estimates
Amendments to IAS 12 Income Taxes - Deferred Tax Related to Assets and liabilities Arising from a Single Transaction
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.
| 5. | Net income (loss) per share |
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 and six months ended February 28, 2022, and 2021, 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 and six months ended February 28, 2022, and 2021 were 15,634,944 and 15,600,100, respectively (February 28, 2021- 10,095,276 and 8,890,974), respectively.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| 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
| | | February 28,
2022 | | | August 31,
2021 | |
| | | | $ | | | | $ | |
| | | | | | | | | |
| Trade accounts receivable | | | 9,446,028 | | | | 9,677,725 | |
| Other receivables | | | 50,112 | | | | 53,387 | |
| Allowance for doubtful accounts | | | (1,084,305 | ) | | | (1,084,305 | ) |
| Total accounts and other receivables | | | 8,411,835 | | | | 8,646,807 | |
A continuity of the Company’s allowance for doubtful accounts is as follows:
Schedule of allowance for doubtful accounts
| | | 2022 | | | 2021 | |
| | | | $ | | | | $ | |
| | | | | | | | | |
| Balance, August 31, | | | (1,084,305 | ) | | | (874,438 | ) |
| Provision, bad debt expense | | | - | | | | (72,636 | ) |
| Write-offs | | | - | | | | 2,250 | |
| Balance, February 28, | | | (1,084,305 | ) | | | (944,824 | ) |
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 $6 million of revenue sharing payments to the publisher under the following schedule:
| | (i) | $4 million within one day of execution of the amendment; |
| | (ii) | $1 million on or before February 28, 2021; and |
| | (iii) | $1 million on or before March 31, 2021. |
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 February 28, 2022, $6 million had been advanced to the publisher and $2,992,108 had been recouped through the process explained above. As of February 28, 2022, a net amount of $3,007,892 was outstanding on the advance.
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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
On August 25, 2020, the Company acquired a 20.48% interest in One Up Group, LLC (“One Up”). One Up operates a mobile app which allows gamers to organize and play one-on-one matches with other gamers and compete for money.
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 $103,930.
On January 5, 2021, the Company’s interest in One Up was reduced to 18.62% as a result of One Up closing a financing round. In accordance with IAS 28, the Company discontinued the use of the equity method on January 5, 2021, the date at which its investment ceased being an associate. The difference between the fair value of the Company’s retained interest in One Up and it’s carrying value on January 5, 2021, amounted to $99,961, which is recognized as a gain on retained interest in former associate on the Company’s statement of loss and comprehensive loss.
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, see Note 25. The fair value of this investment was $2,629,851 on February 28, 2022, and August 31, 2021.
Disclosure of detailed information about property plant and equipment
| Cost | | Leasehold
improvements | | | Computer equipment | | | Furniture
and fixtures | | | Total | |
| | | | $ | | | | $ | | | | $ | | | | $ | |
| | | | | | | | | | | | | | | | | |
| August 31, 2020 | | | 221,653 | | | | 486,340 | | | | 173,091 | | | | 881,084 | |
| Additions | | | - | | | | 74,598 | | | | 15,415 | | | | 90,013 | |
| Disposals | | | - | | | | (9,767 | ) | | | - | | | | (9,767 | ) |
| Disposal of Motorsports | | | (2,631 | ) | | | (47,645 | ) | | | (18,118 | ) | | | (68,394 | ) |
| Impairment | | | | | | | | | | | | | | | | |
| Held for sale - Eden Games | | | | | | | | | | | | | | | | |
| Effect of foreign exchange | | | - | | | | 2,660 | | | | (162 | ) | | | 2,498 | |
| February 28, 2021 | | | 219,022 | | | | 506,186 | | | | 170,226 | | | | 895,434 | |
| | | | | | | | | | | | | | | | | |
| August 31, 2021 | | | 218,851 | | | | 603,607 | | | | 173,044 | | | | 995,502 | |
| Property and equipment, cost, beginning balance | | | 218,851 | | | | 603,607 | | | | 173,044 | | | | 995,502 | |
| Additions | | | - | | | | 46,111 | | | | 1,560 | | | | 47,671 | |
| Impairment | | | (153,193 | ) | | | - | | | | - | | | | (153,193 | ) |
| Held for sale - Eden Games | | | (7,613 | ) | | | (323,150 | ) | | | (53,910 | ) | | | (384,673 | ) |
| Foreign exchange | | | 1,216 | | | | (20,606 | ) | | | (3,076 | ) | | | (22,466 | ) |
| February 28, 2022 | | �� | 59,261 | | | | 305,962 | | | | 117,618 | | | | 482,841 | |
| Property and equipment, cost, ending balance | | | 59,261 | | | | 305,962 | | | | 117,618 | | | | 482,841 | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| Accumulated depreciation | | Leasehold improvements | | | Computer equipment | | | Furniture and fixtures | | | Total | |
| | | | $ | | | | $ | | | | $ | | | | $ | |
| | | | | | | | | | | | | | | | | |
| August 31, 2020 | | | 57,517 | | | | 307,508 | | | | 106,670 | | | | 471,695 | |
| Depreciation | | | 2,214 | | | | 50,531 | | | | 13,142 | | | | 65,887 | |
| Disposal of Motorsports | | | - | | | | (11,068 | ) | | | (9,910 | ) | | | (20,978 | ) |
| Held for sale - Eden Games | | | | | | | | | | | | | | | | |
| Foreign exchange | | | 59 | | | | 2,639 | | | | 37 | | | | 2,735 | |
| February 28, 2021 | | | 59,790 | | | | 349,610 | | | | 109,939 | | | | 519,339 | |
| | | | | | | | | | | | | | | | | |
| August 31, 2021 | | | 63,367 | | | | 406,231 | | | | 122,093 | | | | 591,691 | |
| Accumulated depreciation, beginning balance | | | 63,367 | | | | 406,231 | | | | 122,093 | | | | 591,691 | |
| Depreciation | | | 3,725 | | | | 54,281 | | | | 12,909 | | | | 70,915 | |
| Held for sale - Eden Games | | | (7,361 | ) | | | (285,353 | ) | | | (48,392 | ) | | | (341,106 | ) |
