Document:

Exhibit
4.4

 

 

ENGINE
MEDIA HOLDINGS, INC.

(formerly
Torque Esports Corp.)

 

Consolidated
Financial Statements

 

For
the years ended

August
31, 2020 and 2019

 

(Expressed
in United States Dollars)

 

    	 

     

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)
	
	 	 

 

 

Table
of Contents

 

	Independent
    Auditor’s Report	3
	 	 
	Consolidated
    Statements of Financial Position	5
	 	 
	Consolidated
    Statements of Loss and Comprehensive Loss	6
	 	 
	Consolidated
    Statements of Shareholders’ Equity (Deficiency)	7
	 	 
	Consolidated
    Statements of Cash Flows	8
	 	 
	Notes
    to the Consolidated Financial Statements	9-68

 

    	 	 	Page 2  of  64

    	 

    

 

		Baker
                                         Tilly WM LLP

        1500
        - 401 Bay Street

        Toronto,
        Ontario

        Canada
        M5H 2Y4

        T:
        +1 416.368.7990

        F:
        +1 416.368.0886

         

        toronto@bakertilly.ca

        www.bakertilly.ca

        

 

INDEPENDENT
AUDITOR’S REPORT

 

To
the Shareholders of Engine Media Holdings, Inc. (formerly, Torque Esports Corp.):

 

Opinion

 

We
have audited the consolidated financial statements of Engine Media Holdings, Inc. (formerly, Torque Esports Corp.) and its subsidiaries
(the “Company”), which comprise the consolidated statement of financial position as at August 31, 2020 and the consolidated
statement of loss and comprehensive loss, consolidated statement of shareholders’ equity (deficiency) and consolidated statement
of cash flows for the year then ended, 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 August 31, 2020, and its consolidated financial performance and its consolidated cash flows for
the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board. 

 

Basis
for Opinion

 

We
conducted our audit 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 in our audit is sufficient and appropriate to provide a basis
for our opinion.

 

Material
Uncertainty Related to Going Concern

 

We
draw attention to Note 1(b) in the consolidated financial statements, which describes the 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.

 

Other
Matter

 

The
consolidated financial statements of the Company for the year ended August 31, 2019 were audited by another auditor who expressed
an unmodified opinion on the consolidated financial statements on February 14, 2020.

 

Other
Information

 

Management
is responsible for the other information. The other information comprises the information included in the Management’s Discussion
and Analysis filed with the relevant Canadian securities commissions.

 

Our
opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.

 

In
connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact in this auditor’s report. We have nothing to report in this regard.

 

    	 	 	Page 3  of  64

    	 

    

 

 

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.

 

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 judgement 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
    Company to express an opinion on the 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.

 

		 
	 	 
	Chartered
    Professional Accountants	 
	Licensed
    Public Accountants	 
	 	 
	Toronto,
    Ontario	 
	January
    7, 2021	 

 

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.

 

    	 	 	Page 4  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Consolidated
        Statements of Financial Position

        As
        at August 31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	 	 	Note	 	2020	 	 	2019	 
	 	 	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 
	ASSETS	 	 	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 	 	 
	Cash
    and cash equivalents	 	 	 	 	5,243,278	 	 	 	2,818,744	 
	Restricted cash	 	17	 	 	388,587	 	 	 	8,270	 
	Accounts and other
    receivables	 	9	 	 	3,845,890	 	 	 	517,228	 
	Government remittances	 	 	 	 	1,125,912	 	 	 	711,278	 
	Prepaid
    expenses and other	 	 	 	 	1,571,806	 	 	 	698,842	 
	 	 	 	 	 	12,175,473	 	 	 	4,754,362	 
	 	 	 	 	 	 	 	 	 	 	 
