Exhibit 99.2
(formerly Engine Media Holdings, Inc.)
Consolidated Financial Statements
For the years ended
August 31, 2021 and 2020
(Expressed in United States Dollars)
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) |
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Table of Contents
The accompanying notes are an integral part of these consolidated financial statements.
Page 2 of 68 |
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Baker
Tilly WM LLP 1500 - 401 Bay Street Toronto, Ontario Canada M5H 2Y4 T: +1 416.368.7990 F: +1 416.368.0886 toronto@bakertilly.ca www.bakertilly.ca |
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Engine Gaming and Media, Inc. (formerly, Engine Media Holdings, Inc.):
Opinion
We have audited the consolidated financial statements of Engine Gaming and Media, Inc. (formerly, Engine Media Holdings, Inc.) and its subsidiaries (together the “Company”), which comprise the consolidated statements of financial position as at August 31, 2021 and 2020 and the consolidated statements of loss and comprehensive loss, consolidated statements of changes in shareholders’ equity (deficiency) and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at August 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 1(b) in the consolidated financial statements, which describes the conditions indicating that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. The other information comprises the information included in:
● | Management’s Discussion and Analysis filed with the relevant Canadian securities commissions; and | |
● | Form 40-F filed with the United States Securities and Exchange Commission |
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits and remain alert for indications that the other information appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:
● | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. |
● | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
● | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
● | Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
● | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is John C. Sinclair.
/s/ Baker Tilly WM LLP | |
Chartered Professional Accountants | |
Licensed Public Accountants |
Toronto, Ontario
November 26, 2021
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Consolidated Statements of Financial Position August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Note | Aug 31, 2021 | Aug 31, 2020 | ||||||||||
$ | $ | |||||||||||
ASSETS | ||||||||||||
Current | ||||||||||||
Cash | ||||||||||||
Restricted cash | 17 | |||||||||||
Accounts and other receivables | 9 | |||||||||||
Government remittances | ||||||||||||
Publisher advance, current | 9 | - | ||||||||||
Prepaid expenses and other | ||||||||||||
Non-Current | ||||||||||||
Publisher advance, non-current | 9 | - | ||||||||||
Investment in associate | 10 | - | ||||||||||
Investment at FVTPL | 10 | - | ||||||||||
Property and equipment | 11 | |||||||||||
Goodwill | 12 | |||||||||||
Intangible assets | 13 | |||||||||||
Right-of-use assets | 14 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Page 5 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Consolidated Statements of Financial Position August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Note | Aug 31, 2021 | Aug 31, 2020 | ||||||||||
$ | $ | |||||||||||
LIABILITIES | ||||||||||||
Current | ||||||||||||
Accounts payable | ||||||||||||
Accrued liabilities | ||||||||||||
Players liability account | 17 | |||||||||||
Deferred revenue | ||||||||||||
Lease obligation, current | 16 | |||||||||||
Line of credit | 18 | - | ||||||||||
Long-term debt, current | 20 | |||||||||||
Promissory notes payable | 18 | |||||||||||
Deferred purchase consideration | - | |||||||||||
Warrant liability | 21 | |||||||||||
Convertible debt, current | 19 | - | ||||||||||
Arbitration reserve | 26 | - | ||||||||||
Contingent performance share obligation, current | 27 | - | ||||||||||
Convertible debt, non-current | 19 | |||||||||||
Lease obligation, non-current | 16 | |||||||||||
Long-term debt, non-current | 20 | - | ||||||||||
SHAREHOLDERS’ EQUITY (DEFICIENCY) | ||||||||||||
Share capital | 22 | |||||||||||
Shares to be issued | 27 | - | ||||||||||
Contributed surplus | ||||||||||||
Foreign currency translation reserve | ( | ) | ( | ) | ||||||||
Deficit | ( | ) | ( | ) | ||||||||
Attributable to shareholders | ||||||||||||
Non-controlling interest | ||||||||||||
Going concern | 1 | |||||||||||
Commitments and contingencies | 26 | |||||||||||
Subsequent events | 31 |
Approved on Behalf of Board: | “Larry Rutkowski” | “Lou Schwartz” | ||
Director | Director |
The accompanying notes are an integral part of these consolidated financial statements.
Page 6 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Consolidated Statements of Loss and Comprehensive Loss August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Note | August 31, 2021 | August 31, 2020 | ||||||||||
CONTINUING OPERATIONS | $ | $ | ||||||||||
REVENUE | ||||||||||||
Games development | 7 | |||||||||||
Direct to consumer | 7 | |||||||||||
Software-as-a-service | 7 | |||||||||||
Advertising | 7 | |||||||||||
Professional services | 7 | |||||||||||
EXPENSES | ||||||||||||
Salaries and wages | ||||||||||||
Consulting | ||||||||||||
Professional fees | ||||||||||||
Revenue sharing expense | ||||||||||||
Sponsorships and tournaments | ||||||||||||
Advertising and promotion | ||||||||||||
Office and general | ||||||||||||
Technology expenses | ||||||||||||
Amortization and depreciation | 11,13,14, 27 | |||||||||||
Share-based payments | 23, 24 | |||||||||||
Interest expense | ||||||||||||
Loss on foreign exchange | ||||||||||||
Change in fair value of contingent consideration | - | |||||||||||
Loss on extinguishment of debt | 19 | - | ||||||||||
Gain on retained interest in former associate | 10 | ( | ) | - | ||||||||
Transaction costs | 22 | - | ||||||||||
Non-operational professional fees | - | |||||||||||
Arbitration settlement reserve | 26 | - | ||||||||||
Impairment of investment in associate and advances | - | |||||||||||
Impairment of goodwill and intangibles | 12 | - | ||||||||||
Change in fair value of investment at FVTPL | 10 | ( | ) | - | ||||||||
Change in fair value of warrant liability | 21 | ( | ) | |||||||||
Change in fair value of convertible debt | 19 | ( | ) | |||||||||
ASSOCIATES | ||||||||||||
Share of net loss of associate | 10 | - | ||||||||||
Net loss for the year before taxes | ( | ) | ( | ) | ||||||||
Income tax expense | 15 | - | - | |||||||||
( | ) | ( | ) | |||||||||
DISCONTINUED OPERATIONS | ||||||||||||
Loss on disposal of Motorsports | 27 | ( | ) | - | ||||||||
Loss from discontinued operations | 27 | ( | ) | ( | ) | |||||||
Net loss for the year | ( | ) | ( | ) | ||||||||
Net loss attributable to non-controlling interest | ||||||||||||
Net loss attributable to owners of the Company | ( | ) | ( | ) | ||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||||
Foreign currency translation differences | ( | ) | ||||||||||
Comprehensive loss for the year | ( | ) | ( | ) | ||||||||
LOSS PER SHARE | ||||||||||||
Basic loss per share - continuing operations | 8 | ( | ) | ( | ) | |||||||
Basic loss per share - discontinued operations | 8 | ( | ) | ( | ) | |||||||
Basic and diluted loss per share | 8 | ( | ) | ( | ) | |||||||
Weighted average number of shares outstanding - Basic | 8 |
The accompanying notes are an integral part of these consolidated financial statements.
Page 7 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Consolidated Statements of Shareholders’ Equity (Deficiency) Years ended August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Share
capital: Number | Share
capital: Amount | Shares to be issued | Contributed surplus | Foreign currency translation reserve | Deficit | Total equity before non-controlling interest | Non-controlling interest | Total equity | ||||||||||||||||||||||||||||
# | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Balance, as at August 31, 2019 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Impact of share consolidation | ( | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
Share-based payments | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Shares issued on vesting of RSUs | - | ( | ) | - | - | - | - | - | ||||||||||||||||||||||||||||
Convertible debt conversion | - | - | - | - | - | |||||||||||||||||||||||||||||||
Private placements, net of costs | - | - | - | - | - | |||||||||||||||||||||||||||||||
Shares issued for debt conversion | - | - | - | - | - | |||||||||||||||||||||||||||||||
Shares issued on acquisition of UMG | - | - | - | - | ||||||||||||||||||||||||||||||||
Shares issued on acquisition of Frankly | - | - | - | - | - | |||||||||||||||||||||||||||||||
Shares issued on acquisition of Winview | - | - | - | - | - | |||||||||||||||||||||||||||||||
Shares issued on acquisition of Driver Database | - | - | - | - | - | |||||||||||||||||||||||||||||||
Shares issued on acquisition of Lets Go Racing | - | - | - | - | - | |||||||||||||||||||||||||||||||
Common shares issued on exercise of warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||
Shares to be issued | - | - | ||||||||||||||||||||||||||||||||||
Non-controlling interest in subsidiary | - | - | - | ( | ) | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
Foreign currency translation differences | - | - | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
Balance, as at August 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Share-based payments | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Shares issued on vesting of RSUs | - | ( | ) | - | - | - | ||||||||||||||||||||||||||||||
Common shares issued on exercise of options | - | ( | ) | - | - | |||||||||||||||||||||||||||||||
Convertible debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||
Common shares issued on private placement, net of costs | - | - | - | - | ||||||||||||||||||||||||||||||||
Warrants issued in private placement of convertible debt | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
EB bonus shares | - | - | - | - | - | |||||||||||||||||||||||||||||||
Shares for debt | - | - | - | - | - | |||||||||||||||||||||||||||||||
Common shares issued on exercise of warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||
Disposal of Motorsports | - | - | ( | ) | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
Shares issued on acquisition of SideQik | - | - | - | - | ||||||||||||||||||||||||||||||||
Non-controlling interest in subsidiary | - | - | - | ( | ) | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
Foreign currency translation differences | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Balance, as at August 31, 2021 | - | ( | ) | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Page 8 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Consolidated Statements of Cash Flows August 31, 2021 and 2020 (Expressed in United States Dollars) |
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For the year ended | ||||||||||
Note | August 31, 2021 | August 31, 2020 | ||||||||
$ | $ | |||||||||
OPERATING ACTIVITIES | ||||||||||
Net loss for the period before non-controlling interest | ( | ) | ( | ) | ||||||
Items not affecting cash: | ||||||||||
Amortization and depreciation | 11, 13, 14 | |||||||||
Forgiveness of government grants | - | ( | ) | |||||||
Legal proceedings provision | ||||||||||
Loss on disposal of Motorsports | 27 | - | ||||||||
Loss on disposal of P&E | - | |||||||||
Loss on extinguishment of debt | 19 | - | ||||||||
Gain on retained interest in former associate | ( | ) | - | |||||||
Share of net loss of associate | - | |||||||||
Change in fair value of investment at FVTPL | ( | ) | - | |||||||
Change in fair value of warrant liability | 21 | ( | ) | |||||||
Change in fair value of convertible debt | 19 | ( | ) | |||||||
Change in fair value of contingent consideration | - | |||||||||
Impairment of investment in associate and advances | - | |||||||||
Impairment of goodwill and intangibles | 12 | |||||||||
Accretion of debt | ||||||||||
Share-based payments | 23, 24 | |||||||||
( | ) | ( | ) | |||||||
Changes in non-cash working capital: | ||||||||||
Restricted cash | ( | ) | ||||||||
Accounts and other receivables | ( | ) | ||||||||
Government remittances | ( | ) | ||||||||
Publisher advance | 9 | ( | ) | - | ||||||
Prepaid expenses and other | ( | ) | ( | ) | ||||||
Accounts payable | ( | ) | ||||||||
Accrued liabilities | ||||||||||
Players liability account | ( | ) | ||||||||
Deferred revenue | ||||||||||
( | ) | |||||||||
( | ) | ( | ) | |||||||
INVESTING ACTIVITIES | ||||||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||||
Cash acquired, net of cash paid in business combinations | ||||||||||
Advances | - | ( | ) | |||||||
Acquisition of intangible assets | - | ( | ) | |||||||
Cash from disposal of Motorsports | - | |||||||||
( | ) | |||||||||
FINANCING ACTIVITIES | ||||||||||
Proceeds from government grants | - | |||||||||
Proceeds from line of credit | - | |||||||||
Proceeds from private placement unit offerings | 22 | |||||||||
Proceeds from convertible debentures | 19 | |||||||||
Net (payments) proceeds from promissory notes payable | 18 | ( | ) | |||||||
Proceeds from exercise of warrants | 21 | |||||||||
Proceeds from exercise of options | 23 | - | ||||||||
Payments on lease financing | 16 | ( | ) | ( | ) | |||||
Payments on long-term debt | 20 | ( | ) | ( | ) | |||||
Impact of foreign exchange on cash | ( | ) | ||||||||
Change in cash | ||||||||||
Cash, beginning of year | ||||||||||
Cash, end of year |
The accompanying notes are an integral part of these consolidated financial statements.