| Foreign exchange | | | (470 | ) | | | (2,734 | ) | | | (2,708 | ) | | | (5,912 | ) |
| February 28, 2022 | | | 59,261 | | | | 172,425 | | | | 83,902 | | | | 315,588 | |
| Accumulated depreciation, ending balance | | | 59,261 | | | | 172,425 | | | | 83,902 | | | | 315,588 | |
| Net book value | | Leasehold
improvements | | | Computer equipment | | | Furniture
and fixtures | | | Total | |
| | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | |
| August 31, 2021 | | | 155,484 | | | | 197,376 | | | | 50,951 | | | | 403,811 | |
| February 28, 2022 | | | - | | | | 133,537 | | | | 33,716 | | | | 167,253 | |
| Property and equipment, net book value | | | - | | | | 133,537 | | | | 33,716 | | | | 167,253 | |
Disclosure of detailed information about goodwill
| | | 2022 | | | 2021 | |
| | | | $ | | | | $ | |
| | | | | | | | | |
| Balance, August 31, | | | 18,495,121 | | | | 18,785,807 | |
| Held for sale - Eden Games | | | (345,150 | ) | | | - | |
| Effect of foreign exchange | | | (35,638 | ) | | | 30,564 | |
| Balance, February 28, | | | 18,114,333 | | | | 18,816,371 | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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 | | | 9,430,265 | | | | 1,322,802 | | | | 10,763,975 | | | | 2,310,475 | | | | 3,671,954 | | | | 27,499,471 | |
| Disposal of Motorsports | | | - | | | | - | | | | (3,598,869 | ) | | | (201,627 | ) | | | (222,650 | ) | | | (4,023,146 | ) |
| Foreign exchange and other | | | - | | | | 22,001 | | | | 349,861 | | | | 109,143 | | | | 4,149 | | | | 485,154 | |
| Impairment | | | | | | | | | | | | | | | | | | | | | | | | |
| Held for Sale - Eden | | | | | | | | | | | | | | | | | | | | | | | | |
| February 28, 2021 | | | 9,430,265 | | | | 1,344,803 | | | | 7,514,967 | | | | 2,217,991 | | | | 3,453,453 | | | | 23,961,479 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2021 | | | 9,430,265 | | | | 1,073,045 | | | | 8,330,683 | | | | 2,137,449 | | | | 3,624,300 | | | | 24,595,742 | |
| Intangible Assets, Balance | | | 9,430,265 | | | | 1,073,045 | | | | 8,330,683 | | | | 2,137,449 | | | | 3,624,300 | | | | 24,595,742 | |
| Impairment | | | - | | | | (50,602 | ) | | | - | | | | (62,675 | ) | | | - | | | | (113,277 | ) |
| Held for Sale - Eden | | | - | | | | (269,098 | ) | | | (4,709,219 | ) | | | (1,390,134 | ) | | | (273,552 | ) | | | (6,642,003 | ) |
| Foreign exchange and other | | | - | | | | (14,450 | ) | | | (271,030 | ) | | | (78,718 | ) | | | (14,688 | ) | | | (378,886 | ) |
| February 28, 2022 | | | 9,430,265 | | | | 738,895 | | | | 3,350,434 | | | | 605,922 | | | | 3,336,060 | | | | 17,461,576 | |
| Intangible Assets, Balance | | | 9,430,265 | | | | 738,895 | | | | 3,350,434 | | | | 605,922 | | | | 3,336,060 | | | | 17,461,576 | |
| Accumulated amortization | | Patents | | | Application Platforms | | | Software | | | Brand | | | Customer
Lists and
Contracts | | | Total | |
| | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2020 | | | 628,684 | | | | 793,041 | | | | 4,909,000 | | | | 1,077,491 | | | | 648,933 | | | | 8,057,149 | |
| Amortization | | | 943,026 | | | | 104,273 | | | | 1,377,922 | | | | 249,007 | | | | 324,170 | | | | 2,998,398 | |
| Disposal of Motorsports | | | - | | | | - | | | | (532,412 | ) | | | (201,627 | ) | | | (222,650 | ) | | | (956,689 | ) |
| Foreign exchange | | | - | | | | 18,157 | | | | 316,406 | | | | 51,573 | | | | (81,971 | ) | | | 304,165 | |
| Held for Sale - Eden | | | | | | | | | | | | | | | | | | | | | | | | |
| February 28, 2021 | | | 1,571,710 | | | | 915,471 | | | | 6,070,916 | | | | 1,176,444 | | | | 668,482 | | | | 10,403,023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2021 | | | 2,514,737 | | | | 966,444 | | | | 6,340,302 | | | | 1,375,647 | | | | 916,368 | | | | 12,113,498 | |
| Intangible Assets, Amortization, Balance | | | 2,514,737 | | | | 966,444 | | | | 6,340,302 | | | | 1,375,647 | | | | 916,368 | | | | 12,113,498 | |
| Amortization | | | 943,026 | | | | 56,000 | | | | 424,336 | | | | 199,413 | | | | 238,561 | | | | 1,861,336 | |
| Held for Sale - Eden | | | - | | | | (269,098 | ) | | | (4,709,219 | ) | | | (1,112,108 | ) | | | (254,960 | ) | | | (6,345,385 | ) |
| Foreign exchange | | | - | | | | (14,451 | ) | | | (271,030 | ) | | | (58,913 | ) | | | (27,368 | ) | | | (371,762 | ) |
| February 28, 2022 | | | 3,457,763 | | | | 738,895 | | | | 1,784,389 | | | | 404,039 | | | | 872,601 | | | | 7,257,687 | |
| Intangible Assets, Amortization, Balance | | | 3,457,763 | | | | 738,895 | | | | 1,784,389 | | | | 404,039 | | | | 872,601 | | | | 7,257,687 | |
| Net book value | | | Patents | | | | Application Platforms | | | | Software | | | | Brand | | | | Customer
Lists and
Contracts | | | | Total | |
| | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2021 | | | 6,915,528 | | | | 106,601 | | | | 1,990,381 | | | | 761,802 | | | | 2,707,932 | | | | 12,482,244 | |
| Intangible assets other than goodwill, Beginning balance | | | 6,915,528 | | | | 106,601 | | | | 1,990,381 | | | | 761,802 | | | | 2,707,932 | | | | 12,482,244 | |
| February 28, 2022 | | | 5,972,502 | | | | - | | | | 1,566,045 | | | | 201,883 | | | | 2,463,459 | | | | 10,203,889 | |
| Intangible assets other than goodwill, Ending balance | | | 5,972,502 | | | | - | | | | 1,566,045 | | | | 201,883 | | | | 2,463,459 | | | | 10,203,889 | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
Disclosure of detailed information about right-of-use assets
| | | 2022 | | | 2021 | |
| | | | $ | | | | $ | |
| | | | | | | | | |
| Balance, August 31, | | | 557,022 | | | | 550,478 | |
| Acquired | | | - | | | | - | |
| Depreciation | | | (127,714 | ) | | | (83,974 | ) |
| Held for sale - Eden Games | | | (16,480 | ) | | | - | |
| Effect of foreign exchange | | | (2,459 | ) | | | 1,409 | |
| Balance, February 28, | | | 410,369 | | | | 467,913 | |
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.
