Document:

Exhibit
4.10

 

FORM
51-102F3

MATERIAL
CHANGE REPORT

 

	Item
    1.	Name
    and Address of Company

 

Engine
Media Holdings, Inc.

 3000
- 77 King Street West

 P.O.
Box 95, TD Centre North Tower

 Toronto,
Ontario M5K 1G8

 

	Item
    2. 	Date
    of Material Change

 

February
26, 2021

 

	Item
    3. 	News
    Release

 

A
news release was disseminated on February 26, 2021 through the facilities of CNW Group and subsequently filed on the System for
Electronic Document Analysis and Retrieval (www.sedar.com).

 

	Item
    4. 	Summary
    of Material Change

 

Engine
Media Holdings, Inc. (TSXV: GAME; OTCQB: MLLLF) (“Engine Media” or the “Company”) closed
the previously announced private placement of 2,000,000 units (the “Units”) for gross proceeds of US$15,000,000
at a price of US$7.50 per Unit (the “Offering”).

 

In
connection with the Offering, certain directors and officers of the Company (the “Insiders”) acquired 35,832
Units. The participation of Insiders in the Offering constitutes a “related party transaction”, as such terms are
defined by Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI
61-101”). The Company is relying on an exemption from the formal valuation requirements of MI 61-101 available on the basis
of the securities of the Company not being listed on specified markets, including the Toronto Stock Exchange, the New York Stock
Exchange, the American Stock Exchange, the NASDAQ or certain overseas stock exchanges. The Company is also relying on the exemption
from minority shareholder approval requirements under MI 61-101 as the fair market value of the participation in the Offering
by the Insiders does not exceed 25% of the market capitalization of the Company.

 

In
addition, further to the Company’s January 26, 2021 press release, EB Acquisition Company, LLC has converted its US$5 million
secured loan into a US$5 million secured convertible debenture (the “Convertible Debenture”) which is convertible
into units of the Company at a conversion price of US$10.25 per Unit, with a term of three years.

 

	Item
    5. 	Full
    Description of Material Change

 

5.1
Full Description of Material Change

 

See
Schedule “A” attached hereto.

 

    	 

    	Page 2

    

 

5.2
Disclosure for Restructuring Transactions

 

Not
applicable.

 

	Item
    6.	Reliance
    on subsection 7.1(2) of National Instrument 51-102

 

The
report is not being filed on a confidential basis.

 

	Item
    7. 	Omitted
    Information

 

No
significant facts have been omitted from this report.

 

	Item
    8. 	Executive
    Officer

 

The
following officer of the Company may be contacted for further information:

 

	 	Michael
                                         Munoz

        Chief
        Financial Officer

        212-
        931-1200

        mmunoz@franklymedia.com

 

	Item
    9.	Date
    of Report

 

This
report is dated this 1st day of March, 2021.

 

    	 

    	 

    

 

SCHEDULE
“A”

 

 

Engine
Media Announces Closing of $15 Million Private Placement

 

TORONTO,
Feb. 26, 2021 /CNW/ — Engine Media Holdings, Inc. (TSXV: GAME; OTCQB: MLLLF) (“Engine Media” or the “Company”)
announces that is has closed the previously announced private placement of 2,000,000 units (the “Units”) for gross
proceeds of US$15,000,000 at a price of US$7.50 per Unit (the “Offering”). Each Unit consists of one common share
of the Company and one-half of one common share purchase warrant (a “Warrant”). Each whole Warrant entitles the holder
to acquire one additional share of the Company at a price of US$15.00 per share for a period of 3 years provided that: (i) if
the common shares are listed for trading on NASDAQ, (ii) the Company completes an offering of securities under a short form prospectus
for an aggregate amount of at least US$30,000,000, and (iii) the closing price of the common shares on NASDAQ is US$30.00 or greater
for a period of 15 consecutive trading days, then the Company may accelerate the expiry date of the Warrants to the 30th
day after the date written notice is provided to the holders.

 

The
Company paid cash commissions to eligible finders under the Offering totaling $229,506.08 and also issued the following securities
as partial payment of commissions to finders: 13,966 Units; and, 44,567 finders warrants, with each finder warrant exercisable
into a common share at an exercise price of US$15.00 per share for 3 years subject to the same acceleration terms described above.

 

All
securities issued under the Offering are subject to a hold period of four months and one day from the closing.

 

Related
Party Transaction

 

In
connection with the Offering, certain directors and officers of the Company (the “Insiders”) acquired 60,811 Units.
The participation of Insiders in the Offering constitutes a “related party transaction”, as such terms are defined
by Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”).
The Company is relying on an exemption from the formal valuation requirements of MI 61-101 available on the basis of the securities
of the Company not being listed on specified markets, including the Toronto Stock Exchange, the New York Stock Exchange, the American
Stock Exchange, the NASDAQ or certain overseas stock exchanges. The Company is also relying on the exemption from minority shareholder
approval requirements under MI 61-101 as the fair market value of the participation in the Offering by the Insiders does not exceed
25% of the market capitalization of the Company.

 

    	 

    	Page A2

    

 

EB
Convertible Debenture

 

Further
to the Company’s January 26, 2021 press release, EB Acquisition Company, LLC has converted its US$5 million secured loan
into a US$5 million secured convertible debenture (the “Convertible Debenture”) which is convertible into units of
the Company at a conversion price of US$10.25 per unit, with each unit comprised of one common share and one-half of a warrant,
with each whole warrant exercisable into a common share at an exercise price of US$15.00 per share for a period of three years
from the issuance of the Convertible Debenture. The Convertible Debenture has a term of three years.

 

This
press release does not constitute an offer of sale of any of the foregoing securities in the United States. None of the foregoing
securities have been and will not be registered under the U.S. Securities Act of 1933, as amended (the “1933 Act”)
or any applicable state securities laws and may not be offered or sold in the United States or to, or for the account or benefit
of, U.S. persons (as defined in Regulation S under the 1933 Act) or persons in the United States absent registration or an applicable
exemption from such registration requirements. This press release does not constitute an offer to sell or the solicitation of
an offer to buy nor will there be any sale of the foregoing securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful.

 

This
news release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these
Securities in any jurisdiction in which an offer, solicitation or sale would be unlawful prior to registration or qualifications
under the securities laws of any such jurisdiction.

 

About
Engine Media Holdings, Inc.

 

Engine
Media Holdings Inc. is traded publicly under the ticker symbol (TSX-V: GAME) (OTCQB: MLLLF). The organization is focused on developing
premium consumer experiences and unparalleled technology and content solutions for partners in the esports, news and gaming industry.
The company’s subsidiaries include Stream Hatchet; the global leader in gaming video distribution analytics; Eden Games,
a premium video game developer and publisher with numerous console and mobile gaming franchises; WinView Games, an industry
innovator in audience second screen play-along gaming during live events; UMG, an end-to-end competitive esports platform enabling
the professional and amateur esport community with tournaments, matches and award nominating content; and Frankly Media, a digital
publishing platform empowering broadcasters to create, distribute and monetize content across all channels. Engine Media generates
revenue through a combination of direct-to-consumer and subscription fees; streaming technology and data SaaS-based offerings;
programmatic advertising and sponsorships. To date, the combined companies’ clients have included more than 1,200 television,
print and radio brands, dozens of gaming and technology companies, and have connectivity into hundreds of millions of homes around
the world through their content, distribution and technology services.

 

Cautionary
Statement on Forward-Looking Information

 

This
news release contains forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of Engine Media to be materially different from
any future results, performance or achievements expressed or implied by the forward-looking statements. Often, but not always,
forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does
not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does
not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events
or results “may”, “could”, “would”, “might” or “will” be taken, occur
or be achieved.

 

The
forward-looking statements and information in this press release include, financial, operational and other projections and outlooks,
and expectations. Such statements and information reflect the current view of Engine Media. By their nature, forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause Engine Media’s actual results, performance
or achievements or other future events, to be materially different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such factors include: expectations regarding existing products and plans to develop,
implement or adopt new technology or products; expectations regarding the successful integration of recent acquisitions of WinView,
Inc. and Frankly Inc.; the expectation of obtaining new customers for the Company’s products and services; requirements
for additional capital and future financing options; and, those factors discussed in the Company’s continuous disclosure
documents filed with the Canadian Securities Administrators, which may be viewed at www.sedar.com.

 

    	 

    	Page A3

    

 

Should
one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information
or statement prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated,
believed, estimated or expected. Engine Media cautions that the foregoing list of material factors is not exhaustive. When relying
on the Company’s forward-looking statements and information to make decisions, investors and others should carefully consider
the foregoing factors and other uncertainties and potential events.

 

Engine
Media has assumed that the material factors referred to in the previous paragraph will not cause such forward-looking statements
and information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is
subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.
The forward-looking information contained in this press release represents the expectations of Engine Media as of the date of
this press release and, accordingly, is subject to change after such date. Readers should not place undue importance on forward
looking information and should not rely upon this information as of any other date. While Engine Media may elect to do so, Engine
Media does not undertake to update this information at any particular time except as required in accordance with applicable laws.

 

Neither
the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange)
accepts responsibility for the adequacy or accuracy of this release.Exhibit
4.11

 

FORM
51-102F4

BUSINESS
ACQUISITION REPORT

 

	Item
    1	Identity
    of Company

 

	 	1.1	Name
    and Address of Company

 

Engine
Media Holdings, Inc. (formerly, Torque Esports Corp.) (“Engine”)

3000 – 77 King Street West

P.O. Box 95, TD Centre North Tower

Toronto, Ontario M5K 1G8

 

	 	1.2	Executive
    Officer

 

Michael
Munoz

Chief Financial Officer

(212) 931-1229

 

	Item
    2	Details
    of Acquisition

 

	 	2.1	Nature
    of Business Acquired

 

On
May 8, 2020, Engine acquired Frankly Inc. (“Frankly”) pursuant to a court approved plan of arrangement and
acquired WinView, Inc. (“WinView”), pursuant to a statutory merger under the laws of the State of Delaware
(the “Acquisition”).

 

Details
Respecting Frankly

 

Frankly
provides a complete suite of solutions that give publishers a unified workflow for the creation, management, publishing and monetization
of digital content to any device, while maximizing audience value and revenue.

 

Frankly’s
products include a groundbreaking online video platform for Live, Video on Demand (“VOD”) and Live-to-VOD workflows,
a full-featured content management system with rich storytelling capabilities, as well as native apps for iOS, Android, Apple
TV, Fire TV and Roku.

 

Frankly
also provides comprehensive advertising products and services, including direct sales and programmatic ad support. With the release
of its server-side ad insertion platform, Frankly has been positioned to help video producers take full advantage of the growing
market in addressable advertising. Frankly is headquartered in New York with offices in Atlanta. Frankly was publicly traded under
ticker “TLK” on Canada’s TSX Venture Exchange. For more information, visit www.franklymedia.com.

 

    	 

    	2

    

 

Details
Respecting WinView

 

WinView
is a Silicon Valley-based company, pioneering second-screen interactive TV.

 

WinView
is a leading skill-based sports prediction mobile games platform. WinView plans to leverage its extensive experience in pioneering
real-time interactive television games played on the mobile second screen, its foundational patents and unique business model.
The WinView app is an end-to-end two-screen TV synchronization platform for both television programming and commercials. The paid
entry, skill-based WinView Games app uniquely enhances TV viewing enjoyment and rewards sports fans with prizes as they answer
in-game questions while competing in real-time during live televised sports.

 

	 	2.2	Date
    of Acquisition

 

May
8, 2020.

 

	 	2.3	Consideration

 

Under
the terms of the Acquisition, Engine acquired all of the issued and outstanding shares of Frankly Inc. (“Frankly”)
in exchange for consideration of one Engine common share for each Frankly common share acquired, pursuant to a court approved
plan of arrangement, resulting in the issuance of 33,249,106 common shares (pre-consolidation, see below) of Engine upon closing
the business combination.

 

Engine
also concurrently indirectly acquired WinView, pursuant to a statutory merger under the laws of the State of Delaware, with WinView
securityholders receiving an aggregate of 26,399,960 common shares (pre-consolidation) of Engine as well as certain contingent
consideration.

 

The
contingent consideration entitles WinView holders to proceeds from the enforcement of WinView’s patent portfolio, equal
to 50% of the net license fees, damages awards or settlement amounts collected from third parties, with such payments to be calculated
after deduction of certain amounts. More details on the contingent consideration can be found in the Business Combination Agreement
entered into on March 9, 2020 between Engine, Engine Merger Sub Inc. (a wholly-owned subsidiary of Engine), Frankly, and WinView.

 

The
number of Engine common shares referenced above, refers to the common shares of Engine prior to the consolidation of all of Engine’s
issued and outstanding common shares at a consolidation ratio of 15 pre-consolidated common shares for 1 post-consolidated common
share, effective August 13, 2020.

 

Further
information about the Acquisition can be found in the Company’s press release dated May 11, 2020, the Business Combination
Agreement dated March 9, 2020 and the Company’s material change reports dated May 27, 2020 and March 13, 2020, copies of
which have been filed under the Company’s profile on SEDAR at www.sedar.com.

 

    	 

    	3

    

 

	 	2.4	Effect
    on Financial Position

 

Except
as disclosed in this Business Acquisition Report, or publicly disclosed and in the ordinary course of business, the Company does
not have any current plans or proposals for material changes in the Company’s business affairs, which may have a significant
effect on the operations and financial position of the Company.

 

	 	2.5	Prior
    Valuations

 

To
the knowledge of the Company, there has not been any valuation opinion within the last twelve months by the Company, Frankly or
WinView that was required by securities legislation or a Canadian exchange or market to support the consideration paid by the
Company in connection with the Acquisition.

 

	 	2.6	Parties
    to Transaction

 

The
Transaction was not with an informed person, associate or affiliate of the Company as defined in Section 1.1 of National Instrument
51-102 Continuous Disclosure Obligations.

 

	 	2.7	Date
    of Report

 

November
13, 2020.

 

	Item
    3	Financial
    Statements

 

The
following financial statements are included in this Business Acquisition Report:

 

	 	(a)	the
    audited annual consolidated financial statements of Frankly, together with the notes thereto and the auditor’s report
    thereon, as at and for the years ended December 31, 2019 and December 31, 2018, attached hereto as Schedule “A”;
    
	 	 	 
	 	(b)	the
    unaudited condensed interim consolidated financial statements of Frankly for the three months ended March 31, 2020 and 2019,
    attached hereto as Schedule “B”; 
	 	 	 
	 	(c)	the
    audited annual consolidated financial statements of WinView, together with the notes thereto and the auditor’s report
    thereon, as at and for the years ended December 31, 2019 and December 31, 2018, attached hereto as Schedule “C”;
    and
	 	 	 
	 	(d)	the
    unaudited condensed interim consolidated financial statements of WinView for the three months ended March 31, 2020 and 2019,
    attached hereto as Schedule “D”. 

 

    	 	 	 

     

    

 

SCHEDULE
“A”

AUDITED
ANNUAL FINANCIAL STATEMENTS OF FRANKLY

 

 

Frankly
Inc.

 

Audited
Annual Consolidated Financial Statements

 

For
the Years Ended December 31, 2019 and 2018

 

(In
U.S. dollars)

 

    	 

    	 

    

 

	Frankly
    Inc.	
	Table
    of Contents	 
	December
    31, 2019 and 2018	 

 

	Independent auditor’s report	3
	 	 
	Consolidated statements of financial position	5
	 	 
	Consolidated statements of income (loss) and comprehensive income (loss)	6
	 	 
	Consolidated statements of changes in shareholders’ deficit	7
	 	 
	Consolidated statements of cash flows	8
	 	 
	Notes to the consolidated financial statements	9

 

    	Page 2

    	 

    

 

		Baker
    Tilly WM LLP
	 	1400
    – 200 University Ave.
	 	Toronto,
    Ontario
	 	Canada
    M5H 3C6
	 	T:
    +1 416.368.7990
	 	F:
    +1 416.368.0886
	 	 
	 	toronto@bakertilly.ca
	 	www.bakertilly.ca

 

INDEPENDENT
AUDITOR’S REPORT

 

To
the Shareholders of Frankly Inc.:

 

Opinion

 

We
have audited the consolidated financial statements of Frankly Inc. and its subsidiaries (the “Company”), which comprise
the consolidated statements of financial position as at December 31, 2019, December 31, 2018 and January 1, 2018, the consolidated
statements of income (loss) and comprehensive income (loss), consolidated statements of changes in shareholders’ deficit
and consolidated statements of cash flows for the years ended December 31, 2019 and December 31, 2018, and notes to the consolidated
financial statements, including a summary of significant accounting policies.

 

In
our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2019, December 31, 2018 and January 1, 2018, and its consolidated financial performance
and its consolidated cash flows for the years ended December 31, 2019 and December 31, 2018 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board. 

 

Basis
for Opinion

 

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section
of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of
the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Material
Uncertainty Related to Going Concern

 

We
draw attention to Note 2(a) in the consolidated financial statements, which indicates that as at December 31, 2019, the Company
had an accumulated deficit of $(78,387,374) and that the Company has not yet been able to generate positive cash flows from operations.
As stated in Note 2(a), these events or conditions indicate that a material uncertainty exists that may cast a significant doubt
on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

 

Responsibilities
of Management and Those Charged with Governance for the Consolidated Financial Statements

 

Management
is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

 

In
preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Those
charged with governance are responsible for overseeing the Company’s financial reporting process.

 

    	Page 3

    	 

    

 

 

Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements

 

Our
objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.

 

As
part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 

	 	●	Identify
    and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
    and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide
    a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
    from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
    control.
	 	 	 
	 	●	Obtain
    an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
    circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
	 	 	 
	 	●	Evaluate
    the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
    by management.
	 	 	 
	 	●	Conclude
    on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
    obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
    ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
    in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures
    are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
    report. However, future events or conditions may cause the Company to cease to continue as a going concern.
	 	 	 
	 	●	Evaluate
    the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
    the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
	 	 	 
	 	●	Obtain
    sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
    Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
    performance of the group audit. We remain solely responsible for our audit opinion.

 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We
also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.

 

The
engagement partner on the audit resulting in this independent auditor’s report is John C. Sinclair.

 

	 	
	Toronto,
    Ontario	Chartered
    Professional Accountants
	November
    12, 2020	Licensed
    Public Accountants

 

    	Page 4

    	 

    

 

	Frankly
    Inc.	
	Consolidated
    statements of financial position	 
	As
    at December 31, 2019 and 2018 and January 1, 2018	 
	(in
    U.S. dollars)	 
	 	 

 

	 	 	 	 	 	December
    31,	 	 	December
    31,	 	 	January
    1,	 
	 	 	Note	 	 	2019	 	 	2018	 	 	2018	 
	 	 	 	 	 	$	 	 	$	 	 	$	 
	Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current
    assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash
    and cash equivalents and restricted cash	 	 	 	 	 	 	686,577	 	 	 	4,066,194	 	 	 	1,889,001	 
	Accounts receivable	 	 	 	 	 	 	4,312,123	 	 	 	2,238,331	 	 	 	3,483,347	 
	Prepaid
    expenses and deposits	 	 	 	 	 	 	294,880	 	 	 	274,923	 	 	 	535,111	 
	 	 	 	 	 	 	 	5,293,580	 	 	 	6,579,448	 	 	 	5,907,459	 
	Non-current
    assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Software, net	 	 	12(ii)		 	 	649,166	 	 	 	-	 	 	 	6,972,741	 
	Property and equipment,
    net	 	 	12(i)		 	 	43,468	 	 	 	63,245	 	 	 	985,321	 
	Intangible assets,
    net	 	 	12(iii)		 	 	1,088,675	 	 	 	-	 	 	 	6,762,216	 
	Goodwill	 	 	7,
                                         8	 	 	 	1,163,034	 	 	 	-	 	 	 	-	 
	Other
    long-term assets	 	 	 	 	 	 	115,081	 	 	 	194,869	 	 	 	311,046	 
	Total
    assets	 	 	 	 	 	 	8,353,004	 	 	 	6,837,562	 	 	 	20,938,783	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current
    liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable	 	 	 	 	 	 	6,035,879	 	 	 	5,977,424	 	 	 	5,740,788	 
	Accrued expenses	 	 	 	 	 	 	2,093,525	 	 	 	2,157,081	 	 	 	1,717,030	 
	Finance leases	 	 	 	 	 	 	-	 	 	 	-	 	 	 	40,449	 
	Deferred revenues	 	 	 	 	 	 	28,024	 	 	 	14,109	 	 	 	92,279	 
	Deferred rent	 	 	 	 	 	 	-	 	 	 	-	 	 	 	35,882	 
	Contingent purchase
    consideration	 	 	7	 	 	 	312,439	 	 	 	-	 	 	 	-	 
	Due
    to related parties	 	 	17	 	 	 	-	 	 	 	320,125	 	 	 	5,090,358	 
	 	 	 	 	 	 	 	8,469,867	 	 	 	8,468,739	 	 	 	12,716,786	 
	Non-current
    liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debt	 	 	13	 	 	 	-	 	 	 	10,000,000	 	 	 	12,155,573	 
	Other
    liabilities	 	 	 	 	 	 	194,745	 	 	 	577,790	 	 	 	840,973	 
	Total
    liabilities	 	 	 	 	 	 	8,664,612	 	 	 	19,046,529	 	 	 	25,713,332	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Shareholders’
    deficit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Share Capital	 	 	14	 	 	 	68,858,144	 	 	 	63,363,342	 	 	 	62,293,939	 
	Contributed Surplus	 	 	14	 	 	 	9,262,650	 	 	 	7,400,945	 	 	 	7,477,190	 
	Accumulated deficit	 	 	 	 	 	 	(78,387,374	)	 	 	(82,916,160	)	 	 	(74,479,974	)
	Cumulative
    translation adjustment	 	 	 	 	 	 	(45,028	)	 	 	(57,094	)	 	 	(65,704	)
	Total
    shareholders’ deficit	 	 	 	 	 	 	(311,608	)	 	 	(12,208,967	)	 	 	(4,774,549	)
	Total
    liabilities and shareholders’ deficit	 	 	 	 	 	 	8,353,004	 	 	 	6,837,562	 	 	 	20,938,783	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Going concern	 	 	2(a)		 	 	 	 	 	 	 	 	 	 	 	 
	Commitments and contingencies	 	 	18	 	 	 	 	 	 	 	 	 	 	 	 	 
	Subsequent events	 	 	18	 	 	 	 	 	 	 	 	 	 	 	 	 

 

	Approved
    by the Board	“Lou
    Schwartz”	 
	 	Director	 

 

The
accompanying notes form an integral part of and should be read in conjunction with these consolidated financial statements.

 

    	Page 5

    	 

    

 

	Frankly
    Inc.	
	Consolidated
    statements of income (loss) and comprehensive income (loss)	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	 	Note	 	 	2019	 	 	2018	 
	 	 	 	 	 	$	 	 	$	 
	Total
    Revenue	 	 	9	 	 	 	17,323,077	 	 	 	23,677,386	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Costs and operating
    expenses:	 	 	 	 	 	 	 	 	 	 	 	 
	Salaries and benefits,
    net of amounts capitalized	 	 	 	 	 	 	8,918,687	 	 	 	8,187,721	 
	Technology related
    costs	 	 	 	 	 	 	2,697,765	 	 	 	3,999,895	 
	Office and administration	 	 	 	 	 	 	1,892,928	 	 	 	3,020,214	 
	Consulting fees,
    net of amounts capitalized	 	 	 	 	 	 	534,106	 	 	 	842,619	 
	Professional fees	 	 	 	 	 	 	228,975	 	 	 	971,693	 
	Advertising and
    marketing	 	 	 	 	 	 	308,222	 	 	 	330,836	 
	Revenue sharing
    expense	 	 	 	 	 	 	7,858,744	 	 	 	5,804,244	 
	Depreciation and
    amortization	 	 	 	 	 	 	564,093	 	 	 	3,851,356	 
	Stock-based compensation	 	 	 	 	 	 	91,831	 	 	 	395,634	 
	Restructuring expense	 	 	5	 	 	 	129,370	 	 	 	1,020,106	 
	Retention expense	 	 	 	 	 	 	205,632	 	 	 	997,172	 
	Shareholder communications	 	 	 	 	 	 	465,000	 	 	 	-	 
	Loss on disposal
    of assets	 	 	 	 	 	 	-	 	 	 	12,823	 
	Transaction costs	 	 	 	 	 	 	705,113	 	 	 	76,582	 
	Impairment
    expense	 	 	 	 	 	 	-	 	 	 	12,789,343	 
	Loss from operations	 	 	 	 	 	 	(7,277,389	)	 	 	(18,622,852	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Gain on extinguishment
    of debt	 	 	13	 	 	 	(12,276,644	)	 	 	(12,293,647	)
	Foreign exchange
    (gain) loss	 	 	 	 	 	 	2,335	 	 	 	15,913	 
	Interest
    expense, net	 	 	13,
                                         17	 	 	 	468,134	 	 	 	2,091,068	 
	Income (loss) before
    income tax expense	 	 	 	 	 	 	4,528,786	 	 	 	(8,436,186	)
	Income
    tax expense	 	 	11	 	 	 	-	 	 	 	-	 
	Net income (loss)	 	 	 	 	 	 	4,528,786	 	 	 	(8,436,186	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Other comprehensive
    income (loss)	 	 	 	 	 	 	 	 	 	 	 	 
	Foreign
    currency translation	 	 	 	 	 	 	12,066	 	 	 	8,610	 
	Comprehensive
    income (loss)	 	 	 	 	 	 	4,540,852	 	 	 	(8,427,576	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net income (loss)
    per share attributable to shareholders:	 	 	 	 	 	 	 	 	 	 	 	 
	Basic	 	 	10	 	 	$	0.23	 	 	$	(3.39	)
	Diluted	 	 	10	 	 	$	0.13	 	 	$	(3.39	)
	Weighted average common shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 
	Basic	 	 	10	 	 	 	19,515,546	 	 	 	2,487,404	 
	Diluted	 	 	10	 	 	 	36,015,833	 	 	 	2,487,404	 

 

The
accompanying notes form an integral part of and should be read in conjunction with these consolidated financial statements.

 

    	Page 6

    	 

    

 

	Frankly
    Inc.	
	Consolidated
    statements of changes in shareholders’ deficit	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	 	Note	 	 	Common
    shares	 	 	Class
    A restricted voting shares	 	 	Share
    capital	 	 	Contributed
    surplus	 	 	Accumulated

    deficit	 	 	Cumulative
    translation adjustment	 	 	Total

    shareholders’ deficit	 
	 	 	 	 	 	 	 	 	 	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	Balance,
    as at January 1, 2018	 	 	 	 	 	 	2,226,861	 	 	 	-	 	 	 	62,293,939	 	 	 	7,477,190	 	 	 	(74,479,974	)	 	 	(65,704	)	 	 	(4,774,549	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vesting of restricted
    share units	 	 	 	 	 	 	144,652	 	 	 	-	 	 	 	471,879	 	 	 	(471,879	)	 	 	-	 	 	 	-	 	 	 	-	 
	Issuance of common
    shares	 	 	14(f)		 	 	288,642	 	 	 	-	 	 	 	597,524	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	597,524	 
	Stock-based
    compensation	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	395,634	 	 	 	-	 	 	 	-	 	 	 	395,634	 
	Net
    loss	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(8,436,186	)	 	 	-	 	 	 	(8,436,186	)
	Other
    comprehensive income	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	8,610	 	 	 	8,610	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance,
    as at December 31, 2018	 	 	 	 	 	 	2,660,155	 	 	 	-	 	 	 	63,363,342	 	 	 	7,400,945	 	 	 	(82,916,160	)	 	 	(57,094	)	 	 	(12,208,967	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vesting of restricted
    share units	 	 	 	 	 	 	40,983	 	 	 	-	 	 	 	98,475	 	 	 	(58,037	)	 	 	-	 	 	 	-	 	 	 	40,438	 
	Units
    issued in Private Placement	 	 	14(b)		 	 	26,914,285	 	 	 	-	 	 	 	5,138,616	 	 	 	1,875,394	 	 	 	-	 	 	 	-	 	 	 	7,014,010	 
	Unit
    issuance costs	 	 	14(b)		 	 	-	 	 	 	-	 	 	 	(1,054,013	)	 	 	529,504	 	 	 	-	 	 	 	-	 	 	 	(524,509	)
	Issuance
    of common shares in acqusition of Vemba	 	 	8	 	 	 	256,410	 	 	 	-	 	 	 	577,413	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	577,413	 
	Exercise of warrants	 	 	14(c)		 	 	1,607,563	 	 	 	-	 	 	 	1,034,825	 	 	 	(576,987	)	 	 	-	 	 	 	-	 	 	 	457,838	 
	Repurchase of common
    shares	 	 	14(e)		 	 	(1,092,614	)	 	 	-	 	 	 	(300,514	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(300,514	)
	Stock-based
    compensation	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	91,831	 	 	 	-	 	 	 	-	 	 	 	91,831	 
	Net
    income	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	4,528,786	 	 	 	-	 	 	 	4,528,786	 
	Other
    comprehensive income	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	12,066	 	 	 	12,066	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance,
    as at December 31, 2019	 	 	 	 	 	 	30,386,782	 	 	 	-	 	 	 	68,858,144	 	 	 	9,262,650	 	 	 	(78,387,374	)	 	 	(45,028	)	 	 	(311,608	)

 

The
accompanying notes form an integral part of and should be read in conjunction with these consolidated financial statements.

 

    	Page 7

    	 

    

 

	Frankly
    Inc.	
	Consolidated
    statements of cash flows	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	 	Note	 	 	2019	 	 	2018	 
	 	 	 	 	 	$	 	 	$	 
	Cash flows from operating
    activities	 	 	 	 	 	 	 	 	 	 	 	 
	Net income (loss)	 	 	 	 	 	 	4,528,786	 	 	 	(8,436,186	)
	Adjustments
    for:	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation and
    amortization	 	 	 	 	 	 	564,093	 	 	 	3,851,356	 
	Deferred purchase price	 	 	 	 	 	 	51,467	 	 	 	-	 
	Amortization of
    debt discount	 	 	 	 	 	 	-	 	 	 	388,131	 
	Amortization of
    deferred financing costs	 	 	 	 	 	 	-	 	 	 	35,329	 
	Stock-based compensation
    expense	 	 	 	 	 	 	91,831	 	 	 	395,634	 
	Deferred interest	 	 	 	 	 	 	416,667	 	 	 	1,506,986	 
	Impairment expense	 	 	 	 	 	 	-	 	 	 	12,789,343	 
	Loss on disposal
    of assets	 	 	 	 	 	 	-	 	 	 	12,823	 
	Gain on extinguishment
    of debt	 	 	13	 	 	 	(12,276,644	)	 	 	(12,293,647	)
	Provision
    for bad debt expense	 	 	 	 	 	 	37,932	 	 	 	729,806	 
	 	 	 	 	 	 	 	(6,585,868	)	 	 	(1,020,425	)
	Changes
    in:	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts receivable	 	 	 	 	 	 	(2,063,326	)	 	 	411,499	 
	Prepaid expenses
    and other current assets	 	 	 	 	 	 	(18,398	)	 	 	252,336	 
	Other assets	 	 	 	 	 	 	9,927	 	 	 	2,529	 
	Accounts payable	 	 	 	 	 	 	2,912,891	 	 	 	248,593	 
	Accrued expenses	 	 	 	 	 	 	185,516	 	 	 	233,418	 
	Deferred revenue	 	 	 	 	 	 	13,915	 	 	 	(78,171	)
	Due to related parties	 	 	17	 	 	 	(320,125	)	 	 	(3,550,560	)
	Deferred
    rent and other liabilities	 	 	 	 	 	 	(384,071	)	 	 	298,459	 
	Net
    cash used in operating activities	 	 	 	 	 	 	(6,249,539	)	 	 	(3,202,322	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash flows from investing
    activities	 	 	 	 	 	 	 	 	 	 	 	 
	Acquisition of AMP
    assets	 	 	7	 	 	 	(1,750,000	)	 	 	-	 
	Payment of deferred
    and contingent purchase consideration	 	 	7	 	 	 	(627,028	)	 	 	-	 
	Acquisition of Vemba,
    net of cash acquired	 	 	8	 	 	 	(151,500	)	 	 	-	 
	Capitalized software
    costs	 	 	 	 	 	 	-	 	 	 	(1,856,214	)
	Purchases of property
    & equipment	 	 	 	 	 	 	(7,963	)	 	 	(36,261	)
	Proceeds
    from sale of equipment	 	 	 	 	 	 	-	 	 	 	9,635	 
	Net
    cash used in investing activities	 	 	 	 	 	 	(2,536,491	)	 	 	(1,882,840	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash flows from financing
    activities	 	 	 	 	 	 	 	 	 	 	 	 
	Capital lease payments	 	 	 	 	 	 	-	 	 	 	(40,449	)
	Proceeds from issuance
    of private placement units	 	 	14(b)		 	 	7,014,010	 	 	 	-	 
	Unit issuance costs	 	 	14(b)		 	 	(524,509	)	 	 	-	 
	Proceeds from exercise of warrants	 	 	14(c)		 	 	457,838	 	 	 	-	 
	Repurchase of common shares	 	 	14(e)		 	 	(300,514	)	 	 	-	 
	Payments to extinguish
    debt and amounts due to related parties	 	 	13	 	 	 	(1,209,486	)	 	 	-	 
	Proceeds
    from issuance of debt	 	 	13	 	 	 	-	 	 	 	7,300,000	 
	Net
    cash provided by financing activities	 	 	 	 	 	 	5,437,339	 	 	 	7,259,551	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Effect of exchange
    rate changes on cash	 	 	 	 	 	 	(30,926	)	 	 	2,804	 
	Net
    change in cash and cash equivalents	 	 	 	 	 	 	(3,379,617	)	 	 	2,177,193	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash
    equivalents and restricted cash at beginning of year	 	 	 	 	 	 	4,066,194	 	 	 	1,889,001	 
	Cash
    and cash equivalents and restricted cash at end of year	 	 	 	 	 	 	686,577	 	 	 	4,066,194	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash is represented
    by:	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	 	686,577	 	 	 	3,542,079	 
	Restricted
    cash	 	 	 	 	 	 	-	 	 	 	524,115	 
	 	 	 	 	 	 	 	686,577	 	 	 	4,066,194	 

 

The
accompanying notes form an integral part of and should be read in conjunction with these consolidated financial statements.

