Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of March 31, 2023 and December 31, 2022
(Unaudited - Expressed in Canadian Dollars)
Note | March 31, 2023 | December 31, 2022 | |||||||||
ASSETS | |||||||||||
Current | |||||||||||
Cash | $ | 3,466,909 | $ | 7,415,516 | |||||||
Trade and other receivables | 5 | 31,965,982 | 37,868,107 | ||||||||
Investments | 124,939 | 125,000 | |||||||||
Loans receivable | — | 50,935 | |||||||||
Income tax receivable | 159,807 | 367,092 | |||||||||
Prepaid expenses | 1,474,635 | 2,017,004 | |||||||||
Total current assets | 37,192,272 | 47,843,654 | |||||||||
Non-current | |||||||||||
Property and equipment | 7 | 178,176 | 180,621 | ||||||||
Right-of-use assets | 10 | 1,868,052 | 2,099,996 | ||||||||
Investment in associates and joint ventures | 6 | 2,277,584 | 2,450,031 | ||||||||
Long-term portion of prepaid expenses | 279,586 | 279,814 | |||||||||
Intangible assets | 8 | 113,916,348 | 116,967,438 | ||||||||
Goodwill | 9 | 171,642,377 | 171,615,991 | ||||||||
Total Assets | $ | 327,354,395 | $ | 341,437,545 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Current | |||||||||||
Accounts payable and accrued liabilities | 11 | $ | 28,717,414 | $ | 32,823,320 | ||||||
Contract liabilities | 4,735,649 | 5,380,378 | |||||||||
Income tax payable | 246,201 | 129,485 | |||||||||
Current portion of long-term debt | 12 | 4,352,940 | 17,431,625 | ||||||||
Current portion of deferred payment liability | 14 | 2,495,053 | 2,391,863 | ||||||||
Current portion of lease liabilities | 10 | 839,390 | 872,429 | ||||||||
Current portion of other long-term debt | 13 | 10,882 | 10,891 | ||||||||
Total current liabilities | 41,397,529 | 59,039,991 | |||||||||
Non-current | |||||||||||
Long-term debt | 12 | 11,985,100 | — | ||||||||
Long-term portion of deferred payment liability | 14 | 1,314,363 | 1,451,939 | ||||||||
Long-term portion of lease liabilities | 10 | 1,268,678 | 1,478,438 | ||||||||
Other long-term debt | 13 | 144,482 | 144,844 | ||||||||
Deferred tax liability | 24,193,054 | 24,671,326 | |||||||||
Total liabilities | $ | 80,303,206 | $ | 86,786,538 | |||||||
Shareholders’ Equity | |||||||||||
Share capital | 15 | 442,781,376 | 442,781,376 | ||||||||
Contributed surplus | 16, 17 | 31,533,073 | 30,402,742 | ||||||||
Accumulated other comprehensive income | 8,636,399 | 8,629,848 | |||||||||
Deficit | (235,899,659 | ) | (227,162,959 | ) | |||||||
Total shareholders’ equity | 247,051,189 | 254,651,007 | |||||||||
Total liabilities and shareholders’ equity | $ | 327,354,395 | $ | 341,437,545 |
Commitments (Note 21)
Subsequent events (Note 23)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of March 31, 2023 and December 31, 2022
(Unaudited - Expressed in Canadian Dollars)
Note | March 31, 2023 | March 31, 2022 | |||||||||
Revenue | 22 | $ | 42,879,966 | $ | 47,167,538 | ||||||
Cost of sales | 26,114,408 | 33,676,159 | |||||||||
Gross margin | 16,765,558 | 13,491,379 | |||||||||
Operating expenses | |||||||||||
Professional fees | 453,336 | 924,821 | |||||||||
Consulting fees | 18 | 1,308,484 | 1,478,174 | ||||||||
Advertising and promotion | 1,456,111 | 327,447 | |||||||||
Office and general | 2,291,783 | 2,262,905 | |||||||||
Salaries and wages | 18 | 9,207,024 | 8,696,875 | ||||||||
Technology support, web development and content | 5,296,024 | 3,458,868 | |||||||||
Esports player, team and game expenses | 635,447 | 1,511,488 | |||||||||
Foreign exchange loss | 114,557 | 8,587 | |||||||||
Share-based compensation | 16, 17 | 1,130,331 | 1,386,181 | ||||||||
Amortization and depreciation | 7, 8, 10 | 3,338,023 | 4,767,024 | ||||||||
Total operating expenses | 25,231,120 | 24,822,370 | |||||||||
Other expenses (income) | |||||||||||
Share of net loss (income) from investment in associates and joint ventures | 6 | 172,447 | (296,041 | ) | |||||||
Interest and accretion | 10, 12 - 14 | 610,340 | 1,430,669 | ||||||||
Gain on revaluation of deferred payment liability | 14 | (172,024 | ) | (1,015,538 | ) | ||||||
Interest income | (61,207 | ) | (1,401 | ) | |||||||
Net loss before income taxes | (9,015,118 | ) | (11,448,680 | ) | |||||||
Income taxes | |||||||||||
Current tax expense | 203,492 | 110,529 | |||||||||
Deferred tax recovery | (481,910 | ) | (526,280 | ) | |||||||
Net loss for the period | (8,736,700 | ) | (11,032,929 | ) | |||||||
Other comprehensive income (loss) | |||||||||||
Items that may be reclassified to profit or loss | |||||||||||
Foreign currency translation adjustment | 6,551 | (1,208,430 | ) | ||||||||
Net loss and comprehensive loss for the period | $ | (8,730,149 | ) | $ | (12,241,359 | ) | |||||
Net loss per share, basic and diluted | $ | (0.06 | ) | $ | (0.08 | ) | |||||
Weighted average number of common shares outstanding, basic and diluted | 151,767,243 | 133,605,479 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of March 31, 2023 and December 31, 2022
(Unaudited - Expressed in Canadian Dollars)
Note | Number of shares | Share capital | Contributed surplus | Accumulated other comprehensive income (loss) | Deficit | Total shareholders’ equity | |||||||||||||||||||||
Balance, January 1, 2022 | 133,549,269 | $ | 387,087,948 | $ | 25,485,361 | $ | 527,166 | $ | (150,332,154 | ) | $ | 262,768,321 | |||||||||||||||
Issuance of shares to effect the Outplayed acquisition | 15 | 35,770 | 181,389 | — | — | — | 181,389 | ||||||||||||||||||||
Shares issued upon exercise of options | 15 | 74,051 | 309,720 | (239,899 | ) | — | — | 69,821 | |||||||||||||||||||
Shares issued for settlement of deferred payment liability | 14, 15 | 111,267 | 634,900 | — | — | — | 634,900 | ||||||||||||||||||||
Share-based compensation | 16, 17 | — | — | 1,386,181 | — | — | 1,386,181 | ||||||||||||||||||||
Other comprehensive loss for the period | — | — | — | (1,208,430 | ) | — | (1,208,430 | ||||||||||||||||||||
Net loss for the period | — | — | — | — | (11,032,929 | ) | (11,032,929 | ) | |||||||||||||||||||
Balance March 31, 2022 | 133,770,357 | $ | 388,213,957 | $ | 26,631,643 | $ | (681,264 | ) | $ | (161,365,083 | ) | $ | 252,799,253 | ||||||||||||||
Balance, January 1, 2023 | 151,767,243 | $ | 442,781,376 | $ | 30,402,742 | $ | 8,629,848 | $ | (227,162,959 | ) | $ | 254,651,007 | |||||||||||||||
Share-based compensation | 16, 17 | — | — | 1,130,331 | — | — | 1,130,331 | ||||||||||||||||||||
Other comprehensive income for the period | — | — | — | 6,551 | — | 6,551 | |||||||||||||||||||||
Net loss for the period | — | — | — | — | (8,736,700 | ) | (8,736,700 | ) | |||||||||||||||||||
Balance, March 31, 2023 | 151,767,243 | $ | 442,781,376 | $ | 31,533,073 | $ | 8,636,399 | $ | (235,899,659 | ) | $ | 247,051,189 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of March 31, 2023 and December 31, 2022
(Unaudited - Expressed in Canadian Dollars)
Note | March 31, 2023 | March 31, 2022 | |||||||||
Cash flows from operating activities | |||||||||||
Net loss for the period | $ | (8,736,700 | ) | $ | (11,032,929 | ) | |||||
Items not affecting cash: | |||||||||||
Amortization and depreciation | 7, 8, 10 | 3,338,023 | 4,767,024 | ||||||||
Share-based compensation | 16, 17 | 1,130,331 | 1,386,181 | ||||||||
Interest and accretion | 10, 12 - 14 | 83,480 | 1,227,562 | ||||||||
Deferred tax recovery | (481,910 | ) | (526,280 | ) | |||||||
Share of net loss (income) from investment in associates and joint ventures | 6 | 172,447 | (296,041 | ) | |||||||
Gain on revaluation of deferred payment liability | 14 | (172,024 | ) | (1,015,538 | ) | ||||||
Foreign exchange (gain) loss | (1,691 | ) | 13,456 | ||||||||
Shares for services | — | 63,320 | |||||||||
Provisions | 159,250 | — | |||||||||
Changes in working capital: | |||||||||||
Changes in trade and other receivables | 5,793,769 | 4,185,031 | |||||||||
Changes in prepaid expenses | 542,369 | 789,542 | |||||||||
Changes in loans receivable | — | 125,995 | |||||||||
Changes in accounts payable and accrued liabilities | (4,105,906 | ) | (7,236,523 | ) | |||||||
Changes in contract liabilities | (644,729 | ) | (22,668 | ) | |||||||
Changes in income tax receivable and payable | 439,202 | 107,480 | |||||||||
Income tax paid | (115,201 | ) | (71,016 | ) | |||||||
Net cash used in operating activities | (2,599,290 | ) | (7,535,404 | ) | |||||||
Cash flows from investing activities | |||||||||||
Acquisition of intangible assets | 8 | (27,488 | ) | — | |||||||
Acquisition of property and equipment | 7 | (18,531 | ) | (1,757 | ) | ||||||
Net cash used in investing activities | (46,019 | ) | (1,757 | ) | |||||||
Cash flows from financing activities | |||||||||||
Repayment of long-term debt | 12 | (1,088,235 | ) | (500,000 | ) | ||||||
Proceeds from exercise of options | 15 | — | 69,821 | ||||||||
Repayment of other long-term debt | 13 | (2,968 | ) | (2,741 | ) | ||||||
Lease payments | 10 | (265,523 | ) | (240,001 | ) | ||||||
Net cash used in financing activities | (1,356,726 | ) | (672,921 | ) | |||||||
Foreign exchange effect on cash | 53,428 | (306,151 | ) | ||||||||
Net change in cash | (3,948,607 | ) | (8,516,233 | ) | |||||||
Cash, beginning of period | 7,415,516 | 22,654,262 | |||||||||
Cash, end of period | $ | 3,466,909 | $ | 14,138,029 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
1. | Nature of operations |
Enthusiast Gaming Holdings Inc. (the “Company” or “Enthusiast”) was incorporated under the Business Corporation Act (British Columbia) on June 27, 2018. The Company is publicly traded on the Toronto Stock Exchange (“TSX”) and Nasdaq Capital Market under the symbol “EGLX”. The Company maintains its registered office at 510 West Georgia Street, Suite 1800, Vancouver, British Columbia and its executive office at 90 Eglinton Avenue East, Suite 805, Toronto, Ontario, M4P 2Y3.