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:
| | | Equipment | | | Office lease | | | Total | |
| | | | $ | | | | $ | | | | $ | |
| | | | | | | | | | | | | |
| Balance, August 31, 2020 | | | 35,457 | | | | 536,691 | | | | 572,148 | |
| Acquired | | | - | | | | - | | | | - | |
| Interest expense | | | 1,078 | | | | 17,507 | | | | 18,585 | |
| Payments | | | (6,690 | ) | | | (103,185 | ) | | | (109,875 | ) |
| Effect of foreign exchange | | | - | | | | 1,453 | | | | 1,453 | |
| Balance, February 28, 2021 | | | 29,845 | | | | 452,466 | | | | 482,311 | |
| | | | | | | | | | | | | |
| Balance, August 31, 2021 | | | 24,048 | | | | 563,503 | | | | 587,551 | |
| Acquired | | | - | | | | - | | | | - | |
| Held for sale - Eden Games | | | - | | | | (18,456 | ) | | | (18,456 | ) |
| Interest expense | | | 701 | | | | 15,262 | | | | 15,963 | |
| Payments | | | (6,690 | ) | | | (134,387 | ) | | | (141,077 | ) |
| Effect of foreign exchange | | | - | | | | (2,696 | ) | | | (2,696 | ) |
| Balance, February 28, 2022 | | | 18,059 | | | | 423,226 | | | | 441,285 | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (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 February 28, 2021: | | | | | | | | | | | | |
| Less than one year | | | 11,785 | | | | 182,773 | | | | 194,558 | |
| Greater than one year | | | 18,060 | | | | 269,693 | | | | 287,753 | |
| Total lease obligation | | | 29,845 | | | | 452,466 | | | | 482,311 | |
| | | | Equipment | | | | Office lease | | | | Total | |
| | | | $ | | | | $ | | | | $ | |
| As of February 28, 2022: | | | | | | | | | | | | |
| Less than one year | | | 12,575 | | | | 142,968 | | | | 155,543 | |
| Greater than one year | | | 5,484 | | | | 280,258 | | | | 285,742 | |
| Total lease obligation | | | 18,059 | | | | 423,226 | | | | 441,285 | |
The future minimum undiscounted lease payments as of February 28, 2022, are presented below:
Disclosure of detailed information about future minimum undiscounted lease payments
| | | Total | |
| | | | $ | |
| Current | | | 176,070 | |
| 2 years | | | 171,400 | |
| 3 years | | | 121,988 | |
| 4 years | | | 7,505 | |
| Total undiscounted lease obligation | | | 476,963 | |
| 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 February 28, 2022, the players liability account balance is the total amount payable if all players were to request closure of their accounts. As of February 28, 2022, the players account liability and corresponding restricted cash balances were the same.
| 14. | Promissory notes payable and other borrowings |
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 February 28, 2022, interest of $170,836 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 February 28, 2022, $409,917 was due under the note (August 31, 2021 – $482,304). The note is secured by the assets of WinView, bears interest at 6%, and is currently due.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| (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 $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.
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 February 28, 2022, $209,875 has not been formally forgiven.
The continuity of convertible debt for the six months ended February 28, 2022, and 2021, is as follows:
Disclosure of detailed information about continuity of convertible debt
| | | 2019
Series | | | 2020
Series | | | Amended EB Loan | | | EB CD | | | Total | |
| | | | $ | | | | $ | | | | | | | | | | | | $ | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, August 31, 2020 | | | 2,121,869 | | | | 8,671,590 | | | | - | | | | - | | | | 10,793,459 | |
| Issuances | | | - | | | | 4,282,477 | | | | | | | | | | | | 4,282,477 | |
| Exchange of EB Loan for Amended EB Loan | | | - | | | | - | | | | 5,043,103 | | | | - | | | | 5,043,103 | |
| Exchange of Amended EB Loan for EB CD | | | - | | | | - | | | | (4,931,813 | ) | | | 7,394,022 | | | | 2,462,209 | |
| Conversion - common shares issued | | | (183,879 | ) | | | (11,727,996 | ) | | | - | | | | - | | | | (11,911,875 | ) |
| Conversion - warrants issued | | | (154,265 | ) | | | (4,121,208 | ) | | | - | | | | - | | | | (4,275,473 | ) |
| Interest expense | | | 37,584 | | | | 295,896 | | | | 138,710 | | | | - | | | | 472,190 | |
| Accrued interest on conversion | | | (15,849 | ) | | | (241,868 | ) | | | (250,000 | ) | | | - | | | | (507,717 | ) |
| Effect of foreign exchange | | | 54,085 | | | | - | | | | - | | | | - | | | | 54,085 | |
| Change in fair value | | | 1,656,768 | | | | 5,827,548 | | | | - | | | | 379,333 | | | | 7,863,649 | |
| Balance, February 28, 2021 | | | 3,516,313 | | | | 2,986,439 | | | | - | | | | 7,773,355 | | | | 14,276,107 | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| | | 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 | | | 13,195 | | | | 99,178 | | | | - | | | | 250,000 | | | | 362,373 | |
| Accrued interest on conversion / interest payments | | | - | | | | - | | | | - | | | | (375,000 | ) | | | (375,000 | ) |
| Effect of foreign exchange | | | (12,046 | ) | | | - | | | | - | | | | - | | | | (12,046 | ) |
| Change in fair value | | | (381,765 | ) | | | (145,317 | ) | | | - | | | | (1,449,852 | ) | | | (1,976,934 | ) |
| Balance, February 28, 2022 | | | 533,812 | | | | 2,050,988 | | | | - | | | | 5,365,089 | | | | 7,949,889 | |
The Company’s convertible debt obligations are classified between current and non-current liabilities as follows:
| | | 2019
Series | | | 2020
Series | | | EB CD | | | Total | |
| | | $ | | | $ | | | $ | | | $ | |
| As of February 28, 2022: | | | | | | | | | | | | |
| Less than one year | | | 533,812 | | | | 2,050,988 | | | | - | | | | 2,584,800 | |
| Greater than one year | | | - | | | | - | | | | 5,365,089 | | | | 5,365,089 | |
| Total convertible debt obligation | | | 533,812 | | | | 2,050,988 | | | | 5,365,089 | | | | 7,949,889 | |
As of February 28, 2022, 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 | | February 28,
2022
(CA$) | | | August 31,
2021
(CA$) | |
| | | | | | | |
| Share price | | | 3.32 | | | | 8.42 | |
| Conversion price | | | 7.50 | | | | 7.50 | |
| Warrant exercise price | | | 7.50 | | | | 7.50 | |
| | | | | | | | | |
| Term, in years | | | .36 - .44 | | | | .85 - .94 | |
| Interest rate | | | 6 | % | | | 6 | % |
| Expected volatility | | | 90.00 | % | | | 90.00 | % |
| Risk-free interest rate | | | 0.52% - 0.63 | % | | | 0.25% - 0.26 | % |
| Exchange rate | | | 0.7875 | | | | 0.7947 | |
| Expected dividend yield | | | 0 | % | | | 0 | % |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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.
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.
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 the following: (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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
The proceeds of $2,000,000 from the first draw were allocated between convertible debt and warrant liability with $1,381,084 allocated to convertible debt and $618,916 allocated to the 224,719 warrants issued.
The remaining $6,000,000 of convertible debentures that are issuable under this facility have substantially similar terms as the 2020 Series debentures, including conversion into units consisting of one share and one-half warrant, provided that the conversion price of any additional convertible debentures will be based on the market price of the common shares at the time of such subscriptions and are subject to TSX-V approval.
As of February 28, 2022, the fair value of the 2020 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:
| 2020 Series | | February 28,
2022
(US$) | | | August 31,
2021
(US$) | |
| | | | | | | |
| Share price | | | 2.62 | | | | 6.66 | |
| Conversion price | | | 8.90 | | | | 8.90 | |
| Warrant exercise price | | | - | | | | - | |
| | | | | | | | | |
| Term, in years | | | 0.726 | | | | 1.26 | |
| Interest rate | | | 10 | % | | | 10 | % |
| Expected volatility | | | 95.00 | % | | | 90.00 | % |
| Risk-free interest rate | | | 0.83 | % | | | 0.10 | % |
| Expected dividend yield | | | 0 | % | | | 0 | % |
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 $15.00 per share for a period of three years from the issuance of the EB CD. The EB CD has a term of three years. The convertible debenture is secured by the Company’s real and personal property, fixtures, leasehold improvements, trade fixtures, equipment, and other personal property as well as all general intangibles relating to or arising from the personal property.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
As of February 28, 2022, the fair value of the EB CD convertible debenture was estimated using the binomial lattice model with the below assumptions:
| EB CD | | February 28,
2022
(US$) | | | August 31,
2021
(US$) | |
| | | | | | | |
| Share price | | | 2.62 | | | | 6.66 | |
| Conversion price | | | 10.25 | | | | 10.25 | |
| Warrant exercise price | | | 15.00 | | | | 15.00 | |
| | | | | | | | | |
| Term, in years | | | 1.99 | | | | 1.26 | |
| Interest rate | | | 10 | % | | | 10 | % |
| Expected volatility | | | 90.00 | % | | | 90.00 | % |
| Risk-free interest rate | | | 1.43 | % | | | 0.30 | % |
| Expected dividend yield | | | 0 | % | | | 0 | % |
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).
