Engine Gaming and Media (GAME) 6-K Current report (foreign)

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Exhibit 99.1

 

ENGINE GAMING AND MEDIA, INC.

Interim Condensed Consolidated Financial Statements

(Unaudited)

For the three and nine months ended

May 31, 2022 and May 31, 2021

(Expressed in United States Dollars)

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.)

Table of Contents  

Management’s Responsibility for Financial Reporting	3
Unaudited Interim Condensed Consolidated Statements of Financial Position	4
Unaudited Interim Condensed Consolidated Statements of Income (loss) and Comprehensive Income (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

Page 2 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.)

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

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

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

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

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

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

NOTICE TO READER

The Audit Committee, in consultation with management of the Company, has determined that the Company’s previously filed unaudited condensed consolidated interim financial statements and management’s discussion and analysis for the three and nine months ended May 31, 2021, and 2020, required restating to classification, measurement and disclosure deficiencies related to the following items:

1. Warrants issued in connection with the private placement of units and conversion of convertible debt having USD exercise price – Adjustments resulted in a decrease to warrant liability of $12,302,062 and increase in contributed surplus of $11,478,273 as of May 31, 2021, and adjustment in change in fair value of warrant liability of $4,626,125 (decrease of income) $(823,789) (increase of income) for the three and nine months ended May 31, 2021, respectively.

 

2. Share issuance costs incurred in the private placement of units – Adjustments resulted in decrease to contributed surplus of $582,333 as of May 31, 2021 and decrease to transaction costs of $0 and $582,333 for the three and nine months ended May 31, 2021, respectively.

The previously filed financial statements and management’s discussion and analysis for the financial periods were originally filed by the Company on SEDAR and EDGAR on July 26, 2021.

Each of the Restated Unaudited Condensed Consolidated Interim Financial Statements and Restated MD&A contained within this filing for the three and nine months ended May 31, 2021, and 2020 replaces and supersedes the respective previously filed original financial statements and related Management’s Discussion and Analysis. There have been no other changes. This notice supersedes the previously filed version.

Page 3 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Financial Position (Unaudited) (Expressed in United States Dollars)

	Note		May 31, 2022		August 31, 2021
			$		$
ASSETS
Current
Cash				13,695,279		15,305,996
Restricted cash		13		289,889		331,528
Accounts and other receivables		6		7,864,272		8,646,807
Government remittances				861,442		1,070,216
Publisher advance, current		6		2,351,435		3,197,102
Prepaid expenses and other				1,416,752		3,006,033
Promissory notes receivable		22		1,558,319		-
Assets held for sale		22		86,786		-
Total current assets				28,124,174		31,557,682
Non-Current
Publisher advance, non-current		6		-		1,337,116
Investment at FVTPL		7		2,629,851		2,629,851
Property and equipment		8		74,508		403,811
Goodwill		9		18,100,381		18,495,121
Intangible assets		10		9,439,450		12,482,244
Right-of-use assets		11		161,838		557,022
Total non-current assets				30,406,028		35,905,165
Total assets				58,530,202		67,462,847

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

Page 4 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Financial Position (Unaudited) (Expressed in United States Dollars)

	Note		May 31, 2022			August 31, 2021
			$			$
LIABILITIES
Current
Accounts payable				11,982,749			10,403,665
Accrued liabilities				4,926,240			5,722,470
Players liability account		13		289,889			331,528
Deferred revenue				1,411,653			2,644,948
Lease obligation, current		12		158,501			222,583
Long-term debt, current				-			96,664
Promissory notes payable		14		806,204			821,948
Liabilities held for sale		22		-			-
Warrant liability		16		135,749			4,868,703
Convertible debt, current		15		2,692,514			914,427
Arbitration reserve		21		899,569			6,468,330
Total current liabilities				23,303,068			32,495,266
Convertible debt, non-current		15		5,146,723			9,037,069
Lease obligation, non-current		12		245,076			364,968
Non-current liabilities				5,391,799			9,402,037
Total liabilities				28,694,867			41,897,303
SHAREHOLDERS’ EQUITY (DEFICIENCY)
Share capital		17		123,667,989			122,741,230
Contributed surplus				20,471,035			17,819,933
Foreign currency translation reserve				(2,224,326	)		(2,324,025	)
Deficit				(112,079,363	)		(112,814,973	)
Attributable to shareholders				29,835,335			25,422,165
Non-controlling interest				-			143,379
Total equity				29,835,335			25,565,544
Total liabilities and equity				58,530,202			67,462,847
Going concern		1
Commitments and contingencies		21
Subsequent events		27

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

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

Page 5 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Loss and Comprehensive Loss (Unaudited) (Expressed in United States Dollars)

	Note		May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
			For the three months ended						For the nine months ended
	Note		May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
			$			$			$			$
CONTINUING OPERATIONS
REVENUE
Direct to consumer				31,366			172			85,522			2,723
Software-as-a-service				1,961,323			1,601,188			6,005,957			4,625,214
Advertising				7,248,789			6,399,602			24,416,683			17,856,714
Net revenue				9,241,478			8,000,962			30,508,162			22,484,651
EXPENSES
Salaries and wages				4,209,272			3,395,973			12,318,344			9,667,776
Consulting				788,721			494,763			2,660,797			1,789,819
Professional fees				451,679			828,853			2,015,719			1,781,601
Revenue sharing expense				6,467,079			5,516,757			21,724,927			15,125,486
Sponsorships and tournaments				27,094			601			135,039			6,089
Advertising and promotion				369,002			123,246			1,421,896			1,498,167
Office and general				1,290,816			664,204			4,054,016			1,685,198
Technology expenses				802,512			553,105			2,177,538			1,719,806
Amortization and depreciation		8,10,11		798,286			743,942			2,394,653			2,230,424
Share-based payments		18, 19		1,001,449			680,153			3,577,861			2,459,841
Interest expense				228,348			209,755			641,785			1,113,749
(Gain) loss on foreign exchange				4,317			717,063			97,167			993,536
Loss on extinguishment of debt				-			-			-			2,428,900
Gain on retained interest in former associate				-			-			-			(99,961	)
Transaction costs				948,613			-			1,305,136			-
Non-operational professional fees				12,278			-			1,612,669			-
Arbitration settlement reserve		21		(1,620,153	)		-			(5,568,761	)		-
Restructuring costs		26		-			-			35,747			-
Change in fair value of warrant liability		16		(727,280	)		(7,236,531	)		(4,667,583	)		(7,071,518	)
Change in fair value of convertible debt		15		(170,200	)		(691,116	)		(2,147,134	)		7,172,533
Total				14,881,833			6,000,768			43,789,816			42,501,446
ASSOCIATES
Share of net loss of associate				-			-			-			103,930
Net income (loss) for the period before discontinued operations				(5,640,355	)		2,000,194			(13,281,654	)		(20,120,725	)
Income tax expense										-			-
Net loss after taxes				(5,640,355	)		2,000,194			(13,281,654	)		(20,120,725	)
DISCONTINUED OPERATIONS
Gain (loss) on disposal of subsidiary		22		15,128,417			-			15,128,417			(678,931	)
Gain (loss) from discontinued operations		22		(670,182	)		(425,799	)		(1,045,934	)		(5,034,317	)
Net income (loss) for the period				8,817,880			1,574,395			800,829			(25,833,973	)
Net (income) loss attributable to non-controlling interest				3,419			(2,343	)		(65,219	)		59,327
Net income (loss) attributable to owners of the Company				8,821,299			1,572,052			735,610			(25,774,646	)
OTHER COMPREHENSIVE INCOME (LOSS)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences				133,962			(376,785	)		238,821			(381,384	)
Comprehensive income (loss) for the period				8,955,261			1,195,267			974,431			(26,156,030	)
INCOME (LOSS) PER SHARE
Basic income (loss) per share - continuing operations		5		(0.36	)		0.14			(0.85	)		(1.87	)
Basic income (loss) per share		5		0.56			0.11			0.05			(2.40	)
Weighted average number of shares outstanding - Basic		5		15,653,419			14,402,785			15,618,068			10,748,434
Diluted income (loss) per share - continuing operations		5		(0.37	)		(0.28	)		(1.09	)		(2.10	)
Diluted income (loss) per share		5		0.48			(0.30	)		(0.31	)		(2.57	)
Weighted average number of shares outstanding - Diluted		5		16,983,103			17,120,843			18,055,081			12,359,163

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

Page 6 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Shareholders’ Equity (Deficiency) (Unaudited) (Expressed in United States Dollars)