The Company’s principal business activities are comprised of media and content, entertainment and esports. The Company’s digital media platform includes video gaming related websites, YouTube channels and a library of casual games. The Company’s esports division, Luminosity Gaming Inc. (“Luminosity”), is a leading global esports franchise that consists of professional esports teams under ownership and management, including the Vancouver Titans Overwatch team and the Seattle Surge Call of Duty team. The Company’s entertainment business owns and operates the largest mobile gaming event in Europe, Pocket Gamer Connects.
On April 28, 2022, the Company, through its wholly-owned subsidiary, Steel Media Limited, acquired all of the issued and outstanding treasury shares of Fantasy Media Ltd (“FML”) and Fantasy Football Scout Limited (“FFS”, which together with “FML” is herein referred to as “FFS”), pursuant to a share purchase agreement dated April 28, 2022 (the “FFS SPA”). The FFS SPA is accounted for in accordance with IFRS 3, as the operations of FFS constitute a business.
The FFS SPA is called “Mergers and Acquisitions” in these condensed consolidated interim financial statements. For information relating to the accounting of the FFS SPA refer to Note 5 of the audited consolidated financial statements of the Company for the year ended December 31, 2022.
Approval of Financial Statements
These condensed consolidated interim financial statements were authorized for issuance by the Board of Directors of the Company on May 15, 2023.
2. | Statement of compliance and basis of preparation |
(i) | Statement of compliance |
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting. These condensed consolidated interim financial statements do not include all of the information required for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2022, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations by the IFRS Interpretations Committee.
(ii) | Basis of presentation |
These condensed consolidated interim financial statements are prepared under the historical cost convention except for the revaluation of certain financial assets and liabilities to fair value. All financial information is presented in Canadian dollars, except as otherwise noted.
(iii) | Basis of consolidation |
Subsidiaries are entities controlled by the Company where control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are included in the consolidated financial statements from the date control is obtained until the date control ceases. All intercompany balances, transactions, income and expenses have been eliminated on consolidation.
5
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
2. | Statement of compliance and basis of preparation (continued) |
(iii) | Basis of consolidation (continued) |
These condensed consolidated interim financial statements include the accounts of Enthusiast Gaming Holdings Inc. and its wholly-owned subsidiaries. The accounts of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The table below lists the Company’s wholly-owned subsidiaries:
Name of Subsidiary | Jurisdiction | Functional Currency | Accounting Method |
Aquilini GameCo Inc. | Canada | Canadian dollars | Consolidation |
GameCo eSports USA Inc. | USA | U.S. dollars | Consolidation |
Luminosity Gaming Inc. | Canada | Canadian dollars | Consolidation |
Luminosity Gaming (USA) LLC | USA | U.S. dollars | Consolidation |
Enthusiast Gaming Properties Inc. | Canada | Canadian dollars | Consolidation |
Enthusiast Gaming Inc. | Canada | U.S. dollars | Consolidation |
Enthusiast Gaming Live Inc. | Canada | Canadian dollars | Consolidation |
Enthusiast Gaming Media (US) Inc. | USA | U.S. dollars | Consolidation |
Tabwire LLC | USA | U.S. dollars | Consolidation |
GameKnot LLC | USA | U.S. dollars | Consolidation |
Addicting Games, Inc. | USA | U.S. dollars | Consolidation |
TeachMe, Inc. | USA | U.S. dollars | Consolidation |
Outplayed, Inc. | USA | U.S. dollars | Consolidation |
Storied Talent, LLC | USA | U.S. dollars | Consolidation |
Enthusiast Gaming (PG) Inc. | Canada | Canadian dollars | Consolidation |
Steel Media Limited | England and Wales | UK Pound Sterling | Consolidation |
Fantasy Media Ltd | England and Wales | UK Pound Sterling | Consolidation |
Fantasy Football Scout Limited | England and Wales | UK Pound Sterling | Consolidation |
Omnia Media Inc. | USA | U.S. dollars | Consolidation |
Vedatis SAS | France | Euro | Consolidation |
Refer to Note 6 for the Company’s investment in associates and joint ventures.
3. | Significant accounting policies |
The Company’s accounting policies as described in Note 3, Significant Accounting Policies, of the Company’s audited consolidated financial statements for the year ended December 31, 2022, have been applied consistently to all periods presented in these condensed consolidated interim financial statements. Refer to those audited consolidated financial statements for the significant accounting policies which remain unchanged as of March 31, 2023.
The following new standards, interpretation or amendment were adopted for the first time on January 1, 2023:
IAS 1 – Presentation of Financial Statements (“IAS 1”)
In February 2021, the IASB issued amendments to IAS 1 to assist entities in determining which accounting policies to disclose in the financial statements. The amendments to IAS 1 require that an entity disclose its material accounting policies, instead of its significant accounting policies. The amendments apply to annual reporting periods beginning on or after January 1, 2023. There was no material impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
In January 2020, IAS 1 was amended to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or non-current is based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023 and are to be applied retrospectively. There was no material impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
6
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
3. | Significant accounting policies (continued) |
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
In February 2021, the IASB issued “Definition of Accounting Estimates”, which amends IAS 8. The amendment replaces the definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty.” The amendment provides clarification to help entities to distinguish between accounting policies and accounting estimates. The amendments are effective for annual periods beginning on or after January 1, 2023. There was no impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
IAS 12 – Income Taxes (“IAS 12”)
In May 2021, the IASB issued “Deferred Tax related to Assets and Liabilities arising from a Single Transaction”, which amends IAS 12. The amendment narrows the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offset temporary differences. As a result, companies will need to recognize a deferred tax asset and deferred tax liability for temporary differences arising on initial recognition of transactions such as leases and decommissioning obligations. The amendments are effective for annual periods beginning on or after January 1, 2023 and are to be applied retrospectively. There was no material impact from the adoption of this amendment on the Company’s condensed consolidated interim financial statements.
4. | Significant accounting judgments, estimates and uncertainties |
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes to the consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the estimates are revised.
There have been no significant changes to the Company’s significant accounting judgements, estimates and uncertainties, as described in Note 4, Significant Accounting Judgments, Estimates and Uncertainties, of the Company’s audited consolidated financial statements for the year ended December 31, 2022.
5. | Trade and other receivables |
A summary of trade and other receivables is as follows:
March 31, 2023 | December 31, 2022 | |||||||
Trade receivables (Note 20) | $ | 26,690,140 | $ | 31,894,090 | ||||
Other receivables | 5,686,874 | 5,906,625 | ||||||
HST and VAT receivables | — | 368,127 | ||||||
Expected credit loss provision (Note 20) | (411,032 | ) | (300,735 | ) | ||||
$ | 31,965,982 | $ | 37,868,107 |
As of March 31, 2023, other receivables include:
(i) | amounts advanced to Surge eSports LLC, a former related party by nature of it being under the control or direction of the former Chairman of the Company, of $3,442,682 (December 31, 2022 - $3,445,481). The Company intends to apply these advances against future share subscriptions in Surge eSports LLC. The advances are non-interest bearing and are receivable if the Company does not obtain share subscriptions in Surge eSports LLC, and, |
(ii) | a promissory note receivable of $1,353,300 (December 31, 2022 - $1,354,400) relating to the sale of certain web properties pursuant to an asset purchase agreement dated September 29, 2022. The promissory note is non-interest bearing and due by September 29, 2023. |
7
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
6. | Investment in associates and joint ventures |
(i) | Investment in associates |
On August 30, 2019, pursuant to an investment agreement between Aquilini GameCo Inc. (“GameCo”) and Aquilini Properties LP (a former related party by nature of it being under the control or direction of the former Chairman of the Company), GameCo acquired 100 class B common shares of AIG eSports Canada Holdings Ltd. (“AIG Canada”) and GameCo eSports USA Inc. acquired a 25% non-voting participating interest in AIG eSports USA Intermediate Holdings, LLC (“AIG USA”). Collectively, AIG Canada and AIG USA own and manage professional esports teams in Canada and the United States. Aquilini Properties LP controls AIG Canada and AIG USA.
On October 1, 2022, the Company made a capital contribution of $323,078 to AIG Canada through the settlement of trade receivables due from AIG eSports LP. GameCo, through the class B common shares acquired in AIG Canada, holds 25% of the limited partnership units of AIG eSports LP.