 

    	Page 8

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	1.	General
information

 

Frankly
Inc. (“Frankly” or the “Company”) is a digital technology company that provides an integrated software
platform for brands and media companies primarily in the United States and has been operating since the incorporation, in Delaware,
of its predecessor, Frankly Co. (formerly TicToc Planet Inc.) (“TicToc”), on September 10, 2012. The address of the
registered office of Frankly is 2900-550 Burrard Street, Vancouver, British Columbia, Canada V6C 0A3. These consolidated financial
statements include Frankly and its subsidiaries (Frankly Co., Frankly Media LLC, and Vemba Media Technologies Private Limited),
together referred to as the “Company.” The Company creates, distributes, analyzes, and monetizes content across various
digital properties through web, mobile, and television.

 

On
May 10, 2019, the Company’s subsidiary, Frankly Media LLC, completed the acquisition of certain assets of Triton Digital,
Inc. and certain affiliated entities (collectively, “Triton”), including the AMP content management and contesting
platforms for radio broadcasters, customer agreements to supply AMP services to approximately 1,200 radio stations and all employees
of the AMP business (collectively the “AMP Assets”)(Note 7).

 

On
August 7, 2019, the Company’s subsidiary, Frankly Media LLC, completed the acquisition of certain assets of Vemba Corporation
(“Vemba”), including the Vemba video asset management, syndication and monetization platform, customer agreements
and all employees of the Vemba business (collectively the “Vemba Assets”)(Note 8).

 

The
Company was acquired by Engine Media Holdings Inc. (formerly Torque Esports Corp.)(“Torque”) on May 8, 2020 under
terms of a business combination agreement (Note 18).

 

	2.	Basis of preparation

 

	(a)	Going concern

 

These
consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in
operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course
of business. The realizable values may be substantially different from its carrying amounts, as shown in these consolidated financial
statements, and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying
amounts and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

As
at December 31, 2019, the Company had an accumulated deficit of $(78,387,374) (2018 - $(82,916,160)). The Company has not yet
been able to generate positive cash flows from operations. Whether and when the Company can generate sufficient cash flows to
pay for its expenditures and settle its obligations as they fall due subsequent to December 31, 2019 is uncertain.

 

This
material uncertainty may cast significant doubt on the Company’s ability to continue as a going concern. The consolidated
financial statements do not include the adjustments that would be necessary should the Company be unable to continue as a going
concern. Such adjustments could be material.

 

    	Page 9

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

During
2019 and up to May 8, 2020, the date of acquisition of the Company by Torque, the Company made efforts to reduce costs, increase
revenue and entered into financing agreements to maintain its operations.

 

	(b)	Statement of compliance

 

The
Company’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the
IFRS Interpretations Committee (“IFRIC”).

 

The
Company transitioned back to IFRS in these consolidated financial statements (Note 5a).

 

These
consolidated financial statements were authorized for issuance by the Board of Directors on November 12, 2020.

 

	(c)	Basis of presentation

 

The
consolidated financial statements are prepared on a going concern basis using the historical cost method, except for financial
instruments measured at their fair value. In addition, these consolidated financial statements have been prepared using the accrual
basis of accounting except for cash flow information. The consolidated financial statements are presented in US dollars.

 

The
Company presents its classified statements of financial position distinguished between current and non-current assets and liabilities.
Current assets and liabilities are those expected to be settled within one year of the reporting period, and non-current assets
and liabilities are those which the recovery or settlement is expected to be greater than a year after the reporting period.

 

	(d)	Functional and presentation currency

 

These
consolidated financial statements have been presented in U.S. dollars.

 

The
following companies have been consolidated within these consolidated financial statements:

 

	Company	 	Registered	 	%
    of ownership
 and voting rights	 	 	Functional

    currency
	 	 	 	 	 	 	 	 
	Frankly Inc.	 	Canada	 	 	N/A	 	 	CAD
	Frankly Media LLC	 	United States	 	 	100	%	 	USD
	Frankly Co.	 	United States	 	 	100	%	 	USD
	Vemba Media Technologies Private Limited	 	India	 	 	100	%	 	INR

 

	3.	Significant judgments, estimates, and assumptions:

 

The
preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial
statements and reported amounts of expenses during the reporting year. Estimates and assumptions are continually evaluated and
are based on management’s experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. However, actual results could differ from these estimates.

 

    	Page 10

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
areas which require management to make significant estimates and assumptions in applying the Company’s accounting policies
in determining carrying values include:

 

	 	(a)	Income Taxes

 

The
Company is subject to income taxes in certain jurisdictions. Significant judgment is required in determining the provision for
income taxes. There may be some transactions and calculations for which the ultimate tax determination is uncertain. The Company
recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the
final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the
current and deferred income tax assets and liabilities in the year in which such determination is made.

 

	 	(b)	Accounts
receivable

 

The
allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses existing in the Company’s
accounts receivable; however, changes in circumstances relating to accounts receivable may result in an increase or decrease in
the allowance required in the future.

 

	 	(c)	Amortization and impairment of non-financial assets

 

The
Company reviews amortized non-financial assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may be impaired. It also reviews annually non-financial assets with indefinite life for impairment. If the
recoverable amount of the respective non-financial asset is less than its carrying amount, it is considered to be impaired. In
the process of measuring the recoverable amount, management makes assumptions about future events and circumstances. The actual
results may vary and may cause significant adjustments.

 

The
amortization expense related to intangible and other assets is determined using estimates relating to the useful life of the related
assets.

 

	 	(d)	Business combinations

 

The
Company assesses whether an acquisition transaction should be accounted for as an asset acquisition or a business combination
under IFRS 3, Business Combinations (“IFRS 3”). This assessment requires management to make judgments on whether the
assets acquired and liabilities assumed constitute a business as defined in IFRS 3 and if the integrated set of activities, including
inputs and processes acquired, is capable of being conducted and managed as a business.

 

Purchase
prices related to business combinations and asset acquisitions are allocated to the underlying acquired assets and liabilities
based on their estimated fair value at the time of acquisition. The determination of fair value requires the Company to make assumptions,
estimates and judgments regarding future events. The measurement of the purchase consideration and allocation process is inherently
subjective and impacts the amounts assigned to individually identifiable assets and liabilities. As a result, the purchase price
allocation impacts the Company’s reported assets and liabilities, future net earnings due to the impact on future depreciation
and amortization expense and impairment tests.

 

    	Page 11

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	(e)	Valuation of intangible assets

 

The
determination of estimated fair values of acquired intangible assets, as well as the useful economic life ascribed to finite lived
intangible assets, requires the use of significant judgment. The use of different estimates and assumptions to those used by the
Company could result in a materially different valuation of acquired intangible assets, which could have a material effect on
the Company’s consolidated results of operations.

 

	 	(f)	Share-based payment transactions

 

The
Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments
at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most
appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining
the most appropriate inputs to the valuation model including the expected life of the share option, volatility, dividend yield
and forfeiture rate.

 

	4.	Changes in significant accounting policies

 

	(a)	IFRS 2, Share-based Payment (“IFRS 2”)

 

In
June 2016, the IASB issued final amendments to IFRS 2, clarifying how to account for certain types of share-based payment transactions,
effective for annual periods beginning on or after January 1, 2018. The amendments provide requirements on the accounting for:
(i) the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; (ii) share-based
payment transactions with a net settlement feature for withholding tax obligations; and (iii) a modification to the terms and
conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. No
transitional adjustment has been recorded as at January 1, 2018.

 

	(b)	IFRS 15, Revenue from Contracts with Customers (“IFRS
15”)

 

The
Company adopted IFRS 15 on its effective date of January 1, 2018 using the modified retrospective approach. IFRS 15 replaces IAS
18, Revenue. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue
at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether,
how much and when revenue is recognized. The standard requires entities to exercise judgment, taking into consideration all relevant
facts and circumstances when applying each step of the model to contracts with customers.

 

The
Company’s assessment included a review of relevant contracts for the key areas that are in the scope of IFRS 15. The Company
has concluded that there are no significant differences in revenue recognition for its revenue streams between the point of transfer
of risks and rewards under IAS 18 and the point of transfer of control under IFRS 15. No transitional adjustment has been recorded
as at January 1, 2018.

 

    	Page 12

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	(c)	IFRS 9, Financial Instruments (“IFRS 9”)

 

The
Company adopted IFRS 9 on its effective date of January 1, 2018, using the modified retrospective basis with no restatement of
comparative periods. IFRS 9 replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of IFRS
9. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing
the multiple rules in IAS 39.

 

The
approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual
cash flow characteristics of the financial assets. The new standard also requires a single impairment method be used, replacing
the multiple impairment methods in IAS 39. IFRS 9 also includes requirements relating to a new hedge accounting model, which represents
a substantial overhaul of hedge accounting, which will allow entities to better reflect their risk management activities in the
consolidated financial statements.

 

Under
IFRS 9, financial assets are classified on the basis of both the business model in which the assets are managed and the contractual
cash flow characteristics of the asset. Financial assets after initial recognition are classified and measured either as: (i)
amortized cost; (ii) fair value through other comprehensive income (FVOCI) with fair value gains or losses recycled into profit
or loss on derecognition; or (iii) fair value through profit or loss (FVTPL). Financial liabilities are classified and measured
either as: (i) amortized cost; or (ii) FVTPL. No transitional adjustments have been recorded relating to the Company’s adoption
of IFRS 9 as at January 1, 2018.

 

	(d)	IFRS 16, Leases (“IFRS 16”)

 

In
January 2016, the IASB issued IFRS 16 - Leases (“IFRS 16”), replacing IAS 17 - Leases. IFRS 16 provides a single lessee
accounting model and requires the lessee to recognize assets and liabilities for all leases on its statement of financial position,
providing the reader with greater transparency of an entity’s lease obligations.

 

At
January 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach and accordingly the information presented
for 2018 has not been restated. Comparative figures remain as previously reported under IAS 17 and related interpretations.

 

The
Company has elected to not account for low value or short-term leases (leases with a duration of less than twelve months). The
adoption of IFRS 16 did not have a material impact on the Company’s consolidated financial statements because the Company
did not have any material leases with a duration of more than twelve months.

 

Changes
in significant accounting policies not yet effective

 

    	Page 13

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	(e)	IAS 1 and IAS8 – Definition of Material - Updates

 

On
October 31, 2018, the IASB issued ‘Definition of Material (Amendments to IAS 1 and IAS 8)’ to clarify the definition
of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. The amendments
are effective annual reporting periods beginning on or after January 1, 2020. The implementation of these standards is not expected
to have a material impact on the Company’s consolidated financial statements.

 

	(f)	Conceptual Framework – Updates

 

Together
with the revised ‘Conceptual Framework’ published in March 2018, the IASB also issued ‘Amendments to References
to the Conceptual Framework in IFRS Standards’. The amendments are effective for annual periods beginning on or after January
1, 2020. The implementation of these standards is not expected to have a material impact on the Company’s consolidated financial
statements.

 

	(g)	IFRS 3 – Definition of a Business - Updates

 

On
October 22, 2018, the IASB issued ‘Definition of a Business (Amendments to IFRS 3)’ aimed at resolving the difficulties
that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for
business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after January 1, 2020. The implementation of these standards is not expected to have a material impact on the Company’s
consolidated financial statements.

 

	(h)	Other accounting standards

 

Other
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.

 

	5.	Significant accounting policies

 

	(a)	Adoption of IFRS

 

These
consolidated financial statements are the second time the Company has prepared consolidated financial statements in accordance
with IFRS. For periods up to and including the nine months ended September 30, 2016, the Company prepared its consolidated financial
statements in accordance with IFRS. The Company moved to reporting under United States generally accepted accounting principles
(“U.S. GAAP”) from the year ended December 31, 2016 up to and including the nine months ended September 30, 2019.

 

Accordingly,
the Company has prepared consolidated financial statements that comply with IFRS applicable as at December 31, 2019, together
with the comparative period data for the year ended December 31, 2018. In preparing the consolidated financial statements, the
Company’s opening statement of financial position was prepared as at January 1, 2018, the date of the Company’s transition
back to IFRS. This note explains the principal adjustments made by the Company in restating its U.S. GAAP consolidated financial
statements, including the statement of financial position as at January 1, 2018 and the consolidated financial statements as of
and for the years ended December 31, 2019 and 2018.

 

    	Page 14

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company made the following adjustments to its U.S. GAAP consolidated financial statements to arrive at its IFRS consolidated financial
statements for all periods presented:

 

	 	i.	Adjustment to opening shareholders’ deficit

 

The
Company made an adjustment from its U.S. GAAP consolidated financial statements to its IFRS consolidated financial statements
to reclassify $3,643,644 between opening share capital and accumulated deficit as at January 1, 2018. The adjustment increased
share capital and decreased accumulated deficit by the amount noted above. This adjustment resulted from the Company’s first-time
adoption of US GAAP and resulting impact to its December 31, 2014 statement of financial position. The impact of the adjustment
is being reversed on the opening January 1, 2018 IFRS statement of financial position. The adjustment related to differences between
U.S. GAAP and IFRS on convertible debt issued, re-measured and ultimately converted to equity, all of which occurred in 2014,
along with adjustment to accounting for the 2014 reverse triangular merger between Frankly Inc. and Frankly Co. which closed on
December 23, 2014.

 

	 	ii.	Adjustment to debt, gain on extinguishment of debt
and interest expense

 

The
Company made the following adjustments from its U.S. GAAP consolidated financial statements to its IFRS consolidated financial
statements relating to accounting for debt modifications and extinguishments with Raycom that occurred during the 2018 and 2019
fiscal years (Note 13).

 

	 	●	As
    at and for the year ended December 31, 2018 – The Company recorded a decrease to debt (debit) of $3,000,000, an increase
    to accrued expenses (credit) of $208,333 and a decrease to accumulated deficit (credit) of $2,791,667. The decrease to accumulated
    deficit was comprised of an increase to gain on extinguishment of debt (credit) of $3,000,000 partially offset by an increase
    to interest expense (debit) of $208,333.
	 	 	 
	 	●	As
    at and for the year ended December 31, 2019 – The Company recorded a decrease to gain on extinguishment of debt (debit)
    of $2,375,000 and an increase to interest expense (debit) of $416,667. The net impact of the above two adjustments was a decrease
    to net income (debit) of $2,791,667. No adjustment was required on the statement of financial position as the debt was full
    extinguished in 2019. Further, the increase to net income in 2018 of $2,791,667 was directly offset by the decrease to net
    income in 2019 of $2,791,667. 

 

	(b)	Foreign currency

 

	 	i.	Foreign currency transactions and balances:

 

Transactions
denominated in foreign currencies are translated into the functional currency of the Company and its subsidiaries as follows:

 

	 	●	Monetary
    assets and liabilities are translated at the rates of exchange at the reporting dates;

 

    	Page 15

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	●	Non-monetary
    assets and liabilities are translated at historical exchange rates prevailing at each transaction date; and
	 	●	Revenue
    and expenses are translated at average exchange rates prevailing throughout the reporting period.
	 	●	Resulting
    gains / losses are recorded within foreign exchange (gain) loss on the consolidated statements of loss and comprehensive loss.

 

	 	ii.	Foreign operations:

 

The
assets and liabilities of foreign operations are translated into the Company’s presentation currency at the exchange rate
at the reporting date. The income and expenses of foreign operations are translated into the Company’s presentation currency
at average exchange rates prevailing throughout the reporting period. Foreign currency differences are recognized in other comprehensive
income and are accumulated within accumulated other comprehensive income. When a foreign operation is disposed of in its entirety
or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve
related to the foreign operations is reclassified to profit or loss as part of the gain or loss on disposal. Goodwill and fair
value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation
and translated at the exchange rate at the reporting date. Foreign currency differences are recognized in other comprehensive
income and are accumulated within accumulated other comprehensive income.

 

	(c)	Revenue from contracts with customers

 

Revenue
is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when the performance
obligations (services) are transferred to a customer.

 

The
Company evaluates all contractual arrangements it enters and evaluates the nature of the promised goods or services, and rights
and obligations under the arrangement, in determining the nature of its performance obligations. Where such performance obligations
are capable of being distinct and are distinct in the context of the contract, the consideration the Company expects to be entitled
to is allocated to each performance obligation based on its relative estimated stand-alone selling prices. Performance obligations
that the Company concludes are not distinct are combined in a single combined performance obligation. Revenue is recognized at
an amount equal to the transaction price allocated to the specific performance obligation when it is satisfied, either at a point
in time or over time, as applicable, based on the pattern of transfer of control.

 

	(d)	Accounts receivable

 

Accounts
receivable are amounts due from customers for services performed in the ordinary course of business and are presented net of an
allowance for doubtful accounts. If collection is expected in one year or less, they are classified as current assets. If not,
they are presented as non-current assets. The Company maintains an allowance for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments. This allowance is regularly evaluated by the Company for adequacy
by taking into consideration factors such as past experience, credit quality of the customer base, age of the receivable balances,
both individually and in the aggregate, and current economic conditions that may affect a customer’s ability to pay.

 

    	Page 16

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Accounts
receivable are considered past due when not paid by the due date agreed upon with the customer, which ranges from 15 to 60 days
beyond the invoice date. The Company does not accrue interest on past due accounts receivable. Receivables are written off only
after all collection attempts have failed and are based on individual credit evaluation and the specific circumstances of the
customer. The allowance for doubtful accounts was $825,396 and $799,800 as at December 31, 2019 and 2018, respectively.

 

Accounts
receivable are subject to credit risk and as of December 31, 2019 and 2018, two customers each accounted for greater than 10%
of the Company’s accounts receivable balance. In total, these two customers accounted for 35% and 49% of the Company’s
accounts receivable balance. Additionally, approximately 37% and 44% of the Company’s revenue for the year ended December
31, 2019 and 2018, respectively, was generated from customers that accounted for greater than 10% of the Company’s total
revenue.

 

	(e)	Impairment of long-lived assets

 

At
each reporting date, the Company reviews the carrying amounts of its non-financial assets to determine whether there is any indication
of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually
for impairment.

 

For
impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing
use that are largely independent of the cash inflows of other assets or cash-generating units (“CGUs”). Goodwill arising
from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The Company has one cash generating unit, which is the same as its reportable segment.

 

The
recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is
based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or CGU.

 

An
impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.

 

Impairment
losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the
CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

 

An
impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized.

 

	(f)	Restructuring expense

 

In
an effort to reduce its operating cash needs, in February 2018, the Company executed a reduction-in-force that removed approximately
20 full-time employees from its headcount. In addition, the Company subleased its remaining office space in San Francisco, CA
and finalized its move out of its Long Island City, New York headquarters into a smaller space in New York City, New York. The
restructuring also included a reorganization of the senior management team. Effective April 12, 2018, the Company’s CEO
resigned and was succeeded by the Company’s former COO and CFO. A number of other senior management changes were implemented
on the same date. In addition, in August 2019, in connection with the acquisition of the Vemba Assets, the Company executed a
reduction-in-force that removed approximately 18 full-time employees from its headcount.

 

    	Page 17

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

On
December 21, 2018, the Company entered into a termination agreement of its sublease agreement with MetLife for its Long Island
City, NY headquarters, effective December 31, 2018. The sublease expiration date was March 1, 2023, therefore, this was an early
termination of the sublease. In connection with this early termination, the Company agreed to pay an early termination fee of
approximately $499,158, which represented the amount of the Company’s security deposit with MetLife through a standby letter
of credit with Western Alliance Bank (Note 13). Subsequent to the funding of the termination fee by Western Alliance Bank in January
2019, the standby letter of credit was also terminated. The Company recorded a lease abandonment expense of $477,896 as of December
31, 2018, which was comprised of the lease termination fee to MetLife of $499,158 and write-off of prepaid standby letter of credit
fees with Western Alliance Bank of $7,675, partially offset by write-off of deferred rent liability of $28,937.

 

The
following table summarizes the changes in the restructuring liability (included in accrued expenses) for the period presented,
by each major type of cost associated with the restructuring activity):

 

	 	 	One-time

    termination
 benefits	 	 	Contract

    costs	 	 	Lease

    termination	 	 	Total	 
	 	 	 	 	 	 	 	 	$	 	 	$	 
	Balance, December 31, 2017	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Restructuring
    expense	 	 	443,134	 	 	 	99,076	 	 	 	477,896	 	 	 	1,020,106	 
	Payments	 	 	(443,134	)	 	 	-	 	 	 	-	 	 	 	(443,134	)
	Adjustments	 	 	-	 	 	 	-	 	 	 	21,262	 	 	 	21,262	 
	Balance, December 31, 2018	 	 	-	 	 	 	99,076	 	 	 	499,158	 	 	 	598,234	 
	Restructuring expense	 	 	128,097	 	 	 	-	 	 	 	1,273	 	 	 	129,370	 
	Payments	 	 	(128,097	)	 	 	-	 	 	 	(500,431	)	 	 	(628,528	)
	Balance, December
    31, 2019	 	 	-	 	 	 	99,076	 	 	 	-	 	 	 	99,076	 

 

	(g)	Employee benefits

 

	 	i.	Short-term employee benefits

 

Short-term
employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid
if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee
and the obligation can be estimated reliably.

 

    	Page 18

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	ii.	Share-based payment arrangements

 

The
grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as an expense,
with a corresponding increase in equity, over the vesting period of the awards.

 

The
amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance
conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related
service and non-market performance conditions at the vesting date.

 

For
share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect
such conditions and there is no true-up for differences between expected and actual outcomes.

 

	(h)	Income tax

 

	 	i.	Current tax

 

Current
tax comprises the expected payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable
or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount
expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using the tax rates
enacted or substantively enacted at the reporting date.

 

	 	ii.	Deferred tax

 

Deferred
tax is recorded using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:

 

	 	●	temporary
    differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that
    affects neither accounting nor taxable profit or loss; and
	 	 	 
	 	●	temporary
    differences related to investments in subsidiaries to the extent that the Company is able to control the timing of the reversal
    of the temporary differences and it is probable that they will not reverse in the foreseeable future.

 

Deferred
tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it
is probable that future taxable profits will be available against which they can be used.

 

Deferred
tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax
benefit will be realized; such reductions are reversed when the probability of future taxable profits improves. Unrecognized deferred
tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable
profits will be available against which they can be used.

 

    	Page 19

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Deferred
tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current
tax assets and liabilities on a net basis.

 

	(i)	Financial instruments

 

	 	i.	Recognition and measurement

 

Trade
receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial
liabilities are initially recognized when the Company becomes party to the contractual provisions of the instrument.

 

A
financial asset (unless it is a trade receivable without a significant financing component) or a financial liability is initially
measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or
issue. A trade receivable without a significant financing component is initially measured at the transaction price.

 

	 	ii.	Classification and subsequent measurement

 

Financial
assets – policy

 

On
initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment; FVOCI –
equity investment; or FVTPL.

 

Financial
assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing
financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period
following the change in the business model.

 

A
financial asset is measured at amortized cost if it meets both of the following conditions as is not designated as FVTPL:

 

	 	●	it
    is held within a business model whose objective is to hold assets to collect contractual cash flows; and
	 	 	 
	 	●	its
    contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
    amount outstanding.

 

A
debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL:

 

	 	●	it
    is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial
    assets; and
	 	 	 
	 	●	its
    contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
    amount outstanding.

 

    	Page 20

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

On
initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent
changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

 

All
financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes
all derivative financial assets.

 

On
initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured
at amortized cost or at FVOCI as FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise
arise.

 

Financial
assets – subsequent measurement and gains and losses

 

	Financial
    assets at FVTPL	 	These
    assets as subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized
    in profit or loss.
	 	 	 
	Financial
    assets at amortized cost	 	These
    assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment
    losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss
    on derecognition is recognized in profit or loss
	 	 	 
	Debt
    investments at FVOCI	 	These
    assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange
    gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition,
    gains and losses accumulated in OCI are reclassified to profit or loss.
	 	 	 
	Equity
    investments at FVOCI	 	These
    assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss, unless the dividend
    clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and
    are never reclassified to profit or loss.

 

Financial
liabilities – Classification, subsequent measurement and gains and losses

 

Financial
liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified
as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are
measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial
liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange
gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

 

    	Page 21

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	iii.	Derecognition

 

Financial
assets

 

The
Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers
the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership
of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and
rewards of ownership and it does not retain control of the financial asset.

 

Financial
liabilities

 

The
Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company
also derecognizes a financial liability when its terms are modified and the cash flows or the modified liability are substantially
different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of
a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash
assets transferred or liabilities assumed) is recognized in profit or loss.

 

	 	iv.	Offsetting

 

Financial
assets and financial liabilities are offset and the net amount presented on the statement of financial position, only when the
Company has a legally enforceable right to offset the amounts and it intends either to settle them on a net basis or to realize
the asset and settle the liability simultaneously.

 

	 	v.	Non-derivative financial assets

 

Financial
instruments and contract assets

 

Expected
credit losses (“ECLs”) is the probability-weighted estimate of credit losses. The Company recognizes loss allowances
for ECLs on:

 

	 	●	financial
    assets measured at amortized cost; and
	 	 	 
	 	●	contract
    assets.

 

Loss
allowances for trade receivables and contract assets are always measured at an amount equal to the lifetime ECLs.

 

When
determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort.

 

This
includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed
credit assessment and including forward-looking information.

 

    	Page 22

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

 

The
Company considers a financial asset to be in default when:

 

	 	●	the
    borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company; or
	 	 	 
	 	●	the
    financial asset is more than 90 days past due.

 

Lifetime
ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

 

Measurement
of ECLs

 

ECLs
are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e.
the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects
to receive). ECLs are discounted at the effective interest rate of the financial asset.

 

Write-off

 

The
gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial
asset in its entirety or a portion thereof. For individual customers, the Company has a policy of writing off the gross carrying
amount when the financial asset is 180 days past due based on historical experience of recoveries of similar assets and the Company
expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject
to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

 

	(j)	Share capital

 

	 	i.	Common stock

 

Incremental
costs directly attributable to the issue of common stock are recognized as a deduction from equity. Income tax relating to transactions
costs of an equity transaction are accounted for in accordance with IAS 12.

 

	 	ii.	Repurchase and reissue of common stock (treasury
stock)

 

When
stock recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs,
is recognized as a deduction from equity.

 

	(k)	Provisions

 

Provisions
are recognized when present (legal or constructive) obligations as a result of a past event will lead to a probable outflow of
economic resources and amounts can be estimated reliably. Provisions are measured at management’s best estimate of the expenditure
required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the
risks and uncertainties associated with the present obligation.

 

    	Page 23

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company performs evaluations to identify onerous contracts and, where applicable, records provisions for such contracts. All provisions
are reviewed at each reporting date and adjusted to reflect the current best estimate. In those cases where the possible outflow
of economic resources as a result of present obligations is considered remote, no liability is recognized.

 

	(l)	Fair value measurement

 

‘Fair
value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company
has access at that date. The fair value of a liability reflects its non-performance risk.

 

A
number of the Company’s accounting policies and disclosures require the measurement of fair values, both for financial and
non-financial assets and liabilities.

 

When
one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument.
A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and
volume to provide pricing information on an ongoing basis.

 

If
there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable
inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.

 

The
Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as a broker
quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from third parties
to support the conclusion of these valuations with respect to the requirements of IFRS, including the level in the fair value
hierarchy in which the valuations should be classified.

 

Significant
valuation issues are reported to the Company’s board of directors.

 

When
measuring the fair value of an asset or liability, the Company uses observable market data as much as possible. Fair values are
categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

	 	●	Level
    1: quoted priced (unadjusted) in active markets for identical assets or liabilities;
	 	 	 
	 	●	Level
    2: inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly (i.e.
    as prices) or indirectly (i.e. derived from prices);
	 	 	 
	 	●	Level
    3: inputs for the asset or liability that are not based on the observable market data (unobservable inputs).

 

    	Page 24

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

If
the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then
the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input
that is significant to the entire measurement.

 

The
Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change
has occurred.

 

The
carrying amounts of cash, restricted cash, accounts receivable, accounts payable and accrued expenses, and debt approximate fair
value.

 

	(m)	Capitalized Software Costs

 

The
Company accounts for its software development costs on its content management system, video and mobile applications as internal-use
software in accordance with IAS 38.

 

Development
costs are capitalized as an intangible asset if the Company can demonstrate that all of the following criteria are met:

 

	 	●	The
    technical feasibility of completing the asset so that it will be available for use or sale;
	 	 	 
	 	●	The
    intention to complete the asset and use or sell it;
	 	 	 
	 	●	The
    ability to use or sell the asset;
	 	 	 
	 	●	The
    asset will generate probable future economic benefits and the Company can demonstrate the existence of a market or if used
    internally, the usefulness of the asset;
	 	 	 
	 	●	The
    availability of adequate technical, financial and other resources to complete the development and to use or sell it; and
	 	 	 
	 	●	The
    Company has the ability to measure reliably the expenditure attributable to the intangible asset.

 

During
the years ended December 31, 2019 and 2018, the Company capitalized $Nil and $1,856,214, respectively, of combined internal and
external costs. Internal and external training and maintenance costs are expensed as incurred. Capitalized costs are amortized
on a straight-line basis over the software’s estimated useful life, which is three to five years beginning when the software
is ready for use. Periodically, the Company reassesses the useful life considering technology, obsolescence, and other factors.
The Company ceased capitalization of software development costs after full impairment recognized in the third quarter of 2018
(Note 12ii).

 

	6.	Operating segments

 

The
Company operates in the United States. The Company has one strategic division offering its services which are managed on an integrated
basis with similar bases in technology and marketing. In measuring its performance, the Company does not distinguish or group
its operations on a geographical or on any other basis, and accordingly, has a single operating segment.

 

    	Page 25

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company’s chief operating decision maker is the Chief Executive Officer (“CEO”). The CEO evaluates performance
and makes operating decisions and allocates resources based on financial data that is consistent with that presented in these
consolidated financial statements.

 

	7.	Acquisition of assets of AMP

 

	(a)	Description of the transaction

 

On
May 10, 2019, the Company’s subsidiary, Frankly Media LLC, completed the acquisition of the AMP Assets from Triton Digital,
Inc., including the AMP content management and contesting platforms for radio broadcasters, customer agreements to supply AMP
services to approximately 800 radio stations and all employees of the business. The acquisition was completed pursuant to the
AMP Agreement between the Company and Triton dated May 1, 2019. The total maximum purchase price to be paid under the AMP Agreement
is $3.0 million, with $1.75 million paid on closing, $250,000 payable on the six-month anniversary of the closing date and $1.0
million contingent upon the renewal of a key customer contract and payable upon such renewal.

 

The
contingent consideration will be computed as the amount equal to the lesser of (i) $1.0 million and (ii) $1.0 million multiplied
by a fraction, the numerator of which is the total minimum AMP service fees to be paid to the Company during 2020 pursuant to
the renewal agreement and the denominator of which is the total amount of actual AMP service fees paid in 2019.