Page 9 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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1. Corporate information and going concern
(a) | Corporate information |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) (“Engine”, “Engine Media” 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.
With the acquisitions of Frankly Inc. (“Frankly”) and WinView, Inc. (“WinView”), on May 8, 2020, and Sideqik, Inc. on July 2, 2021 (Note 6), 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.
On August 13, 2020, the Company consolidated its shares on the basis of 15 pre-consolidation shares for every 1 post-consolidation share.
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.
Pursuant to shareholder approval at the July 15, 2020, shareholders’ meeting, effective August 13, 2020, the Company changed its name to Engine Media Holdings, Inc.
(b) | Going concern |
These 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 profitable levels of operations.
The
Company has not yet realized profitable operations and has incurred significant losses to date resulting in a cumulative deficit of $
These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.
Page 10 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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2. Basis of preparation
(a) | Statement of compliance |
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements for the year ended August 31, 2021 (including comparatives) were approved and authorized for issue by the board of directors on November 26, 2021.
(b) | Basis of consolidation |
The consolidated financial statements comprise the accounts of the Company and its controlled subsidiaries. The financial statements of subsidiaries are included in the 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.
Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has all the following:
(a) power over the investee.
(b) exposure, or rights, to variable returns from its involvement with the investee; and
(c) the ability to use its power over the investee to affect the amount of the investor’s returns.
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 at August 31, 2021 are as follows:
Name of Subsidiary | Country
of Incorporation |
Ownership Percentage |
Functional Currency | |||
Non-controlling interests are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Entities
over which the Company exercises significant influence are associates and are accounted for by the equity method. Significant influence
is the power to participate in the financial and operating policy decisions of the investee. Significant influence is assumed to exist where the Company holds, directly or indirectly, at least a
Page 11 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Investments in associates are accounted for using the equity method, where the investment is initially recognized at cost and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss, other comprehensive income and equity movements of the investee after the date of acquisition. Any goodwill or fair value adjustment attributable to the Company’s share in the equity accounted investee is included in the amount recognized as investment. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.
Business combinations are accounted for using the acquisition method under IFRS 3 Business Combinations.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
The measurement period is the period from the date of acquisition to the date the Company obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year. The Company elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date.
Acquisition costs are expensed as incurred, unless they qualify to be treated as debt issue costs, or as cost of issuing equity securities.
(c) | Basis of presentation |
These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments which are measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.
(d) | 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 consolidated financial statements is the US Dollar (“USD”).
3. Significant judgments, estimates and assumptions
The preparation of these 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 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 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 consolidated financial statements are outlined below.
Page 12 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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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.
(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 consolidated financial statements is included in the following notes:
Note 1 | Going concern |
Note 30 | Expected credit losses |
Note 21 | Valuation of warrant liability |
Note 6 | Business acquisitions |
Note 12 and 13 | Goodwill and intangible assets |
Note 23 and 24 | Valuation of share-based payments |
Note 19 | Convertible debt |
Note 26 | Contingencies |
(b) | Uncertainty about the effects of COVID-19 |
In December 2019, a novel strain of coronavirus (“COVID-19”) emerged and has since extensively impacted global health and the economic environment. To contain the spread of COVID-19, domestic and international governments around the world enacted various measures, including orders to close all businesses not deemed “essential,” quarantine orders for individuals to stay in their homes or places of residence, and to practice social distancing when engaging in essential activities. The Company anticipates that these actions and the global health crisis caused by COVID-19 will continue to negatively impact many business activities and financial markets across the globe.
In an effort to protect the health and safety of our employees, much of the Company’s workforce is currently working from home. The Company has implemented business continuity plans and has increased support and resources to enable employees to work remotely and thus far has been able to operate with minimal disruption.
The global COVID-19 pandemic remains an evolving situation. The Company will continue to actively monitor the developments of the pandemic and may take further actions that could alter business operations as may be required by federal, state, local, or foreign authorities, or that management determines are in the best interests of our employees, customers, partners and shareholders. It is not clear what effects any such potential actions may have on the Company’s business, including the effects on our employees, players and consumers, customers, partners, development and content pipelines, the Company’s reputation, financial condition, results of operations, revenue, cash flows, liquidity or stock price.
4. Changes in significant accounting policies
Future accounting pronouncements
The following standards have not yet been adopted and are being evaluated to determine their impact on the Company:
Amendments to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract;
Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use
Amendments to IFRS 3 – Reference to the Conceptual Framework
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.
Page 13 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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5. Significant accounting policies
(a) | Foreign currency translation |
The functional currency of the Company and its subsidiaries is disclosed in Note 2. The presentation currency of the consolidated financial statements is the US Dollar (“USD”).
The financial statements of entities that have a functional currency different from the presentation currency are translated into US dollars as follows: assets and liabilities at the closing rate at the date of the Company’s consolidated statement of financial position and income and expenses at the average rate of the year (as this is considered a reasonable approximation of the actual rates prevailing at the transaction dates). All resulting changes are recognized in other comprehensive income (loss) as foreign currency translation adjustments, except to the extent that the translation difference is allocated to non-controlling interest.
Foreign currency transactions are translated into the functional currency of each entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an entity’s functional currency are recognized in the consolidated statements of loss.
(b) | Revenue recognition |
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control of its services to a customer.
The following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms and related revenue recognition policies:
i) | Games development |
Game development income is derived from the development and sale of gaming applications. Revenue from game development is recognized by reference to the stage of completion. Stage of completion is measured by reference to actual costs incurred to date as a percentage of total estimated costs for each contract.
ii) | Direct to Consumer |
Sponsorship, tournament and event income is income directly associated with an e-sport or sporting event or tournament. Sponsorship, tournament and event income is recognized upon completion of the underlying event.
Page 14 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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iii) | Software-as-a-service |
The Company enters into license agreements with customers for its content management system, video software, and mobile applications (Frankly), e-sports data platform (Stream Hatchet) and an influencer marketing platform (SideQik). These license agreements, generally non-cancellable, without paying a termination penalty, and multiyear, provide the customer with the right to use the Company’s application solely on a Company-hosted platform or, in certain instances, on purchased encoders. The license agreements also entitle the customer to technical support.
Revenue from these license agreements is recognized ratably over the license term. Early termination fees are recognized when customer ceases use of agreed upon services prior to the expiration of their contract. These fees are recognized in full on the date the customer has completed their migration of the Company’s solutions and there is no continuing service obligation to the customer.
The Company charges its customers for the optional use of its content delivery network to stream and store videos. The revenue is recognized as earned based on the actual usage because it has stand-alone value and delivery is in control of the customer. The Company also charges its customers for the use of its ad serving platform to serve ads under local advertising campaigns. The Company reports revenue as earned based on the actual usage.
iv) | Advertising |
Under national advertising agreements with advertisers, the Company sources, creates, and places advertising campaigns that run across the Company’s network of publisher sites. National advertising revenue, net of third-party costs, is shared with publishers based on their respective contractual agreements. The Company invoices national advertising amounts due from advertisers and remits payments to publishers for their share. Depending on the agreement with the publisher, the obligation to remit payment to the publisher is based on either billing to the advertiser or the collection of cash from the advertiser.
National advertising revenue is recognized in the period during which the ad impressions are delivered. The Company reports revenue earned through national advertising agreements either on a net or gross basis.
Under national advertising agreements wherein the Company does not bear inventory risk and only has credit risk on its portion of the revenue, national advertising revenues are accounted for on a net basis and the publisher is identified as the customer.
In select national advertising agreements with its publishers, the Company takes on inventory risk and additional credit risk. Under these agreements, the Company either a) provides the publisher with a guaranteed minimum gross selling price per advertising unit delivered, wherein the greater of the actual selling price or guaranteed minimum selling price is used in determining the publisher’s share or b) provides the publisher with a fixed rate per advertising unit delivered, wherein the publisher is paid the fixed rate per advertising unit delivered irrespective of the actual selling price. Under these national advertising agreements, national advertising revenues are accounted for on a gross basis with the advertiser identified as the customer and the publisher identified as a supplier, with amounts billed to the advertiser reported as revenue and amounts due to the publisher reported as a revenue sharing expense, within expenses.
Also included in advertising revenue is advertising revenue generated by the Company’s various owned and operated properties.
Page 15 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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v) | Professional services |
Professional services consist primarily of installation and website design services (Frankly) and data analysis report delivery (Steam Hatchet). Installation fees are contracted on a fixed-fee basis. The Company recognizes revenue as services are performed. Such services are readily available from other vendors and are not considered essential to the functionality of the service. Website design services are also not considered essential to the functionality of the product and have historically been insignificant; the fee allocable to website design is recognized as revenue as the Company performs the services.
The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Company.
Deferred revenue consists of customer advances for Company services to be rendered that will be recognized as income in future periods.
(c) | Cash and equivalents, and restricted cash |
The “cash and cash equivalents” category consists of cash in banks, call deposits and other highly liquid investments with initial maturities of three months or less. Any investments in securities, investments with initial maturities greater than three months without early redemption feature and bank accounts subject to restrictions, other than restrictions due to regulations specific to a country or activity sector (exchange controls, etc.) are not presented as cash equivalents but as financial assets. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Restricted cash is presented as a separate category on the statement of financial position and consists of cash in a bank account restricted for use in the UMG Media Ltd. and WinView Inc. businesses (Note 17).
(d) | Accounts and other receivables |
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost less provision for impairment of trade accounts receivable. A provision for impairment of trade accounts receivable is established based on a forward-looking “expected loss” impairment model. The carrying amount of the trade receivables is reduced using the provision for impairment account, and the amount of any increase in the provision for impairment is recognized in the consolidated statement of loss and comprehensive loss. When a trade receivable is uncollectible, it is written off against the provision for impairment account for trade accounts receivable. Subsequent recoveries of amounts previously written off are credited to the consolidated statement of loss and comprehensive loss.
(e) | Property and equipment |
Property and equipment are carried at historical cost less any accumulated depreciation and impairment losses. Historical cost includes the acquisition cost or production cost as well as the costs directly attributable to bringing the asset to the location and condition necessary for its use in operations. When property and equipment include significant components with different useful lives, they are recorded and depreciated separately. Depreciation is computed using the straight-line and declining balance methods based on the estimated useful life of the assets. Useful life is reviewed at the end of each reporting period.
After initial recognition, the cost model is applied to property and equipment. Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment.
Page 16 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The Company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Company and the cost of the item can be measured reliably. All other costs are recognized in the consolidated statement of loss and comprehensive loss as an expense as incurred. Depreciation is provided at rates calculated to write off the cost of property, plant and equipment less their estimated residual value on the straight-line and declining balance methods, over the estimated useful lives, as follows.
Computer equipment | |
Furniture and fixtures | |
Leasehold improvements |
(f) | Goodwill |
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.
(g) | Intangible assets |
Intangible assets include acquired software used in production or administration and brand names and customer relationships that qualify for recognition as an intangible asset in a business combination. They are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date.