A summary of the Company’s investment in associates is as follows:
AIG Canada | AIG USA | Total | ||||||||||
Balance, January 1, 2022 | $ | 662,853 | $ | 163,507 | $ | 826,360 | ||||||
Contributions | 323,078 | — | 323,078 | |||||||||
Share of net income from investment in associate | 760,117 | 528,240 | 1,288,357 | |||||||||
Balance, December 31, 2022 | $ | 1,746,048 | $ | 691,747 | $ | 2,437,795 | ||||||
Share of net loss from investment in associate | (88,272 | ) | (71,939 | ) | (160,211 | ) | ||||||
Balance, March 31, 2023 | $ | 1,657,776 | $ | 619,808 | $ | 2,277,584 |
(ii) | Investment in joint ventures |
On July 7, 2021, the Company, through its wholly-owned subsidiary, Enthusiast Gaming Inc., entered into a joint venture with Toronto Star Newspapers Limited (“Torstar”) to create an original online news platform and community for gamers named AFK Media Partnership (“AFK”). The Company and Torstar each hold a 50% interest in this joint venture. The Company and Torstar have each invested $125,000 into AFK as startup capital.
A summary of the Company’s investment in AFK is as follows:
Amount | ||||
Balance, January 1, 2022 | $ | 58,909 | ||
Share of net loss from investment in joint venture | (46,673 | ) | ||
Balance, December 31, 2022 | $ | 12,236 | ||
Share of net loss from investment in joint venture | (12,236 | ) | ||
Balance, March 31, 2023 | $ | — |
A summary of the Company’s investment in associates and joint ventures is as follows:
March 31, 2023 | December 31, 2022 | |||||||
AIG Canada | $ | 1,657,776 | $ | 1,746,048 | ||||
AIG USA | 619,808 | 691,747 | ||||||
AFK | — | 12,236 | ||||||
Total investment in associates and joint ventures | $ | 2,277,584 | $ | 2,450,031 |
8
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
7. | Property and equipment |
Furniture and fixtures | Computer equipment | Leasehold improvements | Production equipment | Total | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance, January 1, 2022 | $ | 186,245 | $ | 191,093 | $ | 86,919 | $ | 45,739 | $ | 509,996 | ||||||||||
Additions | 514 | 10,764 | — | — | 11,278 | |||||||||||||||
Effect of movement in exchange rates | 8,729 | 10,706 | 4,625 | 3,125 | 27,185 | |||||||||||||||
Balance, December 31, 2022 | $ | 195,488 | $ | 212,563 | $ | 91,544 | $ | 48,864 | $ | 548,459 | ||||||||||
Additions | — | 18,531 | — | — | 18,531 | |||||||||||||||
Effect of movement in exchange rates | 13 | 542 | (59 | ) | (39 | ) | 457 | |||||||||||||
Balance, March 31, 2023 | $ | 195,501 | $ | 231,636 | $ | 91,485 | $ | 48,825 | $ | 567,447 | ||||||||||
Accumulated depreciation | ||||||||||||||||||||
Balance, January 1, 2022 | $ | 67,945 | $ | 131,692 | $ | 41,679 | $ | 20,692 | $ | 262,008 | ||||||||||
Depreciation | 30,645 | 28,412 | 17,558 | 12,419 | 89,034 | |||||||||||||||
Effect of movement in exchange rates | 3,931 | 8,169 | 2,779 | 1,917 | 16,796 | |||||||||||||||
Balance, December 31, 2022 | $ | 102,521 | $ | 168,273 | $ | 62,016 | $ | 35,028 | $ | 367,838 | ||||||||||
Depreciation | 8,480 | 4,949 | 4,524 | 3,090 | 21,043 | |||||||||||||||
Effect of movement in exchange rates | 42 | 413 | (38 | ) | (27 | ) | 390 | |||||||||||||
Balance, March 31, 2023 | $ | 111,043 | $ | 173,635 | $ | 66,502 | $ | 38,091 | $ | 389,271 | ||||||||||
Net book value | ||||||||||||||||||||
Balance, December 31, 2022 | $ | 92,967 | $ | 44,290 | $ | 29,528 | $ | 13,836 | $ | 180,621 | ||||||||||
Balance, March 31, 2023 | $ | 84,458 | $ | 58,001 | $ | 24,983 | $ | 10,734 | $ | 178,176 |
9
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
8. | Intangibles |
Domain names | Application & technology development & website content | Brand name | Subscriber & sponsorship relationships | Player contracts | Multi channel network license | Talent management & owned & operated content brand | Talent contracts & digital content | Game application & technology development | Total | |||||||||||||||||||||||||||||||
Balance, January 1, 2022 | $ | 50,834,054 | $ | 16,955,178 | $ | 34,574,132 | $ | 7,914,405 | $ | 311,200 | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,063,887 | $ | 142,271,856 | ||||||||||||||||||||
Mergers and Acquisitions | — | 837,000 | 845,000 | 891,000 | — | — | — | — | — | 2,573,000 | ||||||||||||||||||||||||||||||
Disposals | (1,955,000 | ) | (340,000 | ) | — | — | (311,200 | ) | — | — | — | — | (2,606,200 | ) | ||||||||||||||||||||||||||
Effect of movement in foreign exchange rates | 676,519 | 865,525 | 1,558,148 | 70,014 | — | — | — | — | 275,749 | 3,445,955 | ||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | 49,555,573 | $ | 18,317,703 | $ | 36,977,280 | $ | 8,875,419 | $ | — | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,339,636 | $ | 145,684,611 | ||||||||||||||||||||
Additions | — | 27,488 | — | — | — | — | — | — | — | 27,488 | ||||||||||||||||||||||||||||||
Effect of movement in foreign exchange rates | (8,593 | ) | 1,472 | 1,569 | 19,408 | — | — | — | — | (207 | ) | 13,649 | ||||||||||||||||||||||||||||
Balance, March 31, 2023 | $ | 49,546,980 | $ | 18,346,663 | $ | 36,978,849 | $ | 8,894,827 | $ | — | $ | 10,749,000 | $ | 9,363,000 | $ | 5,507,000 | $ | 6,339,429 | $ | 145,725,748 | ||||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2022 | $ | — | $ | 4,394,766 | $ | — | $ | 1,856,235 | $ | 311,200 | $ | 1,440,120 | $ | — | $ | 3,103,940 | $ | 2,027,000 | $ | 13,133,261 | ||||||||||||||||||||
Amortization | — | 7,605,307 | — | 1,333,806 | — | 1,074,920 | — | 1,826,400 | 3,853,494 | 15,693,927 | ||||||||||||||||||||||||||||||
Disposals | — | (340,000 | ) | — | — | (311,200 | ) | — | — | — | — | (651,200 | ) | |||||||||||||||||||||||||||
Effect of movement in foreign exchange rates | — | 311,890 | — | 24,828 | — | — | — | — | 204,467 | 541,185 | ||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | — | $ | 11,971,963 | $ | — | $ | 3,214,869 | $ | — | $ | 2,515,040 | $ | — | $ | 4,930,340 | $ | 6,084,961 | $ | 28,717,173 | ||||||||||||||||||||
Amortization | — | 1,992,479 | — | 352,784 | — | 268,730 | — | 218,330 | 254,336 | 3,086,659 | ||||||||||||||||||||||||||||||
Effect of movement in foreign exchange rates | — | 4,658 | — | 778 | — | — | — | — | 132 | 5,568 | ||||||||||||||||||||||||||||||
Balance, March 31, 2023 | $ | — | $ | 13,969,100 | $ | — | $ | 3,568,431 | $ | — | $ | 2,783,770 | $ | — | $ | 5,148,670 | $ | 6,339,429 | $ | 31,809,400 | ||||||||||||||||||||
Balance, December 31, 2022 | $ | 49,555,573 | $ | 6,345,740 | $ | 36,977,280 | $ | 5,660,550 | $ | — | $ | 8,233,960 | $ | 9,363,000 | $ | 576,660 | $ | 254,675 | $ | 116,967,438 | ||||||||||||||||||||
Balance, March 31, 2023 | $ | 49,546,980 | $ | 4,377,563 | $ | 36,978,849 | $ | 5,326,396 | $ | — | $ | 7,965,230 | $ | 9,363,000 | $ | 358,330 | $ | — | $ | 113,916,348 |
10
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
9. | Goodwill |
The following comprises the balance of goodwill by cash-generating unit (“CGU”). Goodwill arose through the mergers and acquisitions of (i) Luminosity on August 27, 2019, (ii) Enthusiast Gaming Properties Inc. (“Enthusiast Properties) on August 30, 2019, (iii) Steel Media Limited (“Steel Media”) on October 3, 2019, (iv) Omnia Media Inc. (“Omnia”) on August 30, 2020, (v) Vedatis SAS (“Vedatis”) on May 1, 2021, (vi) Tabwire LLC (“Tabwire”) on June 21, 2021, (vii) GameKnot LLC (“GameKnot”) on August 30, 2021, (viii) Addicting Games, Inc. (“Addicting Games”) on September 2, 2021, (ix) Outplayed, Inc. (“Outplayed”) on November 22, 2021, and (x) FFS on April 28, 2022.
In April 2019, Enthusiast Properties acquired 100% of the assets of The Sims Resource (“TSR”) from Generatorhallen AB and IBIBI HB. TSR is identified as a separate CGU from Enthusiast Properties based on the nature of the business and the assessment that TSR generates cash flows that are largely independent of the cash flows from other assets deployed in Enthusiast Properties. The Company has included Vedatis, Tabwire and GameKnot within the Enthusiast Properties CGU based on the nature of these businesses and the assessment that they generate cash flows that are not largely independent of the cash flows from other assets deployed in Enthusiast Properties. The Company has included FFS within the Steel Media CGU based on the nature of these businesses and the assessment that they generate cash flows that are not largely independent of the cash flows from other assets deployed in Steel Media.