	Investment in associate	 	10	 	 	2,052,008	 	 	 	-	 
	Advances	 	10	 	 	-	 	 	 	1,470,000	 
	Property and equipment	 	11	 	 	409,389	 	 	 	85,253	 
	Goodwill	 	12	 	 	18,785,807	 	 	 	651,354	 
	Intangible assets	 	13	 	 	19,442,322	 	 	 	3,724,728	 
	Right-of-use
    assets	 	14	 	 	550,478	 	 	 	-	 
	 	 	 	 	 	41,240,004	 	 	 	5,931,335	 
	 	 	 	 	 	53,415,477	 	 	 	10,685,697	 
	LIABILITIES	 	 	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 	 	 
	Accounts payable
    and accrued liabilities	 	 	 	 	17,144,346	 	 	 	3,910,899	 
	Players liability
    account	 	17	 	 	388,587	 	 	 	8,270	 
	Deferred revenue	 	 	 	 	553,395	 	 	 	31,656	 
	Lease obligation,
    current	 	16	 	 	185,671	 	 	 	-	 
	Line of credit	 	18(c)	 	 	4,919,507	 	 	 	-	 
	Long-term debt,
    current	 	20	 	 	97,702	 	 	 	90,033	 
	Promissory notes
    payable	 	18	 	 	3,818,920	 	 	 	852,884	 
	Deferred purchase
    consideration	 	6(d)	 	 	333,503	 	 	 	-	 
	Warrant liability	 	21	 	 	14,135,321	 	 	 	296,795	 
	Contingent
    performance share obligation, current	 	26(d)	 	 	262,067	 	 	 	257,216	 
	 	 	 	 	 	41,839,019	 	 	 	5,447,753	 
	 	 	 	 	 	 	 	 	 	 	 
	Contingent performance
    share obligation, non-current	 	26(d)	 	 	-	 	 	 	216,148	 
	Convertible debt	 	19	 	 	10,793,459	 	 	 	12,532,723	 
	Lease obligation,
    non-current	 	16	 	 	386,477	 	 	 	-	 
	Long-term
    debt, non-current	 	20	 	 	133,230	 	 	 	156,255	 
	 	 	 	 	 	11,313,166	 	 	 	12,905,126	 
	 	 	 	 	 	53,152,185	 	 	 	18,352,879	 
	 	 	 	 	 	 	 	 	 	 	 
	SHAREHOLDERS’
    EQUITY (DEFICIENCY)	 	 	 	 	 	 	 	 	 	 
	Share capital	 	22	 	 	69,380,807	 	 	 	29,613,406	 
	Shares to be issued	 	26(d)	 	 	1,059,214	 	 	 	760,216	 
	Contributed surplus	 	 	 	 	4,034,323	 	 	 	2,753,037	 
	Foregin currency
    translation reserve	 	 	 	 	(2,334,275	)	 	 	(1,333,172	)
	Deficit	 	 	 	 	(72,094,162	)	 	 	(39,754,120	)
	 	 	 	 	 	45,907	 	 	 	(7,960,633	)
	Non-controlling
    interest	 	 	 	 	217,385	 	 	 	293,451	 
	 	 	 	 	 	263,292	 	 	 	(7,667,182	)
	 	 	 	 	 	53,415,477	 	 	 	10,685,697	 
	Going concern	 	1	 	 	 	 	 	 	 	 
	Commitments and contingencies	 	26	 	 	 	 	 	 	 	 
	Subsequent events	 	31	 	 	 	 	 	 	 	 

 

	Approved
    on Behalf of Board:	 	“Steven
    Zenz”	 	“Lou
    Schwartz”
	 	 	Director	 	Director

 

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

 

    	 	 	Page 5  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Consolidated
        Statements of Loss and Comprehensive Loss