The useful lives of the intangibles are as follows:
Software | |
Brands | |
Customer relationships | - years |
Patents | |
Application platforms |
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and install the specific software. Subsequent expenditure on brands is expensed as incurred. Costs associated with maintaining computer software (expenditure relating to patches and other minor updates as well as their installation), are expensed as incurred.
Patents and Application platforms with a finite useful life that are acquired in an asset acquisition are initially recognized on the basis of their relative fair value at the acquisition date. These assets are amortized on a straight-line basis over their useful life, which is generally up to 5 years. Amortization is calculated over the cost of the asset less its residual value. Amortization expense is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use.
Other intangible assets, such as brands, that are acquired by the Company are stated at cost less accumulated amortization and impairment losses. Expenditures on internally generated brands, mastheads or editorial pages, publishing titles, customer lists and items similar in substance is recognized in the consolidated statement of loss and comprehensive loss as an expense as incurred.
Research costs are expensed when incurred. Development costs are capitalized when the feasibility and profitability of the project can be reasonably considered certain. Expenditure on development activities, whereby research findings are applied to a plan or design to produce new or substantially improved products and processes, is capitalized if the product or process is technically and commercially feasible and the Company has sufficient resources to complete development. The expenditure capitalized includes the cost of materials, direct labor and an appropriate proportion of overheads. Other development expenditure is recognized in the consolidated statement of loss and comprehensive loss as an expense as incurred. Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses.
Page 17 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(h) | Impairment of property and equipment, intangible assets and goodwill |
i) | Timing of impairment testing |
The carrying values of property and equipment and finite life intangible assets are assessed at the reporting date as to whether there is any indication that the assets may be impaired. Goodwill and indefinite life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired.
ii) | Impairment testing |
If any indication of impairment exists or when the annual impairment testing for an asset is required, the Company estimates the recoverable amount of the asset or cash generating unit (“CGU”) to which the asset relates to determine the extent of any impairment loss. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use (“VIU”) to the Company. In assessing VIU, estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are considered, if available. If the recoverable amount of an asset or a CGU is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of loss and comprehensive loss.
For impaired assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of loss and comprehensive loss. Impairment losses relating to goodwill cannot be reversed.
(i) | Leases |
The Company assesses whether a contract is or contains a lease, at inception of the contract. The Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Company recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
Page 18 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
● | Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; | |
● | Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; | |
● | The amount expected to be payable by the lessee under any residual value guarantees; | |
● | The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and | |
● | Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. |
The lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset)
whenever:
● | The lease term has changed or there is a significant event or change in circumstances resulting in a change the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. | |
● | The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used). | |
● | A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. |
The Company did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the
underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Company applies IAS 36 Impairment to determine whether a right-of-use asset is impaired and accounts for any identified
impairment loss as described in the ‘property and equipment’ policy.
Page 19 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line “other expenses” in profit or loss.
As a practical expedient, IFRS 16 Leases permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Company has not used this practical expedient. For contracts that contain a lease component and one or more additional lease or non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
(j) | Financial instruments |
Financial assets
Recognition and Initial Measurement
The Company recognizes financial assets when it becomes party to the contractual provisions of the instrument. Financial assets are measured initially at their fair value plus, in the case of financial assets not subsequently measured at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition of financial assets subsequently measured at fair value through profit or loss are expensed in profit or loss when incurred.
Classification and Subsequent Measurement
On initial recognition, financial assets and liabilities are classified as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). The Company determines the classification of its financial assets, together with any embedded derivatives, based on the business model for managing the financial assets and their contractual cash flow characteristics.
Financial assets are classified as follows:
● | Amortized cost - Assets that are held for collection of contractual cash flows where those cash flows are solely payments of principal and interest are measured at amortized cost. Interest revenue is calculated using the effective interest method and gains or losses arising from impairment, foreign exchange and derecognition are recognized in profit or loss. Financial assets measured at amortized cost are comprised of cash, restricted cash, accounts and other receivables and advances. | |
● | Fair value through other comprehensive income - Assets that are held for collection of contractual cash flows and for selling the financial assets, and for which the contractual cash flows are solely payments of principal and interest, are measured at fair value through other comprehensive income. Interest income calculated using the effective interest method and gains or losses arising from impairment and foreign exchange are recognized in profit or loss. All other changes in the carrying amount of the financial assets are recognized in other comprehensive income. Upon derecognition, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss. The Company does not hold any financial assets measured at fair value through other comprehensive income. |
Page 20 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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● | Mandatorily at fair value through profit or loss - Assets that do not meet the criteria to be measured at amortized cost, or fair value through other comprehensive income, are measured at fair value through profit or loss. All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. None of the Company’s assets fall under this category. | |
● | Designated at fair value through profit or loss – On initial recognition, the Company may irrevocably designate a financial asset to be measured at fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch that would otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases. All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. |
Business Model Assessment
The Company assesses the objective of its business model for holding a financial asset at a level of aggregation which best reflects the way the business is managed, and the way information is provided to management. Information considered in this assessment includes stated policies and objectives.
Contractual Cash Flow Assessment
The cash flows of financial assets are assessed as to whether they are solely payments of principal and interest on the basis of their contractual terms. For this purpose, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money, the credit risk associated with the principal amount outstanding, and other basic lending risks and costs. In performing this assessment, the Company considers factors that would alter the timing and amount of cash flows such as prepayment and extension features, terms that might limit the Company’s claim to cash flows, and any features that modify consideration for the time value of money.
Impairment
The Company recognizes a loss allowance for the expected credit losses associated with its financial assets, other than financial assets measured at fair value through profit or loss. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions, and forecasts of future economic conditions.
The Company applies the simplified approach for accounts receivable. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses resulting from all possible default events over the assets’ contractual lifetime.
The Company assesses whether a financial asset is credit-impaired at the reporting date. Regular indicators that a financial instrument is credit-impaired include significant financial difficulties as evidenced through borrowing patterns or observed balances in other accounts and breaches of borrowing contracts such as default events or breaches of borrowing covenants. For financial assets assessed as credit-impaired at the reporting date, the Company continues to recognize a loss allowance equal to lifetime expected credit losses.
For financial assets measured at amortized cost, loss allowances for expected credit losses are presented in the statement of financial position as a deduction from the gross carrying amount of the financial asset.
Financial assets are written off when the Company has no reasonable expectations of recovering all or any portion thereof.
Page 21 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Derecognition of Financial Assets
The Company derecognizes a financial asset when its contractual rights to the cash flows from the financial asset expire.
Financial Liabilities
Recognition and Initial Measurement
The Company recognizes a financial liability when it becomes party to the contractual provisions of the instrument. At initial recognition, the Company measures financial liabilities at their fair value plus transaction costs that are directly attributable to their issuance, except for financial liabilities subsequently measured at fair value through profit or loss for which transaction costs are immediately recorded in profit or loss.
Financial liabilities are classified as either financial liabilities at FVTPL or at amortized cost. The Company determines the classification of its financial liabilities at initial recognition.
● | Amortized cost - Financial liabilities are classified as measured at amortized cost unless they fall into one of the following categories: financial liabilities at FVTPL, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, financial guarantee contracts, or commitments to provide a loan at a below-market interest rate, or contingent consideration recognized by an acquirer in a business combination. | |
The Company’s accounts payable, accrued liabilities, players liability account, lease obligation, line of credit, long-term debt, promissory notes payable and deferred purchase consideration do not fall into any of the exemptions and are therefore classified as measured at amortized cost. | ||
● | Financial liabilities recorded at FVTPL - Financial liabilities are classified as FVTPL if they fall into one of the five exemptions detailed above, or they are derivatives or they are designated as such on initial recognition. The Company’s warrants that are not issued in exchange for goods or services and have characteristics of derivative financial liabilities as a result of the warrants having an exercise price in a currency different from the functional currency of the Company, are measured as financial liabilities at FVTPL. The Company’s convertible debt is designated as financial liabilities at FVTPL. |
Transaction costs
Transaction costs associated with financial instruments, carried at FVTPL, are expensed as incurred, while transaction costs associated with all other financial instruments are included or deducted from the initial carrying amount of the asset or the liability.
Page 22 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Subsequent measurement
Instruments classified as FVTPL are measured at fair value with unrealized gains and losses recognized in profit or loss. Instruments classified as amortized cost are measured at amortized cost using the effective interest rate method. Instruments classified as FVTOCI are measured at fair value with unrealized gains and losses recognized in other comprehensive income.
Derecognition of financial liabilities
The Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled, or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any noncash assets transferred or liabilities assumed, is recognized in profit or loss.
Fair value measurement
The Company categorizes its financial assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs used in the measurement.
Level 1: | This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. | |
Level 2: | This level includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. | |
Level 3: | This level includes valuations based on inputs which are unobservable. |
Offsetting
Financial assets and liabilities are offset, and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
(k) | Short-term employee benefits |
Short-term employee benefits include wages, salaries, compensated absences, profit-sharing and bonuses. Short-term employee benefit obligations are measured on an undiscounted basis and are recognized in salaries and wages expense as the related service is provided or capitalized if the service rendered is in connection with the creation of an asset. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Page 23 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(l) | Income taxes |
Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries, associates, and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date applicable to the period of expected realization or settlement.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
(m) | Share capital |
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares, share purchase options, and equity classified warrants are recognized as a deduction from equity, net of any tax effects. When share capital recognized as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from total equity.
Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Company’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Company’s shareholders. Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued.
The Company’s warrants having an exercise price in the functional currency of the Company that are not issued in exchange for good and services are equity measured and the fair value at grant date for these warrants is classified within contributed surplus.
(n) | Share-based payment |
The share-based payment plan allows Company employees and consultants to acquire shares of the Company. The fair value of share-based payment awards granted is recognized within share-based payments expense with a corresponding increase in equity.
Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. The fair value is measured at grant date and each tranche is recognized on a straight-line basis over the period during which the share purchase options vest. The fair value of the share-based payment awards granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the awards were granted such as stock price, term, and stock volatility. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of awards, for which the related service and non-market vesting conditions are expected to be met.
Page 24 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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For each Restricted Share Units (“RSU”) granted, the Company recognizes an expense equal to the market value of a common share at the date of grant and for each common share option granted, the Company recognizes an expense equal to the fair value of the option estimated using a Black Scholes model at grant date, based on the number of RSUs/options expected to vest, recognized over the term of the vesting period, with a corresponding increase to contributed surplus. Share based payments expense is adjusted for subsequent changes in management’s estimate of the number of RSUs/options that are expected to vest. The effect of these changes is recognized in the period of the change.
For equity-settled share-based payment transactions, including share options and RSUs granted to officers and directors of the Company and warrants granted to advisors in a financing transaction, the Company measures the goods or services received, and the corresponding increase in contributed surplus, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably, in which cases, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
(o) | Discontinued operations and assets held for sale |
A non-current asset or a group of assets and liabilities is a disposal group when the carrying amount will be recovered principally through its divestiture and not by continuing utilization. To meet this definition, the asset must be available for immediate sale, and divestiture must be highly probable. Non-current assets or disposal groups classified as held for sale are measured at the lower of carrying amounts and fair value less costs to sell.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.
Discontinued operations are presented on a single line of the consolidated statements of loss and comprehensive loss for the periods reported, comprising the earnings after tax of discontinued operations until divestiture and the gain or loss after tax on sale or fair value measurement, less costs to sell the assets and liabilities making up the discontinued operations. In addition, the cash flows generated by the discontinued operations are presented on one separate line of the statement of consolidated cash flows for the periods presented.
(p) | Segment reporting |
A segment is a distinguishable component of the Company that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
(q) | Government grants |
Government grants are recognized when it is probable that the grant will be received, and all conditions of the grant are complied with. When the grant is in the form of a forgivable loan, the loan is initially recognized as a deferred income liability. The Company then relieves the deferred income liability on a systematic and rational basis in those periods over which the entity recognizes the expenses that the grant is intended to offset. The Company recognizes the impact of the loan forgiveness as an offset against related expense.