A summary goodwill by CGU is as follows:
Enthusiast Properties | TSR | Luminosity | Steel Media | Omnia | Addicting Games | Outplayed | Total | |||||||||||||||||||||||||
Balance, January 1, 2022 | $ | 76,263,276 | $ | 20,898,598 | $ | 6,003,150 | $ | 1,890,627 | $ | 22,921,670 | $ | 29,282,414 | $ | 37,837,924 | $ | 195,097,659 | ||||||||||||||||
Mergers and Acquisitions | — | — | — | 2,053,293 | — | — | — | 2,053,293 | ||||||||||||||||||||||||
Goodwill impairment | — | — | — | — | (14,082,162 | ) | (17,199,124 | ) | — | (31,281,286 | ) | |||||||||||||||||||||
Effect of movement in foreign exchange rates | 849,126 | — | — | 45,344 | — | 2,015,165 | 2,836,690 | 5,746,325 | ||||||||||||||||||||||||
Balance, December 31, 2022 | $ | 77,112,402 | $ | 20,898,598 | $ | 6,003,150 | $ | 3,989,264 | $ | 8,839,508 | $ | 14,098,455 | $ | 40,674,614 | $ | 171,615,991 | ||||||||||||||||
Effect of movement in foreign exchange rates | (10,786 | ) | — | — | 82,400 | — | (9,196 | ) | (36,032 | ) | 26,386 | |||||||||||||||||||||
Balance, March 31, 2023 | $ | 77,101,616 | $ | 20,898,598 | $ | 6,003,150 | $ | 4,071,664 | $ | 8,839,508 | $ | 14,089,259 | $ | 40,638,582 | $ | 171,642,377 |
The Company performs its annual impairment tests at December 31 or at an interim date when events or changes in the business environment (triggering events) would more likely than not reduce the fair value of a CGU below its carrying value. During the three months ended March 31, 2023, the Company concluded that there were no triggering events requiring an impairment assessment.
10. | Right-of-use assets and lease liabilities |
The Company’s leased assets consist of office premises. When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using incremental borrowing rates of 4.20% to 5.00%.
A summary of right-of-use assets is as follows:
Amount | ||||
Balance, January 1, 2022 | $ | 2,885,662 | ||
Depreciation | (924,883 | ) | ||
Effect of movement in exchange rates | 139,217 | |||
Balance, December 31, 2022 | $ | 2,099,996 | ||
Depreciation | (230,321 | ) | ||
Effect of movement in exchange rates | (1,623 | ) | ||
Balance, March 31, 2023 | $ | 1,868,052 |
11
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
10. | Right-of-use assets and lease liabilities (continued) |
A summary of lease liabilities is as follows:
Amount | ||||
Balance, January 1, 2022 | $ | 3,010,347 | ||
Payments | (948,040 | ) | ||
Accretion | 105,496 | |||
Effect of movement in exchange rates | 183,064 | |||
Balance, December 31, 2022 | 2,350,867 | |||
Payments | (265,523 | ) | ||
Accretion | 24,423 | |||
Effect of movement in exchange rates | (1,699 | ) | ||
Balance, March 31, 2023 | 2,108,068 | |||
Current portion of lease liabilities | 839,390 | |||
Long-term portion of lease liabilities | $ | 1,268,678 |
Note 20 provides a summary of undiscounted lease payments to be made as of the statement of financial position date. Variable lease payments during the three months ended March 31, 2023, which are not included in lease liabilities are $70,406 (March 31, 2022 - $87,013). The total cash outflow for leases during the three months ended March 31, 2023 is $335,928 (March 31, 2022 - $327,014).
11. | Accounts payable and accrued liabilities |
A summary of accounts payable and accrued liabilities is as follows:
March 31, 2023 | December 31, 2022 | |||||||
Accounts payable | $ | 20,787,725 | $ | 23,404,129 | ||||
Accrued liabilities | 7,845,460 | 9,419,191 | ||||||
HST and VAT payables | 84,229 | — | ||||||
$ | 28,717,414 | $ | 32,823,320 |
The Company, in the course of its normal operations, is subject to claims, lawsuits, and contingencies. Accruals are made in instances where it is probable that liabilities may be incurred and where such liabilities can be reasonably estimated.
12. | Long-term debt |
Under the terms of a commitment letter (the “Commitment Letter”) dated December 3, 2021, an arm’s length lender (the “Bank”) agreed to provide the Company, as borrower, and certain Canadian and U.S. subsidiaries of the Company, as guarantors, with a non-revolving term facility (the “Term Credit”) and an operating line (the “Operating Credit”).
The Term Credit consists of an authorized credit limit amount of $10,000,000, bearing interest at the Banker’s Acceptance fee equal to CDOR rate plus 7.5% per annum, with interest payable monthly. The Term Credit is repayable in up to 24 equal monthly instalments of principal based on an amortization period of 60 months, with final payment of the remaining principal then outstanding due 24 months from the initial drawdown date of advance. On December 17, 2021 the Company was advanced $10,000,000 which was used to extinguish a prior long-term debt. The Term Credit was used for purposes of (i) working capital and (ii) to finance mergers and acquisitions.
The Operating Credit consists of an authorized amount of $5,000,000, subject to a borrowing base, bearing interest at the greater of (i) the Bank’s prime lending rate plus 1.25%, and (ii) 2.45% per annum, with interest payable monthly. The Operating Credit is repayable no later than 24 months from the date of the satisfaction or waiver of conditions precedent. The Operating Credit is to be used for purposes of general operating requirements. No amounts were drawn upon the Operating Credit as of March 31, 2023 or as of December 31, 2022.
The aggregate of all advances under the Operating Credit and Bank credit cards are not to exceed the lesser of (i) the Operating Credit, and (ii) the borrowing base. The borrowing base is based on a percentage of eligible accounts receivable less certain accounts payable for material subsidiaries of the Company.
12
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
12. | Long-term debt (continued) |
Subject to the Bank’s approval, the Company can exercise an option to extend the maturity date of both the Term Credit and Operating Credit for an additional 12-month period. The Term Credit and Operating Credit are secured by substantially all of the assets of the Company and the guarantor subsidiaries. The Company will be entitled to prepay all or part of the Term Credit and Operating Credit at any time with penalty.
On September 12, 2022, the Company entered into an amendment to commitment letter (the “Amended Commitment Letter”) which increased the total amount of the Term Credit to a maximum amount of $20,000,000. On September 16, 2022, the Company was advanced an incremental $10,000,000 pursuant to the Amended Commitment Letter. The Company incurred transaction costs of $241,872 in connection with the Amended Commitment Letter. As the terms of the Amended Commitment Letter were substantially different from the terms of the Commitment Letter, the amendment was determined to be derecognition of debt in accordance with IFRS 9, Financial Instruments. During the year ended December 31, 2022, a loss on derecognition of long-term debt in the amount of $482,282 was recognized in the consolidated statements of loss and comprehensive loss.
The Term Credit under the Amended Commitment Letter is amortized at an effective interest rate of 11.08% following the transaction costs incurred and loss on derecognition of long-term debt recognized pursuant to the amendment.
On December 31, 2022, as per the terms of the Commitment Letter, the Company provided the Bank notice of the exercise of the Company’s option to extend the maturity date of the Term Credit and Operating Credit for an additional 12-month period ending December 31, 2024. On March 21, 2023, the Company received notice of the Bank's approval of the Company's option to extend the maturity date. The change in the maturity date will be subsequently reflected in the Commitment Letter by means of an amendment.
During the three months ended March 31, 2023, the Company recognized $531,228 (March 31, 2022 – $193,296) of interest expense and $5,350 (March 31, 2022 – expense of $44,971) of accretion income which are included in interest and accretion in the condensed consolidated interim statements of loss and comprehensive loss.
The following tables shows the movement of the Term Credit balance during the period:
Amount | ||||
Balance, January 1, 2022 | $ | 9,681,867 | ||
Advances | 10,000,000 | |||
Repayments | (2,588,238 | ) | ||
Accretion | 97,586 | |||
Transaction costs | (241,872 | ) | ||
Loss on derecognition of long-term debt | 482,282 | |||
Balance, December 31, 2022 | $ | 17,431,625 | ||
Payments | (1,088,235 | ) | ||
Accretion | (5,350 | ) | ||
Balance, March 31, 2023 | 16,338,040 | |||
Current portion of long-term debt | 4,352,940 | |||
Long-term debt | $ | 11,985,100 |
The Amended Commitment Letter contains certain covenants that the Company must comply with, including (i) maintaining a minimum funded debt to gross profit ratio, which varies by quarter, (ii) at all times, a cash runway ratio of a minimum of 4 months, tested quarterly, until the quarter ending March 31, 2023, and then a cash runway ratio of a minimum of 6 months, tested quarterly, until the quarter ending December 31, 2023, and (iii) beginning December 31, 2023, a minimum funded debt to EBITDA ratio of no more than 4.0x, calculated based on the trailing 12 months and tested quarterly. The Company was in compliance with the applicable covenants during the three months ended March 31, 2023.
13
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
13. | Other long-term debt |
Upon the acquisition of Addicting Games, the Company obtained a USD $150,000 United States of America Small Business Administration loan (“SBA Loan”). The SBA Loan has a term which is thirty years from the date of the initial advance, expiring July 2, 2050. The SBA loan bears interest at 3.75% per annum, is repayable in monthly installment payments until maturity of USD $731, which includes principal and interest, the remaining outstanding principal amount will be repaid on July 2, 2050. The SBA Loan is secured by Addicting Games’ assets.
The SBA Loan is being amortized at an effective interest rate of 7.10%.
