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TGS Esports Inc.

TSXV: TGS $0.13

Other OTC: TGSEF $0.1049

July 6, 2021

 

Business Overview

 

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TGS Esports Inc. is focused on connecting fans and brands by bringing esports events (competitive, organized video gaming) to communities worldwide via dedicated facilities and online tournaments. The target audience is casual and competitive at-home gamers, typically in the desirable 18-34 age bracket.

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The Company creates world-class tournaments and content for tournament organizers and schools. This facilitates its engagement of a growing army of gamers while authentically integrating its partner brands into the gaming experience.

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In its first two years of existence, TGS has successfully produced and run more than 450 esports events, developed partnerships with many prominent brands, and completed several cornerstone acquisitions.

 

 

Esports Is a Big Business and Growing Rapidly

 

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According to Newzoo market analytics report for 2020, esports global revenues for 2020 were US$1.10 billion and could reach US$1.56 billion by 2023. Approximately 82% of the market is from brand investments such as media rights, advertising, and sponsorship. Major esports sponsors include a growing number of Fortune 500 companies.

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The global esports audience is estimated to reach 453.8 million this year, including 201.2 million enthusiasts and 252.6 million occasional viewers. The growth rate of the audience is estimated at 20% per annum. Asia represents the largest fan base, but monetization (prize money, brand partnerships, and merchandise sales) is tops in the U.S.

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Esports leagues or teams face off in the same games that are popular with at-home gamers, such as League of Legends, CS:GO, Dota 2 (highest in prize money awards), PUBG Mobile, Garena Free Fire, and StarCraft II (highest number of tournaments).

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With the introduction of streaming services (e.g., Twitch) and live events, some gamers have become media stars with large salaries, sizable brand endorsements, and streaming donations. Some tournament prize pools have reached into the tens of millions of dollars, and there are scores of players whose winnings have exceeded US$1M.

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High schools and colleges have stepped into the esports arena. More than 50 colleges have varsity esports programs. Prize money for the winners can be in the form of scholarships.

 

 

TGS Has Rapidly Expanding Reach into the eSports Ecosystem

 

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The end-to-end platform generates diverse revenue streams from tournaments, broadcast productions, and events. Revenues include registration fees, courses/camps, online events, sponsorships, retail sales, large-scale external events, private rentals, data monetization (to sponsors, talent scouts, coaches, professional organizations, and market research), payment processing, recurring subscriptions, agency/player representation, live event and production fees, and virtual studio broadcasting.

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The Company has run more than 500 events, hosting more than 50,000 players in those events.

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TGS has a large and growing list of brand partners. These include Pepsi, Red Bull, 7Eleven, Ubisoft (tools for digital TV), HyperX, Shaw Cable, Telcel (the leading provider of wireless communications services in Mexico), Nintendo, GameStop, EBGames, and Vertagear (gaming chairs). The Company has built white-label experiences for more than 15 brands. TGS integrates the brands into the gaming experience, enhancing the value of the engagement.

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Acquisitions have played an important role in the building of the TGS end-to-end esports solution.

 

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In June 2021, TGS acquired Even Matchup Gaming Inc. (EMG), a leading esports tournament organizer. EMG has hosted and broadcast more than 100 events in the last two years and enjoyed more than 100 million social interactions with more than 18 million viewers consuming more than 50 million minutes of EMG content. EMG flagship Get On My Level (GOML) is the largest fighting game tournament in Canada, with more than 65,000 unique views in 2020.

 

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Volcanic Media Inc., acquired in January 2021, has created an inter-district high school esports league and scholarship program for players within the league.

 

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Pepper Esports Inc., acquired in December 2020, operates an esports tournament platform to integrate player communities, spectators, sponsors, and brands. This full-service and robust platform, which includes customized gaming strategies for brands, helps to build critical mass while exposing gamers to the brands..

 

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In November 2020, the Company acquired Discover, a talent management business and has been successful in signing its first seven creators.

 

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The Gaming Stadium, acquired in June 2019, is an events and production property located at 4211 No. 3 Road, Richmond B.C., Canada V6x 2C3. This is the first of its kind esports stadium in Canada. It hosts recreational leagues and individual tournaments throughout the year for players of all skill levels. Sponsors and partners include HyperX, Kanto, Memory Express (computer products), Ubisoft, Esports TV Canada, Vertagear, Pepsi, and Canada Esports Association.

 

 

Competitive Landscape

 

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There are a number of established companies in various segments of the esports industry. Here is a list of some of them:

 

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Enthusiast Gaming Holdings Inc. (Nasdaq: EGLX) is the largest network of gaming communities, with more than 100 gaming websites and 1,000 YouTube channels. Based in Toronto. Market cap US$792M.

 

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Esports Entertainment Group (NasdaqGS:GMBL) offers esports entertainment and wagering, iGaming and traditional sports betting, and professional and amateur esports events. Based in Malta. Market cap US$230M.

 

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FansUnite Entertainment (Other OTC: FUNFF) offers white label gaming platforms for esports, traditional sports, and casinos; a UK-based sportsbook and casino; a sportsbook and casino site targeting Brazil; and casino and sportsbook games. Based in Vancouver. Market cap US$138M.

 

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Super League Gaming, Inc. (NasdaqCM: SLGG) operates a platform for video gaming and esports entertainment. Based in Santa Monica. Market cap US$184M.

 

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ESE Entertainment Inc. (TSXV: ESE.V and Other OTC: ENTEF) has multiple assets and operators in gaming and esports. Based in Vancouver. Market cap US$62M.