Assistance for operating expenses is recorded as a reduction of expenses when the assistance is receivable.
Page 25 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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A forgivable loan from government is treated as government assistance when there is reasonable assurance that the Company will meet the terms for forgiveness of the loan. If there is no reasonable assurance that the entity will meet the terms for forgiveness of the loan, the loan is recognized as a liability in accordance with IFRS 9 Financial Instruments. The liability would become a government grant (forgivable loan) when there is reasonable assurance that the entity will meet the terms for forgiveness.
6. Acquisitions
(a) | UMG Media Ltd. |
On
December 31, 2019, the Company acquired all issued and outstanding shares of UMG Media Ltd. (“UMG”) which was carried out
by way of a plan of arrangement under the Business Corporations Act (Alberta). UMG shareholders received, on an exchange ratio of
All
transaction costs associated with this acquisition have been expensed. If the acquisition of UMG had occurred at the beginning of the
Company’s fiscal year (September 1, 2019), the loss attributed to UMG’s operations for the year ended August 31, 2020, would
have been $
The acquisition was accounted for using the acquisition method of accounting under IFRS 3, Business Combinations, which requires that the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition.
The purchase price allocation is as follows:
Consideration paid | # Issued | Amount | ||||||
Common shares | $ | |||||||
Options and warrants exchanged | ||||||||
$ | ||||||||
Fair value of identifiable assets acquired | ||||||||
Cash | $ | ( | ) | |||||
Restricted cash | ||||||||
Accounts and other receivables | ||||||||
Prepaid and other current assets | ||||||||
Property and equipment | ||||||||
Right-of-use asset | ||||||||
Intangible assets - Application platforms (Useful life - | ||||||||
Intangible assets - Brand (Useful life - | ||||||||
Intangible assets - Customer lists (Useful life - | ||||||||
Goodwill | ||||||||
Accounts payable and accrued liabilities | ( | ) | ||||||
Lease liabilities | ( | ) | ||||||
Players liability account | ( | ) | ||||||
Promissory notes | ( | ) | ||||||
Deferred revenue | ( | ) | ||||||
$ |
Page 26 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The Engine Media common shares issued were valued based on the closing price on the TSX Venture exchange on December 31, 2019.
Significant judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:
i) | Intangible assets, application platforms |
UMG
had certain proprietary technology used in its platform, which the Company expects will contribute to future cash flow. The fair value
of the software intangible asset was determined based on the relief from royalty method under the income approach. The software intangible
asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) royalty rate of
ii) | Intangible assets, brand |
UMG
had established itself as a recognized brand in its industry and is well known amongst gaming enthusiasts and the esports community.
The Company expects the brand will contribute to future cash flow. The fair value of the brand intangible asset was determined based
on the relief from royalty method under the income approach. The brand intangible asset was valued using Level 3 inputs which consisted
of the following key inputs: (i) revenue projections with long term growth rate of
iii) | Intangible assets, customer lists |
UMG
had an established customer list which is expected to result in future sales. The fair value of the customer list intangible asset was
determined based on the cost approach. The customer list intangible asset was valued using Level 3 inputs which consisted of the following
key inputs: (i) number of active users; (ii) user acquisition cost; (iii) time to recreate of
iv) | Goodwill |
The
difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and
liabilities assumed represents goodwill of $
The goodwill recorded represents the following:
● | Cost savings and operating synergies expected to result from combining the operations of UMG with those of the Company | |
● | Intangible assets that do not qualify for separate recognition such as the assembled workforce |
Page 27 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(b) | Frankly Inc. |
On May 8, 2020, the Company acquired all issued and outstanding shares of Frankly Inc. (“Frankly”) which was carried out by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia). Frankly shareholders received one share of the Company’s common shares for each share of Frankly. In total, the Company issued shares in exchange for the Frankly securities exchanged pursuant to the transaction. In addition, each outstanding option, RSU and warrant to purchase a Frankly share was exchanged for an option, RSU or warrant, as applicable, to purchase a Company share, based upon the exchange ratio.
All
transaction costs associated with this acquisition were expensed. If the acquisition of Frankly had occurred at the beginning of the
Company’s fiscal year (September 1, 2019), the loss attributed to Frankly’s operations for the year ended August 31, 2020,
would have been $
The acquisition was accounted for using the acquisition method of accounting under IFRS 3, Business Combinations, which requires that the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition. The estimated fair values were preliminary and based on the information that was available as of that date. The Company has since finalized the purchase price allocation with no change to the preliminary amounts.
The purchase price allocation is as follows:
Consideration paid | # Issued | Amount | ||||||
Common shares | $ | |||||||
Warrants exchanged | ||||||||
Settlement of a pre-existing relationship | ( | ) | ||||||
$ | ||||||||
Fair value of identifiable assets acquired | ||||||||
Cash | ||||||||
Accounts and other receivables | ||||||||
Prepaid and other current assets | ||||||||
Property and equipment | ||||||||
Intangible assets - Software (Useful life - | ||||||||
Intangible assets - Brand (Useful life - | ||||||||
Intangible assets - Customer contracts (Useful life - | ||||||||
Goodwill | ||||||||
Accounts payable and accrued liabilities | ( | ) | ||||||
Deferred revenue | ( | ) | ||||||
Line of credit | ( | ) | ||||||
$ |
Page 28 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The Engine Media common shares issued were valued based on the closing price on the TSX Venture exchange on May 8, 2020. The warrants were valued using the Black Scholes method.
Significant judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:
i) | Intangible assets, software |
Frankly
had certain proprietary technology used in its products, which the Company expects will contribute to future cash flow. The fair value
of the software intangible asset was determined based on the relief from royalty method under the income approach. The software intangible
asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) royalty rate of
ii) | Intangible assets, customer contracts |
Frankly
had established relationships with media companies which are expected to result in future sales. The fair value of the customer relationships
intangible asset was determined based on the excess earnings method under the income approach. The customer relationships intangible
asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections with long term growth rate
of
iii) Goodwill
The
difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and
liabilities assumed represents goodwill of $
The goodwill recorded represents the following:
● | Cost savings and operating synergies expected to result from combining the operations of Frankly with those of the Company | |
● | Intangible assets that do not qualify for separate recognition such as the assembled workforce |
(c) | WinView, Inc. |
On May 8, 2020, the Company acquired all issued and outstanding shares of WinView, Inc. (“WinView”) which was carried out pursuant to a statutory merger. The Company issued shares in exchange for the WinView securities exchanged pursuant to the transaction. In addition, WinView shareholders are entitled to contingent consideration based on a portion of any future licensing revenue from its patent portfolio.
If
the acquisition of WinView had occurred at the beginning of the Company’s fiscal year (September 1, 2019), the loss attributed
to WinView’s operations for the year ended August 31, 2020, would have been $
IFRS 3 – Business Combinations (“IFRS 3”) was amended in October 2018 to clarify the definition of a business and added an optional concentration test to assess when a company has acquired a group of assets, rather than a business, if the value of the assets acquired is substantially all concentrated in a single asset or group of similar assets. The Company concluded that the value of the WinView assets acquired is substantially concentrated in the patent portfolio, and therefore the acquisition of WinView was accounted for as an asset acquisition.
Page 29 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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For an asset acquisition, the Company’s accounting policy is to recognize a liability for contingent consideration when the related activity occurs. Accordingly, a liability was not recorded for the contingent consideration as at August 30, 2020.
The purchase price allocation is as follows:
Consideration paid | # Issued | Amount | ||||||
Common shares | $ | |||||||
$ | ||||||||
Fair value of identifiable assets acquired | ||||||||
Cash | $ | |||||||
Restricted cash | ||||||||
Prepaid and other current assets | ||||||||
Intangible assets - Patents (Useful life - | ||||||||
Accounts payable and accrued liabilities | ( | ) | ||||||
Players liability account | ( | ) | ||||||
Government grants - PPP Loan | ( | ) | ||||||
Promissory notes | ( | ) | ||||||
Deferred revenue | ( | ) | ||||||
$ |
(d) | Acquisitions of WTF1, Lets Go Racing and DriverDB |
During the year ended August 31, 2020, the Company completed three acquisitions in its motorsports division that were disposed on November 3, 2020, as a result of a strategic business review that began in October 2020 .
The
Company acquired certain assets of WTF1 on April 2, 2020, for a purchase price of $
On
June 3, 2020, the Company completed the acquisition of Lets Go Racing pursuant to a share purchase agreement dated June 2, 2020. Purchase
consideration comprised of £
On
June 3, 2020, the Company completed the acquisition of DriverDB in exchange for the issuance of
Page 30 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(e) | Acquisition of SideQik, Inc |
On July 2, 2021, the Company acquired all issued and outstanding shares of SideQik, Inc. (“SideQik”) which was carried out pursuant to a statutory reverse-triangular merger. The Company issued shares and RSUs in exchange for the SideQik securities exchanged pursuant to the transaction.
The acquisition of Sideqik (combined with a prior acquisition of Stream Hatchet) brings technology and customers that are expected to expand Engine’s advertising and media offerings.
All
transaction costs associated with this acquisition were expensed. If the acquisition of SideQik had occurred at the beginning of the
Company’s fiscal year (September 1, 2020), the loss attributed to SideQik’s operations for the year ended August 31, 2021,
would have been $
The acquisition was accounted for using the acquisition method of accounting under IFRS 3, Business Combinations, which requires that the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition. The estimated fair values are preliminary and based on the information that was available as of that date.
The purchase price allocation is as follows:
Consideration paid | # Issued | Amount | ||||||
Common shares | $ | |||||||
RSUs | $ | |||||||
$ | ||||||||
Fair value of identifiable assets acquired | ||||||||
Cash | $ | |||||||
Accounts and other receivables | ||||||||
Prepaid and other current assets | ||||||||
Property and equipment | ||||||||
Intangible
assets - Software (Useful life - | ||||||||
Intangible
assets - Brand (Useful life - | ||||||||
Intangible
assets - Customer relationships (Useful life - | ||||||||
Goodwill | ||||||||
Accounts payable | ( | ) | ||||||
Accrued liabilities | ( | ) | ||||||
Deferred revenue | ( | ) | ||||||
$ |
Page 31 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Significant judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:
i) | Intangible assets, software |
The
fair value of the software intangible asset was determined based on the relief from royalty method under the income approach. The software
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) royalty rate
of
ii) | Intangible assets, brand |
The
fair value of the brand intangible asset was determined based on the relief from royalty method under the income approach. The brand
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections with long term
growth rate of
iii) | Intangible assets, customer relationships |
SideQik has created custom partnerships with clients to build out integrations with proprietary brand tools which are expected to result in future sales. The fair value of the customer relationships intangible asset was determined based on the excess earnings method under the income approach. The customer relationships intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections with long term growth rate of %; (ii) customer attrition rate of %; and (iii) discount rate of %; (iv) tax rate of %. This asset is amortized on a straight-line basis over the estimated useful life of .
iv) | Goodwill |
The
difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and
liabilities assumed represents goodwill of $
The goodwill recorded represents the following:
● | Cost savings and operating synergies expected to result from combining the operations of SideQik with those of the Company. | |
● | Intangible assets that do not qualify for separate recognition such as the assembled workforce. |
Page 32 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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7. Revenue
Revenue streams and disaggregation of revenue from contracts with customers
In the following table, revenue from contracts with customers is disaggregated by service lines.