	Share capital: Number		Share capital: Amount		Shares to be issued			Contributed surplus			Foreign currency translation reserve			Deficit			Total equity before non-controlling interest			Non-controlling interest			Total equity
	#		$		$			$			$			$			$			$			$
Balance, as at August 31, 2020		7,746,136		69,380,807		1,059,214			4,034,323			(2,334,275	)		(72,094,162	)		45,907			217,385			263,292
Share-based payments		-		-		-			2,458,744			-			-			2,458,744			-			2,458,744
Shares issued on vesting of RSUs		158,477		1,080,804		-			(900,804	)		-			-			180,000			-			180,000
Convertible debt conversion		1,728,848		13,704,605		-			4,256,114			-			-			17,960,719			-			17,960,719
Common shares issued on private placement, net of costs		4,435,433		24,225,901		-			6,791,473			-			-			31,017,374			-			31,017,374
Warrants issued in private placement of convertible debt		-		-		-			618,916			-			-			618,916						618,916
EB bonus shares		6,666		54,061		-			-			-			-			54,061			-			54,061
Shares for debt		40,000		226,556		-			-			-			-			226,556			-			226,556
Common shares issued on exercise of warrants		747,129		7,221,216		-			-			-			-			7,221,216			-			7,221,216
Disposal of Motorsports		-		-		(1,059,214	)		-			-			-			(1,059,214	)		-			(1,059,214	)
Non-controlling interest in subsidiary		-		-		-			(7,357	)		-			-			(7,357	)		-			(7,357	)
Net loss for the period		-		-		-			-			-			(25,774,646	)		(25,774,646	)		(59,327	)		(25,833,973	)
Foreign currency translation differences		-		-		-			-			(381,384	)		-			(381,384	)		-			(381,384	)
Balance, as at May 31, 2021		14,862,689		115,893,950		-			17,251,409			(2,715,659	)		(97,868,808	)		32,560,892			158,058			32,718,950
Balance, as at August 31, 2021		15,543,309		122,741,230		-			17,819,933			(2,324,025	)		(112,814,973	)		25,422,165			143,379			25,565,544
Balance		15,543,309		122,741,230		-			17,819,933			(2,324,025	)		(112,814,973	)		25,422,165			143,379			25,565,544
Share-based payments		-		-		-			3,577,861			-			-			3,577,861			-			3,577,861
Shares issued on vesting of RSUs		115,574		926,759		-			(926,759	)		-			-			-			-			-
Disposal of Eden Games		-		-		-			-			(139,122	)		-			(139,122	)		(208,598	)		(347,720	)
Net income for the period		-		-		-			-			-			735,610			735,610			65,219			800,829
Foreign currency translation differences		-		-		-			-			238,821			-			238,821			-			238,821
Balance, as at May 31, 2022		15,658,883		123,667,989		-			20,471,035			(2,224,326	)		(112,079,363	)		29,835,335			-			29,835,335
Balance		15,658,883		123,667,989		-			20,471,035			(2,224,326	)		(112,079,363	)		29,835,335			-			29,835,335

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

Page 7 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Interim Condensed Consolidated Statements of Cash Flows (Unaudited) (Expressed in United States Dollars)

	Note		May 31, 2022			May 31, 2021
			For the nine months ended
	Note		May 31, 2022			May 31, 2021
			$			$
OPERATING ACTIVITIES
Net loss for the period before non-controlling interest				800,829			(25,833,973	)
Items not affecting cash:
Amortization and depreciation		8,10,11		2,894,593			4,139,877
Impairment expense				476,404			-
Arbitration settlement reserve		21		(5,568,761	)		-
Gain on disposal of Eden Games				(15,128,417	)		-
Loss on disposal of Motorsports		22		-			678,931
Loss on disposal of P&E				-			9,767
Loss on extinguishment of debt				-			2,428,900
Gain on retained interest in former associate				-			(99,961	)
Share of net loss of associate				-			103,930
Change in fair value of warrant liability		16		(4,667,583	)		(7,071,518	)
Change in fair value of convertible debt		15		(2,147,134	)		7,172,533
Accretion of debt				4,610			104,002
Share-based payments		18,19		3,577,861			2,458,744
Total Adjustments				(19,757,598	)		(15,908,768	)
Changes in non-cash working capital:
Restricted cash				41,639			78,122
Accounts and other receivables				196,227			(3,901,989	)
Government remittances				(357,557	)		(59,609	)
Publisher advance		6		2,182,783			(5,309,262	)
Prepaid expenses and other				1,553,157			341,604
Accounts payable				2,409,692			(399,971	)
Accrued liabilities				(45,842	)		1,140,764
Players liability account				(41,639	)		(78,122	)
Deferred revenue				(1,233,295	)		1,008,589
Changes in non-cash working capital				4,705,165			(7,179,874	)
Net cash used in operating activities				(15,052,433	)		(23,088,642	)
INVESTING ACTIVITIES
Purchase of property and equipment				(72,183	)		(107,464	)
Purchase of promissory notes				(1,181,005	)		-
Net cash from disposal of Eden Games				14,710,616			-
Net cash from disposal of Motorsports				-			24,348
Net cash used in investing activities				13,457,428			(83,116	)
FINANCING ACTIVITIES
Net proceeds from issuance of Units		15		-			31,017,374
Proceeds from convertible debentures				-			4,901,393
Net (payments) proceeds from promissory notes payable		14		(15,744	)		(2,915,701	)
Proceeds from exercise of warrants		16		-			5,949,269
Payments on lease financing		12		(184,377	)		(164,410	)
Payments on long-term debt				(75,262	)		(135,457	)
Net cash provided by financing activities				(275,383	)		38,652,468
Impact of foreign exchange on cash				259,671			597,989
Change in cash				(1,610,717	)		16,078,699
Cash, beginning of period				15,305,996			5,243,278
Cash, end of period				13,695,279			21,321,977

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

Page 8 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

1.	Corporate information and going concern
(a)	Corporate information

Engine Gaming and Media Inc. (formerly Engine Media Holdings, Inc.) (“Engine” or the “Company”) was incorporated under the Business Corporations Act (Ontario) on April 8, 2011. The registered head office of the Company is 77 King St. West, Suite 3000, PO Box 95, TD Centre – North Tower, Toronto, Ontario, M5K 1G8, Canada.

Pursuant to shareholder approval at the October 6, 2021, shareholders’ meeting, effective October 19, 2021, the Company changed its name to Engine Gaming and Media, Inc. The Company’s common shares trade on the TSX Venture Exchange under the trading symbol GAME.V and NASDAQ under the trading symbol GAME.

The Company focuses on accelerating new, live, immersive esports and interactive gaming experiences for consumers through its partnerships with traditional and emerging media companies and providing online interactive technology and monetization services.

(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 $112,079,363 as of May 31, 2022 (August 31, 2021 –$112,814,973). The recoverability of the carrying value of the assets and the Company’s continued existence is dependent upon the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary. While management has been historically successful in raising the necessary capital, it cannot provide assurance that it will be able to execute on its business strategy or be successful in future financing activities. On April 6, 2022, the Company completed the sale of the Eden Games, S.A. The Company expects that proceeds from this sale when combined with cash on hand will be sufficient to meet the Company’s current operational and debt service cash needs. The Company also faces uncertain future impacts from COVID-19, see Note 3(b).

These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.

Page 9 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

2.	Basis of preparation
(a)	Statement of compliance

These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements required by International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These unaudited interim condensed consolidated financial statements are prepared on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the fiscal year ended August 31, 2021; and should be read in conjunction with those audited consolidated financial statements. Interim results are not necessarily indicative of the results expected for the fiscal year.

These interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of the Company on July 15, 2022.

(b) Basis of consolidation

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

All transactions and balances between the Company and its subsidiaries are eliminated on consolidation, including unrealized gains and losses on transactions between companies. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

The Company’s material subsidiaries as of May 31, 2022, are as follows:

 Schedule of material subsidiaries

Name of Subsidiary	Country of Incorporation	Ownership Percentage	Functional Currency
Frankly Inc.	Canada	100%	Canadian Dollar
UMG Media Ltd.	Canada	100%	Canadian Dollar
Stream Hatchet S.L.	Spain	100%	Euro
SideQik, Inc.	USA	100%	US Dollar
WinView, Inc.	USA	100%	US Dollar

Non-controlling interests are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Page 10 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

(c) Functional and presentation currency

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

(d) Income taxes

The Company had no income tax expense for the three and nine months ended May 31, 2022, and 2021. As of May 31, 2022, deferred tax assets have not been recognized because it has not been determined as probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.

3. Significant judgments, estimates and assumptions

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

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

The assessment of the Company’s ability to execute its strategy by funding future working capital requirements involves judgment. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There is a material uncertainty regarding the Company’s ability to continue as a going concern.

Page 11 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

(a) Significant estimates and critical judgments

Information about significant estimates and critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the interim condensed consolidated financial statements is included in the following notes:

Note 1	Going concern;
Note 25	Expected credit losses;
Note 16	Valuation of warrant liability;
Notes 9 and 10	Goodwill and intangible assets;
Notes 18 and 19	Valuation of share-based payments;
Note 15	Valuation of convertible debt; and
Note 21	Contingencies.

(b) Uncertainty about the effects of COVID-19

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged and has since extensively impacted global health and the economic environment. To contain the spread of COVID-19, domestic and international governments around the world enacted various measures, including orders to close all businesses not deemed “essential,” quarantine orders for individuals to stay in their homes or places of residence, and to practice social distancing when engaging in essential activities. The Company anticipates that these actions and the global health crisis caused by COVID-19 will continue to negatively impact many business activities and financial markets across the globe.