The following table shows the movement of the SBA Loan during the period:
Amount | ||||
Balance, January 1, 2022 | $ | 147,445 | ||
Accretion | 11,089 | |||
Payments | (12,871 | ) | ||
Effect of movement in exchange rates | 10,072 | |||
Balance, December 31, 2022 | $ | 155,735 | ||
Accretion | 2,724 | |||
Payments | (2,968 | ) | ||
Effect of movement in exchange rates | (127 | ) | ||
Balance, March 31, 2023 | 155,364 | |||
Current portion of other long-term debt | 10,882 | |||
Other long-term debt | $ | 144,482 |
14. | Deferred payment liability |
The deferred payment liability relates to the mergers and acquisitions of (i) Steel Media on October 3, 2019, (ii) Vedatis on May 1, 2021, (iii) GameKnot on August 30, 2021, (iv) Addicting Games on September 3, 2021, (v) Outplayed on November 22, 2021, and (vi) FFS on April 28, 2022.
(i) | Steel Media deferred payment liability |
The Steel Media deferred payment liability consisted of the present value of the earn-out payment (the “Steel Media Earn-Out Payment”) of USD $500,000 expected to be paid based on the performance of Steel Media by April 15, 2022.
The Company had, at its option, the ability to settle the Steel Media Earn-Out Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the five trading days immediately prior to the date that the amount of any Steel Media Earn-Out Payment was conclusively determined.
The expected Steel Media Earn-Out Payment was calculated on a dollar-for-dollar basis to the extent the average annualized normalized gross revenue of Steel Media for the period from January 1, 2020 to December 31, 2021 exceeded USD $2,500,000. The maximum Steel Media Earn-Out Payment would not exceed USD $500,000.
The Steel Media Earn-Out Payment was amortized at an effective interest rate of 13.15%.
During the year ended December 31, 2022, the Steel Media Earn-Out Payment was determined to be $461,891 (USD $369,631) resulting in gain on revaluation of deferred payment liability of $149,399. On April 29, 2022, the Company settled the Steel Media Earn-Out Payment through a cash payment of $472,833 (USD $369,631).
14
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
14. | Deferred payment liability (continued) |
(i) | Steel Media deferred payment liability (continued) |
The following table shows the movement of the Steel Media deferred payment liability during the period:
Steel Media Earn-Out Payment |
| |||
Balance, January 1, 2022 | $ | 600,508 | ||
Accretion | 20,698 | |||
Payment – cash | (472,833 | ) | ||
Gain on revaluation of deferred payment liability | (149,399 | ) | ||
Effect of movement in exchange rates | 1,026 | |||
Balance, December 31, 2022 and March 31, 2023 | $ | — |
(ii) | Vedatis deferred payment liability |
The Vedatis deferred payment liability consists of the present value of a Euro €750,000 payment (the “Vedatis Deferred Payment”) to be paid on May 1, 2022 and the present value of the estimated earn-out payment (the “Vedatis Earn-Out Payment”) expected to be paid based on the performance of Vedatis by August 29, 2025.
The Vedatis Earn-Out Payment, subject to certain conditions, is equal to the sum of earnings before interest, taxes, depreciation and amortization for the best four consecutive quarters of the existing Vedatis business at the time of closing excluding new business generated or enhanced by the Company. The earn-out period is for four years following May 1, 2021.
The Company had, at its option, the ability to settle the Vedatis Deferred Payment of Euro €750,000 either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the two trading days immediately prior to May 1, 2022. On June 2, 2022, the Vedatis Deferred Payment has been settled by the Company issuing 348,852 common shares of the Company through the exercise of the Company’s option.
The Company has, at its option, the ability to settle the Vedatis Earn-Out Payment half in cash and half in common shares, the share payment portion will be settled by the allotment and issuance of such number of common shares determined by the volume weighted average price for the two trading days immediately prior to May 1, 2025.
The Company uses Monte-Carlo simulation valuation techniques to estimate the net present value of the Vedatis Earn-Out Payment. The cash portion and equity portion are present valued separately based on the outcomes of the Monte-Carlo simulation. The Vedatis Earn-Out Payment is revalued each reporting period with changes in fair value of the Vedatis Earn-Out Payment recorded in the condensed consolidated interim statements of loss and comprehensive loss.
On March 31, 2023, the Vedatis Earn-Out Payment was revalued at $1,236,990 (December 31, 2022 - $1,377,764) based on a discounted valuation using a 13.78% (December 31, 2022 – 11.01%) and 3.43% (December 31, 2022 – 3.68%) discount rate for the cash settled and equity settled portion, respectively, and an expectation that a Vedatis Earn-Out Payment of $1,511,106 (December 31, 2022 – $1,667,515) is probable. Following the March 31, 2023 revaluation, the cash portion of the Vedatis Earn-Out Payment is amortized at an effective interest rate of 13.86% (December 31, 2022 – 11.06%).
15
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
14. | Deferred payment liability (continued) |
(ii) | Vedatis deferred payment liability (continued) |
The fair value of the Vedatis Earn-Out Payment as of March 31, 2023 and December 31, 2022 was calculated using the following inputs:
March 31, 2023 | December 31, 2022 | |
Payment date | August 29, 2025 | August 29, 2025 |
Time to maturity | 2.42 years | 2.66 years |
Required metric risk premium | 21.75% | 21.75% |
EBITDA volatility | 16.00% | 15.00% |
Senior credit rating | B- | B- |
Earn-out payment credit rating | CCC+ | CCC+ |
Drift rate | 3.49% | 3.73% |
Discount rate (risk free rate) for equity-based payment | 3.43% | 3.68% |
Discount rate (risk adjusted rate) for cash payment | 13.78% | 11.01% |
Discount rate for lack of marketability | Nil% | Nil% |
The following table shows the movement of the Vedatis deferred payment liability during the period:
| Vedatis Deferred Payment |
|
| Vedatis Earn-Out Payment |
| Total | ||||||
Balance, January 1, 2022 | $ | 1,058,789 | $ | 1,774,336 | $ | 2,833,125 | ||||||
Accretion | 21,117 | 64,110 | 85,227 | |||||||||
Payment – shares | (1,013,400 | ) | — | (1,013,400 | ) | |||||||
Gain on revaluation of deferred payment liability | — | (472,381 | ) | (472,381 | ) | |||||||
Effect of movement in exchange rates | (66,506 | ) | 11,699 | (54,807 | ) | |||||||
Balance, December 31, 2022 | $ | — | $ | 1,377,764 | $ | 1,377,764 | ||||||
Accretion | — | 17,115 | 17,115 | |||||||||
Gain on revaluation of deferred payment liability | — | (172,024 | ) | (172,024 | ) | |||||||
Effect of movement in exchange rates | — | 14,135 | 14,135 | |||||||||
Balance, March 31, 2023 | — | 1,236,990 | 1,236,990 | |||||||||
Current portion of deferred payment liability | — | — | — | |||||||||
Long-term portion of deferred payment liability | $ | — | $ | 1,236,990 | $ | 1,236,990 |
(iii) | GameKnot deferred payment liability |
The GameKnot deferred payment liability consisted of the present value of a USD $500,000 six-month anniversary payment (the “GameKnot Deferred Payment”) to be paid on February 28, 2022.
The Company had, at its option, the ability to settle the GameKnot Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to August 30, 2021.
The GameKnot Deferred Payment was amortized at an effective interest rate of 6.01%.
On February 28, 2022, the GameKnot Deferred Payment has been settled by the Company issuing 111,267 common shares of the Company through the exercise of the Company’s option (Note 15).
The following table shows the movement of the GameKnot deferred payment liability during the period:
GameKnot Deferred Payment | ||||
Balance, January 1, 2022 | $ | 627,781 | ||
Accretion | 6,111 | |||
Payment – shares | (634,900 | ) | ||
Effect of movement in exchange rates | 1,008 | |||
Balance, December 31, 2022 and March 31, 2023 | $ | — |
16
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
14. | Deferred payment liability (continued) |
(iv) | Addicting Games deferred payment liability |
The Addicting Games deferred payment liability consisted of the present value of a USD $7,000,000 first anniversary payment (the “Addicting Games First Anniversary Deferred Payment”) to be paid on September 3, 2022 and the present value of a USD $3,800,000 second anniversary payment (the “Addicting Games Second Anniversary Deferred Payment”) to be paid on September 3, 2023 (collectively the “Addicting Games Deferred Payment”).
The Company had, at its option, the ability to settle the Addicting Games Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the payment due dates.
The Addicting Games First Anniversary Deferred Payment and Addicting Games Second Anniversary Deferred Payment were amortized at an effective interest rate of 6.88% and 6.88% respectively.
On May 25, 2022, the Company and former shareholders of Addicting Games entered into an amending agreement to the Addicting Games share purchase agreement to satisfy the settlement of the Addicting Games Deferred Payment by the Company issuing 4,320,000 common shares of the Company. On June 2, 2022, the Addicting Games Deferred Payment has been settled by the Company issuing 4,319,996 common shares of the Company resulting in a loss on settlement of deferred payment liability of $248,358 which was recognized in the consolidated statements of loss and comprehensive loss. The common shares issued were 4 common shares less than 4,320,000 common shares to be issued due the elimination of fractional common shares.
The following table shows the movement of the Addicting Games deferred payment liability during the period:
Addicting Games Deferred Payment | ||||
Balance, January 1, 2022 | $ | 12,768,719 | ||
Accretion | 372,915 | |||
Payment - shares | (13,305,588 | ) | ||
Loss on settlement of deferred payment liability | 248,358 | |||
Effect of movement in exchange rates | (84,404 | ) | ||
Balance, December 31, 2022 and March 31, 2023 | $ | — |
(v) | Outplayed deferred payment liability |
The Outplayed deferred payment liability consisted of the present value of a USD $8,500,000 first anniversary payment (the “Outplayed First Anniversary Deferred Payment”) to be paid on November 22, 2022, the present value of a USD $8,500,000 second anniversary payment (the “Outplayed Second Anniversary Deferred Payment”) to be paid on November 22, 2023 (collectively, the “Outplayed Deferred Payment”), the present value of the first anniversary earn-out payment USD $6,000,000 (the “Outplayed First Anniversary Earn-Out Payment”) expected to be paid based on the performance of Outplayed by December 22, 2022, and the present value of the second anniversary earn-out payment USD $6,000,000 (the “Outplayed Second Anniversary Earn-Out Payment”) expected to be paid based on the performance of Outplayed by December 22, 2023 (collectively, the “Outplayed Earn-Out Payment”).