For the year ended August 31, | ||||||||
2021 | 2020 | |||||||
$ | $ | |||||||
Games development | ||||||||
Direct to consumer | ||||||||
Software-as-a-service | ||||||||
Advertising | ||||||||
Professional services | ||||||||
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 considered to be 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 years ended August 31, 2021, and 2020, all outstanding options, RSU’s and warrants were excluded from diluted weighted-average common shares outstanding as their effect was anti-dilutive. Weighted average common shares outstanding for the years ended August 31, 2021, and 2020 were and , respectively.
9. Accounts and other receivables and publisher advances
(a) | Accounts and other receivables |
The Company’s accounts and other receivables are comprised of the following:
August
31, 2021 | August
31, 2020 | |||||||
$ | $ | |||||||
Trade accounts receivable | ||||||||
Other receivables | ||||||||
Allowance for doubtful accounts | ( | ) | ( | ) | ||||
Total accounts and other receivables |
Page 33 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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A continuity of the Company’s allowance for doubtful accounts is as follows:
August
31, 2021 | August
31, 2020 | |||||||
$ | $ | |||||||
Allowance for doubtful accounts, beginning of year | ( | ) | - | |||||
Acquisition of Frankly | - | ( | ) | |||||
Acquisition of SideQik | ( | ) | - | |||||
Provision, bad debt expense | ( | ) | - | |||||
Writeoffs | ||||||||
Allowance for doubtful accounts, end of year | ( | ) | ( | ) |
(b) | Publisher advance |
On
February 7, 2021, the Company’s subsidiary Frankly Media LLC, amended its commercial agreement with its largest publisher, which
secured a long-term extension. One of the key terms of the amended agreement required the Company to advance $
(i) | $ | |
(ii) | $ | |
(iii) | $ |
The advance is to be recouped through additional withholding on future advertising revenue share payments made to the publisher, beyond Frankly’s share, and is effective for amounts billed for periods February 1, 2021, forward.
As
of August 31, 2021, $
The breakout of the publisher advance into current and non-current portions is based on an estimate of advertising billings over the next twelve months and the resulting additional withholding on the related advertising revenue share payments.
10. Investment in associate and investment at FVTPL
Investment in associate | Investment at FVTPL | |||||||
$ | $ | |||||||
Balance, August 31, 2020 | ||||||||
Share of loss in One Up | ( | ) | ||||||
Discontinue use of equity method on retained interest in former associate | ( | ) | ||||||
Change in fair value of investment at FVTPL | ||||||||
Balance, August 31, 2021 |
On
August 25, 2020, the Company acquired a
Page 34 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The Company accounted for this investment as an investment in associate under the equity method from acquisition through January 5, 2021. The Company’s share in the loss of One Up for the period from September 1, 2020, to January 5, 2021, amounted to $ .
On
January 5, 2021, the Company’s interest in One Up was reduced to
The fair value of the Company’s investment in One Up is estimated at each reporting period, with reference to valuations underlying privately placed financing transactions closed by One Up and is classified with a level 3 in the fair value hierarchy (Note 30).
Page 35 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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11. Property and equipment
Cost | Leasehold improvements | Computer equipment | Furniture
and fixtures | Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
August 31, 2019 | ||||||||||||||||
Acquisition of UMG | ||||||||||||||||
Acquisition of Frankly | ||||||||||||||||
Additions | ||||||||||||||||
Disposals | ( | ) | - | ( | ) | |||||||||||
Effect of foreign exchange | ||||||||||||||||
August 31, 2020 | ||||||||||||||||
August 31, 2020 | ||||||||||||||||
Acquisition of SideQik | ||||||||||||||||
Additions | 170,305 | |||||||||||||||
Disposals | ( | ) | ( | ) | ||||||||||||
Disposal of Motorsports | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
August 31, 2021 |
Accumulated depreciation | Leasehold improvements | Computer equipment | Furniture
and fixtures | Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
August 31, 2019 | ||||||||||||||||
Depreciation | ||||||||||||||||
Foreign exchange | ||||||||||||||||
August 31, 2020 | ||||||||||||||||
August 31, 2020 | ||||||||||||||||
Depreciation | ||||||||||||||||
Disposals | ( | ) | ( | ) | ||||||||||||
Disposal of Motorsports | ( | ) | ( | ) | ( | ) | ||||||||||
Foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
August 31, 2021 |
Net book value | Leasehold improvements | Computer equipment | Furniture
and fixtures | Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
August 31, 2020 | ||||||||||||||||
August 31, 2021 |
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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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12. Goodwill
Aug
31, 2021 | Aug
31, 2020 | |||||||
$ | $ | |||||||
Balance, beginning of year | ||||||||
Acquisition of UMG | ||||||||
Acquisition of Frankly | ||||||||
Acquisition of SideQik | ||||||||
Impairment of goodwill associated with UMG | ( | ) | ||||||
Effect of foreign exchange | ||||||||
Balance, end of year |
a) | Frankly |
The
Company tested the Frankly CGU goodwill balance of $
The recoverable amounts for the Stream Hatchet, and Eden Games CGUs below were based on fair value less costs of disposal, estimated using a guideline public company method which is a market-based approach. The fair value measurement was categorized as a Level 3 fair value based on inputs in the valuation technique used.
Revenue multiples from publicly traded companies operating within the same industry and location and having similar business activities to the Company were utilized, after adjusting for differences in size, margins and growth rates when compared to the Company and its CGUs. These adjusted multiples of 3x for Stream Hatchet and 3.5x for Eden Games were applied to the financial metrics of the CGU to determine indicative enterprise values. Recoverable amounts were determined after an adjustment for costs of disposal, estimated at 5% of indicative enterprise values. No impairment charge was determined to be necessary for the Stream Hatchet and Eden Games CGUs.
b) | UMG |
The
Company tested the UMG CGU goodwill balance of $
Page 37 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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13. Intangible assets
Cost | Patents | Application Platforms | Software | Brand | Customer Lists and Contracts | Total | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
August 31, 2019 | ||||||||||||||||||||||||
Acquisition of UMG | ||||||||||||||||||||||||
Acquisition of Frankly | ||||||||||||||||||||||||
Acquisition of WinView | ||||||||||||||||||||||||
Acquisition of WTF1 | ||||||||||||||||||||||||
Acquisition of Driver DB | ||||||||||||||||||||||||
Acquisition of Lets Go Racing | ||||||||||||||||||||||||
Foreign exchange | ||||||||||||||||||||||||
August 31, 2020 | ||||||||||||||||||||||||
Disposal of Motorsports | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
Acquisition of SideQik | ||||||||||||||||||||||||
Impairment of UMG | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
Foreign exchange | ||||||||||||||||||||||||
August 31, 2021 |
Accumulated amortization | Patents | Application Platforms | Software | Brand | Customer Lists and Contracts | Total | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
August 31, 2019 | ||||||||||||||||||||||||
Amortization | ||||||||||||||||||||||||
Foreign exchange | ||||||||||||||||||||||||
August 31, 2020 | ||||||||||||||||||||||||
Amortization | ||||||||||||||||||||||||
Disposal of Motorsports | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
Foreign exchange | ( | ) | ||||||||||||||||||||||
August 31, 2021 |
Net book value | Patents | Application Platforms | Software | Brand | Customer
Lists and Contracts | Total | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
August 31, 2020 | ||||||||||||||||||||||||
August 31, 2021 |
Page 38 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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14. Right-of-use assets
August
31, 2021 | August
31, 2020 | |||||||
$ | $ | |||||||
Balance, beginning of year | - | |||||||
Additions to right-of-use assets on adoption of IFRS 16, September 1, 2019 | - | |||||||
Acquisition of UMG | - | |||||||
Acquired | ||||||||
Depreciation | ( | ) | ( | ) | ||||
Effect of foreign exchange | ( | ) | ||||||
Balance, end of year |
Right of use assets consist primarily of leases for corporate office facilities and are amortized on a monthly basis over the term of the lease, or useful life, if shorter.
15. Income taxes
The Company had income tax expense or benefit for the year ended August 31, 2021.
(a) | Reconciliation of the effective tax rate |
The reconciliation of the combined federal and provincial statutory income tax rate of 26.5% (2020 - 26.5%) to the effective tax rate is as follows:
2021 | 2020 | |||||||
$ | $ | |||||||
Income (loss) before income taxes | ( | ) | ( | ) | ||||
Statutory income tax rate | % | % | ||||||
Expected income tax (benefit) | ( | ) | ( | ) | ||||
Reconciling items: | ||||||||
Foreign rate differential | ( | ) | ||||||
Stock-based compensation and other non-deductible expenses | ||||||||
True up of prior period balances | - | |||||||
Deferred tax assets not recognized | ||||||||
Income tax expense | - | - |
Page 39 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(b) | Deferred income taxes |
The Company had the following temporary differences that would ordinarily give rise to deferred taxes:
2021 | 2020 | |||||||
$ | $ | |||||||
Deferred tax assets | ||||||||
Net operating losses | ||||||||
Deferred tax liabilities | ||||||||
Intangible assets | ( | ) | ( | ) | ||||
Other - Canada | ( | ) | ||||||
Other - United States | ( | ) | ( | ) | ||||
Convertible Debt | ( | ) | ||||||
Net deferred tax asset |
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.
Unrecognized Deductible Temporary Differences
Deferred taxes are provided as a result of temporary differences that arise due to the difference between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
2021 | 2020 | |||||||
$ | $ | |||||||
Intangible assets | ||||||||
Net operating losses | ||||||||
Net capital losses | ||||||||
Property and equipment | ||||||||
Share issuance costs | ||||||||
Convertible debt | ||||||||
Other | ||||||||
The Company’s net operating losses expire in the manner discussed below. The remaining deductible temporary differences may be carried forward indefinitely. Deferred tax assets have not been recognized in respect to these items because it cannot be determined as probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.
As
of August 31, 2021, the Company has net operating loss carryforwards related to its domestic and international operations of approximately
$
Page 40 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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16. Lease liabilities
Lease liabilities are measured at the present value of the lease payments that were not paid at that date. The lease payments are discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. The continuity of the lease liabilities is presented in the table below:
Equipment | Office lease | Total | ||||||||||
$ | $ | $ | ||||||||||
Balance, August 31, 2019 | ||||||||||||
Additions to right-of-use assets on adoption of IFRS 16, September 1, 2019 | ||||||||||||
Acquisition of UMG | ||||||||||||
Acquired | ||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ||||||
Payments | ||||||||||||
Balance, August 31, 2020 | ||||||||||||
Acquired | ||||||||||||
Interest expense | ||||||||||||
Payments | ( | ) | ( | ) | ( | ) | ||||||
Effect of foreign exchange | ( | ) | ( | ) | ||||||||
Balance, August 31, 2021 |
Equipment | Office lease | Total | ||||||||||
$ | $ | $ | ||||||||||
As of August 31, 2020: | ||||||||||||
Less than one year | ||||||||||||
Greater than one year | ||||||||||||
Total lease obligation |
Equipment | Office lease | Total | ||||||||||
$ | $ | $ | ||||||||||
As of August 31, 2021: | ||||||||||||
Less than one year | ||||||||||||
Greater than one year | ||||||||||||
Total lease obligation |
The future minimum undiscounted lease payments as of August 31, 2021, are presented below:
Total | ||||
$ | ||||
Current | ||||
2 years | ||||
3 years | ||||
4 years | ||||
Total undiscounted lease obligation |
17. 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 August 31, 2021, and 2020, the players liability account balance is the total amount payable if all players were to request closure of their accounts.