 

	(b)	Purchase price allocation

 

The
net assets acquired were recorded in the consolidated financial statements at their estimated fair values as of the acquisition
date. Under the purchase method of accounting, the total acquisition price of approximately $2.6 million was allocated to the
net tangible assets and identifiable intangible assets based on their fair values as of the date of acquisition, with the amount
paid in excess of such fair value recorded as goodwill.

 

    	Page 26

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
following summarizes the purchase price allocation relating to the acquisition of the AMP Assets:

 

	 	 	Amount	 
	 	 	 	 
	Purchase
    consideration	 	 	 	 
	Cash	 	$	1,750,000	 
	Fair
    value of deferred and contingent purchase price consideration	 	 	888,000	 
	 	 	$	2,638,000	 
	 	 	 	 	 
	Purchase price allocation	 	 	 	 
	Property and equipment	 	$	24,334	 
	Software development
    costs	 	 	400,000	 
	Intangible assets
    - customer relationships	 	 	1,300,000	 
	Goodwill	 	 	913,666	 
	Net assets acquired	 	$	2,638,000	 

 

Significant
judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:

 

	 	i.	Intangible Assets, Software 

 

AMP
had certain proprietary technology used in its products, which the Company expects will contribute to future cash flow. The fair
value of the software intangible asset was determined based on the relief from royalty method under the income approach. The software
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections; (ii)
royalty rate; (iii) technology replacement rate; and (iv) present value factor. This asset is amortized on a straight-line basis
over the estimated useful life of five years.

 

	 	ii.	Intangible Assets, Customer Relationships 

 

AMP
had established relationships with local radio broadcasters which are expected to result in future sales. The fair value of the
customer relationships intangible asset was determined based on the excess earnings method under the income approach. The customer
relationships intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections;
(ii) customer attrition rate / probability of renewal rate; (iii) charges for use of assets; and (iv) present value factor. This
asset is amortized on an accelerated basis over the estimated useful life of eight years.

 

	 	iii.	Contingent consideration 

 

The
fair value of the contingent consideration due to Triton of up to $1.0 million was determined using a multiple-scenario probability-weighted
analysis. The contingent consideration was valued using Level 3 inputs which consisted of the probabilities of each scenario as
determined by the Company and the present value factor.

 

The
difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired
and liabilities assumed represents goodwill of $0.9 million. All of the goodwill is expected to be deductible for tax purposes
as the acquisition was considered an asset deal for tax purposes. The goodwill recorded represents the following: (i) Cost savings
and operating synergies expected to result from combining the operations of AMP with those of the Company, and (ii) intangible
assets that do not qualify for separate recognition such as the assembled workforce.

 

    	Page 27

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Fair
value of the deferred and contingent consideration amounted to $218,000 and $670,000, respectively, as of the closing date. During
the period from May 10, 2019 to the payment date, the Company recognized $51,467 of accretion expense recorded within interest
expense, net on the consolidated statement of loss and comprehensive loss. The Company made payments of the deferred consideration
and contingent consideration in the fourth quarter of 2019 of $250,000 and $377,028, respectively. As at December 31, 2019, $312,439
of contingent consideration was outstanding.

 

The
Company incurred fees of $147,455 which were recognized separately from the acquisition and included as transaction costs on the
consolidated statement of income (loss) and comprehensive income (loss). The consolidated statement of income (loss) and comprehensive
income (loss) for the year ended December 31, 2019 included total revenues from the AMP business of approximately $2,600,000,
which represented revenue for the period from May 10, 2019 to December 31, 2019.

 

	8.	Acquisition of assets of Vemba

 

	(a)	Description of transaction

 

On
August 7, 2019, the Company completed its acquisition of certain assets of Vemba. Under the terms of the asset purchase agreement
with Vemba, the Company acquired the Vemba video asset management, syndication and monetization platform, employees and related
customer contracts, comprising substantially all of the property and assets of Vemba, excluding working capital, for a purchase
price consisting of $154,214 cash payment and the issuance to Vemba of 256,410 of Company common shares. The common shares issued
pursuant to the acquisition were subject to a 4-month statutory hold period and contractual escrow restrictions for a period of
12-months.

 

	(b)	Purchase price allocation

 

The
net assets acquired were recorded in the consolidated financial statements at their estimated fair values as of the acquisition
date. Under the purchase method of accounting, the total acquisition price of approximately $0.7 million was allocated to the
net tangible assets and identifiable intangible assets based on their fair values as of the date of acquisition, with the amount
paid in excess of such fair value recorded as goodwill.

 

    	Page 28

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
following summarizes the purchase price allocation relating to the acquisition of the Vemba Assets:

 

	 	 	Shares	 	 	Amount	 
	Purchase
    consideration	 	 	 	 	 	 	 	 
	Cash	 	 	-	 	 	$	154,214	 
	Frankly
    Inc. Common Shares, at fair value	 	 	256,410	 	 	 	577,413	 
	 	 	 	256,410	 	 	$	731,627	 
	 	 	 	 	 	 	 	 	 
	Purchase price allocation	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	$	2,714	 
	Prepaid expenses
    and other current assets	 	 	 	 	 	 	614	 
	Accrued expenses	 	 	 	 	 	 	(1,069	)
	Software development
    costs	 	 	 	 	 	 	330,000	 
	Intangible assets
    - customer relationships	 	 	 	 	 	 	150,000	 
	Goodwill	 	 	 	 	 	 	249,368	 
	Net assets acquired	 	 	 	 	 	$	731,627	 

 

The
Company common shares were valued based on the closing price on TSX Venture exchange on August 7, 2019. The Company did not consider
the impact of the contractual escrow restrictions to be material.

 

Significant
judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:

 

	 	i.	Intangible Assets, Software 

 

Vemba
had certain proprietary technology used in its products, which the Company expects will contribute to future cash flow. The fair
value of the software intangible asset was determined based on the relief from royalty method under the income approach. The software
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections; (ii)
royalty rate; (iii) technology replacement rate; and (iv) present value factor. This asset is amortized on a straight-line basis
over the estimated useful life of five years.

 

	 	ii.	Intangible Assets, Customer Relationships 

 

Vemba
had established relationships with content publishers which are expected to result in future sales. The fair value of the customer
relationships intangible asset was determined based on the excess earnings method under the income approach. The customer relationships
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections; (ii)
customer attrition rate / probability of renewal rate; (iii) charges for use of assets; and (iv) present value factor. This asset
is amortized on a straight-line basis over the estimated useful life of eight years.

 

    	Page 29

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired
and liabilities assumed represents goodwill of $251,627. All of the goodwill is expected to be deductible for tax purposes as
the acquisition was considered an asset deal for tax purposes. The goodwill recorded represents the following: (i) Cost savings
and operating synergies expected to result from combining the operations of Vemba with those of the Company, and (ii) intangible
assets that do not qualify for separate recognition such as the assembled workforce.

 

The
Company incurred fees of $52,273 which were recognized separately from the acquisition and included as transaction costs on the
consolidated statement of income (loss) and comprehensive income (loss). The consolidated statement of income (loss) and comprehensive
income (loss) for the year ended December 31, 2019 included total revenues from the Vemba business of approximately $253,000,
which represented revenue for the period from August 7, 2019 to December 31, 2019.

 

	9.	Revenue

 

	(a)	Revenue streams and disaggregation of revenue from
contracts with customers

 

In
the following table, revenue from contracts with customers is disaggregated by service lines.

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Major products and
    service items	 	 	 	 	 	 	 	 
	License
    fees	 	 	5,028,918	 	 	 	9,865,316	 
	Usage fees	 	 	859,059	 	 	 	2,208,838	 
	Advertising - National	 	 	9,874,427	 	 	 	9,323,098	 
	Advertising - Local	 	 	155,737	 	 	 	1,099,165	 
	Professional
    fees and other	 	 	1,404,936	 	 	 	1,180,969	 
	 	 	 	17,323,077	 	 	 	23,677,386	 

 

	(b)	Performance obligations and revenue recognition policies

 

Revenue
is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers
control of its services to a customer.

 

The
following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers,
including significant payment terms and related revenue recognition policies:

 

	 	i.	License fees

 

The
Company enters into license agreements with customers for its content management system, video software, and mobile applications.
These license agreements, generally non-cancellable, without paying a termination penalty, and multiyear, provide the customer
with the right to use the Company’s application solely on a Company-hosted platform or, in certain instances, on purchased
encoders. The license agreements also entitle the customer to technical support.

 

    	Page 30

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Revenue
from these license agreements is recognized ratably over the license term. Early termination fees are recognized when a customer
ceases use of agreed upon services prior to the expiration of their contract. These fees are recognized in full on the date the
customer has completed their migration off of the Company’s solutions and there is no continuing service obligation to the
customer.

 

	 	ii.	Usage fees

 

The
Company charges its customers for the optional use of its content delivery network to stream and store videos. The revenue is
recognized as earned based on the actual usage because it has stand-alone value and delivery is in control of the customer. The
Company also charges its customers for the use of its ad serving platform to serve ads under local advertising campaigns. The
Company reports revenue as earned based on the actual usage.

 

	 	iii.	Advertising (national advertising)

 

Under
national advertising agreements with advertisers, the Company sources, creates, and places advertising campaigns that run across
the Company’s network of publisher sites. National advertising revenue, net of third-party costs, is shared with publishers
based on their respective contractual agreements. The Company invoices national advertising amounts due from advertisers and remits
payments to publishers for their share. Depending on the agreement with the publisher, the obligation to remit payment to the
publisher is based on either billing to the advertiser or the collection of cash from the advertiser.

 

National
advertising revenue is recognized in the period during which the ad impressions are delivered. The Company reports revenue earned
through national advertising agreements either on a net or gross basis.

 

Under
national advertising agreements wherein the Company does not bear inventory risk and only has credit risk on its portion of the
revenue, national advertising revenues are accounted for on a net basis and the publisher is identified as the customer.

 

In
select national advertising agreements with its publishers, the Company takes on inventory risk and additional credit risk. Under
these agreements, the Company either a) provides the publisher with a guaranteed minimum gross selling price per advertising unit
delivered, wherein the greater of the actual selling price or guaranteed minimum selling price is used in determining the publisher’s
share or b) provides the publisher with a fixed rate per advertising unit delivered, wherein the publisher is paid the fixed rate
per advertising unit delivered irrespective of the actual selling price. Under these national advertising agreements, national
advertising revenues are accounted for on a gross basis with the advertiser identified as the customer and the publisher identified
as a supplier, with amounts billed to the advertiser reported as revenue and amounts due to the publisher reported as a revenue
sharing expense.

 

    	Page 31

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	iv.	Advertising (local advertising)

 

Under
local advertising agreements with customers, the Company provides local ad sales consulting and support services in exchange for
monthly fees over the term of the agreement. The fees are established in the agreement with the customer in one of three ways:
fixed annual amounts for an unlimited number of advertisers, flat fee paid per advertiser, or a commission rate of the local advertising
revenue paid by the advertiser. Fixed amounts are recognized as revenue ratably over the contract term, and flat fee and commission-based
amounts are recognized as revenue based on the revenue earned for each respective period based on actual delivery of the local
advertising campaigns.

 

	 	v.	Professional services and other

 

Professional
services consist primarily of installation and website design services. Installation fees are contracted on a fixed-fee basis.
The Company recognizes revenue as services are performed. Such services are readily available from other vendors and are not considered
essential to the functionality of the product. Website design services are also not considered essential to the functionality
of the product and have historically been insignificant; the fee allocable to website design is recognized as revenue as the Company
performs the services.

 

	10.	Net Income (Loss) per share

 

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

 

Due
to the net loss incurred during year ended December 31, 2018, all outstanding options, RSU’s and warrants were excluded
from diluted weighted-average common shares outstanding as their effect was anti-dilutive.

 

Weighted
average common shares outstanding for the year ended December 31, 2019 and 2018 were as follows:

 

	 	 	2019	 	 	2018	 
	Basic
    Weighted-Average Common Shares Outstanding	 	 	19,515,546	 	 	 	2,487,404	 
	 	 	 	 	 	 	 	 	 
	Effect of Dilutive
    Securities:	 	 	 	 	 	 	 	 
	Stock options	 	 	960,640	 	 	 	-	 
	RSUs	 	 	1,501,492	 	 	 	-	 
	Warrants	 	 	14,038,155	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Diluted
    Weighted-Average Common Shares Outstanding	 	 	36,015,833	 	 	 	2,487,404	 

 

    	Page 32

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	11.	Income taxes

 

The
Company had no income tax expense or benefit for the year ended December 31, 2019 and 2018.

 

	(a)	Reconciliation of effective tax rate

 

The
reconciliation of the federal statutory tax rate to the Company’s effective tax rate is as follows:

 

	 	 	2019	 	 	2018	 
	Income (loss) before income
    taxes	 	$	4,528,786	 	 	$	(8,436,186	)
	US Federal statutory
    income tax rate	 	 	21	%	 	 	21	%
	Expected income tax (benefit) based
    on Federal income tax rate	 	 	951,045	 	 	 	(1,771,599	)
	 	 	 	 	 	 	 	 	 
	Reconciling
    items:	 	 	 	 	 	 	 	 
	Foreign rate differential	 	 	1,815,211	 	 	 	1,008,022	 
	Stock-based compensation	 	 	19,214	 	 	 	182,608	 
	Other permanent
    differences	 	 	(1,829,637	)	 	 	(1,709,896	)
	Deferred
    tax assets not recognized	 	 	(955,833	)	 	 	2,290,865	 
	Income tax expense	 	$	-	 	 	$	-	 

 

	(b)	Deferred income taxes

 

The
Company had the following temporary differences that would ordinarily give rise to deferred taxes:

 

	 	 	2019	 	 	2018	 
	Deferred
    tax assets	 	 	 	 	 	 	 	 
	Net
    operating loss carryforwards	 	$	8,690,293	 	 	$	10,769,801	 
	Credits	 	 	-	 	 	 	52	 
	Other	 	 	1,320,231	 	 	 	999,423	 
	Intangible assets	 	 	8,124,138	 	 	 	9,059,513	 
	Interest
    limitation	 	 	627,638	 	 	 	531,162	 
	 	 	 	18,762,300	 	 	 	21,359,951	 
	Less: Deferred
    tax assets not recognized	 	 	(18,762,300	)	 	 	(21,359,951	)
	 	 	$	-	 	 	$	-	 

 

    	Page 33

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

In
assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion
or all of the deferred tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax assets
will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies,
then records an adjustment to reduce the carrying value of the net deferred taxes to an amount that is more-likely-than-not able
to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of U.S.
based taxable income and loss after permanent items, estimates of future profitability, and the Company’s overall prospects
of future business, the Company determined that it is more-likely-than-not that the Company will not be able to realize a portion
of the deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets
on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections
vary significantly from the projections used as a basis for this determination, the Company may need to change the amount of deferred
tax assets not recognized against the gross deferred tax assets. On the basis of this evaluation, as of December 31, 2019, deferred
tax assets not recognized of $18.8 million was recorded to reduce the net deferred tax assets to their estimated realizable value.

 

The
Company considers the undistributed earnings of its U.S. subsidiaries as of December 31, 2019, to be reinvested for the foreseeable
future and, accordingly, no income taxes have been provided thereon. As of December 31, 2019, there were no earnings in the U.S.
subsidiaries. The Company does not have the intention or capability to, repatriate funds to Frankly Inc. and have no plans of
sale or liquidation of U.S. subsidiaries that would give rise to recognition of basis differences in the stock of U.S. subsidiaries.

 

The
Company had U.S. federal and state income tax net operating loss carry-forwards of approximately $34.9 million and $6.2 million,
respectively, as of December 31, 2019 to apply against future taxable income. Of the $34.9 million, $2.8 million of the federal
net operating loss carry-forwards is indefinite. The remaining $32.1 million, if not utilized, these net operating losses will
expire on various dates in the next 20 years. Additionally, the Company had Canadian income tax net operating loss carry-forwards
of approximately $2.7 million which will begin to expire in 2039. These net operating loss carry-forward balances might be subject
to annual limitations in their use in accordance with U.S. Internal Revenue Code (“IRC”) section 382 due to prior
changes in ownership and the May 8, 2020 acquisition of the Company (Note 18). The Company has not undertaken the effort of performing
the IRC Section 382 study.

 

    	Page 34

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company had no uncertain tax positions as of December 31, 2019 and 2018.

 

The
Company recognizes accrued interest related to unrecognized tax benefits and penalties as income tax expense. The Company does
not have any unrecognized tax benefits which would affect the effective tax rate if recognized. The Company does not have any
unrecognized tax benefits which would reverse within the next twelve months.

 

On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to COVID-19
pandemic. The CARES Act made various tax law changes, including among other things (i) increased the limitation under IRC Section
163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted technical corrections so that qualified improvement
property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017
and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed
to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal
net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years. The Company has
concluded that the CARES Act does not materially impact the consolidated financial statements as of December 31, 2019.

 

	12.	Long-lived assets

 

All
of the Company’s long-lived assets are domiciled in the U.S. and Canada. Depreciation and amortization expense for long-lived
assets was as follows for the periods presented:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Depreciation
    of property and equipment	 	 	121,935	 	 	 	482,140	 
	Amortization of software	 	 	80,833	 	 	 	2,714,214	 
	Amortization of intangibles	 	 	361,325	 	 	 	655,002	 
	 	 	 	564,093	 	 	 	3,851,356	 

 

	 	i.	Property and equipment, net

 

The
following table summarizes property and equipment, net:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Cost:	 	 	 	 	 	 	 	 
	Office
    equipment, computer equipment and software	 	 	1,808,458	 	 	 	1,776,161	 
	Leasehold
    improvements	 	 	603,978	 	 	 	603,978	 
	 	 	 	2,412,436	 	 	 	2,380,139	 
	 	 	 	 	 	 	 	 	 
	Accumulated depreciation and amortization:	 	 	 	 	 	 	 	 
	Office equipment,
    computer equipment and software	 	 	(1,446,749	)	 	 	(1,394,675	)
	Leasehold
    improvements	 	 	(354,831	)	 	 	(354,831	)
	 	 	 	(1,801,580	)	 	 	(1,749,506	)
	 	 	 	 	 	 	 	 	 
	Accumulated impairment:	 	 	 	 	 	 	 	 
	Office equipment,
    computer equipment and software	 	 	(318,241	)	 	 	(318,241	)
	Leasehold
    improvements	 	 	(249,147	)	 	 	(249,147	)
	 	 	 	(567,388	)	 	 	(567,388	)
	 	 	 	 	 	 	 	 	 
	 	 	 	43,468	 	 	 	63,245	 

 

    	Page 35

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In the last part of 2018, several significant customers terminated their relationships with the Company. These
customer terminations were a strong indicator that the carrying amount of the Company’s long-lived assets would not be recoverable.
The Company performed a recoverability test as of September 30, 2018 and concluded the carrying amounts of its long-lived assets
were not recoverable. Considering the impact of the customer terminations, as of September 30, 2018 the Company was forecasting
negative cash flows in 2019 and beyond which did not support the carrying value of its long-lived assets. The Company recorded
impairment expense of approximately $12.8 million in the third quarter of 2018, which was comprised of a full impairment of its
capitalized software and customer relationship intangible assets, which each had carrying values prior to impairment of approximately
$6.1 million as of September 30, 2018, as well as impairment expense of approximately $567,000 to property and equipment.

 

	 	ii.	Software, net

 

The
following table summarizes software, net:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Cost	 	 	14,707,003	 	 	 	13,977,003	 
	Accumulated amortization	 	 	(7,943,096	)	 	 	(7,862,262	)
	Accumulated impairment	 	 	(6,114,741	)	 	 	(6,114,741	)
	 	 	 	 	 	 	 	 	 
	 	 	 	649,166	 	 	 	-	 

 

During
the years ended December 31, 2019 and 2018, the Company capitalized software development costs of $Nil and $1,856,214, respectively.
In addition, in the third quarter of 2018, the Company recorded a full impairment of the remaining carrying value of its software
development costs assets, as discussed above.

 

In
connection with the acquisition of the AMP Assets (Note 7), the Company determined the acquired software had a fair value of $400,000.

 

In
connection with the acquisition of the Vemba assets (Note 8), the Company determined the acquired software had a fair value of
$330,000.

 

    	Page 36

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	 	iii.	Intangible assets, net

 

The
following table summarizes intangible assets, net:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Cost:	 	 	 	 	 	 	 	 
	Broadcast
    relationships	 	 	7,600,000	 	 	 	7,600,000	 
	Advertiser relationships	 	 	1,200,000	 	 	 	1,200,000	 
	Customer relationships
    - AMP	 	 	1,300,000	 	 	 	-	 
	Customer
    relationships - Vemba	 	 	150,000	 	 	 	-	 
	 	 	 	10,250,000	 	 	 	8,800,000	 
	 	 	 	 	 	 	 	 	 
	Accumulated depreciation and amortization:	 	 	 	 	 	 	 	 
	Broadcast relationships	 	 	(1,952,786	)	 	 	(1,952,786	)
	Advertiser relationships	 	 	(740,000	)	 	 	(740,000	)
	Customer relationships
    - AMP	 	 	(353,512	)	 	 	-	 
	Customer
    relationships - Vemba	 	 	(7,813	)	 	 	-	 
	 	 	 	(3,054,111	)	 	 	(2,692,786	)
	 	 	 	 	 	 	 	 	 
	Accumulated impairment:	 	 	 	 	 	 	 	 
	Broadcast relationships	 	 	(5,647,214	)	 	 	(5,647,214	)
	Advertiser
    relationships	 	 	(460,000	)	 	 	(460,000	)
	 	 	 	(6,107,214	)	 	 	(6,107,214	)
	 	 	 	 	 	 	 	 	 
	 	 	 	1,088,675	 	 	 	-	 

 

In
the third quarter of 2018, the Company recorded a full impairment of the remaining carrying value of its customer relationship
intangible assets, related to prior business combinations, as discussed above.

 

In
connection with the acquisition of the AMP Assets (Note 7), the Company determined the acquired customer relationship intangible
assets had a fair value of $1.3 million.

 

In
connection with the acquisition of the Vemba assets (Note 8), the Company determined the acquired customer relationship intangible
assets had a fair value of $150,000.

 

    	Page 37

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company tested its Goodwill as at December 31, 2019 of $1,163,034 for impairment by estimating its fair value less costs to sell.
The Company has one cash generating unit, which is the same as its reportable segment. The goodwill impairment test was performed
by comparing the carrying amount of the CGU (that includes the goodwill) with the recoverable amount of the CGU. The recoverable
amount was determined based on fair value less cost of disposal, and fair value was determined based on the subsequent sale of
the Company to Torque. The recoverable amount was substantially in excess of the carrying amount, and therefore, no impairment
was recognized on the goodwill.

 

	13.	Debt

 

	(a)	Non-revolving credit facility

 

On
September 1, 2016, the Company completed the closing of its financing with Raycom, a related party (Note 17). The Company received
a non-revolving term line of credit from Raycom in the principal amount of $14.5 million and, subject to approval of Raycom, an
additional available $1.5 million non-revolving line of credit (the “Loan”). In addition, Raycom converted $1.0 million
of its existing $4.0 million promissory note from the Company into 150,200 common shares of the Company and the Company issued
871,160 warrants to Raycom entitling the holder of each warrant to acquire one common share of the Company upon exercise of each
warrant at a price per common share equal to CDN$8.50 ($6.63 based on the exchange rate at August 18, 2016). The warrants will
expire on the earlier of: (i) the repayment of the Loan in accordance with its terms; and (ii) 5 years. To the extent that there
is a mandatory repayment of any portion of the principal balance of the Loan, a proportionate number of the warrants will have
their term reduced to the later of one year from issuance and 30 days from the date of such repayment. On March 13, 2018, the
Company received $1.0 million of the additional $1.5 million available under the Loan, bringing the total outstanding principal
balance to $15.5 million.

 

The
warrants were recorded within shareholders’ deficit. Proceeds from the sale of the debt instrument with stock purchase warrants
(detachable call options) were allocated to the two elements based on the relative fair values of the debt instrument without
the warrants and of the warrants themselves at time of issuance. The value allocated to the Loan with Raycom was $11,578,593 with
the remaining $2,921,407 being allocated to the warrants.

 

The
debt discount of $2,921,407 was being amortized to interest expense, net on the consolidated statements of operations and comprehensive
loss using the effective-interest method. Amortization of debt discount included in interest expense, net for the year ended December
31, 2018 amounted to $388,131. The Company accounted for the September 1, 2016 refinancing transaction as an extinguishment of
debt. The Company incurred legal fees directly related to the refinancing of $206,805, which were recorded as deferred financing
costs and recorded against the carrying value of the Loan. Amortization of deferred financing costs included in interest expense,
net for the year ended December 31, 2018 amounted to $35,329.

 

On
May 7, 2018, the Company amended and restated the Loan (the “Amended Loan”) to increase the amount of funding available
under the Loan by $7.5 million. The Amended Loan supersedes the original Loan. The $1.0 million that was advanced by Raycom to
the Company on March 13, 2018 is included in the $7.5 million funding increase, bringing the total amount provided to the Company
under the Amended Loan to $22 million. Of the $7.5 million, the Company’s customer Cordillera Communications (“Cordillera”
and together with Raycom, the “Lenders”) is participating as a lender for $300,000. Under the Amended Loan, outstanding
term loans in the amount of $14.5 million were characterized as Term B Loans under a non-revolving term loan facility in such
amount (“Facility B”) and an outstanding term loan in the amount of $1.0 million was characterized as a Term A Loan
under a non-revolving term loan facility in the amount of $7.5 million (“Facility A”). During the second to fourth
quarter of 2018, the Company received an additional $6.3 million of the $7.5 million available under Facility A. The total principal
outstanding on the Amended Loan as of October 2, 2018 was $21.8 million. The Amended Loan had a termination date of December 31,
2020. The interest rate payable under the Facility B was 10% and Facility A had an interest rate of U.S. LIBOR (1 month) plus
8%.

 

    	Page 38

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company determined that the amendment of the Loan with Raycom was not considered a substantial debt modification. A gain on modification
of debt was recognized of $380,962 to record the Amended Loan at its revised carrying value, which was the discounted value of
the cash flows of the Amended Loan using the original effective interest rate of the Loan.

 

On
October 15, 2018, the Company amended the Amended Loan with Raycom to reduce its principal debt balance due under the Amended
Loan as of October 2, 2018 from $21,800,000 plus accrued interest of $1,298,653 as of September 30, 2018 (together the “Loan
Balance”) to $10,000,000 (“New Loan Balance”) as of October 1, 2018, with no consideration provided by the Company.
In addition, the Amended Loan was amended as follows:

 

(a)
Commencing on October 1, 2018, interest under the Amended Loan will accrue on the New Loan Balance at the annual rate of 10%.

 

(b)
The maturity date of the New Loan Balance was revised to September 30, 2021. The New Loan Balance along with all accrued interest
will be due on the revised maturity date. All interest payments on the New Loan Balance will be deferred and made on the revised
maturity date.

 

(c)
Commencing on October 1, 2018, various provisions of the Amended Loan were no longer operative, which primarily removed all scheduled
mandatory principal repayments and financial covenants under the Amended Loan. In addition, the deleted provisions under the Amended
Loan reduced the scope of events that qualify as events of default.

 

(d)
The Company’s debt to Cordillera under the Amended Loan has been extinguished and Cordillera is no longer party to the Amended
Loan as of October 1, 2018.

 

In
addition to the above amendment to the Amended Loan, Raycom exercised its right to terminate its website agreement, with such
termination to be effective as of December 31, 2018. Raycom agreed to forgive remaining balances of deferred revenue and accrued
interest under the Advance Agreement as of December 31, 2018, which amounted to $749,673 and $470,000, respectively.

 

The
Company determined that the October 15, 2018 amendment to the Amended Loan with Raycom was considered a substantial debt modification.
As a result, the Company recognized a gain on extinguishment of debt in the amount of $11,912,685 on the consolidated statements
of operations and comprehensive loss. The gain was comprised of a gain of $10,693,012 to adjust the net carrying value of the
Amended Loan as of October 2, 2018 to the revised principal of the Amended Loan subsequent to the October 15, 2018 amendment in
the amount of $10,000,000. The gain also included the gain resulting from the forgiveness of deferred revenue and accrued interest
as of December 31, 2018 under the Advance Agreement of $749,673 and $470,000, respectively, as discussed above.

 

    	Page 39

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

On
April 1, 2019, the Company entered into an agreement with Gray (acquired Raycom in 2019) (the “Raycom Agreement”)
to (i) repurchase all of the 547,325 outstanding common shares and warrants to purchase 871,160 common shares at a price per share
of CDN$8.50 Gray owned for cancellation, and (ii) extinguish the remaining principal debt held by Raycom of $10.0 million as well
as accounts payable due to Gray and Raycom amounting to approximately $2.9 million relating to unpaid national advertising revenue
share payables, for a total cash payment by Company of $1.0 million. The Raycom Agreement was contingent upon the Company closing
a financing transaction on or before June 13, 2019, with an aggregate investment of at least $4.0 million and the Company making
the one-time cash payment of $1.0 million to Gray. On May 30, 2019, after closing of the Private Placement, the Company made the
closing cash payment to Gray.

 

The
Company determined the Raycom Agreement qualified as a debt extinguishment. As the Raycom Agreement included extinguishment of
liabilities and cancellation of Company common shares and warrants held by Gray, the $1 million cash consideration paid by the
Company was allocated to the common shares using the purchase price in the SKP America repurchase which closed on the same day
as the Raycom Agreement.

 

On
May 30, 2019, the Company repurchased for cancellation 545,289 common shares held by SKP America for $150,000 or $0.275 per common
share. The Company allocated $150,514 ($0.275 per common share) of the $1.0 million consideration paid to Gray to the 547,325
common shares repurchased for cancellation (Note 8), leaving $849,486 allocated to extinguishment of liabilities. The warrants
to purchase 871,160 common shares that were held by Gray were determined to have insignificant value given the exercise price
of CDN$8.50.

 

The
Company recognized a gain on extinguishment of debt in the amount of $12,276,644. The gain was comprised of $10,000,000 in principal,
$625,000 of accrued interest, $2,861,130 of accounts payable, partially offset by $849,486 of consideration allocated to extinguishment
of liabilities (explained above) and $360,000 in transaction costs, representing a bonus to the CEO for closing the Raycom Agreement.

 

	(b)	Letter of credit

 

On
August 31, 2016, in lieu of a security deposit under the lease dated October 26, 2010, with Metropolitan Life Insurance Company
(“MetLife”), for real property located at 27-01 Queens Plaza North, Long Island City, NY, Frankly Media LLC entered
into a standby letter of credit with Western Alliance Bank for an amount of $500,000 (the “Letter of Credit”). For
each advance, interest accrued at a rate equal to the sum of (i) the Base Rate (as defined below), plus (ii) 3.50%, provided that
such interest rate would change from time to time as the Base Rate changes. The “Base Rate” means the rate of interest
used as the reference or base rate to establish the actual rates charged on commercial loans and which is publicly announced or
reported from time to time by the Wall Street Journal as the “prime rate.” Interest accrued from the date of the advance
until such advance is paid in full.

 

The
Company had granted Western Alliance Bank a security interest in a $524,115 controlled cash deposit account together with (i)
all interest, whether now accrued or hereafter accruing; (ii) all additional deposits hereafter made to the account; (iii) any
and all proceeds from the account; and (iv) all renewals, replacements and substitutions for any of the foregoing. As of December
31, 2018, no advances were made under the Letter of Credit. The cash security interest of $524,115 at December 31, 2018 is presented
within restricted cash on the consolidated balance sheet. In January 2019, the Company terminated its standby letter of credit
with Western Alliance Bank (Note 5).

 

    	Page 40

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	14.	Capital and reserves

 

	(a)	Common shares and Class A restricted voting shares

 

Subsequent
to the Recapitalization on December 23, 2014, all common and Class A restricted voting shares and related stock-based grants have
been denominated in Canadian dollars and have been translated to U.S. dollars using the exchange rate in effect at the date of
transaction or grant, as applicable.

 

The
Class A restricted voting shares have the same voting rights as common shares except for voting for the election and removal of
directors of the Company. The Class A restricted voting shares participate in dividends and liquidation events in the same manner
as common shares. In terms of restrictions on transfer, no Class A restricted voting shares shall be transferred to another party
unless an offer to acquire common shares is concurrently made that is identical to the offer for the Class A restricted voting
shares in terms of price per share, percentage of outstanding shares to be transferred and in all other material respects.