In an effort to protect the health and safety of our employees, much of the Company’s workforce is currently working from home. The Company has implemented business continuity plans and has increased support and resources to enable employees to work remotely and thus far has been able to operate with minimal disruption.

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

Page 12 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

4. Changes in significant accounting policies

Future accounting pronouncements

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

Amendments to IAS 1 - Classification of liabilities as current or non-current

Amendments to IAS 8 - Definition of Accounting Estimates

Amendments to IAS 12 Income Taxes - Deferred Tax Related to Assets and liabilities Arising from a Single Transaction

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

5. Net income (loss) per share

Basic net income (loss) per share is calculated using the weighted-average number of common shares outstanding during each period. Diluted net income (loss) per share assumes the conversion, exercise, or issuance of all potential common share equivalents unless the effect is to reduce the loss or increase the income per share. For purposes of this calculation, stock options, warrants and RSU’s are potential common shares and are only included in the calculation of diluted net income (loss) per share when their effect is dilutive.

Due to the net loss from continuing operations during the three and nine months ended May 31, 2022, and the nine months ended 2021, all outstanding options, restricted share units and warrants were excluded from diluted weighted-average common shares outstanding as their effect was anti-dilutive. Weighted average common shares outstanding for the three and nine months ended May 31, 2022, and 2021 were 15,653,419 and 15,618,068, respectively (May 31, 2021- 14,402,785 and 10,748,434,respectively. Diluted weighted average common shares for the three and nine months ended May 31, 2022, and 2021 were 16,983,103 and 18,055,081, respectively (May 31, 2021- 17,120,843 and 12,359,163, respectively.

Page 13 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

6.	Accounts, other receivables, and publisher advance
(a)	Accounts and other receivables

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

Schedule of accounts and other receivables 

	May 31, 2022			August 31, 2021
	$			$
Trade accounts receivable		8,836,051			9,677,725
Other receivables		50,857			53,387
Allowance for doubtful accounts		(1,022,636	)		(1,084,305	)
Total accounts and other receivables		7,864,272			8,646,807

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

Schedule of allowance for doubtful accounts 

	2022			2021
	$			$
Balance, August 31,		(1,084,305	)		(874,438	)
Provision, bad debt expense		-			(72,636	)
Write-offs		61,669			3,540
Balance, May 31,		(1,022,636	)		(943,534	)

(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. The contract is expected to go through early calendar year 2023. One of the key terms of the amended agreement required the Company to advance $6 million of revenue sharing payments to the publisher under the following schedule:

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

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

As of May 31, 2022, $6 million had been advanced to the publisher and $3,648,565 had been recouped through the process explained above. As of May 31, 2022, a net amount of $2,351,435 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 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

7. Investment at FVTPL

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

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

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

The fair value of the Company’s investment in One Up is estimated at each reporting period, with reference to valuations underlying privately placed financing transactions closed by One Up and is classified with a level 3 in the fair value hierarchy, see Note 25. The fair value of this investment was $2,629,851 on May 31, 2022, and August 31, 2021.

8. Property and equipment

Schedule of detailed information about property plant and equipment 

Cost	Leasehold improvements			Computer equipment			Furniture and fixtures			Total
	$			$			$			$
August 31, 2020		221,653			486,340			173,091			881,084
Additions		-			89,561			17,903			107,464
Impairment
Disposals		-			(9,767	)		-			(9,767	)
Disposal of Motorsports		(2,631	)		(47,645	)		(18,118	)		(68,394	)
Disposal of Eden Games		-			(9,767	)		-			(9,767	)
Held for sale - UMG
Effect of foreign exchange		132			11,518			802			12,452
May 31, 2021		219,154			530,007			173,678			922,839
August 31, 2021		218,851			603,607			173,044			995,502
Additions		-			70,632			1,551			72,183
Impairment		(153,193	)		-			-			(153,193	)
Disposal of Eden Games		(7,407	)		(314,440	)		(52,460	)		(374,307	)
Disposal, cost		(7,407	)		(314,440	)		(52,460	)		(374,307	)
Held for sale - UMG		-			(227,179	)		(35,178	)		(262,357	)
Foreign exchange		1,011			(29,472	)		(4,515	)		(32,976	)
May 31, 2022		59,262			103,148			82,442			244,852

Page 15 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Accumulated depreciation	Leasehold improvements			Computer equipment			Furniture and fixtures			Total
	$			$			$			$
August 31, 2020		57,517			307,508			106,670			471,695
Depreciation		4,082			78,421			19,215			101,718
Disposal of Motorsports		-			(11,068	)		(9,910	)		(20,978	)
Held for sale - UMG
Foreign exchange		183			9,161			798			10,142
May 31, 2021		61,782			384,022			116,773			562,577
August 31, 2021		63,367			406,231			122,093			591,691
Depreciation		5,507			94,518			16,770			116,795
Disposal of Eden Games		(7,202	)		(278,569	)		(47,404	)		(333,175	)
Disposal, accumulated depreciation		(7,202	)		(278,569	)		(47,404	)		(333,175	)
Held for sale - UMG		-			(133,957	)		(41,614	)		(175,571	)
Foreign exchange		(668	)		(24,728	)		(4,000	)		(29,396	)
May 31, 2022		61,004			63,495			45,845			170,344

Net book value	Leasehold improvements		Computer equipment		Furniture and fixtures		Total
	$		$		$		$
August 31, 2021		155,484		197,376		50,951		403,811
May 31, 2022		0		39,653		36,597		74,508

9. Goodwill

Schedule of detailed information about goodwill 

	2022			2021
	$			$
Balance, August 31,		18,495,121			18,785,807
Disposal of Eden Games		(345,150	)		-
Effect of foreign exchange		(49,590	)		42,055
Balance, May 31,		18,100,381			18,827,862

Page 16 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

10. Intangible assets

A continuity of the Company’s intangibles is as follows:

Schedule of detailed information about intangible assets 

Cost	Patents		Application Platforms			Software			Brand			Customer Lists and Contracts			Total
	$		$			$			$			$			$
August 31, 2020		9,430,265		1,322,802			10,763,975			2,310,475			3,671,954			27,499,471
Disposal of Motorsports		-		-			(3,598,869	)		(201,627	)		(222,650	)		(4,023,146	)
Impairment
Disposal of Eden Games
Held for Sale - UMG
Foreign exchange		-		26,660			437,252			134,524			8,691			607,127
May 31, 2021		9,430,265		1,349,462			7,602,358			2,243,372			3,457,995			24,083,452
August 31, 2021		9,430,265		1,073,045			8,330,683			2,137,449			3,624,300			24,595,742
Intangible assets, Cost, Beginning balance		9,430,265		1,073,045			8,330,683			2,137,449			3,624,300			24,595,742
Impairment		-		(50,602	)		-			(62,675	)		-			(113,277	)
Disposal of Eden Games		-		(269,098	)		(4,709,219	)		(1,390,134	)		(269,010	)		(6,637,461	)
Held for Sale - UMG		-		(242,667	)		-			(184,167	)		(313,933	)		(740,767	)
Foreign exchange		-		(14,450	)		(285,842	)		(82,040	)		(19,230	)		(401,562	)
May 31, 2022		9,430,265		496,228			3,335,622			418,433			3,022,127			16,702,675
Intangible assets, Cost, Ending balance		9,430,265		496,228			3,335,622			418,433			3,022,127			16,702,675

Accumulated amortization	Patents		Application Platforms			Software			Brand			Customer Lists and Contracts			Total
	$		$			$			$			$			$
August 31, 2020		628,684		793,041			4,909,000			1,077,491			648,933			8,057,149
Amortization		1,414,540		131,944			1,538,835			363,583			445,317			3,894,219
Disposal of Motorsports		-		-			(532,412	)		(201,627	)		(222,650	)		(956,689	)
Disposal of Eden Games
Held for Sale - UMG
Foreign exchange		-		23,145			409,553			69,613			(77,318	)		424,993
May 31, 2021		2,043,224		948,130			6,324,976			1,309,060			794,282			11,419,672
August 31, 2021		2,514,737		966,444			6,340,302			1,375,647			916,368			12,113,498
Intangible assets, Accumulated amortization, Beginning balance		2,514,737		966,444			6,340,302			1,375,647			916,368			12,113,498
Amortization		1,414,540		56,000			636,504			204,663			300,087			2,611,794
Disposal of Eden Games		-		(269,098	)		(4,709,219	)		(1,112,108	)		(250,801	)		(6,341,226	)
Held for Sale - UMG		-		(242,667	)		-			(184,167	)		(313,933	)		(740,767	)
Foreign exchange		-		(14,451	)		(285,842	)		(61,977	)		(17,804	)		(380,074	)
May 31, 2022		3,929,277		496,228			1,981,745			222,058			633,917			7,263,225
Intangible assets, Accumulated amortization, Ending balance		3,929,277		496,228			1,981,745			222,058			633,917			7,263,225

Net book value	Patents		Application Platforms		Software		Brand		Customer Lists and Contracts		Total
	$		$		$		$		$		$
August 31, 2021		6,915,528		106,601		1,990,381		761,802		2,707,932		12,482,244
Net book value, Beginning balance		6,915,528		106,601		1,990,381		761,802		2,707,932		12,482,244
May 31, 2022		5,500,988		-		1,353,877		196,375		2,388,210		9,439,450
Net book value, Ending balance		5,500,988		-		1,353,877		196,375		2,388,210		9,439,450

Page 17 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

11. Right-of-use assets

Schedule of detailed information about right-of-use assets 

	2022			2021
	$			$
Balance, August 31,		557,022			550,478
Acquired		-			-
Depreciation		(166,004	)		(143,940	)
Impairment		(209,934	)		-
Disposal of Eden Games		(16,036	)		-
Effect of foreign exchange		(3,210	)		2,532
Balance, May 31,		161,838			409,070

Right of use assets consist primarily of leases for corporate office facilities and are amortized monthly over the term of the lease, or useful life, if shorter.