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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 February 28, 2022 has been calculated using a binomial lattice methodology. | | Key observable inputs | | The estimated fair value would increase (decrease) if: |
| | | | | Share price CAD $3.32 (USD $2.62) | | The share price was higher (lower) |
| | | | | Risk-free interest rate (0.52% to 1.43%) | | The risk-free interest rate was higher (lower) |
| | | | | Dividend yield (0%) | | The dividend yield was lower (higher) |
| | | | | Key unobservable inputs | | |
| | | | | Credit spread (7.11% to 8.94%) | | 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) |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
Liability measured warrants having CAD exercise price
The following tables reflect the continuity of the Company’s liability measured warrants for the six months ended February 28, 2022, and 2021:
Schedule of measured warrants
| | | Amount | |
| | | | $ | |
| | | | | |
| Balance at August 31, 2021 | | | 4,868,703 | |
| Change in fair value | | | (3,940,303 | ) |
| Foreign exchange | | | (69,213 | ) |
| Balance, February 28, 2022 | | | 859,187 | |
| | | Amount | |
| | | $ | |
| | | | |
| Balance at August 31, 2020 | | | 14,135,321 | |
| Issued on conversion of convertible debt | | | 154,265 | |
| Exercised | | | (109,003 | ) |
| Change in fair value | | | 165,013 | |
| Foreign exchange | | | 281,619 | |
| Balance, February 28, 2021 | | | 14,627,215 | |
The following tables reflects the continuity of the Company’s outstanding liability warrants for the six months ended February 28, 2022, and 2021:
Schedule of outstanding warrants
| | | | | | Weighted-average | |
| | | Number of | | | exercise price | |
| | | warrants | | | CAD | |
| | | # | | | $ | |
| | | | | | | |
| Outstanding, August 31, 2021 | | | 1,452,843 | | | | 8.96 | |
| Outstanding as of February 28, 2022 | | | 1,452,843 | | | | 8.96 | |
| | | | | | | |
| | | | | | Weighted-average | |
| | | Number of | | | exercise price | |
| | | warrants | | | CAD | |
| | | # | | | $ | |
| | | | | | | |
| Outstanding, August 31, 2020 | | | 2,405,369 | | | | 9.60 | |
| Issued on conversion of convertible debt | | | 38,666 | | | | 7.50 | |
| Exercised | | | (37,991 | ) | | | 8.72 | |
| Expired | | | (430 | ) | | | 153.81 | |
| Outstanding as of February 28, 2021 | | | 2,405,614 | | | | 9.56 | |
The following table reflects the liability measured warrants issued and outstanding as of February 28, 2022:
Schedule of warrants issued and outstanding
| | | | | | | | Warrants outstanding | |
| Expiry date | | | Number outstanding | | | | Average exercise price CAD | | | | Average remaining contractual life (years) | |
| March 13, 2022 | | | 123,159 | | | | 10.50 | | | | 0.04 | |
| December 20, 2022 | | | 29,066 | | | | 27.00 | | | | 0.81 | |
| March 20, 2023 | | | 27,777 | | | | 13.50 | | | | 1.05 | |
| March 30, 2023 | | | 46,909 | | | | 13.50 | | | | 1.08 | |
| March 31, 2023 | | | 17,222 | | | | 13.50 | | | | 1.08 | |
| May 27, 2023 | | | 130,304 | | | | 13.50 | | | | 1.24 | |
| July 8, 2024 | | | 445,982 | | | | 7.50 | | | | 2.36 | |
| July 25, 2024 | | | 401,624 | | | | 7.50 | | | | 2.41 | |
| August 8, 2024 | | | 230,800 | | | | 7.50 | | | | 2.44 | |
| | | | 1,452,843 | | | $ | 8.96 | | | | 1.98 | |
As at February 28, 2022, the fair value of the 1,452,843 warrants outstanding (August 31, 2021 – 1,452,843) was determined to be $859,187 (August 31, 2021 – $4,868,703) as calculated using the Black Scholes option pricing model with the following range of assumptions: 0.04 – 2.44 years (August 31, 2021 – 0.53 – 2.94) as expected average life; share price of CAD$3.32 (August 31, 2021 – CAD$8.42); exercise price of CAD$7.50 – CAD$27.00 (August 31, 2021 – CAD$7.50 – CAD$27.00); 70% - 85% expected volatility (August 31, 2021 – 70% - 90%); risk free interest rate of 1.28% - 1.44% (August 31, 2021 – 0.28% - 0.63%); and an expected dividend yield of 0%.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
Equity measured warrants having USD exercise price
The Company’s 3,736,396 equity measured warrants as of February 28, 2022, and August 31, 2021, had an average weighted-average exercise price of $15.
The following table reflects the equity measured warrants issued and outstanding as of February 28, 2022:
| | | | | | Warrants outstanding | |
| Expiry date | | Number
outstanding | | | Average exercise price USD | | | Average
remaining
contractual life
(years) | |
| November 20, 2022 | | | 224,719 | | | | 15.00 | | | | 0.73 | |
| January 8, 2024 | | | 1,868,787 | | | | 15.00 | | | | 1.86 | |
| January 22, 2024 | | | 522,898 | | | | 15.00 | | | | 1.90 | |
| February 24, 2024 | | | 1,058,227 | | | | 15.00 | | | | 1.99 | |
| August 19, 2024 | | | 49,999 | | | | 15.00 | | | | 2.47 | |
| September 15, 2024 | | | 11,666 | | | | 15.00 | | | | 2.55 | |
| | | | 3,736,296 | | | $ | 15.00 | | | | 1.84 | |
If all equity measured warrants outstanding and exercisable as of February 28, 2022, were exercised, the Company would receive cash from exercise of approximately $56.0 million.
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| (b) | Issued and outstanding, common shares |
Schedule of shares issued and outstanding
| | | Shares | | | Consideration | |
| | | # | | | $ | |
| | | | | | | |
| Balance, August 31, 2020 | | | 7,746,136 | | | | 69,380,807 | |
| Shares issued on vesting of RSUs | | | 142,610 | | | | 970,366 | |
| Convertible debt conversion | | | 1,542,184 | | | | 11,911,875 | |
| Common shares issued on private placement, net of costs | | | 4,435,433 | | | | 24,225,901 | |
| EB bonus shares | | | 6,666 | | | | 54,061 | |
| Shares for debt | | | 40,000 | | | | 226,556 | |
| Common shares issued on exercise of warrants | | | 37,991 | | | | 367,159 | |
| Balance, February 28, 2021 | | | 13,951,020 | | | | 107,136,725 | |
| | | | Shares | | | | Consideration | |
| | | | # | | | | $ | |
| | | | | | | | | |
| Balance, August 31, 2021 | | | 15,543,309 | | | | 122,741,230 | |
| Shares issued on vesting of RSUs | | | 91,635 | | | | 681,759 | |
| Balance, February 28, 2022 | | | 15,634,944 | | | | 123,422,989 | |
| (c) | Activity for the period |
During the six months ended February 28, 2022, the Company issued 91,635 common shares upon vesting of an equal number of RSUs, see 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 10% of the then issued and outstanding shares.