 

Activity
during the year ended December 31, 2019

 

	(b)	May 2019 private placement

 

In
May 2019, the Company completed a non-brokered private placement (the “Private Placement”) for gross proceeds of $7.0
million through the issuance of 26,914,285 units (the “Units”) of the Company at an issue price of CDN$0.35 per Unit.
Each Unit consisted of one common share of the Company and one-half of one share purchase warrant (the “Warrant”).
Each whole Warrant entitles the holder to acquire one common share of the Company at CDN$0.65 per share until the date that is
24 months from the closing date. All securities issued pursuant to the Private Placement are subject to a statutory hold period
of four months and one day from the date of issuance, as well as contractual “lock-up” restrictions.

 

The
contractual lock-up restrictions provide that subscribers in the Private Placement agree not to dispose or otherwise transfer
the economic consequences of securities composing the Units or securities of the Company held prior to the completion of the Private
Placement (collectively, the “Locked-up Securities”) for 11 months from the closing date of the Private Placement,
with 30% of the Locked-up Securities being released from lock-up four months and one day from the closing date, and the remainder
of the Locked-up Securities being released on a schedule of 10% of the Locked-up Securities each month thereafter.

 

In
connection with the Private Placement, the Company paid a finder’s fee to a third-party finder who is a current shareholder
of the Company consisting of (i) 6.5% of the gross proceeds of the Private Placement raised in cash, and (ii) that number of finder’s
warrants as is equal to 6.5% of the securities sold in the Private Placement. Each finder’s warrant is exercisable to purchase
one Unit at the offering price of CDN$0.35 for a period of two years from the closing date of any applicable tranche of the Private
Placement.

 

    	Page 41

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

On
May 10, 2019, the Company completed closing on the first tranche of the Private Placement, issuing an aggregate of 7,772,676 Units
at a price of CDN$0.35 per unit, raising gross proceeds of CDN$2,720,437. On May 16, 2019, the Company completed closing on the
second tranche of the Private Placement, issuing an aggregate of 8,250,709 Units at a price of CDN$0.35 per unit, for gross proceeds
of CDN$2,887,748. On May 22, 2019, the Company completed closing on the third and final tranche of the Private Placement, issuing
an aggregate of 10,890,900 Units at a price of CDN$0.35 per unit, for gross proceeds of CDN$3,811,815. The total gross proceeds
of the three tranches amounted to $7,014,010. The gross proceeds of $7,014,010 were allocated between share capital and contributed
surplus at $5,138,616 and $1,875,394, respectively, using the relative fair value method.

 

In
connection with the Private Placement, the Company incurred $524,509 in issuance costs, which consisted of cash finder’s
fee of $380,698 and legal and regulatory fees of $143,811. The cash issuance costs of $524,509 were allocated between share capital
and contributed surplus at $385,259 and $139,251, respectively. In addition, the fair value of the 1,459,053 finder’s warrants
issued were recorded as additional issuance costs amounting to $668,755 and recorded as a reduction to share capital and increase
in contributed surplus.

 

	(c)	Exercise of warrants

 

During
the year ended December 31, 2019, the Company issued a total of 1,607,563 common shares for the exercise of warrants issued in
connection with the Private Placement. The Company issued 1,459,053 common shares for exercise of an equal number of finder’s
warrants at an exercise price of CDN$0.35 per finder’s warrant for gross proceeds of CDN$510,669 ($384,077). The Company
issued 148,510 common shares for exercise of an equal number of Warrants at an exercise price of CDN$0.65 per Warrant for gross
proceeds of CDN$96,532 ($73,761).

 

	(d)	Vesting of restricted share units

 

During
the year ended December 31, 2019, the Company issued a total of 40,983 common shares for employee and director restricted stock
units (“RSUs”) that vested.

 

	(e)	Repurchase of common shares

 

On
May 30, 2019, the Company repurchased for cancellation 547,325 common shares held by Gray and 545,289 common shares held by SKP
America. The common shares were repurchased from SKP America for $150,000 or $0.275 per common share. The common shares repurchased
for cancellation from Gray were part of the Raycom Agreement to extinguish the non-revolving credit facility and accounts payable
due to Raycom and Gray (Note 13). The Company allocated $150,514 ($0.275 per common share) of the $1.0 million consideration paid
to Gray to the common shares repurchased for cancellation.

 

    	Page 42

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Activity
during the year ended December 31, 2018

 

	(f)	Shares issued

 

During
the year ended December 31, 2018, the Company issued a total of 144,652 common shares for employee and director RSUs that vested.
In addition, on May 24, 2018, the Company issued 288,642 common shares to employees to settle a portion of the liability associated
with the employee retention plan.

 

Warrants

 

	(g)	Warrants

 

The
following table sets forth the activity for the Company’s warrants during the periods presented:

 

	 	 	Number
    of
 warrants	 	 	Weighted-

    average
 exercise price	 
	 	 	 	 	 	$	 
	Outstanding, as at
    January 1, 2018	 	 	871,160	 	 	 	6.54	 
	Issued	 	 	-	 	 	 	-	 
	Exercised	 	 	-	 	 	 	-	 
	Cancelled
    or Expired	 	 	-	 	 	 	-	 
	Outstanding, as at December 31, 2018	 	 	871,160	 	 	 	6.54	 
	Issued	 	 	15,645,718	 	 	 	0.48	 
	Exercised	 	 	(1,607,563	)	 	 	0.29	 
	Cancelled
    or Expired	 	 	(871,160	)	 	 	6.54	 
	Outstanding,
    as at December 31, 2019	 	 	14,038,155	 	 	 	0.50	 

 

The
following table summarizes the expiry date, the number of warrants and weighted-average exercise price outstanding as at December
31, 2019:

 

	Expiry
    
 date	 	Exercise

    price	 	 	Number
    of
 warrants	 
	 	 	$	 	 	 	 
	May 10, 2021	 	 	0.50	 	 	 	4,027,268	 
	May 16, 2021	 	 	0.50	 	 	 	4,320,226	 
	May 22, 2021	 	 	0.50	 	 	 	5,690,661	 
	 	 	 	0.50	 	 	 	14,038,155	 

 

    	Page 43

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Stock-based
compensation

 

	(h)	Description of the plan

 

On
October 16, 2019, the Company adopted an amended and restated equity incentive plan (the “Restated Plan”). The Restated
Plan amends the equity incentive plan, effective as of October 1, 2019, by replacing the compensation plan limit with a number
that is 10% of the of the aggregate number of Common Shares and Class A Restricted Voting Shares issued and outstanding that may
be granted under Option and RSU awards.

 

Options
may be exercised over periods of up to 10 years as determined by the Company’s Board of Directors (“Board”)
and the exercise price shall not be less than the closing price of the shares on the day preceding the award date. Option awards
generally vest over four years with one year cliff vesting.

 

The
Restated Plan allows the Company to award RSUs to officers, employees, directors and consultants of the Company and its subsidiaries
upon such conditions as the Board may establish, including the attainment of performance goals recommended by the Company’s
compensation committee. The purchase price for common shares of the Company issuable under each RSU award, if any, shall be established
by the Board at its discretion. Shares issued pursuant to any RSU award may be made subject to vesting conditions based upon the
satisfaction of service requirements, conditions, restrictions, time periods or performance goals established by the Board.

 

Based
on the number of outstanding options and RSUs as of December 31, 2019 and RSUs vested and options exercised through December 31,
2019, the Company had 347,121 options or RSUs remaining for issuance under the Restated Plan.

 

Total
stock-based compensation expense for the year ended December 31, 2019 and 2018 was $91,831 and $395,634, respectively. The Company
did not recognize any tax benefits for stock-based compensation during any of the periods presented.

 

    	Page 44

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	(i)	Stock options

 

The
following table sets forth the activity for the Company’s stock options during the periods presented:

 

	 	 	 	 	 	Weighted
    average	 
	 	 	Shares	 	 	Exercise

    price	 	 	Grant-date

    fair value	 	 	Remaining

    contractual
 term (years)	 
	 	 	 	 	 	$	 	 	$	 	 	 	 
	January 1, 2018	 	 	189,943	 	 	 	5.47	 	 	 	6.58	 	 	 	8.22	 
	Granted	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	Forfeited or
    cancelled	 	 	(128,645	)	 	 	5.54	 	 	 	7.77	 	 	 	 	 
	December 31, 2018	 	 	61,298	 	 	 	5.33	 	 	 	4.08	 	 	 	7.61	 
	Granted	 	 	907,500	 	 	 	0.38	 	 	 	0.23	 	 	 	 	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	Forfeited or
    cancelled	 	 	(8,158	)	 	 	5.36	 	 	 	3.43	 	 	 	 	 
	December 31, 2019	 	 	960,640	 	 	 	0.65	 	 	 	0.45	 	 	 	9.68	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vested and expected to vest, as at 31-Dec-19	 	 	914,838	 	 	 	0.66	 	 	 	0.46	 	 	 	9.67	 
	Exercisable, as at 31-Dec-19	 	 	44,604	 	 	 	5.32	 	 	 	4.44	 	 	 	6.47	 

 

The
aggregate intrinsic value of outstanding and exercisable stock options as of December 31, 2019 is $0.

 

During
the years ended December 31, 2019 and 2018, the following stock options were granted to directors, officers and employees of the
Company. The fair values of the options granted were estimated based on the Black-Scholes option pricing model, using the following
assumptions:

 

	 	 	2019	 	 	2018	 
	Number of options granted	 	 	907,500	 	 	 	-	 
	Dividend yield	 	 	0.00	%	 	 	-	 
	Risk-free interest rate	 	 	1.60	%	 	 	-	 
	Volatility	 	 	71.87	%	 	 	-	 
	Expected term in years	 	 	6.25	 	 	 	-	 
	Forfeiture rate	 	 	5.00	%	 	 	-	 

 

    	Page 45

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	(j)	Restricted share units

 

The
following table sets forth the activity for the Company’s RSUs for the periods presented:

 

	 	 	Shares	 	 	Weighted-

    average
 grant date
 fair value	 
	 	 	 	 	 	$	 
	Balance, January 1,
    2018	 	 	179,090	 	 	 	3.84	 
	Granted	 	 	-	 	 	 	-	 
	Vested	 	 	(144,652	)	 	 	3.27	 
	Forfeited or
    cancelled	 	 	(18,964	)	 	 	6.80	 
	Balance, December 31, 2018	 	 	15,474	 	 	 	5.51	 
	Granted	 	 	1,528,257	 	 	 	0.41	 
	Vested	 	 	(40,983	)	 	 	1.65	 
	Forfeited or
    cancelled	 	 	(1,256	)	 	 	4.04	 
	Balance, December 31, 2019	 	 	1,501,492	 	 	 	0.43	 

 

	15.	Financial instruments and risk management

 

Financial
risk management objectives and policies

 

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

 

Credit
risk

 

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

 

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

 

The
Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Company establishes
an allowance for doubtful accounts that represents its estimate of incurred losses in respect of accounts receivable. The main
components of this allowance are a specific loss component that relates to individually significant exposures, and a collective
loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The
collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The allowance
for doubtful accounts was $825,396 and $$799,800 as at December 31, 2019 and 2019, respectively.

 

    	Page 46

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company’s accounts receivable are concentrated among customers in the media and broadcasting industry, which may be affected
by adverse economic factors impacting that industry. The Company performs ongoing credit evaluations of its major customers, maintains
reserves for potential credit losses, and does not require any collateral deposits. As at December 31, 2020 and 2019, two customers
each accounted for greater than 10% of the Company’s accounts receivable balance. In total, these two customers accounted
for 35% and 49% of the Company’s accounts receivable balance as at December 31, 2019 and 2018, respectively.

 

Liquidity
risk

 

Liquidity
risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The
Company is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Company manages
liquidity risk by continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets
and liabilities. The Company seeks to ensure that it has sufficient capital to meet short term financial obligations after taking
into account its operating obligations and cash on hand.

 

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

 

	 	 	<
    1 year	 	 	1-2
    years	 	 	3-5
    years	 
	 	 	$	 	 	$	 	 	$	 
	Accounts payable and accrued
    expenses	 	 	8,129,404	 	 	 	-	 	 	 	-	 
	Debt	 	 	-	 	 	 	-	 	 	 	-	 

 

Interest
rate risk

 

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

 

Foreign
exchange rates

 

The
Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s transactions
with parties located outside the United States of America, which consists of transactions of the Canadian corporate office. Balances
denominated in foreign currencies as at March 31, 2020 are not material to the Company.

 

	16.	Capital management

 

The
Company defines capital as its equity. The Company’s objectives when managing its capital is (i) to safeguard the ability
to continue as a going concern in order to pursue its business plan; and (ii) to provide adequate return to shareholders by obtaining
an appropriate amount of financing with the level of risk, to reduce after-tax cost of capital.

 

    	Page 47

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

The
Company sets the amount of capital in proportion to its risk. The Company manages capital structure and adjusts considering changes
in economic conditions and the characteristics of risk of underlying assets. In order to maintain or adjust capital structure,
the Company may attempt to issue new stock or sell assets to reduce its obligations. The Company’s objective is met by retaining
adequate liquidity to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow
requirements.

 

There
have been no changes to the Company’s capital management policies during the years ended December 31, 2019 and 2018.

 

	17.	Related party transactions

 

The
Company had several significant shareholders as follows: Gray (beginning January 2, 2019 and Raycom prior to that date) and SKP
America LLC (“SKP America”) which each owned approximately 20.6% and 20.5%, respectively, as of December 31, 2018
of the aggregate common shares. Following the transactions described in Note 14(e), Gray and SKP America are no longer shareholders
of the Company. As of December 31, 2019, the Company no longer has any balances or ongoing service relationship with Gray and
SKP America.

 

The
following table summarizes related party balances in the consolidated balance sheets for the years presented:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Loans and borrowings	 	 	 	 	 	 	 	 
	Gray
    / Raycom	 	 	-	 	 	 	10,000,000	 
	 	 	 	 	 	 	 	 	 
	Due (to) from Gray / Raycom:	 	 	 	 	 	 	 	 
	Accounts receivable	 	 	-	 	 	 	12,424	 
	Accounts
    payable	 	 	-	 	 	 	(332,549	)
	Total due to
    related parties	 	 	-	 	 	 	(320,125	)

 

The
following table summarizes related party transactions in the consolidated statements of income (loss) and comprehensive income
(loss) for the years presented:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Gray / Raycom:	 	 	 	 	 	 	 	 
	Revenue	 	 	-	 	 	 	4,650,419	 
	Interest on non-revolving
    credit facility	 	 	(416,667	)	 	 	(1,930,449	)
	Interest on the
    Advance Agreement	 	 	-	 	 	 	(160,349	)
	Gain
    on extinguishment of debt	 	 	12,276,644	 	 	 	12,293,647	 
	 	 	 	11,859,977	 	 	 	14,853,268	 
	Mobdub:	 	 	 	 	 	 	 	 
	License
    fees	 	 	-	 	 	 	(162,500	)
	 	 	 	11,859,977	 	 	 	14,690,768	 

 

    	Page 48

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

Key
management personnel compensation for officers and directors of the Company are as follows:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Salaries and benefits	 	 	2,110,075	 	 	 	1,491,624	 
	Share based compensation	 	 	479,066	 	 	 	236,705	 
	 	 	 	2,589,141	 	 	 	1,728,329	 

 

Accounts
payable due to officers of the Company at December 31, 2019 include $542,998 for bonuses due at year end.

 

	18.	Subsequent events

 

The
Company has evaluated subsequent events from the balance sheet date through November 13, 2020, the date at which the consolidated
financial statements were available to be issued, and determined there were no additional items to be disclosed except for the
transactions described below.

 

	(a)	Loan from EB Acquisition

 

On
January 7, 2020, the Company’s Frankly Media LLC subsidiary (“Frankly Media”) entered an agreement with an arm’s
length lender, EB Acquisition Company, LLC (the “Lender”), whereby the Lender agreed, subject to the terms and conditions
thereof, to provide Frankly Media with a revolving term line of credit in the principal amount of up to $5 million (the “EB
Loan”). In connection with entering into the EB Loan, Frankly Media has drawn $4 million under the EB Loan under an initial
advance. Subsequent advances may be made, subject to customary conditions precedent to be satisfied by Frankly Media or waived
by the Lender.

 

The
EB Loan has a one-year term, extendable for a second year upon the mutual agreement of Lender and Frankly Media, and is secured
by a security interest in Frankly Media’s assets, as well as a guarantee by the Company, secured against the Company’s
assets. The Loan was subject to a $100,000 commitment fee. If the EB Loan term is extended for a second year, an additional fee
will be payable by Frankly Media in the amount of 1% of outstanding principal balance under the EB Loan as of the commencement
of the second year of the EB Loan term. Interest on outstanding balances of the EB Loan will accrue at a rate of 10% per annum.
The EB Loan is subject to mandatory repayment arising upon the Company’s raising of certain amounts of additional financing.
The proceeds of the EB Loan will be used to supplement Frankly Media’s general working capital.

 

In
connection with the EB Loan, the Company granted the Lender warrants to acquire up to $500,000 of Company common shares (determined
in reference to the “Market Price” of Company common shares pursuant to the policies of the TSX Venture Exchange)
(the “Bonus Warrants”). Each Bonus Warrant is exercisable to acquire one Company common share with an exercise price
of CDN$0.50 per share. The Bonus Warrants have a two-year exercise period commencing on the date of their issuance, provided that
if there is full repayment of the outstanding principal balance of the EB Loan within the first year of the EB Loan term, or the
term of the EB Loan is not extended for a second year, the exercise period of the Bonus Warrants will be reduced to one year from
the date of their issuance. The Bonus Warrants granted in connection with the EB Loan will be subject to a regulatory hold period
of four months from the date of issuance.

 

    	Page 49

    	 

    

 

	Frankly
    Inc.	
	Notes
    to the consolidated financial statements	 
	For
    the years ended December 31, 2019 and 2018	 
	(in
    U.S. dollars)	 

 

 

	(b)	Acquisition of Company by Torque Esports Corp.

 

On
March 9, 2020, the Company entered into a business combination agreement (the “Business Combination Agreement”), pursuant
to which Torque would acquire each of Frankly and WinView (the “Transaction”), which will create an integrated platform
dedicated to live esports, news and gaming.

 

On
May 8, 2020, Torque completed the business combination. Torque acquired all of the issued and outstanding shares of the Company
in exchange for consideration of one Torque common share for each Company common share acquired, pursuant to a court approved
plan of arrangement, resulting in the issuance of 33,249,106 common shares of Torque upon closing the business combination. All
outstanding convertible securities of the Company were exchanged for equivalent securities of Torque (other than outstanding warrants
to purchase common shares of the Company, which will remain outstanding and have the terms of such securities adjusted to reflect
the exchange ratio).

 

Torque
also concurrently indirectly acquired WinView, pursuant to a statutory merger under the laws of the State of Delaware, with WinView
securityholders receiving an aggregate of 26,399,960 common shares of Torque as well as certain contingent consideration. The
securities of WinView were exchanged for 26,400,000 common shares of Torque, which shall be subject to certain leak-out provisions
which have been agreed upon by the parties in the Business Combination Agreement.

 

Torque
subsequently changed its name to Engine Media Holdings, Inc.

 

	(c)	Legal proceedings

 

A
complaint filed by Gannaway Entertainment, Inc. and others, and served on August 4, 2017, against the Company and others was resolved
in May 2020 with no cost to the Company.

 

    	Page 50

     

    

 

SCHEDULE
“B”

UNAUDITED
INTERIM FINANCIAL STATEMENTS OF FRANKLY

 

 

Frankly
Inc.

 

Interim
Condensed Financial Statements

 

For
the Three Month Periods Ended March 31, 2020 and 2019

 

(In
U.S. dollars)

 

    	 

     

    

 

	Frankly
        Inc.

        Table
        of Contents

        March
        31, 2020 and 2019

        
	

 

 

 

	Consolidated statements of financial position	3
	 	 
	Consolidated statements of loss and comprehensive loss	4
	 	 
	Consolidated statements of changes in equity	5
	 	 
	Consolidated statements of cash flows	6
	 	 
	Notes to the consolidated financial statements	7

 

    	Page 2

     

    

 

	Frankly
        Inc.

        Consolidated
        statements of financial position

        As
        at March 31, 2020 and December 31, 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	 	 	March 31,	 	 	December 31,	 
	 	 	Note	 	2020	 	 	2019	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	$	 	 	$	 
	Assets	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Current assets:	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	 	 	 	1,158,291	 	 	 	686,577	 
	Cash in trust	 	14(b)	 	 	486,745	 	 	 	-	 
	Accounts receivable	 	 	 	 	4,980,213	 	 	 	4,312,123	 
	Prepaid expenses and deposits	 	 	 	 	331,289	 	 	 	294,880	 
	Promissory notes receivable	 	18	 	 	1,100,000	 	 	 	-	 
	 	 	 	 	 	8,056,538	 	 	 	5,293,580	 
	Non-current assets:	 	 	 	 	 	 	 	 	 	 
	Software, net	 	12(ii)	 	 	624,479	 	 	 	649,166	 
	Property and equipment, net	 	12(i)	 	 	43,215	 	 	 	43,468	 
	Intangible assets, net	 	12(iii)	 	 	995,733	 	 	 	1,088,675	 
	Goodwill	 	7, 8	 	 	1,163,034	 	 	 	1,163,034	 
	Other long-term assets	 	 	 	 	127,925	 	 	 	115,081	 
	Total assets	 	 	 	 	11,010,924	 	 	 	8,353,004	 
	 	 	 	 	 	 	 	 	 	 	 
	Liabilities	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities:	 	 	 	 	 	 	 	 	 	 
	Accounts payable	 	 	 	 	6,499,599	 	 	 	6,035,879	 
	Accrued expenses	 	 	 	 	1,916,844	 	 	 	2,093,525	 
	Deferred revenues	 	 	 	 	33,159	 	 	 	28,024	 
	Contingent purchase consideration	 	7	 	 	312,439	 	 	 	312,439	 
	Debt	 	13	 	 	3,818,890	 	 	 	-	 
	 	 	 	 	 	12,580,931	 	 	 	8,469,867	 
	Non-current liabilities:	 	 	 	 	 	 	 	 	 	 
	Other liabilities	 	 	 	 	29,030	 	 	 	194,745	 
	Total liabilities	 	 	 	 	12,609,961	 	 	 	8,664,612	 
	 	 	 	 	 	 	 	 	 	 	 
	Shareholders’ deficit	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Share capital	 	14	 	 	69,510,757	 	 	 	68,858,144	 
	Contributed surplus	 	14	 	 	9,732,666	 	 	 	9,262,650	 
	Accumulated deficit	 	 	 	 	(80,797,801	)	 	 	(78,387,374	)
	Cumulative translation adjustment	 	 	 	 	(44,659	)	 	 	(45,028	)
	Total shareholders’ deficit	 	 	 	 	(1,599,037	)	 	 	(311,608	)
	Total liabilities and shareholders’ deficit	 	 	 	 	11,010,924	 	 	 	8,353,004	 
	 	 	 	 	 	 	 	 	 	 	 
	Going concern	 	2(a)	 	 	 	 	 	 	 	 
	Subsequent events	 	18	 	 	 	 	 	 	 	 

 

	Approved
    by the Board	 	“Lou Schwartz”	 	 
	 	 	Director	 	 

 

The
accompanying notes form an integral part of and should be read in conjunction with these condensed financial
statements.

 

    	Page 3

     

    

 

	Frankly
        Inc.

        Consolidated
        statements of loss and comprehensive loss

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	Note	 	2020	 	 	2019	 
	 	 	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 
	Total Revenue	 	9	 	 	5,829,968	 	 	 	1,870,693	 
	 	 	 	 	 	 	 	 	 	 	 
	Costs and operating expenses:	 	 	 	 	 	 	 	 	 	 
	Salaries and benefits, net of amounts capitalized	 	 	 	 	2,187,056	 	 	 	1,924,608	 
	Technology related costs	 	 	 	 	737,340	 	 	 	572,047	 
	Office and administration	 	 	 	 	414,702	 	 	 	406,096	 
	Consulting fees, net of amounts capitalized	 	 	 	 	190,049	 	 	 	168,222	 
	Professional fees	 	 	 	 	63,142	 	 	 	28,546	 
	Advertising and marketing	 	 	 	 	105,300	 	 	 	62,044	 
	Revenue sharing expense	 	 	 	 	3,116,350	 	 	 	421,157	 
	Depreciation and amortization	 	 	 	 	132,256	 	 	 	24,708	 
	Stock-based compensation	 	 	 	 	128,392	 	 	 	14,162	 
	Restructuring expense	 	 	 	 	-	 	 	 	1,273	 
	Retention expense	 	 	 	 	(9,449	)	 	 	205,632	 
	Transaction costs	 	18	 	 	923,361	 	 	 	-	 
	Income (loss) from operations	 	 	 	 	(2,158,531	)	 	 	(1,957,802	)
	 	 	 	 	 	 	 	 	 	 	 
	Foreign exchange (gain) loss	 	 	 	 	(3,098	)	 	 	278	 
	Interest expense, net	 	13, 17	 	 	254,994	 	 	 	250,000	 
	Income (loss) before income tax expense	 	 	 	 	(2,410,427	)	 	 	(2,208,080	)
	Income tax expense	 	 	 	 	-	 	 	 	-	 
	Net income (loss)	 	 	 	 	(2,410,427	)	 	 	(2,208,080	)
	 	 	 	 	 	 	 	 	 	 	 
	Other comprehensive income (loss)	 	 	 	 	 	 	 	 	 	 
	Foreign currency translation	 	 	 	 	369	 	 	 	(199	)
	Comprehensive income (loss)	 	 	 	 	(2,410,058	)	 	 	(2,208,279	)
	 	 	 	 	 	 	 	 	 	 	 
	Net income (loss) per share attributable to shareholders:	 	 	 	 	 	 	 	 	 	 
	Basic & Diluted	 	10	 	$	(0.08	)	 	$	(0.83	)
	Weighted average common shares outstanding:	 	 	 	 	 	 	 	 	 	 
	Basic & Diluted	 	10	 	 	30,865,052	 	 	 	2,661,929	 

 

The
accompanying notes form an integral part of and should be read in conjunction with these condensed financial
statements.

 

    	Page 4

     

    

 

	Frankly
        Inc.

        Consolidated
        statements of changes in shareholders’ deficit

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	Note	 	Common shares	 	 	Class A restricted
    voting shares	 	 	Share capital	 	 	Contributed surplus	 	 	Accumulated
 deficit	 	 	Cumulative translation
    adjustment	 	 	Total
 shareholders’
    deficit	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at December 31,
    2018	 	 	 	 	2,660,155	 	 	 	-	 	 	 	63,363,342	 	 	 	7,400,945	 	 	 	(82,916,160	)	 	 	(57,094	)	 	 	(12,208,967	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vesting of restricted share units	 	 	 	 	36,413	 	 	 	-	 	 	 	64,274	 	 	 	(23,836	)	 	 	-	 	 	 	-	 	 	 	40,438	 
	Stock-based compensation	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	14,162	 	 	 	-	 	 	 	-	 	 	 	14,162	 
	Net income	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(2,208,080	)	 	 	-	 	 	 	(2,208,080	)
	Other comprehensive income	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(199	)	 	 	(199	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at March 31, 2019	 	 	 	 	2,696,568	 	 	 	-	 	 	 	63,427,616	 	 	 	7,391,271	 	 	 	(85,124,240	)	 	 	(57,293	)	 	 	(14,362,646	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at December 31, 2019	 	 	 	 	30,386,782	 	 	 	-	 	 	 	68,858,144	 	 	 	9,262,650	 	 	 	(78,387,374	)	 	 	(45,028	)	 	 	(311,608	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vesting of restricted share units	 	 	 	 	366,976	 	 	 	-	 	 	 	305,772	 	 	 	(22,585	)	 	 	-	 	 	 	-	 	 	 	283,187	 
	Issuance of Units	 	14(b)	 	 	1,070,396	 	 	 	-	 	 	 	385,393	 	 	 	130,516	 	 	 	-	 	 	 	-	 	 	 	515,909	 
	Unit issuance costs	 	14(b)	 	 	-	 	 	 	-	 	 	 	(76,140	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(76,140	)
	Issuance of warrants on debt	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	241,480	 	 	 	-	 	 	 	-	 	 	 	241,480	 
	Exercise of warrants	 	14(c)	 	 	60,000	 	 	 	-	 	 	 	37,588	 	 	 	(7,787	)	 	 	-	 	 	 	-	 	 	 	29,801	 
	Stock-based compensation	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	128,392	 	 	 	-	 	 	 	-	 	 	 	128,392	 
	Net income	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(2,410,427	)	 	 	-	 	 	 	(2,410,427	)
	Other comprehensive income	 	 	 	 	-	 	 	 	     -	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	369	 	 	 	369	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at March 31, 2020	 	 	 	 	31,884,154	 	 	 	-	 	 	 	69,510,757	 	 	 	9,732,666	 	 	 	(80,797,801	)	 	 	(44,659	)	 	 	(1,599,037	)

 

The
accompanying notes form an integral part of and should be read in conjunction with these condensed financial
statements.

 

    	Page 5

     

    

 

	Frankly
        Inc.

        Consolidated
        statements of cash flows

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	Note	 	2020	 	 	2019	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	$ 	 	 	 	$ 	 
	Cash flows from operating activities	 	 	 	 	 	 	 	 	 	 
	Net income (loss)	 	 	 	 	(2,410,427	)	 	 	(2,208,080	)
	Adjustments for:	 	 	 	 	 	 	 	 	 	 
	Depreciation and amortization	 	 	 	 	132,256	 	 	 	24,708	 
	Amortization of debt discount	 	 	 	 	60,370	 	 	 	-	 
	Stock-based compensation expense	 	 	 	 	128,392	 	 	 	14,162	 
	Deferred interest	 	 	 	 	-	 	 	 	250,000	 
	 	 	 	 	 	(2,089,409	)	 	 	(1,919,210	)
	Changes in:	 	 	 	 	 	 	 	 	 	 
	Cash in attorney trust	 	 	 	 	(494,908	)	 	 	-	 
	Accounts receivable	 	 	 	 	(668,091	)	 	 	925,534	 
	Prepaid expenses and other current assets	 	 	 	 	(41,473	)	 	 	(98,048	)
	Other assets	 	 	 	 	(12,844	)	 	 	(30,925	)
	Accounts payable	 	 	 	 	488,107	 	 	 	(2,702,874	)
	Accrued expenses	 	 	 	 	(53,978	)	 	 	(831,219	)
	Deferred revenue	 	 	 	 	5,135	 	 	 	38,371	 
	Due to related parties	 	17	 	 	-	 	 	 	2,535,696	 
	Deferred rent and other liabilities	 	 	 	 	(3,798	)	 	 	205,632	 
	Net cash used in operating activities 	 	 	 	 	(2,871,259	)	 	 	(1,877,043	)
	 	 	 	 	 	 	 	 	 	 	 
	Cash flows from investing activities	 	 	 	 	 	 	 	 	 	 
	Purchases of property & equipment	 	 	 	 	(14,498	)	 	 	-	 
	Net cash used in investing activities 	 	 	 	 	(14,498	)	 	 	-	 
	 	 	 	 	 	 	 	 	 	 	 
	Cash flows from financing activities	 	 	 	 	 	 	 	 	 	 
	Payments for purchase of promissory notes	 	18	 	 	(1,100,000	)	 	 	-	 
	Proceeds from issuance of Units	 	14(b)	 	 	515,909	 	 	 	-	 
	Unit issuance costs	 	14(b)	 	 	(76,140	)	 	 	-	 
	Proceeds from exercise of warrants	 	14(c)	 	 	29,801	 	 	 	-	 
	Proceeds from issuance of debt 	 	13	 	 	4,000,000	 	 	 	-	 
	Net cash provided by financing activities 	 	 	 	 	3,369,570	 	 	 	-	 
	 	 	 	 	 	 	 	 	 	 	 
	Effect of exchange rate changes on cash	 	 	 	 	(12,099	)	 	 	(2,865	)
	Net change in cash and cash equivalents 	 	 	 	 	471,714	 	 	 	(1,879,908	)
	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents and restricted cash at beginning of period	 	 	 	 	686,577	 	 	 	4,066,194	 
	Cash and cash equivalents and restricted cash at end of period	 	 	 	 	1,158,291	 	 	 	2,186,286	 
	 	 	 	 	 	 	 	 	 	 	 
	Cash is represented by:	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	1,158,291	 	 	 	2,186,286	 
	Restricted cash	 	 	 	 	-	 	 	 	-	 
	 	 	 	 	 	1,158,291	 	 	 	2,186,286	 

 

The
accompanying notes form an integral part of and should be read in conjunction with these condensed financial
statements.