        Years
        ended August 31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	 	 	Note	 	2020	 	 	2019	 
	 	 	 	 	 	$	 	 	 	$	 
	CONTINUING OPERATIONS	 	 	 	 	 	 	 	 	 	 
	REVENUE	 	 	 	 	 	 	 	 	 	 
	Games
    development	 	7	 	 	2,732,846	 	 	 	3,371,472	 
	Sponsorship, tournament
    and event income	 	7	 	 	889,862	 	 	 	12,628	 
	Platform revenue	 	7	 	 	2,571,672	 	 	 	303,078	 
	Advertising revenue	 	7	 	 	4,526,453	 	 	 	-	 
	Professional services	 	7	 	 	386,390	 	 	 	483,185	 
	Other
    income	 	7	 	 	1,154	 	 	 	49,098	 
	 	 	 	 	 	11,108,377	 	 	 	4,219,461	 
	EXPENSES	 	 	 	 	 	 	 	 	 	 
	Salaries and wages	 	 	 	 	7,069,321	 	 	 	4,277,676	 
	Consulting	 	 	 	 	3,768,175	 	 	 	1,723,584	 
	Professional fees	 	 	 	 	2,853,141	 	 	 	711,521	 
	Revenue sharing
    expense	 	 	 	 	3,380,017	 	 	 	-	 
	Sponsorships and
    tournaments	 	 	 	 	4,282,232	 	 	 	586,850	 
	Advertising and
    promotion	 	 	 	 	2,544,495	 	 	 	865,661	 
	Office and general	 	 	 	 	1,927,352	 	 	 	797,382	 
	Technology expenses	 	 	 	 	1,226,341	 	 	 	109,765	 
	Amortization and
    depreciation	 	11,
                                         13, 14	 	 	3,891,042	 	 	 	2,386,805	 
	Share-based payments	 	23,
                                         24	 	 	1,409,569	 	 	 	73,843	 
	Interest expense	 	 	 	 	909,928	 	 	 	333,381	 
	(Gain) loss on foreign
    exchange	 	 	 	 	562,350	 	 	 	(178,005	)
	Change in fair value
    of warrant liability	 	21	 	 	6,189,921	 	 	 	(552,820	)
	Change in fair value
    of convertible debt	 	19	 	 	(230,127	)	 	 	1,536,532	 
	Change in fair value
    of contingent consideration	 	26(d)	 	 	87,702	 	 	 	110,501	 
	Gain on settlement
    of debt	 	 	 	 	-	 	 	 	(497,191	)
	Impairment of investment
    in associate and advances	 	10	 	 	3,652,199	 	 	 	-	 
	Impairment
    of goodwill	 	12	 	 	-	 	 	 	5,886,260	 
	 	 	 	 	 	43,523,658	 	 	 	18,171,745	 
	 	 	 	 	 	 	 	 	 	 	 
	Net loss for the
    year before taxes	 	 	 	 	(32,415,281	)	 	 	(13,952,284	)
	Deferred
    income taxes	 	15	 	 	-	 	 	 	(144,822	)
	 	 	 	 	 	(32,415,281	)	 	 	(14,097,106	)
	DISCONTINUED OPERATIONS	 	 	 	 	 	 	 	 	 	 
	Pro
    Gaming League Nevada Inc.	 	27	 	 	(827	)	 	 	(895,168	)
	Net
    loss for the year	 	 	 	 	(32,416,108	)	 	 	(14,992,274	)
	 	 	 	 	 	 	 	 	 	 	 
	Net
    loss attributable to non-controlling interest	 	 	 	 	76,066	 	 	 	254,276	 
	Net
    loss attributable to owners of the Company	 	 	 	 	(32,340,042	)	 	 	(14,737,998	)
	 	 	 	 	 	 	 	 	 	 	 
	OTHER COMPREHENSIVE
    LOSS	 	 	 	 	 	 	 	 	 	 
	Items that may be
    reclassified subsequently to profit or loss	 	 	 	 	 	 	 	 	 	 
	Foreign
    currency translation differences	 	 	 	 	(1,001,103	)	 	 	(387,467	)
	Comprehensive
    loss for the year	 	 	 	 	(33,341,145	)	 	 	(15,125,465	)
	EARNINGS PER SHARE	 	 	 	 	 	 	 	 	 	 
	Basic and diluted earnings per share
    - continuing operations	 	8	 	 	(10.96	)	 	 	(94.19	)
	Basic and diluted
    earnings per share - discontinued operations	 	8	 	 	(0.00	)	 	 	(6.09	)
	Basic
    and diluted earnings per share	 	8	 	 	(10.96	)	 	 	(100.29	)
	Weighted average
    number of shares outstanding	 	8	 	 	2,949,511	 	 	 	146,960	 

