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Exhibit 99.1
LIQUID MEDIA GROUP LTD.
Condensed Interim Consolidated Financial Statements
For the three months ended February 28, 2022 and, 2021
(Expressed in United States Dollars)
(Unaudited)
Liquid Media Group Ltd.
Table of Contents
(Expressed in United States Dollars - Unaudited)
NOTICE OF NO AUDITOR REVIEW OF
CONDENSED INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim consolidated financial statements have been prepared by and are the responsibility of management.
The Company's independent auditor has not performed a review of these financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of condensed interim consolidated financial statements by an entity's auditor.
Liquid Media Group Ltd.
Condensed Interim Consolidated Statements of Financial Position
(Expressed in United States Dollars - Unaudited)
| | | | | | | | | | | |
| | | Note | | | February 28, 2022 | | | | November 30, 2021 | |
| | | | | | $ | | | | $ | |
| ASSETS | | | | | | | | | | |
| | | | | | | | | | | |
| Current assets | | | | | | | | | | |
| Cash | | | | | 3,574,605 | | | | 4,305,461 | |
| Receivables | | 5,22 | | | 450,775 | | | | 778,505 | |
| Prepaids | | | | | 172,147 | | | | 50,644 | |
| Acquisition advances | | 28,29 | | | 1,624,548 | | | | 1,702,882 | |
| Total current assets | | | | | 5,822,075 | | | | 6,837,492 | |
| Restricted cash | | 7 | | | 54,338 | | | | 53,937 | |
| Investment in content | | 10 | | | 87,586 | | | | 40,984 | |
| Equipment | | 11 | | | - | | | | 30,312 | |
| Intangible assets | | 12 | | | 3,542,687 | | | | 3,636,078 | |
| Right-of-use assets | | 13 | | | 117,906 | | | | 133,984 | |
| Goodwill | | 14 | | | 1,634,463 | | | | 833,493 | |
| Total assets | | | | | 11,259,055 | | | | 11,566,280 | |
| | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | |
| | | | | | | | | | | |
| Current liabilities | | | | | | | | | | |
| Accounts payable and accrued liabilities | | 15,22 | | | 2,093,029 | | | | 2,001,732 | |
| Corporate income taxes payable | | | | | 5,206 | | | | 5,206 | |
| Deferred revenue | | 16 | | | 684,481 | | | | 183,994 | |
| Current portion of long-term debt | | 19 | | | 4,092 | | | | - | |
| Current portion of lease liability | | 13 | | | 63,171 | | | | 61,703 | |
| Total current liabilities | | | | | 2,849,979 | | | | 2,252,635 | |
| Long-term debt | | 19 | | | 156,679 | | | | 158,265 | |
| Lease liability | | 13 | | | 56,998 | | | | 73,472 | |
| Deferred income taxes | | 3 | | | 659,025 | | | | 763,120 | |
| Derivative liability | | 3,4,20 | | | 991,886 | | | | 1,277,200 | |
| Liabilities | | | | | 4,714,567 | | | | 4,524,692 | |
| | | | | | | | | | | |
| SHAREHOLDERS' EQUITY | | | | | | | | | | |
| | | | | | | | | | | |
| Share capital | | 20 | | | 35,336,670 | | | | 35,102,920 | |
| Reserves | | 20 | | | 3,540,705 | | | | 3,400,835 | |
| Accumulated deficit | | | | | (32,332,887 | ) | | | (31,462,167 | ) |
| Total Equity | | | | | 6,544,488 | | | | 7,041,588 | |
| Total equity and liabilities | | | | | 11,259,055 | | | | 11,566,280 | |
Nature and continuance of operations (Note 1)
Contingencies (Note 26)
Proposed transactions (Note 28)
Subsequent events (Note 29)
Approved on behalf of the Board of Directors on April 21, 2022:
| “Ronald Thomson” | “Joshua Jackson” | |
| Director | Director | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Liquid Media Group Ltd.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
(Expressed in United States Dollars - Unaudited)
| | | | | | | | | | | | | |
| | | | | | | | Three months ended | |
| | | | | | | | February 28, | |
| | | Note | | | 2022 | | | | 2021 | |
| | | | | | | | $ | | | | $ | |
| | | | | | | | | | | | | |
| Sales | | | 22 | | | | 577,689 | | | | 8,882 | |
| Cost of sales | | | 8,12,22 | | | | 538,413 | | | | 136,863 | |
| Gross profit (loss) | | | | | | | 39,276 | | | | (127,981 | ) |
| Operating expenses | | | | | | | | | | | | |
| Accretion expense | | | 18,19 | | | | 2,506 | | | | 8,427 | |
| Amortization | | | 12,13 | | | | 17,078 | | | | 18,849 | |
| Consulting fees | | | | | | | 108,237 | | | | 274,603 | |
| Depreciation | | | 11 | | | | - | | | | 8,119 | |
| Foreign exchange (gain) loss | | | | | | | (1,497 | ) | | | 20,140 | |
| Interest expense | | | 17,19,22 | | | | 2,771 | | | | 16,199 | |
| Investor relations, filing, and compliance fees | | | | | | | 73,778 | | | | 53,569 | |
| Management and directors salaries and fees | | | 22 | | | | 266,145 | | | | 141,277 | |
| Marketing | | | | | | | 244,134 | | | | 298,525 | |
| Other general and administrative expenses | | | 22 | | | | 109,956 | | | | 30,309 | |
| Professional fees | | | | | | | 329,065 | | | | 116,916 | |
| Research and development | | | | | | | 93,575 | | | | 122,316 | |
| Share-based compensation | | | 20,22 | | | | 139,870 | | | | 731,079 | |
| Salaries and benefits | | | 22 | | | | 426,903 | | | | - | |
| Total operating expenses | | | | | | | 1,812,521 | | | | 1,840,328 | |
| Loss before other income (expenses) | | | | | | | (1,773,245 | ) | | | (1,968,309 | ) |
| | | | | | | | | | | | | |
| Interest income | | | 6,28,29 | | | | 23,993 | | | | 12,940 | |
| Royalty income | | | 22 | | | | 12,068 | | | | - | |
| Gain (loss) on derivative liability | | | 3,4,20 | | | | 756,835 | | | | (22,849 | ) |
| Gain (loss) on settlement of debt | | | 15,17 | | | | - | | | | 38,257 | |
| Gain (loss) on disposal of equipment | | | 11 | | | | 6,688 | | | | - | |
| Unrealized gains on equity instruments | | | 9 | | | | - | | | | 456,373 | |
| Allowance for credit loss | | | 6 | | | | - | | | | (34,555 | ) |
| Total other income (expenses) | | | | | | | 799,584 | | | | 450,166 | |
| Loss before income taxes | | | | | | | (973,661 | ) | | | (1,518,143 | ) |
| Deferred income tax recovery | | | | | | | (104,095 | ) | | | - | |
| Income tax expense | | | | | | | 1,154 | | | | - | |
| Loss and comprehensive loss for the period | | | | | | | (870,720 | ) | | | (1,518,143 | ) |
| | | | | | | | | | | | | |
| Basic and diluted loss per common share - Company | | | | | | $ | (0.05 | ) | | $ | (0.14 | ) |
| Weighted average number of common shares outstanding | | | | | | | 16,004,495 | | | | 10,541,439 | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements
Liquid Media Group Ltd.
Condensed Interim Consolidated Statements of Cash Flows
(Expressed in United States Dollars - Unaudited)
| | | | | | | | | |
| | | | Three months ended | |
| | | | February 28, | |
| | | | 2022 | | | | 2021 | |
| | | | $ | | | | $ | |
| Cash flows provided by (used in) operating activities | | | | | | | | |
| Loss from continuing operations for the period | | | (870,720 | ) | | | (1,518,143 | ) |
| Items not affecting cash: | | | | | | | | |
| Accretion expense | | | 2,506 | | | | 8,427 | |
| Accrued interest income | | | (23,959 | ) | | | (14,709 | ) |
| Accrued interest expense | | | - | | | | 1,579 | |
| Allowance for credit loss | | | - | | | | 34,555 | |
| Amortization - intangibles | | | 93,391 | | | | 18,849 | |
| Amortization - licenses | | | - | | | | 105,403 | |
| Amortization - right-of-use asset | | | 16,078 | | | | - | |
| Depreciation | | | - | | | | 8,119 | |
| Change in value of derivatives | | | (756,835 | ) | | | 22,849 | |
| Deferred income tax recovery | | | (104,095 | ) | | | - | |
| Interest on lease liability | | | 1,059 | | | | - | |
| Gain on settlement of debt | | | - | | | | (38,257 | ) |
| Gain on disposal of equipment | | | (6,688 | ) | | | - | |
| Share-based compensation | | | 139,870 | | | | 731,079 | |
| Shares issued for services | | | - | | | | 46,948 | |
| Unrealized foreign exchange | | | (6,703 | ) | | | 3,698 | |
| Unrealized gains on equity instruments | | | - | | | | (456,373 | ) |
| Changes in non-cash working capital: | | | | | | | | |
| Receivables | | | 338,479 | | | | (13,586 | ) |
| Prepaids | | | (121,503 | ) | | | 282,810 | |
| Accounts payable and accrued liabilities | | | 127,161 | | | | 324,866 | |
| Deferred revenue | | | 500,487 | | | | - | |
| Cash flows from (used in) operating activities | | | (671,472 | ) | | | (451,886 | ) |
| Cash flows provided by (used in) investing activities | | | | | | | | |
| Cash acquired on purchase of iGEMS | | | 21,981 | | | | - | |
| Investment in content | | | (46,602 | ) | | | - | |
| Advances for acquisitions | | | (25,000 | ) | | | - | |
| Cash flows from (used in) investing activities | | | (49,621 | ) | | | - | |
| Cash flows provided by (used in) financing activities | | | | | | | | |
| Long-term debt repayments | | | - | | | | (1,718 | ) |
| Interest paid on loans | | | - | | | | (702 | ) |
| Lease payments | | | (16,065 | ) | | | - | |
| Warrants exercised and issued for cash | | | - | | | | 227,793 | |
| Cash flows from (used in) financing activities | | | (16,065 | ) | | | 225,373 | |
| Effect of foreign exchange on cash | | | 6,302 | | | | 3,121 | |
| Change in cash during the period | | | (730,856 | ) | | | (223,392 | ) |
| Cash, beginning of period | | | 4,305,461 | | | | 543,749 | |
| Cash, end of period | | | 3,574,605 | | | | 320,357 | |
| | | | | | | | | |
| Supplemental cash-flow disclosure | | | | | | | | |
| Interest received | | | - | | | | - | |
| Interest paid | | | - | | | | 702 | |
Supplemental disclosure with respect to cash flows (Note 25)
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Liquid Media Group Ltd.
Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in United States Dollars - Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Shares | | | | Amount | | | | Commitment to Issue Shares | | | | Reserves | | | | Deficit | | | | Total | |
| | | | | $ | | $ | | $ | | $ | | $ |
| Balance, November 30, 2020 | | | 10,142,426 | | | | 22,435,363 | | | | 440,501 | | | | 2,741,849 | | | | (18,682,796 | ) | | | 6,934,917 | |
| Shares issued to settle debt | | | 217,984 | | | | 486,403 | | | | - | | | | - | | | | - | | | | 486,403 | |
| Shares issued for services | | | 17,907 | | | | 46,948 | | | | - | | | | - | | | | - | | | | 46,948 | |
| Warrants exercised for cash | | | 497,251 | | | | 671,247 | | | | (440,501 | ) | | | (2,953 | ) | | | - | | | | 227,793 | |
| Share-based compensation | | | - | | | | - | | | | - | | | | 731,079 | | | | - | | | | 731,079 | |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | (1,518,143 | ) | | | (1,518,143 | ) |
| Balance, February 28, 2021 | | | 10,875,568 | | | | 23,639,961 | | | | - | | | | 3,469,975 | | | | (20,200,939 | ) | | | 6,908,997 | |
| Shares issued pursuant to acquisition of IndieFlix | | | 499,996 | | | | 799,994 | | | | - | | | | - | | | | - | | | | 799,994 | |
| Shares issued for cash | | | 2,228,410 | | | | 6,915,230 | | | | - | | | | - | | | | - | | | | 6,915,230 | |
| Shares issued to settle debt | | | 39,894 | | | | 75,000 | | | | - | | | | - | | | | - | | | | 75,000 | |
| Units issued for convertible debentures and related interest | | | 270,000 | | | | 454,967 | | | | - | | | | (49,967 | ) | | | - | | | | 405,000 | |
| Shares issued for restricted share units | | | 487,502 | | | | 721,502 | | | | - | | | | (721,502 | ) | | | - | | | | - | |
| Shares issued for cashless warrant exercise | | | 121,319 | | | | 423,503 | | | | - | | | | - | | | | - | | | | 423,503 | |
| Share issuance costs | | | - | | | | (573,351 | ) | | | - | | | | - | | | | - | | | | (573,351 | ) |
| Warrants exercised for cash | | | 1,290,000 | | | | 2,607,553 | | | | - | | | | (221,353 | ) | | | - | | | | 2,386,200 | |
| Options exercised for cash | | | 10,000 | | | | 38,561 | | | | - | | | | (19,561 | ) | | | - | | | | 19,000 | |
| Share-based compensation | | | - | | | | - | | | | - | | | | 943,243 | | | | - | | | | 943,243 | |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | (11,261,228 | ) | | | (11,261,228 | ) |
| Balance, November 30, 2021 | | | 15,822,689 | | | | 35,102,920 | | | | - | | | | 3,400,835 | | | | (31,462,167 | ) | | | 7,041,588 | |
| Shares issued pursuant to acquisition of iGEMS | | | 212,500 | | | | 233,750 | | | | - | | | | - | | | | - | | | | 233,750 | |
| Share-based compensation | | | - | | | | - | | | | - | | | | 139,870 | | | | - | | | | 139,870 | |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | (870,720 | ) | | | (870,720 | ) |
| Balance, February 28, 2022 | | | 16,035,189 | | | | 35,336,670 | | | | - | | | | 3,540,705 | | | | (32,332,887 | ) | | | 6,544,488 | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
1. NATURE AND CONTINUANCE OF OPERATIONS
Liquid Media Group Ltd. (“Liquid” or the “Company”) is a business solutions company empowering independent film and TV content creators to package, finance, deliver and monetize their professional video intellectual property globally. The head office of the Company is 67 East 5th Avenue, Vancouver, BC, V5T 1G7 and the registered records office of the Company is Suite 400, 725 Granville Street, PO Box 10325, Vancouver, BC, V7Y 1G5. The Company’s common shares are listed on the Nasdaq Stock Market (“Nasdaq”) under the trading symbol “YVR”.
On September 22, 2021, the Company acquired 100% of the shares of IndieFlix Group, Inc. (“IndieFlix”). IndieFlix is a Delaware corporation that has a global ‘edutainment’ streaming service that creates, promotes, and supports social impact films. (Note 3).
On December 14, 2021, the Company acquired 100% of the shares of iGEMS TV, Inc. (“iGEMS”). iGEMS is a Delaware corporation which provides a comprehensive content recommendation engine. (Note 4).
These condensed interim consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at February 28, 2022, the Company has generated losses since inception and has an accumulated deficit of $32,332,887. The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing. Management has estimated that it does not have sufficient working capital to meet the Company’s liabilities and commitments as they become due for the upcoming 12 months. These material uncertainties cast substantial doubt upon the Company’s ability to continue as a going concern within one year of the approval of these financial statements. There is a risk that additional financing will not be available on a timely basis or on terms acceptable to the Company.
These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies used in the preparation of these condensed interim consolidated financial statements.
Statement of compliance
These condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with International Accounts Standards (“IAS”) 34, “Condensed Interim Financial Reporting” using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the year ended November 30, 2021.
This condensed interim financial report does not include all of the information required of a full annual financial report and is intended to provide users with an update in relation to events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the end of the last annual reporting period. Therefore, it is recommended that this financial report be read in conjunction with the restated audited annual financial statements of the Company for the year ended November 30, 2021.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
2. Significant Accounting Policies (continued)
Basis of presentation
The condensed interim consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, except for certain financial assets and liabilities, including derivative instruments that are measured at fair value. The consolidated financial statements are presented in United States dollars unless otherwise noted.
As at November 30, 2021, the Company changed its accounting policy to present its results in United States dollars instead of Canadian dollars as done previously. This accounting change has been applied retrospectively in preparing these financial statements; as such, all comparative figures have been restated to reflect this change.
Basis of consolidation
These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries at the end of the reporting period as follows:
| Schedule of Company and its subsidiaries at the end of the reporting period | | | | | | | | | | |
| | | | | | Percentage owned | |
| | | Incorporation | | | 2022 | | | | 2021 | |
| Liquid Media Group (Canada) Ltd. (“Liquid Canada”) | | Canada | | | 100 | % | | | 100 | % |
| Liquid Media Production Funding Ltd. (“Liquid Production Funding”) | | | | | | | | | | |
| Liquid Media (US) Holding Co., Inc. (“Liquid US”) | | USA | | | 100 | % | | | 100 | % |
| Liquid Media Merger Sub 2, Inc. (“Liquid Merger Sub 2”) | | USA | | | 100 | % | | | 100 | % |
| iGEMS TV, Inc., (“iGEMS”) | | USA | | | 100 | % | | | 0 | % |
| IndieFlix Group, Inc. (“IndieFlix”) | | USA | | | 100 | % | | | 100 | % |
| Companies controlled by IndieFlix: | | | | | | | | | | |
| RACE, LLC | | USA | | | 100 | % | | | 100 | % |
On August 13, 2021 the Company incorporated Liquid US. On October 20, 2021 the Company incorporated Liquid Merger Sub 2. On November 30, 2021, the Company incorporated Liquid Production Funding.
On August 27, 2021, the Company incorporated Liquid Media Merger Sub, Inc. which was amalgamated with IndieFlix on September 22, 2021 (Note 3).
On September 22, 2021, the Company acquired 100% of the shares of IndieFlix, a Delaware corporation (Note 3).
On October 20, 2021 the Company incorporated Liquid Merger Sub 3, which was amalgamated with iGEMS on December 14, 2021 (Note 4).
On December 14, 2021, the Company acquired 100% of the shares of iGEMS, a Delaware corporation (Note 4).
All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
2. Significant Accounting Policies (continued)
Basis of consolidation (continued)
Subsidiaries
Subsidiaries are all entities over which the Company has exposure to variable returns from its involvement and has the ability to use power over the investee to affect its returns. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases.
Use of estimates
The preparation of financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the period. Although management uses historical experience and its best knowledge of the amount, events or actions to form the basis for judgments and estimates, actual results may differ from these estimates. Significant estimates and judgements made by management in the preparation of these consolidated financial statements are outlined below.
Uncertainty of COVID-19 pandemic
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak and any related adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, initially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including ours. This outbreak could decrease spending, adversely affect demand for our services and solutions and harm our business and results of operations; however, the Company has also recognized that the pandemic has led to a global increase in screen time which is beneficial to the Company’s operations. As countries continue to re-open from the pandemic, it is possible that screen time will decrease which may adversely affect the Company; however, it also leads to an increase in film and TV content being produced as film and TV producers are able to travel and continue operations leading to an increase in content available for the Company to package, finance, deliver, and monetize. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations, or how it will impact the Company’s ability to conduct financings at this time.
Functional currency
The functional currency of the Company and its subsidiaries is the United States dollar; however, determination of functional currency may involve certain judgments to determine the primary economic environment which is re-evaluated for each new entity or if conditions change.
Level of control or influence over companies
The accounting for investments in other companies can vary depending on the degree of control and influence over those other companies. Management is required to assess at each reporting date the Company’s control and influence over these other companies. Management has used its judgment to determine which companies are controlled and require consolidation and those which are significantly influenced and require equity accounting. The Company had considered its ownership position in Waterproof Studios Inc. (“Waterproof”) and determined it did not have the ability to influence the key operating activities of the entity. Accordingly, the Company accounted for its investment under fair value through profit or loss (Note 9) up to the disposal date of October 18, 2021.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
2. Significant Accounting Policies (continued)
Use of estimates (continued)
Income taxes
In assessing the probability of realizing income tax assets, management makes estimates related to expectation of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified.
Determination of Cash Generating Units (“CGUs”)
CGUs are the lowest level within an entity at which goodwill is monitored for internal management purposes which is not higher than an operating segment. The Company has assessed that each acquired entity is a separate CGU.