18. Promissory notes payable and other borrowings
(a) | Promissory notes |
The
Company has promissory notes with a balance of $
Page 41 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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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 August 31, 2021, $
(b) | Paycheck Protection Program (the “PPP”) loans |
In
April and May 2020, the Company entered into promissory notes (the “Notes”) with three banks. The Notes evidence loans to
the Company of $
Interest
will accrue on the outstanding balance of the Notes at a rate of
Subject
to any forgiveness granted under the PPP,
Upon
the receipt of the proceeds of $
(c) | Frankly line of credit |
On
January 7, 2020, the Company’s Frankly Media LLC subsidiary (“Frankly Media”) entered an agreement with an arm’s
length lender, EB Acquisition Company, LLC (the “Lender”), whereby the Lender agreed, subject to the terms and conditions
thereof, to provide Frankly Media with a revolving term line of credit in the principal amount of up to $
The EB Loan had a one-year term, extendable for a second year upon the mutual agreement of Lender and Frankly Media; and was secured by a security interest in Frankly Media’s assets, as well as a guarantee by the Company, secured against the Company’s assets.
On
December 1, 2020, the EB Loan was amended (the “Amended EB Loan”). The amendment extended the maturity date by one year and
added a conversion feature to $
Page 42 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The Company determined the EB Loan was substantially modified on December 1, 2020 and the Amended EB Loan was substantially modified on February 24, 2021 (Note 19).
The
carrying value of the line of credit as of August 31, 2021, was $
19. Convertible debt
The continuity of convertible debt for the year ended August 31, 2021, is as follows:
2019
Series | 2020
Series | Amended EB Loan | EB CD | Total | ||||||||||||||||
$ | $ | $ | ||||||||||||||||||
Balance, August 31, 2019 | - | - | - | |||||||||||||||||
Issuances | - | |||||||||||||||||||
Conversion - common shares issued | ( | ) | - | - | - | ( | ) | |||||||||||||
Conversion - warrants issued | ( | ) | - | - | - | ( | ) | |||||||||||||
Interest expense | - | - | - | |||||||||||||||||
Accrued interest on conversion | ( | ) | - | - | ( | ) | ||||||||||||||
Effect of foreign exchange | ( | ) | - | - | - | ( | ) | |||||||||||||
Change in fair value | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||
Balance, August 31, 2020 | - | - |
2019
Series | 2020
Series | Amended EB Loan | EB CD | Total | ||||||||||||||||
$ | $ | $ | ||||||||||||||||||
Balance, August 31, 2020 | - | - | ||||||||||||||||||
Issuances | - | - | - | |||||||||||||||||
Exchange of EB Loan for Amended EB Loan | - | - | - | |||||||||||||||||
Exchange of Amended EB Loan for EB CD | - | - | ( | ) | ||||||||||||||||
Conversion - common shares issued | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||
Conversion - warrants issued | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||
Interest expense | ||||||||||||||||||||
Accrued interest on conversion / interest payments | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||
Effect of foreign exchange | - | - | - | |||||||||||||||||
Change in fair value | - | ( | ) | |||||||||||||||||
Balance, August 31, 2021 | - |
Page 43 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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2019
Series | 2020
Series | Amended EB Loan | EB CD | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
As of August 31, 2021: | ||||||||||||||||||||
Less than one year | - | - | - | |||||||||||||||||
Greater than one year | - | - | ||||||||||||||||||
Total convertible debt obligation | - |
(a) | Conversions during the years ended August 31, 2021, and 2020 |
2019 Series
During
the year ended August 31, 2021, 2019 Series convertible debentures with a principal amount of CAD$
Share
price of CAD$
This
value was split between common shares and liability measured warrants as $
2020 Series
During
the year ended August 31, 2021, 2020 Series convertible debentures with a principal amount of $
Share
price of $
This
value was split between common shares and equity measured warrants as $
(b) | Issuances during the year ended August 31, 2021 |
During
the year ended August 31, 2021, 2020 Series convertible debentures with a principal amount of $
Page 44 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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On
December 1, 2020, the EB Loan was amended (Note 18(c)).
The
fair value of the Amended EB Loan on December 1, 2020, was $
(c) | 2019 Series |
As of August 31, 2021, the fair value of the 2019 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:
2019 Series | August
31, 2021 (CA$) | August
31, 2020 (CA$) | ||||||
Share price | ||||||||
Conversion price | ||||||||
Warrant exercise price | ||||||||
Term, in years | | |||||||
Interest rate | % | % | ||||||
Expected volatility | % | % | ||||||
Risk-free interest rate | % | % | ||||||
Exchange rate | ||||||||
Expected dividend yield | % | % |
(d) | 2020 Series |
The
2020 Series debentures will
Page 45 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The
2020 Series debenture holders may convert all or a portion of the principal amount of the debentures into units (“Units”)
of the Company at a price (the “Conversion Price”) equal to the lesser of (a) $
Notwithstanding
the foregoing, if by December 19, 2020, the Company has not obtained registration rights in the United States to allow sale in the United
States of the common shares (“Common Shares”) of the Company and the exercise of warrants (the “Warrants”) of
the Company to be issued pursuant to the conversion of the 2020 Series debentures, holders of 2020 Series debentures may convert such
debentures into Units at $
Each
Unit is comprised of one common share and one-half of one Warrant, with each Warrant exercisable into one common share of the Company
at an exercise price of $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 $
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$
(e) | 2020 Series - One Up |
These
convertible debentures (the “2020 Series One Up” debentures) have identical terms as the 2020 Series debentures except that
the minimum conversion price of $
(f) | 2020 Series – Standby |
In
September 2020, the Company entered into an $
In
November 2020, the Company issued
The
remaining $
Page 46 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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As of August 31, 2021, the fair value of the 2020 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:
2020 Series | August
31, 2021 (US$) | August
31, 2020 (US$) | ||||||
Share price | ||||||||
Conversion price | | |||||||
Warrant exercise price | - | 15.00 | ||||||
Term, in years | ||||||||
Interest rate | % | % | ||||||
Expected volatility | % | % | ||||||
Risk-free interest rate | % | % | ||||||
Expected dividend yield | % | % |
(g) | EB CD |
On
February 24, 2021, the Company extinguished the Amended EB Loan and issued the Lender a convertible debenture in the principal amount
of $
As of August 31, 2021, the fair value of the EB CD convertible debenture was estimated using the binomial lattice model with the below assumptions:
EB CD | August
31, 2021 (US$) | August
31, 2020 (US$) | ||||||
Share price | ||||||||
Conversion price | ||||||||
Warrant exercise price | ||||||||
Term, in years | ||||||||
Interest rate | % | |||||||
Expected volatility | % | |||||||
Risk-free interest rate | % | |||||||
Expected dividend yield | % |
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 August 31, 2021 has been calculated using a binomial lattice methodology. | Key observable inputs | The estimated fair value would increase (decrease) if: | |||
Share price CAD$ (USD $ ) | The share price was higher (lower) | |||||
Risk-free
interest rate ( |
The risk-free interest rate was higher (lower) | |||||
Dividend
yield ( |
The dividend yield was lower (higher) | |||||
Key unobservable inputs | ||||||
Credit
spread ( |
The credit spread was lower (higher) | |||||
Discount
for lack of marketability ( |
The discount for lack of marketability was lower (higher) | |||||
Convertible debt | The fair value of the convertible debentures as of August 31, 2020 has been calculated using a binomial lattice methodology. | Key observable inputs | The estimated fair value would increase (decrease) if: | |||
Share price (USD $ ) | The share price was higher (lower) | |||||
Risk-free
interest rate ( |
The risk-free interest rate was higher (lower) | |||||
Dividend
yield ( |
The dividend yield was lower (higher) | |||||
Key unobservable inputs | ||||||
Credit
spread ( |
The credit spread was lower (higher) | |||||
Discount
for lack of marketability ( |
The discount for lack of marketability was lower (higher) |
20. Long-term debt
The
Company has an unsecured, non-interest bearing loan that
Scheduled
repayments are: €
Page 47 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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21. Warrants
Liability measured warrants having CAD exercise price
The following table reflects the continuity of the Company’s liability measured warrants for the years ended August 31, 2021, and 2020:
Amount | ||||
$ | ||||
Balance at August 31, 2020 | ||||
Issued on conversion of convertible debt | ||||
Exercised | ( | ) | ||
Change in fair value | ( | ) | ||
Foreign exchange | ||||
Balance, August 31, 2021 |
Amount | ||||
$ | ||||
Balance at August 31, 2019 | ||||
Issued in acquisition of Frankly | ||||
Issued on conversion of convertible debt | ||||
Issued in private placement of units | ||||
Exercised | ( | ) | ||
Change in fair value | ||||
Foreign exchange | ||||
Balance, August 31, 2020 |
Page 48 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The following table reflects the continuity of the Company’s outstanding liability measured warrants for the years ended August 31, 2021, and 2020:
Weighted-average | ||||||||
Number of | exercise price | |||||||
warrants | CAD | |||||||
# | $ | |||||||
Outstanding, August 31, 2020 | ||||||||
Issued on conversion of convertible debt | ||||||||
Exercised | ( | ) | ||||||
Expired | ( | ) | ||||||
Oustanding as at August 31, 2021 |
Number of | Weighted-average | |||||||
exercise price | ||||||||
warrants | CAD | |||||||
# | $ | |||||||
Outstanding, August 31, 2019 | ||||||||
Issued | ||||||||
Issued on acquisition of UMG | ||||||||
Issued in acquisition of Frankly | ||||||||
Exercised | ( | ) | ||||||
Expired | ( | ) | ||||||
Oustanding as at August 31, 2020 |
Warrants outstanding | ||||||||||||
Expiry date | Number outstanding | Average exercise price CAD | Average remaining contractual life (years) | |||||||||
$ |
Page 49 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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As
of August 31, 2021, the fair value of the
If
all liability measured warrants outstanding and exercisable as of August 31, 2021, were exercised, the Company would receive cash from
exercise of approximately CAD$
(a) | Liability measured warrants exercised during the year ended August 31, 2021 |
During
the year ended August 31, 2021, the holders of
(b) | Liability measured warrants issued during the year ended August 31, 2021 |
During the year ended August 31, 2021, the Company issued warrants (August 31, 2020 – ) in connection with conversion of convertible debt (Note 19(a) – 2019 Series), and nil warrants (August 31, 2020 – ) in connection with the private placement of units (Note 22(c)), for a total number of warrants issued (August 31, 2020 – warrants issued, excluding warrants issued in connection with acquisitions as highlighted in the continuity above).
(c) | Liability measured warrants issued on conversion of convertible debt |
2019 Series
During
the year ended August 31, 2021, the Company issued
A
Volatility is calculated using a weighted approach based on the changes in the Company’s historical stock price. The final fair value allocated to the warrants on conversion of convertible debt is based on a relative fair value allocation between the common shares issued and warrants issued on conversion.
Page 50 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Equity measured warrants having USD exercise price
The following table reflects the continuity of the Company’s equity measured warrants for the year ended August 31, 2021. There were no equity measured warrants outstanding as of August 31, 2020:
Amount | ||||
$ | ||||
Balance at August 31, 2020 | - | |||
Issued on conversion of convertible debt | ||||
Issued in private placement of convertible debt | ||||
Issued in private placement of units | ||||
Issued in private placement of units - transaction costs | ( | ) | ||
Balance, August 31, 2021 |
The following table reflects the continuity of the Company’s outstanding equity measured warrants for the year ended August 31, 2021:
Weighted-average | ||||||||
Number of | exercise price | |||||||
warrants | USD | |||||||
# | $ | |||||||
Outstanding, August 31, 2020 | ||||||||
Issued on conversion of convertible debt | ||||||||
Issued in private placement of convertible debt | ||||||||
Issued in private placement of units | ||||||||
Oustanding as at August 31, 2021 |
Page 51 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Warrants outstanding | ||||||||||||
Expiry date | Number outstanding | Average exercise price USD | Average remaining contractual life (years) | |||||||||
$ |
If
all equity measured warrants outstanding and exercisable as of August 31, 2021, were exercised, the Company would receive cash from exercise
of approximately $
(a) | Equity measured warrants issued during the year ended August 31, 2021 |
During the year ended August 31, 2021, the Company issued warrants (August 31, 2020 – ) in connection with conversion of convertible debt (Note 19(a) – 2020 Series), warrants (August 31, 2020 – ) in connection with the private placement of convertible debentures (Note 19(f)) and warrants (August 31, 2020 – ) in connection with the private placement of units (Note 22(c)), for a total number of warrants issued (August 31, 2020 – ).