 

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

 

    	 	 	Page 6  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Consolidated
        Statements of Shareholders’ Equity (Deficiency)

        Years
        ended August 31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	 	 	Share
    capital: Number	 	 	Share
    capital: Amount	 	 	Shares
    to be issued	 	 	Contributed
    surplus	 	 	Foregin
    currency translation reserve	 	 	Deficit	 	 	Total~equity
    before non-controlling interest	 	 	Non-controlling
    interest	 	 	Total
    equity	 
	 	 	#	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance,
    as at August 31, 2018	 	 	146,750	 	 	 	29,573,077	 	 	 	455,736	 	 	 	2,722,686	 	 	 	(945,705	)	 	 	(25,016,122	)	 	 	6,789,672	 	 	 	-	 	 	 	6,789,672	 
	Share-based
    payments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	73,843	 	 	 	-	 	 	 	-	 	 	 	73,843	 	 	 	-	 	 	 	73,843	 
	Convertible
    debt conversion	 	 	9,600	 	 	 	31,026	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	31,026	 	 	 	-	 	 	 	31,026	 
	Common shares issued
    on exercise of warrants	 	 	88	 	 	 	9,303	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	9,303	 	 	 	-	 	 	 	9,303	 
	Shares
    to be issued (Note 26(d))	 	 	-	 	 	 	-	 	 	 	304,480	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	304,480	 	 	 	-	 	 	 	304,480	 
	Non-controlling
    interest in subsidiary	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(43,492	)	 	 	-	 	 	 	-	 	 	 	(43,492	)	 	 	547,727	 	 	 	504,235	 
	Net
    loss for the year	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(14,737,998	)	 	 	(14,737,998	)	 	 	(254,276	)	 	 	(14,992,274	)
	Foreign
    currency translation differences	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(387,467	)	 	 	-	 	 	 	(387,467	)	 	 	-	 	 	 	(387,467	)
	Balance,
    as at August 31, 2019	 	 	156,438	 	 	 	29,613,406	 	 	 	760,216	 	 	 	2,753,037	 	 	 	(1,333,172	)	 	 	(39,754,120	)	 	 	(7,960,633	)	 	 	293,451	 	 	 	(7,667,182	)
	Impact of share consolidation	 	 	(114	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Share-based
    payments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,409,569	 	 	 	-	 	 	 	-	 	 	 	1,409,569	 	 	 	-	 	 	 	1,409,569	 
	Shares
    issued on vesting of RSUs	 	 	26,666	 	 	 	159,895	 	 	 	-	 	 	 	(159,895	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Convertible
    debt conversion	 	 	1,739,615	 	 	 	5,152,023	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,152,023	 	 	 	-	 	 	 	5,152,023	 
	Private
    placements, net of costs	 	 	502,562	 	 	 	2,694,076	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,694,076	 	 	 	-	 	 	 	2,694,076	 
	Shares
    issued for cancellation of debt	 	 	59,654	 	 	 	724,231	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	724,231	 	 	 	-	 	 	 	724,231	 
	Shares
    issued on acquisition of UMG (Note 6)	 	 	288,560	 	 	 	3,804,344	 	 	 	-	 	 	 	41,879	 	 	 	-	 	 	 	-	 	 	 	3,846,223	 	 	 	-	 	 	 	3,846,223	 
	Shares
    issued on acquisition of Frankly (Note 6)	 	 	2,258,215	 	 	 	12,155,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	12,155,000	 	 	 	-	 	 	 	12,155,000	 
	Shares
    issued on acquisition of Winview (Note 6)	 	 	1,759,997	 	 	 	7,579,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	7,579,000	 	 	 	-	 	 	 	7,579,000	 
	Shares
    issued on acquisition of Driver Database (Note 6)	 	 	100,000	 	 	 	859,745	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	859,745	 	 	 	-	 	 	 	859,745	 
	Shares
    issued on acquisition of Lets Go Racing (Note 6)	 	 	200,000	 	 	 	1,719,491	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,719,491	 	 	 	-	 	 	 	1,719,491	 
	Common shares issued
    on exercise of warrants	 	 	654,543	 	 	 	4,919,596	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	4,919,596	 	 	 	-	 	 	 	4,919,596	 
	Shares
    to be issued (Note 26(d))	 	 	-	 	 	 	-	 	 	 	298,998	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	298,998	 	 	 	-	 	 	 	298,998	 
	Non-controlling
    interest in subsidiary	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(10,267	)	 	 	-	 	 	 	-	 	 	 	(10,267	)	 	 	-	 	 	 	(10,267	)
	Net
    loss for the year	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(32,340,042	)	 	 	(32,340,042	)	 	 	(76,066	)	 	 	(32,416,108	)
	Foreign
    currency translation differences	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,001,103	)	 	 	-	 	 	 	(1,001,103	)	 	 	-	 	 	 	(1,001,103	)
	Balance,
    as at August 31, 2020	 	 	7,746,136	 	 	 	69,380,807	 	 	 	1,059,214	 	 	 	4,034,323	 	 	 	(2,334,275	)	 	 	(72,094,162	)	 	 	45,907	 	 	 	217,385	 	 	 	263,292	 