Valuation of share-based compensation and derivatives
The Company uses the Black-Scholes Option Pricing Model for valuation of share-based compensation and other equity based payments, excluding contingent consideration. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate, and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and equity reserves.
Valuation of contingent consideration
The Company uses a probability scenario based approached for valuation of share-based contingent consideration. Under the probability scenario based approach, management calculates the probability that the contingent shares will be issued under a low case, base case, and high case scenario. Changes in the probabilities can materially affect the fair value estimate and the Company’s earnings and equity reserves.
Valuation of intangible assets
Intangible assets are assessed for impairment indicators at each reporting date. Management first reviews qualitative factors in determining if an impairment needs to be recorded. Quantitative factors are then used to calculate the amount of impairment, if needed.
Valuation of investment in equity instrument
The Company values its equity instruments in private companies at fair value at each reporting date. The determination of fair value is based on estimates made by management on the expected earnings before income, taxes, and amortization multiplied by a reasonable factor for the appropriate industry applicable to the private company.
Estimation of expected credit loss
Loans receivable are assessed for an estimated credit loss at each reporting date. The estimated loss is determined based on management’s knowledge of the debtor and their ability to repay the loan. As the current debtors’ are private entities, management must rely on assertions provided to them from the debtor to make their estimates.
Valuation of convertible debentures
The equity portion of the convertible debenture is calculated using a discounted cash flow method which requires management to make an estimate on an appropriate discount rate.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
2. Significant Accounting Policies (continued)
Use of estimates (continued)
Valuation of right-of-use asset and lease liability
The application of IFRS 16 requires the Company to make judgments that affect the valuation of the right-of-use assets and the valuation of lease liabilities. These include: determining the contract term and determining the interest rate used for discounting of future cash flows.
The lease term determined by the Company is comprised of the non-cancellable period of lease agreements, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.
The present value of the lease payment is determined using a discount rate representing the rate of a commercial mortgage rate, observed in the period when the lease agreement commences or is modified.
Intangible assets
The Company has intangible assets from acquisitions and development of gaming content and films. The amortization method, useful life and residual values are assessed annually and the assets are tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Amortization expense is recorded on a straight-line basis beginning with the month the corresponding assets are available for use and over the estimated useful lives provided below:
| Schedule of estimated useful lives of intangible assets | | |
| Video game catalogues (in years) | | 15 |
| Platform coding (in years) | | 3 |
| Brands | | indefinite |
| Distribution libraries (in years) | | 10 |
Upon retirement or disposal, the cost of the asset disposed of and the related accumulated amortization are removed from the accounts and any gain or loss is reflected in profit and loss. Expenditures for repairs and maintenance are expensed as incurred.
Development expenditures, including the cost of material, direct labour, and other direct costs are recognized as an intangible asset when the following recognition requirements are met:
| · | the development costs can be measured reliably; |
| · | the project is technically and commercially feasible; |
| · | the Company intends to and has sufficient resources to complete the project; |
| · | the Company has the ability to use or sell the asset, and |
| · | the asset will generate probable future economic benefits. |
Intangible assets being developed are amortized once development is complete.
Video game catalogues
The video game catalogues are made up of a diverse variety of games, ranging in age and popularity. The catalogues are unique due to the diverse nature of the products within the catalogues, making it difficult to assign a useful life. The useful life of 15 years represented management’s view of the expected period over which the Company expected to receive benefits from the acquired gaming content packaged as catalogues.
Platform coding
The platform coding acquired by the Company is currently under development and is not yet subject to amortization.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
2. Significant Accounting Policies (continued)
Intangible assets (continued)
Distribution libraries
Through the acquisition of IndieFlix, the Company acquired distribution libraries. These assets are carried at cost, including amounts of purchase price allocations upon acquisitions. The useful life of 10 years represents management’s view of the expected period over which the Company expects benefits from the acquired distribution libraries.
Comparative figures
Certain of the comparative figures have been reclassified in order to conform to the current year’s presentation.
Accounting pronouncements not yet adopted
Accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements.
3. ACQUISITION OF INDIEFLIX GROUP, INC.
On September 22, 2021, the Company acquired 100% of the issued and outstanding shares of IndieFlix in accordance with an Agreement and Plan of Merger (“IndieFlix Agreement”) and, in connection with the merger, former noteholders of IndieFlix agreed to extinguish IndieFlix debt in exchange for common shares of the Company. As consideration for the extinguishment of debt, the Company issued 499,996 common shares at closing and may issue up to 2,000,000 in additional common shares of the Company to the former noteholders of IndieFlix upon IndieFlix achieving total cumulative revenue of $64,868,466 before the seventh anniversary of the closing date as follows (“IndieFlix Transaction”):
| · | 500,000 common shares upon IndieFlix achieving revenue of $4,521,630 (“IndieFlix First Milepost”); |
| · | 500,000 common shares upon IndieFlix achieving revenue of $13,766,432 (“IndieFlix Second Milepost”); |
| · | 500,000 common shares upon IndieFlix achieving revenue of $31,496,648 (“IndieFlix Third Milepost”); and |
| · | 500,000, or such lesser number based on a pro rata amount of IndieFlix’s revenue recognized relative to the IndieFlix Fourth Milepost, common shares upon IndieFlix achieving revenue of $64,868,466 (“Fourth Milepost”). |
Upon closing of the IndieFlix Agreement, Liquid Merger Sub was amalgamated with IndieFlix with the surviving entity retaining the name IndieFlix Group, Inc.
In connection with the IndieFlix Transaction, on May 10, 2021, the Company entered into a non-revolving credit facility with IndieFlix for $499,880 which was advanced as follows: (1) $102,852 upon the date of the promissory note (advanced May 10, 2021); (2) $173,043 on the first month anniversary (advanced June 10, 2021); and (3) $223,985 on the second month anniversary (advanced July 9, 2021). The promissory note bore interest at 6% per annum, was due on the earlier of December 31, 2021 or the closing of the IndieFlix Transaction, and was secured by a general security agreement over certain assets. As the note was considered an advance on acquisition, the Company re-assumed the advance on the closing of the IndieFlix Transaction on September 22, 2021.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
3. ACQUISITION OF INDIEFLIX GROUP, INC. (continued)
On September 22, 2021, the 2,000,000 common shares to be issued (“IndieFlix Contingent Consideration”) was valued to be $1,648,000. On February 28, 2022, the IndieFlix Contingent Consideration was revalued to $700,400 (November 30, 2021 - $1,277,200) resulting in a gain on derivative liability of $576,800 (February 28, 2021 - $nil). The IndieFlix Contingent Consideration was calculated by multiplying the closing share price of the Company’s shares by the following weighted average expected number of shares to vest calculated using a probability scenario based approach:
| Schedule of Weighted average expected number of shares to vest | | | | | | | | |
| | | | February 28, 2022 | | | | November 30, 2021 | |
| Weighted average expected number of shares to vest | | | | | | | | |
| Low Case | | | 150,000 | | | | 150,000 | |
| Base Case | | | 600,000 | | | | 600,000 | |
| High Case | | | 280,000 | | | | 280,000 | |
| Expected number of shares to vest | | | 1,030,000 | | | | 1,030,000 | |
| Liquid share price | | $ | 0.68 | | | $ | 1.24 | |
The acquisition has been accounted for using the acquisition method pursuant to IFRS 3, Business Combinations. Under the acquisition method, assets and liabilities are recorded at their fair values on the date of acquisition and the total consideration is allocated to the assets acquired and liabilities assumed. The excess consideration given over the fair value of the net assets acquired has been recorded as goodwill.
| Schedule of estimate of the fair value of net assets acquired | | | | |
| | | | Total | |
| | | | $ | |
| Consideration: | | | | |
| Common shares | | | 799,994 | |
| IndieFlix Contingent Consideration | | | 1,648,000 | |
| Total unadjusted purchase price | | | 2,447,994 | |
| Cash acquired | | | (21,076 | ) |
| Total purchase price, net of cash acquired | | | 2,426,918 | |
| | | | | |
| Allocated as follows: | | | | |
| Accounts receivable | | | 188,278 | |
| Inventory | | | 105 | |
| Prepaids | | | 8,335 | |
| Right-of-use asset | | | 144,702 | |
| Accounts payable | | | (606,560 | ) |
| Deferred revenue | | | (251,435 | ) |
| Lease liability | | | (144,702 | ) |
| Loans payable | | | (508,255 | ) |
| Long-term debt | | | (156,625 | ) |
| Intangible assets – distribution libraries | | | 3,695,673 | |
| Goodwill | | | 833,493 | |
| Deferred income taxes | | | (776,091 | ) |
| Total | | | 2,426,918 | |
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
3. ACQUISITION OF INDIEFLIX GROUP, INC. (continued)
The purchase price allocation for the IndieFlix Transaction reflects various fair value estimates and analyses, which are subject to change within the respective measurement periods. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at each acquisition date during the measurement periods. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements, and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected.
The Company determined the estimated fair value of the acquired working capital, and identifiable intangible assets and goodwill after review and consideration of relevant information including discounted cash flow analyses, market data and management’s estimates.
For leases acquired, the Company measured the lease liability at the present value of the remaining lease payments, as if the acquired lease were a new lease at the acquisition date. The Company measured the right-of-use asset at the same amount as the lease liability, adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms.
IndieFlix’s distribution libraries represent identifiable intangible assets acquired in the amounts of $3,695,673, which was determined to have a finite useful life of 10 years.
The fair value of the acquired assets and liabilities are provisional pending receipt of the final valuations for those assets and liabilities.
4. ACQUISITION OF iGEMS TV, INC.
On December 14, 2021, the Company acquired 100% of the issued and outstanding shares of iGEMS TV, Inc. (“IGEMS”) in accordance with an Agreement and Plan of Merger (“iGEMS Agreement”). As consideration, the Company will issue up to 850,000 common shares of the Company to the former shareholders of iGEMS upon iGEMS achieving total cumulative revenue of $9,412,830 before the sixth anniversary of the closing date as follows (“iGEMS Transaction”):
| · | 212,500 common shares on closing of the agreement (issued subsequently); |
| · | 212,500 common shares upon iGEMS achieving revenue of $473,577 (“iGEMS First Milepost”); |
| · | 212,500 common shares upon iGEMS achieving revenue of $2,400,664 (“iGEMS Second Milepost”); |
| · | 212,500, or such lesser number based on a pro rata amount of iGEMS revenue recognized relative to the iGEMS Third Milepost, common shares upon iGEMS achieving revenue of $9,412,830 (“iGEMS Third Milepost”). |
Upon closing of the iGEMS Agreement, Liquid Merger Sub 3 was amalgamated with iGEMS with the surviving entity retaining the name iGEMS TV, Inc.