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 by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. The continuity of the lease liabilities is presented in the table below:

Schedule of detailed information about continuity of the lease liabilities 

	Equipment			Office lease			Total
	$			$			$
Balance, August 31, 2020		35,457			536,691			572,148
Acquired		-			-			-
Disposal of Eden Games
Interest expense		1,548			24,844			26,392
Payments		(10,035	)		(154,375	)		(164,410	)
Effect of foreign exchange		-			2,708			2,708
Balance, May 31, 2021		26,970			409,868			436,838
Balance, August 31, 2021		24,048			563,503			587,551
Lease liabilities, Beginning balance		24,048			563,503			587,551
Acquired		-			-			-
Disposal of Eden Games		-			(17,959	)		(17,959	)
Interest expense		979			20,907			21,886
Payments		(10,035	)		(174,342	)		(184,377	)
Effect of foreign exchange		-			(3,524	)		(3,524	)
Balance, May 31, 2022		14,992			388,585			403,577
Lease liabilities, Ending balance		14,992			388,585			403,577

Page 18 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

The Company’s lease obligation is classified between current and non-current liabilities as follows:

	Equipment		Office lease		Total
	$		$		$
As of May 31, 2021:
Less than one year		11,977		178,468		190,445
Greater than one year		14,993		231,400		246,393
Total lease obligation		26,970		409,868		436,838

	Equipment		Office lease		Total
	$		$		$
As of May 31, 2022:
Less than one year		12,781		145,720		158,501
Greater than one year		2,211		242,865		245,076
Total lease obligation		14,992		388,585		403,577

The future minimum undiscounted lease payments as of May 31, 2022, are presented below:

Schedule of detailed information about future minimum undiscounted lease payments 

	Equipment		Office lease		Total
Maturity analysis - contractual undiscounted cash flows as of May 31, 2022:
Less than one year		13,380		163,464		176,844
Greater than one year		2,230		254,241		256,471
Total undiscounted lease obligation		15,610		417,705		433,315

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 May 31, 2022, the players liability account balance is the total amount payable if all players were to request closure of their accounts. As of May 31, 2022, the players account liability and corresponding restricted cash balances were the same.

14. Promissory notes payable and other borrowings

(a) Promissory notes

The Company has promissory notes with a balance of $200,000 (August 31, 2021 – $200,000) that are unsecured, due on demand, and bear interest at 18%. As of May 31, 2022, interest of $170,914 has been accrued (August 31, 2021 – $139,644).

The Company, through its WinView subsidiary, has a secured promissory note outstanding for amounts due for the provision of services by the noteholder. As of May 31, 2022, $435,290 was due under the note (August 31, 2021 – $482,304). The note is secured by the assets of WinView, bears interest at 6%, and is currently due.

(b) Paycheck Protection Program (the “PPP”) loans

During April and May 2020, the Company entered into promissory notes (the “Notes”) with three banks. The Notes evidence loans to the Company of $1,589,559 pursuant to the PPP of the CARES Act administered by the U.S. Small Business Administration (the “SBA”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the loans exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs, as further detailed in the CARES Act and applicable guidance issued by the SBA.

Page 19 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Interest will accrue on the outstanding balance of the Notes at a rate of 1.00% per annum. However, the Company expects to apply for and receive forgiveness of up to all amounts due under the Notes, in an amount equal to the sum of qualified expenses under the PPP during the twenty-four weeks following disbursement.

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

Upon the receipt of the proceeds of $1,589,559 from the Notes, the Company accounted for the Notes as a grant in the form of forgivable loan and recorded the amount as a deferred income liability. The liability was reduced as the Company recognized expenses which qualified for forgiveness of the loan. As of August 31, 2020, the Company had incurred greater than $1,589,559 of qualifying expenses and therefore had a remaining deferred income liability of $nil. The Company recognized the impact of the loan forgiveness as an offset against related salaries and wages expense, in the consolidated statement of income (loss) and comprehensive income (loss) for the year ended August 31, 2020. As of May 31, 2022, $209,875 has not been formally forgiven.

15. Convertible debt

The continuity of convertible debt for the nine months ended May 31, 2022, and 2021, is as follows:

 Schedule of detailed information about continuity of convertible debt

	2019 Series			2020 Series			Amended EB Loan			EB CD		Total
	$			$								$
Balance, August 31, 2020		2,121,869			8,671,590			-			-		10,793,459
Issuances		-			4,282,477			-			-		4,282,477
Exchange of EB Loan for Amended EB Loan		-			-			5,043,103			-		5,043,103
Exchange of Amended EB Loan for EB CD		-			-			(4,931,813	)		7,394,022		2,462,209
Conversion - common shares issued		(1,500,214	)		(12,204,391	)		-			-		(13,704,605	)
Conversion - warrants issued		(1,103,661	)		(4,256,114	)		-			-		(5,359,775	)
Interest expense		47,325			347,773			138,710			125,000		658,808
Accrued interest on conversion / interest payments		(101,247	)		(256,300	)		(250,000	)		-		(607,547	)
Effect of foreign exchange		180,830			-			-			-		180,830
Change in fair value		1,486,061			5,634,688			-			51,784		7,172,533
Balance, May 31, 2021		1,130,963			2,219,723			-			7,570,806		10,921,492

Page 20 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

	2019 Series			2020 Series			Amended EB Loan		EB CD			Total
	$			$								$
Balance, August 31, 2021		914,428			2,097,127			-		6,939,941			9,951,496
Interest expense		19,945			149,589			-		375,000			544,534
Accrued interest on conversion / interest payments		-			-			-		(500,000	)		(500,000	)
Effect of foreign exchange		(9,659	)		-			-		-			(9,659	)
Change in fair value		(405,571	)		(73,345	)		-		(1,668,218	)		(2,147,134	)
Balance, May 31, 2022		519,143			2,173,371			-		5,146,723			7,839,237

The Company’s convertible debt obligations are classified between current and non-current liabilities as follows:

	2019 Series		2020 Series		EB CD		Total
	$		$		$		$
As of May 31, 2022:
Less than one year		519,143		2,173,371		-		2,692,514
Greater than one year		-		-		5,146,723		5,146,723
Total convertible debt obligation		519,143		2,173,371		5,146,723		7,839,237

(a) 2019 Series

As of May 31, 2022, the fair value of the 2019 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:

 Schedule of detailed information about fair value assumptions of convertible debentures

2019 Series	May 31, 2022 (CA$)			August 31, 2021 (CA$)
Share price		1.18			8.42
Conversion price		7.50			7.50
Warrant exercise price		7.50			7.50
Term, in years		.10 - .19			.85 - .94
Interest rate		6	%		6	%
Expected volatility		95.00	%		90.00	%
Risk-free interest rate		1.05% - 1.29	%		0.25% - 0.26	%
Exchange rate		0.7875			0.7947
Expected dividend yield		0	%		0	%

Page 21 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

(b) 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.

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.

(c) 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.

(d) 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 22 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

The proceeds of $2,000,000 from the first draw were allocated between convertible debt and warrant liability with $1,381,084 allocated to convertible debt and $618,916 allocated to the 224,719 warrants issued.

The remaining $6,000,000 of convertible debentures that are issuable under this facility have substantially similar terms as the 2020 Series debentures, including conversion into units consisting of one share and one-half warrant, provided that the conversion price of any additional convertible debentures will be based on the market price of the common shares at the time of such subscriptions and are subject to TSX-V approval.

