Engine Gaming and Media F10/A Registration of securities (Canada) (amended) | GAME 9 Jun 21

Exhibit 4.14

ENGINE MEDIA HOLDINGS, INC.

(formerly Torque Esports Corp.)

Interim Condensed Consolidated Financial Statements

For the Three and Six Months Ended

February 28, 2021 and February 29, 2020

(Expressed in United States Dollars)

(Unaudited)

Table of Contents

Management’s Responsibility for Financial Reporting and Notice to Reader	3

Unaudited Interim Condensed Consolidated Statements of Financial Position	4-5

Unaudited Interim Condensed Consolidated Statements of Loss and Comprehensive Loss	6

Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity (Deficiency)	7

Unaudited Interim Condensed Consolidated Statements of Cash Flows	8

Notes to the Unaudited Interim Condensed Consolidated Financial Statements	9-47

Page 2 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying unaudited interim condensed consolidated financial statements of Engine Media Holdings Inc. (formerly Torque Esports Corp.) (the “Company”) are the responsibility of management and the Board of Directors.

The unaudited interim condensed consolidated financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the unaudited interim condensed consolidated financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the statement of financial position date. In the opinion of management, the unaudited interim condensed consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with International Accounting Standard 34 - Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards appropriate in the circumstances.

Management has established processes, which are in place to provide it with sufficient knowledge to support management representations that it has exercised reasonable diligence in that (i) the unaudited interim condensed consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of, and for the periods presented by, the unaudited interim condensed consolidated financial statements and (ii) the unaudited interim condensed consolidated financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of the date of and for the periods presented by the unaudited interim condensed consolidated financial statements.

The Board of Directors are responsible for reviewing and approving the unaudited interim condensed consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. The Company’s Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the unaudited interim condensed consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the unaudited interim condensed consolidated financial statements together with other financial information of the Company for issuance to the shareholders.

Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

NOTICE TO READER

The Audit Committee, in consultation with management of the Company, has determined that the Company’s previously filed unaudited condensed consolidated interim financial statements and management’s discussion and analysis for the three and six months ended February 28, 2021 and February 29, 2020 required restating to correct content and disclosure deficiencies related to the following items:

	1.	Accounting for finder’s warrants issued in private placements within contributed surplus – Adjustments resulted in a decrease to warrant liability of $918,476, increase in contributed surplus of $770,563 and decrease in change in fair value of warrant liability (decrease of expense) of $147,913.
	2.	Accounting for investment in One Up to move from investment in associate to investment at FVTPL – Adjustments resulted in reclass of investment in One Up out of investment in associate and into investment at FVTPL along with a $181,120 increase to the carrying value, decrease in share of net loss of associate of $81,159 and an increase in gain on retained interest in former associate of $99,961.
	3.	Accounting for share issuance costs incurred in the private placements – Adjustments resulted in increase to share capital of $582,333 and increase to transaction costs of $582,333.

The previously filed financial statements and management’s discussion and analysis for the financial periods were originally filed by the Company on SEDAR on May 3, 2021.

Each of the Restated Unaudited Condensed Consolidated Interim Financial Statements and Restated MD&A for the three and six months ended February 28, 2021 and February 29, 2020 replaces and supersedes the respective previously filed original financial statements and related Management’s Discussion and Analysis. There have been no other changes. This notice supersedes the previously filed version.

Page 3 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Interim Condensed Consolidated Statements of Financial Position

(Unaudited)

(Expressed in United States Dollars)

	Note	February 28, 2021		August 31, 2020
		$		$

ASSETS
Current
Cash and cash equivalents			22,761,881		5,243,278
Restricted cash	13		321,129		388,587
Accounts and other receivables	6		5,026,111		3,845,890
Government remittances			953,844		1,125,912
Publisher advance, current	6		1,765,126		-
Prepaid expenses and other			1,156,415		1,571,806
			31,984,506		12,175,473

Publisher advance, non-current	6		3,093,519		-
Investment in associate	7		-		2,052,008
Investment at FVTPL	7		2,048,039		-
Property and equipment	8		376,095		409,389
Goodwill	9		18,816,371		18,785,807
Intangible assets	10		13,558,456		19,442,322
Right-of-use assets	11		467,913		550,478
			38,360,393		41,240,004
			70,344,899		53,415,477

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Page 4 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Interim Condensed Consolidated Statements of Financial Position (Cont’d)

(Unaudited)

(Expressed in United States Dollars)

	Note	February 28, 2021			August 31, 2020
		$			$
LIABILITIES
Current
Accounts payable and accrued liabilities			15,804,476			17,144,346
Players liability account	13		321,129			388,587
Deferred revenue			1,289,338			553,395
Lease obligation, current	12		194,558			185,671
Line of credit	14		-			4,919,507
Long-term debt, current	16		98,992			97,702
Promissory notes payable	14		1,340,840			3,818,920
Deferred purchase consideration			-			333,503
Warrant liability	17		31,420,496			14,135,321
Contingent performance share obligation, current	23		-			262,067
			50,469,829			41,839,019

Convertible debt	15		14,276,107			10,793,459
Lease obligation, non-current	12		287,753			386,477
Long-term debt, non-current	16		44,996			133,230
			14,608,856			11,313,166
			65,078,685			53,152,185

SHAREHOLDERS’ EQUITY (DEFICIENCY)
Share capital	18		107,136,725			69,380,807
Shares to be issued			-			1,059,214
Contributed surplus			5,785,755			4,034,323
Foregin currency translation reserve			(2,338,874	)		(2,334,275	)
Deficit			(105,473,107	)		(72,094,162	)
			5,110,499			45,907
Non-controlling interest			155,715			217,385
			5,266,214			263,292
			70,344,899			53,415,477
Going concern	1
Commitments and contingencies	22
Subsequent events	27

Approved on Behalf of Board:		“Larry Rutkowski”		“Lou Schwartz”
		Director		Director

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Page 5 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Interim Condensed Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

(Expressed in United States Dollars)

		For the three months ended						For the six months ended
	Note	Feb. 28, 2021			Feb. 29, 2020			Feb. 28, 2021			Feb. 29, 2020
CONTINUING OPERATIONS			$			$			$			$
REVENUE
Games development			688,473			426,835			1,188,428			959,696
Sponsorship, tournament and event income			133,942			26,693			183,774			26,957
Platform revenue			1,444,934			120,339			2,881,931			261,621
Advertising revenue			6,005,573			-			11,458,043			-
Professional services			114,958			50,128			142,095			183,969
			8,387,880			623,995			15,854,271			1,432,243
EXPENSES
Salaries and wages			4,769,052			1,342,621			8,546,528			2,469,781
Consulting			800,471			1,035,101			1,696,423			1,535,751
Professional fees			442,055			226,023			1,127,907			562,053
Revenue sharing expense			5,117,302			-			9,608,729			-
Sponsorships and tournaments			87,247			35,530			451,476			35,530
Advertising and promotion			515,704			243,097			1,375,530			1,367,442
Office and general			621,054			572,421			1,326,873			852,705
Technology expenses			645,803			88,239			1,226,657			101,589
Amortization and depreciation	8, 10, 11		1,530,784			637,201			2,946,924			1,228,392
Share-based payments	19, 20		689,995			5,800			1,778,633			16,914
Interest expense			572,478			249,061			980,567			523,538
(Gain) loss on foreign exchange			139,994			113,821			102,745			284,146
Change in fair value of contingent consideration			-			82,215			-			82,215
Loss (gain) on extinguishment of debt			2,428,900			(927	)		2,428,900			(927	)
Gain on retained interest in former associate			(99,961	)		-			(99,961	)		-
Transaction costs	18		582,333			-			582,333			-
Change in fair value of warrant liability	17		10,374,703			(502,438	)		5,614,927			1,131,886
Change in fair value of convertible debt	15		6,539,904			(2,048,169	)		7,863,649			(1,243,644	)
			35,757,818			2,079,596			47,558,840			8,947,371
ASSOCIATES
Share of net loss of associate			37,244			-			103,930			-
Net loss for the period before taxes			(27,407,182	)		(1,455,601	)		(31,808,499	)		(7,515,128	)
Deferred income taxes			-			-			-			-
			(27,407,182	)		(1,455,601	)		(31,808,499	)		(7,515,128	)
DISCONTINUED OPERATIONS
Loss on disposal of Motorsports			-			-			(678,931	)		-
Discontinued operations	23		(2,970	)		(1,093,879	)		(953,185	)		(3,120,643	)
Net loss for the period			(27,410,152	)		(2,549,480	)		(33,440,615	)		(10,635,771	)

Net loss attributable to non-controlling interest			30,640			42,209			61,670			77,309
Net loss attributable to owners of the Company			(27,379,512	)		(2,507,271	)		(33,378,945	)		(10,558,462	)

OTHER COMPREHENSIVE LOSS
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences			(138,444	)		295,914			(4,599	)		(211,939	)
Comprehensive loss for the period			(27,517,956	)		(2,211,357	)		(33,383,544	)		(10,770,401	)
EARNINGS PER SHARE
Basic and diluted earnings per share - continuing operations	5		(2.71	)		(1.81	)		(3.57	)		(15.29	)
Basic and diluted earnings per share - discontinued operations	5		(0.00	)		(1.40	)		(0.18	)		(6.42	)
Basic and diluted earnings per share	5		(2.71	)		(3.21	)		(3.75	)		(21.71	)
Weighted average number of shares outstanding	5		10,095,276			781,119			8,890,974			486,430

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Page 6 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Interim Condensed Consolidated Statements of Shareholders’ Equity (Deficiency)

(Unaudited)

(Expressed in United States Dollars)

	Share capital: Number		Share capital: Amount		Shares to be issued			Contributed surplus			Foregin currency translation reserve			Deficit			Total equity before non-controlling interest			Non-controlling interest			Total equity
		#		$		$			$			$			$			$			$			$
Balance, as at August 31, 2019		156,440		29,613,406		760,216			2,753,037			(1,333,172	)		(39,754,120	)		(7,960,633	)		293,451			(7,667,182	)
Share-based payments		-		-		-			16,914			-			-			16,914			-			16,914
Convertible debt conversion		435,068		1,170,060		-			-			-			-			1,170,060			-			1,170,060
Common shares issued on private placement, net of costs		58,133		592,028		-			-			-			-			592,028			-			592,028
Common shares issued on exercise of warrants		625		5,437		-			-			-			-			5,437			-			5,437
Common shares issued on acquisition of UMG		288,561		3,965,823		-			51,027			-			-			4,016,850			-			4,016,850
Non-controlling interest in subsidiary		-		-		-			80,834			-			-			80,834			-			80,834
Net loss for the period		-		-		-			-			-			(10,558,462	)		(10,558,462	)		(77,309	)		(10,635,771	)
Foreign currency translation differences		-		-		-			-			(211,939	)		-			(211,939	)		-			(211,939	)
Balance, as at February 29, 2020		938,827		35,346,754		760,216			2,901,812			(1,545,111	)		(50,312,582	)		(12,848,911	)		216,142			(12,632,769	)