The Outplayed Earn-Out Payment, subject to certain conditions, was to be paid if certain site traffic based targets were met in the first and second years of operations. The first anniversary earn-out period was for one year from the closing date and the second anniversary earn-out period was for one year from the end of the first anniversary earn-out period.
The Company had, at its option, the ability to settle the Outplayed Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days two business days prior to the anniversary payment due dates. The Company had, at its option, the ability to settle the Outplayed Earn-Out Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the date the applicable earn-out is achieved.
17
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
14. | Deferred payment liability (continued) |
(v) | Outplayed deferred payment liability (continued) |
The Outplayed First Anniversary Earn-Out Payment, the Outplayed Second Anniversary Earn-Out Payment, Outplayed First Anniversary Earn-Out Payment and the Outplayed Second Anniversary Earn-Out Payment were amortized at an effective interest rate of 7.38%, 7.38%, 17.97% and 17.96% respectively.
On May 25, 2022, the Company and former shareholders of Outplayed entered into an amending agreement to the Outplayed merger agreement to satisfy the settlement of the Outplayed Deferred Payment and Outplayed Earn-Out Payment by the Company issuing 11,500,000 common shares of the Company. On June 2, 2022, the Outplayed Deferred Payment and Outplayed Earn-Out Payment was settled by the Company issuing 11,499,988 common shares of the Company resulting in a loss on settlement of deferred payment liability of $2,900,068 which was recognized in the consolidated statements of loss and comprehensive loss. The common shares issued were 12 common shares less than 11,500,000 common shares to be issued due the elimination of fractional common shares.
The following table shows the movement of the Outplayed deferred payment liability during the period:
Outplayed Deferred Payment | Outplayed Earn-Out Payment | Total | ||||||||||
Balance, January 1, 2022 | $ | 19,467,148 | $ | 11,741,140 | $ | 31,208,288 | ||||||
Accretion | 610,138 | 912,424 | 1,522,562 | |||||||||
Payment – shares | (20,763,426 | ) | (14,656,537 | ) | (35,419,963 | ) | ||||||
Loss on settlement of deferred payment liability | 815,138 | 2,084,930 | 2,900,068 | |||||||||
Effect of movement in exchange rates | (128,998 | ) | (81,957 | ) | (210,955 | ) | ||||||
Balance, December 31, 2022 and March 31, 2023 | $ | — | $ | — | $ | — |
(vi) | FFS deferred payment liability |
The FFS deferred payment liability consists of the present value of a $1,609,600 (GBP £1,000,000) first anniversary payment (the “FFS First Anniversary Deferred Payment”) to be paid on April 28, 2023, the present value of a $80,480 (GBP £50,000) second anniversary payment (the “FFS Second Anniversary Payment”) to be paid April 28, 2024 (collectively, the “FFS Deferred Payment”) and the present value of the first anniversary earn-out payment of $804,800 (GBP £500,000) (the “FFS Earn-Out Payment”) expected to be on April 28, 2023.
The FFS Earn-Out Payment will be paid if the Fantasy Premier League agreement, which expired on August 1, 2022, is renewed for an additional three-year period, on substantially similar or more favourable terms. The Fantasy Premier League agreement was renewed on August 1, 2022 for an additional three-year period on substantially similar terms.
The Company has, at its option, the ability to settle the FFS First Anniversary Deferred Payment either in cash or by the allotment and issuance of such number of common shares determined by the volume weighted average price for the ten trading days prior to the payment due date.
The FFS First Anniversary Deferred Payment was included in FFS’ total purchase price consideration at an initial fair value of $1,497,581 based on a discounted valuation using a 7.48% discount rate. The FFS Second Anniversary Deferred Payment was included in FFS’ total purchase price consideration at an initial fair value of $69,668 based on a discounted valuation using a 7.48% discount rate. The FFS Earn-Out Payment was included in FFS’ total purchase price consideration at an initial fair value of $748,790 based on a discounted valuation using a 7.48% discount rate with an expectation that payment of the full earn-out of GBP £500,000 is probable.
The FFS First Anniversary Deferred Payment, FFS Second Anniversary Deferred Payment and FFS Earn-Out Payment are amortized at an effective interest rate of 7.23%, 7.23% and 7.23% respectively.
18
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
14. | Deferred payment liability (continued) |
(vi) | FFS deferred payment liability (continued) |
The following table shows the movement of the FFS deferred payment liability during the period:
FFS Deferred Payment | FFS Earn-Out Payment | Total | ||||||||||
Balance, January 1, 2022 | $ | — | $ | — | $ | — | ||||||
Initial fair value of deferred payment liability | 1,567,249 | 748,790 | 2,316,039 | |||||||||
Accretion | 76,532 | 36,567 | 113,099 | |||||||||
Effect of movement in exchange rates | 24,969 | 11,931 | 36,900 | |||||||||
Balance, December 31, 2022 | $ | 1,668,750 | $ | 797,288 | $ | 2,466,038 | ||||||
Accretion | 30,158 | 14,410 | 44,568 | |||||||||
Effect of movement in exchange rates | 41,834 | 19,986 | 61,820 | |||||||||
Balance, March 31, 2023 | 1,740,742 | 831,684 | 2,572,426 | |||||||||
Current portion of deferred payment liability | 1,663,369 | 831,684 | 2,495,053 | |||||||||
Long-term portion of deferred payment liability | $ | 77,373 | $ | — | $ | 77,373 |
The following table shows the aggregate movement of the deferred payment liability during the three months ended March 31, 2023 and year ended December 31, 2022:
March 31, 2023 | December 31, 2022 | |||||||
Beginning balance | $ | 3,843,802 | $ | 48,038,421 | ||||
Initial fair value of deferred payment liability | — | 2,316,039 | ||||||
Accretion | 61,683 | 2,120,612 | ||||||
Payment – cash | — | (472,833 | ) | |||||
Payment – shares | — | (50,373,851 | ) | |||||
Loss on settlement of deferred payment liability | — | 3,148,426 | ||||||
Gain on revaluation of deferred payment liability | (172,024 | ) | (621,780 | ) | ||||
Effect of movement in exchange rates | 75,955 | (311,232 | ) | |||||
Ending balance | 3,809,416 | 3,843,802 | ||||||
Current portion of deferred payment liability | 2,495,053 | 2,391,863 | ||||||
Long-term portion of deferred payment liability | $ | 1,314,363 | $ | 1,451,939 |
The Company had a working capital adjustment receivable from the acquisition of Addicting Games of $154,398 which was settled as part of the amending agreement to the Addicting Games share purchase agreement and is included in the loss on settlement of deferred payment liability in the consolidated statements of loss and comprehensive loss resulting in a total loss on settlement of deferred payment liability of $3,302,824 during the year ended December 31, 2022.
15. | Share capital |
Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
During the three months ended March 31, 2023, the Company had no share capital activity.
During the three month ended March 31, 2022:
(i) | On February 14, 2022, the Company issued the remaining 35,770 common shares to be issued relating to the Outplayed share purchase agreement. |
(ii) | On February 28, 2022, the Company issued 111,267 common shares to settle the GameKnot Deferred Payment liability (Note 14). |
(iii) | The Company received proceeds of $69,821 from the exercise of 74,051 stock options. The fair value assigned to these stock options of $239,899 was reclassified from contributed surplus to share capital. |
19
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
16. | Stock options |
On January 20, 2021, the shareholders of the Company approved and ratified the adoption of the stock option plan (the “Stock Option Plan”) which allows the Board of Directors to grant stock options to directors, officers, employees and consultants of the Company as performance incentives. The maximum number of common shares issuable under the Stock Option Plan is limited to 10% of the issued and outstanding common shares of the Company. There are also limitations on the number of common shares issuable to insiders. At the time of granting a stock option, the Board of Directors must approve: (i) the exercise price, being not less than the market value of the common shares; (ii) the vesting provisions; and (iii) the expiry date, generally being no more than ten years after the grant date.
The following table reflects the continuity of stock options as of March 31, 2023 and December 31, 2022:
March 31, 2023 | December 31, 2022 | ||||||||||||
Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | ||||||||||
Beginning balance | 3,941,982 | $ | 3.46 | 3,923,491 | $ | 3.35 | |||||||
Granted | 6,062,976 | 0.91 | 1,772,909 | 2.56 | |||||||||
Exercised | — | — | (760,938 | ) | (0.44 | ) | |||||||
Forfeited | (22,330 | ) | (4.45 | ) | (993,480 | ) | (3.73 | ) | |||||
Ending balance | 9,982,628 | $ | 1.91 | 3,941,982 | $ | 3.46 | |||||||
Exercisable | 2,800,692 | $ | 3.38 | 1,972,929 | $ | 3.10 |
The weighted average share price on the date of exercise is $Nil (December 31, 2022 - $1.10).
On April 20, 2022, the Company issued 1,560,697 stock options to directors, officers, employees and consultants, of which 902,141 were issued to directors and officers. These stock options are exercisable at $2.75, expire April 20, 2027 and vest as follows: (i) 34,000 on April 20, 2022, (ii) 503,308 on January 1, 2023, (iii) 17,000 on April 20, 2023, (iv) 503,308 on January 1, 2024, and (v) 503,351 on January 1, 2025. The fair value of these stock options issued was $2.07 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $2.75; exercise price - $2.75; expected life in years – 5 years; expected volatility – 105.61% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 3.55%; and, risk-free interest rate – 2.74%.