As of May 31, 2022, the fair value of the 2020 Series convertible debentures was estimated using the binomial lattice model with the below assumptions:

2020 Series	May 31 2022 (US$)			August 31, 2021 (US$)
Share price		0.93			6.66
Conversion price		8.90			8.90
Warrant exercise price		-			-
Term, in years		0.47			1.26
Interest rate		10	%		10	%
Expected volatility		95.00	%		90.00	%
Risk-free interest rate		1.58	%		0.10	%
Expected dividend yield		0	%		0	%

(e) EB CD

On February 24, 2021, the Company extinguished the Amended EB Loan and issued the Lender a secured convertible debenture in the principal amount of $5 million (the “EB CD”). The EB CD is convertible into units of the Company at a conversion price of $10.25 per unit, with each unit comprised of one common share and one-half of a warrant, with each whole warrant exercisable into a common share at an exercise price of $15.00 per share for a period of three years from the issuance of the EB CD. The EB CD has a term of three years. The convertible debenture is secured by the Company’s real and personal property, fixtures, leasehold improvements, trade fixtures, equipment, and other personal property as well as all general intangibles relating to or arising from the personal property.

As of May 31, 2022, the fair value of the EB CD convertible debenture was estimated using the binomial lattice model with the below assumptions:

EB CD	May 31 2022 (US$)			August 31, 2021 (US$)
Share price		0.93			6.66
Conversion price		10.25			10.25
Warrant exercise price		15.00			15.00
Term, in years		1.74			1.26
Interest rate		10	%		10	%
Expected volatility		90.00	%		90.00	%
Risk-free interest rate		2.40	%		0.30	%
Expected dividend yield		0	%		0	%

Page 23 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

(f) Fair value

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

 Schedule of key inputs of convertible debt

Financial assets / financial liabilities	Valuation technique	Key Inputs	Relationship and sensitivity of unobservable inputs to fair value to fair value
Convertible debt	The fair value of the convertible debentures as of May 31, 2022 has been calculated using a binomial lattice methodology.	Key observable inputs	The estimated fair value would increase (decrease) if:
		Share price CAD $1.18 (USD $.93)	The share price was higher (lower)
		Risk-free interest rate (1.05% to 2.40%)	The risk-free interest rate was higher (lower)
		Dividend yield (0%)	The dividend yield was lower (higher)
		Key unobservable inputs
		Credit spread (7.07% to 8.73%)	The credit spread was lower (higher)
		Discount for lack of marketability (0%)	The discount for lack of marketability was lower (higher)
Convertible debt	The fair value of the convertible debentures as of August 31, 2021 has been calculated using a binomial lattice methodology.	Key observable inputs	The estimated fair value would increase (decrease) if:
		Share price CAD$8.42 (USD $6.66)	The share price was higher (lower)
		Risk-free interest rate (0.10% to 0.30%)	The risk-free interest rate was higher (lower)
		Dividend yield (0%)	The dividend yield was lower (higher)
		Key unobservable inputs
		Credit spread (1.14% to 8.45%)	The credit spread was lower (higher)
		Discount for lack of marketability (0%)	The discount for lack of marketability was lower (higher)

Page 24 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

16. Warrant liability

Liability measured warrants having CAD exercise price

The following tables reflect the continuity of the Company’s liability measured warrants for the nine months ended May 31, 2022, and 2021:

 Schedule of measured warrants

	Amount
	$
Balance at August 31, 2020		14,135,321
Issued on conversion of convertible debt		1,103,661
Exercised		(1,271,947	)
Change in fair value		(7,071,518	)
Foreign exchange		1,129,258
Balance, May 31, 2021		8,024,775

	Amount
	$
Balance at August 31, 2021		4,868,703
Change in fair value		(4,667,583	)
Foreign exchange		(65,371	)
Balance, May 31, 2022		135,749

The following tables reflects the continuity of the Company’s outstanding liability warrants for the nine months ended May 31, 2022, and 2021:

 Schedule of outstanding warrants

	Number of warrants			Weighted-average exercise price CAD
	#			$
Outstanding, August 31, 2020		2,405,369			9.60
Issued on conversion of convertible debt		175,331			7.50
Exercised		(747,129	)		9.64
Expired		(222,842	)		10.03
Outstanding as of May 31, 2021		1,610,729			9.30

	Number of warrants			Weighted-average exercise price CAD
	#			$
Outstanding, August 31, 2021		1,452,843			8.96
Expired		(123,159	)		9.24
Outstanding as of May 31, 2022		1,329,684			8.93

Page 25 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

The following table reflects the liability measured warrants issued and outstanding as of May 31, 2022:

 Schedule of warrants issued and outstanding

			Warrants outstanding
Expiry date	Number outstanding		Average exercise price CAD		Average remaining contractual life (years)
December 20, 2022		29,066		27.00		0.56
March 20, 2023		27,777		13.50		0.80
March 30, 2023		46,909		13.50		0.83
March 31, 2023		17,222		13.50		0.83
May 27, 2023		130,304		13.50		0.99
July 8, 2024		445,982		7.50		2.11
July 25, 2024		401,624		7.50		2.15
August 8, 2024		230,800		7.50		2.19
		1,329,684	$	8.93		1.90

As at May 31, 2022, the fair value of the 1,329,684 warrants outstanding (August 31, 2021 – 1,452,843) was determined to be $135,749 (August 31, 2021 – $4,868,703) as calculated using the Black Scholes option pricing model with the following range of assumptions: 0.56 – 2.19 years (August 31, 2021 – 0.53 – 2.94) as expected average life; share price of CAD$1.18 (August 31, 2021 – CAD$8.42); exercise price of CAD$7.50 – CAD$27.00 (August 31, 2021 – CAD$7.50 – CAD$27.00); 95% expected volatility (August 31, 2021 – 70% - 90%); risk free interest rate of 2.57% - 2.64% (August 31, 2021 – 0.28% - 0.63%); and an expected dividend yield of 0%.

Equity measured warrants having USD exercise price

The Company’s 3,736,296 equity measured warrants as of May 31, 2022, and August 31, 2021, had an average weighted-average exercise price of $15.

The following table reflects the equity measured warrants issued and outstanding as of May 31, 2022:

			Warrants outstanding
Expiry date	Number outstanding		Average exercise price USD		Average remaining contractual life (years)
November 20, 2022		224,719		15.00		0.47
January 8, 2024		1,868,787		15.00		1.61
January 22, 2024		522,898		15.00		1.65
February 24, 2024		1,058,227		15.00		1.74
August 19, 2024		49,999		15.00		2.22
September 15, 2024		11,666		15.00		2.30
		3,736,296	$	15.00		1.59

If all equity measured warrants outstanding and exercisable as of May 31, 2022, were exercised, the Company would receive cash from exercise of approximately $56.0 million.

Page 26 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

17. 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

Schedule of shares issued and outstanding

	Shares		Consideration
	#		$
Balance, August 31, 2020		7,746,136		69,380,807
Shares issued on vesting of RSUs		158,477		1,080,804
Convertible debt conversion		1,728,848		13,704,605
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		747,129		7,221,216
Balance, May 31, 2021		14,862,689		115,893,950

	Shares		Consideration
	#		$
Balance, August 31, 2021		15,543,309		122,741,230
Shares issued on vesting of RSUs		115,574		926,759
Balance, May 31, 2022		15,658,883		123,667,989

(c) Activity for the period

During the nine months ended May 31, 2022, the Company issued 115,574 common shares upon vesting of an equal number of RSUs, see Note 19.

18. Stock options

On October 6, 2021, the Company adopted an amended and restated equity incentive plan (“Omnibus Plan”), which amends and restates the equity incentive plan which was previously established as of July 15, 2020. Under the amendments, there were no changes in the terms of previously issued awards. Under the Omnibus Plan, the total number of common shares reserved and available for grant and issuance pursuant to stock options shall not exceed 10% of the then issued and outstanding shares.

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

Page 27 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

The following table reflects the continuity of stock options for the nine months ended May 31, 2022, and 2021:

The following tables reflect the stock options issued and outstanding as of May 31, 2022:

 Schedule of detailed information about number and weighted average exercise prices of share options

				Weighted-average
	Number of stock options			Exercise price		Grant-date fair value		Remaining contractual term
	#			$		$		(yrs.)
Balance, August 31, 2020		253,121			12.73		4.39		4.31
Granted		1,333			7.38		6.24
Expired/Cancelled		(16,694	)		20.90		8.56
Balance, May 31, 2021		237,760			12.13		4.40		3.30
Balance, August 31, 2021		692,938			11.64		7.06		4.46
Granted		28,750			5.42		2.44
Expired/Cancelled		(204,236	)		11.18		7.21
Balance, May 31, 2022		517,452			11.47		6.74		3.89
Exercisable as of May 31, 2022		186,706			11.38		4.42		2.14

 Schedule of detailed information about options issued and outstanding

Expiry date	Outstanding options		CAD		Weighted average exercise price USD		Weighted average remaining contractual term (Years)
June 30, 2022		4,428		153.45		118.15		0.08
April 1, 2023		47,499		11.25		7.91		0.84
October 31, 2023		64,997		11.25		7.91		1.42
January 29, 2025		46		106.50		76.43		2.67
August 25, 2025		340		106.50		76.43		3.24
September 23, 2025		11		106.50		76.43		3.32
February 10, 2026		1,434		106.50		76.43		3.70
May 19, 2026		4		106.50		76.43		3.97
May 23, 2026		9		106.50		76.43		3.98
June 24, 2026		240,826		15.04		12.21		4.07
July 1, 2026		10,000		14.87		12.00		4.09
July 2, 2026		48,984		15.08		12.21		4.09
August 20, 2026		20,000		7.78		6.05		4.22
March 3, 2027		1,256		106.50		76.43		4.76
July 31, 2027		133		106.50		76.43		5.17
November 3, 2027		133		106.50		76.43		5.43
November 7, 2029		36,586		7.50		5.38		7.44
December 2, 2030		1,333		9.50		7.38		8.51
June 14, 2031		10,683		14.20		11.69		9.04
November 23, 2031		10,000		12.45		9.82		9.49
December 31, 2026		3,750		3.87		3.05		4.59
January 31, 2027		15,000		3.90		3.07		4.67
	��	517,452		14.70		11.47		3.89

Of the 517,452 options outstanding as of May 31, 2022 (August 31, 2021 – 692,938), 186,706 are exercisable as of May31, 2022 (August 31, 2021 – 209,950). During the nine months ended May 31, 2022, share-based compensation expense for the Company’s stock options was $2,356,419 (May 31, 2021 – $90,411).