 

 

Executive Management and Board of Directors

 

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Spiro Khouri, a founder and Director of TGS and CEO since September 2019, was previously the VP/Sales & Marketing of the Company. He had earlier driven the opening of Elements Esports Lounge, the first esports facility in a Canadian casino.

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Guy Halford-Thompson, President and a Director, is a highly successful investor/entrepreneur, having had five successful exits since 2016 through both acquisition (QuickBitcoin, Bitcoiniacs, and Xapcash) and public listings (TSXV:BTL and TSXV:DASH). He is also a founder and board member of Eli Technologies and Minehub.

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Bryan Loree, CFO, Secretary, and a Director, is also CFO, Secretary, and a Director of Cannabix Technologies Inc. (US OTC: BLOZF). He previously had considerable financial experience at a number of other companies.

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Ben Hoffman, CTO, has software project experience ranging from IoT health and safety platforms to blockchain R&D.

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Matt Low, VP/Operations, started in the esports industry as a World of Warcraft blogger. He then worked in IT operations and support for the provincial government. Mr. Low had early experience inhosting tournaments and organizing community events.

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Gopal Patel, VP/Business Development & Strategy, has considerable experience in developing strategic partnerships for Canucks Sports and Entertainment and MLSE. He has built partnerships with more than 150 top brands for a dozen properties across 10 sports and gaming leagues.

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Jackson Warren was an early entrant in the digital currency and blockchain space. He recently served as CEO of Xapcash Technologies Inc, was a founder and director of Neptune Dash, and served as COO of BTL Group Ltd.

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Spencer Smyl, Director, is an investment manager at Asia Asset Management Inc.

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Carolina Li, Director, is Secretary of Lipont Investment Ltd, a private company that invests in many venture businesses.

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Ravinder Mlait, Director, is CEO, CFO, and Director of Brockton; CEO and Director of Torino Power Solutions Inc.; and CEO of Cannabix Technologies Inc.

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On March 1, 2021, executive management as a group beneficially owned approximately 29% of the common shares outstanding.

 

 

Financials

 

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Income Statement (9 months through 03/31/21 vs. 03/31/20) (CAD)

 

Tournament income: 57,765 vs. 133,815

Sponsorship income: 175,116 vs. 25,014

Tournament expenses: 64,059 vs. 286,573

Gross income (loss): 168,822 vs. (127,744)

Share-based compensation: 1,610,081 vs. 0

Salaries and wages: 731,031 vs. 474,209

Professional fees: 521,974 vs. 93,364

Other operating expenses: 1,135,669 vs. 1,321,588

Operating income (loss): (3,829,933) vs. (2,016,905)

Other items: (1,941,320) vs. (886,450)

Loss and comprehensive loss (5,771,253 vs. (2,903,355)

Earnings (loss) per basic and diluted common share: (0.08) vs. (0.06)

Weighted average common shares outstanding: 76,130,905 vs. 49,531,089

 

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Balance Sheet (03/31/21) (CAD)

 

Cash & equivalents: 1,273,858

Receivables: 297,143

Other current assets: 109,346

Total current assets: 1,680,347

Intangibles: 6,167,527

Other assets: 394,729

Total assets: 8,242,603

Current liabilities: 755,028

Non-current liabilities: 1,504,238

Stockholders� equity: 5,983,337

Common shares outstanding (03/31/21): 127,281,652

Stock options outstanding: 12,430,000 at a weighted average exercise price of $0.13

Warrants outstanding: 30,744,159 at a weighted average exercise price of $0.20

Warrants held by agents: 1,176,548 at a weighted average exercise price of $0.22

 

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On June 28, 2021, TGS completed the acquisition all of the outstanding shares of Even Matchup Gaming Inc. for 5,500,000 common shares at a deemed price per share of CAD$0.20. The shares are subject to a contractual lockup of between 24 and 36 months.

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On February 3, 2021, the Company completed a non-brokered private placement for CAD$2,000,000 by issuing 11,111,111 common shares and an equal number of two-year warrants exercisable at CAD$0.25 apiece. The finders received CAD$55,644.99 in cash, 366,758 warrants, and 82,610 common shares.

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On December 21, 2020, TGS completed a business combination with Pepper Esports Inc. for 43,385 common shares at CAD$0.14 per share, plus 3,000,000 options and 1,923,780 warrants to the former shareholders of Pepper.

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On December 20, 2020, the Company acquired Volcanic Media Inc. for CAD$240,000 of shares valued in accordance with a pre-determined price formula.

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On July 30, 2020, the predecessor company to TGS completed a business combination with Myesports Ventures Ltd., with Myesports becoming a wholly owned subsidiary. Subsequent to the transaction, the Company commenced its present activities.

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The financial statements note a going-concern qualification.

 

 

Valuation Considerations

 

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The esports industry is large and growing rapidly. There is considerable competition, but with the integration of its recent acquisitions, TGS appears to be well positioned to compete for a growing market share.

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Management is highly experienced in this and other related businesses, and it holds a meaningful financial stake in the Company.

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The working capital balance is positive, and with a higher stock price the exercise of options and warrants could add meaningfully to the total.

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The ongoing impact of COVID-19 is an uncertainty. The SEDAR filings expand upon this risk and list other risk factors which are hereby incorporated by reference.

 

 

Contacts

 

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Registered office: 905 West Pender St., 6th Floor, Vancouver B.C., Canada V6C 1L6.

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Websites: www.investtgs.com, www.pepper.gg, and www.thegamingstadium.com

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Investor contact: investors@thegamingstadium.com

 

 

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