Balance, as at August 31, 2020		7,746,136		69,380,807		1,059,214			4,034,323			(2,334,275	)		(72,094,162	)		45,907			217,385			263,292
Share-based payments		-		-		-			1,778,633			-			-			1,778,633			-			1,778,633
Shares issued on vesting of RSUs		142,610		970,366		-			(790,366	)		-			-			180,000			-			180,000
Convertible debt conversion		1,542,184		11,911,875		-			-			-			-			11,911,875			-			11,911,875
Common shares issued on private placement, net of costs		4,435,433		24,225,901		-			770,563			-			-			24,996,464			-			24,996,464
EB bonus shares		6,666		54,061		-			-			-			-			54,061			-			54,061
Shares for debt		40,000		226,556		-			-			-			-			226,556			-			226,556
Common shares issued on exercise of warrants		37,991		367,159		-			-			-			-			367,159			-			367,159
Disposal of Motorsports		-		-		(1,059,214	)		-			-			-			(1,059,214	)		-			(1,059,214	)
Non-controlling interest in subsidiary		-		-		-			(7,398	)		-			-			(7,398	)		-			(7,398	)
Net loss for the period		-		-		-			-			-			(33,378,945	)		(33,378,945	)		(61,670	)		(33,440,615	)
Foreign currency translation differences		-		-		-			-			(4,599	)		-			(4,599	)		-			(4,599	)
Balance, as at February 28, 2021		13,951,020		107,136,725		-			5,785,755			(2,338,874	)		(105,473,107	)		5,110,499			155,715			5,266,214

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Page 7 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Expressed in United States Dollars)

	For the six months ended
	Feb. 28, 2021			Feb. 29, 2020
		$			$
OPERATING ACTIVITIES
Net loss for the period before non-controlling interest		(33,440,615	)		(10,635,771	)
Items not affecting cash:
Amortization and depreciation		3,148,259			1,232,630
Loss on disposal of Motorsports		678,931			-
Loss on disposal of P&E		9,767			-
Loss (gain) on extinguishment of debt		2,428,900			(927	)
Gain on retained interest in former associate		(99,961	)		-
Transaction costs		582,333			-
Share of net loss of associate		103,930			-
Change in fair value of warrant liability		5,614,927			1,131,886
Change in fair value of convertible debt		7,863,649			(1,161,429	)
Unrealized foreign exchange gain		-			(69,740	)
Accretion of debt		99,231			-
Share-based payments		1,778,633			16,914
		(11,232,016	)		(9,486,437	)
Changes in non-cash working capital:
Restricted cash		67,458			(13,109	)
Accounts and other receivables		(1,205,489	)		49,486
Government remittances		146,973			66,584
Publisher advance		(4,858,645	)		-
Prepaid expenses and other		391,278			255,664
Accounts payable and accrued liabilities		111,237			2,620,500
Players liability account		(67,458	)		2,506
Deferred revenue		735,943			311,515
		(4,678,703	)		3,293,146
		(15,910,719	)		(6,193,291	)
INVESTING ACTIVITIES
Purchase of property and equipment		(90,013	)		(98,786	)
Bank indebtedness acquired on acquisition of UMG		-			(71,925	)
Investment in Allinsports		-			270,000
Acquisition of intangible assets		-			(54,680	)
Cash from disposal of Motorsports		24,348			-
		(65,665	)		44,609
FINANCING ACTIVITIES
Net proceeds from issuance of Units		31,017,374			592,028
Proceeds from issuance of convertible debentures		4,901,393			-
Net proceeds (payments) from promissory notes payable		(2,478,080	)		3,160,302
Proceeds from exercise of warrants		258,156			3,542
Payments on lease financing		(109,875	)		-
Payments on long-term debt		(107,967	)		(45,158	)
		33,481,001			3,710,714
Impact of foreign exchange on cash		13,986			-
Change in cash and cash equivalents		17,518,603			(2,437,968	)

Cash and cash equivalents, beginning of period		5,243,278			2,827,014
Cash and cash equivalents, end of period		22,761,881			389,046

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Page 8 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

1.	Corporate information and going concern

(a)	Corporate information

	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. Current and comparative disclosure has been amended to reflect this share consolidation.

	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. The Company’s common shares trade on the TSX Venture Exchange under the trading symbol GAME.V and OTCQB under the trading symbol MLLLF.

(b)	Going concern

	These interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements. Such adjustments could be material. It is not possible to predict whether the Company will be able to raise adequate financing or to ultimately attain profit levels of operations.

	The Company has not yet realized profitable operations and has incurred significant losses to date resulting in a cumulative deficit of $105,473,107 as of February 28, 2021 (August 31, 2020 – $72,094,162). The recoverability of the carrying value of the assets and the Company’s continued existence is dependent upon the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary. While management has been historically successful in raising the necessary capital (Note 18), it cannot provide assurance that it will be able to execute on its business strategy or be successful in future financing activities.

	As of February 28, 2021, the Company had a working capital deficiency of $18,485,323 (August 31, 2020 – working capital deficiency of $29,663,546) which is comprised of current assets less current liabilities. Excluding non-cash warrant liability, the Company had a working capital surplus of $12,935,173 (August 31, 2020 – working capital deficiency of $15,528,225). The Company also faced uncertain future impacts from COVID-19 (Note 3(b)).

	These conditions indicate the existence of material uncertainties that cast significant doubt about the Company’s ability to continue as a going concern. Changes in future conditions could require material write downs of the carrying values of goodwill and other long-lived intangibles.

Page 9 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

2.	Statement of compliance and basis of presentation

(a)	Statement of compliance

	These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements required by International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

	These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of the Company on June 9, 2021 and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended August 31, 2020.

(b)	Basis of consolidation

	The unaudited interim condensed consolidated financial statements comprise the accounts of the Company and its controlled subsidiaries. The financial statements of subsidiaries are included in the unaudited interim condensed consolidated financial statements from the date that control commences until the date that control ceases. Unaudited interim condensed consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
	The Company’s subsidiaries are as follows:

Name of Subsidiary	Country of Incorporation	Ownership Percentage	Functional Currency
PGL Consulting Services Inc.	Canada	100%	US Dollar
Pro Gaming League Inc.	Canada	100%	US Dollar
Pro Gaming League Nevada Inc.	USA	100%	US Dollar
Millennial Esports California Corp.	USA	100%	US Dollar
Stream Hatchet S.L.	Spain	100%	Euro
Eden Games S.A.	France	96%	Euro
Frankly Media LLC	USA	100%	US Dollar
WinView, Inc.	USA	100%	US Dollar
UMG Media Ltd.	Canada	100%	Canadian Dollar

	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.

	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.

Page 10 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

2.	Statement of compliance and basis of presentation (cont’d)

(c)	Basis of presentation

	These unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for financial instruments which are measured at fair value. In addition, these interim condensed consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

	In the preparation of these interim condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period. Actual results could differ from these estimates.

(d)	Foreign currency translation

	The functional currency of the Company is the US Dollar (“USD). The functional currencies of the Company’s subsidiaries are disclosed in Note 2(b). The presentation currency of the interim condensed consolidated financial statements is the US Dollar (“USD”).

(e)	Expense reclassifications

	For comparability, certain amounts for the three and six months ended February 29, 2020 have been reclassified to conform with classifications adopted for the year ended August 31, 2020. With the significant acquisitions of UMG, Media Ltd. (UMG), Frankly Inc. (Frankly) and WinView, Inc. (WinView) during fiscal 2020, many of the prior expense classifications for the three and six months ended February 29, 2020 did not best represent the nature of the ongoing business. These reclassifications had no effect on net loss or shareholders’ equity (deficiency).

(f)	Income taxes

	The Company had no income tax expense for the three and six months ended February 28, 2021 and February 29. 2020. As of February 28, 2021, deferred tax assets have not been recognized because it has not been determined as probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.

3.	Significant judgments, estimates and assumptions

	The preparation of these interim condensed consolidated financial statements requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the interim condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the interim condensed consolidated financial statements.

	On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenues, and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. Significant estimates and judgments made by management in the preparation of these interim condensed consolidated financial statements are outlined below.

Page 11 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

3.	Significant judgments, estimates and assumptions (cont’d)

	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 interim condensed consolidated financial statements is included in the following notes:

	Note 1	Going concern;
	Note 26	Expected credit losses;
	Note 17	Valuation of warrant liability;
	Notes 9 and 10	Goodwill and intangible assets;
	Notes 19 and 20	Valuation of share-based payments;
	Note 15	Valuation of convertible debt; and
	Note 22	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. It is anticipated 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.

	The fact that our business has increasingly shifted to digital channels, we have increased flexibility as we navigate through the uncertain environment and near-term implications of the COVID-19 pandemic. The impact of the pandemic on our business has been mixed thus far. While we have seen some increase in demand for our digital products and services, however, this demand has been more than offset by reduction in spending by our customers.

	In an effort to protect the health and safety of our employees, the majority of our workforce is currently working from home and we have placed restrictions on non-essential business travel. We have implemented business continuity plans and have increased support and resources to enable our employees to work remotely and thus far our business has been able to operate with minimal disruption.

	The global COVID-19 pandemic remains a rapidly evolving situation. We will continue to actively monitor the developments of the pandemic and may take further actions that could alter our business operations as may be required by federal, state, local, or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and shareholders. It is not clear what effects any such potential actions may have on our business, including the effects on our employees, players and consumers, customers, partners, development and content pipelines, our reputation, financial condition, results of operations, revenue, cash flows, liquidity or stock price.

Page 12 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

4.	Significant accounting policies

(a)	Future accounting pronouncements

	The following standards have not yet been adopted and are being evaluated to determine their impact on the Company:

IFRS 10 – Consolidated Financial Statements (“IFRS 10”) and

IAS 28 – Investments in Associates and Joint Ventures (“IAS 28”)

IFRS 10 and IAS 28 were amended in September 2014 to address a conflict between the requirements of IAS 28 and IFRS 10 and clarify that in a transaction involving an associate or joint venture, the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. The effective date of these amendments is yet to be determined; however early adoption is permitted. The Company has not assessed the effect of these pronouncements on its consolidated financial statements.

	Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or the Company is still assessing what the impact will be to the Company’s financial statements.

5.	Net income (loss) per share

	Basic net income (loss) per share is calculated using the weighted-average number of common shares outstanding during each period. Diluted net income (loss) per share assumes the conversion, exercise or issuance of all potential common share equivalents unless the effect is to reduce the loss or increase the income per share. For purposes of this calculation, stock options, warrants and RSU’s are 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 three and six months ended February 28, 2021 and February 29, 2020, all outstanding options, restricted share units and warrants were excluded from diluted weighted-average common shares outstanding as their effect was anti-dilutive.

	Weighted average common shares outstanding for the three and six months ended February 28, 2021 were 10,095,276 and 8,890,974, respectively (February 29, 2020 – 781,119 and 486,430, respectively).

Page 13 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

6.	Accounts, other receivables, and customer advance

(a)	Accounts and other receivables

	The Company’s accounts and other receivables are comprised of the following:

	February 28, 2021			August 31, 2020
		$			$

Trade accounts receivable		5,919,455			4,690,922
Other receivables		51,480			29,406
Allowance for doubtful accounts		(944,824	)		(874,438	)
		5,026,111			3,845,890

A continuity of the Company’s allowance for doubtful accounts is as follows:

	February 28, 2021			February 29, 2020
		$			$

Alowance for doubtful accounts, beginning of period		(874,438	)		-
Provision, bad debt expense		(72,636	)		-
Writeoffs		2,250			-
Alowance for doubtful accounts, end of period		(944,824	)		-

(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 $6 million of revenue sharing payments to the publisher under the following schedule:

	(i)	$4 million within one day of execution of the amendment;
	(ii)	$1 million on or before February 28, 2021; and
	(iii)	$1 million on or before March 31, 2021.

	The advance is to be recouped through additional withholding on future advertising revenue share payments made to the publisher, beyond Frankly’s share, and is effective for amounts billed for periods February 1, 2021 forward.

	As of February 28, 2021, $5 million had been advanced to the publisher and $141,355 had been recouped through the process explained above. As of February 28, 2021, a net amount of $4,858,645 was outstanding on the advance.

	The breakout of the publisher advance into current and non-current portions is based on an estimate of advertising billings over the next twelve months and the resulting additional withholding on the related advertising revenue share payments.

Page 14 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

7.	Investment in associate and investment at FVTPL

	Investment in associate			Investment in affiliate
	$

Balance, August 31, 2020		2,052,008			-
Share of loss in One Up		(103,930	)		-
Discontinue use of equity method on retained interest in former associate		(1,948,078	)		2,048,039
Balance, February 28, 2021		-			2,048,039

	On August 25, 2020, the Company acquired a 20.48% interest in One Up Group, LLC (“One Up”). One Up operates a mobile app which allows gamers to organize and play one-on-one matches with other gamers and compete for money. The Company believes there will be synergies with the WinView business.

	The Company accounted for this investment as an investment in associate under the equity method from acquisition through January 5, 2021. The Company’s equity in the loss of One Up for the period from September 1, 2020 to January 5, 2021 amounted to $103,930.

	On January 5, 2021, the Company’s interest in One Up was reduced to 18.62% as a result of One Up closing a financing round. In accordance with IAS 28, the Company discontinued the use of the equity method on January 5, 2021, the date at which its investment ceased being an associate. The difference between the fair value of the Company’s retained interest in One Up and it’s carrying value on January 5, 2021 amounted to $99,961, which is recognized as a gain on retained interest in former associate on the Company’s statement of loss and comprehensive loss.

8.	Property and equipment

Cost	Leasehold improvements			Computer equipment			Furniture and fixtures			Total
		$			$			$			$

August 31, 2019		54,465			209,126			123,298			386,889
Acquisition of UMG		166,193			116,668			30,761			313,622
Additions		-			-			98,786			98,786
Foreign exchange		-			(17,566	)		(13,626	)		(31,192	)
February 29, 2020		220,658			308,228			239,219			768,105

August 31, 2020		221,653			486,340			173,091			881,084
Additions		-			74,598			15,415			90,013
Disposals		-			(9,767	)		-			(9,767	)
Disposal of Motorsports		(2,631	)		(47,645	)		(18,118	)		(68,394	)
Foreign exchange		-			2,660			(162	)		2,498
February 28, 2021		219,022			506,186			170,226			895,434

Page 15 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

8.	Property and equipment (cont’d)

Accumulated depreciation	Leasehold improvements		Computer equipment			Furniture and fixtures			Total
	$		$			$			$

August 31, 2019		51,847		181,089			68,700			301,636
Depreciation		4,247		4,510			63,538			72,295
Foreign exchange		-		(11,110	)		(7,911	)		(19,021	)
February 29, 2020		56,094		174,489			124,327			354,910

August 31, 2020		57,517		307,508			106,670			471,695
Depreciation		2,214		50,531			13,142			65,887
Disposal of Motorsports		-		(11,068	)		(9,910	)		(20,978	)
Foreign exchange		59		2,639			37			2,735
February 28, 2021		59,790		349,610			109,939			519,339

Net book value	Leasehold improvements		Computer equipment		Furniture and fixtures		Total
	$		$		$		$

August 31, 2020		164,136		178,832		66,421		409,389
February 28, 2021		159,232		156,576		60,287		376,095

9.	Goodwill

	February 28, 2021		February 29, 2020
	$		$

Balance, beginning of period		18,785,807		651,354
Acquisition of UMG		-		3,441,021
Impairment		-		-
Effect of foreign exchange		30,564		(459	)
Balance, end of period		18,816,371		4,091,916

Page 16 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

10.

Intangible assets

Cost	Patents		Application Platforms		Software			Brand			Customer Lists and Contracts			Total
	$		$		$			$			$			$

August 31, 2019		-		760,323		5,055,798			1,662,993			477,592			7,956,706
Acquisition of UMG		-		846,000		-			288,946			333,704			1,468,650
Additions		-		-		54,680			-			-			54,680
Foreign exchange		-		3,890		40,665			3,055			822			48,432
February 29, 2020		-		1,610,213		5,151,143			1,954,994			812,118			9,528,468

August 31, 2020		9,430,265		1,322,802		10,763,975			2,310,475			3,671,954			27,499,471
Disposal of Motorsports		-		-		(3,598,869	)		(201,627	)		(222,650	)		(4,023,146	)
Foreign exchange		-		22,001		349,861			109,143			4,149			485,154
February 28, 2021		9,430,265		1,344,803		7,514,967			2,217,991			3,453,453			23,961,479

Accumulated amortization	Patents		Application Platforms		Software			Brand			Customer Lists and Contracts			Total
		$		$		$			$			$			$

August 31, 2019		-		628,277		2,634,338			673,302			296,061			4,231,978
Amortization		-		72,953		839,418			154,307			35,447			1,102,125
Foreign exchange		-		3,214		13,826			1,237			510			18,787
February 29, 2020		-		704,444		3,487,582			828,846			332,018			5,352,890

August 31, 2020		628,684		793,041		4,909,000			1,077,491			648,933			8,057,149
Amortization		943,026		104,273		1,377,922			249,007			324,170			2,998,398
Disposal of Motorsports		-		-		(532,412	)		(201,627	)		(222,650	)		(956,689	)
Foreign exchange		-		18,157		316,406			51,573			(81,971	)		304,165
February 28, 2021		1,571,710		915,471		6,070,916			1,176,444			668,482			10,403,023

Page 17 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

10.

Intangible assets (cont’d)

Net book value	Patents		Application Platforms		Software		Brand		Customer Lists and Contracts		Total
		$		$		$		$		$		$

August 31, 2020		8,801,581		529,761		5,854,975		1,232,984		3,023,021		19,442,322
February 28, 2021		7,858,555		429,332		1,444,051		1,041,547		2,784,971		13,558,456

A continuity of the Company’s accumulated impairment losses for intangibles is as follows:

	February 28, 2021			February 29, 2020
	$			$

Accumulated impairment losses, beginning of period		1,739,776			1,585,474
Disposal of Motorsports		(1,697,107	)		-
Effect of foreign exchange		(42,669	)		81,659
Accumulated impairment losses, end of period		-			1,667,133

11.

Right-of-use assets

	February 28, 2021			February 29, 2020
	$			$

Balance, beginning of period		550,478			-
Additions to right-of-use assets on adoption of IFRS 16, September 1, 2019		-			234,215
Acquisition of UMG		-			388,996
Depreciation		(83,974	)		(64,566	)
Effect of foreign exchange		1,409			-
Balance, end of period		467,913			558,645

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.

Page 18 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

12.

Lease liabilities

Lease liabilities are measured at the present value of the lease payments that were not paid at that date. The lease payments are discounted using an average interest rate of 7.75%, which is the Company’s estimated 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		-			234,215			234,215
Acquisition of UMG		19,770			388,996			408,766
Interest expense		146			7,060			7,206
Payments		(1,799	)		(69,197	)		(70,996	)
Balance, February 29, 2020		18,117			561,074			579,191

	Equipment			Office lease			Total
	$			$			$

Balance, August 31, 2020		35,457			536,691			572,148
Acquired		-			-			-
Interest expense		1,078			17,507			18,585
Payments		(6,690	)		(103,185	)		(109,875	)
Effect of foreign exchange		-			1,453			1,453
Balance, February 28, 2021		29,845			452,466			482,311

The Company’s lease obligation is classified as follows:

	Equipment		Office lease		Total
	$		$		$
As of August 31, 2020:
Less than one year		11,409		174,262		185,671
Greater than one year		24,048		362,429		386,477
Total lease obligation		35,457		536,691		572,148

As of February 28, 2021:
Less than one year		11,785		182,773		194,558
Greater than one year		18,060		269,693		287,753
Total lease obligation		29,845		452,466		482,311

13.

Players liability account

The Players liability account consists of UMG and WinView cash deposited by players, plus any prize winnings, less any fees for match game play and withdrawal requests processed to date. As of February 28, 2021, the players liability account balance is the total amount payable if all players were to request closure of their accounts. As of February 28, 2021, the players account liability and corresponding restricted cash balances were the same.

Page 19 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

14.