Options may be exercisable over periods of up to 10 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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
The following table reflects the continuity of stock options for the six months ended February 28, 2022, and 2021:
The following tables reflect the stock options issued and outstanding as of February 28, 2022:
Disclosure of detailed information about number and weighted average exercise prices of share options
| | | | | | Weighted-average | | | Remaining | |
| | | Number of
stock options | | | Exercise
price | | | Grant-date
fair value | | | contractual
term | |
| | | # | | | $ | | | $ | | | (yrs.) | |
| | | | | | | | | | | | | |
| Balance, August 31, 2020 | | | 253,121 | | | | 12.73 | | | | 4.39 | | | | 4.31 | |
| Expired/Cancelled | | | (16,694 | ) | | | 20.90 | | | | 8.56 | | | | | |
| Balance, February 28, 2021 | | | 236,427 | | | | 12.15 | | | | 4.39 | | | | 3.51 | |
| | | | | | | | | | | | | | | | | |
| Balance, August 31, 2021 | | | 692,938 | | | | 11.64 | | | | 7.06 | | | | 4.46 | |
| Granted | | | 28,750 | | | | 5.42 | | | | 2.44 | | | | | |
| Issued on exercise of options | | | - | | | | - | | | | - | | | | | |
| Expired/Cancelled | | | (1,564 | ) | | | 71.84 | | | | 1.43 | | | | | |
| Balance, February 28, 2022 | | | 720,124 | | | | 11.26 | | | | 6.89 | | | | 4.08 | |
| | | | | | | | | | | | | | | | | |
| Exercisable as of February 28, 2022 | | | 183,678 | | | | 11.48 | | | | 4.41 | | | | 2.30 | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
Disclosure of detailed information about options issued and outstanding
| Expiry date | | Outstanding
options | | | CAD | | | Weighted
average
exercise
price USD | | | Weighted
average
remaining
contractual
term
(Years) | |
| | | | | | | | | | | | | |
| June 30, 2022 | | | 4,428 | | | | 153.45 | | | | 118.15 | | | | 0.33 | |
| April 1, 2023 | | | 84,165 | | | | 11.25 | | | | 7.91 | | | | 1.09 | |
| October 31, 2023 | | | 64,997 | | | | 11.25 | | | | 7.91 | | | | 1.67 | |
| January 29, 2025 | | | 46 | | | | 106.50 | | | | 76.43 | | | | 2.92 | |
| August 25, 2025 | | | 340 | | | | 106.50 | | | | 76.43 | | | | 3.49 | |
| September 23, 2025 | | | 11 | | | | 106.50 | | | | 76.43 | | | | 3.57 | |
| February 10, 2026 | | | 1,443 | | | | 106.50 | | | | 76.43 | | | | 3.95 | |
| May 19, 2026 | | | 4 | | | | 106.50 | | | | 76.43 | | | | 4.22 | |
| May 23, 2026 | | | 9 | | | | 106.50 | | | | 76.43 | | | | 4.23 | |
| June 24, 2026 | | | 375,188 | | | | 15.04 | | | | 12.21 | | | | 4.32 | |
| July 1, 2026 | | | 10,000 | | | | 14.87 | | | | 12.00 | | | | 4.34 | |
| July 2, 2026 | | | 57,762 | | | | 15.08 | | | | 12.21 | | | | 4.34 | |
| August 20, 2026 | | | 32,500 | | | | 7.78 | | | | 6.05 | | | | 4.48 | |
| March 3, 2027 | | | 1,256 | | | | 106.50 | | | | 76.43 | | | | 5.01 | |
| July 31, 2027 | | | 159 | | | | 106.50 | | | | 76.43 | | | | 5.42 | |
| November 3, 2027 | | | 133 | | | | 106.50 | | | | 76.43 | | | | 5.68 | |
| November 7, 2029 | | | 46,251 | | | | 7.50 | | | | 5.38 | | | | 7.70 | |
| April 20, 2030 | | | 666 | | | | 7.05 | | | | 5.06 | | | | 8.15 | |
| December 2, 2030 | | | 1,333 | | | | 9.50 | | | | 7.38 | | | | 8.76 | |
| June 14, 2031 | | | 10,683 | | | | 14.20 | | | | 11.69 | | | | 9.30 | |
| November 23, 2031 | | | 10,000 | | | | 12.45 | | | | 9.82 | | | | 9.74 | |
| December 31, 2026 | | | 3,750 | | | | 3.87 | | | | 3.05 | | | | 4.84 | |
| January 31, 2027 | | | 15,000 | | | | 3.90 | | | | 3.07 | | | | 4.93 | |
| | | | 720,124 | | | | 14.37 | | | | 11.26 | | | | 4.08 | |
Of the 720,124 options outstanding as of February 28, 2022 (August 31, 2021 – 692,938), 183,678 are exercisable as of February 28, 2022 (August 31, 2020 – 209,950). During the six months ended February 28, 2022, share-based compensation expense for the Company’s stock options was $1,704,023 (February 28, 2021 – $70,118).
| 19. | Restricted share units |
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 1,548,174 common shares.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
The Company’s outstanding RSUs are as follows:
Disclosure of detailed information about restricted stock units outstanding
| | | Number | |
| | | # | |
| | | | |
| Balance, August 31, 2020 | | | 402,372 | |
| Granted | | | 322,547 | |
| Vested | | | (142,610 | ) |
| Cancelled | | | - | |
| Balance, February 28, 2021 | | | 582,309 | |
| | | | | |
| Balance, August 31, 2021 | | | 490,174 | |
| Granted | | | 100,626 | |
| Vested | | | (91,635 | ) |
| Cancelled | | | (26,520 | ) |
| Balance, February 28, 2022 | | | 472,645 | |
In October 2021, the Company granted 100,626 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 six months ended February 28, 2022, share-based compensation expense for the Company’s RSUs was $872,295 (February 28, 2021 – $1,708,515).
The Company considers its capital to be its shareholders’ equity.
As of February 28, 2022, the Company had shareholders’ equity (deficit) before non-controlling interests of $20,017,747 (August 31, 2021 – 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, through the use of 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 during the six months ended February 28, 2022, and 2021.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| 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 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 $2,519,722, which represents the fair value of the common shares directed to be delivered as of February 28, 2022. 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, LLLP 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. On February 17, 2022, 3CI Holdings filed an Amended Complaint, to which the Company as filed a motion to dismiss.
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. By Decision dated March 1, 2022, the Court granted in part and denied in part, the defendants’ Motion to Dismiss the Complaint. 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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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 |
Management committed to a plan to sell the Eden Games business during the second quarter of fiscal 2022, following a strategic decision to focus the Company’s resources on the key revenue streams of Direct to consumer, Software-as-a-service, and Advertising. This business was previously part of the Company’s Gaming segment and represented all the related games development revenue. On April 7, 2022, the Company announced the completion of the sale of Eden Games (Note 27).