On November 17, 2022, the Company issued 211,942 stock options to directors, officers and employees, of which 174,011 were issued to directors and officers. Stock options issued to directors and officers of 122,608 are exercisable at $1.13, expire February 16, 2027 and vest as follows: (i) 40,868 on January 1, 2023, (ii) 40,868 on January 1, 2024, and (iii) 40,872 on January 1, 2025. The fair value of these stock options issued was $0.55 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $0.81; exercise price - $1.13; expected life in years – 4.25 years; expected volatility – 109.11% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 4.13%; and, risk-free interest rate – 3.33%. Stock options issued to employees and officers of 89,334 are exercisable at $1.13, expire November 17, 2027 and vest as follows: (i) 12,500 on November 17, 2022 (ii) 33,944 on January 1, 2023, (iii) 21,444 on January 1, 2024, and (iv) 21,446 on January 1, 2025. The fair value of these stock options issued was $0.59 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $0.81; exercise price - $1.13; expected life in years – 5 years; expected volatility – 107.44% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – 4.13%; and, risk-free interest rate – 3.33%.
On March 1, 2023, the Company issued 5,305,104 stock options to the Chief Executive Officer. These stock options are exercisable at $0.91, expire March 1, 2033 and vest as follows: (i) 1,326,276 on March 1, 2024, and (ii) 3,978,828 in substantially equal installments of 110,523 at the end of each month starting March 31, 2024 for 36 months ending on February 28, 2027. The fair value of these stock options issued was $0.84 per stock option, which was estimated using the Black-Scholes option pricing model using the following inputs and assumptions: stock price - $0.91; exercise price - $0.91; expected life in years – 10 years; expected volatility – 107.75% (based on comparable companies); expected dividend yield – Nil%; expected forfeiture rate – Nil%; and, risk-free interest rate – 3.41%.
20
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
16. | Stock options (continued) |
On March 1, 2023, the Company issued 757,872 performance stock options to the Chief Executive Officer. These performance stock options are exercisable at $0.91, expire March 1, 2033 and vest as follows: (i) 189,468 on March 1, 2024, and (ii) 568,404 in substantially equal installments of 15,789 at the end of each month starting March 31, 2024 for 36 months ending on February 28, 2027 and, in all events, are subject to the Company’s common shares having an average share price of at least USD $5.00 on the Nasdaq over a period of 90 consecutive days with such threshold being subject to adjustment in the event of any stock split, reverse split or other capital reorganization event (the “Performance Award Requirement”). The Performance Award Requirement is a market condition, an expense for a market-linked performance condition is recognized based on the probable outcome of the market-linked performance condition being met over the vesting period. As of March 31, 2023, it was considered probable that the market-linked performance condition would not be met during the vesting period, as a result no expense was recognized during the period.
The Company recorded share-based compensation expense of $570,958 (March 31, 2022 - $421,270) for stock options vesting during the three months ended March 31, 2023.
The Company has the following stock options outstanding as of March 31, 2023:
Expiry date | Number of stock options outstanding | Exercise price | Number of stock options exercisable | Weighted average remaining life (years) | |||||||||
November 14, 2023 | 13,187 | 2.37 | 13,187 | 0.62 | |||||||||
March 29, 2024 | 200,450 | 2.37 | 200,450 | 1.00 | |||||||||
August 27, 2024 | 868,750 | 2.40 | 868,750 | 1.41 | |||||||||
December 9, 2025 | 643,983 | 3.20 | 643,983 | 2.70 | |||||||||
January 1, 2026 | 586,757 | 8.75 | 391,162 | 2.76 | |||||||||
February 16, 2027 | 122,608 | 1.13 | 40,868 | 3.88 | |||||||||
April 20, 2027 | 1,204,583 | 2.75 | 405,848 | 4.06 | |||||||||
November 17, 2027 | 89,334 | 1.13 | 46,444 | 4.64 | |||||||||
December 12, 2028 | 190,000 | 1.00 | 190,000 | 5.71 | |||||||||
March 1, 2033 | 6,062,976 | 0.91 | — | 9.93 | |||||||||
9,982,628 | 1.91 | 2,800,692 | 7.20 |
17. | Share units |
On January 20, 2021, the shareholders of the Company approved and ratified the adoption of the Share Unit Plan (“SU Plan”) which allows for the issuance of restricted share units and performance share units (collectively “Share Units”) to directors, officers, employees and consultants. The Board of Directors, or a committee appointed by the Board of Directors, will establish vesting conditions of Share Units at the time of grant. The maximum number of common shares that are issuable to settle Share Units cannot exceed 4% of the aggregate number of common shares issued and outstanding and the maximum number of common shares issuable in aggregate under the SU Plan and other share-based compensation arrangements adopted by the Company cannot exceed 10% of the common shares issued and outstanding. Share Units can be settled in cash or common shares at the option of the Company.
On April 20, 2022, the Company issued 1,922,877 restricted share units to directors, officers, employees and consultants, of which 1,531,349 were issued to directors and officers. These restricted share units are expected to be settled through issuance of 1,922,877 common shares of the Company. These restricted share units vest as follows: (i) 166,666 on April 20, 2022, (ii) 557,608 on January 1, 2023, (iii) 83,334 on April 20, 2023, (iv) 557,608 on January 1, 2024, and (v) 557,661 on January 1, 2025. The fair value of these restricted share units issued was $2.69 per restricted share unit using the following inputs and assumptions: quoted market price on the date of issuance - $2.75; and, expected forfeiture rate - 2.58%.
21
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
17. | Share units (continued) |
On November 17, 2022, the Company issued 437,636 restricted share units to directors, officers and employees, of which 401,229 were issued to directors and officers. These restricted share units are expected to be settled through issuance of 437,636 common shares of the Company. These restricted share units vest as follows: (i) 155,018 on November 17, 2022, (ii) 102,507 on January 1, 2023, (iii) 90,007 on January 1, 2024, and (iv) 90,014 on January 1, 2025. The fair value of these restricted share units issued was $0.80 per restricted share unit using the following inputs and assumptions: quoted market price on the date of issuance - $0.81; and, expected forfeiture rate - 2.70%.
The Company recorded share-based compensation expense of $559,373 (March 31, 2022 - $964,911) for restricted share units vesting during the three months ended March 31, 2023.
The Company has the following restricted share units outstanding as of March 31, 2023 and December 31, 2022:
March 31, 2023 | December 31, 2022 | |||||||
Beginning balance | 4,139,454 | 2,455,697 | ||||||
Granted | — | 2,360,513 | ||||||
Released | — | (42,838 | ) | |||||
Forfeited | (6,188 | ) | (633,918 | ) | ||||
Ending balance | 4,133,266 | 4,139,454 | ||||||
Vested | 2,813,473 | 1,752,170 |
18. | Related party transactions and balances |
The Company's key management personnel have authority and responsibility for overseeing, planning, directing and controlling the activities of the Company. Key management personnel include members of the Board of Directors, Chief Executive Officer, former Chief Operating Officer, Chief Financial Officer, Chief Corporate Officer, President, former President and Senior Vice President, Legal and General Counsel. Compensation of key management personnel may include short-term and long-term benefits. Short-term benefits include salaries and bonuses. Share-based compensation includes the fair value of stock options and restricted share units vested during the period.
Compensation provided to key management during the three months ended March 31, 2023 and 2022 is as follows:
March 31, 2023 | March 31, 2022 | |||||||
Short-term benefits | $ | 687,545 | $ | 1,878,250 | ||||
Share-based compensation | 832,004 | 1,189,327 | ||||||
$ | 1,519,549 | $ | 3,067,577 |
A summary of other related party transactions during the three months ended March 31, 2023 and 2022 is as follows:
March 31, 2023 | March 31, 2022 | |||||||
Total transactions during the period: | ||||||||
Expenses | ||||||||
Consulting fees | $ | 18,805 | $ | 138,571 | ||||
Share of net loss (income) from investment in associates and joint ventures | 12,236 | (296,041 | ) |
A summary of related party balances as of March 31, 2023 and December 31, 2022 is as follows:
March 31, 2023 | December 31, 2022 | |||||||
Balances receivable (payable): | ||||||||
Trade and other receivables | $ | 67,177 | $ | 67,180 | ||||
Investment in associates and joint ventures | — | 12,236 | ||||||
Accounts payable and accrued liabilities | (116,189 | ) | (249,976 | ) |
22
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
18. | Related party transactions and balances (continued) |
During the three months ended March 31, 2023, the Company recognized consulting expenses of $18,805 (March 31, 2022 - $18,793) to Rivonia Capital Inc., a company in which a director of the Company is a principal. As of March 31, 2023, a balance of $21,187 (December 31, 2022 - $14,125) is included in account payable and accrued liabilities.
During the three months ended March 31, 2023, the Company recognized $Nil (March 31, 2022 - $119,778) in consulting fees relating to Board of Director and committee fees to certain directors. As of March 31, 2023, a balance of $95,002 (December 31, 2022 - $235,851) is included in account payable and accrued liabilities.
See Note 6 for information relating to an investment in a joint venture under common management as the Company. During the three months ended March 31, 2023, the Company recognized a share of net loss from investment in joint ventures of $12,236 (March 31, 2022 – share of net income of $29,998) from AFK, a related party by nature of it having common management as the Company. As of March 31, 2023, a balance of $67,177 (December 31, 2022 - $67,180) is included in trade and other receivables.
See Note 6 for information relating to an investment in associates controlled by the former Chairman of the Company. The former Chairman of the Company did not seek re-election at the Company’s July 19, 2022 annual general meeting and is no longer a related party as of July 19, 2022. During the period from January 1, 2022 to March 31, 2022, the Company’s share of net income from investment is associates was $266,043.
See Note 16 for information relating to stock options issued to officers and directors of the Company.
See Note 17 for information relating to restricted share units issued to officers and directors of the Company.
19. | Capital management |
The Company considers its capital structure to consist of shareholders’ equity, long-term debt and deferred payment liability. The Company manages its capital structure and makes adjustments to it, in order to have the funds available to support the acquisition and development of its business. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The Company is dependent on external financing to fund its activities. In order to carry out the planned operations and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the size of the Company, is reasonable. There were no changes in the Company’s approach to capital management during the three months ended March 31, 2023. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements aside from the covenants described in Note 12.