In connection with the iGEMS Transaction, on June 25, 2021, the Company entered into an agreement with iGEMS for $100,000 which was advanced as follows: (1) $40,000 upon the date of the agreement (advanced June 28, 2021); (2) $33,000 on the first month anniversary (advanced August 3, 2021); and (3) $27,000 on the second month anniversary (advanced September 7, 2021). The agreement bore interest at 6% per annum and was due on the earlier of December 31, 2021 or 30 days following the termination of the iGEMS Transaction. The agreement was secured by a general security agreement over certain assets. The Company advanced a further $25,000 to iGEMS on December 10, 2021. As the advances were considered an advance on acquisition, the Company re-assumed the advance on the closing of the iGEMS Transaction on December 14, 2021.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
4. ACQUISITION OF iGEMS TV, INC. (continued)
On December 14, 2021, the 212,500 common shares to be issued (“iGEMS Contingent Consideration”) was valued to be $471,521. On February 28, 2022, the iGEMS Contingent Consideration was revalued to $291,485 resulting in a gain on derivative liability of $180,035. The iGEMS Contingent Consideration was calculated by multiplying the closing share price of the Company’s shares by the following weighted average expected number of shares to vest calculated using a probability scenario based approach:
| Schedule of Weighted average expected number of shares to vest | | | | | | | | |
| | | | February 28, 2022 | | | | December 14, 2021 | |
| Weighted average expected number of shares to vest | | | | | | | | |
| Low Case | | | 315,563 | | | | 315,563 | |
| Base Case | | | 422,025 | | | | 422,025 | |
| High Case | | | 561,638 | | | | 561,638 | |
| Expected number of shares to vest | | | 428,655 | | | | 428,655 | |
| Liquid share price | | $ | 0.68 | | | $ | 1.10 | |
The acquisition has been accounted for using the acquisition method pursuant to IFRS 3, Business Combinations. Under the acquisition method, assets and liabilities are recorded at their fair values on the date of acquisition and the total consideration is allocated to the assets acquired and liabilities assumed. The excess consideration given over the fair value of the net assets acquired has been recorded as goodwill.
| Schedule of estimate of the fair value of net assets acquired | | | | |
| | | | Total | |
| | | | $ | |
| Consideration: | | | | |
| Common shares | | | 233,750 | |
| iGEMS Contingent Consideration | | | 471,521 | |
| Total unadjusted purchase price | | | 705,271 | |
| Cash acquired | | | (21,981 | ) |
| Total purchase price, net of cash acquired | | | 683,290 | |
| | | | | |
| Allocated as follows: | | | | |
| Accounts receivable | | | 10,749 | |
| Accounts payable | | | (1,136 | ) |
| Loans payable | | | (127,293 | ) |
| Goodwill | | | 800,970 | |
| Total | | | 683,290 | |
The purchase price allocation for the iGEMS Transaction reflects various fair value estimates and analyses, which are subject to change within the respective measurement periods. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at each acquisition date during the measurement periods. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements, and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected.
The Company determined the estimated fair value of the acquired working capital and goodwill after review and consideration of relevant information including discounted cash flow analyses, market data and management’s estimates.
The fair value of the acquired assets and liabilities are provisional pending receipt of the final valuations for those assets and liabilities.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
5. RECEIVABLES
| Schedule of trade receivable | | | | | | | | |
| | | | February 28, 2022 | | | | November 30, 2021 | |
| | | | $ | | | | $ | |
| Accounts receivable | | | 153,521 | | | | 512,041 | |
| Sales tax receivable | | | 283,244 | | | | 266,464 | |
| Other receivables | | | 14,010 | | | | - | |
| Receivables | | | 450,775 | | | | 778,505 | |
6. LOANS RECEIVABLE
Long-term amounts
Loans receivable are classified as long-term when management has determined that they will not be receiving payment on these loans within the next twelve months. As at February 28, 2021, the long-term loans receivable including accrued interest are as follows:
| Schedule of long term loans receivable including accrued interest | | | | | | | | | | | | |
| | | | Participant Games | | | | Installment Entertainment | | | | Total | |
| | | | $ | | | | $ | | | | $ | |
| Balance November 30, 2020 | | | 51,931 | | | | 32,992 | | | | 84,923 | |
| Accrued interest income | | | 7,912 | | | | 5,027 | | | | 12,939 | |
| Expected credit loss | | | (61,814 | ) | | | (39,271 | ) | | | (101,085 | ) |
| Net exchange differences | | | 1,971 | | | | 1,252 | | | | 3,223 | |
Balance, November 30, 2021 and February 28, 2022 | | | - | | | | - | | | | - | |
Participant Games
During fiscal 2017, the Company entered into a subordinated convertible note with Participant Games Inc. in the amount of CAD$150,000. The convertible note is unsecured, bears interest at 15% per annum and was due on demand on or before December 21, 2017. The loan was convertible into shares, at any time prior to December 21, 2018 and accordingly the value of the conversion feature remaining from the convertibility feature was nominal as at November 30, 2018. As at November 30, 2021, the Company accrued interest receivable of $127,114 and recorded an allowance for credit loss of $244,369, on a cumulative basis, as the note remained unpaid. As at November 30, 2021, the Company ceased recording any further interest on this loan.
Instalment Entertainment
During fiscal 2017, the Company entered into a convertible note with Installment Entertainment Inc. in the amount of CAD$100,000. The convertible note is unsecured, bears interest at 15% per annum and was payable on demand on or before April 21, 2018. The loan was convertible into shares, at any time prior to April 21, 2018. As at November 30, 2021, the Company accrued interest receivable of $77,077 and has recorded an allowance for credit loss of $155,247, on a cumulative basis, as the note remained unpaid. As at November 30, 2021, the Company ceased recording any further interest on this loan.
7. RESTRICTED CASH
As at February 28, 2021, the Company had two Guaranteed Investment Certificates (“GICs”) totaling $54,338 (November 30, 2021 - $53,937) which earn interest at 0.45% and 0.10% per annum and renew annually on July 8 and September 28, respectively. The GICs have been assigned as security to the Royal Bank of Canada.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
8. LICENSES
Four licenses were acquired during the year ended November 30, 2018 through the issuance of 888,000 common shares valued at $3,756,360. During the three months ended February 29, 2020, the Company wrote-off one license with an unamortized balance of $250,581. During the year ended November 30, 2020, the Company acquired one additional license for $15,426. During the year ended November 30, 2021, the Company wrote-off the remaining three licenses which had an unamortized balance of $705,555 as there was no expected future use and the recoverable amount was considered to be nominal.
During the three months ended February 28, 2021, amortization, included in cost of sales, amounted to $nil (February 28, 2021 - $105,403).
The following table is a reconciliation of the licenses:
| Schedule of reconciliation of licenses | | | | | | | | |
| | | February 28, 2022 | | November 30, 2021 |
| | | | | | | | $ | |
| Balance, beginning of period | | | - | | | | 705,555 | |
| Amortization | | | - | | | | (213,015 | ) |
| Write-offs | | | - | | | | (492,751 | ) |
| Net exchange differences | | | - | | | | 211 | |
| Balance, end of period | | | - | | | | - | |
9. INVESTMENT IN EQUITY INSTRUMENTS
Until February 28, 2019, the Company accounted for its 49% interest in Waterproof using the equity method of accounting resulting in a carrying value of $445,987. At March 1, 2019, however, the Company no longer exerted significant influence over Waterproof’s operating activities resulting in the investment being reclassified as FVTPL.
The fair value as at March 1, 2019 was determined to be $1,252,525 resulting in a gain of $806,538 on derecognition from the equity accounting carrying value.
On October 18, 2021, the Company settled a lawsuit with the other shareholders of Waterproof whereby the Company transferred its 49% interest in Waterproof to the other shareholders for $666,683 (CAD$825,000) resulting in the Company recording a loss on disposal of investment of $3,438,560 (Note 26).
As at October 18, 2021, the value of Waterproof’s common shares was estimated to be $4,105,243 resulting in an unrealized gain on equity instruments of $1,139,133.
The following table is a reconciliation of the investment in Waterproof:
| Schedule of reconciliation of the investment in Waterproof | | | | | | | | |
| | | February 28, 2022 | | November 30, 2021 |
| | | | $ | | | | $ | |
| Balance, beginning of period | | | - | | | | 2,966,110 | |
| Change in fair value | | | - | | | | 1,139,133 | |
| Disposal of investment | | | - | | | | (4,105,243 | ) |
| Balance, end of period | | | - | | | | - | |
10. INVESTMENT IN CONTENT
As at February 28, 2022 and November 30, 2021, the investment in content represents the unamortized costs of film content in production.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
11. EQUIPMENT
During the year ended November 30, 2021, the Company disposed of its computer equipment for no proceeds resulting in a loss on disposal of equipment of $45,466.
In December 2021, the Company disposed of the vehicle for $37,000 to the former CFO of the Company resulting in a gain on disposal of equipment of $6,688.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
12. INTANGIBLE ASSETS
During the year ended November 30, 2020, the Company acquired platform coding for a cash payment of $3,325,000 (CAD$4,464,885) which is currently under development and not yet subject to amortization.
During the year ended November 30, 2021, the Company acquired distribution libraries valued at $3,695,673 on the acquisition of IndieFlix (Note 3).
During the year ended November 30, 2021, the Company determined that the video game catalogues and platform coding should be impaired resulting in the Company recognizing an impairment of intangible assets of $4,214,445.
Amortization of the distribution libraries is included in cost of sales.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
13. RIGHT-OF-USE- ASSET AND LEASE LIABILITY
Right-of-Use Asset
| Schedule of Right of Use Asset | | | | |
| | | Office Space |
| | | | $ | |
| Cost: | | | | |
| At November 30, 2020 | | | - | |
| Additions - acquisition of IndieFlix (Note 3) | | | 144,702 | |
| At November 30, 2021 and February 28, 2022 | | | 144,702 | |
| | | | | |
| Amortization: | | | | |
| At November 30, 2020 | | | - | |
| Additions | | | 10,718 | |
| At November 30, 2021 | | | 10,718 | |
| Additions | | | 16,078 | |
| At February 28, 2022 | | | 26,796 | |
| | | | | |
| Net book value: | | | | |
| At November 30, 2022 | | | 133,984 | |
| At February 28, 2022 | | | 117,906 | |
Amortization of right-of-use assets is calculated using the straight-line method over the remaining lease term.