Eden Games was not previously classified as held-for-sale or as a discontinued operation. The comparative Interim Condensed Consolidated Statements of Loss and Comprehensive Loss have been re-stated to show this discontinued operation separately from continuing operations.
Results of discontinued operations for Eden the related cash flows are as follows:
Schedule of discontinued operations
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | For the three months ended | | | For the six months ended | |
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | $ | | | $ | | | $ | | | $ | |
| Revenues | | | | | | | | | | | | | | | | |
| Revenue | | | 2,223,077 | | | | 688,473 | | | | 4,325,203 | | | | 1,188,428 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Salaries and wages | | | 891,134 | | | | 914,961 | | | | 1,784,054 | | | | 1,782,537 | |
| Consulting | | | 271,534 | | | | 243,351 | | | | 693,619 | | | | 401,367 | |
| Professional fees | | | - | | | | - | | | | - | | | | - | |
| Sponsorships and tournaments | | | - | | | | - | | | | - | | | | - | |
| Advertising and promotion | | | - | | | | - | | | | - | | | | - | |
| Office and general | | | 9,602 | | | | 110,574 | | | | 185,096 | | | | 238,864 | |
| Technology expenses | | | - | | | | - | | | | - | | | | - | |
| Amortization and depreciation | | | 109,894 | | | | 657,764 | | | | 222,989 | | | | 1,218,034 | |
| Share-based payments | | | (46 | ) | | | (305 | ) | | | (94 | ) | | | (1,055 | ) |
| Interest expense | | | 3,209 | | | | 8,574 | | | | 7,161 | | | | 26,889 | |
| (Gain) loss on foreign exchange | | | 6,546 | | | | (21,668 | ) | | | 39,350 | | | | (161,038 | ) |
| Net income (loss) from discontinued operations | | | 931,204 | | | | (1,224,778 | ) | | | 1,393,028 | | | | (2,317,170 | ) |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
Schedule of cash flow in discontinued operation
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | For the three months ended | | | For the six months ended | |
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | $ | | | $ | | | $ | | | $ | |
| Net cash provided by (used in) operating activities | | | 87,745 | | | | 70,637 | | | | 55,334 | | | | 231,544 | |
| Net cash used in financing activities | | | (25,228 | ) | | | (27,223 | ) | | | (50,714 | ) | | | (107,967 | ) |
| Change in cash | | | 62,517 | | | | 43,414 | | | | 4,620 | | | | 123,577 | |
| Cash, beginning of period | | | 212,674 | | | | 187,741 | | | | 270,571 | | | | 107,578 | |
| Cash, end of period | | | 275,191 | | | | 231,155 | | | | 275,191 | | | | 231,155 | |
As of February 28, 2022, Eden Games comprised assets of $2,796,145 less liabilities of $, as follows:
Disclosure of net asset
| | | Amount | |
| | | $ | |
| ASSETS | | | | |
| Current | | | | |
| Cash | | | 275,191 | |
| Accounts and other receivables | | | 1,119,121 | |
| Government remittances | | | 661,772 | |
| Prepaid expenses and other | | | 38,246 | |
| Total assets of disposal group, current | | | 2,094,330 | |
| Non-Current | | | | |
| Property and equipment | | | 43,567 | |
| Goodwill | | | 345,150 | |
| Intangible assets | | | 296,618 | |
| Right-of-use assets | | | 16,480 | |
| Total assets of disposal group, Non-current | | | 701,815 | |
| Total assets of disposal group | | | 2,796,145 | |
| | | Amount | |
| | | $ | |
| LIABILITIES | | | | |
| Current | | | | |
| Accounts payable | | | 674,439 | |
| Accrued liabilities | | | 913,029 | |
| Lease obligation, current | | | 18,456 | |
| Long-term debt, current | | | 45,869 | |
| Total current liabilities | | | 1,587,338 | |
Results of discontinued operations for the Motorsports Group and the related cash flows along with description of the transaction are as follows:
Schedule of discontinued operations
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | For the three months ended | | | For the six months ended | |
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | $ | | | $ | | | $ | | | $ | |
| Revenues | | | | | | | | | | | | | | | | |
| Revenue | | | - | | | | - | | | | - | | | | 90,934 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Salaries and wages | | | - | | | | - | | | | - | | | | 212,546 | |
| Consulting | | | - | | | | - | | | | - | | | | 267,933 | |
| Professional fees | | | - | | | | - | | | | - | | | | 22,681 | |
| Sponsorships and tournaments | | | - | | | | - | | | | - | | | | 203,637 | |
| Advertising and promotion | | | - | | | | - | | | | - | | | | 1,740 | |
| Office and general | | | - | | | | - | | | | - | | | | 7,374 | |
| Technology expenses | | | - | | | | - | | | | - | | | | 86,590 | |
| Amortization and depreciation | | | - | | | | - | | | | - | | | | 201,335 | |
| Share-based payments | | | - | | | | - | | | | - | | | | - | |
| Interest expense | | | - | | | | - | | | | - | | | | 572 | |
| (Gain) loss on foreign exchange | | | (9,656 | ) | | | - | | | | 2,241 | | | | 39,711 | |
| Net loss from discontinued operations | | | 9,656 | | | | (2,970 | ) | | | - | | | | (953,185 | ) |
Schedule of cash flow in discontinued operation
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | For the three months ended | | | For the six months ended | |
| | | Feb 28, 2022 | | | Feb 28, 2021 | | | Feb 28, 2022 | | | Feb 28, 2021 | |
| | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | | - | | | | (125 | ) | | | - | | | | (92,652 | ) |
| Net cash used in financing activities | | | - | | | | - | | | | - | | | | - | |
| Disposal of Motorsports | | | - | | | | - | | | | - | | | | 24,348 | |
| Change in cash | | | - | | | | (125 | ) | | | - | | | | (68,304 | ) |
| Cash, beginning of period | | | - | | | | 125 | | | | - | | | | 68,304 | |
| Cash, end of period | | | - | | | | - | | | | - | | | | - | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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 | | | 101,322 | |
| Deferred purchase consideration of LGR | | | 333,503 | |
| Fair value of contingent consideration | | | 1,321,281 | |
| Total disposal consideration | | | 1,756,106 | |
| Carrying amount of net assets sold | | | (2,334,303 | ) |
| Loss on disposal before income tax and reclassification of foreign currency translation reserve | | | (578,197 | ) |
| | | | | |
| Reclassification of foreign currency translation reserve | | | (100,734 | ) |
| Loss on disposal of Motorsports | | | (678,931 | ) |
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 | | | (24,348 | ) |
| Accounts and other receivables | | | 126,590 | |
| Government remittances | | | 25,095 | |
| Prepaid expenses and other | | | 24,113 | |
| Property and equipment | | | 47,416 | |
| Intangible assets | | | 3,066,457 | |
| Total assets of disposal group | | | 3,265,323 | |
| | | | | |
| Carrying amount of liabilities directly associated with assets as at the date of sale: | | | | |
| Accounts payable | | | 508,881 | |
| Accrued liabilities | | | 422,139 | |
| Total liabilities of disposal group | | | 931,020 | |
| | | | | |
| Net assets of disposal group | | | 2,334,303 | |