 

    	Page 6

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	1.	General
    information

 

Frankly
Inc. (“Frankly” or the “Company”) is a digital technology company that provides an integrated software
platform for brands and media companies primarily in the United States and has been operating since the incorporation, in Delaware,
of its predecessor, Frankly Co. (formerly TicToc Planet Inc.) (“TicToc”), on September 10, 2012. The address of the
registered office of the Company is 2900-550 Burrard Street, Vancouver, British Columbia, Canada V6C 0A3. These consolidated financial
statements include the Company and its subsidiaries (Frankly Co., Frankly Media LLC, and Vemba Media Technologies Private Limited),
together referred to as the “Company.” The Company creates, distributes, analyzes, and monetizes content across various
digital properties through web, mobile, and television.

 

On
May 10, 2019, the Company’s subsidiary, Frankly Media LLC, completed the acquisition of certain assets of Triton Digital,
Inc. and certain affiliated entities (collectively, “Triton”), including the AMP content management and contesting
platforms for radio broadcasters, customer agreements to supply AMP services to approximately 1,200 radio stations and all employees
of the AMP business (collectively the “AMP Assets”)(Note 7).

 

On
August 7, 2019, the Company’s subsidiary, Frankly Media LLC, completed the acquisition of certain assets of Vemba Corporation
(“Vemba”), including the Vemba video asset management, syndication and monetization platform, customer agreements
and all employees of the Vemba business (collectively the “Vemba Assets”)(Note 8).

 

The
Company was acquired by Engine Media Holdings Inc. (formerly Torque Esports Corp.)(“Torque”) on May 8, 2020 under
terms of a business combination agreement (Note 18).

 

	2.	Basis
    of preparation

 

	(a)	Going
    concern

 

These
interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company
will continue in operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in
the normal course of business. The realizable values may be substantially different from its carrying amounts, as shown in these
financial statements, and these financial statements do not give effect to adjustments that would be necessary to the carrying
amounts and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

As
at March 31, 2020, the Company had an accumulated deficit of $(80,797,801) (December 31, 2019 - $(78,387,374)). The Company has
not yet been able to generate positive cash flows from operations. Whether and when the Company can generate sufficient cash flows
to pay for its expenditures and settle its obligations as they fall due subsequent to March 31, 2020 is uncertain.

 

These
material uncertainties may cast significant doubt on the Company’s ability to continue as a going concern. The financial
statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern.
Such adjustments could be material.

 

    	Page 7

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

During
2019 and up to May 8, 2020, the date of acquisition of the Company by Torque, the Company made efforts to reduce costs, increase
revenue and entered into financing agreements to maintain its operations.

 

	(c)	Statement
    of compliance

 

These
unaudited interim condensed consolidated financial statements (“interim financial statements”) have been prepared
in accordance with IAS 34 “Interim Financial Reporting” (“IAS 34”). These interim financial statements
do not include all disclosures required by International Financial Reporting Standards (“IFRS”) for annual audited
consolidated financial statements and accordingly should be read in conjunction with the Company’s audited consolidated
financial statements for the year ended December 31, 2019 prepared in accordance with IFRS as issued by the International Accounting
Standards Board (“IASB”).

 

These
interim financial statements were authorized for issuance by the Board of Directors on November 12, 2020.

 

	(d)	Basis
    of presentation

 

The
interim financial statements are prepared on a going concern basis using the historical cost method, except for financial instruments
measured at their fair value. In addition, these financial statements have been prepared using the accrual basis of accounting
except for cash flow information. The financial statements are presented in US dollars.

 

The
Company presents its classified statements of financial position distinguished between current and non-current assets and liabilities.
Current assets and liabilities are those expected to be settled within one year of the reporting period, and non-current assets
and liabilities are those which the recovery or settlement is expected to be greater than a year after the reporting period.

 

	(e)	Functional
    and presentation currency

 

These
interim financial statements have been presented in U.S. dollars.

 

The
following companies have been consolidated within these interim financial statements:

 

 

    	Page 8

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	3.	Significant
    judgments, estimates, and assumptions

 

In
preparation of these interim financial statements, management has made judgments and estimates that affect the application of
the Company’s accounting policies and the reported amount of assets, liabilities, revenue and expenses. Actual results may
significantly differ from these estimates.

 

The
significant judgments, estimates and assumptions in the preparation of the financial statements are consistent with those followed
in the preparation of the Company’s annual financial statements for the year ended December 31, 2019.

 

	4.	Operating
    segments

 

The
company operates in the United States. The Company has one strategic division offering its services which are managed on an integrated
basis with similar bases in technology and marketing. In measuring its performance, the Company does not distinguish or group
its operations on a geographical or on any other basis, and accordingly, has a single operating segment.

 

The
Company’s chief operating decision maker is the Chief Executive Officer (“CEO”). The CEO evaluates performance
and makes operating decisions and allocates resources based on financial data that is consistent with that presented in these
interim financial statements.

 

	5.	Changes
    in significant accounting policies

 

	(a)	IAS
    1 and IAS8 – Definition of Material - Updates

 

On
October 31, 2018, the IASB issued ‘Definition of Material (Amendments to IAS 1 and IAS 8)’ to clarify the definition
of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. The amendments
are effective annual reporting periods beginning on or after 1 January 2020. The implementation of these standards did not have
a material impact on the Company’s financial statements.

 

	(b)	Conceptual
    Framework – Updates

 

Together
with the revised ‘Conceptual Framework’ published in March 2018, the IASB also issued ‘Amendments to References
to the Conceptual Framework in IFRS Standards’. The amendments are effective for annual periods beginning on or after 1
January 2020. The implementation of these standards did not have a material impact on the Company’s financial statements.

 

	(c)	IFRS
    3 – Definition of a Business - Updates

 

On
22 October 2018, the IASB issued ‘Definition of a Business (Amendments to IFRS 3)’ aimed at resolving the difficulties
that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for
business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after 1 January 2020. The implementation of these standards did not have a material impact on the Company’s financial
statements.

 

	(d)	Other
    accounting standards

 

Other
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 financial statements.

 

    	Page 9

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	6.	Significant
    accounting policies

 

The
accounting policies adopted in the preparation of these interim financial statements are consistent with those followed in the
preparation of the annual financial statements for the year ended December 31, 2019, except for the adoption of new standards
effective as of January 1, 2020 (Note 5).

 

	7.	Acquisition
    of assets of AMP

 

	(a)
    	Description
    of the transaction

 

On
May 10, 2019, the Company’s subsidiary, Frankly Media LLC, completed the acquisition of the AMP Assets from Triton Digital,
Inc., including the AMP content management and contesting platforms for radio broadcasters, customer agreements to supply AMP
services to approximately 800 radio stations and all employees of the business. The acquisition was completed pursuant to the
AMP Agreement between the Company and Triton dated May 1, 2019. The total maximum purchase price to be paid under the AMP Agreement
is $3.0 million, with $1.75 million paid on closing, $250,000 payable on the six-month anniversary of the closing date and $1.0
million contingent upon the renewal of a key customer contract and payable upon such renewal.

 

The
contingent consideration will be computed as the amount equal to the lesser of (i) $1.0 million and (ii) $1.0 million multiplied
by a fraction, the numerator of which is the total minimum AMP service fees to be paid to the Company during 2020 pursuant to
the renewal agreement and the denominator of which is the total amount of actual AMP service fees paid in 2019 .

 

	(b)	Purchase
    price allocation

 

The
net assets acquired were recorded in the condensed consolidated financial statements at their estimated fair values as of the
acquisition date. Under the purchase method of accounting, the total acquisition price of approximately $2.6 million was allocated
to the net tangible assets and identifiable intangible assets based on their fair values as of the date of acquisition, with the
amount paid in excess of such fair value recorded as goodwill.

 

    	Page 10

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

The
following summarizes the purchase price allocation relating to the acquisition of the AMP Assets:

 

	 	 	Amount	 
	 	 	 	 
	Purchase consideration	 	 	 	 
	Cash	 	$	1,750,000	 
	Fair value of deferred and contingent purchase price consideration	 	 	888,000	 
	 	 	$	2,638,000	 
	 	 	 	 	 
	Purchase price allocation	 	 	 	 
	Property and equipment	 	$	24,334	 
	Software development costs	 	 	400,000	 
	Intangible assets - customer relationships	 	 	1,300,000	 
	Goodwill	 	 	913,666	 
	Net assets acquired 	 	$	2,638,000	 

 

Significant
judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:

 

	 	i.	Intangible
    Assets, Software 

 

AMP
had certain proprietary technology used in its products, which the Company expects will contribute to future cash flow. The fair
value of the software intangible asset was determined based on the relief from royalty method under the income approach. The software
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections; (ii)
royalty rate; (iii) technology replacement rate; and (iv) present value factor. This asset is amortized on a straight-line basis
over the estimated useful life of five years.

 

	 	ii.	Intangible
    Assets, Customer Relationships 

 

AMP
had established relationships with local radio broadcasters which are expected to result in future sales. The fair value of the
customer relationships intangible asset was determined based on the excess earnings method under the income approach. The customer
relationships intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections;
(ii) customer attrition rate / probability of renewal rate; (iii) charges for use of assets; and (iv) present value factor. This
asset is amortized on an accelerated basis over the estimated useful life of eight years.

 

	 	iii.	Contingent
    consideration 

 

The
fair value of the contingent consideration due to Triton of up to $1.0 million was determined using a multiple-scenario probability-weighted
analysis. The contingent consideration was valued using Level 3 inputs which consisted of the probabilities of each scenario as
determined by the Company and the present value factor.

 

The
difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired
and liabilities assumed represents goodwill of $0.9 million. All of the goodwill is expected to be deductible for tax purposes
as the acquisition was considered an asset deal for tax purposes. The goodwill recorded represents the following: (i) Cost savings
and operating synergies expected to result from combining the operations of AMP with those of the Company, and (ii) intangible
assets that do not qualify for separate recognition such as the assembled workforce.

 

    	Page 11

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	8.	Acquisition
    of assets of Vemba

 

	(a)	Description
    of transaction

 

On
August 7, 2019, the Company completed its acquisition of certain assets of Vemba. Under the terms of the asset purchase agreement
with Vemba, the Company acquired the Vemba video asset management, syndication and monetization platform, employees and related
customer contracts, comprising substantially all of the property and assets of Vemba, excluding working capital, for a purchase
price consisting of $154,214 cash payment and the issuance to Vemba of 256,410 of Company common shares. The common shares issued
pursuant to the acquisition were subject to a 4-month statutory hold period and contractual escrow restrictions for a period of
12-months.

 

	(b)	Purchase
    price allocation

 

The
net assets acquired were recorded in the consolidated financial statements at their estimated fair values as of the acquisition
date. Under the purchase method of accounting, the total acquisition price of approximately $0.7 million was allocated to the
net tangible assets and identifiable intangible assets based on their fair values as of the date of acquisition, with the amount
paid in excess of such fair value recorded as goodwill.

 

The
following summarizes the purchase price allocation relating to the acquisition of the Vemba Assets:

 

	 	 	Shares	 	 	Amount	 
	 	 	 	 	 	 	 
	Purchase consideration	 	 	 	 	 	 	 	 
	Cash	 	 	-	 	 	$	154,214	 
	Frankly Inc. Common Shares, at fair value	 	 	256,410	 	 	 	577,413	 
	 	 	 	256,410	 	 	$	731,627	 
	 	 	 	 	 	 	 	 	 
	Purchase price allocation	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	$	2,714	 
	Prepaid expenses and other current assets	 	 	 	 	 	 	614	 
	Accrued expenses	 	 	 	 	 	 	(1,069	)
	Software development costs	 	 	 	 	 	 	330,000	 
	Intangible assets - customer relationships	 	 	 	 	 	 	150,000	 
	Goodwill	 	 	 	 	 	 	249,368	 
	Net assets acquired 	 	 	 	 	 	$	731,627	 

 

The
Company Common Shares were valued based on the closing price on TSX Venture exchange on August 7, 2019. The Company did not consider
the impact of the contractual escrow restrictions to be material.

 

    	Page 12

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

Significant
judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:

 

	 	i.	Intangible
    Assets, Software 

 

Vemba
had certain proprietary technology used in its products, which the Company expects will contribute to future cash flow. The fair
value of the software intangible asset was determined based on the relief from royalty method under the income approach. The software
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections; (ii)
royalty rate; (iii) technology replacement rate; and (iv) present value factor. This asset is amortized on a straight-line basis
over the estimated useful life of five years.

 

	 	ii.	Intangible
    Assets, Customer Relationships 

 

Vemba
had established relationships with content publishers which are expected to result in future sales. The fair value of the customer
relationships intangible asset was determined based on the excess earnings method under the income approach. The customer relationships
intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) cash flow projections; (ii)
customer attrition rate / probability of renewal rate; (iii) charges for use of assets; and (iv) present value factor. This asset
is amortized on a straight-line basis over the estimated useful life of eight years.

 

The
difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired
and liabilities assumed represents goodwill of $251,627. All of the goodwill is expected to be deductible for tax purposes as
the acquisition was considered an asset deal for tax purposes. The goodwill recorded represents the following: (i) Cost savings
and operating synergies expected to result from combining the operations of Vemba with those of the Company, and (ii) intangible
assets that do not qualify for separate recognition such as the assembled workforce.

 

	9.	Revenue

 

	(a)	Revenue
    streams and disaggregation of revenue from contracts with customers

 

    	Page 13

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

In
the following table, revenue from contracts with customers is disaggregated by service lines.

 

	 	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	Major products and service items	 	 	 	 	 	 	 	 
	License fees	 	 	1,348,283	 	 	 	504,115	 
	Usage fees	 	 	260,752	 	 	 	206,398	 
	Advertising - National	 	 	3,843,663	 	 	 	769,524	 
	Advertising - Local	 	 	29,287	 	 	 	44,048	 
	Professional fees and other	 	 	347,983	 	 	 	346,608	 
	 	 	 	5,829,968	 	 	 	1,870,693	 

 

	(b)	Performance
    obligations and revenue recognition policies

 

Revenue
is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers
control of its services to a customer.

 

The
following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers,
including significant payment terms and related revenue recognition policies:

 

	 	i.	License
    fees

 

The
Company enters into license agreements with customers for its content management system, video software, and mobile applications.
These license agreements, generally non-cancellable, without paying a termination penalty, and multiyear, provide the customer
with the right to use the Company’s application solely on a Company-hosted platform or, in certain instances, on purchased
encoders. The license agreements also entitle the customer to technical support.

 

Revenue
from these license agreements is recognized ratably over the license term. Early termination fees are recognized when a customer
ceases use of agreed upon services prior to the expiration of their contract. These fees are recognized in full on the date the
customer has completed their migration off of the Company’s solutions and there is no continuing service obligation to the
customer.

 

	 	ii.	Usage
    fees

 

The
Company charges its customers for the optional use of its content delivery network to stream and store videos. The revenue is
recognized as earned based on the actual usage because it has stand-alone value and delivery is in control of the customer. The
Company also charges its customers for the use of its ad serving platform to serve ads under local advertising campaigns. The
Company reports revenue as earned based on the actual usage.

 

	 	iii.	Advertising
    (national advertising)

 

Under
national advertising agreements with advertisers, the Company sources, creates, and places advertising campaigns that run across
the Company’s network of publisher sites. National advertising revenue, net of third-party costs, is shared with publishers
based on their respective contractual agreements. The Company invoices national advertising amounts due from advertisers and remits
payments to publishers for their share. Depending on the agreement with the publisher, the obligation to remit payment to the
publisher is based on either billing to the advertiser or the collection of cash from the advertiser.

 

    	Page 14

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

National
advertising revenue is recognized in the period during which the ad impressions are delivered. The Company reports revenue earned
through national advertising agreements either on a net or gross basis.

 

Under
national advertising agreements wherein the Company does not bear inventory risk and only has credit risk on its portion of the
revenue, national advertising revenues are accounted for on a net basis and the publisher is identified as the customer.

 

In
select national advertising agreements with its publishers, the Company takes on inventory risk and additional credit risk. Under
these agreements, the Company either a) provides the publisher with a guaranteed minimum gross selling price per advertising unit
delivered, wherein the greater of the actual selling price or guaranteed minimum selling price is used in determining the publisher’s
share or b) provides the publisher with a fixed rate per advertising unit delivered, wherein the publisher is paid the fixed rate
per advertising unit delivered irrespective of the actual selling price. Under these national advertising agreements, national
advertising revenues are accounted for on a gross basis with the advertiser identified as the customer and the publisher identified
as a supplier, with amounts billed to the advertiser reported as revenue and amounts due to the publisher reported as a revenue
sharing expense, within cost of revenue.

 

	 	iv.	Advertising
    (local advertising)

 

Under
local advertising agreements with customers, the Company provides local ad sales consulting and support services in exchange for
monthly fees over the term of the agreement. The fees are established in the agreement with the customer in one of three ways:
fixed annual amounts for an unlimited number of advertisers, flat fee paid per advertiser, or a commission rate of the local advertising
revenue paid by the advertiser. Fixed amounts are recognized as revenue ratably over the contract term, and flat fee and commission-based
amounts are recognized as revenue based on the revenue earned for each respective period based on actual delivery of the local
advertising campaigns.

 

	 	v.	Professional
    services and other

 

Professional
services consist primarily of installation and website design services. Installation fees are contracted on a fixed-fee basis.
The Company recognizes revenue as services are performed. Such services are readily available from other vendors and are not considered
essential to the functionality of the product. Website design services are also not considered essential to the functionality
of the product and have historically been insignificant; the fee allocable to website design is recognized as revenue as the Company
performs the services.

 

    	Page 15

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	10.	Net
    Income (Loss) per share

 

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

 

Due
to the net loss incurred during there month periods ended March 31, 2020 and 2019, all outstanding options, RSU’s and warrants
were excluded from diluted weighted-average common shares outstanding as their effect was anti-dilutive.

 

Weighted
average common shares outstanding for the there month periods ended March 31, 2020 and 2019 were 30,865,052 and 2,661,929, respectively.

 

	11.	Income
    taxes

 

The
Company has net operating loss carry forwards. Deferred tax assets have not been recognized given the Company’s history
of losses.

 

	12.	Long-lived
    assets

 

All
of the Company’s long-lived assets are domiciled in the U.S. and Canada. Depreciation and amortization expense for long-lived
assets was as follows for the periods presented:

 

	 	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Depreciation of property and eqipment	 	 	14,625	 	 	 	24,708	 
	Amortization of software	 	 	24,688	 	 	 	-	 
	Amortization of intangibles	 	 	92,943	 	 	 	-	 
	 	 	 	132,256	 	 	 	24,708	 

 

    	Page 16

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	i.	Property
    and equipment, net

 

The
following table summarizes property and equipment, net:

 

	 	 	March 31,

 2020	 	 	December 31,

 2019	 
	 	 	$	 	 	$	 
	Cost: 	 	 	 	 	 	 	 	 
	Office equipment, computer equipment and software	 	 	1,822,829	 	 	 	1,808,458	 
	Leasehold improvements	 	 	603,978	 	 	 	603,978	 
	 	 	 	2,426,807	 	 	 	2,412,436	 
	 	 	 	 	 	 	 	 	 
	Accumulated depreciation:	 	 	 	 	 	 	 	 
	Office equipment, computer equipment and software	 	 	(1,461,373	)	 	 	(1,446,749	)
	Leasehold improvements	 	 	(354,831	)	 	 	(354,831	)
	 	 	 	(1,816,204	)	 	 	(1,801,580	)
	 	 	 	 	 	 	 	 	 
	Accumulated impairment:	 	 	 	 	 	 	 	 
	Office equipment, computer equipment and software	 	 	(318,241	)	 	 	(318,241	)
	Leasehold improvements	 	 	(249,147	)	 	 	(249,147	)
	 	 	 	(567,388	)	 	 	(567,388	)
	 	 	 	 	 	 	 	 	 
	 	 	 	43,215	 	 	 	43,468	 

 

	 	ii.	Software,
    net

 

The
following table summarizes software, net:

 

	 	 	March 31,

2020	 	 	December 31,

2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Cost	 	 	14,707,003	 	 	 	14,707,003	 
	Accumulated amortization	 	 	(7,967,783	)	 	 	(7,943,096	)
	Accumulated impairment	 	 	(6,114,741	)	 	 	(6,114,741	)
	 	 	 	 	 	 	 	 	 
	 	 	 	624,479	 	 	 	649,166	 

 

During
the three month periods ended March 31, 2020 and 2019, the Company did not capitalize any software development costs.

 

In
connection with the acquisition of the AMP Assets (Note 7), the Company determined the acquired software had a fair value of $400,000.

 

In
connection with the acquisition of the Vemba assets (Note 8), the Company determined the acquired software had a fair value of
$330,000.

 

    	Page 17

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	iii.	Intangible
    assets, net

 

The
following table summarizes intangible assets, net:

 

	 	 	March 31,

2020	 	 	December 31,

2019	 
	 	 	$	 	 	$	 
	Cost: 	 	 	 	 	 	 	 	 
	Broadcast relationships 	 	 	7,600,000	 	 	 	7,600,000	 
	Advertiser relationships 	 	 	1,200,000	 	 	 	1,200,000	 
	Customer relationships - AMP	 	 	1,300,000	 	 	 	1,300,000	 
	Customer relationships - Vemba	 	 	150,000	 	 	 	150,000	 
	 	 	 	10,250,000	 	 	 	10,250,000	 
	 	 	 	 	 	 	 	 	 
	Accumulated amortization:	 	 	 	 	 	 	 	 
	Broadcast relationships	 	 	(1,952,786	)	 	 	(1,952,786	)
	Advertiser relationships	 	 	(740,000	)	 	 	(740,000	)
	Customer relationships - AMP	 	 	(429,954	)	 	 	(353,512	)
	Customer relationships - Vemba	 	 	(24,313	)	 	 	(7,813	)
	 	 	 	(3,147,053	)	 	 	(3,054,111	)
	 	 	 	 	 	 	 	 	 
	Accumulated impairment:	 	 	 	 	 	 	 	 
	Broadcast relationships	 	 	(5,647,214	)	 	 	(5,647,214	)
	Advertiser relationships	 	 	(460,000	)	 	 	(460,000	)
	 	 	 	(6,107,214	)	 	 	(6,107,214	)
	 	 	 	 	 	 	 	 	 
	 	 	 	995,733	 	 	 	1,088,675	 

 

In
connection with the acquisition of the AMP Assets (Note 7), the Company determined the acquired customer relationship intangible
assets had a fair value of $1.3 million.

 

In
connection with the acquisition of the Vemba assets (Note 8), the Company determined the acquired customer relationship intangible
assets had a fair value of $150,000.

 

	13.	Debt

 

	(a)	Revolving
    line of credit – EB Acquisition

 

On
January 7, 2020, the Company’s Frankly Media LLC subsidiary (“Frankly Media”) entered an agreement with an arm’s
length lender, EB Acquisition Company, LLC (the “Lender”), whereby the Lender agreed, subject to the terms and conditions
thereof, to provide Frankly Media with a revolving term line of credit in the principal amount of up to $5 million (the “EB
Loan”). In connection with entering into the EB Loan, Frankly Media has drawn $4 million under the EB Loan under an initial
advance. Subsequent advances may be made, subject to customary conditions precedent to be satisfied by Frankly Media or waived
by the Lender.

 

    	Page 18

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

The
EB Loan has a one-year term, extendable for a second year upon the mutual agreement of Lender and Frankly Media, and is secured
by a security interest in Frankly Media’s assets, as well as a guarantee by the Company, secured against the Company’s
assets. The Loan was subject to a $100,000 commitment fee. If the EB Loan term is extended for a second year, an additional fee
will be payable by Frankly Media in the amount of 1% of outstanding principal balance under the EB Loan as of the commencement
of the second year of the EB Loan term. Interest on outstanding balances of the EB Loan accrues at a rate of 10% per annum. The
EB Loan is subject to mandatory repayment arising upon the Company’s raising of certain amounts of additional financing.
The proceeds of the EB Loan were used to supplement Frankly Media’s general working capital.

 

In
connection with the EB Loan, the Company granted the Lender warrants to acquire up to $500,000 of the Company’s common shares
(determined in reference to the “Market Price” of the Company’s common shares pursuant to the policies of the
TSX Venture Exchange) (the “Bonus Warrants”). Each Bonus Warrant is exercisable to acquire one Company common share
with an exercise price of CDN$0.50 per share. The Bonus Warrants have a two-year exercise period commencing on the date of their
issuance, provided that if there is full repayment of the outstanding principal balance of the EB Loan within the first year of
the EB Loan term, or the term of the EB Loan is not extended for a second year, the exercise period of the Bonus Warrants will
be reduced to one year from the date of their issuance. The Bonus Warrants granted in connection with the EB Loan will be subject
to a regulatory hold period of four months from the date of issuance.

 

The
warrants were recorded within shareholders’ deficit. Proceeds from the issuance of the debt instrument with stock purchase
warrants (detachable call options) were allocated to the two elements using the residual value method. The value allocated to
the warrants was $241,480 with the remaining $3,758,520 being allocated to the debt.

 

The
debt discount of $241,480 is being amortized to interest expense, net on the consolidated statements of loss and comprehensive
loss on a straight line basis over the one year loan term. Amortization of debt discount included in interest expense, net for
the three month period ended March 31, 2020 and 2019 amounted to $60,370 and $Nil, respectively.

 

	14.	Capital
    and reserves

 

	(a)	Common
    shares and Class A restricted voting shares

 

Subsequent
to the Recapitalization on December 23, 2014, all common and Class A restricted voting shares and related stock-based grants have
been denominated in Canadian dollars and have been translated to U.S. dollars using the exchange rate in effect at the date of
transaction or grant, as applicable.

 

The
Class A restricted voting shares have the same voting rights as common shares except for voting for the election and removal of
directors of the Company. The Class A restricted voting shares participate in dividends and liquidation events in the same manner
as common shares. In terms of restrictions on transfer, no Class A restricted voting shares shall be transferred to another party
unless an offer to acquire common shares is concurrently made that is identical to the offer for the Class A restricted voting
shares in terms of price per share, percentage of outstanding shares to be transferred and in all other material respects.

 

    	Page 19

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

Activity
during the three month period ended March 31, 2020

 

	(b)	March
    2020 private placement

 

On
March 13, 2020, the Company completed a non-brokered private placement (the “Private Placement”) for gross proceeds
of $515,909 through the issuance of 1,070,396 units (the “Units”) of the Company at an issue price of CDN$0.67 per
Unit. Each Unit consisted of one common share of the Company and one-half of one share purchase warrant (the “Warrant”).
Each whole Warrant entitles the holder to acquire one common share of the Company at CDN$0.90 per share until the date that is
24 months from the closing date. All securities issued pursuant to the Private Placement are subject to a statutory hold period
of four months and one day from the date of issuance.

 

The
gross proceeds of $515,909 were allocated between share capital and contributed surplus at $385,393 and $130,516, respectively,
using the relative fair value method. In connection with the Private Placement, the Company incurred $76,140 in issuance costs.
As at March 31, 2020, $486,745 of the funds raised remained in trust.

 

	(c)	Exercise
    of warrants

 

During
the three month period ended March 31, 2020, the Company issued a total of 60,000 common shares for the exercise of warrants issued
in connection with the May 2019 private placement. The Company issued 60,000 common shares for exercise of an equal number of
warrants at an exercise price of CDN$0.65 per warrant for gross proceeds of CDN$39,000 ($29,801).

 

	(d)	Vesting
    of restricted share units

 

During
the three month period ended March 31, 2020, the Company issued a total of 366,976 common shares for employee and director restricted
stock units (“RSUs”) that vested.

 

Activity
during the three month period ended March 31, 2019

 

	(f)	Vesting
    of restricted share units

 

During
the three month period ended March 31, 2019, the Company issued a total of 36,413 common shares for employee and director RSUs
that vested.

 

    	Page 20

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

Warrants

 

	(g)	Warrants

 

The
following table sets forth the activity for the Company’s warrants during the periods presented:

 

	 	 	Number of
 warrants	 	 	Weighted-
 average
 exercise price	 
	 	 	 	 	 	$	 
	 	 	 	 	 	 	 
	Outstanding, as at January 1, 2019 	 	 	871,160	 	 	 	6.54	 
	Issued	 	 	15,645,718	 	 	 	0.48	 
	Exercised	 	 	(1,607,563	)	 	 	0.29	 
	Cancelled or Expired	 	 	(871,160	)	 	 	6.54	 
	Outstanding, as at December 31, 2019 	 	 	14,038,155	 	 	 	0.50	 
	Issued	 	 	1,847,397	 	 	 	0.47	 
	Exercised	 	 	(60,000	)	 	 	0.50	 
	Cancelled or Expired	 	 	-	 	 	 	0.00	 
	Outstanding, as at March 31, 2020 	 	 	15,825,552	 	 	 	0.50	 

 

The
following table summarizes the expiry date, the number of warrants and weighted-average exercise price outstanding as at March
31, 2020:

 

	Expiry 
 date	 	Exercise
 price	 	 	Number of
 warrants	 
	 	 	$	 	 	 	 
	 	 	 	 	 	 	 
	May 10, 2021	 	 	0.50	 	 	 	4,027,268	 
	May 16, 2021	 	 	0.50	 	 	 	4,320,226	 
	May 22, 2021	 	 	0.50	 	 	 	5,690,661	 
	March 13, 2022	 	 	0.38	 	 	 	1,312,200	 
	March 13, 2022	 	 	0.69	 	 	 	535,197	 
	 	 	 	0.50	 	 	 	15,885,552	 

 

Stock-based
compensation

 

	(h)	Description
    of the plan

 

On
October 16, 2019, the Company adopted an amended and restated equity incentive plan (the “Restated Plan”). The Restated
Plan amends the equity incentive plan, effective as of October 1, 2019, by replacing the compensation plan limit with a number
that is 10% of the of the aggregate number of Common Shares and Class A Restricted Voting Shares issued and outstanding that may
be granted under Option and RSU awards.

 

Options
may be exercised over periods of up to 10 years as determined by the Company’s Board of Directors (“Board”)
and the exercise price shall not be less than the closing price of the shares on the day preceding the award date. Option awards
generally vest over four years with one year cliff vesting.

 

    	Page 21

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

The
Restated Plan allows the Company to award RSUs to officers, employees, directors and consultants of the Company and its subsidiaries
upon such conditions as the Board may establish, including the attainment of performance goals recommended by the Company’s
compensation committee. The purchase price for common shares of the Company issuable under each RSU award, if any, shall be established
by the Board at its discretion. Shares issued pursuant to any RSU award may be made subject to vesting conditions based upon the
satisfaction of service requirements, conditions, restrictions, time periods or performance goals established by the Board.

 

Based
on the number of outstanding options and RSUs as of March 31, 2020 and RSUs vested and options exercised through March 31, 2020,
the Company had 311,931 options or RSUs remaining for issuance under the Restated Plan.

 

Total
stock-based compensation expense for the three month periods ended March 31, 2020 and 2019 was $128,392 and $14,162, respectively.
The Company did not recognize any tax benefits for stock-based compensation during any of the periods presented.

 

	(i)	Stock
    options

 

The
following table sets forth the activity for the Company’s stock options during the periods presented:

 

	 	 	 	 	 	Weighted average	 
	 	 	Shares	 	 	Exercise
 price	 	 	Grant-date
 fair value	 	 	Remaining
 contractual
 term (years)	 
	 	 	 	 	 	$	 	 	$	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	January 1, 2019 	 	 	61,298	 	 	 	5.33	 	 	 	4.08	 	 	 	7.61	 
	Granted	 	 	907,500	 	 	 	0.38	 	 	 	0.23	 	 	 	 	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	Forfeited or cancelled	 	 	(8,158	)	 	 	5.36	 	 	 	3.43	 	 	 	 	 
	December 31, 2019 	 	 	960,640	 	 	 	0.65	 	 	 	0.45	 	 	 	9.68	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vested and expected to vest, as at 31-Dec-19	 	 	914,838	 	 	 	0.66	 	 	 	0.46	 	 	 	9.67	 
	Exercisable, as at 31-Dec-19	 	 	44,604	 	 	 	5.32	 	 	 	4.44	 	 	 	6.47	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Unaudited interim activity:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	January 1, 2020 	 	 	960,640	 	 	 	0.65	 	 	 	0.45	 	 	 	9.68	 
	Granted	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	Forfeited or cancelled	 	 	(55,276	)	 	 	0.40	 	 	 	0.25	 	 	 	 	 
	March 31, 2020 	 	 	905,364	 	 	 	0.67	 	 	 	0.46	 	 	 	9.42	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Vested and expected to vest, as at 31-Mar-20	 	 	862,435	 	 	 	0.68	 	 	 	0.47	 	 	 	9.41	 
	Exercisable, as at 31-Mar-20	 	 	46,775	 	 	 	5.32	 	 	 	4.37	 	 	 	6.24	 

 

The
aggregate intrinsic value of outstanding and exercisable stock options as of March 31, 2020 is $0.