(b) | Equity measured warrants issued on conversion of convertible debt |
2020 Series
During
the year ended August 31, 2021, the Company issued
A
Volatility is calculated using a weighted approach based on the changes in the Company’s historical stock price. The final fair value allocated to the warrants on conversion of convertible debt is based on a relative fair value allocation between the common shares and equity measured warrants.
(c) | Equity measured warrants issued on private placement of standby convertible debentures |
During
the year ended August 31, 2021, the Company issued warrants in connection with the private placement of convertible debentures
under its standby convertible debenture facility (Note
19(f)). The fair value of the
A
Volatility is calculated using a weighted approach based on the changes in the Company’s historical stock price. The final fair value allocated to the warrants on conversion of convertible debt is based on a relative fair value allocation between the common shares issued and warrants issued on conversion.
Page 52 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(d) | Equity measured warrants issued on private placement of units |
During
the year ended August 31, 2021, the Company issued
A
Of
the $
Volatility is calculated using a weighted approach based on the changes in the Company’s historical stock price. The final fair value allocated to the warrants on the issuance of the units is based on a relative fair value allocation between the common shares issued and warrants issued.
(a) | Authorized |
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares.
(b) | Issued and outstanding, common shares |
Shares | Consideration | |||||||
# | $ | |||||||
Balance, August 31, 2019 | ||||||||
Impact of share consolidation | ( | ) | ||||||
Shares issued on vesting of RSUs | ||||||||
Convertible debt conversion | ||||||||
Private placements, net of costs | ||||||||
Shares issued for debt conversion | ||||||||
Shares issued on acquisition of UMG | ||||||||
Shares issued on acquisition of Frankly | ||||||||
Shares issued on acquisition of Winview | ||||||||
Shares issued on acquisition of Driver Database (Note 6) | ||||||||
Shares issued on acquisition of Lets Go Racing (Note 6) | ||||||||
Common shares issued on exercise of warrants | ||||||||
Balance, August 31, 2020 |
Shares | Consideration | |||||||
# | $ | |||||||
Balance, August 31, 2020 | ||||||||
Shares issued on vesting of RSUs | ||||||||
Common shares issued on exercise of options | ||||||||
Convertible debt conversion | ||||||||
Common shares issued on private placement, net of costs | ||||||||
EB bonus shares | ||||||||
Shares for debt | ||||||||
Common shares issued on exercise of warrants | ||||||||
Shares issued on acquisiton of SideQik | ||||||||
Balance, August 31, 2021 |
Page 53 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(c) | Activity for the year ended August 31, 2021 |
Private Placement of units
In
January and February 2021, the Company closed on the issuance of
The
Company paid cash commissions to eligible finders under the offering of $
In
addition to the cash finder’s fees discussed above, the Company issued the following securities as partial payment of commissions
to finders:
The
total number of common shares issued as a result of the private placements totaled
A summary of amounts recorded in connection with private placement and their effect on financial statement line items is noted below:
Proceeds | Shares | Impact on share capital | Warrants | Impact on contributed surplus | ||||||||||||||||
$ | # | $ | # | $ | ||||||||||||||||
Units issued in private placement | ||||||||||||||||||||
Cash commissions | ( | ) | ( | ) | ( | ) | ||||||||||||||
Regulatory and legal fees | ( | ) | ( | ) | ( | ) | ||||||||||||||
Finders’ units issued | ||||||||||||||||||||
Finders’ units considered as transaction costs | ( | ) | ( | ) | ||||||||||||||||
Finders’ warrants issued | ||||||||||||||||||||
Finders’ warrants considered as transaction costs | ( | ) | ( | ) | ||||||||||||||||
The fair value allocated between the common shares and warrants on the issuance of the Units is based on a relative fair value allocation between the common shares issued and warrants issued. Refer to equity measured warrants note for discussion of the key assumptions used in valuation of the warrants as part of the relative fair value allocation.
Page 54 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Other activity
During
the year ended August 31, 2021, the Company had the following additional activity to share capital: (i) issued
Activity for the year ended August 31, 2020
During the year ended August 31, 2020, the Company issued common shares upon vesting of an equal number of RSUs (Note 24), issued common shares in connection with conversion of convertible debt (Note 19), and issued common shares in connection with a series of non-brokered private placements as follows:
On
December 18, 2019, the Company closed a non-brokered private placement at a price of CAD$
During
the third quarter of 2020 the Company closed a non-brokered private placement at a price of CAD$
On March 20, 2020, the Company issued common shares in settlement of select trade payables through a shares for debt placement amounting to CAD$ ($ ). The fair value of the shares issued were based on market price on the date of settlement. In addition, on June 13, 2020, the Company issued common shares in settlement of select trade payables through a shares for debt placement amounting to CAD$ ($ ).
Page 55 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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On December 31, 2019, the Company issued common shares with a fair value of $ in connection with the acquisition of UMG (Note 6). On May 8, 2020, the Company issued Note 6 common shares with a fair value of $ in connection with the acquisition of Frankly (). On May 8, 2020, the Company issued Note 6 common shares with a fair value of $ in connection with the acquisition of Winview ().
On June 3, 2020, the Company issued common shares with a fair value of $ in connection with the acquisition of DriverDB (Note 6). On June 3, 2020, the Company issued Note 6 common shares with a fair value of $ in connection with the acquisition of Lets Go Racing ().
During
the year ended August 31, 2020, the Company issued
On October 6, 2021, the Company adopted an amended and restated equity incentive plan (“Omnibus Plan”), which amends and restates the equity incentive plan which was previously established as of July 15, 2020. Under the amendments, there were no changes in the terms of previously issued awards. Under the Omnibus Plan, the total number of common shares reserved and available for grant and issuance pursuant to stock options shall not exceed of the then issued and outstanding shares.
Options may be exercisable over periods of up to years as determined by the Board of Directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. The following table reflects the continuity of stock options for the years ended August 31, 2021, and 2020:
Weighted-average | ||||||||||||||||
Number
of stock options | Exercise
price | Grant-date fair value | Remaining contractual term | |||||||||||||
# | $ | $ | (yrs.) | |||||||||||||
Balance, Aug. 31, 2019 | ||||||||||||||||
Issued on acquisition of UMG | ||||||||||||||||
Issued on acquisition of Frankly | ||||||||||||||||
Granted | ||||||||||||||||
Expired/Cancelled | ( | ) | ||||||||||||||
Balance, Aug 31, 2020 | ||||||||||||||||
Balance, August 31, 2020 | ||||||||||||||||
Granted | ||||||||||||||||
Issued on exercise of options | ( | ) | ||||||||||||||
Expired/Cancelled | ( | ) | ||||||||||||||
Balance, Aug 31, 2021 | ||||||||||||||||
Exerciseable as at Aug 31, 2021 |
Page 56 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Expiry date | Outstanding options | CAD | Weighted
average exercise price USD | Weighted
average remaining contractual term (Years) | ||||||||||||
Of the options outstanding as of August 31, 2021 (2020 – ), are exercisable as of August 31, 2021 (2020 – ).
The Omnibus Plan allows the Company to award restricted share units to officers, employees, directors and consultants of the Company and its subsidiaries upon such conditions as the Board may establish, including the attainment of performance goals recommended by the Company’s compensation committee. The purchase price for common shares of the Company issuable under each Restricted Share Unit (“RSU”) award, if any, shall be established by the Board at its discretion. Common shares issued pursuant to any RSU award may be made subject to vesting conditions based upon the satisfaction of service requirements, conditions, restrictions, time periods or performance goals established by the board.
The TSXV requires the Company to fix the number of common shares to be issued in settlement of awards that are not options. The maximum number of common shares available for issuance pursuant to the settlement of RSUs shall be an aggregate of common shares.
Page 57 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The Company’s outstanding RSUs are as follows:
Number | ||||
# | ||||
Balance, August 31, 2019 | ||||
Issued on acquisition of Frankly | ||||
Granted | ||||
Vested | ( | ) | ||
Cancelled | ||||
Balance, August 31, 2020 | ||||
Balance, August 31, 2020 | ||||
Issued on acquisition of SideQik | ||||
Granted | ||||
Vested | ( | ) | ||
Cancelled | ( | ) | ||
Balance, August 31, 2021 |
Activity for the year ended August 31, 2021
During
the year ended August 31, 2021, the Company granted
Activity for the year ended August 31, 2020
On April 1, 2020, the Company granted RSUs to compensate directors, officers and key employees, which vested immediately. On August 13, 2020, the Company granted RSUs to compensate directors and officers. The director RSUs vest at the end of one year, and the officer RSUs vest over three years. The remaining RSUs were granted on May 8, 2020, in connection with the acquisition of Frankly. These RSUs have a vesting period of three years from the original date of the grant.
The fair value of RSUs granted on April 1, 2020, was estimated based on a closing price of CAD$ (US$ ) for a total fair value on date of grant of CAD$ ($ ). As these RSUs had immediate vesting, the fair value was recognized in full on the date of grant as stock-based compensation expense and common shares were issued. The fair value of RSUs granted on August 13, 2020, was estimated based on a closing price of CAD$ (US$ ) for a total fair value on date of grant of CAD$ ($ ). The fair value of these RSUs will be recognized as stock-based compensation expense over the vesting period. The fair value of the RSUs granted on May 8, 2020, in connection with the acquisition of Frankly will be recognized as stock-based compensation expense over the vesting period.
During the year ended August 31, 2021, share-based compensation expense for the Company’s RSUs was $ (2020 – $ ).
Page 58 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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25. Capital management
The Company considers its capital to be its shareholders’ equity.
As
of August 31, 2021, the Company had shareholders’ equity before non-controlling interests of $
The Company may also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines any of these to be an effective method of achieving the above objective. The Company does not use ratios in the management of its capital. There have been no changes to management’s approach to managing its capital during the years ended August 31, 2021, and 2020.
26. Commitments and contingencies
Litigation and Arbitration
In
April 2020, the Company announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provided
for the acquisition of
In
response, in November 2020, the shareholders of Allinsports commenced arbitration in Alberta, Canada seeking, among other things, to
compel the Company to complete the acquisition of Allinsports without the audited financial statements, and to issue 966,667 common shares
of the Company to those shareholders. As alternative relief, the shareholders of Allinsports sought up to US$
Separately,
in April of 2021, the Company received a copy of a complaint filed by 3CI Holdings, LLP in the Circuit Court for the 11th Judicial Circuit
for Miami-Dade naming Allinsports, A1 Simulation LLC (an entity purported to be a subsidiary of Allinsports), and the Company, seeking
to hold the parties, including Company, responsible for unpaid rent under a lease agreement between 3CI’s predecessors in interest
and A1 Simulation, and seeking damages of at least $
On January 21, 2021, eight former shareholders of Winview filed a Complaint in Delaware Chancery Court against four Winview directors (David Lockton, et al. v. Thomas S. Rogers, et al.) alleging that the defendants breached their fiduciary duties in connection with the sale of Winview to Engine. The relief sought includes rescission of the sale of Winview to Engine and compensatory damages. The defendants have filed a motion to dismiss the claims in this matter. 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.
On July 15, 2021, a complaint was filed against Winview Inc. by Bleacher League Entertainment, Inc. in the United States District Court for the District of Delaware, alleging that Winview had violated two of Bleacher’s patents covering an interactive themed baseball game and seeking damages and other relief. The parties have entered into an agreement resolving this matter and in connection therewith, on November 8, 2021, the plaintiff terminated the pending action by filing a notice of voluntary dismissal with prejudice.