Page 28 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

19. Restricted share units

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

The TSXV requires the Company to fix the number of common shares to be issued in settlement of awards that are not options. The maximum number of common shares available for issuance pursuant to the settlement of RSUs shall be an aggregate of 1,548,174 common shares.

The Company’s outstanding RSUs are as follows:

 Schedule of detailed information about restricted stock units outstanding

	Number
	#
Balance, August 31, 2020		402,372
Granted		330,896
Vested		(158,477	)
Cancelled		(11,855	)
Balance, May 31, 2021		562,936
Balance, August 31, 2021		490,174
Granted		100,626
Vested		(115,574	)
Cancelled		(61,097	)
Balance, May 31, 2022		414,129

In October 2021, the Company granted 100,626 to members of the board of directors pursuant to the Company’s incentive plan. The fair value of the RSUs will be recognized as share-based compensation expense over the vesting period, which is approximately ten months.

During the nine months ended May 31, 2022, share-based compensation expense for the Company’s RSUs was $1,221,442 (May 31, 2021 – $2,368,333).

20. Capital management

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

As of May 31, 2022, the Company had shareholders’ equity (deficit) before non-controlling interests of $29,835,335 (August 31, 2021 – equity of $25,422,165). The Company’s objective when managing its capital is to seek continuous improvement in the return to its shareholders while maintaining a moderate to high tolerance for risk. The objective is achieved by prudently managing the capital generated through internal growth and profitability, through the use of lower cost capital, including raising share capital or debt when required to fund opportunities as they arise.

The Company may also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines any of these to be an effective method of achieving the above objective. The Company does not use ratios in the management of its capital. There have been no changes to management’s approach to managing its capital during the nine months ended May 31, 2022, and 2021.

Page 29 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

21. Commitments and contingencies

Litigation and arbitration

In April 2020, the Company announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provided for the acquisition of 100% of Allinsports in exchange for the issuance of 966,667 common shares of the Company and other consideration, including payments of $1,200,000 as a portion of the purchase consideration. In September 2020, the Company advised the shareholders of Allinsports that closing conditions of the transaction, including the requirement to provide audited financial statements, had not been satisfied.

In response, in November 2020, the shareholders of Allinsports commenced arbitration in Alberta, Canada seeking, among other things, to compel the Company to complete the acquisition of Allinsports without the audited financial statements, and to issue 966,667 common shares of the Company to those shareholders. As alternative relief, the shareholders of Allinsports sought up to US$20,000,000 in damages. As of August 31, 2020, the Company had recorded an impairment against the entire balance of advances to Allinsports, amounting to $2,625,657. A hearing in this matter was held in May of 2021, and by a decision dated September 30, 2021, the Arbitrator determined that the closing of the transaction had previously occurred and directed the Company to issue the 966,667 common shares. The Company is pursuing regulatory approval to issue the shares and is also pursuing relief against the Allinsports shareholders for various alleged breaches of the share purchase agreement. The Company recognized a liability for the arbitration ruling of $899,569, which represents the fair value of the common shares directed to be delivered as of May 31, 2022. The liability is recorded as Arbitration reserve on the Company’s Consolidated Statements of Financial Position. This liability will be adjusted to fair value at the end of each reporting period.

Separately, in April of 2021, the Company received a copy of a complaint filed by 3CI Holdings, LLLP in the Circuit Court for the 11th Judicial Circuit for Miami-Dade naming Allinsports, A1 Simulation LLC (an entity purported to be a subsidiary of Allinsports), and the Company, seeking to hold the parties, including Company, responsible for unpaid rent under a lease agreement between 3CI’s predecessors in interest and A1 Simulation, and seeking damages of at least $2,890,000. On July 6, 2021, the Company filed motion to dismiss the complaint. On February 17, 2022, 3CI Holdings filed an Amended Complaint, to which the Company filed a motion to dismiss, which was granted pursuant to an order signed by the court on July 5, 2022.

On January 21, 2021, eight former shareholders of Winview filed a Complaint in Delaware Chancery Court against four Winview directors (David Lockton, et al. v. Thomas S. Rogers, et al.) alleging that the defendants breached their fiduciary duties in connection with the sale of Winview to Engine. The relief sought includes rescission of the sale of Winview to Engine and compensatory damages. The defendants have filed a motion to dismiss the claims. By Decision dated March 1, 2022, the Court granted in part and denied in part, the defendants’ Motion to Dismiss the Complaint. Neither the Company nor Winview have been named as parties to this action. Under the March 9, 2020, Business Combination Agreement pursuant to which the Company acquired Winview, the Company agreed to indemnify Winview’s directors for any claims arising out of their service as directors for Winview.

In July of 2021, Winview Inc. filed separate patent infringement lawsuits against DraftKings Inc. and FanDuel, Inc in the United States District Court for the District of New Jersey, alleging that Sportsbook and Daily Fantasy Sports offerings of DraftKings and FanDuel infringe four of Winview’s patents. These actions seek the recovery of damages and other appropriate relief. Draft Kings and FanDuel have filed motions to dismiss, which are pending.

The outcomes of pending litigations in which the Company is involved are necessarily uncertain as are the Company’s expenses in prosecuting and defending these actions. From time to time the Company may modify litigation strategy and/or the terms on which it retains counsel and other professionals in connection with such actions, which may affect the outcomes of and/or the expenses incurred in connection with such actions.

Page 30 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

The Company is subject to various other claims, lawsuits and other complaints arising in the ordinary course of business. The Company records provisions for losses when claims become probable, and the amounts are estimable. Although the outcome of such matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, operations, or liquidity.

22. Discontinued operations

The Company entered into an Agreement to sell certain assets of UMG Media Ltd. (“UMG”) on June 13, 2022. This business was previously part of the Company’s Gaming segment. On June 30, 2022, and wind down the operations of the business following a strategic decision to focus the Company’s resources on the key revenue streams of direct-to-consumer, software-as-a-service and advertising. UMG the Company completed the sale of the UMG’s assets (Note 27).

Accordingly, UMG results for the current and comparative periods have been presented as discontinued operations within the comparative Interim Condensed Consolidated Statements of Income (loss) and Comprehensive Income (loss).

Results from the discontinued operations for UMG and the related cash flows are as follows:

Schedule of discontinued operations 

	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	For the three months ended						For the nine months ended
	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	$			$			$			$
Revenues
Revenue		141,926			192,500			387,655			374,654
Operating expenses
Salaries and wages		340,249			264,637			1,021,046			756,825
Consulting		-			-			-			-
Professional fees		9,190			14,622			12,891			189,781
Sponsorships and tournaments		85,859			116,507			663,046			562,495
Advertising and promotion		4,480			2,760			20,723			3,369
Office and general		20,790			52,294			57,743			119,309
Technology expenses		10,776			33,150			73,123			93,106
Amortization and depreciation		34,983			136,122			275,592			378,530
Impairment expense		209,934			-			476,404			-
Restructuring Costs		-			-			90,539			-
Interest expense		4,225			(19,714	)		13,722			29,970
(Gain) loss on foreign exchange		1,642			(2,710	)		31,808			(15,400	)
Net income (loss) from discontinued operations		(580,202	)		(405,168	)		(2,348,982	)		(1,743,331	)

Page 31 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Schedule of cash flow in discontinued operation 

	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	For the three months ended						For the nine months ended
	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	$			$			$			$
Net cash provided by (used in) operating activities		114,599			255,367			(149,397	)		396,348
Disposal
Net cash used in financing activities		(21,852	)		(21,637	)		(65,125	)		(64,481	)
Change in cash		92,747			233,730			(214,522	)		331,867
Cash, beginning of period		(131,973	)		(78,844	)		175,296			(176,981	)
Cash, end of period		(39,226	)		154,886			(39,226	)		154,886

The Company committed to a plan to sell Eden Games, S.A. (“Eden Games”) during the second quarter of fiscal 2022, following a strategic decision to focus the Company’s resources on the key revenue streams of direct-to-consumer, software-as-a-service, and advertising. Eden Games was previously part of the Company’s Gaming segment. On April 6, 2022, the Company completed the sale of Eden Games.