 

During
the three month periods ended March 31, 2020 and 2019, there were no new options granted.

 

    	Page 22

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	(j)	Restricted
    share units

 

The
following table sets forth the activity for the Company’s RSUs for the periods presented:

 

	 	 	Shares	 	 	Weighted-
 average
 grant date
 fair value	 
	 	 	 	 	 	$	 
	 	 	 	 	 	 	 
	Balance, January 1, 2019 	 	 	15,474	 	 	 	5.51	 
	Granted	 	 	1,528,257	 	 	 	0.41	 
	Vested	 	 	(40,983	)	 	 	1.65	 
	Forfeited or cancelled	 	 	(1,256	)	 	 	4.04	 
	Balance, December 31, 2019 	 	 	1,501,492	 	 	 	0.43	 
	Granted	 	 	240,203	 	 	 	0.44	 
	Vested	 	 	(366,976	)	 	 	0.49	 
	Forfeited or cancelled	 	 	-	 	 	 	-	 
	Balance, March 31, 2020 	 	 	1,374,719	 	 	 	0.41	 

 

	15.	Financial
    instruments and risk management

 

Financial
risk management objectives and policies

 

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

 

Credit
risk

 

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

 

    	Page 23

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

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

 

The
Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Company establishes
an allowance for doubtful accounts that represents its estimate of incurred losses in respect of accounts receivable. The main
components of this allowance are a specific loss component that relates to individually significant exposures, and a collective
loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The
collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The allowance
for doubtful accounts was $823,396 and $825,396 as at March 31, 2020 and December 31, 2019, respectively.

 

The
Company’s accounts receivable are concentrated among customers in the media and broadcasting industry, which may be affected
by adverse economic factors impacting that industry. The Company performs ongoing credit evaluations of its major customers, maintains
reserves for potential credit losses, and does not require any collateral deposits. As at March 31, 2020 two customers each accounted
for greater than 10% of the Company’s accounts receivable balance. In total, these two customers accounted for 26% of the
Company’s accounts receivable balance as at March 31, 2020.

 

Liquidity
risk

 

Liquidity
risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The
Company is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Company manages
liquidity risk by continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets
and liabilities. The Company seeks to ensure that it has sufficient capital to meet short term financial obligations after taking
into account its operating obligations and cash on hand.

 

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

 

	 	 	< 1 year	 	 	1-2 years	 	 	3-5 years	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued expenses	 	 	8,416,443	 	 	 	-	 	 	 	-	 
	Debt 	 	 	3,818,890	 	 	 	-	 	 	 	-	 

 

Interest
rate risk

 

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

 

    	Page 24

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

Foreign
exchange rates

 

The
Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s transactions
with parties located outside the United States of America, which consists of transactions of the Canadian corporate office. Balances
denominated in foreign currencies as at March 31, 2020 are not material to the Company.

 

	16.	Capital
    management

 

The
Company defines capital as its equity. The Company’s objectives when managing its capital is (i) to safeguard the ability
to continue as a going concern in order to pursue its business plan; and (ii) to provide adequate return to shareholders by obtaining
an appropriate amount of financing with the level of risk, to reduce after-tax cost of capital.

 

The
Company sets the amount of capital in proportion to its risk. The Company manages capital structure and adjusts considering changes
in economic conditions and the characteristics of risk of underlying assets. In order to maintain or adjust capital structure,
the Company may attempt to issue new stock or sell assets to reduce its obligations. The Company’s objective is met by retaining
adequate liquidity to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow
requirements.

 

There
have been no changes to the Company’s capital management policies during the three month period ended Mach 31, 2020.

 

	17.	Related
    party transactions

 

The
Company had several significant shareholders as follows: Gray (beginning January 2, 2019 and Raycom prior to that date) and SKP
America LLC (“SKP America”) which each owned approximately 20.6% and 20.5%, respectively, as of December 31, 2018
of the aggregate common shares. Following the repurchase of their equity interests in May 2019, Gray and SKP America are no longer
shareholders of the Company.

 

As
of March 31, 2020 and December 31, 2019, the Company no longer has any balances or ongoing service relationship with Gray and
SKP America. During the three month period ended March 31, 2019, the Company incurred $250,000 of interest expense on its credit
facility with Gray. In May 2019, the remaining balance due under the facility was extinguished.

 

Key
management personnel compensation for officers and directors of the Company are as follows:

 

	 	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Salaries and benefits	 	 	305,251	 	 	 	419,711	 
	Share based compensation	 	 	37,864	 	 	 	9,406	 
	 	 	 	343,115	 	 	 	429,117	 

 

Accounts
payable due to officers of the Company at March 31, 2020 include $461,977 for bonuses due from prior year end.

 

    	Page 25

     

    

 

	Frankly
        Inc.

        Notes
        to the consolidated financial statements

        For
        the three month periods ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	18.	Subsequent
    events

 

The
Company has evaluated subsequent events from the balance sheet date through November 13, 2020, the date at which the interim condensed
consolidated financial statements were available to be issued, and determined there were no additional items to be disclosed except
for the transactions described below.

 

	(a)	Acquisition
    of Company by Torque Esports Corp.

 

On
March 9, 2020, the Company entered into a business combination agreement (the “Business Combination Agreement”), pursuant
to which Torque would acquire each of Frankly and WinView (the “Transaction”), which will create an integrated platform
dedicated to live esports, news and gaming.

 

On
May 8, 2020, Torque completed the business combination. Torque acquired all of the issued and outstanding shares of the Company
in exchange for consideration of one Torque common share for each Company common share acquired, pursuant to a court approved
plan of arrangement, resulting in the issuance of 33,249,106 common shares of Torque upon closing the business combination. All
outstanding convertible securities of the Company were exchanged for equivalent securities of Torque (other than outstanding warrants
to purchase common shares of the Company, which will remain outstanding and have the terms of such securities adjusted to reflect
the exchange ratio).

 

Torque
also concurrently indirectly acquired WinView, pursuant to a statutory merger under the laws of the State of Delaware, with WinView
securityholders receiving an aggregate of 26,399,960 common shares of Torque as well as certain contingent consideration. The
securities of WinView were exchanged for 26,400,000 common shares of Torque, which shall be subject to certain leak-out provisions
which have been agreed upon by the parties in the Business Combination Agreement.

 

Torque
subsequently changed its name to Engine Media Holdings, Inc.

 

The
Company incurred transaction costs in the three month period ended March 31, 2020 of $923,361 relating to the Transaction.

 

As
at March 31, 2020, the Company had loaned $1.1 million to Torque in the form of promissory notes, secured by assets of Torque.

 

	(b)	Legal
    proceedings

 

A
complaint filed by Gannaway Entertainment, Inc. and others, and served on August 4, 2017, against the Company and others was resolved
in May 2020 with no cost to the Company.

 

    	Page 26

     

    

 

SCHEDULE
“C”

AUDITED ANNUAL FINANCIAL STATEMENTS OF WINVIEW

 

 

WinView,
Inc.

 

Audited
Annual Financial Statements

 

For
the Years Ended December 31, 2019 and 2018

 

(In
U.S. dollars)

 

    	 

    	 

    

 

	WinView,
    Inc.	
	Table
    of Contents
	December
    31, 2019 and 2018

 

 

	Independent auditor’s report	3
	 	 
	Statements of financial position	5
	 	 
	Statements of loss and comprehensive loss	6
		 
	Statements of changes in equity	7
	 	 
	Statements of cash flows	8
	 	 
	Notes to the financial statements	9

 

    	 
	Page 2

    	 

    

 

		Baker
    Tilly WM LLP
	900
    – 400 Burrard Street
	Vancouver,
    British Columbia
	Canada
    V6C 3B7
	T:
    +1 604.684.6212
	F:
    +1 604.688.3497
	 
	vancouver@bakertilly.ca
	www.bakertilly.ca

 

INDEPENDENT
AUDITOR’S REPORT

 

To
the Shareholders of WinView, Inc.:

 

Opinion

 

We
have audited the financial statements of WinView, Inc. (the “Company”), which comprise the statements of financial
position as at December 31, 2019 and 2018, and the statements of loss and comprehensive loss, statements of changes in equity
and statements of cash flows for the years then ended, and notes to the financial statements, including a summary of significant
accounting policies.

 

In
our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board. 

 

Basis
for Opinion

 

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our opinion.

 

Material
Uncertainty Related to Going Concern

 

We
draw attention to Note 2(a) in the financial statements, which describes events and conditions indicating that a material uncertainty
exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified
in respect of this matter.

 

Responsibilities
of Management and Those Charged with Governance for the Financial Statements

 

Management
is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.

 

In
preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Those
charged with governance are responsible for overseeing the Company’s financial reporting process.

 

    	 
	Page 3
	 ASSURANCE
• TAX • ADVISORY

 

Baker
Tilly WM LLP is a member of Baker Tilly Canada Cooperative, which is a member of the global network of Baker Tilly International
Limited. All members of Baker Tilly Canada Cooperative and Baker Tilly International Limited are separate and independent legal
entities.

    	 

    

 

 

 

Auditor’s
Responsibilities for the Audit of the Financial Statements

 

Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.

 

As
part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 

	 	●	Identify
    and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform
    audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
    for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
    error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
	 	 	 
	 	●	Obtain
    an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
    circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
	 	 	 
	 	●	Evaluate
    the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
    by management.
	 	 	 
	 	●	Conclude
    on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
    obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
    ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
    in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate,
    to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
    However, future events or conditions may cause the Company to cease to continue as a going concern.
	 	 	 
	 	●	Evaluate
    the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial
    statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

 

CHARTERED
PROFESSIONAL ACCOUNTANTS

 

Vancouver,
B.C.

November
12, 2020

 

    	 
	Page 4

    	 

    

 

	WinView,
    Inc.	
	Statements
    of financial position
	As
    at December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	 	 	Note	 	 	2019	 	 	2018	 
	 	 	 	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Assets	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current assets:	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	 	944,868	 	 	 	1,344,921	 
	Restricted cash	 	 	12	 	 	 	217,616	 	 	 	314,035	 
	Prepaid expenses and deposits	 	 	 	 	 	 	131,693	 	 	 	148,274	 
	Total assets	 	 	 	 	 	 	1,294,177	 	 	 	1,807,230	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Liabilities	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities	 	 	 	 	 	 	827,328	 	 	 	1,073,066	 
	Accrued interest	 	 	13	 	 	 	1,496,449	 	 	 	496,016	 
	Deferred revenues	 	 	 	 	 	 	87,182	 	 	 	87,182	 
	Convertible notes	 	 	13	 	 	 	15,488,966	 	 	 	-	 
	Loans and borrowings to be issued	 	 	13	 	 	 	1,095,000	 	 	 	-	 
	 	 	 	 	 	 	 	18,994,925	 	 	 	1,656,264	 
	Non-current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 
	Secured and convertible notes	 	 	13	 	 	 	1,284,807	 	 	 	14,101,550	 
	Total liabilities	 	 	 	 	 	 	20,279,732	 	 	 	15,757,814	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Shareholders’ deficit	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Common stock capital	 	 	14	 	 	 	172,515	 	 	 	172,515	 
	Preferred stock capital	 	 	14	 	 	 	21,400,520	 	 	 	21,400,520	 
	Reserves	 	 	10	 	 	 	682,668	 	 	 	314,745	 
	Accumulated deficit	 	 	 	 	 	 	(41,241,258	)	 	 	(35,838,364	)
	Total shareholders’ deficit	 	 	 	 	 	 	(18,985,555	)	 	 	(13,950,584	)
	Total liabilities and shareholders’ deficit	 	 	 	 	 	 	1,294,177	 	 	 	1,807,230	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Going concern	 	 	2(a)	 	 	 	 	 	 	 	 	 
	Subsequent events	 	 	18	 	 	 	 	 	 	 	 	 

 

	Approved
    by the Board	 	“Tom
    Rogers”	 	“Hank
    Ratner”
	 	 	Director	 	Director

 

    	 
	The accompanying notes form an integral part of and should be read in conjunction with these financial statements.
	 
	Page 5

    	 

    

 

	WinView,
    Inc.	
	Statements
    of loss and comprehensive loss
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	 	 	Note	 	 	2019	 	 	2018	 
	 	 	 	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Continuing operations	 	 	 	 	 	 	 	 	 	 	 	 
	Revenue	 	 	7(a)	 	 	 	79,889	 	 	 	291,243	 
	Cost of sales	 	 	 	 	 	 	98,832	 	 	 	746,671	 
	 	 	 	 	 	 	 	(18,943	)	 	 	(455,428	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating expenses	 	 	 	 	 	 	 	 	 	 	 	 
	General and administrative	 	 	8,
                                         17	 	 	 	3,012,623	 	 	 	5,744,229	 
	Research and development	 	 	8	 	 	 	550,582	 	 	 	3,451,288	 
	Selling and marketing	 	 	8	 	 	 	714,320	 	 	 	3,513,248	 
	Finance costs	 	 	13	 	 	 	1,103,176	 	 	 	540,700	 
	Taxes	 	 	 	 	 	 	3,250	 	 	 	2,634	 
	 	 	 	 	 	 	 	5,383,951	 	 	 	13,252,099	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss and comprehensive loss	 	 	 	 	 	 	(5,402,894	)	 	 	(13,707,527	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loss per common share	 	 	 	 	 	 	 	 	 	 	 	 
	Basic and diluted loss per share	 	 	9	 	 	 	(1.90	)	 	 	(4.82	)

  

    	 
	The accompanying notes form an integral part of and should be read in conjunction with these financial statements.
	 
	Page 6

    	 

    

 

	WinView,
    Inc.	
	Statements
    of changes in equity
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	 	 	Note	 	Common
 stock
 capital	 	 	Preferred
 stock
 capital	 	 	Reserves	 	 	Accumulated
 deficit	 	 	Total
 equity	 
	 	 	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at December 31, 2017 (unaudited)	 	 	 	 	26,236	 	 	 	21,400,520	 	 	 	224,641	 	 	 	(22,130,837	)	 	 	(479,440	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss for the year	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(13,707,527	)	 	 	(13,707,527	)
	Issuance of common shares	 	 	 	 	146,279	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	146,279	 
	Stock-based compensation	 	8, 10	 	 	-	 	 	 	-	 	 	 	90,104	 	 	 	-	 	 	 	90,104	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at December 31, 2018	 	 	 	 	172,515	 	 	 	21,400,520	 	 	 	314,745	 	 	 	(35,838,364	)	 	 	(13,950,584	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss for the year	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(5,402,894	)	 	 	(5,402,894	)
	Issuance of common shares	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Stock-based compensation	 	8, 10	 	 	-	 	 	 	-	 	 	 	367,923	 	 	 	-	 	 	 	367,923	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at December 31, 2019	 	 	 	 	172,515	 	 	 	21,400,520	 	 	 	682,668	 	 	 	(41,241,258	)	 	 	(18,985,555	)

 

    	 
	The accompanying notes form an integral part of and should be read in conjunction with these financial statements.
	 
	Page 7

    	 

    

 

	WinView,
    Inc.	
	Statements
                                         of cash flows

	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	 	 	Note	 	 	2019	 	 	2018	 
	 	 	 	 	 	$	 	 	$	 
	Operating activities	 	 	 	 	 	 	 	 	 	 	 	 
	Loss for the year	 	 	 	 	 	 	(5,402,894	)	 	 	(13,707,527	)
	Adjustments for:	 	 	 	 	 	 	 	 	 	 	 	 
	Equity-settled stock-based compensation	 	 	8,
                                         10	 	 	 	367,923	 	 	 	90,104	 
	Finance costs and other	 	 	 	 	 	 	112,223	 	 	 	588,830	 
	 	 	 	 	 	 	 	(4,922,748	)	 	 	(13,028,593	)
	Changes in:	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts receivable	 	 	 	 	 	 	-	 	 	 	2,163	 
	Prepaid expenses and deposits	 	 	 	 	 	 	16,581	 	 	 	49,306	 
	Accounts payable and accrued liabilities	 	 	 	 	 	 	(245,738	)	 	 	(133,926	)
	Accrued interest	 	 	 	 	 	 	1,000,433	 	 	 	386,689	 
	 	 	 	 	 	 	 	(4,151,472	)	 	 	(12,724,361	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 	 	 	 	 
	Proceeds from loans and borrowings	 	 	13(d)	 	 	 	3,655,000	 	 	 	12,920,000	 
	Repayment of loans and borrowings	 	 	13(d)	 	 	 	-	 	 	 	(500,000	)
	Proceeds from the issuance of shares	 	 	 	 	 	 	-	 	 	 	146,279	 
	 	 	 	 	 	 	 	3,655,000	 	 	 	12,566,279	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net change in cash, during the year	 	 	 	 	 	 	(496,472	)	 	 	(158,082	)
	Cash, beginning of year	 	 	 	 	 	 	1,658,956	 	 	 	1,817,038	 
	Cash, end of the year	 	 	 	 	 	 	1,162,484	 	 	 	1,658,956	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash is represented by:	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	 	944,868	 	 	 	1,344,921	 
	Restricted cash	 	 	12	 	 	 	217,616	 	 	 	314,035	 
	 	 	 	 	 	 	 	1,162,484	 	 	 	1,658,956	 

 

    	 
	The accompanying notes form an integral part of and should be read in conjunction with these financial statements.
	 
	Page 8

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	1.	General
    information

 

WinView,
Inc. (“WinView” or the “Company”) is a digital technology company that invented, pioneered second-screen
interactive television, and is one of the nation’s leading skill-based sports prediction mobile games platforms. WinView
was incorporated on December 2, 2008, pursuant to the filings with the secretary of the State of Delaware. The Company’s
corporate headquarters and registered head office are located at 370 Convention Way, Suite #102, Redwood City, California, 94063.

 

The
Company was acquired by Torque Esports Corp. (“Torque”) on May 8, 2020 under terms of a business combination agreement
(see note 18). Subsequent to the acquisition, Torque changed its name to Engine Media Holdings Inc.

 

	2.	Basis
    of preparation

 

	(a)	Going
    concern

 

These
financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operations for
the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.
The realizable values may be substantially different from its carrying amounts, as shown in these financial statements, and these
financial statements do not give effect to adjustments that would be necessary to the carrying amounts and classification of assets
and liabilities should the Company be unable to continue as a going concern.

 

As
at December 31, 2019, the Company had an accumulated deficit of $41,241,258 (2018 - $35,838,364). The Company has not yet been
able to generate positive cash flows from operations. Whether and when the Company can generate sufficient cash flows to pay for
its expenditures and settle its obligations as they fall due subsequent to December 31, 2019 is uncertain.

 

These
material uncertainties may cast significant doubt on the Company’s ability to continue as a going concern. The financial
statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern.
Such adjustments could be material.

 

To
address the going concern risk through the May 8, 2020 acquisition of the Company by Torque, the Company continued to seek equity
financing alternatives to support the ongoing operations, monitor general and administrative expenses in comparison to budget,
and continued to optimize its operating processes.

 

In
March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health developments, has adversely affected workforce’s, economies,
and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise
funds.

 

    	 
	Page 9 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	2.	Basis
    of preparation (cont’d)

 

	(b)	Statement
    of compliance

 

WinView’s
financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee
(“IFRIC”).

 

These
financial statements were authorized for issuance by the Board of Directors on November 12, 2020.

 

	(c)	Basis
    of presentation

 

The
financial statements are prepared on a going concern basis using the historical cost method, except for financial instruments
measured at their fair value. In addition, these financial statements have been prepared using the accrual basis of accounting
except for cash flow information. The financial statements are presented in US dollars, which is also the Company’s functional
currency.

 

The
Company presents its classified statements of financial position distinguished between current and non-current assets and liabilities.
Current assets and liabilities are those expected to be settled within one year of the reporting period, and non-current assets
and liabilities are those which the recovery or settlement is expected to be greater than a year after the reporting period.

 

	3.	Use
    of judgments and estimates

 

In
preparation of these financial statements, management has made judgments and estimates that affect the application of the Company’s
accounting policies and the reported amount of assets, liabilities, revenue and expenses. Actual results may significantly differ
from these estimates.

 

Estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.

 

	(a)	Judgments

 

Information
about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the financial
statements is included in the following notes:

 

	 	●	Note
    7 – revenue recognition: whether the revenue from entry fees is recognized at a point in time and whether presentation
    of certain revenue transactions are on a gross or net basis.

 

    	 
	Page 10 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	3.	Use
    of judgments and estimates (cont’d)

 

	(b)	Assumptions
    and estimation uncertainties

 

	 	●	Note
    11 – recognition of deferred tax assets: availability of future taxable profit against which deductible temporary
    differences and tax losses carried forward can be utilized;
	 	 	 
	 	●	Note
    5(h) – recognition and measurement of provisions and contingencies: key assumptions used and the likelihood and
    magnitude of an outflow of resources;
	 	 	 
	 	●	Note
    10 – valuation of share-based payment arrangements: key assumptions used to measure the fair value of the Company’s
    share-based payment arrangements;
	 	 	 
	 	●	Note
    13(c) – valuation of convertible notes: key assumptions used to measure the fair value of the derivative component
    of the instrument.

 

	(c)	Measurement
    of fair values

 

A
number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and
non-financial assets and liabilities.

 

The
valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as
a broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from
third parties to support the conclusion of these valuations with respect to the requirements of IFRS, including the level in the
fair value hierarchy in which the valuations should be classified.

 

Significant
valuation issues are reported to the Company’s board of directors.

 

When
measuring the fair value of an asset or liability, the Company uses observable market data as much as possible. Fair values are
categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

	 	●	Level
    1: quoted priced (unadjusted) in active markets for identical assets or liabilities;
	 	 	 
	 	●	Level
    2: inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly (i.e.
    as prices) or indirectly (i.e. derived from prices);
	 	 	 
	 	●	Level
    3: inputs for the asset or liability that are not based on the observable market data (unobservable inputs).

 

If
the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then
the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input
that is significant to the entire measurement.

 

The
Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change
has occurred.

 

    	 
	Page 11 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	3.	Use
    of judgments and estimates (cont’d)

 

Further
information about assumptions made in measuring fair values is included in the following notes:

 

	 	●	Note
    10 – share-based payment arrangements; and
	 	 	 
	 	●	Note
    5(f) – financial instruments.

 

	4.	Changes
    in significant accounting policies

 

	(a)	IFRS
    16 – Leases (“IFRS 16”)

 

IFRS
16 was issued by the IASB in January 2016, and replaced IAS 17 Leases. IFRS 16 specifies the methodology to recognize, measure,
present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and
liabilities for all leases except for short-term leases and leases with low value assets. IFRS 16 substantially carries forward
the lessor accounting requirements in IAS 17. IFRS 16 became effective for annual periods beginning on January 1, 2019. The adoption
of IFRS 16 had no impact on the Company’s financial statements.

 

	(b)	IFRIC
    23 – Uncertainty over Income Tax Treatment (“IFRIC 23”)

 

In
June 2017, the IASB issued amendments as a clarification to requirements under IAS 12, Income Taxes. IFRIC 23 clarifies
the application of various recognition and measurement requirements where there is uncertainty over income tax treatments. The
treatments became effective on January 1, 2019. The amendments did not have a material impact on the Company’s financial
statements.

 

	(c)	IASB
    Annual Improvements 2015-2017 Cycle (Issued in December 2017)

 

In
December 2017, the IASB issued amendments to four standards IFRS 3, Business Combinations (“IFRS 3”), IFRS
11, Joint Arrangements (“IFRS 11”), IAS 12, Income Taxes (“IAS 12”) and IAS 23, Borrowing
Costs (“IAS 23”). These amendments became effective on January 1, 2019. The implementation of these standards
did not have a material impact on the Company’s financial statements.

 

	(d)	Other
    accounting standards

 

Other
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 financial statements.

 

    	 
	Page 12 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies

 

	(a)	Foreign
    currency translation

 

Transactions
in foreign currencies are translated into the functional currency of the Company at the exchange rate at the date of transactions.

 

Monetary
assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the
end of the reporting period. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated
into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based
on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency
differences are generally recognized in profit or loss presented within finance costs.

 

	(b)	Revenue
    from contracts with customers

 

Revenue
is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when the performance
obligations (services) are transferred to a customer.

 

Revenue
arising from entry fees in online gaming rooms is recognized as services are rendered. Further information about the Company’s
accounting policies relating to the contracts with customers is provided in Note 7.

 

The
Company evaluates all contractual arrangements it enters and evaluates the nature of the promised goods or services, and rights
and obligations under the arrangement, in determining the nature of its performance obligations. Where such performance obligations
are capable of being distinct and are distinct in the context of the contract, the consideration the Company expects to be entitled
to is allocated to each performance obligation based on its relative estimated stand-alone selling prices. Performance obligations
that the Company concludes are not distinct are combined in a single combined performance obligation. Revenue is recognized at
an amount equal to the transaction price allocated to the specific performance obligation when it is satisfied, either at a point
in time or over time, as applicable, based on the pattern of transfer of control.

 

	(c)	Employee
    benefits

 

	 	i.	Short-term
    employee benefits

 

Short-term
employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid
if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee
and the obligation can be estimated reliably.

 

    	 
	Page 13 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(c)	Employee
    benefits (cont’d)

 

	 	ii.	Share-based
    payment arrangements

 

The
grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as an expense,
with a corresponding increase in equity, over the vesting period of the awards.

 

The
amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance
conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related
service and non-market performance conditions at the vesting date.

 

For
share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect
such conditions and there is no true-up for differences between expected and actual outcomes.

 

	(d)	Finance
    income and finance costs

 

The
Company’s finance income and finance costs include:

 

	 	●	interest
    income;
	 	 	 
	 	●	interest
    expense;
	 	 	 
	 	●	the
    foreign currency gain or loss on financial assets and financial liabilities.

 

Interest
income or expense is recognized using the effective interest method.

 

In
calculating interest expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset
is not credit impaired) or to the amortized cost of the liability.

 

	(e)	Income
    tax

 

	 	i.	Current
    tax

 

Current
tax comprises the expected payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable
or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount
expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using the tax rates
enacted or substantively enacted at the reporting date.

 

    	 
	Page 14 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(e)	Income
    tax (cont’d)

 

	 	ii.	Deferred
    tax

 

Deferred
tax is recorded using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:

 

	 	●	temporary
    differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that
    affects neither accounting nor taxable profit or loss; and
	 	 	 
	 	●	temporary
    differences related to investments in subsidiaries to the extent that the Company is able to control the timing of the reversal
    of the temporary differences and it is probable that they will not reverse in the foreseeable future.

 

Deferred
tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it
is probable that future taxable profits will be available against which they can be used.

 

Deferred
tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax
benefit will be realized; such reductions are reversed when the probability of future taxable profits improves. Unrecognized deferred
tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable
profits will be available against which they can be used.

 

Deferred
tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current
tax assets and liabilities on a net basis.

 

	(f)	Financial
    instruments

 

	 	i.	Recognition
    and measurement

 

Trade
receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial
liabilities are initially recognized when the Company becomes party to the contractual provisions of the instrument.

 

A
financial asset (unless it is a trade receivable without a significant financing component) or a financial liability is initially
measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or
issue. A trade receivable without a significant financing component is initially measured at the transaction price.

 

    	 
	Page 15 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(f)	Financial
    instruments

 

	 	ii.	Classification
    and subsequent measurement

 

Financial
assets – policy

 

On
initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment; FVOCI –
equity investment; or FVTPL.

 

Financial
assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing
financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period
following the change in the business model.

 

A
financial asset is measured at amortized cost if it meets both of the following conditions as is not designated as FVTPL:

 

	 	●	it
    is held within a business model whose objective is to hold assets to collect contractual cash flows; and
	 	 	 
	 	●	its
    contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
    amount outstanding.

 

A
debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL:

 

	 	●	it
    is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial
    assets; and
	 	 	 
	 	●	its
    contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
    amount outstanding.

 

On
initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent
changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

 

All
financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes
all derivative financial assets.

 

On
initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured
at amortized cost or at FVOCI as FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise
arise.

 

    	 
	Page 16 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(f)	Financial
    instruments (cont’d)

 

	 	ii.	Classification
    and subsequent measurement (cont’d)

 

Financial
assets – subsequent measurement and gains and losses

 

	 	Financial
    assets at FVTPL	 	These
    assets as subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized
    in profit or loss.
	 	Financial
    assets at amortized cost	 	These
    assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment
    losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss
    on derecognition is recognized in profit or loss
	 	Debt
    investments at FVOCI	 	These
    assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange
    gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition,
    gains and losses accumulated in OCI are reclassified to profit or loss.
	 	Equity
    investments at FVOCI	 	These
    assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss, unless the dividend
    clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and
    are never reclassified to profit or loss.

 

Financial
liabilities – Classification, subsequent measurement and gains and losses

 

Financial
liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified
as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are
measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial
liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange
gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

 

    	 
	Page 17 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(f)	Financial
    instruments (cont’d)

 

	 	iii.	Derecognition

 

Financial
assets

 

The
Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers
the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership
of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and
rewards of ownership and it does not retain control of the financial asset.

 

Financial
liabilities

 

The
Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company
also derecognizes a financial liability when its terms are modified and the cash flows or the modified liability are substantially
different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of
a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash
assets transferred or liabilities assumed) is recognized in profit or loss.

 

	 	iv.	Offsetting

 

Financial
assets and financial liabilities are offset and the net amount presented on the statement of financial position, only when the
Company has a legally enforceable right to offset the amounts and it intends either to settle them on a net basis or to realize
the asset and settle the liability simultaneously.

 

	(g)	Share
    capital

 

	 	i.	Common
    stock

 

Incremental
costs directly attributable to the issue of common stock are recognized as a deduction from equity. Income tax relating to transactions
costs of an equity transaction are accounted for in accordance with IAS 12.

 

	 	ii.	Preferred
    stock

 

The
Company’s preferred stock are classified as equity, because they bear discretionary dividends, do not contain any obligations
to deliver cash or other financial assets and do not require the settlement in a variable number of the Company’s equity
instruments. Discretionary dividends thereon are recognized as equity distributions on approval by the Company’s shareholders.

 

    	 
	Page 18 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(g)	Share
    capital (cont’d)

 

	 	iii.	Repurchase
    and reissue of common stock (treasury stock)

 

When
stock recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs,
is recognized as a deduction from equity. Repurchased stock are classified as treasury stock and are presented as treasury stock
reserve. When treasury stock are sold or reissued subsequently, the amount received is recognized as an increase in equity and
the resulting surplus or deficit on the transaction is presented within share premium.

 

	 	iv.	Compound
    financial instruments

 

Compound
financial instruments issued by the Company comprise convertible notes that can be converted into preferred stock at the option
of the holder or based on certain criteria as outlined in the agreement.

 

The
liability component of compound financial instruments is initially recognized at the fair value of a similar liability that does
not have an equity conversion option. The equity component is initially recognized as the difference between the fair value of
the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction
costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

 

Subsequent
to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective
interest method. The equity component of a compound financial instrument is not remeasured.

 

Interest
related to the financial liability is recognized in profit or loss. On conversion at maturity, the financial liability is reclassified
to equity and no gain or loss is recognized.

 

	 	v.	Non-derivative
    financial assets

 

Financial
instruments and contract assets

 

Expected
credit losses (“ECLs”) is the probability-weighted estimate of credit losses. The Company recognizes loss allowances
for ECLs on:

 

	 	●	financial
    assets measured at amortized cost; and
	 	 	 
	 	●	contract
    assets.

 

Loss
allowances for trade receivables and contract assets are always measured at an amount equal to the lifetime ECLs.

 

    	 
	Page 19 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(g)	Share
    capital (cont’d)

 

	 	v.	Non-derivative
    financial assets (cont’d)

 

Financial
instruments and contract assets (cont’d)

 

When
determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort.
This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and
informed credit assessment and including forward-looking information.

 

The
Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

 

The
Company considers a financial asset to be in default when:

 

	 	●	the
    borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company; or
	 	 	 
	 	●	the
    financial asset is more than 90 days past due.

 

Lifetime
ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

 

Measurement
of ECLs

 

ECLs
are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e.
the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects
to receive). ECLs are discounted at the effective interest rate of the financial asset.