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.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended February 28, 2022:
Schedule of segment reporting
| Three months ended | | Gaming | | | Media | | | Corporate
and Other | | | August 31, 2021
Total | |
| | | $ | | | $ | | | $ | | | $ | |
| Revenue | | | | | | | | | | | | | | | | |
| External sales | | | 592,182 | | | | 8,672,879 | | | | - | | | | 9,265,061 | |
| | | | | | | | | | | | | | | | | |
| Results | | | | | | | | | | | | | | | | |
| Segment loss | | | (3,094,715 | ) | | | (3,034,991 | ) | | | - | | | | (6,129,706 | ) |
| | | | | | | | | | | | | | | | | |
| Central administration costs | | | - | | | | - | | | | 2,823,329 | | | | 2,823,329 | |
| Other gains and losses | | | 633,144 | | | | 1,443 | | | | (2,170,745 | ) | | | (1,536,158 | ) |
| Finance costs | | | 14,423 | | | | 327 | | | | 197,528 | | | | 212,278 | |
| Loss before tax | | | (3,742,282 | ) | | | (3,036,761 | ) | | | (850,112 | ) | | | (7,629,155 | ) |
| Income tax | | | - | | | | - | | | | - | | | | - | |
| Gain (Loss) for the year from: | | | | | | | | | | | | | | | | |
| Share of net loss of associate | | | | | | | | | | | | | | | | |
| Discontinued operations | | | 1,022,905 | | | | - | | | | (82,045 | ) | | | 940,860 | |
| Non-controlling interest in net loss | | | - | | | | - | | | | (43,874 | ) | | | (43,874 | ) |
| Net loss | | | (2,719,377 | ) | | | (3,036,761 | ) | | | (976,031 | ) | | | (6,732,169 | ) |
The following is an analysis of the Company’s revenue and results by reportable segment for the six months ended February 28, 2022:
| | Gaming | | | Media | | | Corporate
and Other | | | Total | |
| | | $ | | | $ | | | $ | | | $ | |
| Revenue | | | | | | | | | | | | | | | | |
| External sales | | | 1,027,450 | | | | 20,484,963 | | | | - | | | | 21,512,413 | |
| | | | | | | | | | | | | | | | | |
| Results | | | | | | | | | | | | | | | | |
| Segment loss | | | (6,181,608 | ) | | | (5,016,906 | ) | | | - | | | | (11,198,514 | ) |
| | | | | | | | | | | | | | | | | |
| Central administration costs | | | - | | | | - | | | | 5,574,546 | | | | 5,574,546 | |
| Other gains and losses | | | 1,639,596 | | | | (200 | ) | | | (9,425,311 | ) | | | (7,785,915 | ) |
| Finance costs | | | 27,828 | | | | 702 | | | | 394,404 | | | | 422,934 | |
| Income (loss) before tax | | | (7,849,032 | ) | | | (5,017,408 | ) | | | 3,456,361 | | | | (9,410,079 | ) |
| Income tax | | | - | | | | - | | | | - | | | | - | |
| Gain (Loss) for the period from: | | | | | | | | | | | | | | | | |
| Discontinued operations | | | 1,585,165 | | | | - | | | | (192,137 | ) | | | 1,393,028 | |
| Non-controlling interest in net loss | | | - | | | | - | | | | (68,638 | ) | | | (68,638 | ) |
| Net income (loss) | | | (6,263,867 | ) | | | (5,017,408 | ) | | | 3,195,586 | | | | (8,085,689 | ) |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended February 28, 2021:
| Three months ended | | Gaming | | | Media | | | Corporate
and Other | | | Aug 31, 2020
Total | |
| | | $ | | | $ | | | $ | | | $ | |
| Revenue | | | | | | | | | | | | | | | | |
| External sales | | | 504,001 | | | | 7,195,406 | | | | - | | | | 7,699,407 | |
| | | | | | | | | | | | | | | | | |
| Results | | | | | | | | | | | | | | | | |
| Segment loss | | | (1,394,913 | ) | | | (2,232,357 | ) | | | - | | | | (3,627,270 | ) |
| | | | | | | | | | | | | | | | | |
| Central administration costs | | | - | | | | - | | | | 1,966,445 | | | | 1,966,445 | |
| Other gains and losses | | | (11,537 | ) | | | 2,808,032 | | | | 11,158,799 | | | | 13,955,294 | |
| Finance costs | | | 36,657 | | | | 325,054 | | | | 202,193 | | | | 563,904 | |
| Loss before tax | | | (1,420,033 | ) | | | (5,365,443 | ) | | | (13,327,437 | ) | | | (20,112,913 | ) |
| Income tax | | | - | | | | - | | | | - | | | | - | |
| Gain (Loss) for the year from: | | | | | | | | | | | | | | | | |
| Share of net loss of associate | | | - | | | | - | | | | (37,244 | ) | | | (37,244 | ) |
| Discontinued operations | | | (710,597 | ) | | | - | | | | (517,151 | ) | | | (1,227,748 | ) |
| Non-controlling interest in net loss | | | - | | | | - | | | | 30,640 | | | | 30,640 | |
| Net loss | | | (2,130,630 | ) | | | (5,365,443 | ) | | | (13,851,192 | ) | | | (21,347,265 | ) |
The following is an analysis of the Company’s revenue and results by reportable segment for the six months ended February 28, 2021:
| | Gaming | | | Media | | | Corporate
and Other | | | Total | |
| | | | $ | | | | $ | | | | $ | | | | $ | |
| Revenue | | | | | | | | | | | | | | | | |
| External sales | | | 766,987 | | | | 13,898,856 | | | | - | | | | 14,665,843 | |
| | | | | | | | | | | | | | | | | |
| Results | | | | | | | | | | | | | | | | |
| Segment loss | | | (3,394,059 | ) | | | (3,624,952 | ) | | | - | | | | (7,019,011 | ) |
| | | | | | | | | | | | | | | | | |
| Central administration costs | | | - | | | | - | | | | 4,761,079 | | | | 4,761,079 | |
| Other gains and losses | | | (13,889 | ) | | | 2,804,339 | | | | 7,830,934 | | | | 10,621,384 | |
| Finance costs | | | 77,913 | | | | 512,044 | | | | 363,721 | | | | 953,678 | |
| Loss before tax | | | (3,458,083 | ) | | | (6,941,335 | ) | | | (12,955,734 | ) | | | (23,355,152 | ) |
| Income tax | | | - | | | | - | | | | - | | | | - | |
| Gain (Loss) for the period from: | | | | | | | | | | | | | | | | |
| Share of net loss of associate | | | - | | | | - | | | | (103,930 | ) | | | (103,930 | ) |
| Discontinued operations | | | (2,377,419 | ) | | | - | | | | (1,571,867 | ) | | | (3,949,286 | ) |
| Non-controlling interest in net loss | | | - | | | | - | | | | 61,670 | | | | 61,670 | |
| Net loss | | | (5,835,502 | ) | | | (6,941,335 | ) | | | (14,569,861 | ) | | | (27,346,698 | ) |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
Geographical breakdown
| | | North
America | | | European
Union | | | Total | |
| | | | $ | | | | $ | | | | $ | |
| August 31, 2021 | | | | | | | | | | | | |
| Assets | | | 64,943,049 | | | | 2,519,798 | | | | 67,462,847 | |
| Long-term assets | | | 35,796,241 | | | | 108,924 | | | | 35,905,165 | |
| | | | | | | | | | | | | |
| February 28, 2022 | | | | | | | | | | | | |
| Assets | | | 51,578,051 | | | | 2,825,301 | | | | 54,403,352 | |
| Long-term assets | | | 32,040,683 | | | | 5,882 | | | | 32,046,565 | |
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 and six months ended February 28, 2022, and 2021, includes the following:
Schedule of compensation award to key management
| | | February 28, 2022 | | | February 28, 2021 | | | February 28, 2022 | | | February 28, 2021 | |
| | | For the three months ended | | | For the six months ended | |
| | | February 28, 2022 | | | February 28, 2021 | | | February 28, 2022 | | | February 28, 2021 | |
| | | | $ | | | | $ | | | | $ | | | | $ | |
| Total compensation paid to key management | | | 360,887 | | | | 909,355 | | | | 708,143 | | | | 1,444,093 | |
| Share based payments | | | 209,613 | | | | 361,990 | | | | 363,284 | | | | 1,257,804 | |
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 six months ended February 28, 2022, and 2021.