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern. The Company’s ability to raise future capital is subject to uncertainty and the inability to raise such capital may have an adverse impact over the Company’s ability to continue as a going concern.
20. | Financial instruments |
Fair values
The fair values of cash, investments, trade and other receivables, loans receivable, accounts payable and accrued liabilities and contract liabilities approximate their carrying values due to the relatively short-term nature of these financial instruments. The fair value of long-term debt, lease liabilities, deferred payment liability and other long-term debt is based on observable market data and the calculation of discounted cash flows. Discount rates were determined based on current terms and conditions observed in the credit market.
The Company follows a three-tier categorization for its financial instruments as a framework for disclosing fair value based upon inputs used to value the Company's investments. The hierarchy is summarized as:
● | Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities |
● | Level 2 – inputs that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices) from observable market data |
● | Level 3 – inputs for assets and liabilities not based upon observable market data |
As of March 31, 2022 the Vedatis Earn-Out Payment liability is classified as a Level 3 financial instrument, see Note 14.
23
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
20. | Financial instruments (continued) |
Fair values (continued)
Total interest income and interest expense for the three months ended March 31, 2023 and 2022 for financial assets or financial liabilities that are not at fair value through profit or loss is as follows:
March 31, 2023 | March 31, 2022 | |||||||
Interest income | $ | (61,207 | ) | $ | (1,401 | ) | ||
Interest and accretion expense | 578,815 | 1,430,669 | ||||||
Net interest expense | $ | 517,608 | $ | 1,429,268 |
The Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, foreign currency risk and interest rate risk.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations.
The Company’s maximum exposure to credit risk for its trade receivables is summarized as follows:
March 31, 2023 | December 31, 2022 | |||||||
Trade receivables aging: | ||||||||
0-30 days | $ | 22,291,748 | $ | 26,077,091 | ||||
31-60 days | 1,934,249 | 1,455,672 | ||||||
61-90 days | 656,404 | 1,803,214 | ||||||
Greater than 90 days | 1,807,739 | 2,558,113 | ||||||
26,690,140 | 31,894,090 | |||||||
Expected credit loss provision | (411,032 | ) | (300,735 | ) | ||||
Net trade receivables | $ | 26,279,108 | $ | 31,593,355 |
The movement in the expected credit loss provision can be reconciled as follows:
March 31, 2023 | December 31, 2022 | |||||||
Expected credit loss provision, beginning balance | $ | (300,735 | ) | $ | (58,472 | ) | ||
Increase in provision of expected credit losses | (122,088 | ) | (240,603 | ) | ||||
Recoveries | 13,908 | — | ||||||
Effect of movement in exchange rates | (2,117 | ) | (1,660 | ) | ||||
Expected credit loss provision, ending balance | $ | (411,032 | ) | $ | (300,735 | ) |
The following default rates, determined based on historical default rates based on the aging of trade receivables, are used to calculate the expected credit loss provision on trade receivables as of March 31, 2023:
Total | Not past due | Over 30 days past due | Over 60 days past due | Over 90 days past due | ||||||||||||||||
Default rates | 0.96 | % | 1.23 | % | 1.70 | % | 8.91 | % | ||||||||||||
Trade receivables | $ | 26,690,140 | $ | 22,291,748 | $ | 1,934,249 | $ | 656,404 | $ | 1,807,739 | ||||||||||
Expected credit loss provision | $ | 411,032 | $ | 214,976 | $ | 23,873 | $ | 11,146 | $ | 161,037 |
All of the Company’s cash is held with major financial institutions and thus the exposure to credit risk is considered insignificant. Management actively monitors the Company’s exposure to credit risk under its financial instruments.
24
Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
20. | Financial instruments (continued) |
Concentration risk
The Company has one customer which makes up more than 10% of revenue. This customer accounts for approximately 26.57% (December 31, 2022 – 30.24%) of trade receivables as of March 31, 2023 and 46.61% (March 31, 2022 – 58.44%) of revenues for the three months ended March 31, 2023.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements.
The Company holds sufficient cash and working capital which is maintained through stringent cash flow management to ensure sufficient liquidity is maintained. The table below summarizes the Company's contractual obligations into relevant maturity groups at the statement of financial position date based on the expected contractual maturity date. The amounts disclosed in the table are the contractual undiscounted payments.
Less than one year | One to two years | Two to three years | More than three years | Total | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 28,717,414 | $ | — | $ | — | $ | — | $ | 28,717,414 | ||||||||||
Contract liabilities | 4,735,649 | — | — | — | 4,735,649 | |||||||||||||||
Income tax payable | 246,201 | — | — | — | 246,201 | |||||||||||||||
Deferred payment liability | 2,508,900 | 83,630 | 1,516,777 | — | 4,109,307 | |||||||||||||||
Lease liabilities | 910,394 | 623,396 | 555,435 | 139,877 | 2,229,102 | |||||||||||||||
Long-term debt | 4,352,940 | 11,970,590 | — | — | 16,323,530 | |||||||||||||||
Other long-term debt | 10,882 | 11,871 | 11,871 | 374,976 | 409,600 | |||||||||||||||
$ | 41,482,380 | $ | 12,689,487 | $ | 2,084,083 | $ | 514,853 | $ | 56,770,803 |
Foreign currency risk
A large portion of the Company’s transactions occur in foreign currencies (including US dollars, UK pound sterling and Euro) and, therefore, the Company is exposed to foreign currency risk at the end of the reporting period through its US dollars, UK pound sterling and Euro denominated trade and other receivables, accounts payable and accrued liabilities, deferred payment liability and cash. As of March 31, 2023, a 10% depreciation or appreciation of the US dollar, UK pound sterling and Euro against the Canadian dollar would have resulted in an approximate $222,000, $258,000 and $125,000 decrease or increase, respectively, in total net loss and comprehensive loss.
Interest rate risk
The Company’s long-term debt bears interest at Banker’s Acceptance fee equal to CDOR rate plus 7.5%. Fluctuations in the Banker’s Acceptance fee equal to CDOR rate will result in changes to the months interest expense. A change in the annual interest rate of 0.50% would approximately result in a $74,000 change in the annual interest expense.
21. | Commitments |
As of March 31, 2023, the Company has the following payment commitments with respect to consulting and other contractual obligations:
Not later than one year | $ | 651,000 | ||
Later than one year and not later than five years | 559,000 | |||
$ | 1,210,000 |
Further, the Company is subject to capital commitments pursuant to its investments in AIG Canada and AIG USA, see Note 6, as well as Surge eSports LLC which is being established under a similar structure. If the Company fails to make any capital contributions, as required, it may be subject to certain actions including the loss of rights or a reduction in equity ownership in order to satisfy the capital contribution requirements.
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Enthusiast Gaming Holdings Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For the three months ended March 31, 2023 and 2022
(Unaudited - Expressed in Canadian Dollars)
22. | Segment disclosure |
The Company operates in one industry segment of digital media and entertainment. The majority of the Company’s assets are located in Canada and the United States of America (“USA”). The Company sells into three major geographic centers: USA, Canada, England and Wales and other foreign countries. The Company has determined that it has a single reportable segment as the Company’s decision makers reviews information on a consolidated basis.
Revenues by pillar for the three months ended March 31, 2023 and 2022 is as follows:
March 31, 2023 | March 31, 2022 | |||||||
Media and content | $ | 35,531,707 | $ | 41,863,908 | ||||
Esports and entertainment | 3,393,997 | 1,969,779 | ||||||
Subscription | 3,954,262 | 3,333,851 | ||||||
$ | 42,879,966 | $ | 47,167,538 |
Revenues, in Canadian dollars, in each of these geographic location for the three months ended March 31, 2023 and 2022 is as follows:
March 31, 2023 | March 31, 2022 | |||||||
Canada | $ | 1,117,434 | $ | 892,223 | ||||
USA | 34,378,707 | 40,632,821 | ||||||
England and Wales | 3,690,311 | 2,628,064 | ||||||
All other countries | 3,693,514 | 3,014,430 | ||||||
$ | 42,879,966 | $ | 47,167,538 |
The non-current assets, in Canadian dollars, in each of the geographic locations as of March 31, 2023 and December 31, 2022 is as follows:
March 31, 2023 | December 31, 2022 | |||||||
Canada | $ | 153,599,518 | $ | 153,899,948 | ||||
USA | 127,560,534 | 130,543,027 | ||||||
France | 3,342,635 | 3,364,854 | ||||||
England and Wales | 5,659,435 | 5,786,062 | ||||||
$ | 290,162,122 | $ | 293,593,891 |
23. | Subsequent events |
(i) | On May 4, 2023, the Company announced the Listing Qualifications department of the Nasdaq Stock Market LLC (“Nasdaq”) approved the Company’s request for a 180-day extension to regain compliance with Nasdaq’s minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”). The Company now has until October 30, 2023 to regain compliance. If at any time prior to October 30, 2023, the bid price of the Company's common shares closes at USD $1.00 per share or more for a minimum of 10 consecutive business days, the Company will regain compliance with the Minimum Bid Price Requirement. |
In connection with the 180-day extension, the Company has transferred the listing of the common shares from the Nasdaq Global Select Market to the Nasdaq Capital Market. Neither the Company’s operations nor the Company’s TSX listing are affected by the transfer of the Company’s listing to the Nasdaq Capital Market. The common shares will continue to trade without interruption under the symbol “EGLX.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Select Market, and companies on the Nasdaq Capital Market must meet certain financial and corporate governance requirements to qualify for continued listing.
The Company intends to continue to actively monitor the Minimum Bid Price Requirement and, as appropriate, will consider available options to resolve any deficiencies and regain compliance.
(ii) | On May 9, 2023, the Company settled the FFS Earn-Out Payment liability through a cash payment of $844,350 (GBP £500,000) (Note 14). |
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