 

Write-off

 

The
gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial
asset in its entirety or a portion thereof. For individual customers, the Company has a policy of writing off the gross carrying
amount when the financial asset is 180 days past due based on historical experience of recoveries of similar assets and the Company
expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject
to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

 

    	 
	Page 20 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(h)	Provisions

 

Provisions
are recognized when present (legal or constructive) obligations as a result of a past event will lead to a probable outflow of
economic resources and amounts can be estimated reliably. Provisions are measured at management’s best estimate of the expenditure
required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the
risks and uncertainties associated with the present obligation.

 

The
Company performs evaluations to identify onerous contracts and, where applicable, records provisions for such contracts. All provisions
are reviewed at each reporting date and adjusted to reflect the current best estimate. In those cases where the possible outflow
of economic resources as a result of present obligations is considered remote, no liability is recognized.

 

	(i)	Fair
    value measurement

 

‘Fair
value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company
has access at that date. The fair value of a liability reflects its non-performance risk.

 

A
number of the Company’s accounting policies and disclosures require the measurement of fair values, both for financial and
non-financial assets and liabilities.

 

When
one is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument.
A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and
volume to provide pricing information on an ongoing basis.

 

If
there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable
inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.

 

	(j)	Loss
    per share

 

The
Company applies the “treasury stock method” to calculate loss per common share. Under this method, the basic loss
per common share is calculated by dividing net loss by the weighted average number of common stock outstanding during the year.

 

Diluted
net loss per common share is calculated by dividing the applicable net loss by the sum of the weighted average number of common
stock outstanding and all additional stock that would have been outstanding if potentially dilutive common stock had been issued
during the year.

 

    	 
	Page 21 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	5.	Significant
    accounting policies (cont’d)

 

	(j)	Loss
    per share (cont’d)

 

The
dilutive effect of preferred stock, options and warrants on net loss per share is calculated by determining the proceeds for the
exercise of such securities which are then assumed to be used to purchase common stock of the Company. Diluted loss per share
does not adjust the loss attributed to common shareholders or the weighted average number of common stock outstanding if the effect
is anti-dilutive.

 

	6.	Operating
    segments

 

WinView
operates in the United States. The Company has one strategic division offering its services and are managed on an integrated basis
with similar bases in technology and marketing. In measuring its performance, the Company does not distinguish or group its operations
on a geographical or on any other basis, and accordingly, has a single operating segment.

 

The
Company’s chief executive officer is the chief operating decision marker, and regularly reviews WinView’s operations
and performance. WinView does not have any significant customers or any significant groups of customers.

 

	7.	Revenue

 

	(a)	Revenue
    streams and disaggregation of revenue from contracts with customers

 

The
Company generates revenue primarily from the sale of entry fees. Other sources of revenue relate to immaterial amounts for other
auxiliary services. In the following table, revenue from contracts with customers is disaggregated by service lines and timing
of revenue recognition.

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Major products and service items	 	 	 	 	 	 	 	 
	Entry fees	 	 	79,889	 	 	 	291,243	 
	 	 	 	79,889	 	 	 	291,243	 
	 	 	 	 	 	 	 	 	 
	Timing of revenue recognition	 	 	 	 	 	 	 	 
	Services transferred at a point in time	 	 	79,889	 	 	 	291,243	 

 

	(b)	Performance
    obligations and revenue recognition policies

 

Revenue
is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers
control of its services to a customer.

 

    	 
	Page 22 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	7.	Revenue
    (cont’d)

 

	(b)	Performance
    obligations and revenue recognition policies (cont’d)

 

The
following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with
customers, including significant payment terms and related revenue recognition policies.

 

	Type
    of service	 	Nature
    and timing of satisfaction of performance obligations, including significant payment terms 	 	Revenue
    recognition policies
	Entry
    fees	 	Entry
    fees represents primarily the commission charged at the start of each contest and entry fees for participation in the contest,
    and is net of certain promotional expenses, which are treated as a reduction of the transaction price.	 	Revenue
    is recognized at a point in time when the contest is concluded.
	Other	 	Customers
    can participate in contests using virtual currency (i.e. wallet tickets). Customers can earn wallet tickets in contests which
    can be used for contests.	 	Wallet
    tickets are initially recorded as a contract liability and are recorded as revenue as the customer participates in contests.

 

	8.	Expenses
    by nature

 

	 	 	Note	 	 	2019	 	 	2018	 
	 	 	 	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Salaries and benefits	 	 	17	 	 	 	1,729,514	 	 	 	4,416,296	 
	Stock-based compensation	 	 	10	 	 	 	367,923	 	 	 	90,104	 
	Professional fees	 	 	 	 	 	 	728,586	 	 	 	1,024,386	 
	Office and general	 	 	 	 	 	 	122,187	 	 	 	170,431	 
	Insurance	 	 	 	 	 	 	64,413	 	 	 	43,012	 
	General and administrative	 	 	 	 	 	 	3,012,623	 	 	 	5,744,229	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Promotion	 	 	 	 	 	 	221,041	 	 	 	2,889,866	 
	Distribution	 	 	 	 	 	 	493,279	 	 	 	623,382	 
	Selling and marketing	 	 	 	 	 	 	714,320	 	 	 	3,513,248	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Platform costs expensed	 	 	 	 	 	 	550,632	 	 	 	3,427,666	 
	Equipment costs	 	 	 	 	 	 	(50	)	 	 	23,622	 
	Research and development	 	 	 	 	 	 	550,582	 	 	 	3,451,288	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total general and administrative, selling and marketing and research and development
    expenses	 	 	 	 	 	 	4,277,525	 	 	 	12,708,765	 

 

    	 
	Page 23 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	9.	Loss
    per share

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Net loss	 	 	(5,402,894	)	 	 	(13,707,527	)
	 	 	 	 	 	 	 	 	 
	Weighted average common shares outstanding:	 	 	 	 	 	 	 	 
	Basic and diluted	 	 	2,841,783	 	 	 	2,841,783	 
	 	 	 	 	 	 	 	 	 
	Net loss per share attributable to shareholders:	 	 	 	 	 	 	 	 
	Basic and diluted	 	 	(1.90	)	 	 	(4.82	)

 

	10.	Share-based
    payment arrangements

 

	(a)	Stock-option
    plans

 

On
September 25, 2012, the Company established a stock-option plan that entitles key management personnel and employees to purchase
stock in the Company. Under the stock-option plan, holders of vested options are entitled to purchase stock at fair value of the
stock at grant date.

 

The
aggregate number of options that may be granted under the plan cannot exceed 3,483,238. The Board of Directors determines the
price per common share based on valuation reports and the number of common stock which may be allocated to key management personnel
and employees.

 

On
October 13, 2016, the Company established an equity-incentive plan that entitles key management personnel to purchase stock in
the Company. Under the equity incentive plan, holders of vested incentives are entitled to purchase stock at fair value of the
stock at the grant date.

 

The
aggregate number of incentives that may be granted under the plan cannot exceed 10,775,526. The Board of Directors determines
the price per common share and the number of common stock which may be allocated to key management personnel and employees.

 

    	 
	Page 24 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	10.	Share-based
    payment arrangements (cont’d)

 

	(b)	Measurement
    of fair values

 

The
stock-options were valued using the Black-Scholes formula. The inputs used in the measurement of the fair values at the grant
and measurement date of the stock-options and warrants were as follows:

 

	 	 	2019	 	 	2018	 
	 	 	 	 	 	 	 
	Fair value	 	$	0.14	 	 	$	0.14	 
	Share price	 	$	0.15	 	 	$	0.15	 
	Exercise price	 	$	0.48	 	 	$	0.34	 
	Expected volatility (weighted-average)	 	 	125	%	 	 	125	%
	Expected life (weighted-average)	 	 	10.00	 	 	 	8.02	 
	Expected dividends	 	 	0.00	%	 	 	0.00	%
	Risk-free interest rate	 	 	1.75	%	 	 	3.06	%

 

Expected
volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over
the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience
and general option and warrants holder behaviour.

 

	(c)	Reconciliation
    of outstanding stock-options

 

The
number and weighted-average exercise prices of stock options under the stock option plan are as follows:

 

	 	 	Number of 
 options 
 granted	 	 	Number of 
 options 
 vested	 	 	Weighted-
 average 
 exercise price	 
	 	 	 	 	 	 	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Outstanding, as at December 31, 2017	 	 	3,856,629	 	 	 	988,844	 	 	 	0.34	 
	Granted and vested during the year	 	 	5,000	 	 	 	825,273	 	 	 	0.59	 
	Outstanding, as at December 31, 2018	 	 	3,861,629	 	 	 	1,814,117	 	 	 	0.34	 
	Granted and vested during the year	 	 	5,099,250	 	 	 	2,770,096	 	 	 	0.48	 
	Cancelled during the year	 	 	(110,000	)	 	 	(41,468	)	 	 	0.56	 
	Outstanding, as at December 31, 2019	 	 	8,850,879	 	 	 	4,542,745	 	 	 	0.42	 

 

    	 
	Page 25 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	10.	Share-based
    payment arrangements (cont’d)

 

	(d)	Warrants

 

The
number and weighted-average exercise prices of warrants are as follows:

 

	 	 	Number of
 warrants	 	 	Weighted-
 average
 exercise price	 
	 	 	 	 	 	$	 
	 	 	 	 	 	 	 
	Outstanding, as at December 31, 2017	 	 	3,202,420	 	 	 	1.38	 
	Issued	 	 	3,813,523	 	 	 	1.36	 
	Outstanding, as at December 31, 2018	 	 	7,015,943	 	 	 	1.37	 
	Issued	 	 	6,158,920	 	 	 	0.01	 
	Outstanding, as at December 31, 2019	 	 	13,174,863	 	 	 	0.73	 

 

The
following table summarizes the expiry date, the number of warrants and weighted-average exercise price outstanding as at December
31, 2019:

 

	Expiry 
 date	 	Exercise
 price	 	 	Number of
 warrants	 
	 	 	$	 	 	 	 
	 	 	 	 	 	 	 
	April 21, 2021	 	 	1.17	 	 	 	1,248,984	 
	April 27, 2022	 	 	1.36	 	 	 	1,953,436	 
	April 16, 2022	 	 	1.36	 	 	 	3,813,523	 
	April 8, 2023	 	 	0.01	 	 	 	4,811,650	 
	September 13, 2023	 	 	0.01	 	 	 	1,347,270	 
	 	 	 	 	 	 	 	13,174,863	 

 

    	 
	Page 26 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	11.	Income
    taxes (cont’d)

 

	(a)	Income
    tax expense

 

The
following table reconciles income taxes calculated at the combined US federal and state tax rates with income tax expense recognized
in the statements of loss and comprehensive loss:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Loss before income taxes	 	 	(5,402,894	)	 	 	(13,707,527	)
	Statutory rate	 	 	26.73	%	 	 	27.00	%
	Expected income tax recovery	 	 	(1,444,058	)	 	 	(3,701,032	)
	 	 	 	 	 	 	 	 	 
	Decrease in income tax recovery due to:	 	 	 	 	 	 	 	 
	Expenses not deductible for tax purposes	 	 	385,766	 	 	 	176,808	 
	Non-capital losses unrecognized	 	 	1,058,292	 	 	 	3,524,224	 
	Total income tax expense	 	 	-	 	 	 	-	 

 

	(b)	Deferred
    income taxes

 

The
temporary differences that give rise to deferred income tax assets and deferred income tax liabilities are presented below:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	Deferred tax assets	 	 	 	 	 	 
	Refundable credits	 	 	13,247,000	 	 	 	9,140,708	 
	Less: refundable credits not recognized	 	 	(13,247,000	)	 	 	(9,140,708	)
	 	 	 	-	 	 	 	-	 

 

As
of December 31, 2019, the Company has U.S. federal net operating losses carryforward of $20,851,980 (2018 – $20,851,980)
that begin to expire in 2029 and $17,307,405 (2018 – $13,002,493) that have an unlimited carryforward period. As of December
31, 2019, the Company has U.S. state net operating losses carryforward of $38,159,385 (2018 – $33,854,473) that begin to
expire in 2029.

 

    	 
	Page 27 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	11.	Income
    taxes

 

	(b)	Deferred
    income taxes (cont’d)

 

	Year of origin	 	Amount	 
	 	 	$	 
	 	 	 	 
	2009	 	 	38,482	 
	2010	 	 	53,559	 
	2011	 	 	715,612	 
	2012	 	 	936,921	 
	2013	 	 	532,728	 
	2014	 	 	304,589	 
	2015	 	 	1,138,417	 
	2016	 	 	5,756,500	 
	2017	 	 	11,375,172	 
	2018	 	 	13,001,429	 
	2019	 	 	4,305,976	 
	 	 	 	38,159,385	 

 

Tax
attributes are subject to review, and potential adjustment, by tax authorities.

 

	12.	Restricted
    cash

 

In
connection with the operating activities described in Note 7(b), the Company is required to restrict the use of funds in
the amount of $217,616 at December 31, 2019 (2018 – $314,035), which were received from players as a deposit for use in
future contests plus each player’s winnings in accordance with the terms of use agreement.

 

	13.	Loans
    and borrowings

 

	 	 	Note	 	2019	 	 	2018	 
	 	 	 	 	$	 	 	$	 
	Current liabilities	 	 	 	 	 	 	 	 
	Secured notes - accrued interest	 	(a, b, d)	 	 	6,501	 	 	 	34,368	 
	Convertible notes - accrued interest	 	(b, c, d)	 	 	1,489,948	 	 	 	461,648	 
	Convertible notes	 	(b, c, d)	 	 	15,488,966	 	 	 	-	 
	Convertible notes to be issued	 	(b, c, d)	 	 	1,095,000	 	 	 	-	 
	 	 	 	 	 	18,080,415	 	 	 	496,016	 
	 	 	 	 	 	 	 	 	 	 	 
	Non-current liabilities	 	 	 	 	 	 	 	 	 	 
	Secured notes	 	(a, b, d)	 	 	1,284,807	 	 	 	1,172,584	 
	Convertible notes	 	(b, c, d)	 	 	-	 	 	 	12,928,966	 
	 	 	 	 	 	1,284,807	 	 	 	14,101,550	 

 

    	 
	Page 28 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	13.	Loans
    and borrowings (cont’d)

 

	(a)	Secured
    notes

 

On
September 21, 2009, the Company and a third party agreed to terms on repayment of debt incurred by WinView for the provision of
services by the third party. This agreement was amended on April 18, 2016 and further amended on April 17, 2017.

 

The
latest amendment on April 17, 2017 extended the agreement and renegotiated the terms and conditions of the required mandatory
repayments of $15,000 per month for 24 months and $25,000 per month for 24 months upon respective closing of the Company’s
series A and series B preferred share offerings.

 

	(b)	Terms
    and repayment schedule

 

The
terms and conditions of outstanding loans are as follows:

 

	 	 	Nominal
 interest rate	 	 	Year of
 maturity	 	 	2019	 	 	2018	 
	 	 	 	 	 	 	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Convertible notes	 	 	6-8%	 	 	 	2020	 	 	 	15,488,966	 	 	 	12,928,966	 
	Secured notes	 	 	8	%	 	 	2021	 	 	 	1,284,807	 	 	 	1,172,584	 
	 	 	 	 	 	 	 	 	 	 	 	16,773,773	 	 	 	14,101,550	 

 

The
secured notes are subject to liquidation preference over the other obligations of WinView.

 

	(c)	Convertible
    notes

 

During
the year ended December 31, 2018, the Company issued convertible promissory notes (March 2018 and August 2018) for total proceeds
of $12,920,000. The notes are unsecured, have a maturity date of 24 months after the issuance date and bear interest between 6-8%
per annum, payable upon maturity. Any unpaid accrued interest on the note will be convertible into equity on the same terms as
the principal.

 

The
notes issued in March 2018 are convertible into series B preferred stock using a formula based on the lower of the original series
B preferred stock price per share or the conversion price per share, which is defined to be the price per share for any qualified
financing, which is defined to be an issuance of preferred stock with total proceeds of at least $5,000,000.

 

The
notes have share purchase warrants attached giving note holders the right to purchase up to an additional 3,813,523 series B preferred
stock (Note 10(d)). The Company incurred $nil transaction costs for this offering.

 

    	 
	Page 29 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	13.	Loans
    and borrowings (cont’d)

 

	(c)	Convertible
    notes (cont’d)

 

The
notes issued in August 2018 are convertible with conversion rights dependent upon certain conditions, as follows:

 

	 	(i)	Automatic
    conversion upon a Qualified Financing - the notes, including principal and accrued interest, will be convertible into stock
    of the new securities issued in such a Qualified Financing at the conversion price;
	 	 	 
	 	(ii)	Voluntary
    conversion upon a Non-Qualified Financing - the notes, including the principal and accrued interest, will be convertible into
    the Company’s preferred stock issued in the Non-Qualified Financing at the conversion price; or
	 	 	 
	 	(iii)	Change
    of control - the note holders can elect to either receive cash (principal and interest calculated at a premium rate of 12%
    instead of 8% from the date of issuance) or convert the note into stock of the Company’s common stock at the conversion
    price.

 

Conversion
price is the price per share equal to the amount obtained by dividing $65,000,000 by the fully diluted shares of the Company,
which is defined to be the sum of the outstanding and issued shares of the common stock, shares of common stock issuable upon
conversion of all outstanding securities and the exercise of all outstanding options and warrants; and common stock reserved under
any equity incentive plan of the Company.

 

Fully
diluted capitalization shall not include the notes and the securities directly or indirectly issuable upon conversion or exchange
of the notes, other outstanding convertible promissory notes and the securities directly or indirectly issuable upon conversion
or exchange of such other outstanding convertible promissory notes, or in any automatic conversion, any securities issued in the
financing, any shares of common stock directly or indirectly issuable upon conversion, exchange or exercise of such securities
and any increase in the number of shares reserved for issuance under the Company’s equity incentive or similar plans or
arrangement in connection with the financing.

 

Qualified
Financing is defined to be a transaction or series of transaction led by Playtech Services (Cyprus) Limited or its affiliates
pursuant to which the Company issues and sells shares of any class or series of equity securities at a fixed price with the principal
purpose of raising capital.

 

The
Company incurred $nil transaction costs for this offering.

 

    	 
	Page 30 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	13.	Loans
    and borrowings (cont’d)

 

	(d)	Reconciliation
    of movements of liabilities to cash flows from financing activities

 

	 	 	Loans and borrowings	 
	 	 	 	 
	Balance, January 1, 2018	 	 	1,087,720	 
	 	 	 	 	 
	Proceeds from issue of convertible notes	 	 	12,920,000	 
	Repayment of borrowings	 	 	(500,000	)
	Total changes from financing cash flows	 	 	13,507,720	 
	 	 	 	 	 
	Finance costs	 	 	585,131	 
	Interest paid and capitalized	 	 	8,699	 
	Total liability-related other changes	 	 	593,830	 
	Balance, December 31, 2018	 	 	14,101,550	 
	 	 	 	 	 
	Proceeds from issue of convertible notes	 	 	2,560,000	 
	Proceeds received in advance of the issuance of convertible notes	 	 	1,095,000	 
	Total changes from financing cash flows	 	 	17,756,550	 
	 	 	 	 	 
	Finance costs	 	 	112,223	 
	Total liability-related other changes	 	 	112,223	 
	Balance, December 31, 2019	 	 	17,868,773	 

 

Included
in finance costs was interest of $Nil (2018 - $470,614).

 

    	 
	Page 31 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	14.	Capital
    and reserves

 

	(a)	Authorized

 

	11,660,000	 	Series
    A preferred stock, voting and participating by series, issuable with rights, privileges, restrictions and conditions as determined
    by the directors and officers of WinView at the time of issuance. 
	 	 	 
	 	 	Convertible
    to common stock at a stated conversion ratio at the earlier of the option of the holder or an initial public offering.
	 	 	 
	10,350,934	 	Series
    B preferred stock, voting and participating by series, issuable with rights, privileges, restrictions and conditions as determined
    by the directors and officers of WinView at the time of issuance. 
	 	 	 
	 	 	Convertible
    to common stock at a stated conversion ratio at the earlier of the option of the holder or an initial public offering.
	 	 	 
	37,600,000	 	Common
    stock.

 

	(b)	Common
    stock

 

	 	 	Common shares	 
	 	 	2019	 	 	2018	 
	 	 	 	 	 	 	 
	In issue, beginning of year	 	 	6,067,605	 	 	 	5,672,730	 
	Issuance for debt conversion	 	 	-	 	 	 	124,875	 
	Exercise of stock-options	 	 	-	 	 	 	20,000	 
	Other	 	 	-	 	 	 	250,000	 
	In issue, end of year	 	 	6,067,605	 	 	 	6,067,605	 

 

Holders
of these stock are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings
of the Company.

 

	(c)	Series
    A preferred stock

 

On
April 21, 2016, the Company issued 9,848,791 series A preferred stock for net proceeds of $9,176,360.

 

	(d)	Series
    B preferred stock

 

On
April 27, 2017, the Company issued 9,078,408 series B preferred stock for net proceeds of $12,224,160.

 

    	 
	Page 32 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	15.	Financial
    instruments and risk management

 

Fair
values of financial assets and financial liabilities

 

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. Fair value estimates are made at the statement of financial position
date, based on relevant market information and other information about financial instruments.

 

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 – Inputs that are not based on observable market data.

 

The
carrying amounts of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, and accrued interest
and loans and borrowings approximate fair value.

 

Financial
risk management objectives and policies

 

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

 

Credit
risk

 

Credit
risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate,
as a means of mitigating the risk of financial loss from defaults. The Company uses information supplied by

 

independent
rating agencies where available, and if not available, the Company uses other publicly available financial information and its
own records to rate its customers.

 

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

 

The
Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics.

 

    	 
	Page 33 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

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

 

Liquidity
risk

 

Liquidity
risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The
Company is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Company manages
liquidity risk by continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets
and liabilities. The Company seeks to ensure that it has sufficient capital to meet short term financial obligations after taking
into account its operating obligations and cash on hand.

 

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

 

	 	 	< 1 year	 	 	1-2 years	 	 	3-5 years	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities	 	 	827,328	 	 	 	-	 	 	 	-	 
	Loans and borrowings and accrued interest	 	 	18,080,415	 	 	 	1,284,807	 	 	 	-	 

 

Interest
rate risk

 

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

 

	16.	Capital
    management

 

WinView
defines capital as its equity. The Company’s objectives when managing its capital is (i) to safeguard the ability to continue
as a going concern in order to pursue its business plan; and (ii) to provide adequate return to shareholders by obtaining an appropriate
amount of financing with the level of risk, to reduce after-tax cost of capital.

 

The
Company sets the amount of capital in proportion to its risk. WinView’s manages capital structure and adjusts considering
changes in economic conditions and the characteristics of risk of underlying assets. In order to maintain or adjust capital structure,
the Company may attempt to issue new stock or sell assets to reduce its obligations. WinView’s objective is met by retaining
adequate liquidity to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow
requirements.

 

There
have been no changes to the Company’s capital management policies during the years ended December 31, 2019 and 2018.

 

    	 
	Page 34 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	17.	Related
    party transactions 

 

Key
management personnel compensation for officers and directors of the Company are as follows:

 

	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Salaries and benefits	 	 	266,307	 	 	 	964,565	 
	Consulting fees	 	 	156,253	 	 	 	166,667	 
	Marketing	 	 	30,000	 	 	 	-	 
	 	 	 	452,560	 	 	 	1,131,232	 

 

Accounts
payable and accrued liabilities due to officers of the Company at December 31, 2019 includes $41,668 for consulting fees (2018
– $20,533), $Nil for expenses incurred on the Company’s behalf (2018 – $4,282), and $115,757 of interest expense
(2018 – $32,709).

 

During
the year ended December 31, 2019, directors and officers of the Company provided $750,000 of convertible notes payable (2018 –
$801,118) as long-term financing. The notes bear interest between 6-8% per annum. The outstanding related party notes payable
at December 31, 2019 were $1,551,118 (2018 – $801,118).

 

During
the year ended December 31, 2019, the Company incurred $83,111 (2018 – $32,709) of interest expense with respect to the
related party convertible notes payable.

 

	18.	Subsequent
    events

 

Convertible
notes

 

Through
a series of transactions through to January 24, 2020, the Company raised $1,095,000 in convertible notes. The convertible notes
yield interest at a rate of 6% per annum and come due on August 22, 2020.

 

Binding
letter agreement

 

On
November 22, 2019, Torque Esports Corp. (“Torque”, formerly Millennial Esports Corp.), Frankly Inc. (“Frankly”),
and the Company agreed to combine to form an integrated news, gaming, sports and esports platform. The combined company is to
be called Engine Media Holdings, Inc. The binding letter of agreement (the “Letter Agreement”) provides for Torque
to acquire all of the issued and outstanding common shares of Frankly, and all of the issued and outstanding securities of WinView.
The Company closed the combination in the third quarter of 2020.

 

    	 
	Page 35 

    	 

    

 

	WinView,
    Inc.	
	Notes
    to the financial statements
	For
    the years ended December 31, 2019 and 2018
	(in
    U.S. dollars)

 

 

	18.	Subsequent
    events (cont’d)

 

Frankly,
Torque and WinView business combination agreement

 

Torque,
Frankly and WinView entered into a business combination agreement dated March 9, 2020 (the “Business Combination Agreement”),
pursuant to which Torque acquired each of Frankly and WinView (the “Torque Transaction”), which will create an integrated
platform dedicated to live esports, news and gaming.

 

Consistent
with the terms of the binding letter of agreement entered into by the three companies on November 22, 2019, the Business Combination
Agreement provided that Torque effect the Torque Transaction by the following: (a) acquired all of the issued and outstanding
common shares of Frankly pursuant to a plan of arrangement (the “Plan of Arrangement”) under the Business Corporations
Act (British Columbia) (the “Frankly Arrangement”); and (b) indirectly acquired WinView, pursuant to a statutory merger
of WinView with and into Engine Merger Sub Inc. (a wholly-owned subsidiary of Torque), under the General Corporation Law of the
State of Delaware (the “WinView Merger”).

 

Pursuant
to the Plan of Arrangement, holders of common shares of Frankly received one common share of Torque, in exchange for each common
share of Frankly held by them (the “Frankly Consideration”). All outstanding convertible securities of Frankly were
exchanged for equivalent securities of Torque (other than outstanding warrants to purchase common shares of Frankly, which remain
outstanding and had the terms of such securities adjusted to reflect the exchange ratio).

 

Pursuant
to the WinView Merger, holders of securities of WinView received a total of 26,400,000 common shares of Torque, and/or contingent
rights, in exchange for the securities of WinView held by them. The contingent rights entitle holders to proceeds from the enforcement
of WinView’s patent portfolio as further specified in the Business Combination Agreement.

 

Frankly,
Torque and WinView business combination agreement

 

Frankly
has agreed to provide an advance of up to $100,000 and provide monthly reimbursements to WinView to cover WinView’s reasonable
legal and audit expenses relating to the Torque Transaction in excess of that amount, which amounts are reimbursable to Frankly
in certain circumstances. The advance and reimbursements are subject to the review and approval of the TSX-V. Under the rules
of the TSX-V, Frankly and WinView are considered to be non-arm’s length parties of each other due to a director of the Company
also being a director of Frankly.

 

    	 
	Page 36 

    	 

    

 

SCHEDULE
“D”

UNAUDITED
INTERIM FINANCIAL STATEMENTS OF WINVIEW

 

 

WinView,
Inc.

 

Interim
Condensed Financial Statements

 

March
31, 2020

 

(In
U.S. dollars)

 

    	 

    	 

    

 

	WinView,
                                         Inc.

        Table
        of Contents

        March
        31, 2020

        
	

 

 

 

	Unaudited interim condensed statements of financial position	3
	 	 
	Unaudited interim condensed statements of loss and comprehensive loss	4
	 	 
	Unaudited interim condensed statements of changes in equity	5
	 	 
	Unaudited interim condensed statements of cash flows	6
	 	 
	Notes to the unaudited interim condensed financial statements	7

 

    	 
	Page 2 

    	 

    

 

	WinView,
                                         Inc.

        Unaudited
        interim condensed statements of financial position

        As
        at March 31, 2020 and December 31, 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	Note	 	March 31,
 2020	 	 	December 31,
 2019	 
	 	 	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Assets	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Current assets:	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	611,162	 	 	 	944,868	 
	Restricted cash	 	12	 	 	212,776	 	 	 	217,616	 
	Prepaid expenses and deposits	 	 	 	 	79,777	 	 	 	131,693	 
	Total assets	 	 	 	 	903,715	 	 	 	1,294,177	 
	 	 	 	 	 	 	 	 	 	 	 
	Liabilities	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities:	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities	 	 	 	 	932,708	 	 	 	827,328	 
	Accrued interest	 	13	 	 	1,516,588	 	 	 	1,496,449	 
	Deferred revenues	 	 	 	 	87,182	 	 	 	87,182	 
	Convertible notes	 	13	 	 	16,593,369	 	 	 	15,488,966	 
	Loans and borrowings to be issued	 	13	 	 	-	 	 	 	1,095,000	 
	 	 	 	 	 	19,129,847	 	 	 	18,994,925	 
	Non-current liabilities:	 	 	 	 	 	 	 	 	 	 
	Secured and convertible notes	 	13	 	 	1,403,520	 	 	 	1,284,807	 
	Total liabilities	 	 	 	 	20,533,367	 	 	 	20,279,732	 
	 	 	 	 	 	 	 	 	 	 	 
	Shareholders’ deficit	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Common stock capital	 	14	 	 	172,515	 	 	 	172,515	 
	Preferred stock capital	 	14	 	 	21,400,520	 	 	 	21,400,520	 
	Reserves	 	10	 	 	788,032	 	 	 	682,668	 
	Accumulated deficit	 	 	 	 	(41,990,719	)	 	 	(41,241,258	)
	Total shareholders’ deficit	 	 	 	 	(19,629,652	)	 	 	(18,985,555	)
	Total liabilities and shareholders’ deficit	 	 	 	 	903,715	 	 	 	1,294,177	 
	 	 	 	 	 	 	 	 	 	 	 
	Going concern	 	2(a)	 	 	 	 	 	 	 	 
	Subsequent events	 	18	 	 	 	 	 	 	 	 

 

	Approved
    by the Board	“Tom
    Rogers”	 	“Hank
Ratner” 
	 	Director	 	Director

  

    	 
	The accompanying notes should be read in conjunction with these unaudited interim condensed financial statements.
	 
	Page 3 

    	 

    

 

	WinView,
                                         Inc.

        Unaudited
        interim condensed statements of loss and comprehensive loss

        For
        the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	Note	 	2020	 	 	2019	 
	 	 	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Continuing operations	 	 	 	 	 	 	 	 	 	 
	Revenue	 	7(a)	 	 	3,262	 	 	 	49,131	 
	Cost of sales	 	 	 	 	10,623	 	 	 	44,263	 
	 	 	 	 	 	(7,361	)	 	 	4,868	 
	 	 	 	 	 	 	 	 	 	 	 
	Operating expenses	 	 	 	 	 	 	 	 	 	 
	General and administrative	 	8, 17	 	 	463,849	 	 	 	842,746	 
	Research and development	 	8	 	 	142,496	 	 	 	219,901	 
	Selling and marketing	 	8	 	 	112,341	 	 	 	355,353	 
	Finance costs	 	13	 	 	20,964	 	 	 	19,046	 
	Taxes	 	 	 	 	2,450	 	 	 	3,250	 
	 	 	 	 	 	742,100	 	 	 	1,440,296	 
	 	 	 	 	 	 	 	 	 	 	 
	Net loss and comprehensive loss	 	 	 	 	(749,461	)	 	 	(1,435,428	)
	 	 	 	 	 	 	 	 	 	 	 
	Loss per common share	 	 	 	 	 	 	 	 	 	 
	Basic and diluted loss per share	 	9	 	 	(0.26	)	 	 	(0.51	)

  

    	 
	The accompanying notes should be read in conjunction with these unaudited interim condensed financial statements.
	 
	Page 4 

    	 

    

 

	WinView,
                                         Inc.