To facilitate the sale of Eden Games, under a separate agreement, the Company agreed to purchase Euro- denominated 6% promissory notes amounting to Euro 1,453,154 ($1,558,319) that were due to the former co-founders of Eden Games from third parties. Euro 1,081,081 ($1,181,005) of the consideration was paid on the closing of the sale with the remainder due in two equal payments on April 4,2023, and October 6,2023.

The promissory notes receivable were classified at fair value through profit and loss based on management’s expectations about the proposed terms of settlement with the counterparties to the promissory notes and in accordance with the Company’s accounting policies.

Accordingly, Eden Games’ results for the current and comparative periods have been presented as discontinued operations within the Interim Condensed Consolidated Statements of Income (loss) and Comprehensive Income (loss).

Consideration transferred for the sale of Eden Games sales and the resulting gain on disposal was as follows:

Schedule of loss on disposal 

	Amount
	$
Consideration received or receivable:
Cash consideration		15,357,803
Accounts payable assumed
Deferred purchase consideration of LGR
Fair value of contingent consideration
Total disposal consideration		15,357,803
Carrying amount of net assets sold		(577,106	)
Carrying amount attributable to non-controlling interests		208,598
Gain on disposal before income tax and reclassification of foreign currency translation reserve		14,989,295
Reclassification of foreign currency translation reserve		139,122
Gain on disposal of Eden Games		15,128,417

Page 32 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

The net assets of Eden Games (the disposal group) as of the date of sale were as follows:

Schedule of net asset 

	Amount
	$
Carrying amounts of assets as at the date of sale:
Cash		647,187
Accounts and other receivables		586,309
Government remittances		566,331
Prepaid expenses and other		36,124
Right-of-use assets		16,036
Property and equipment		41,132
Intangible assets		296,235
Goodwill		345,150
Total assets of disposal group		2,534,504
Carrying amount of liabilities directly associated with assets as at the date of sale:
Accounts payable		1,168,966
Accrued liabilities		750,388
Lease obligation, current		17,959
Long-term debt, current		20,085
Total liabilities of disposal group		1,957,398
Net assets of disposal group		577,106

Results of discontinued operations for Eden and the related cash flows are as follows:

Schedule of discontinued operations 

	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	For the three months ended						For the nine months ended
	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	$			$			$			$
Revenues
Revenue		434,508			1,416,371			4,759,711			2,604,799
Operating expenses
Salaries and wages		329,126			855,367			2,113,180			2,637,904
Consulting		102,951			309,842			796,570			711,209
Office and general		80,029			150,497			265,125			389,361
Amortization and depreciation		1,360			111,554			224,349			1,329,588
Share-based payments		1			(42	)		(93	)		(1,097	)
Interest expense		(16	)		7,780			7,145			34,669
(Gain) loss on foreign exchange		-			(7,602	)		39,350			(168,640	)
Net income (loss) from discontinued operations		(78,943	)		(11,025	)		1,314,085			(2,328,195	)

Page 33 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Schedule of cash flow in discontinued operation

	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	For the three months ended						For the nine months ended
	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	$			$			$			$
Net cash provided by (used in) operating activities		396,544			140,150			509,166			432,035
Disposal of Eden		(647,187	)		-			(647,187	)		-
Net cash used in financing activities		(24,548	)		(57,045	)		(132,550	)		(225,353	)
Change in cash		(275,191	)		83,105			(270,571	)		206,682
Cash, beginning of period		275,191			231,155			270,571			107,578
Cash, end of period		-			314,260			-			314,260

Results of discontinued operations for the Motorsports Group and the related cash flows along with description of the transaction are as follows:

Schedule of discontinued operations 

	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	For the three months ended						For the nine months ended
	May 31, 2022			May 31, 2021			May 31, 2022			May 31, 2021
	$			$			$			$
Revenues
Revenue		-			-			-			90,934
Operating expenses
Salaries and wages		-			-			-			212,546
Consulting		-			-			-			267,933
Professional fees		-			-			-			22,681
Sponsorships and tournaments		-			-			-			203,637
Advertising and promotion		-			-			-			1,740
Office and general		-			-			-			7,374
Technology expenses		-			-			-			86,590
Amortization and depreciation		-			-			-			201,335
Interest expense		-			-			-			572
(Gain) loss on foreign exchange		11,037			9,606			11,037			49,317
Net income (loss) from discontinued operations		(11,037	)		(9,606	)		(11,037	)		(962,791	)

Schedule of cash flow in discontinued operation

	May 31, 2022		May 31, 2021		May 31, 2022		May 31, 2021
	For the three months ended				For the nine months ended
	May 31, 2022		May 31, 2021		May 31, 2022		May 31, 2021
	$		$		$		$
Net cash provided by (used in) operating activities		-		-		-		(92,652	)
Disposal of Motorsports		-		-		-		24,348
Disposal		-		-		-		24,348
Change in cash		-		-		-		(68,304	)
Cash, beginning of period		-		-		-		68,304
Cash, end of period		-		-		-		-

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 eliminated 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 were presented as a discontinued operation.

Page 34 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Consideration transferred for the Motorsport Group was as follows:

 Schedule of loss on disposal

	Amount
	$
Consideration received or receivable:
Accounts payable assumed		101,322
Deferred purchase consideration of LGR		333,503
Fair value of contingent consideration		1,321,281
Total disposal consideration		1,756,106
Carrying amount of net assets sold		(2,334,303	)
Loss on disposal before income tax and reclassification of foreign currency translation reserve		(578,197	)
Reclassification of foreign currency translation reserve		(100,734	)
Loss on disposal of Motorsports		(678,931	)

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

 Schedule of net asset

	Amount
	$
Carrying amounts of assets as at the date of sale:
Cash and cash equivalents		(24,348	)
Accounts and other receivables		126,590
Government remittances		25,095
Prepaid expenses and other		24,113
Property and equipment		47,416
Intangible assets		3,066,457
Total assets of disposal group		3,265,323
Carrying amount of liabilities directly associated with assets as at the date of sale:
Accounts payable		508,881
Accrued liabilities		422,139
Total liabilities of disposal group		931,020
Net assets of disposal group		2,334,303

Page 35 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

23. 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:

Gaming	-	Services related to competitive organized video gaming or sporting events;
Media	-	Platform and advertising services provided to other broadcasters, primarily local TV and radio broadcasters;
Corporate and Other	-	Services provided to other businesses and other revenues;

The Corporate and Other segment primarily consists of support costs not allocated to the two other segments.

The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended May 31, 2022:

Schedule of segment reporting 

Three months ended	Gaming			Media			Corporate and Other			Total
	$			$			$			$
Revenue
External sales		549,430			8,692,048			-			9,241,478
Results
Segment loss		(1,723,122	)		(3,216,116	)		-			(4,939,238	)
Central administration costs		-			-			2,025,194			2,025,194
Other gains and losses		12,152			1,382			(1,565,959	)		(1,552,425	)
Finance costs		44,937			277			183,134			228,348
Loss before tax		(1,780,211	)		(3,217,775	)		(642,369	)		(5,640,355	)
Income tax		-			-			-			-
Gain (Loss) for the year from:
Share of net loss of associate
Discontinued operations		(463,980	)		-			14,922,215			14,458,235
Non-controlling interest in net loss		-			-			3,419			3,419
Net income (loss)		(2,244,191	)		(3,217,775	)		14,283,265			8,821,299

The following is an analysis of the Company’s revenue and results by reportable segment for the nine months ended May 31, 2022:

	Gaming			Media			Corporate and Other			Total
	$			$			$			$
Revenue
External sales		1,331,151			29,177,011			-			30,508,162
Results
Segment loss		(6,175,613	)		(8,197,275	)		-			(14,372,888	)
Central administration costs		-			-			7,599,740			7,599,740
Other gains and losses		1,621,582			36,929			(10,991,270	)		(9,332,759	)
Finance costs		63,268			979			577,538			641,785
Income (loss) before tax		(7,860,463	)		(8,235,183	)		2,813,992			(13,281,654	)
Income tax		-			-			-			-
Gain (Loss) for the period from:
Discontinued operations		(647,595	)		-			14,730,078			14,082,483
Non-controlling interest in net loss		-			-			(65,219	)		(65,219	)
Net income (loss)		(8,508,058	)		(8,235,183	)		17,478,851			735,610

Page 36 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

The following is an analysis of the Company’s revenue and results by reportable segment for the three months ended May 31, 2021:

Three months ended	Gaming			Media			Corporate and Other			Total
	$			$			$			$
Revenue
External sales		408,575			7,592,387			-			8,000,962
Results
Segment loss		(1,190,154	)		(2,057,830	)		-			(3,247,984	)
Central administration costs		-			-			1,752,651			1,752,651
Other gains and losses		10,664			(329,730	)		(6,891,518	)		(7,210,584	)
Finance costs		8,251			125,470			76,034			209,755
Loss before tax		(1,209,069	)		(1,853,570	)		5,062,833			2,000,194
Income tax		-			-			-			-
Gain (Loss) for the year from:
Share of net loss of associate		-			-			-			-
Discontinued operations		(360,666	)		-			(65,133	)		(425,799	)
Non-controlling interest in net loss		-			-			(2,343	)		(2,343	)
Net income (loss)		(1,569,735	)		(1,853,570	)		4,995,357			1,572,052

The following is an analysis of the Company’s revenue and results by reportable segment for the nine months ended May 31, 2021:

	Gaming			Media			Corporate and Other			Total
	$			$			$			$
Revenue
External sales		993,408			21,491,243			-			22,484,651
Results
Segment loss		(3,283,044	)		(5,682,782	)		-			(8,965,826	)
Central administration costs		-			-			6,513,730			6,513,730
Other gains and losses		9,465			2,474,609			939,416			3,423,490
Finance costs		36,480			637,514			439,755			1,113,749
Loss before tax		(3,328,989	)		(8,794,905	)		(7,892,901	)		(20,016,795	)
Income tax		-			-			-			-
Gain (Loss) for the period from:
Share of net loss of associate		-			-			(103,930	)		(103,930	)
Discontinued operations		(4,076,248	)		-			(1,637,000	)		(5,713,248	)
Non-controlling interest in net loss		-			-			59,327			59,327
Net loss		(7,405,237	)		(8,794,905	)		(9,574,504	)		(25,774,646	)

Page 37 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Geographical breakdown

	North America		European Union		Total
	$		$		$
August 31, 2021
Assets		64,943,049		2,519,798		67,462,847
Long-term assets		35,796,241		108,924		35,905,165
May 31, 2022
Assets		57,684,572		845,630		58,530,202
Long-term assets		30,400,404		5,624		30,406,028

24. Related party transactions and balances

(a) Key management compensation

Key management includes the Company’s directors, officers and any consultants with the authority and responsibility for planning, directing, and controlling the activities of an entity, directly or indirectly. Compensation awarded to key management for the three and nine months ended May 31, 2022, and 2021, includes the following:

Schedule of compensation award to key management 

	May 31, 2022		May 31, 2021		May 31, 2022		May 31, 2021
	For the three months ended				For the nine months ended
	May 31, 2022		May 31, 2021		May 31, 2022		May 31, 2021
	$		$		$		$
Total compensation paid to key management		359,069		392,490		1,067,212		1,836,583
Share based payments		184,506		323,233		547,790		1,581,037

Total compensation paid to key management is recorded in consulting fees, salaries and wages and share based payments in the consolidated statement of income (loss) and comprehensive income (loss) for the nine months ended May 31, 2022, and 2021.

Amounts due from related parties as of May 31, 2022, with respect to the above fees were $29,740 (due to August 31, 2021 – $33,349). The amounts due to/from related parties are recorded within accounts payable and accrued liabilities on the consolidated statement of income (loss) and comprehensive income (loss). These amounts are unsecured, non-interest bearing and due on demand.

Commitment to former holders of WinView to proceeds from the patent portfolio enforcement action

Pursuant to the Business Combination agreement dated March 9, 2020, among the Company, Frankly Inc. and Winview Inc., the Company is required to pay to certain former Winview securities holders (“Stubholders”) fifty percent (50%) of the net license fees, damages awards or settlement amounts collected from third parties in connection with the Winview Patent Portfolio, after deduction of certain expenses. Certain directors of the Company are among the pool of Stubholders.

Page 38 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

25. Financial instruments and risk management

(a) Financial risk management objectives and policies

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

(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 May 31, 2022, one customer (August 31, 2021 – one) accounted for greater than 10% of the Company’s accounts receivable balance. In total, one customer accounted for 16% and 13% of the Company’s accounts and other receivables balance as of May 31, 2022 and August 31, 2021, respectively. During the nine months ended May 31, 2022, one (August 31, 2021 – one) customer represented 70% (August 31, 2021 – 60%) 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 May 31, 2022:

Schedule of gross trade accounts receivable and allowance for doubtful accounts 

	Current		0 - 30			31 - 60			61 - 90			91+			Total
Trade accounts receivable		5,968,664		436,116			274,434			264,102			1,892,735			8,836,051
Allowance for doubtful accounts		-		-			-			-			1,022,636			1,022,636
% Allowance				0	%		0	%		0	%		54	%		12	%

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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

(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 considering its operating obligations and cash on hand.

The Company’s policy is to seek to ensure adequate funding is available from operations and other sources, including debt and equity capital markets, as required.

Schedule of funding available from operations and other sources 

	< 1 year		1-2 years		2-5 years
	$		$		$
Accounts payable		11,982,749		-		-
Accrued liabilities		4,926,240		-		-
Players liability account		289,889		-		-
Lease obligation		158,501		245,076		-
Promissory notes payable		806,204		-		-
Convertible debt		2,692,514		5,146,723		-

(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.

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Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Schedule of fair value measurement 

Carrying value at May 31, 2022	FVTPL - mandatorily measured		Amortized cost
	$		$
Financial assets:
Cash		-		13,695,279
Restricted cash		-		289,889
Accounts and other receivables		-		7,864,272
Government remittances		-		861,442
Publisher advance		-		2,351,435
Promissory notes receivable		1,558,319		-
Investment at FVTPL		2,629,851		-
Financial assets		4,188,170		25,062,317

Carrying value at May 31, 2022	FVTPL - mandatorily measured		FVTPL - designated		Amortized cost
	$		$		$
Financial liabilities:
Accounts payable		-		-		11,982,749
Accrued liabilities		-		-		4,926,240
Players liability account		-		-		289,889
Arbitration reserve		-		899,569		-
Long-term debt		-		-		-
Promissory notes payable		-		-		806,204
Warrant liability		135,749		-		-
Convertible debt		-		7,839,237		-
Financial liabilities		135,749		8,738,806		18,005,082

Carrying value at August 31, 2021	FVTPL - mandatorily measured		Amortized cost
	$		$
Financial assets:
Cash		-		15,305,996
Restricted cash		-		331,528
Accounts and other receivables		-		8,646,807
Government remittances		-		1,070,216
Publisher advance		-		4,534,218
Promissory notes receivable				-
Investment at FVTPL		2,629,851		-
Financial assets		2,629,851		29,888,765

Page 41 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

Carrying value at August 31, 2021	FVTPL - mandatorily measured		FVTPL - designated		Amortized cost
	$		$		$
Financial liabilities:
Accounts payable		-		-		10,403,665
Accrued liabilities		-		-		5,722,470
Players liability account		-		-		331,528
Arbitration reserve		-		6,468,330		-
Long-term debt		-		-		96,664
Promissory notes payable		-		-		821,948
Warrant liability		4,868,703		-		-
Convertible debt		-		9,951,496		-
Financial liabilities		4,868,703		16,419,826		17,376,275

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

Schedule of hierarchy levels of fair value 

	Level 1		Level 2		Level 3		Fair value as of May 31, 2022
	$		$		$		$
Arbitration reserve		899,569		-		-		899,569
Warrant liability		-		135,749		-		135,749
Convertible debt		-		-		7,839,237		7,839,237
Promissory notes receivable		-		-		1,558,319		1,558,319
Investment at FVTPL		-		-		2,629,851		2,629,851

	Level 1		Level 2		Level 3		Fair value as of August 31, 2021
	$		$		$		$
Arbitration reserve		6,468,330		-		-		6,468,330
Warrant liability		-		4,868,703		-		4,868,703
Convertible debt		-		-		9,951,496		9,951,496
Promissory notes receivable		-		-		-		-
Investment at FVTPL		-		-		2,629,851		2,629,851

Some of the Company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period.

Page 42 of 43

Engine Gaming and Media, Inc. (formerly Engine Media Holdings, Inc.) Notes to the Interim Condensed Consolidated Financial Statements For the three and nine months ended May 31, 2022 and 2021 (Unaudited) (Expressed in United States Dollars)

26. Restructuring charges

During the month of February 2022, the company recorded restructuring charges of $35,747 related to corporate workforce reductions of 4 employees.

All restructuring expenses for the quarter and year to date are for severance. No restructuring actions occurred during the quarter or nine months ended May 31, 2021.

27. Subsequent events

The Company has evaluated subsequent events from the balance sheet date through July 15, 2022, the date at which the unaudited interim condensed consolidated financial statements were available to be issued and determined there were no additional items to be disclosed except for the transaction described below.

The Company entered into an agreement on June 13, 2022, to sell certain assets of UMG for $100. On June 30, 2022, the Company completed the sale. Concurrently with the sale agreement the Company entered into a transition services agreement with the purchaser for a total value of $300,000 with payments beginning July 31, 2022, and the remainder to be paid in full, 12 months following the first payment.

Page 43 of 43