Lease Liability
| Schedule of Lease Liability | | | | | | | | |
| | | | February 28, 2022 | | | | November 30, 2021 | |
| | | | $ | | | | $ | |
| Balance, beginning of period | | | 135,175 | | | | - | |
| Additions (Note 3) | | | - | | | | 144,702 | |
| Lease payments | | | (16,065 | ) | | | (10,298 | ) |
| Interest expense | | | 1,059 | | | | 771 | |
| | | | 120,169 | | | | 135,175 | |
| Less: current portion | | | (63,171 | ) | | | (61,703 | ) |
| Balance, end of period | | | 56,998 | | | | 73,472 | |
The lease liability was discounted at a discount rate of 3.25%.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
13. RIGHT-OF-USE- ASSET AND LEASE LIABILITY (continued)
The minimum lease payments in respect of the lease liability and the effect of discounting are as follows:
| Schedule of lease payments | | | | |
| | | | $ | |
| Undiscounted minimum lease payments: | | |
| March 1, 2021 – November 30, 2022 | | | 49,122 | |
| December 1, 2022 – November 30, 2023 | | | 69,093 | |
| December 1, 2023 – November 30, 2024 | | | 5,785 | |
| Total | | | 124,000 | |
| Effect of discounting | | | (3,831 | ) |
| Total present value of lease liabilities | | | 120,169 | |
| Less: current portion | | | (63,171 | ) |
| Balance, end of period | | | 56,998 | |
14. GOODWILL
A summary of goodwill balance and transactions is as follows:
| Schedule of goodwill | | | | | | | | |
| | | | February 28, 2022 | | | | November 30, 2021 | |
| | | | $ | | | | $ | |
| Balance, beginning of period | | | 833,493 | | | | - | |
| Additions (Notes 3 and 4) | | | 800,970 | | | | 833,493 | |
| Balance, end of period | | | 1,634,463 | | | | 833,493 | |
During the year ended November 30, 2021, the Company acquired goodwill of $833,493 pursuant to the acquisition of IndieFlix (Note 3).
During the three months ended February 28, 2022, the Company acquired goodwill of $800,970 pursuant to the acquisition of iGEMS (Note 4).
Goodwill is tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired. At November 30, 2021, the Company performed its impairment review of goodwill by comparing each cost center’s fair value to the net book value including goodwill. At February 28, 2022, the Company has determined that it has two cost centers: IndieFlix and iGEMS. The fair value of each cost center was determined by management based on a valuation using the income approach. The income approach uses future projections of cash flows from the cost center and includes, among other estimates, projections of future revenue and operating expenses, market supply and demand, projected capital spending and an assumption of the weighted average cost of capital. Management’s evaluation of fair values includes analysis based on the future cash flows generated by the underlying assets, estimated trends and other relevant determinants of fair value for these assets. Management has determined that no events have occurred subsequent to the date of the assessment that would require a further impairment review of goodwill.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| Schedule of Accounts Payable and Accured Liabilities | | | | | | | | |
| | | | February 28, 2022 | | | | November 30, 2021 | |
| | | | $ | | | | $ | |
| Accounts payable | | | 1,893,306 | | | | 1,625,418 | |
| Accrued liabilities | | | 91,795 | | | | 242,601 | |
| Wages payable | | | 53,038 | | | | 102,079 | |
| Payroll taxes payable | | | 54,890 | | | | 31,634 | |
| Accounts payable and accrued liabilities | | | 2,093,029 | | | | 2,001,732 | |
During the three months ended February 28, 2022, the Company issued nil 0(February 28, 2021 – 2,984) common shares valued at $nil 0 (February 28, 2021 - $6,953) to settle accounts payable of $nil 0(February 28, 2021 - $7,851) resulting in a gain of $nil 0 (February 28, 2021 – $898) which is included in gain on settlement of debt.
During the three months ended February 28, 2021, the Company transferred 215,000 treasury shares to a creditor as full and final payment of a Forbearance Agreement which included the settlement of $18,481 of interest included in accounts payable (Notes 17 and 20).
16. DEFERRED REVENUE
A summary of the deferred revenue is as follows:
| Schedule of Deferred Revenue | | | | | | | | |
| | | | February 28, 2022 | | | | November 30, 2021 | |
| | | | | | | | $ | |
| Film distribution | | | 678,114 | | | | 179,196 | �� |
| Streaming subscriptions | | | 6,367 | | | | 4,798 | |
| Deferred Revenue | | | 684,481 | | | | 183,994 | |
17. LOANS PAYABLE
A summary of loans payable balances and transactions is as follows:
| Schedule of loans payable balances and transactions | | | | |
| | | | Credit Facility | |
| | | | $ | |
| Balance, November 30, 2020 | | | 493,087 | |
| Repayment - shares | | | (498,329 | ) |
| Net exchange differences | | | 5,242 | |
| Balance, November 30, 2021 and February 28, 2022 | | | - | |
Credit facility
In fiscal 2016 a CAD$2,500,000 Credit facility was secured by assets of the Company under a general security agreement with a due date of November 30, 2018 and an interest rate of 14.4% per annum. A fee of CAD$60,000 was settled through the issuance of shares during the year ended November 30, 2017. The Company repaid CAD$1,750,000 of principal and CAD$147,945 of interest during the year ended November 30, 2017.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
17. LOANS PAYABLE (continued)
In June 2018, a new lender acquired the remaining $563,850 (CAD$750,000) loan and under new terms, the loan was due on August 20, 2018. The new lender obtained a Limited Power of Attorney over the Company’s 49% interest in Waterproof (“Waterproof POA”). In December 2018, the lender registered a general security agreement over all the Company’s current and future assets.
In November 2019, the new lender signed a Forebearance Agreement which extended the maturity date of the loan to November 30, 2020 and required the Company to make quarterly payments of CAD$250,000 commencing on March 31, 2020 until the principal and interest on the loan have been paid in full. In accordance with the Forbearance Agreement, the Company issued 215,000 treasury shares of the Company as security for the loan which will be transferred to the lender upon any default of the loan. Additionally, the new lender released the Waterproof POA and amended their general security agreement to exclude the Company’s investment in Waterproof. In March 2020, the new lender provided an extension allowing the delay of the quarterly payments to commence June 30, 2020.
During the year ended November 30, 2020, the Company repaid a further $385,650 (CAD$500,000) for this loan of which $85,388 (CAD$110,707) was applied to the principal and $300,262 (CAD$389,293) was applied to the outstanding interest. As at November 30, 2020, interest of $5,447 remained outstanding and was included in accounts payable and accrued liabilities.
In February 2021, the new lender agreed to accept the 215,000 treasury shares held as security as full and final payment of the Forbearance Agreement (Note 20). Accordingly, the transfer of the 215,000 treasury shares resulted in a gain on debt settlement of $37,359 as the treasury shares were valued at $479,450 on the date of issuance to settle the outstanding principal of $498,329 and interest of $18,481.
18. CONVERTIBLE DEBENTURES
| Schedule of Convertible Debentures | | | | | | | | | | | | |
| | | | Liability component | | | | Equity component | | | | Total | |
| | | | $ | | | | $ | | | | $ | |
| Balance, November 30, 2020 | | | 409,960 | | | | 49,967 | | | | 459,927 | |
| Interest expense and accretion | | | 8,427 | | | | - | | | | 8,427 | |
| Conversion of convertible debentures | | | (401,677 | ) | | | (49,967 | ) | | | (451,644 | ) |
| Reallocation of interest to accounts payable | | | (16,710 | ) | | | - | | | | (16,710 | ) |
| Balance, November 30, 2021 | | | - | | | | - | | | | - | |
On February 28, 2019, the Company closed its private placement offering of unsecured convertible debentures raising $2,678,000. Each debenture matured two years from closing, bore interest at 2% per annum, and was convertible into units at a price of $1.50 per unit. Each unit consisted of one common share and one share purchase warrant with each warrant entitling the holder to acquire one common share of the Company for $1.75 up to February 28, 2021. In January 2021, the Company agreed to extend the maturity date and associated warrant expiry date for one debenture holder by one year.
For accounting purposes, the convertible debentures are separated into their liability and equity components by first valuing the liability component. The fair value of the liability component at the time of issue was calculated as the discounted cash flows for the convertible debentures assuming a 12% discount rate, which was the estimated rate for a similar debenture without a conversion feature. The fair value of the equity component (conversion feature) was determined at the time of issue as the difference between the face value of the convertible debentures and the fair value of the liability component, less a deferred income tax adjustment to reflect the book to tax difference in value of the convertible debentures at the time of issuance. As the Company has excess tax assets to offset the deferred tax liability, which was created from the book to tax difference in value of the convertible debentures, the deferred tax liability was reversed, resulting in a deferred tax recovery of $122,201 during the year ended November 30, 2019.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
18. CONVERTIBLE DEBENTURES (continued)
During the year ended November 30, 2021, debentures of $401,677 were converted into 270,000 units of the Company of which $nil was allocated to reserves relating to the value of the warrants issued. As a result, the Company transferred $49,967 from reserves to share capital representing the proportionate balance of the equity component.
Interest and accretion expense for the three months ended February 28, 2022 was $nil 0(February 28, 2021 - $12,752).
19. LONG-TERM DEBT
| Schedule of long term debt | | | | | | | | | | | | |
| | | | Third party | | | | SBA Loan | | | | Total | |
| | | | $ | | | | $ | | | | $ | |
Balance, November 30, 2020 (current and long-term) | | | 40,059 | | | | - | | | | 40,059 | |
| Acquired on acquisition of IndieFlix (Note 3) | | | - | | | | 156,625 | | | | 156,625 | |
| Payments | | | (42,775 | ) | | | - | | | | (42,775 | ) |
| Interest expense and accretion | | | 2,716 | | | | 1,640 | | | | 4,356 | |
Balance, November 30, 2021 (current and long-term) | | | - | | | | 158,265 | | | | 158,265 | |
| Interest expense and accretion | | | - | | | | 2,506 | | | | 2,506 | |
| Balance, February 28, 2022 | | | - | | | | 160,771 | | | | 160,771 | |
| Current portion | | | - | | | | 4,092 | | | | 4,092 | |
| Long-term portion | | | - | | | | 156,679 | | | | 156,679 | |
Third party
During the year ended November 30, 2020, the Company entered into a Conditional Sales Contract for the purchase of a vehicle. The agreement bore interest of 6.99%, required 60 monthly payments of CAD$1,028, and was secured by a vehicle with a net book value of $nil (November 30, 2021 - $30,312) (Note 11).