 

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

 

    	 	 	Page 7  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Consolidated
        Statements of Cash Flows

        Years
        ended August 31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	 	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	OPERATING ACTIVITIES	 	 	 	 	 	 	 	 
	Net
    loss for the year before non-controlling interest	 	 	(32,416,108	)	 	 	(14,992,274	)
	Items
    not affecting cash:	 	 	 	 	 	 	 	 
	Amortization and
    depreciation	 	 	3,891,042	 	 	 	2,386,805	 
	Forgiveness of government
    grants	 	 	(1,589,559	)	 	 	-	 
	Change in fair value
    of warrant liability	 	 	6,189,921	 	 	 	(552,820	)
	Change in fair value
    of contingent consideration	 	 	87,702	 	 	 	110,501	 
	Change in fair value
    of convertible debt	 	 	(230,127	)	 	 	1,536,532	 
	Settlement of debt	 	 	-	 	 	 	(497,191	)
	Unrealized foreign
    exchange (gain)	 	 	-	 	 	 	(38,785	)
	Impairment of investment
    in associate and advances	 	 	3,652,199	 	 	 	-	 
	Impairment of goodwill	 	 	-	 	 	 	5,886,260	 
	Deferred income
    taxes	 	 	-	 	 	 	144,822	 
	Accretion of debt	 	 	96,733	 	 	 	98,529	 
	Share-based
    payments	 	 	1,409,569	 	 	 	73,843	 
	 	 	 	(18,908,628	)	 	 	(5,843,778	)
	Changes
    in non-cash working capital:	 	 	 	 	 	 	 	 
	Restricted cash	 	 	(65,876	)	 	 	(8,270	)
	Accounts and other
    receivables	 	 	2,115,952	 	 	 	41,597	 
	Government remittances	 	 	(414,634	)	 	 	(231,691	)
	Prepaid expenses
    and other	 	 	(163,517	)	 	 	(625,371	)
	Accounts payable
    and accrued liabilities	 	 	4,058,843	 	 	 	1,996,691	 
	Players liability
    account	 	 	65,875	 	 	 	-	 
	Deferred
    revenue	 	 	221,142	 	 	 	(2,383	)
	 	 	 	5,817,785	 	 	 	1,170,573	 
	 	 	 	(13,090,843	)	 	 	(4,673,205	)
	INVESTING ACTIVITIES	 	 	 	 	 	 	 	 
	Purchase of property
    and equipment	 	 	(110,380	)	 	 	(33,154	)
	Cash acquired, net
    of cash paid in business combinations	 	 	1,458,920	 	 	 	-	 
	Advances	 	 	(1,155,657	)	 	 	(1,470,000	)
	Acquisition
    of intangible assets (WTF1)	 	 	(557,709	)	 	 	(154,368	)
	 	 	 	(364,826	)	 	 	(1,657,522	)
	FINANCING ACTIVITIES	 	 	 	 	 	 	 	 
	Proceeds from government
    grants	 	 	1,414,764	 	 	 	-	 
	Proceeds from line
    of credit	 	 	1,000,000	 	 	 	-	 
	Proceeds from private
    placement unit offerings	 	 	3,685,785	 	 	 	-	 
	Proceeds from convertible
    debentures	 	 	5,750,000	 	 	 	8,821,607	 
	Net proceeds (payments)
    from promissory notes payable	 	 	1,111,553	 	 	 	200,000	 
	Proceeds from exercise of warrants	 	 	3,574,023	 	 	 	3,816	 
	Payments on lease
    financing	 	 	(139,937	)	 	 	-	 
	Payments on long-term
    debt	 	 	(53,736	)	 	 	(170,822	)
	Settlement
    of contingent liability	 	 	-	 	 	 	(313,363	)
	 	 	 	16,342,452	 	 	 	8,541,238	 
	Impact of foreign
    exchange on cash	 	 	(462,249	)	 	 	300	 
	Change
    in cash and cash equivalents	 	 	2,424,534	 	 	 	2,210,811	 
	 	 	 	 	 	 	 	 	 