Promissory notes payable and other borrowings

(a)	Promissory notes

The Company has promissory notes with a balance of $200,000 (August 31, 2020 – $200,000) that are unsecured, due on demand, and bear interest at 18%. As of February 28, 2021, interest of $110,245 has been accrued (August 31, 2020 – $83,435).

The Company, through its WinView subsidiary, has a secured promissory note outstanding for amounts due for the provision of services by the noteholder. As of February 28, 2021, $669,710 was due under the note (August 31, 2020 – $1,527,582). The note is secured by the assets of WinView, bears interest at 8%, and is currently due. As of February 28, 2021, interest of $12,881 has been accrued on this note (August 31, 2020 – $63,612).

As of February 28, 2021, the Company, through its UMG subsidiary, has a balance of $330,000 (August 31, 2020 – $330,000) due to a former UMG shareholder. This balance was the remaining cash due for the purchase of UMG Events LLC (subsidiary of UMG Media Ltd.), is currently due, and was non-interest bearing until the due date. As of February 28, 2021, interest of $30,885 has been accrued on this note (August 31, 2020 – $nil).

(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 $1,589,559 pursuant to the PPP of the CARES Act administered by the U.S. Small Business Administration (the “SBA”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the loans exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs, as further detailed in the CARES Act and applicable guidance issued by the SBA.

Interest will accrue on the outstanding balance of the Notes at a rate of 1.00% per annum. However, the Company has applied for and expects to receive forgiveness of all amounts due under the Notes.

Subject to any forgiveness granted under the PPP, the Notes are scheduled to mature in April 2022 and require 18 equal monthly payments of principal and interest beginning November 2020. However, no principal payments are due until the SBA determines whether to forgive the amounts The Notes may be prepaid at any time prior to maturity with no prepayment penalties. The Notes provide for customary events of default, including, among others, those relating to failure to make payments, bankruptcy, breaches of representations, significant changes in ownership, and material adverse effects. The Company’s obligations under the Notes are not secured by any collateral.

Upon the receipt of the proceeds of $1,589,559 from the Notes, the Company accounted for the Notes as a grant in the form of forgivable loan and recorded the amount as a deferred income liability. The liability was reduced as the Company recognized expenses which qualified for forgiveness of the loan. As of August 31, 2020, the Company had incurred greater than $1,589,559 of qualifying expenses and therefore had a remaining deferred income liability of $nil. The Company recognized the impact of the loan forgiveness as an offset against related salaries and wages expense, in the consolidated statement of loss and comprehensive loss for the year ended August 31, 2020. As of the date of this filing, two of the three PPP loans in the amount of $1,379,684 were formally forgiven.

Page 20 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

14.

Promissory notes payable and other borrowings (cont’d)

(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 $5 million (the “EB Loan”).

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 $1 million of the $5 million principal outstanding. The conversion feature allowed the holder to convert $1 million into common shares of the Company at a conversion price of $11.25 per common share. On February 24, 2021, the Company extinguished the Amended EB Loan and issued the Lender a convertible debenture in the principal amount of $5 million (the “EB CD”). The EB CD is convertible into units of the Company at a conversion price of $10.25 per unit, with each unit comprised of one common share and one-half of a warrant, with each whole warrant exercisable into a common share at an exercise price of $15.00 per share for a period of three years from the issuance of the EB CD. The EB CD has a term of three years.

As of the date of Amended EB Loan, December 1, 2020, the Company has accounted for the loan as convertible debt at FVTPL. As such, the Amended EB Loan was recognized within convertible debt (Note 15).

The carrying value of the line of credit as of February 28, 2021 was $nil (August 31, 2020 – $4,919,507).

15.

Convertible debt

The continuity of convertible debt for the six months ended February 28, 2021 and February 29, 2020, is as follows:

	2019 Series			2020 Series		Amended EB Loan		EB CD		Total
	$			$						$

Balance, August 31, 2019		12,532,723			-		-		-		12,532,723
Conversion - common shares issued		(1,170,060	)		-		-		-		(1,170,060	)
Conversion - warrants issued		(1,609,232	)		-		-		-		(1,609,232	)
Interest expense		264,430			-		-		-		264,430
Effect of foreign exchange		67,424			-		-		-		67,424
Change in fair value		(1,243,644	)		-		-		-		(1,243,644	)
Balance, February 29, 2020		8,841,641			-		-		-		8,841,641

Page 21 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

15.

Convertible debt (cont’d)

	2019 Series			2020 Series			Amended EB Loan			EB CD		Total
	$			$								$

Balance, August 31, 2020		2,121,869			8,671,590			-			-		10,793,459
Issuances		-			4,282,477			-			-		4,282,477
Exchange of EB Loan for Amended EB Loan		-			-			5,043,103			-		5,043,103
Exchange of Amended EB Loan for EB CD		-			-			(4,931,813	)		7,394,022		2,462,209
Conversion - common shares issued		(183,879	)		(11,727,996	)		-			-		(11,911,875	)
Conversion - warrants issued		(154,265	)		(4,121,208	)		-			-		(4,275,473	)
Interest expense		37,584			295,896			138,710			-		472,190
Accrued interest on conversion / interest payments		(15,849	)		(241,868	)		(250,000	)		-		(507,717	)
Effect of foreign exchange		54,085			-			-			-		54,085
Change in fair value		1,656,768			5,827,548			-			379,333		7,863,649
Balance, February 28, 2021		3,516,313			2,986,439			-			7,773,355		14,276,107

(a)	Conversions during the period

2019 Series

During the six months ended February 28, 2021, 2019 Series convertible debentures with a principal amount of CAD$290,000 (2020 – CAD$3,263,010) were converted into 38,666 units (2020 – 435,068), and as a result, the Company issued 38,666 common shares and 38,666 warrants (2020 – 435,068 common shares and 435,068 warrants). The fair value of the convertible debentures at the time of conversion was estimated using the binomial lattice model with the below assumptions:

Share price of CAD$11.65 – $14.15 (2020 – CAD$10.95); term of 1.44 – 1.90 years (2020 – 2.43 and 2.52); conversion price and warrant exercise price of CAD$7.50 (2020 – CAD$7.50); interest rate of 6% (2020 – 6%); expected volatility of 98.5% – 179% (2020 – 171.62%); risk-free interest rate of 0.25% - 0.27% (2020 – 1.14%); exchange rate of 0.7651 – 0.7883 (2020 – 0.7456); and an expected dividend yield of 0% (2020 – 0%). The fair value assigned to these convertible debentures was $338,114 (2020 – $2,779,292).

This value was split between common shares and warrants as $183,879 (2020 – $1,170,060) and $154,265 (2020 – $1,609,232), respectively.

2020 Series

During the six months ended February 28, 2021, 2020 Series convertible debentures with a principal amount of $11,276,393 (2020 – nil) were converted or settled into 1,503,519 units, and as a result, the Company issued 1,503,519 common shares and 1,109,306 warrants. The fair value of the convertible debentures at the time of conversion or settlement was estimated using the binomial lattice model with the below assumptions:

Share price of $7.79; term of 1.61 – 1.77 years; conversion price of $7.50; warrant exercise price of $15.00, interest rate of 10%; expected volatility of 98.5%; risk-free interest rate of 0.12% - 0.13%; and an expected dividend yield of 0%. The fair value assigned to these convertible debentures was $15,849,204.

This value was split between common shares and warrants as $11,727,996 and $4,121,208, respectively.

Page 22 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

15.

Convertible debt (cont’d)

(b)	Issuances during the period

During the six months ended February 28, 2021, 2020 Series convertible debentures with a principal amount of $2,901,393 were issued for gross proceeds of $2,901,393. In addition, in November 2020, $2,000,000 of convertible debentures from the Company’s standby convertible debenture facility were issued along with 224,719 warrants for gross proceeds of $2,000,000 (Note 15(f)). Of the gross proceeds of $2,000,000, $1,381,084 was allocated to the convertible debt and $618,916 was allocated to the 224,719 warrants issued (Note 15(f)). The total fair value recorded to convertible debt for issuances above amounted to $4,282,477.

On December 1, 2020, the EB Loan was amended (Note 14(c)). The amendment extended the maturity date by one year and added a conversion feature to $1 million of the $5 million principal outstanding. The conversion feature allowed the holder to convert $1 million into common shares of the Company at a conversion price of $11.25 per common share. On February 24, 2021, the Company extinguished the Amended EB Loan and issued the Lender a convertible debenture in the principal amount of $5 million. The EB CD is convertible into units of the Company at a conversion price of $10.25 per unit, with each unit comprised of one common share and one-half of a warrant, with each whole warrant exercisable into a common share at an exercise price of $15.00 per share for a period of three years from the issuance of the EB CD. The EB CD has a term of three years.

The fair value of the Amended EB Loan on December 1, 2020 was $5,043,103. The carrying value of the former EB Loan on December 1, 2020, consisted of $5 million in principal and 76,412 in accrued interest, for total carrying value on the amendment date of 5,076,412. As a result, a gain on extinguishment of debt of $33,309 was recognized. The fair value of the EB CD on the date of issuance of February 24, 2021 was $7,394,022. The fair value of the Amended EB Loan on February 24, 2021 was $4,931,813. As a result, a loss on extinguishment of debt of $2,462,209 was recognized. The above two transactions resulted in a loss on extinguishment of debt in the second quarter of $2,428,900.

(c)	2019 Series

As of February 28, 2021, the fair value of the 2019 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:

2019 Series	February 28, 2021 (CA$)			August 31, 2020 (CA$)

Share price		14.15			11.65
Conversion price		7.50			7.50
Warrant exercise price		7.50			7.50

Term, in years		1.36 - 1.44			1.85 - 1.94
Interest rate		6	%		6	%
Expected volatility		98.50	%		179.00	%
Risk-free interest rate		0.26% - 0.27	%		0.25	%
Exchange rate		0.7883			0.7651
Expected dividend yield		0	%		0	%

Page 23 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

15.

Convertible debt (cont’d)

(d)	2020 Series

The 2020 Series debentures will mature twenty-four (24) months from the date of issuance and bear interest at a rate of 5% per annum (subject to adjustment as described below), payable on maturity. At the Company’s option, interest under the 2020 Series debentures is payable in kind in common shares at an issue price which would be based on the trading price of the common shares at the time of such interest payment. The interest rate under the 2020 Series debentures will increase from 5% to 10% per annum on a prospective basis on December 19, 2020, if a public offering has not occurred by that date.