Amounts due to related parties as of February 28, 2022, with respect to the above fees were $33,349 (August 31, 2021 – $33,349). The amounts due to related parties are recorded within accounts payable and accrued liabilities on the consolidated statement of loss and comprehensive loss. 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. Certain directors of the Company are among the pool of Stubholders.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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.
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 February 28, 2022, no customer (August 31, 2021 – one) accounted for greater than 10% of the Company’s accounts receivable balance. In total, this one customer accounted for 13% of the Company’s accounts and other receivables balance as of August 31, 2021. During the six months ended February 28, 2022, one (August 31, 2021 – one) customer represented 69% (August 31, 2021 – 58%) of total revenue.
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 February 28, 2022:
Schedule of gross trade accounts receivable and allowance for doubtful accounts
| | | Current | | | 0 - 30 | | | 31 - 60 | | | 61 - 90 | | | 91+ | | | Total | |
| | | | | | | | | | | | | | | | | | | |
| Trade accounts receivable | | | 5,785,697 | | | | 1,062,098 | | | | 210,396 | | | | 289,583 | | | | 2,098,254 | | | | 9,446,028 | |
| Allowance for doubtful accounts | | | 500 | | | | 500 | | | | 1,500 | | | | 1,500 | | | | 1,080,305 | | | | 1,084,305 | |
| % Allowance | | | | | | | 0 | % | | | 1 | % | | | 1 | % | | | 51 | % | | | 11 | % |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
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 | | | 12,649,445 | | | | - | | | | - | |
| Accrued liabilities | | | 5,815,949 | | | | - | | | | - | |
| Players liability account | | | 326,932 | | | | - | | | | - | |
| Lease obligation | | | 155,543 | | | | 285,742 | | | | - | |
| Promissory notes payable | | | 783,823 | | | | - | | | | - | |
| Convertible debt | | | 2,584,800 | | | | 5,365,089 | | | | - | |
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, as well as debt denominated in Canadian dollars.
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. |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable.
Schedule of fair value measurement
| Carrying value at February 28, 2022 | | FVTPL -
mandatorily
measured | | | Amortized
cost | |
| | | $ | | | $ | |
| | | | | | | |
| Financial assets: | | | | | | | | |
| Cash | | | - | | | | 5,348,900 | |
| Restricted cash | | | - | | | | 326,932 | |
| Accounts and other receivables | | | - | | | | 8,411,835 | |
| Government remittances | | | - | | | | 802,311 | |
| Publisher advance | | | - | | | | 3,007,892 | |
| Investment at FVTPL | | | 2,629,851 | | | | - | |
| Financial assets | | | 2,629,851 | | | | 17,897,870 | |
| Carrying value at February 28, 2022 | | FVTPL -
mandatorily
measured | | | FVTPL -
designated | | | Amortized
cost | |
| | | $ | | | $ | | | $ | |
| Financial liabilities: | | | | | | | | | | | | |
| Accounts payable | | | - | | | | - | | | | 12,649,445 | |
| Accrued liabilities | | | - | | | | - | | | | 5,815,949 | |
| Players liability account | | | - | | | | - | | | | 326,932 | |
| Arbitration reserve | | | - | | | | 2,519,722 | | | | - | |
| Long-term debt | | | - | | | | - | | | | - | |
| Promissory notes payable | | | - | | | | - | | | | 783,823 | |
| Warrant liability | | | 859,187 | | | | - | | | | - | |
| Convertible debt | | | - | | | | 7,949,889 | | | | - | |
| Financial liabilities | | | 859,187 | | | | 10,469,611 | | | | 19,576,149 | |
| Carrying value at August 31, 2021 | | FVTPL -
mandatorily
measured | | | 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 | | | | - | |
| Financial assets | | | 2,629,851 | | | | 29,888,765 | |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
| 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 | | | | - | |
| Financial liabilities | | | 4,868,703 | | | | 16,419,826 | | | | 17,376,275 | |
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 February 28, 2022 | |
| | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | |
| Arbitration reserve | | | 2,519,722 | | | | - | | | | - | | | | 2,519,722 | |
| Warrant liability | | | - | | | | 859,187 | | | | - | | | | 859,187 | |
| Convertible debt | | | - | | | | - | | | | 7,949,889 | | | | 7,949,889 | |
| Investment at FVTPL | | | - | | | | | | | | 2,629,851 | | | | 2,629,851 | |
| | | Level 2 | | | Level 3 | | | Fair value as
of August 31, 2021 | |
| | | $ | | | $ | | | $ | |
| | | | | | | | | | |
| Arbitration reserve | | | - | | | | - | | | | 6,468,330 | |
| 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 | |
Some of the Company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period.
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended February 28, 2022 and 2021 (Unaudited) (Expressed in United States Dollars) | |
26. Restructuring charges
In February 2022, the Company recorded restructuring charges of $90,539 related to the shuttering of the UMG business, which is planned to occur during the fourth quarter of 2022. This action will result in a workforce reduction of 11 employees.
Also, during the month of February 2022, the company recorded restructuring charges of $35,747 related to corporate workforce reductions of 4 employees.
All restructuring expenses for the quarter and year to date are for severance. No restructuring actions occurred during the quarter or six months ended February 28, 2021.
27. Subsequent events
The Company has evaluated subsequent events from the balance sheet date through April 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 except for the transaction described below.
On April 7, 2022, the Company announced the completion of the sale of its Eden Games business. The Company sold its approximately 96% interest in Eden Games for approximately USD$15.3 million (CAD $19.2 million).
In connection with the Company’s sale of Eden Games, the Company acquired two promissory notes from two members of Eden’s senior management team (the “sellers”) in exchange for an aggregate cash payment in the amount of EUR1,081,081 and future payments in the amount of EUR372,073. The promissory notes represent outstanding amounts due to the sellers from third parties in connection with the terms of the 2018 transaction by which Engine initially acquired its interest in Eden Games and subsequent contractual agreements between the sellers, the third parties and the Company. These notes are currently in collection, which the Company, as transferee, will pursue. The current amount due under these notes from the third parties is approximately $2.5 million in principal and accrued interest.