SBA loan
In June 2020, IndieFlix obtained a $150,000 U.S. Small Business Administration (“SBA”) loan which increased to $200,000 upon receiving a further $50,000 in July 2020. The SBA loan bears interest at 3.75% from the date of the advance and requires monthly payments of $1,023 commencing 24 months from the date of the first advance. The balance of principal and interest will be repayable over 30 years from the date of the first advance. The SBA loan is secured by a continuing security interest in all of IndieFlix’s current and future assets.
The loan is being accreting to its face value at an effective rate of 6.25% over the term of the loan.
On March 17, 2022, SBA provided an additional six month deferment for IndieFlix’s SBA Loan where the first payment has been deferred to 30 months from the date of the first advance from 24 months.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
20. SHARE CAPITAL AND RESERVES
Authorized share capital
The Company is authorized to issue 100,000,000 common shares without par value.
The Company is authorized to issue the following preferred shares:
| Schedule of authorized to issue of preferred shares | | | | |
| | | |
| Preferred shares without par value | | | 9,999,900 | |
| Series “A” preferred shares | | | 1,000,000 | |
| Series “B” preferred shares | | | 100 | |
| Series “C” preferred shares | | | 1,000,000 | |
| Series “D” preferred shares | | | 4,000,000 | |
| Series “E” preferred shares | | | 4,000,000 | |
| | | | | |
| | | | 20,000,000 | |
Issued share capital
Common shares
The Company had the following share issuances during the three months ended February 28, 2022:
| a) | On December 14, 2021, the Company issued 212,500 common shares valued at $233,750 for the acquisition of 100% of the outstanding shares of iGEMS (Note 4). |
The Company had the following share issuances during the year ended November 30, 2021:
| a) | On January 25, 2021, the Company issued 2,984 common shares valued at $6,953 to a consultant to settle $7,851 of outstanding accounts payable resulting in a gain of $898 which is included in gain on debt settlements (Note 15). |
| b) | On January 29, 2021, the Company issued 17,907 common shares valued at $46,948 to a consultant of the Company for advisory services provided to the Company. |
| c) | On February 12, 2021, the Company transferred 215,000 treasury shares valued at $479,450 to a creditor as full and final payment of a Forbearance Agreement (Note 17). |
| d) | On March 3, 2021, the Company issued 250,001 common shares valued at $372,376 in relation to the vesting of 250,001 restricted share units. As a result, the Company transferred $372,376 representing the fair value of the vested RSUs from reserves to share capital. |
| e) | On March 22, 2021, the Company closed a registered direct offering, under its F-3 registration statement in the United States, by issuing 1,791,045 common shares of the Company at $3.35 per common share for total proceeds of $6,000,000. In connection with this offering, the Company paid legal fees of $69,095, agent fees of $470,000, and filing fees of $15,950. |
| f) | On June 9, 2021, the Company issued 39,894 common shares valued at $75,000 to a consultant for consulting services rendered during the year ended November 30, 2020 which was included in accounts payable (Note 15). |
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
| g) | On September 3, 2021, the Company issued 237,501 common shares valued at $349,127 in relation to the vesting of 237,501 restricted share units. As a result, the Company transferred $349,127 representing the fair value of the vested RSUs from reserves to share capital.
|
20. SHARE CAPITAL AND RESERVES (continued)
Issued share capital (continued)
Common shares (continued)
| h) | On September 7, 2021 the Company closed a sale of common shares under its At-The-Market Agreement (“ATM Agreement”) through the issuance of 437,365 common shares at $2.09 per common share for gross proceeds of $915,230. The Company’s ATM Agreement allows the Company to distribute up to $6,051,342 of common shares of the Company. |
| i) | On September 22, 2021, the Company issued 499,996 common shares valued at $799,994 for the acquisition of 100% of the outstanding shares of IndieFlix (Note 3). |
| j) | During the year ended November 30, 2021, the Company issued the following for exercised stock options, warrants, and conversions: |
| · | issued 367,084 common shares for total proceeds of $440,501 in connection with the exercise of 367,084 share purchase warrants at $1.20 per warrant of which $440,501 was received during the year ended November 30, 2020. |
| · | issued 430,167 common shares for total proceeds of $752,793 in connection with the exercise of 430,167 share purchase warrants at $1.75 per warrant. As a result, the Company transferred $2,953 representing the fair value of the exercised warrants from reserves to share capital. |
| · | issued 990,000 common shares for total proceeds of $1,861,200 in connection with the exercise of 990,000 share purchase warrants at $1.88 per warrant. As a result, the Company transferred $221,353 representing the fair value of the exercised warrants from reserves to share capital. |
| · | issued 121,319 common shares valued at $423,503 in accordance with the exercise of 175,000 Cashless Warrants. As a result, the Company transferred $423,503 representing the fair value of the Cashless Warrants from derivative liabilities to share capital. |
| · | issued 270,000 units on the conversion of $405,000 worth of net convertible debentures. As a result, the Company transferred $49,966 from reserves to share capital representing the proportionate balance of the equity component. Each unit comprised of one common share and one warrant with each warrant entitling the holder to acquire one common share of the Company for $1.75 up to February 26, 2022 (Note 18). |
| · | issued 10,000 common shares for total proceeds to $19,000 in connection with the exercise of 10,000 stock options at $1.90 per option. As a result, the Company transferred $19,561 representing the fair value of the exercised options from reserves to share capital. |
Preferred shares
As at February 28, 2022 and November 30, 2021, no preferred shares were issued and outstanding.
Treasury shares
On November 27, 2019, the Company issued 215,000 common shares into treasury as security against a loan in accordance with a Forbearance Agreement (Note 17). In February 2021, the Company transferred these shares to the lender as full and final payment of the Forbearance Agreement.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
20. SHARE CAPITAL AND RESERVES (continued)
Stock options
The Company does not have a formal stock option plan. The Company occasionally grants stock options to its employees, officers, directors and consultants to purchase common shares of the Company. The options granted are exercisable at a price which is equal to or greater than the fair market value of the common shares at the date the options are granted. The options are granted with varied vesting periods but generally vest immediately on grant. Options granted generally have a life of five years.
On January 1, 2021, the Company granted an officer of the Company 750,715 stock options with a total fair value of $861,681, an exercise price of $1.90, and a term of five years. The options will vest as follows: 107,245 on June 1, 2021, 321,735 on January 1, 2022, and 321,735 on January 1, 2023. During the three months ended February 28, 2022, the Company recorded share-based compensation of $77,754 (February 28, 2021 - $137,118) in relation to these options.
On January 14, 2021, the Company granted a consultant of the Company 321,735 stock options with a total fair value of $408,202, an exercise price of $1.90, and a term of five years. The options will vest as follows: 107,245 on January 14, 2021, 107,245 on July 14, 2021, and 107,245 on July 14, 2022. During the three months ended February 28, 2022, the Company recorded share-based compensation of $22,388 (February 28, 2021 - $181,901) in relation to these options.
On January 1, 2021, the Company repriced 932,995 stock options with an exercise price of $2.55 and 25,000 stock options with an exercise price of $2.57 to $1.90 per option. All other terms remained unchanged. During the three months ended February 28, 2022, the Company recorded share-based compensation of $nil (February 28, 2021 - $71,617) in relation to this repricing.
In accordance with a Termination and Mutual Release Agreement entered into with a consultant of the Company effective April 14, 2021, the Company and a consultant agreed to modify the expiry date of 50,000 options outstanding from July 23, 2025 to May 14, 2022.
The following weighted average assumptions were used in the Black-Scholes option-pricing model for the valuation of the stock options granted:
| Schedule of weighted average assumptions by Black-Scholes option-pricing model | | | | | | | | |
| | | February 28, 2022 | | November 30, 2021 |
| Risk-free interest rate | | | - | | | | 0.41 | % |
| Dividend yield | | | - | | | | nil | |
| Expected life (in years) | | | - | | | | 5.0 | |
| Volatility | | | - | | | | 105 | % |
| Weighted average fair value per option | | | - | | | $ | 1.18 | |
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
20. SHARE CAPITAL AND RESERVES (continued)
Stock options (continued)
Stock option transactions are summarized as follows:
| Schedule of stock option transactions | | | | | | | | | | | | |
| | | Number of Stock Options | | Weighted Average Exercise Price | | Weighted Average Share Price on Exercise |
| | | | | | | | $ | | | | $ | |
| Balance, November 30, 2020 | | | 957,995 | | | $ | 2.55 | | | | - | |
| Granted | | | 1,072,450 | | | $ | 1.90 | | | | - | |
| Exercised | | | (10,000 | ) | | $ | 1.90 | | | $ | 2.00 | |
| Cancelled | | | (265,000 | ) | | $ | 1.90 | | | | - | |
| Balance, November 30, 2021 and February 28, 2022 | | | 1,755,445 | | | $ | 1.90 | | | | - | |
A summary of the stock options outstanding and exercisable at February 28, 2022 is as follows:
| Schedule of summary of the share options outstanding and exercisable | | | | | | | | | | | | |
| Number Outstanding | | Number Exercisable | | Exercise Price | | Expiry Date |
| | | | | | | | | | $ | | | |
| | 50,000 | | | | 50,000 | | | $ | 1.90 | | | May 14, 2022 |
| | 257,995 | | | | 257,995 | | | $ | 1.90 | | | February 28, 2024 |
| | 25,000 | | | | 25,000 | | | $ | 1.90 | | | January 8, 2025 |
| | 25,000 | | | | 25,000 | | | $ | 1.90 | | | February 13, 2025 |
| | 25,000 | | | | 25,000 | | | $ | 1.90 | | | March 10, 2025 |
| | 25,000 | | | | 25,000 | | | $ | 1.90 | | | April 13, 2025 |
| | 275,000 | | | | 275,000 | | | $ | 1.90 | | | July 23, 2025 |
| | 750,715 | | | | 428,980 | | | $ | 1.90 | | | January 1, 2026 |
| | 321,735 | | | | 214,490 | | | $ | 1.90 | | | January 14, 2026 |
| | 1,755,445 | | | | 1,326,465 | | | | | | | |
The weighted average life of share options outstanding at February 28, 2022 was 3.36 years and 3.20 years for exercisable options.