The 2020 Series debenture holders may convert all or a portion of the principal amount of the debentures into units (“Units”) of the Company at a price (the “Conversion Price”) equal to the lesser of (a) $11.25 per Unit, and (b) if such conversion occurs after a public offering of securities by the Company (the “Public Offering”), a fifteen percent (15%) discount to the public offering price, provided that such conversion price shall not be less than $7.50 per Unit.

Notwithstanding the foregoing, if by December 19, 2020, the Company has not obtained registration rights in the United States to allow sale in the United States of the common shares (“Common Shares”) of the Company and the exercise of warrants (the “Warrants”) of the Company to be issued pursuant to the conversion of the 2020 Series debentures, holders of 2020 Series debentures may convert such debentures into Units at $7.50 per Unit. As of February 28, 2021, the Company had not obtained registration rights in the United States. As such, the conversion price is $7.50 per Unit and the interest rate increased to 10% on December 19, 2020.

Each Unit is comprised of one common share and one-half of one Warrant, with each Warrant exercisable into one common share of the Company at an exercise price of $15.00 per share for a period of three years from the issuance of the 2020 Series debentures. Under certain circumstances, the Company shall be entitled to call for the exercise of any outstanding Warrants in the event that the closing trading price of the Company common shares on the NASDAQ is above $30.00 per share for fifteen (15) consecutive trading days.

In the event that the Company’s common shares are listed for trading on the NASDAQ Capital Market and the Company completes a Public Offering for an aggregate amount of at least US$30,000,000, the Company may cause the 2020 Series debentures to be converted at the Conversion Price by the Company delivering a notice to the holder not less than a minimum of 30 days and a maximum 60 days prior to the forced conversion date.

(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 $7.50 per Unit (as described above) will be US$9.50 per Unit. The 2020 Series One Up convertible debentures had a fair value at issuance of $3,078,550.

(f)	2020 Series – Standby

In September 2020, the Company entered into an $8,000,000 stand-by convertible debenture facility (the “2020 Series Standby” debentures). The 2020 Series Standby Debenture has substantially similar terms as the 2020 Series debentures, except the following: (i) the references to a minimum $7.50 conversion price (as described above) have been changed to $8.90; and (ii) the 2020 Series Standby debentures are only convertible into common shares of the Company, not units. In November 2020, the Company issued 224,719 warrants in connection with this first draw of $2,000,000 of the Standby Debentures, with each warrant exercisable into one common share the Company at an exercise price of $15.00 per share for a period of two years, subject to the same acceleration clause as the warrants underlying the 2020 Series debentures.

Page 24 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

15.

Convertible debt (cont’d)

(f)	2020 Series – Standby (cont’d)

The proceeds of $2,000,000 from the first draw were allocated between convertible debt and warrant liability with $1,381,084 allocated to convertible debt and $618,916 allocated to the 224,719 warrants issued. The remaining $6,000,000 of convertible debentures that are issuable under this facility have substantially similar terms as the 2020 Series debentures, including conversion into units consisting of one share and one-half warrant, provided that the conversion price of any additional convertible debentures will be based on the market price of the common shares at the time of such subscriptions and are subject to TSX-V approval.

As of February 28, 2021, the fair value of the 2020 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:

2020 Series	February 28, 2021 (US$)			August 31, 2020 (US$)

Share price		11.14			8.92
Conversion price		7.50 - 8.90			7.50 - 9.50
Warrant exercise price		15.00			15.00

Term, in years		1.47 - 1.73			1.97 - 1.98
Interest rate		10	%		5% and 10%
Expected volatility		98.50	%		200.00	%
Risk-free interest rate		0.11% - 0.12%			0.14	%
Expected dividend yield		0	%		0	%

(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 $5 million (the “EB CD”). The EB CD is convertible into units of the Company at a conversion price of $10.25 per unit, with each unit comprised of one common share and one-half of a warrant, with each whole warrant exercisable into a common share at an exercise price of $15.00 per share for a period of three years from the issuance of the EB CD. The EB CD has a term of three years. As of February 28, 2021, the fair value of the EB CD convertible debenture was estimated using the binomial lattice model with the below assumptions:

EB CD	February 28, 2021 (US$)			August 31, 2020 (US$)

Share price		11.14			-
Conversion price		10.25			-
Warrant exercise price		15.00			-

Term, in years		2.99			-
Interest rate		10	%		-
Expected volatility		98.50	%		-
Risk-free interest rate		0.30	%		-
Expected dividend yield		0	%		-

Page 25 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

16.

Long-term debt

The Company has an unsecured, non-interest bearing loan that matures on June 30, 2022. The loan bears interest at 0% per annum. As of February 28, 2021, the present value of the loan was $143,988 (August 31, 2020 – $230,932), accretion having been charged to interest expense on the Company’s consolidated statements of loss and comprehensive loss for six months ended February 28, 2021 of $18,738 (February 29, 2020 – $4,091). A discount rate of 10% was used (August 31, 2020 – 10%).

Scheduled repayments are: € 90,000 ($108,891) and € 45,000 ($54,446) between 0 – 12 months and 12 – 24 months, respectively, from February 28, 2021.

17.

Warrant liability

The following table reflects the continuity of the Company’s warrant liability for the six months ended February 28, 2021 and February 29, 2020:

	Amount
	$

Balance at August 31, 2019		296,795
Issued on conversion of convertible debt		1,609,232
Issued in private placement of units		218,163
Exercised		(1,895	)
Change in fair value		1,131,886
Foreign exchange		136,969
Balance at February 29, 2020		3,391,150

Balance at August 31, 2020		14,135,321
Issued on conversion of convertible debt		4,275,473
Issued in private placement of convertible debentures		618,916
Issued in private placement of units		6,603,243
Exercised		(109,003	)
Change in fair value		5,614,927
Foreign exchange		281,619
Balance at February 28, 2021		31,420,496

Page 26 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

The following table reflects the continuity of the Company’s outstanding warrants for the six months ended February 28, 2021 and February 29, 2020:

	Number of					Weighted-average exercise price
	warrants			CAD		USD
	#			$		$

Outstanding, August 31, 2019		29,317			458.40		344.85
Issued		464,135			8.70		6.45
Issued on acquisition of UMG		9,944			214.05		159.45
Exercised		(625	)		7.50		5.55
Expired		(11,145	)		1,026.45		764.40
Oustanding as at February 29, 2020		491,626			16.05		12.00

17.

Warrant liability (cont’d)

	Number of					Weighted-average exercise price
	warrants			CAD		USD
		#			$		$

Outstanding, August 31, 2020		2,405,369			9.60		7.36
Issued on conversion of convertible debt		1,147,972			18.72		14.69
Issued in private placement of convertible debentures		224,719			19.12		15.00
Issued in private placement of units		2,185,885			19.12		15.00
Exercised		(37,991	)		8.72		6.85
Expired		(430	)		153.81		120.69
Oustanding as at February 28, 2021		5,925,524			15.23		11.95

Page 27 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

The following table reflects the warrants issued and outstanding as of February 28, 2021:

			Warrants outstanding								Warrants exercisable
	Number		Average exercise price				Average remaining contractual		Weighted number		Weighted number exercisable price
Expiry date	outstanding		CAD		USD		life (years)		exercisable		CAD		USD
10-May-21		249,589	$	9.75	$	7.65		0.19		249,589	$	9.75	$	7.65
15-May-21		266,957		9.75		7.65		0.21		266,957		9.75		7.65
22-May-21		394,671		9.75		7.65		0.23		394,671		9.75		7.65
11-Jul-21		3,955		205.20		161.02		0.36		3,955		205.20		161.02
13-Mar-22		123,159		10.50		8.24		1.04		123,159		10.50		8.24
20-Nov-22		224,719		19.12		15.00		1.73		224,719		19.12		15.00
20-Dec-22		29,066		27.00		21.19		1.81		29,066		27.00		21.19
20-Mar-23		27,777		13.50		10.59		2.05		27,777		13.50		10.59
30-Mar-23		46,909		13.50		10.59		2.08		46,909		13.50		10.59
31-Mar-23		17,222		13.50		10.59		2.08		17,222		13.50		10.59
27-May-23		130,304		13.50		10.59		2.24		130,304		13.50		10.59
8-Jan-24		1,775,366		19.12		15.00		2.86		1,775,366		19.12		15.00
22-Jan-24		476,482		19.12		15.00		2.90		476,482		19.12		15.00
24-Feb-24		1,006,677		19.12		15.00		2.99		1,006,677		19.12		15.00
8-Jul-24		445,982		7.50		5.89		3.36		445,982		7.50		5.89
25-Jul-24		386,890		7.50		5.89		3.41		386,890		7.50		5.89
8-Aug-24		283,133		7.50		5.89		3.44		283,133		7.50		5.89
19-Aug-24		36,666		19.12		15.00		3.47		36,666		19.12		15.00
		5,925,524	$	15.23	$	11.95		2.47		5,925,524	$	15.23	$	11.95

As of February 28, 2021, the fair value of the 5,925,524 warrants outstanding (August 31, 2020 – 2,405,369) was determined to be $31,420,496 (August 31, 2020 – $14,135,321) as calculated using the Black Scholes option pricing model with the following range of assumptions: 0.19 – 3.47 years (August 31, 2020 – 0.23 – 3.94) as expected average life; share price of CAD$14.15 (August 31, 2020 – CAD$11.65); exercise price of CAD$7.50 – CAD$205.20 (August 31, 2020 – CAD$7.50 – CAD$205.20); 70% - 136% expected volatility (August 31, 2020 – 115% - 136%); risk free interest rate of 0.13% - 0.53% (August 31, 2020 – 0.23% - 0.32%); and an expected dividend yield of 0%.

If all warrants outstanding and exercisable as of February 28, 2021 were exercised, the Company would receive cash from exercise of approximately $73.7 million.

17.

Warrant liability (cont’d)

(a)	Warrants exercised during the period

During the six months ended February 28, 2021, the holders of 37,991 warrants exercised their right to convert the warrants into the Company’s common shares at an exercise price of CAD$7.50 - $9.75. As a result of the underlying exercise of warrants, the Company received $258,156 in cash proceeds and the intrinsic value of the underlying warrants at the date of exercise of $109,003 was transferred to share capital, for a total addition to share capital of $367,159.

Page 28 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

(b)	Warrants issued during the period

During the six months ended February 28, 2021, the Company issued 1,147,972 warrants (February 29, 2020 – 435,068) in connection with conversion of convertible debt (Note 15(a)), 224,719 warrants (February 29, 2020 – nil) in connection with the private placement of convertible debentures (Note 15(f)) and 2,377,272 warrants (February 29, 2020 – 29,067) in connection with the private placement of units (Note 18(c)), for a total number of 3,749,963 warrants issued (February 29, 2020 – 464,135).