Page 59 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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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. FanDuel filed a partial motion to dismiss two of the claims alleged in Winview’s complaint. Winview has responded and the motion is pending. DraftKings filed a motion to dismiss Winview’s complaint, which was withdrawn without prejudice after Winview filed an amended complaint. 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.
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.
27. Discontinued operations
On November 3, 2020, the Company, following a detailed strategic review in connection with the merger of Torque Esports, Frankly and WinView, announced that it has completed the sale of IDEAS+CARS, The Race Media, WTF1, Driver DataDB and Lets Go Racing (collectively the “Motorsport Group”) to Ideas + Cars Holdings Limited, a third party investment group based in the UK. As a result, the Company is eliminating its funding obligations related to the cost of maintaining and growing these auto media businesses and certain accrued liabilities. Accordingly, the operational results for this group have been presented as a discontinued operation.
Consideration transferred for the Motorsport Group was as follows:
Amount | ||||
$ | ||||
Consideration received or receivable: | ||||
Accounts payable assumed | ||||
Deferred purchase consideration of LGR | ||||
Fair value of contingent consideration | ||||
Total disposal consideration | ||||
Carrying amount of net assets sold | ( | ) | ||
Loss on disposal before income tax and reclassification of foreign currency translation reserve | ( | ) | ||
Reclassification of foreign currency translation reserve | ( | ) | ||
Loss on disposal of Motorsports | ( | ) |
Page 60 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The net assets of the Motorsport Group as of the date of sale were as follows:
Amount | ||||
$ | ||||
Carrying amounts of assets as at the date of sale: | ||||
Cash and cash equivalents | ( | ) | ||
Restricted cash | - | |||
Accounts and other receivables | ||||
Government remittances | ||||
Prepaid expenses and other | ||||
Property and equipment | ||||
Intangible assets | ||||
Total assets of disposal group | ||||
Carrying amount of liabilities directly associated with assets as at the date of sale: | ||||
Accounts payable | ||||
Accrued liabilities | ||||
Total liabilities of disposal group | ||||
Net assets of disposal group |
The operating results of the Motorsports Group and PGL Nevada, (together, the “discontinued operations”) for the years ended August 31, 2021, and 2020 are presented as follows:
For the year ended | ||||||||
Aug 31, 2021 | Aug 31, 2020 | |||||||
$ | $ | |||||||
Revenues | ||||||||
Advertising revenue | ||||||||
Operating expenses | ||||||||
Salaries and wages | ||||||||
Consulting | ||||||||
Professional fees | ||||||||
Sponsorships and tournaments | ||||||||
Advertising and promotion | ||||||||
Office and general | ||||||||
Technology expenses | ||||||||
Amortization and depreciation | ||||||||
Share-based payments | ||||||||
Interest expense | ||||||||
(Gain) loss on foreign exchange | ( | ) | ||||||
Net loss from discontinued operations | ( | ) | ( | ) |
Page 61 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The net cash flows from discontinued operations for the years ended August 31, 2021, and 2020 are as follows:
For the year months ended | ||||||||
Aug 31, 2021 | Aug 31, 2020 | |||||||
$ | $ | |||||||
Net cash provided by (used in) operating activities | ( | ) | ||||||
Disposal of Motorsports | ||||||||
Change in cash | ( | ) | ||||||
Cash, beginning of period | ( | ) | ||||||
Cash, end of period |
28. Segmented information
Information reported to the Company’s Co-Chief Executives, the Chief Operating Decision Makers (“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 Gaming, Media, and Corporate and Other. The Group’s reportable segments under IFRS 8 Operating Segments 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.
The following is an analysis of the Company’s revenue and results by reportable segment in fiscal 2021:
Gaming | Media | Corporate and Other | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | ||||||||||||||||
External sales | ||||||||||||||||
Results | ||||||||||||||||
Segment loss | ( | ) | ( | ) | ( | ) | ||||||||||
Central administration costs | ||||||||||||||||
Other gains and losses | ( | ) | ||||||||||||||
Finance costs | ||||||||||||||||
Loss before tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income tax | ||||||||||||||||
Gain (Loss) for the year from: | ||||||||||||||||
Share of net loss of associate | ( | ) | ( | ) | ||||||||||||
Discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
Non-controlling interest in net loss | ||||||||||||||||
Net loss | ( | ) | ( | ) | ( | ) | ( | ) |
Page 62 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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The following is an analysis of the Company’s revenue and results by reportable segment in fiscal 2020:
Gaming | Media | Corporate and Other | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | ||||||||||||||||
External sales | ||||||||||||||||
Results | ||||||||||||||||
Segment loss | ( | ) | ( | ) | ( | ) | ||||||||||
Central administration costs | ||||||||||||||||
Other gains and losses | ( | ) | ||||||||||||||
Finance costs | ||||||||||||||||
Loss before tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income tax | ||||||||||||||||
Gain (Loss) for the year from: | ||||||||||||||||
Discontinued operations | ( | ) | ( | ) | ||||||||||||
Non-controlling interest in net loss | ||||||||||||||||
Net loss | ( | ) | ( | ) | ( | ) | ( | ) |
Geographical breakdown
North America | United Kingdom | European Union | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
August 31, 2020 | ||||||||||||||||
Assets | 53,415,477 | |||||||||||||||
Long-term assets | 41,240,004 | |||||||||||||||
August 31, 2021 | ||||||||||||||||
Assets | - | 67,462,847 | ||||||||||||||
Long-term assets | - | 35,905,165 |
29. 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 includes the following:
For the year ended | ||||||||
Aug 31, 2021 | Aug 31, 2020 | |||||||
$ | $ | |||||||
Total compensation paid to key management | ||||||||
Share based payments |
Page 63 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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Total compensation paid to key management is recorded in consulting fees and salaries and wages in the consolidated statement of loss and comprehensive loss for the years ended August 31, 2021, and 2020.
Amounts
due to related parties as at August 31, 2021 with respect to the above fees were $
Commitment to former holders of WinView to proceeds from the patent portfolio enforcement action
Pursuant
to the Business Combination agreement dated March 9, 2020, among the Company, Frankly Inc. and Winview Inc., the Company is required
to pay to certain former Winview securities holders (“Stubholders”) fifty percent (
30. Financial instruments and risk management
(a) | Financial risk management objectives and policies |
The Company’s activities expose it to a variety of financial risks including foreign currency risk, interest rate risk, credit risk, and liquidity risk. These financial instrument risks are actively managed by the Company under the policies approved by the Board of Directors. On an ongoing basis, the finance department actively manages market conditions with a view to minimizing the exposure of the Company to changing market factors, while at the same time limiting the funding costs to the Company.
(b) | Credit risk |
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company uses information supplied by independent rating agencies where available, and if not available, the Company uses other publicly available financial information and its own records to rate its customers.
Credit risk arises from cash with banks as well as credit exposure to outstanding receivables. The carrying amounts represent the Company’s maximum exposure to credit risk.
The
Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Company establishes
an allowance for doubtful accounts that represents its estimate of expected losses in respect to 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 allowance for doubtful accounts was $
Page 64 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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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 August 31, 2021, one customer (2020 - one) accounted for greater than 10% of the Company’s accounts receivable balance. In total,
this one customer (2020 - one) accounted for
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 August 31, 2021:
0 - 30 | 31 - 60 | 61 - 90 | 91+ | Total | ||||||||||||||||
Trade accounts receivable | ||||||||||||||||||||
Allowance for doubtful accounts | ||||||||||||||||||||
% Allowance | % | % | % | % | % |
(c) | Liquidity risk |
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Company manages liquidity risk by continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets and liabilities. The Company seeks to ensure that it has sufficient capital to meet short term financial obligations after taking into account its operating obligations and cash on hand.
The Company’s policy is to seek to ensure adequate funding is available from operations and other sources, including debt and equity capital markets, as required.
< 1 year | 1-2 years | 2-5 years | ||||||||||
$ | $ | $ | ||||||||||
Accounts payable | - | - | ||||||||||
Accrued liabilities | - | - | ||||||||||
Players liability account | - | - | ||||||||||
Lease obligation | - | |||||||||||
Long-term debt | - | - | ||||||||||
Promissory notes payable | - | - | ||||||||||
Convertible debt |
(d) | Interest rate risk |
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to fair value risk with respect to debt which bears interest at fixed rates.
Page 65 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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(e) | Foreign exchange rates |
The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to fluctuations of financial instruments related to cash, accounts and other receivables, and accounts payable denominated in Euros and GBP, as well as debt denominated in Canadian dollars.
(f) | Fair value hierarchy |
The following tables combine information about:
● | classes of financial instruments based on their nature and characteristics; | |
● | the carrying amounts of financial instruments; | |
● | fair values of financial instruments (except financial instruments when carrying amount approximates their fair value); and | |
● | fair value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed. |
Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable.
For the year ended August 31, 2021:
Carrying value at August 31, 2021 | FVTPL
- mandatorily measured | FVOCI
- mandatorily measured | FVOCI
- designated | Amortized cost | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | - | - | - | |||||||||||||
Restricted cash | - | - | - | |||||||||||||
Accounts and other receivables | - | - | - | |||||||||||||
Government remittances | - | - | - | |||||||||||||
Publisher advance | - | - | - | |||||||||||||
Investment at FVTPL | - | - | - | |||||||||||||
- | - |
Carrying value at August 31, 2021 | FVTPL - mandatorily measured | FVTPL - designated | Amortized cost | |||||||||
$ | $ | $ | ||||||||||
Financial liabilities: | ||||||||||||
Accounts payable | - | - | ||||||||||
Accrued liabilities | - | - | ||||||||||
Players liability account | - | - | ||||||||||
Line of credit | - | - | - | |||||||||
Long-term debt | - | - | ||||||||||
Promissory notes payable | - | - | ||||||||||
Deferred purchase consideration | - | - | - | |||||||||
Warrant liability | - | - | ||||||||||
Convertible debt | - | - | ||||||||||
Page 66 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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For the year ended August 31, 2020:
Carrying value at August 31, 2020 | FVTPL
- mandatorily measured | FVOCI
- mandatorily measured | FVOCI
- designated | Amortized cost | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | - | - | - | |||||||||||||
Restricted cash | - | - | - | |||||||||||||
Accounts and other receivables | - | - | - | |||||||||||||
Government remittances | - | - | - | |||||||||||||
Publisher advance | - | - | - | - | ||||||||||||
Investment at FVTPL | - | - | - | - | ||||||||||||
- | - | - |
Carrying value at August 31, 2020 | FVTPL - mandatorily measured | FVTPL - designated | Amortized cost | |||||||||
$ | $ | $ | ||||||||||
Financial liabilities: | ||||||||||||
Accounts payable | - | - | ||||||||||
Accrued liabilities | - | - | ||||||||||
Players liability account | - | - | ||||||||||
Line of credit | - | - | ||||||||||
Long-term debt | - | - | ||||||||||
Promissory notes payable | - | - | ||||||||||
Deferred purchase consideration | - | - | ||||||||||
Warrant liability | - | - | ||||||||||
Convertible debt | - | - | ||||||||||
A summary of instruments, with their classification in the fair value hierarchy is as follows:
Level 1 | Level 2 | Level 3 | Fair value as of August 31, 2021 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Warrant liability | - | - | ||||||||||||||
Convertible debt | - | - | ||||||||||||||
Investment at FVTPL | - |
Level 1 | Level 2 | Level 3 | Fair value as of August 31, 2020 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Warrant liability | - | - | ||||||||||||||
Convertible debt | - | - |
Page 67 of 68 |
Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Consolidated Financial Statements August 31, 2021 and 2020 (Expressed in United States Dollars) |
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31. Subsequent events
The Company has evaluated subsequent events from the balance sheet date through November 26, 2021, the date at which the consolidated financial statements were available to be issued and determined there were no additional items to be disclosed.
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