Warrants
Agents’ warrants
Agents’ warrant transactions are summarized as follows:
| Schedule of agents' warrant transactions | | | | | | | | |
| | | Number of Agents’ Warrants | | Weighted Average Exercise Price |
| | | | | | | | $ | |
| Balance, November 30, 2020 | | | 213,333 | | | $ | 1.88 | |
| Exercised | | | (186,666 | ) | | $ | 1.88 | |
| Balance, November 30, 2021 and February 28, 2022 | | | 26,667 | | | $ | 1.88 | |
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
20. SHARE CAPITAL AND RESERVES (continued)
Warrants (continued)
Agents’ warrants (continued)
A summary of the agents’ warrants outstanding and exercisable at February 28, 2022 is as follows:
| Schedule of agents' warrants outstanding and exercisable | | | | | | | | |
| Number Outstanding | | Exercise Price | | Expiry Date |
| | | | | | $ | | | |
| | 26,667 | | | $ | 1.88 | | | June 4, 2025 |
| | 26,667 | | | | | | | |
The weighted average life of agent’s warrants outstanding at February 28, 2022 was 3.27 years.
Share purchase warrants
On February 12, 2021, the Company extended the expiry date of 346,000 share purchase warrants with an exercise price of $1.75 from February 26, 2021 to March 11, 2021 due to the investors being subject to a trading blackout.
During the year ended November 30, 2021, the Company issued 270,000 share purchase warrants with an exercise price of $1.75 per warrant in connection with the conversion of a convertible debenture (Note 18).
Share purchase warrant transactions are summarized as follows:
| Schedule of share purchase warrant transactions | | | | | | | | | |
| | | Number of Share Purchase Warrants | | Weighted Average Exercise Price |
| | | | | | | | | $ | |
| Balance, November 30, 2020 | | | | 3,033,709 | | | $ | 1.66 | |
| Issued | | | | 270,000 | | | $ | 1.75 | |
| Exercised | | | | (1,408,501 | ) | | $ | 1.84 | |
| Expired | | | | (1,516,000 | ) | | $ | 1.46 | |
| Balance, November 30, 2021 and February 28, 2022 | | | | 379,208 | | | $ | 1.84 | |
A summary of the share purchase warrants outstanding and exercisable at February 28, 2021 is as follows:
| Schedule of share purchase warrants outstanding and exercisable for warrants | | | | | | | | |
| Number Outstanding | | Exercise Price | | Expiry Date |
| | | | | | $ | | | |
| | 24,208 | * | | $ | 1.20 | | | April 6, 2022 |
| | 355,000 | | | $ | 1.88 | | | June 9, 2025 |
| | 379,208 | | | | | | | |
| * | expired unexercised subsequent to February 28, 2022 |
The weighted average life of share purchase warrants outstanding at February 28, 2022 was 3.08 years.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
20. SHARE CAPITAL AND RESERVES (continued)
Restricted share units (“RSUs”)
During the year ended November 30, 2020, the Company granted 1,000,001 RSUs to certain directors, officers, and consultants of the Company which vest 25% on grant (September 3, 2020) and 25% each six months thereafter. The granted RSUs convert to common shares of the Company upon vesting, accordingly, 250,001 common shares were issued upon grant.
During the three months ended February 28, 2022, the Company recorded share-based compensation expense of $39,728 (February 28, 2021 - $340,443) in relation to the issued RSUs. The fair value of the RSUs was measured using the value on the grant date of $1.47 per common share.
| Schedule of Restricted share units | | | | |
| | | Number of RSUs |
| | | |
| Balance, November 30, 2020 | | | 750,000 | |
| Vested | | | (487,502 | ) |
| Cancelled | | | (98,541 | ) |
| Balance, November 30, 2021 and February 28, 2022 | | | 163,957 | |
Derivative liability
On June 8, 2020, the Company closed a registered direct offering, under its F-3 registration statement in the United States, by issuing 2,666,672 common shares of the Company at $1.50 per common share for total proceeds of $4,000,002. Concurrent with this offering, the Company issued to the investors 1,333,334 share purchase warrants exercisable for $1.88 per common share with a maturity date of June 9, 2025. The holders of the Cashless Warrants may elect, if the Company does not have an effective registration statement registering or the prospectus contained therein is not available for the issuance of the Cashless Warrant shares to the holder, in lieu of exercising the Cashless Warrants for cash, a cashless exercise option to receive common shares equal to the fair value of the Cashless Warrants. The fair value is determined by multiplying the number of Cashless Warrants to be exercised by the previous day’s volume weighted average price (“VWAP”) less the exercise price with the difference divided by the VWAP. If a Cashless Warrant holder exercises this option, there will be variability in the number of shares issued per Cashless Warrant.
On initial recognition, the Company allocated $351,779, being the fair value of the Cashless Warrants, from the proceeds of the offering included in share capital to set up the derivative liability. On March 24, 2021, the Company’s registration statement restricting the Cashless Warrant holders ability to elect to cashless exercise their Cashless Warrants became effective resulting in the Company revaluing the derivative liability to $nil 0 (February 28, 2021 - $285,988) and recording a loss of $160,364 (February 28, 2021 - loss of $22,849).
On March 24, 2021, the Company revalued the derivative liability to $3,226,693 using the following Black Scholes assumptions: risk –free rate of $0.10%, dividend yield of nil, expected life of 0.01 years, and volatility of $150%. The Company transferred $423,503 from derivative liability to share capital in connection with the exercise of 175,000 Cashless Warrants on March 24, 2021 and reversed the remaining derivative liability on the expiry of the cashless exercise feature.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
21. ROYALTY INCOME
IndieFlix earns royalty income from its participating net profit rights in three separate US Limited Liability Companies (“LLC”) for which IndieFlix acts as a manager.
The Company has recognized $12,068 (February 28, 2021 - $nil 0) of royalty income during the three months ended February 28, 2022.
22. RELATED PARTY TRANSACTIONS
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Director members.
In November 2020, the Company signed employment agreements with two directors of the Company. The agreements require total payments of CAD$17,500 each per month. Included in the agreements is a provision for 12 months written notice or salary paid in lieu of notice upon termination without just cause. In April 2021, one of the agreements was terminated and replaced with a consulting agreement with the same terms.
In January 2021, the Company signed an employment agreement with the new CEO of the Company. The agreement requires payments of CAD$20,000 per month. Included in the agreement is: (1) a provision for three months written notice or salary paid in lieu of notice upon termination without just cause and (2) a provision to increase the base salary to CAD$30,000 per month, retroactive to January 1, 2021, upon the Company raising US$5 million in funding (achieved).
Receivables at February 28, 2022 includes $14,010 (November 30, 2021 - $nil 0 ) from a director of iGEMS for advances taken.
Accounts payable and accrued liabilities at February 28, 2022 includes $185,425 (November 30, 2021 - $275,486) owing to directors, officers, and a former director for unpaid directors fees, salaries, consulting fees, expense reimbursements, and loan interest.
During the three months ended February 28, 2022, the Company recorded revenue of $207,856 (February 28, 2021 - $nil 0) to a company with a director in common with IndieFlix. As at February 28, 2022, the Company had a receivable of $nil 0 (November 30, 2021 - $308,631) from this company.
During the three months ended February 28, 2022, the Company recorded royalties, included in cost of sales, of $154,199 (February 28, 2021 - $nil 0) to three LLC’s for which IndieFlix acts as a manager and received royalty income of $12,068 (February 28, 2021 - $nil 0) from one of these LLCs. Additionally, as at February 28, 2022, the Company had a payable of $192,212 (November 30, 2021 - $184,627) to one of these LLC’s for unpaid royalties and a receivable of $57,846 (November 30, 2021 - $91,222) from three of these LLC’s for royalty income and recoupment of costs incurred on their behalves.
During the three months ended February 28, 2022, the Company incurred content curation costs, included in cost of sales, of $19,500 (February 28, 2021 - $nil 0) to a company controlled by a director of iGEMS.
During the three months ended February 28, 2022, the Company incurred rent, included in other general and admin expenses, of $11,056 (February 28, 2021 - $nil 0) to a company with a director in common.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
22. RELATED PARTY TRANSACTIONS (continued)
The following is a summary of key management personnel compensation:
23. CAPITAL DISCLOSURE AND MANAGEMENT
The Company defines its capital as components of shareholders’ equity. The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern. The Company manages its capital structure to maximize its financial flexibility making adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital. There were no changes to the Company’s capital management during the three months ended February 28, 2022. The Company is not subject to externally imposed capital requirements.
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
| | · | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; |
| · | Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and |
| · | Level 3 – Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumption that market participants would use in pricing. |
The Company’s financial instruments consist of cash, restricted cash, receivables, accounts payable, and long-term debt. The fair value of receivables and accounts payable approximates their carrying values. Long-term debt has been valued using a valuation methodology on initial recognition. Cash and restricted cash is measured at fair value using level 1 inputs. The derivative liability for the warrants is measured using level 2 inputs. The derivative liability for the contingent consideration was measured at fair value using level 3 inputs.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
As at February 28, 2022, the fair value of the level 3 derivative liability was $991,886 (November 30, 2021 - $1,277,200) based on management’s estimate of probabilities on the likelihood of IndieFlix and iGEMS achieving the projected revenue targets and the Company issuing the resulting common shares to the former noteholders of IndieFlix and shareholders of iGEMS. Management the assessed the probabilities on a low case, base case, and high case scenario with a 20%, 60%, and 20% probability, respectively, of occurring to determine a weighted average number of expected common shares to be issued. The Company’s investment in IndieFlix and iGEMS did not have a quoted market price on an active market and the Company assessed the fair value of the investment based on IndieFlix’s and iGEMS’ unobservable expected earnings. As a result, the fair values were classified as level 3 of the fair value hierarchy. The process of estimating the fair value of the contingent considerations was based on inherent measurement uncertainties and was based on techniques and assumptions that emphasize both qualitative and quantitative information. As at February 28, 2022, a 10% change in the number of expected common shares to be issued or a 10% change in the Company’s share price would change comprehensive income (loss) by approximately $99,000.