(c)	Warrants issued on conversion of convertible debt

2019 Series

During the six months ended February 28, 2021 the Company issued 38,666 warrants (February 29, 2020 – 435,068) in conjunction with the conversion of convertible debt. The fair value of the 38,666 warrants (February 29, 2020 – 435,068) issued was determined to be $154,265 (February 29, 2020 – $1,609,232) as calculated using the Black Scholes option pricing model with the following assumptions:

A 3.49 – 3.90 years as expected average life (February 29, 2020 – 4.56 to 4.91); share price of CAD$9.50 – $11.51 (February 29, 2020 – CAD$19.35 – 25.65); exercise price of CAD$7.50 (February 29, 2020 – CAD$7.50); 98.5% - 136% expected volatility (February 29, 2020 – 136%); risk free interest rate of 0.25% - 0.30% (February 29, 2020 – 1.64% and 1.71%); and an expected dividend yield of 0% (February 29, 2020 – 0%).

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.

2020 Series

During the six months ended February 28, 2021 the Company issued 1,109,306 warrants (February 29, 2020 – nil) in conjunction with the conversion of convertible debt. The fair value of the 1,109,306 warrants issued was determined to be $4,121,208 as calculated using the Black Scholes option pricing model with the following assumptions:

A 3.00 – 3.48 years as expected average life; share price of $7.79 – $11.17; exercise price of $15.00; 98.5% expected volatility; risk free interest rate of 0.29% - 0.57%; and an expected dividend yield of 0%.

Page 29 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

17.

Warrant liability (cont’d)

(d)	Warrants issued on private placement of standby convertible debentures

During the six months ended February 28, 2021 the Company issued 224,719 warrants in connection with the private placement of convertible debentures under its standby convertible debenture facility (Note 15(f)).

(e)	Warrants issued on private placement of units

During the six months ended February 28, 2021 the Company issued 2,377,272 warrants (February 29, 2020 – 29,067) in conjunction with the private placement of units. Of the 2,377,272 warrants issued, 191,387 were issued to finders as fees for services. The fair value of warrants issued to finders are recorded within contributed surplus at fair value on the date of issuance. The remaining 2,185,885 warrants issued for proceeds are reflected within warrant liability. The fair value of the 2,377,272 warrants issued (February 29, 2020 – 29,067) was determined to be $7,373,806 (February 29, 2020 – $218,163) as calculated using the Black Scholes option pricing model with the following assumptions:

A 3.00 years as expected average life (February 29, 2020 – 3.00); share price of $7.79 – $10.00 (February 29, 2020 – CAD$18.45); exercise price of $15.00 (February 29, 2020 – CAD$27.00); 98.5% expected volatility (February 29, 2020 – 136%); risk free interest rate of 0.29% - 0.43% (February 29, 2020 – 1.72%); and an expected dividend yield of 0% (February 29, 2020 – 0%).

Of the $7,373,806 total fair value, $6,603,243 was the fair value of the 2,185,885 warrants issued for proceeds, and recorded within warrant liability, with $770,563 being the fair value of the 191,387 warrants issued to finders and recorded within contributed surplus.

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.

18.	Share capital

(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		156,440		29,613,406
Convertible debt conversion		435,068		1,170,060
Common shares issued on private placement, net of costs		58,133		592,028
Common shares issued on exercise of warrants		625		5,437
Common shares issued on acquisition of UMG		288,561		3,965,823
Balance, February 29, 2020		938,827		35,346,754

Page 30 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

18.	Share capital (cont’d)

(b)	Issued and outstanding, common shares (cont’d)

	Shares		Consideration
	#		$

Balance, August 31, 2020		7,746,136		69,380,807
Shares issued on vesting of RSUs		142,610		970,366
Convertible debt conversion		1,542,184		11,911,875
Common shares issued on private placement, net of costs		4,435,433		24,225,901
EB bonus shares		6,666		54,061
Shares for debt		40,000		226,556
Common shares issued on exercise of warrants		37,991		367,159
Balance, February 28, 2021		13,951,020		107,136,725

(c)	Activity for the period

Private Placement of units

In January and February 2021, the Company closed on the issuance of 4,371,767 units (the “Units”) for gross proceeds of $32,788,253 of non-brokered private placements. Each Unit consists of one common share of the Company and one-half of one common share purchase warrant (a “Warrant”). Each whole Warrant entitles the holder to acquire one additional share of the Company at a price of $15.00 per share for a period of 3 years provided that: (i) if the common shares are listed for trading on NASDAQ, (ii) the Company completes an offering of securities under a short form prospectus for an aggregate amount of at least $30,000,000, and (iii) the closing price of the common shares on NASDAQ is $30.00 or greater for a period of 15 consecutive trading days, then the Company may accelerate the expiry date of the Warrants to the 30th day after the date written notice is provided to the holders.

The Company paid cash commissions to eligible finders under the offering of $1,681,477 and regulatory and legal fees of $89,402. Net cash proceeds from the offering amounted to $31,017,374.

In addition to the cash finder’s fees discussed above, the Company issued the following securities as partial payment of commissions to finders: 63,666 Units; and, 159,554 finders warrants, with each finder warrant exercisable into a common share at an exercise price of US$15.00 per share for 3 years subject to the same acceleration terms described above.

The total number of common shares issued as a result of the private placements totaled 4,435,433, which was comprised of 4,371,767 Units issued for proceeds and 63,666 Units issued as partial payment to finders. The total number of warrants issued totaled 2,377,272, which was comprised of warrants issued as part of the Units issued of 2,217,718 (50% of Units issued) and 159,554 finders warrants issued.

The total amount recorded to shareholder’s equity (deficit) resulting from the private placements of Units amounted to $24,225,901. This amount is comprised of the following: (i) $26,185,009 allocated to the common shares issued of total gross proceeds of $32,788,253, with $6,603,244 being allocated to the warrants; plus (ii) $383,720 allocated to the common shares issued of total fair value of finder’s Units of $477,495, with $93,775 being allocated to the warrants; less share issue costs totaling $2,925,161 comprised of the following; (i) total fair value of finder’s Units of $477,495; plus (ii) total fair value of finder’s warrants of $676,787; plus (iii) cash finder’s fees of $1,681,477; plus (iv) regulatory and legal fees of $89,402; less (v) portion of total share issuance costs allocated to the warrants issued of $582,333. As the warrants issued are accounted for at FVTPL, these share issuance costs were recorded within transaction costs on the Statements of Loss and Comprehensive Loss.

Page 31 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

18.	Share capital (cont’d)

(c)	Activity for the period (cont’d)

Private Placement of units (cont’d)

The total amount recorded to warrant liability resulting from the private placements of Units amounted to $7,373,806. This is comprised of the allocation of gross proceeds of $6,603,244, finder’s Units issued of $93,775 and fair value of finder’s warrants of $676,787.

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 warrant liability note for discussion of the key assumptions used in valuation of the warrants as part of the relative fair value allocation.

Other activity

During the six months ended February 28, 2021, the Company had the following additional activity to share capital: (i) issued 142,610 common shares upon vesting of an equal number of RSUs (Note 20); (ii) issued 1,542,184 common shares in connection with conversion of convertible debt (Note 15(a)), (iii) issued 37,991 common shares in connection with the exercise of warrants (Note 17(a)); (iv) issued 40,000 common shares for cancelation of $226,556 of debt (shares for debt); and (v) issued 6,666 common shares valued at $54,061 as an amendment fee to the lender in connection with the Amended EB Loan (the “EB Bonus Shares”). In addition to the EB Bonus Shares, the Company paid the lender a cash fee of $100,000. The amendment fees were recorded within interest expense as the Amended EB Loan and subsequent EB CD is being accounted for at FVTPL.

19.	Stock options

On July 15, 2020, 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 October 9, 2019. 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 awards shall not exceed 1,501,084 common shares.

Options may be exercisable over periods of up to 10 years as determined by the Board of Directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval.

Page 32 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

19.	Stock options (cont’d)

The following table reflects the continuity of stock options for the six months ended February 28, 2021 and February 29, 2020:

				Weighted-average
	Number of stock options			Exercise price		Grant-date fair value		Remaining contractual term
	#			$		$		(yrs.)

Balance, August 31, 2019		6,971			169.30		50.79		5.84
Expired/Cancelled		(5,110	)		185.97		55.79
Issued on acquisition of UMG		16,606			63.30		2.32
Balance, February 29, 2020		18,467			69.37		5.83		2.04

Balance, August 31, 2020		253,121			12.73		4.39		4.31
Expired/Cancelled		(16,694	)		20.90		8.56
Balance, February 28, 2021		236,427			12.15		4.39		3.51

Vested and expected to vest, February 28, 2021		233,171			12.25		4.38		3.44
Exerciseable as at February 28, 2021		203,899			13.22		4.27		2.68

The following table reflects the stock options issued and outstanding as of February 28, 2021:

Expiry date	Outstanding options		CAD		Weighted average exercise price USD		Weighted average remaining contractual term (Years)
11-Jul-21		632		164.40		126.58		0.36
15-Jul-21		9,490		41.10		31.64		0.38
10-Dec-21		1,564		93.30		71.84		0.78
30-Jun-22		4,428		153.45		118.15		1.33
1-Apr-23		104,998		11.25		7.91		2.09
31-Oct-23		64,997		11.25		7.91		2.67
29-Jan-25		46		106.50		76.43		3.92
25-Aug-25		340		106.50		76.43		4.49
23-Sep-25		11		106.50		76.43		4.57
10-Feb-26		1,443		106.50		76.43		4.95
19-May-26		4		106.50		76.43		5.22
23-May-26		9		106.50		76.43		5.23
3-Mar-27		1,256		106.50		76.43		6.01
31-Jul-27		159		106.50		76.43		6.42
3-Nov-27		133		106.50		76.43		6.68
7-Nov-29		46,251		7.50		5.38		8.70
20-Apr-30		666		7.05		5.06		9.15
		236,427		16.69		12.15		3.51

Page 33 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

19.	Stock options (cont’d)

Of the 236,427 options outstanding as of February 28, 2021 (August 31, 2020 – 253,121), 203,899 are exercisable as of February 28, 2021 (August 31, 2020 – 191,730). During the six months ended February 28, 2021, share-based compensation expense for the Company’s stock options was $70,118 (February 29, 2020 – $16,914).