        Unaudited
        interim condensed statements of changes in equity

        As
        at and for the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	Note	 	Common
 stock
 capital	 	 	Preferred
 stock
 capital	 	 	Reserves	 	 	Accumulated
 deficit	 	 	Total
 equity	 
	 	 	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at December 31, 2018	 	 	 	 	172,515	 	 	 	21,400,520	 	 	 	314,745	 	 	 	(35,838,364	)	 	 	(13,950,584	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss for the period	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,435,428	)	 	 	(1,435,428	)
	Issuance of common shares	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Stock-based compensation	 	8, 10	 	 	-	 	 	 	-	 	 	 	238,892	 	 	 	-	 	 	 	238,892	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at March 31, 2019	 	 	 	 	172,515	 	 	 	21,400,520	 	 	 	553,637	 	 	 	(37,273,792	)	 	 	(15,147,120	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at December 31, 2019	 	 	 	 	172,515	 	 	 	21,400,520	 	 	 	682,668	 	 	 	(41,241,258	)	 	 	(18,985,555	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss for the period	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(749,461	)	 	 	(749,461	)
	Issuance of common shares	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Stock-based compensation (recovery)	 	8, 10	 	 	-	 	 	 	-	 	 	 	105,364	 	 	 	-	 	 	 	105,364	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, as at March 31, 2020	 	 	 	 	172,515	 	 	 	21,400,520	 	 	 	788,032	 	 	 	(41,990,719	)	 	 	(19,629,652	)

  

    	 
	The accompanying notes should be read in conjunction with these unaudited interim condensed financial statements.
	 
	Page 5 

    	 

    

 

	WinView,
                                         Inc.

        Unaudited
        interim condensed statements of cash flows

        For
        the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	 	 	Note	 	2020	 	 	2019	 
	 	 	 	 	$	 	 	$	 
	Operating activities	 	 	 	 	 	 	 	 	 	 
	Loss for the year	 	 	 	 	(749,461	)	 	 	(1,435,428	)
	Adjustments for:	 	 	 	 	 	 	 	 	 	 
	Equity-settled stock-based compensation	 	8, 10	 	 	105,364	 	 	 	238,892	 
	Finance costs and other	 	 	 	 	28,056	 	 	 	28,056	 
	 	 	 	 	 	(616,041	)	 	 	(1,168,480	)
	Changes in:	 	 	 	 	 	 	 	 	 	 
	Prepaid expenses and deposits	 	 	 	 	51,916	 	 	 	158,554	 
	Accounts payable and accrued liabilities	 	 	 	 	105,380	 	 	 	96,217	 
	Accrued interest	 	 	 	 	20,139	 	 	 	398,653	 
	 	 	 	 	 	(438,606	)	 	 	(515,056	)
	 	 	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 	 	 
	Proceeds from loans and borrowings	 	13(d)	 	 	317,676	 	 	 	332,619	 
	Repayment of loans and borrowings	 	13(d)	 	 	-	 	 	 	-	 
	Proceeds from the issuance of shares	 	 	 	 	-	 	 	 	-	 
	 	 	 	 	 	317,676	 	 	 	332,619	 
	 	 	 	 	 	 	 	 	 	 	 
	Net change in cash, during the year	 	 	 	 	(120,930	)	 	 	(182,437	)
	Cash, beginning of year	 	 	 	 	944,868	 	 	 	1,344,921	 
	Cash, end of the year	 	 	 	 	823,938	 	 	 	1,162,484	 
	 	 	 	 	 	 	 	 	 	 	 
	Cash is represented by:	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	611,162	 	 	 	944,868	 
	Restricted cash	 	12	 	 	212,776	 	 	 	217,616	 
	 	 	 	 	 	823,938	 	 	 	1,162,484	 

  

    	 
	The accompanying notes should be read in conjunction with these unaudited interim condensed financial statements.
	 
	Page 6 

    	 

    

 

	WinView,
                                         Inc.

        Notes
        to the unaudited interim condensed financial statements

        For
        the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	1.	General
    information

 

WinView,
Inc. (“WinView” or the “Company”) is a digital technology company that invented, pioneered second-screen
interactive television, and is one of the nation’s leading skill-based sports prediction mobile games platforms. WinView
was incorporated on December 2, 2008, pursuant to the filings with the secretary of the State of Delaware. The Company’s
corporate headquarters and registered head office are located at 370 Convention Way, Suite #102, Redwood City, California, 94063.

 

The
Company was acquired by Torque Esports Corp. (“Torque”) on May 8, 2020 under terms of a business combination agreement
(see Note 18). Subsequent to the acquisition, Torque changed its name to Engine Media Holdings Inc.

 

	2.	Basis
    of preparation

 

	(a)	Going
    concern

 

These
unaudited interim condensed financial statements have been prepared on a going concern basis, which assumes that the Company will
continue in operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the
normal course of business. The realizable values may be substantially different from its carrying amounts, as shown in these unaudited
interim condensed financial statements, and these financial statements do not give effect to adjustments that would be necessary
to the carrying amounts and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

As
at March 31, 2020, the Company had an accumulated deficit of $41,861,688 (December 31, 2019, $41,112,227). The Company has not
yet been able to generate positive cash flows from operations. Whether and when the Company can generate sufficient cash flows
to pay for its expenditures and settle its obligations as they fall due subsequent to March 31, 2020 is uncertain.

 

These
material uncertainties may cast significant doubt on the Company’s ability to continue as a going concern. The unaudited
interim condensed financial statements do not include the adjustments that would be necessary should the Company be unable to
continue as a going concern. Such adjustments could be material.

 

To
address the going concern risk through the May 8, 2020 acquisition of the Company by Torque, the Company continued to seek equity
financing alternatives to support the ongoing operations, monitor general and administrative expenses in comparison to budget,
and continued to optimize its operating processes.

 

In
March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health developments, has adversely affected workforce’s, economies,
and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise
funds.

 

    	 
	Page 7 

    	 

    

 

	WinView,
                                         Inc.

        Notes
        to the unaudited interim condensed financial statements

        For
        the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	2.	Basis
    of preparation (cont’d)

 

	(b)	Statement
    of compliance

 

The
unaudited interim condensed financial statements (the “financial statements”) have been prepared in accordance with
IAS 34, Interim Financial Reporting as issued by the by the International Accounting Standards Board (“IASB”) and
interpretations of the IFRS Interpretations Committee (“IFRIC”). The interim condensed financial statements do not
include all the information and disclosures required in the annual financial statements and should be read in conjunction with
the Company’s annual audited financial statements for the years ended December 31, 2019. These unaudited interim condensed
consolidated financial statements were authorized for issuance by the Board of Directors on November 13, 2020.

 

	(c)	Basis
    of presentation

 

The
financial statements are prepared on a going concern basis using the historical cost method, except for financial instruments
measured at their fair value. In addition, these financial statements have been prepared using the accrual basis of accounting
except for cash flow information. The financial statements are presented in US dollars, which is also the Company’s functional
currency.

 

The
Company presents its classified statements of financial position distinguished between current and non-current assets and liabilities.
Current assets and liabilities are those expected to be settled within one year of the reporting period, and non-current assets
and liabilities are those which the recovery or settlement is expected to be greater than a year after the reporting period.

 

	3.	Use
    of judgments and estimates

 

In
preparation of these financial statements, management has made judgments and estimates that affect the application of the Company’s
accounting policies and the reported amount of assets, liabilities, revenue and expenses. Actual results may significantly differ
from these estimates.

 

The
significant judgments, estimates and assumptions in the preparation of the financial statements are consistent with those followed
in the preparation of the Company’s annual financial statements for the years ended December 31, 2019.

 

	4.	Operating
    segments

 

WinView
operates in the United States. The Company has one strategic division offering its services and are managed on an integrated basis
with similar bases in technology and marketing. In measuring its performance, the Company does not distinguish or group its operations
on a geographical or on any other basis, and accordingly, has a single operating segment.

 

The
Company’s chief executive officer is the chief operating decision marker, and regularly reviews WinView’s operations
and performance. WinView does not have any significant customers or any significant groups of customers.

 

    	 
	Page 8 

    	 

    

 

	WinView,
                                         Inc.

        Notes
        to the unaudited interim condensed financial statements

        For
        the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	5.	Changes
    in significant accounting policies

 

	(a)	IAS
    1 and IAS8 – Definition of Material - Updates

 

On
October 31, 2018, the IASB issued ‘Definition of Material (Amendments to IAS 1 and IAS 8)’ to clarify the definition
of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. The amendments
are effective annual reporting periods beginning on or after 1 January 2020. The implementation of these standards did not have
a material impact on the Company’s financial statements.

 

	(b)	Conceptual
    Framework – Updates

 

Together
with the revised ‘Conceptual Framework’ published in March 2018, the IASB also issued ‘Amendments to References
to the Conceptual Framework in IFRS Standards’. The amendments are effective for annual periods beginning on or after 1
January 2020. The implementation of these standards did not have a material impact on the Company’s financial statements.

 

	(c)	IFRS
    3 – Definition of a Business - Updates

 

On
22 October 2018, the IASB issued ‘Definition of a Business (Amendments to IFRS 3)’ aimed at resolving the difficulties
that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for
business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after 1 January 2020. The implementation of these standards did not have a material impact on the Company’s financial
statements.

 

	(d)	Other
    accounting standards

 

Other
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 financial statements.

 

 

	6.	Significant
    accounting policies

 

The
accounting policies adopted in the preparation of these financial statements are consistent with those followed in the preparation
of the annual financial statements for the year ended December 31, 2019, except for the adoption of new standards effective as
of January 1, 2020 (Note 5).

 

    	 
	Page 9 

    	 

    

 

	WinView,
                                         Inc.

        Notes
        to the unaudited interim condensed financial statements

        For
        the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	7.	Revenue

 

	(a)	Revenue
    streams and disaggregation of revenue from contracts with customers

 

The
Company generates revenue primarily from the sale of entry fees. Other sources of revenue relate to immaterial amounts for other
auxiliary services. In the following table, revenue from contracts with customers is disaggregated by service lines and timing
of revenue recognition.

 

	 	 	3 mo. ended
 31-Mar-20	 	 	3 mo. ended
 31-Mar-19	 
	 	 	$	 	 	$	 
	Major products and service items	 	 	 	 	 	 	 	 
	Entry fees	 	 	3,262	 	 	 	49,131	 
	 	 	 	 	 	 	 	 	 
	Timing of revenue recognition	 	 	 	 	 	 	 	 
	Services transferred at a point in time	 	 	3,262	 	 	 	49,131	 

 

	(b)	Performance
    obligations and revenue recognition policies

 

Revenue
is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers
control of its services to a customer.

 

The
following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with
customers, including significant payment terms and related revenue recognition policies.

 

	Type
    of service	 	Nature
    and timing of satisfaction of performance obligations, including significant payment terms 	 	Revenue
    recognition policies
	Entry
    fees	 	Entry
    fees represents primarily the commission charged at the start of each contest and entry fees for participation in the contest,
    and is net of certain promotional expenses, which are treated as a reduction of the transaction price.	 	Revenue
    is recognized at a point in time when the contest is concluded.
	Other	 	Customers
    can participate in contests using virtual currency (i.e. wallet tickets). Customers can earn wallet tickets in contests which
    can be used for contests.	 	Wallet
    tickets are initially recorded as a contract liability and are recorded as revenue as the customer participates in contests.

 

    	 
	Page 10 

    	 

    

 

	WinView,
                                         Inc.

        Notes
        to the unaudited interim condensed financial statements

        For
        the three months ended March 31, 2020 and 2019

        (in
        U.S. dollars)

        
	

 

 

 

	8.	Expenses
    by nature

 

	 	 	3 mo. ended
 31-Mar-20	 	 	3 mo. ended
 31-Mar-19	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Salaries and benefits	 	 	340,237	 	 	 	657,344	 
	Professional fees	 	 	75,311	 	 	 	135,190	 
	Office and general	 	 	21,266	 	 	 	41,553	 
	Insurance	 	 	27,035	 	 	 	8,659	 
	General and administrative	 	 	463,849	 	 	 	842,746	 
	 	 	 	 	 	 	 	 	 
	Promotion	 	 	8,432	 	 	 	203,186	 
	Distribution	 	 	103,909	 	 	 	152,167	 
	Selling and marketing	 	 	112,341	 	 	 	355,353	 
	 	 	 	 	 	 	 	 	 
	Platform costs expensed	 	 	142,496	 	 	 	219,901	 
	Equipment costs	 	 	-	 	 	 	-	 
	Research and development	 	 	142,496	 	 	 	219,901	 
	 	 	 	 	 	 	 	 	 
	Total general and administrative, selling and marketing 
 and research and development expenses	 	 	718,686	 	 	 	1,418,000	 

 

	9.	Loss
    per share

 

	 	 	3 mo. ended
 31-Mar-20	 	 	3 mo. ended
 31-Mar-19	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Net loss	 	 	(749,461	)	 	 	(1,435,428	)
	 	 	 	 	 	 	 	 	 
	Weighted average common shares outstanding: 	 	 	 	 	 	 	 	 
	Basic and diluted	 	 	2,841,783	 	 	 	2,841,783	 
	 	 	 	 	 	 	 	 	 
	Net loss per share attributable to shareholders:	 	 	 	 	 	 	 	 
	Basic and diluted	 	 	(0.26	)	 	 	(0.51	)

 

    	 
	Page 11 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	10.	Share-based
    payment arrangements

 

	(a)	Stock-option
    plans

 

On
September 25, 2012, the Company established a stock-option plan that entitles key management personnel and employees to purchase
stock in the Company. Under the stock-option plan, holders of vested options are entitled to purchase stock at fair value of the
stock at grant date.

 

The
aggregate number of options that may be granted under the plan cannot exceed 3,483,238. The Board of Directors determines the
price per common share based on valuation reports and the number of common stock which may be allocated to key management personnel
and employees.

 

On
October 13, 2016, the Company established an equity-incentive plan that entitles key management personnel to purchase stock in
the Company. Under the equity incentive plan, holders of vested incentives are entitled to purchase stock at fair value of the
stock at the grant date.

 

The
aggregate number of incentives that may be granted under the plan cannot exceed 6,947,247. The Board of Directors determines the
price per common share and the number of common stock which may be allocated to key management personnel and employees.

 

	(b)	Measurement
    of fair values

 

The
stock-options were valued using the Black-Scholes formula. The inputs used in the measurement of the fair values at the grant
and measurement date of the stock-options and warrants were as follows:

 

	 	 	March 31,
 2020	 	 	December 31,
 2019	 
	Fair value	 	$	0.14	 	 	$	0.14	 
	Share price	 	$	0.15	 	 	$	0.15	 
	Exercise price	 	$	0.48	 	 	$	0.48	 
	Expected volatility (weighted-average)	 	 	125	%	 	 	125	%
	Expected life (weighted-average)	 	 	10.00	 	 	 	10.00	 
	Expected dividends	 	 	0.00	%	 	 	0.00	%
	Risk-free interest rate	 	 	1.75	%	 	 	1.75	%

 

Expected
volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over
the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience
and general option and warrants holder behaviour.

 

    	 
	Page 12 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

  

	10.	Share-based
    payment arrangements (cont’d)

 

	(c)	Reconciliation
    of outstanding stock-options

 

The
number and weighted-average exercise prices of stock options under the stock option plan are as follows:

 

	 	 	Number of 
 options 
 granted	 	 	Number of 
 options 
 vested	 	 	Weighted-
 average 
 exercise price	 
	 	 	 	 	 	 	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Outstanding, as at December 31, 2018	 	 	3,861,629	 	 	 	1,814,117	 	 	 	0.34	 
	Granted and vested during the year	 	 	-	 	 	 	-	 	 	 	-	 
	Forfeited during the year	 	 	-	 	 	 	-	 	 	 	-	 
	Outstanding, as at March 31, 2019	 	 	3,861,629	 	 	 	1,814,117	 	 	 	0.34	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Outstanding, as at December 31, 2019	 	 	9,070,879	 	 	 	5,323,682	 	 	 	0.42	 
	Granted and vested during the year	 	 	-	 	 	 	-	 	 	 	-	 
	Forfeited during the year	 	 	-	 	 	 	-	 	 	 	-	 
	Outstanding, as at March 31, 2020	 	 	9,070,879	 	 	 	5,323,682	 	 	 	0.42	 

 

	(d)	Warrants

 

The
number and weighted-average exercise prices of warrants are as follows:

 

	 	 	Number of
 warrants	 	 	Weighted-
 average
 exercise price	 
	 	 	 	 	 	$	 
	 	 	 	 	 	 	 
	Outstanding, as at December 31, 2018	 	 	7,015,943	 	 	 	1.37	 
	Issued	 	 	5,736	 	 	 	1.17	 
	Expired	 	 	-	 	 	 	-	 
	Outstanding, as at March 31, 2019	 	 	7,021,679	 	 	 	1.37	 
	 	 	 	 	 	 	 	 	 
	Outstanding, as at December 31, 2019	 	 	13,174,863	 	 	 	1.37	 
	Issued	 	 	-	 	 	 	-	 
	Expired	 	 	-	 	 	 	-	 
	Outstanding, as at March 31, 2020	 	 	13,174,863	 	 	 	1.37	 

 

    	 
	Page 13 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

  

	10.	Share-based
    payment arrangements (cont’d)

 

The
following table summarizes the expiry date, the number of warrants and weighted-average exercise price outstanding as at March
31, 2020:

 

	Expiry 
 date	 	Exercise
 price	 	 	Number of
 warrants	 
	 	 	$	 	 	 	 
	April 21, 2021	 	 	1.17	 	 	 	1,248,984	 
	April 27, 2022	 	 	1.36	 	 	 	1,953,436	 
	April 16, 2022	 	 	1.36	 	 	 	3,813,523	 
	April 8, 2023	 	 	0.01	 	 	 	4,811,650	 
	September 13, 2023	 	 	0.01	 	 	 	1,347,270	 
	 	 	 	 	 	 	 	13,174,863	 

 

	11.	Income
    taxes

 

	(a)	Income
    tax expense

 

The
following table reconciles income taxes calculated at the combined US federal and state tax rates with income tax expense recognized
in the statements of loss and comprehensive loss:

 

	 	 	3 mo. ended
 31-Mar-20	 	 	3 mo. ended
 31-Mar-19	 
	 	 	$	 	 	$	 
	Loss before income taxes	 	 	(749,461	)	 	 	(1,435,428	)
	Statutory rate	 	 	27.00	%	 	 	27.00	%
	Expected income tax recovery	 	 	(202,354	)	 	 	(387,566	)
	 	 	 	 	 	 	 	 	 
	Decrease in income tax recovery due to:	 	 	 	 	 	 	 	 
	Expenses not deductible for tax purposes	 	 	75,000	 	 	 	87,820	 
	Non-capital losses unrecognized	 	 	127,354	 	 	 	299,746	 
	Total income tax expense	 	 	-	 	 	 	-	 

 

    	 
	Page 14 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	11.	Income
    taxes (cont’d)

 

	(b)	Deferred
    income taxes

 

The
temporary differences that give rise to deferred income tax assets and deferred income tax liabilities are presented below:

 

	 	 	March 31,
 2020	 	 	December 31,
 2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Deferred tax assets	 	 	 	 	 	 	 	 
	Refundable credits	 	 	13,449,000	 	 	 	13,247,000	 
	Less: refundable credits not recognized	 	 	(13,449,000	)	 	 	(13,247,000	)
	 	 	 	-	 	 	 	-	 

 

Expiry
of losses are as follows:

 

	Year of origin	 	Amount	 
	 	 	$	 
	 	 	 	 
	2009	 	 	38,482	 
	2010	 	 	53,559	 
	2011	 	 	715,612	 
	2012	 	 	936,921	 
	2013	 	 	532,728	 
	2014	 	 	304,589	 
	2015	 	 	1,138,417	 
	2016	 	 	5,756,500	 
	2017	 	 	11,375,172	 
	2018	 	 	13,001,429	 
	2019	 	 	4,305,976	 
	2020	 	 	749,461	 
	 	 	 	38,908,846	 

 

Tax
attributes are subject to review, and potential adjustment, by tax authorities.

 

	12.	Restricted
    cash

 

In
connection with the operating activities described in Note 7(b), the Company is required to restrict the use of funds which
were received from players as a deposit for use in future contests plus each player’s winnings in accordance with the terms
of use agreement.

 

    	 
	Page 15 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	13.	Loans
    and borrowings

 

	 	 	Note	 	March 31, 
 2020	 	 	December 31,
 2019	 
	 	 	 	 	 	$	 	 	 	$	 
	Current liabilities	 	 	 	 	 	 	 	 	 	 
	Secured notes - accrued interest	 	(a, b, d)	 	 	6,501	 	 	 	6,501	 
	Convertible notes - accrued interest	 	(b, c, d)	 	 	1,510,087	 	 	 	1,489,948	 
	Convertible notes	 	(b, c, d)	 	 	15,498,369	 	 	 	15,488,966	 
	Convertible notes to be issued	 	(b, c, d)	 	 	1,095,000	 	 	 	1,095,000	 
	 	 	 	 	 	18,109,957	 	 	 	18,080,415	 
	 	 	 	 	 	 	 	 	 	 	 
	Non-current liabilities	 	 	 	 	 	 	 	 	 	 
	Secured notes	 	(a, b, d)	 	 	1,403,520	 	 	 	1,284,807	 
	Convertible notes	 	(b, c, d)	 	 	-	 	 	 	-	 
	 	 	 	 	 	1,403,520	 	 	 	1,284,807	 

 

	(a)	Secured
    notes

 

On
September 21, 2009, the Company and a third party agreed to terms on repayment of debt incurred by WinView for the provision of
services by the third party. This agreement was amended on April 18, 2016 and further amended on April 17, 2017.

 

The
latest amendment on April 17, 2017 extended the agreement and renegotiated the terms and conditions of the required mandatory
repayments of $15,000 per month for 24 months and $25,000 per month for 24 months upon respective closing of the Company’s
series A and series B preferred share offerings.

 

	(b)	Terms
    and repayment schedule

 

The
terms and conditions of outstanding loans are as follows:

 

	 	 	Nominal
 interest rate	 	 	Year of
 maturity	 	 	March 31,
 2020	 	 	December 31,
 2019	 
	 	 	 	 	 	 	 	 	$	 	 	$	 
	Convertible notes	 	 	6-8	%	 	 	2020	 	 	 	15,498,369	 	 	 	15,488,966	 
	Secured notes	 	 	8	%	 	 	2021	 	 	 	1,403,520	 	 	 	1,284,807	 
	 	 	 	 	 	 	 	 	 	 	 	16,901,889	 	 	 	16,773,773	 

 

The
secured notes are subject to liquidation preference over the other obligations of WinView.

 

    	 
	Page 16 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	13.	Loans
    and borrowings (cont’d)

 

	(c)	Convertible
    notes

 

During
the year ended December 31, 2018, the Company issued convertible promissory notes (March 2018 and August 2018) for total proceeds
of $12,920,000. The notes are unsecured, have a maturity date of 24 months after the issuance date and bear interest between 6-8%
per annum, payable upon maturity. Any unpaid accrued interest on the note will be convertible into equity on the same terms as
the principal.

 

The
notes issued in March 2018 are convertible into series B preferred stock using a formula based on the lower of the original series
B preferred stock price per share or the conversion price per share, which is defined to be the price per share for any qualified
financing, which is defined to be an issuance of preferred stock with total proceeds of at least $5,000,000.

 

The
notes have share purchase warrants attached giving note holders the right to purchase up to an additional 3,813,523 series B preferred
stock (Note 10(d)). The Company incurred $nil transaction costs for this offering.

 

The
notes issued in August 2018 are convertible with conversion rights dependent upon certain conditions, as follows:

 

	 	(i)	Automatic
    conversion upon a Qualified Financing - the notes, including principal and accrued interest, will be convertible into stock
    of the new securities issued in such a Qualified Financing at the conversion price;
	 	 	 
	 	(ii)	Voluntary
    conversion upon a Non-Qualified Financing - the notes, including the principal and accrued interest, will be convertible into
    the Company’s preferred stock issued in the Non-Qualified Financing at the conversion price; or
	 	 	 
	 	(iii)	Change
    of control - the note holders can elect to either receive cash (principal and interest calculated at a premium rate of 12%
    instead of 8% from the date of issuance) or convert the note into stock of the Company’s common stock at the conversion
    price.

 

Conversion
price is the price per share equal to the amount obtained by dividing $65,000,000 by the fully diluted shares of the Company,
which is defined to be the sum of the outstanding and issued shares of the common stock, shares of common stock issuable upon
conversion of all outstanding securities and the exercise of all outstanding options and warrants; and common stock reserved under
any equity incentive plan of the Company.

 

Fully
diluted capitalization shall not include the notes and the securities directly or indirectly issuable upon conversion or exchange
of the notes, other outstanding convertible promissory notes and the securities directly or indirectly issuable upon conversion
or exchange of such other outstanding convertible promissory notes, or in any automatic conversion, any securities issued in the
financing, any shares of common stock directly or indirectly issuable upon conversion, exchange or exercise of such securities
and any increase in the number of shares reserved for issuance under the Company’s equity incentive or similar plans or
arrangement in connection with the financing.

 

    	 
	Page 17 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	13.	Loans
    and borrowings (cont’d)

 

	(c)	Convertible
    notes (cont’d)

 

Qualified
Financing is defined to be a transaction or series of transaction led by Playtech Services (Cyprus) Limited or its affiliates
pursuant to which the Company issues and sells shares of any class or series of equity securities at a fixed price with the principal
purpose of raising capital.

 

The
Company incurred $nil transaction costs for this offering.

 

	14.	Capital
    and reserves

 

	(a)	Authorized

 

	 	11,660,000	 	Series
    A preferred stock, voting and participating by series, issuable with rights, privileges, restrictions and conditions as determined
    by the directors and officers of WinView at the time of issuance. 
	 	 	 	 
	 	 	 	Convertible
    to common stock at a stated conversion ratio at the earlier of the option of the holder or an initial public offering.
	 	 	 	 
	 	10,350,934	 	Series
    B preferred stock, voting and participating by series, issuable with rights, privileges, restrictions and conditions as determined
    by the directors and officers of WinView at the time of issuance. 
	 	 	 	 
	 	 	 	Convertible
    to common stock at a stated conversion ratio at the earlier of the option of the holder or an initial public offering.
	 	 	 	 
	 	37,600,000	 	Common
    stock.

 

	(b)	Common
    stock

 

	 	 	Common shares	 
	 	 	March 31,
 2020	 	 	December 31,
 2019	 
	In issue, beginning of year	 	 	6,067,605	 	 	 	6,067,605	 
	Issuance for debt conversion	 	 	-	 	 	 	-	 
	Exercise of stock-options	 	 	-	 	 	 	-	 
	Other	 	 	-	 	 	 	-	 
	In issue, end of year	 	 	6,067,605	 	 	 	6,067,605	 

 

Holders
of these stock are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings
of the Company.

 

    	 
	Page 18 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	14.	Capital
    and reserves (cont’d)

 

	(c)	Series
    A preferred stock

 

On
April 21, 2016, the Company issued 9,848,791 series A preferred stock for net proceeds of $9,176,360.

 

	(d)	Series
    B preferred stock

 

On
April 27, 2017, the Company issued 9,078,408 series B preferred stock for net proceeds of $12,224,160.

 

	15.	Financial
    instruments and risk management

 

Fair
values of financial assets and financial liabilities

 

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. Fair value estimates are made at the statement of financial position
date, based on relevant market information and other information about financial instruments.

 

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 	Inputs
    that are not based on observable market data.

 

The
carrying amounts of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, and accrued interest
and loans and borrowings approximate fair value.

 

Financial
risk management objectives and policies

 

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

 

    	 
	Page 19 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

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

 

Credit
risk

 

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

 

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

 

The
Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics.

 

Liquidity
risk

 

Liquidity
risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The
Company is exposed to liquidity risk with respect to its contractual obligations and financial liabilities. The Company manages
liquidity risk by continuously monitoring forecasted and actual cash flows and matching maturity profiles of financial assets
and liabilities. The Company seeks to ensure that it has sufficient capital to meet short term financial obligations after taking
into account its operating obligations and cash on hand.

 

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

 

	 	 	< 1 year	 	 	1-2 years	 	 	3-5 years	 
	 	 	$	 	 	$	 	 	$	 
	Accounts payable and accrued liabilities	 	 	932,708	 	 	 	-	 	 	 	-	 
	Loans and borrowings and accrued interest	 	 	18,109,957	 	 	 	1,403,520	 	 	 	-	 

 

Interest
rate risk

 

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

 

    	 
	Page 20 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	16.	Capital
    management

 

WinView
defines capital as its equity. The Company’s objectives when managing its capital is (i) to safeguard the ability to continue
as a going concern in order to pursue its business plan; and (ii) to provide adequate return to shareholders by obtaining an appropriate
amount of financing with the level of risk, to reduce after-tax cost of capital.

 

The
Company sets the amount of capital in proportion to its risk. WinView’s manages capital structure and adjusts considering
changes in economic conditions and the characteristics of risk of underlying assets. In order to maintain or adjust capital structure,
the Company may attempt to issue new stock or sell assets to reduce its obligations. WinView’s objective is met by retaining
adequate liquidity to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow
requirements.

 

There
have been no changes to the Company’s capital management policies during the three months ended March 31, 2020.

 

	17.	Related
    party transactions 

 

Key
management personnel compensation for officers and directors of the Company are as follows:

 

	 	 	3 mo. ended
 31-Mar-20	 	 	3 mo. ended
 31-Mar-19	 
	 	 	$	 	 	$	 
	Salaries and benefits	 	 	57,040	 	 	 	66,577	 
	Consulting fees	 	 	31,251	 	 	 	39,063	 
	Marketing	 	 	-	 	 	 	7,500	 
	 	 	 	88,291	 	 	 	113,140	 

 

Accounts
payable and accrued liabilities due to officers of the Company at March 31, 2020 includes $31,251 for consulting fees (December
31, 2019 – $41,668), $Nil for expenses incurred on the Company’s behalf (December 31, 2019 – $Nil), and $Nil
of interest expense (December 31, 2019 – $115,757).

 

During
the three months ended March 31, 2019, directors and officers of the Company provided $300,000 of convertible notes payable (three
months ended March 31, 2019 – $Nil) as long-term financing. The notes bear interest between 6-8% per annum. The outstanding
related party notes payable at March 31, 2020 were $2,101,118 (December 31, 2019 – $1,551,118).

 

During
the three months ended March 31, 2020, the Company incurred $28,522 (three months ended March 31, 2019 – $17,272) of interest
expense with respect to the related party convertible notes payable.

 

    	 
	Page 21 

    	 

    

 

	
        WinView, Inc.

        Notes to the unaudited interim condensed financial statements

        For the three months ended March 31, 2020 and 2019

        (in U.S. dollars)

         
	

 

 

 

	18.	Subsequent
    events

 

Convertible
notes

 

In
a series of transactions through to January 24, 2020, the Company raised $1,095,000 in convertible notes. The convertible notes
yield interest at a rate of 6% per annum and come due on August 22, 2020.

 

Frankly,
Torque and WinView business combination agreement

 

Torque,
Frankly and WinView entered into a business combination agreement dated March 9, 2020 (the “Business Combination Agreement”),
pursuant to which, on May 8, 2020, Torque acquired each of Frankly and WinView (the “Torque Transaction”), which will
create an integrated platform dedicated to live esports, news and gaming.

 

Consistent
with the terms of the binding letter of agreement entered into by the three companies on November 22, 2019, the Business Combination
Agreement provided that Torque effect the Torque Transaction by the following: (a) acquired all of the issued and outstanding
common shares of Frankly pursuant to a plan of arrangement (the “Plan of Arrangement”) under the Business Corporations
Act (British Columbia) (the “Frankly Arrangement”); and (b) indirectly acquired WinView, pursuant to a statutory merger
of WinView with and into Engine Merger Sub Inc. (a wholly-owned subsidiary of Torque), under the General Corporation Law of the
State of Delaware (the “WinView Merger”).

 

Pursuant
to the Plan of Arrangement, holders of common shares of Frankly received one common share of Torque, in exchange for each common
share of Frankly held by them (the “Frankly Consideration”). All outstanding convertible securities of Frankly were
exchanged for equivalent securities of Torque (other than outstanding warrants to purchase common shares of Frankly, which remain
outstanding and had the terms of such securities adjusted to reflect the exchange ratio).

 

Pursuant
to the WinView Merger, holders of securities of WinView received a total of 26,400,000 common shares of Torque, and/or contingent
rights, in exchange for the securities of WinView held by them. The contingent rights entitle holders to proceeds from the enforcement
of WinView’s patent portfolio as further specified in the Business Combination Agreement.

 

Frankly
has agreed to provide an advance of up to $100,000 and provide monthly reimbursements to WinView to cover WinView’s reasonable
legal and audit expenses relating to the Torque Transaction in excess of that amount, which amounts are reimbursable to Frankly
in certain circumstances. The advance and reimbursements are subject to the review and approval of the TSX-V. Under the rules
of the TSX-V, Frankly and WinView are considered to be non-arm’s length parties of each other due to a director of the Company
also being a director of Frankly.

 

    	 
	Page 22

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