The Company is exposed to a variety of financial risks by virtue of its activities including currency, credit, interest rate, and liquidity risk.
Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. The Company’s operations are carried out in Canada and the United States. As the Company’s functional currency is USD, the Company is subject to foreign currency exchange rate risk on its net assets denominated in CAD which could have an adverse effect on the profitability of the Company. As at February 28, 2022, the Company had assets totaling CAD$570,832 and liabilities totalling CAD$758,239. A 10% change in the exchange rate would change comprehensive income (loss) by approximately $15,000. The Company currently does not have plans to enter into foreign currency future contracts to mitigate this risk, however it may do so in the future.
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
The Company’s cash is held in large Canadian and United States financial institutions. The Company maintains certain cash deposits with Schedule I financial institutions, which from time to time may exceed federally insured limits. The Company has not experienced any significant credit losses and believes it is not exposed to any significant credit risk. The Company’s sales tax receivable is due from the Government of Canada; therefore, the credit risk exposure is low.
The maximum exposure to credit risk as at February 28, 2022 is the carrying value of the receivables and loans receivable. The Company has allowed for an expected credit loss of $356,070 on the loans receivable as at February 28, 2022. As at November 30, 2021, the Company had fully allowed for the loans receivable.
Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial assets and liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company does not hold any financial liabilities with variable interest rates. The Company does maintain bank accounts which earn interest at variable rates but it does not believe it is currently subject to any significant interest rate risk.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
The Company’s ability to continue as a going concern is dependent on management’s ability to raise required funding through future equity issuances and through short-term borrowing. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments. As at February 28, 2022, the Company had a cash balance of $3,574,605 to settle current financial liabilities of $2,849,979. The Company is exposed to liquidity risk.
25. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
| Schedule of disclosures with respect to cash flows | | | | | | | | |
| | | | For the three months ended February 28, | |
| | | | 2022 | | | | 2021 | |
| | | | $ | | | | $ | |
| Supplemental non-cash disclosures | | | | | | | | |
| Reallocation of value of warrants upon exercise | | | - | | | | 2,953 | |
| Shares issued for debt settlements | | | - | | | | 486,403 | |
| Shares issued for commitment | | | - | | | | 440,501 | |
| Acquisition advances eliminated on acquisition of subsidiary (Note 4) | | | 127,293 | | | | - | |
26. CONTINGENCIES
On December 1, 2021, a consultant commenced an action against the Company in which the Plaintiff claims that the Company is in breach of contract and owes the consultant 175,000 common shares of the Company and $500,000, or alternatively, 250,000 common shares of the Company valued at $500,000. The Plaintiff is also requesting a judgement for costs, interest, and special damages. In December 2021, the Company filed a Response to Civil Claim denying the Plaintiffs’ claims for which the Plaintiff filed a Reply. The litigation is at an early stage.
27. SEGMENTED INFORMATION
During the three months ended February 28, 2022, the Company had four offices: a head office in Vancouver, British Columbia (Canada), a satellite office in Toronto, Ontario (Canada), IndieFlix’s office in Seattle, Washington (USA), and iGEMS’ office in Los Angeles, California (USA). During the three months ended February 28, 2021, the Company had two offices: a head office in Vancouver, British Columbia (Canada), a satellite office in Toronto, Ontario (Canada).
In evaluating performance, management does not distinguish or group its sales and cost of sales on a geographic basis. As at February 28, 2021, the Company determined it had two 2 reportable operating segments: the investment in film and television entertainment and the investment in video games. Due to Company impairing the video game segment assets and ceasing to operate that segment at November 30, 2021, the Company determined the investment in film and television entertainment segment was its only reportable segment at February 28, 2022.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
27. SEGMENTED INFORMATION (continued)
Revenue derived in the Company’s film and television entertainment and video games segments is earned from a large number of customers located throughout the world but mostly located in the United States of America. During the three months ended February 28, 2022, one customer accounted for 36% (February 28, 2021 – no customer accounted for more than 5%) of the Company’s sales.
Below summarizes the Company’s reportable operating segments for the three months ended February 28, 2021.
| Schedule of reportable operating segments | | | | | | | | | | | | |
| | | | Film and Television Entertainment | | | | Video Games | | | | Total | |
| | | | $ | | | | $ | | | | $ | |
| Segment Information | | | | | | | | | | | | |
| Revenue | | | 5,199 | | | | 3,683 | | | | 8,882 | |
| Cost of sales | | | (24,404 | ) | | | (112,459 | ) | | | (136,863 | ) |
| Operating expenses | | | (145,783 | ) | | | (18,850 | ) | | | (164,633 | ) |
| Segment profit (loss) | | | (164,988 | ) | | | (127,626 | ) | | | (292,614 | ) |
| | | | | | | | | | | | | |
| Corporate expenses: | | | | | | | �� | | | | | |
| Operating expenses | | | | | | | | | | | (1,675,695 | ) |
| Other income (expenses) | | | | | | | | | | | 450,166 | |
| Comprehensive loss for the period | | | | | | | | | | | (1,518,143 | ) |
| | | | | | | | | | | | | |
| Capital expenditures | | | - | | | | - | | | | - | |
28. PROPOSED TRANSACTION
| a) | On June 7, 2021, the Company entered into a Letter of Intent with Filmdab, Inc., operating as Filmocracy (“Filmocracy”) for the Company to acquire 100% of the issued and outstanding shares of Filmocracy by issuing up to 1,250,000 common shares of the Company to the shareholders of Filmocracy. 25% of the consideration shares will be issued to the shareholders of Filmocracy on closing of the proposed transaction while the remainder will be issued based on Filmocracy achieving certain revenue targets over a six year period (“Filmocracy Transaction”). The Company and Filmocracy are currently negotiating the terms for the definitive agreement. |
In connection with the proposed Filmocracy Transaction, on September 17, 2021, and subsequently extended on December 17, 2021, February 15, 2022, and March 31, 2022, the Company entered into an agreement with Filmocracy for $608,735 whereby the Company will advance $608,735 to Filmocracy as follows: (1) $244,292 upon the date of the agreement (advanced September 21, 2021); (2) $190,594 on the first month anniversary (advanced October 25, 2021); and (3) $173,849 on the second month anniversary (not yet advanced). The agreement bears interest at 6% per annum, is due on the earlier of April 30, 2022 or 30 days following the termination of the Filmocracy Transaction, and is secured by a general security agreement over certain assets. In the event that the proposed transaction does not close, all amounts outstanding shall bear interest at 24% per annum. As at February 28, 2022, the Company has accrued $10,453 of interest income in connection with this advance for acquisition.
Liquid Media Group Ltd.
Notes to Condensed Interim Consolidated Financial Statements
February 28, 2022
(Expressed in United States Dollars - Unaudited)
29. SUBSEQUENT EVENTS
The Company had the following subsequent events, not disclosed elsewhere in these financial statements:
| a) | On March 3, 2022, the Company issued 163,957 common shares in relation to the vesting of 163,957 restricted share units. |
| b) | On March 7, 2022, the Company acquired 100% of the issued and outstanding shares of Digital Cinema United Holding Ltd. (“DCU”) (“DCU Shares”), in accordance with a Securities Exchange Agreement (“DCU SEA”), for common shares of the Company which are scheduled to be paid out to DCU shareholders across specific performance milestones in three tranches (“DCU Transaction”) as follows: |
| · | On closing of the SEA – 3,000,000 common shares(“Issuer Consideration Shares”) (issued subsequently) of Liquid; |
| · | Issuer Additional Shares: |
| o | Upon DCU achieving cumulative consolidated revenues of $4,750,000 before the fifth anniversary of the closing date (“DCU First Milepost”) – greater of (i) 750,000 common shares of Liquid and (ii) 3,750,000 divided by a per share price of the greater of $1.25 or the five-day Volume Weighted Average Price of Liquid common shares immediately prior to the achievement of the First Milepost. |
| o | Upon DCU achieving cumulative consolidated revenues of $10,287,000 (“DCU Second Milepost”) after the DCU First Milepost but before the fifth anniversary of the closing date; - the greater of (i) 3,750,000 divided by (A) the greater of $1.25 or (B) the five-day Volume Weighted Average Price of Liquid common shares immediately prior to the achievement of the DCU First Milepost; and (ii) 5,625,000, less (A) 3,000,000 and (B) the number of Issuer Additional Shares issued on achievement of the First Milepost. |
For additional clarification, the minimum aggregate total (i) Issuer Consideration Shares and (ii) Issuer Additional Shares issuable in connection with the achievement of both the First Milepost and Second Milepost is 5,625,000.
Included in the DCU SEA is a buyback right that entitles the DCU shareholders to acquire the DCU Shares from the Company should the Company’s shares be delisted for more than 180 days for the following consideration:
| · | all shares of the Company issued to the DCU shareholders; |
| · | any cash advanced to DCU by the Company; and |
| · | interest on each amount of cash advanced at a rate of 6%, compounded annually in arrears. |
In connection with the DCU Transaction, on August 31, 2021, the Company entered into an agreement with DCU whereby the Company advanced $1,147,928 to DCU as follows: (1) $573,964 upon the date of the agreement (advanced September 1, 2021); and (2) $573,964 on the first month anniversary (advanced October 4, 2021). The advances bore interest at 6% per annum and was due on the earlier of (1) February 28, 2022; (2) the termination of the letter of intent entered into between the Company and DCU on June 7, 2021; or (3) the closing of the DCU Transaction. The agreement was secured by a pledge over all of the shares held in DCU (“Pledge Agreement”). As the funds were considered an advance on acquisition, the Company re-assumed the advance on the closing of the DCU Transaction on March 8, 2022. As at February 28, 2022, the Company had accrued $31,281 of interest income in connection with this advance.
The acquisition will be accounted for using the acquisition method pursuant to IFRS 3, Business Combinations. Under the acquisition method, assets and liabilities are recorded at their fair values on the date of acquisition and the total consideration is allocated to the assets acquired and liabilities assumed. The excess consideration given over the fair value of the net assets acquired will be recorded as goodwill.
The initial accounting for the acquisition was not complete by the issuance date of these condensed interim consolidated financial statements.
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