20.	Restricted share units

The Omnibus Plan allows the Company to award restricted share units to officers, employees, directors and consultants of the Company and its subsidiaries upon such conditions as the board may establish, including the attainment of performance goals recommended by the Company’s compensation committee. The purchase price for common shares of the Company issuable under each Restricted Share Unit (“RSU”) award, if any, shall be established by the board at its discretion. Common shares issued pursuant to any RSU award may be made subject to vesting conditions based upon the satisfaction of service requirements, conditions, restrictions, time periods or performance goals established by the board.

The TSXV requires the Company to fix the number of common shares to be issued in settlement of awards that are not options. The maximum number of common shares available for issuance pursuant to the settlement of RSUs shall be an aggregate of 750,542 common shares.

The Company’s outstanding RSUs are as follows:

	Number
	#

Balance, August 31, 2019 and February 29, 2020		-

Balance, August 31, 2020		402,372
Granted		322,547
Vested		(142,610	)
Cancelled		-
Balance, February 28, 2021		582,309

In November 2020, the Company granted 322,547 RSUs pursuant to the Company’s incentive plan to a former officer and key management employees. The fair value of these RSUs was estimated based on the closing price of CAD$8.85 – CAD$9.82 for a total fair value on date of grant of CAD$3,130,180. Of the 322,547 RSUs granted, 75,944 were severance compensation to a former officer. As these RSUs were issued as severance compensation, the grant date fair value of CAD$713,874 ($550,896) was recognized on the grant date. The fair value of the remaining RSUs will be recognized as stocked-based compensation expense over the vesting period, which is generally three years.

During the six months ended February 28, 2021, share-based compensation expense for the Company’s RSUs was $1,708,515 (February 29, 2020 – $nil).

Page 34 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

21.	Capital management

The Company considers its capital to be its shareholders’ equity.

As of February 28, 2021, the Company had shareholders’ equity before non-controlling interests of $5,110,499 (August 31, 2020 – $45,907).

The Company’s objective when managing its capital is to seek continuous improvement in the return to its shareholders while maintaining a moderate to high tolerance for risk. The objective is achieved by prudently managing the capital generated through internal growth and profitability, through the use of lower cost capital, including raising share capital or debt when required to fund opportunities as they arise.

The Company may also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines any of these to be an effective method of achieving the above objective. The Company does not use ratios in the management of its capital. There have been no changes to management’s approach to managing its capital during the three and six months ended February 28, 2021 and February 29, 2020.

22.	Commitments and contingencies

(a)	Royalty expenses

Royalty expenses relate to royalties paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology or other intellectual property or proprietary rights in the development or sale of the Eden Games’ products. Eden Games has royalty agreements to utilize trademarks, copyrights, software, technology or other intellectual property or proprietary rights in the development or sale of its products. Eden Games has committed to pay royalties ranging from 4% to 25% of revenues after certain thresholds have been met, in connection with the underlying license agreements. Royalty expenses were €nil for the three and six months ended February 28, 2021 and February 29, 2020.

(b)	Consulting contracts

Under the terms of a consulting agreement dated July 27, 2017, the Company is committed to pay to certain employees of Eden Games, nine months’ severance in the event of termination, amounting to £144,500 ($175,911). If revenue from the Eden Games mobile app exceeds specified amounts, a bonus shall be paid up to a maximum of £100,000 ($121,561) on an annual basis. As no triggering events have taken place related to the contingencies to February 28, 2021, no provision has been made in these unaudited interim condensed consolidated financial statements.

(c)	Litigation and arbitration

In April 2020, the Company announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provides for the acquisition of 100% of Allinsports in exchange for the issuance of 966,667 common shares of the Company. The purchase agreement included the requirement of $1.2 million to be advanced against the purchase price. In September 2020, the Company advised the shareholders of Allinsports that closing conditions of the transaction, including the failure to provide audited financial statements, had not been satisfied.

Page 35 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

22.	Commitments and contingencies (cont’d)

(c)	Litigation and arbitration (cont’d)

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 are seeking US$20,000,000 in damages. A hearing in this matter was held in May of 2021, with related briefing and oral argument to occur in June and July of 2021.

Separately, in April of 2021, the Company received a copy of a complaint filed by 3CI Holdings, LLP in the Circuit Court for the 11^th Judicial Circuit for Miami-Dade naming Allinsports, A1 Simulation LLC (an entity purported to be a subsidiary of Allinsports), and the Company, seeking to hold the parties, including Company, responsible for unpaid rent under a lease agreement between 3CI’s predecessors in interest and A1 Simulation, and seeking damages of at least $2.89 million. The Company does not believe that this action has merit.

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 Company does not believe that the action has merit and 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.

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.

23.	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.

Page 36 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

23.	Discontinued operations (cont’d)

Consideration transferred for the Motorsport Group was as follows:

	Amount
	$
Consideration received or receivable:
Accounts payable assumed		101,322
Deferred purchase consideration of LGR		333,503
Fair value of contingent consideration		1,321,281
Total disposal consideration		1,756,106
Carrying amount of net assets sold		(2,334,303	)
Loss on disposal before income tax and reclassification of foreign currency translation reserve		(578,197	)

Reclassification of foreign currency translation reserve		(100,734	)
Loss on disposal of Motorsports		(678,931	)

The net assets of the Motorsport Group as of the date of sale were as follows:

	Amount
	$
Carrying amounts of assets as at the date of sale:
Cash and cash equivalents		(24,348	)
Restricted cash		-
Accounts and other receivables		126,590
Government remittances		25,095
Prepaid expenses and other		24,113
Property and equipment		47,416
Intangible assets		3,066,457
Total assets of disposal group		3,265,323

Carrying amount of liabilities directly associated with assets as at the date of sale:
Accounts payable and accrued liabilities		931,020
Total liabilities of disposal group		931,020

Net assets of disposal group		2,334,303

Page 37 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

23.	Discontinued operations (cont’d)

The operating results and net cash flows of the Motorsports Group and PGL Nevada, (together, the “discontinued operations”) for the three and six months ended February 28, 2021 and February 29, 2020 are presented as discontinued operations as follows:

	For the three months ended						For the six months ended
	Feb. 28, 2021			Feb. 29, 2020			Feb. 28, 2021			Feb. 29, 2020
	$			$			$			$
Revenues
Advertising revenue		-			38,522			90,934			38,522

Operating expenses
Salaries and wages		-			199,082			212,546			272,675
Consulting		-			171,778			267,933			198,814
Professional fees		-			66,358			22,681			104,667
Sponsorships and tournaments		-			612,612			203,637			2,441,199
Advertising and promotion		-			2,531			1,740			12,114
Office and general		-			66,523			7,374			122,026
Technology expenses		-			7,588			86,590			7,620
Amortization and depreciation		-			2,623			201,335			4,238
Share-based payments		-			-			-			-
Interest expense		-			314			572			258
(Gain) loss on foreign exchange		2,970			2,992			39,711			(4,446	)
Net loss from discontinued operations		(2,970	)		(1,093,879	)		(953,185	)		(3,120,643	)

	For the three months ended						For the six months ended
	Feb. 28, 2021			Feb. 29, 2020			Feb. 28, 2021			Feb. 29, 2020
	$			$			$			$

Net cash provided by (used in) operating activities		(125	)		28,331			(92,652	)		(79,068	)
Disposal of Motorsports		-			-			24,348			-
Change in cash		(125	)		28,331			(68,304	)		(79,068	)
Cash, beginning of period		125			(27,846	)		68,304			79,553
Cash, end of period		-			485			-			485

24.	Segmented information

Information reported to the Company’s Chief Executive Officer, the Chief Operating Decision Maker (“CODM”), for the purposes of resource allocation and assessment of segment performance is focused on the category of services for each type of activity. The principal categories of services are E-Sports, Media and Advertising, and Corporate and Other. The Group’s reportable segments under IFRS 8 are therefore as follows:

E-Sports	-	Services related to competitive organized video gaming or sporting events;
Media and Advertising	-	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.

Page 38 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

24.	Segmented information (cont’d)

The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended February 28, 2021:

Three months ended	E-Sports			Media and Advertising			Corporate and Other			28-Feb-21 Total
	$			$			$			$
Revenue
External sales		1,192,474			7,195,406			-			8,387,880

Results
Segment loss		(2,093,966	)		(2,232,357	)		-			(4,326,323	)

Central administration costs		-			-			2,505,264			2,505,264
Other gains and losses		(11,537	)		2,808,032			17,169,379			19,965,874
Finance costs		45,231			325,054			202,192			572,477
Loss before tax		(2,127,660	)		(5,365,443	)		(19,876,835	)		(27,369,938	)
Income tax		-			-			-			-
Gain (Loss) for the year from:
Share of net loss of associate		-			-			(37,244	)		(37,244	)
Discontinued operations		(2,970	)		-			-			(2,970	)
Non-controlling interest in net loss		-			-			30,640			30,640
Net loss		(2,130,630	)		(5,365,443	)		(19,883,439	)		(27,379,512	)

Page 39 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

The following is an analysis of the Company’s revenue and results by reportable segment for the six months ended February 28, 2021:

Six months ended	E-Sports			Media and Advertising			Corporate and Other			28-Feb-21 Total
	$			$			$			$
Revenue
External sales		1,955,415			13,898,856			-			15,854,271

Results
Segment loss		(4,791,404	)		(3,624,952	)		-			(8,416,356	)

Central administration costs		-			-			5,815,053			5,815,053
Other gains and losses		(13,889	)		2,804,339			13,702,143			16,492,593
Finance costs		104,802			512,044			363,721			980,567
Loss before tax		(4,882,317	)		(6,941,335	)		(19,880,917	)		(31,704,569	)
Income tax		-			-			-			-
Gain (Loss) for the year from:
Share of net loss of associate		-			-			(103,930	)		(103,930	)
Discontinued operations		(953,185	)		-			(678,931	)		(1,632,116	)
Non-controlling interest in net loss		-			-			61,670			61,670
Net loss		(5,835,502	)		(6,941,335	)		(20,602,108	)		(33,378,945	)

Page 40 of 47

Engine Media Holdings, Inc.
(formerly Torque Esports Corp.)
Notes to the Interim Condensed Consolidated Financial Statements
For the three and six months ended February 28, 2021 (Unaudited)
(Expressed in United States Dollars)

24.	Segmented information (cont’d)

The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended February 29, 2020:

Three months ended	E-Sports			Media and Advertising		Corporate and Other			29-Feb-20 Total
	$			$		$			$
Revenue
External sales		623,888			-		107			623,995

Results
Segment loss		(1,431,329	)		-		107			(1,431,222	)

Central administration costs		-			-		2,130,816			2,130,816
Other gains and losses		80,510			-		(2,436,008	)		(2,355,498	)
Finance costs		8,831			-		240,230			249,061
Loss before tax		(1,520,670	)		-		65,069			(1,455,601	)
Income tax		-			-		-			-
Gain (Loss) for the year from:
Discontinued operations		(1,093,879	)		-		-			(1,093,879	)
Non-controlling interest in net loss		-			-		42,209			42,209
Net loss		(2,614,549	)		-		107,278			(2,507,271	)

The following is an analysis of the Company’s revenue and results by reportable segment for the six months ended February 29, 2020:

Six months ended	E-Sports			Media and Advertising		Corporate and Other			29-Feb-20 Total
	$			$		$			$
Revenue
External sales		1,431,871			-		372			1,432,243

Results
Segment loss		(2,321,148	)		-		372			(2,320,776	)

Central administration costs		-			-		4,417,138			4,417,138
Other gains and losses		81,881			-		171,795			253,676
Finance costs		10,711			-		512,827			523,538
Loss before tax		(2,413,740	)		-		(5,101,388	)		(7,515,128	)
Income tax		-			-		-			-
Gain (Loss) for the year from:
Discontinued operations		(3,120,643	)		-		-			(3,120,643	)
Non-controlling interest in net loss		-			-		77,309			77,309
Net loss		(5,534,383	)		-		(5,024,079	)		(10,558,462	)

Page 41 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

24.	Segmented information

(a)	Geographical breakdown

	North America		United Kingdom		European Union		Total
	$		$		$		$
August 31, 2020
Assets		48,230,804		2,896,582		2,288,091		53,415,477
Long-term assets		37,664,748		2,507,761		1,067,495		41,240,004

February 28, 2021
Assets		68,337,495		-		2,007,404		70,344,899
Long-term assets		38,188,398		-		171,995		38,360,393

25.	Related party transactions and balances

(a)	Key management compensation

Key management includes the Company’s directors, officers and any consultants with the authority and responsibility for planning, directing and controlling the activities of an entity, directly or indirectly. Compensation awarded to key management for the three and six months ended February 28, 2021 and February 29, 2020 includes the following:

	For the three months ended				For the six months ended
	Feb. 28, 2021		Feb. 29, 2020		Feb. 28, 2021		Feb. 29, 2020
	$		$		$		$

Total compensation paid to key management		909,355		101,148		1,444,093		207,818
Share based payments		361,990		9,705		1,257,804	$	16,914

Total compensation paid to key management is recorded in consulting fees, salaries and wages and share based payments in the consolidated statement of loss and comprehensive loss.

Amounts due to related parties as of February 28, 2021 with respect to the above fees were $578,778 (August 31, 2020 – $275,502). The amounts due to related parties are recorded within accounts payable and accrued liabilities on the consolidated statement of loss and comprehensive loss. These amounts are unsecured, non-interest bearing and due on demand.

Page 42 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

26.	Financial instruments and risk management

(a)	Financial risk management objectives and policies

The Company’s activities expose it to a variety of financial risks including foreign currency risk, interest rate risk, credit risk, and liquidity risk. These financial instrument risks are actively managed by the Company under the policies approved by the Board of Directors. The principal financial risks are managed by the Company’s finance department, within Board approved policies and guidelines. On an ongoing basis, the finance department actively manages market conditions with a view to minimizing the exposure of the Company to changing market factors, while at the same time limiting the funding costs to the Company.

(b)	Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company uses information supplied by independent rating agencies where available, and if not available, the Company uses other publicly available financial information and its own records to rate its customers.

Credit risk arises from cash and deposits with banks as well as credit exposure to outstanding receivables, the carrying amounts represent the Company’s maximum exposure to credit risk.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Company establishes an allowance for doubtful accounts that represents its estimate of expected losses in respect of accounts receivable. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

The Company’s accounts receivable are concentrated among customers in the media and broadcasting industry, which may be affected by adverse economic factors impacting that industry. The Company performs ongoing credit evaluations of its major customers, maintains reserves for expected credit losses, and does not require any collateral deposits.

As of February 28, 2021 one customer (August 31, 2020 – one) accounted for greater than 10% of the Company’s accounts receivable balance. In total, this one customer (August 31, 2020 – one) accounted for 19% of the Company’s accounts and other receivables balance as of February 28, 2021 (August 31, 2020 – 13%). During the six months ended February 28, 2021, one customer represented 59% of total revenue.

The below table reflects the aging of the Company’s aging by invoice date of gross trade accounts receivable and allowance for doubtful accounts as of February 28, 2021:

	0 - 30			31 - 60			61 - 90			91+			Total

Trade accounts receivable		3,674,227			784,098			34,691			1,426,439			5,919,455
Allowance for doubtful accounts		9,750			6,803			6,750			921,521			944,824
% Allowance		0	%		1	%		19	%		65	%		16	%

Page 43 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

26.	Financial instruments and risk management (cont’d)

(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		3-5 years
	$		$		$

Accounts payable and accrued liabilities		15,804,476		-		-
Players liability account		321,129		-		-
Lease obligation		194,558		287,753		-
Long-term debt		98,992		44,996		-
Promissory notes payable		1,340,840		-		-
Convertible debt		-		14,276,107		-

(d)	Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to fair value risk with respect to debt which bear interest at fixed rates.

(e)	Foreign exchange rates

The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to fluctuations of financial instruments related to cash, accounts and other receivables, and accounts payable denominated in Euros, 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.

Page 44 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

26.	Financial instruments and risk management (cont’d)

(f)	Fair value hierarchy (cont’d)

As of February 28, 2021:

Carrying value at February 28, 2021	FVTPL - mandatorily measured		FVOCI - mandatorily measured		FVOCI - designated		Amortized cost
	$		$		$		$

Financial assets:
Cash and cash equivalents		-		-		-		22,761,881
Restricted cash		-		-		-		321,129
Accounts and other receivables		-		-		-		5,026,111
Government remittances		-		-		-		953,844
Publisher advance		-		-		-		4,858,645
		-		-		-		33,921,610

Carrying value at February 28, 2021	FVTPL - mandatorily measured		FVTPL - designated		Amortized cost
	$		$		$

Financial liabilities:
Accounts payable and accrued liabilities		-		-		15,804,476
Players liability account		-		-		321,129
Line of credit		-		-		-
Long-term debt		-		-		143,988
Promissory notes payable		-		-		1,340,840
Deferred purchase consideration		-		-		-
Convertible debt		-		14,276,107		-
		-		14,276,107		17,610,433

As of 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		-		-		-		5,243,278
Restricted cash		-		-		-		388,587
Accounts and other receivables		-		-		-		3,845,890
Government remittances		-		-		-		1,125,912
Publisher advance		-		-		-		-
		-		-		-		10,603,667

Page 45 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

26.	Financial instruments and risk management (cont’d)

(f)	Fair value hierarchy (cont’d)

Carrying value at August 31, 2020	FVTPL - mandatorily measured		FVTPL - designated		Amortized cost
	$		$		$

Financial liabilities:
Accounts payable and accrued liabilities		-		-		17,144,346
Players liability account		-		-		388,587
Line of credit		-		-		4,919,507
Long-term debt		-		-		230,932
Promissory notes payable		-		-		3,818,920
Deferred purchase consideration		-		-		333,503
Convertible debt		-		10,793,459		-
		-		10,793,459		26,835,795

A summary of instruments, with their classification in the fair value hierarchy is as follows:

	Level 1		Level 2		Level 3		Fair value as at February 28, 2021
	$		$		$		$

Convertible debt		-		-		14,276,107		14,276,107
		-		-		14,276,107		14,276,107

	Level 1		Level 2		Level 3		Fair value as at August 31, 2020
	$		$		$		$

Convertible debt		-		-		10,793,459		10,793,459
		-		-		10,793,459		10,793,459

Page 46 of 47

Engine Media Holdings, Inc.

(formerly Torque Esports Corp.)

Notes to the Interim Condensed Consolidated Financial Statements

For the three and six months ended February 28, 2021 (Unaudited)

(Expressed in United States Dollars)

26.	Financial instruments and risk management (cont’d)

(f)	Fair value hierarchy (cont’d)

The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique and key inputs used).

Financial assets / financial liabilities	Valuation technique	Key Inputs	Relationship and sensitivity of unobservable inputs to fair value
Convertible debt	The fair value of the convertible debentures as of February 28, 2021 has been calculated using a binomial lattice methodology.	Key observable inputs Share price CAD$14.15 (USD $11.14) Risk-free interest rate (0.11% to 0.30%) Dividend yield (0%) Key unobservable inputs Credit spread (7.33% to 8.46%) Discount for lack of marketability (0% to 10%)	The estimated fair value would increase (decrease) if: The share price was higher (lower) The risk-free interest rate was higher (lower) The dividend yield was lower (higher) The credit spread was lower (higher) 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 Share price (USD $8.92) Risk-free interest rate (0.14%) Dividend yield (0%) Key unobservable inputs Credit spread (18.35%) Discount for lack of marketability (47%)	The estimated fair value would increase (decrease) if: The share price was higher (lower) The risk-free interest rate was higher (lower) The dividend yield was lower (higher) The credit spread was lower (higher) The discount for lack of marketability was lower (higher)

There has been no change to the valuation technique during the year. There were no transfers between Levels 1, 2 and 3 during the three and six months ended February 28, 2021 and February 29, 2020.

27.	Subsequent events

The Company has evaluated subsequent events from the balance sheet date through June 9, 2021, the date at which the unaudited interim condensed consolidated financial statements were available to be issued, and determined there were no additional items to be disclosed except for the transactions described below.

On March 25, 2021, the Company filed a final short form base shelf prospectus and a corresponding shelf registration statement on Form F-10 with the U.S. Securities and Exchange Commission. The prospectus and registration statement allows the Company to offer up to $150 million of common shares, preference shares, warrants, subscription receipts, debt securities, units, or any combination thereof during the 25-month period that the shelf prospectus is effective. The specific terms of any offering of securities, including the use of proceeds from any offering, will be set forth in a shelf prospectus supplement.

Page 47 of 47

Engine Gaming and Media (GAME) F-10/ARegistration of securities (Canada) (amended)