	Cash and cash
    equivalents, beginning of year	 	 	2,818,744	 	 	 	607,933	 
	Cash
    and cash equivalents, end of year	 	 	5,243,278	 	 	 	2,818,744	 

 

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

 

    	 	 	Page 8  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	1.	Corporate
    information and going concern

 

	(a)	Corporate
    information

 

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

 

With
the acquisitions of Frankly Inc. (“Frankly”) and WinView, Inc. (“WinView”), on May 8, 2020 (see Note
6), the Company focuses on accelerating new, live, immersive esports and interactive gaming experiences for consumers through
its partnerships with traditional and emerging media companies and providing online interactive technology and monetization services.

 

On
August 13, 2020, the Company consolidated its shares on the basis of 15 pre-consolidation shares for every 1 post-consolidation
share. Current and comparative disclosure has been amended to reflect this share consolidation.

 

Pursuant
to shareholder approval at the July 15, 2020 shareholders’ meeting, effective August 13, 2020, the Company changed its name
to Engine Media Holdings, Inc. The Company’s common shares trade on the TSX Venture Exchange under the trading symbol GAME.V
and OTCQB under the trading symbol MLLLF.

 

	(b)
    	Going
    concern

 

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

 

The
Company has not yet realized profitable operations and has incurred significant losses to date resulting in a cumulative deficit
of $72,094,162 as at August 31, 2020 (August 31, 2019 – $39,754,120). The recoverability of the carrying value of the assets
and the Company’s continued existence is dependent upon the achievement of profitable operations, or the ability of the
Company to raise alternative financing, if necessary. While management has been historically successful in raising the necessary
capital, it cannot provide assurance that it will be able to execute on its business strategy or be successful in future financing
activities. As at August 31, 2020, the Company had a working capital deficiency of $29,663,546 (August 31, 2019 – working
capital deficiency of $693,391 which is comprised of current assets less current liabilities. The Company also faced uncertain
future impacts from COVID-19 (Note 3(b)).

 

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

 

    	 	 	Page 9  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	2.	Basis
    of preparation

 

	(a)	Statement
    of compliance

 

The
consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

The
consolidated financial statements for the year ended August 31, 2020 (including comparatives) were approved and authorized for
issue by the board of directors on January 7, 2021.

 

	(b)	Basis
    of consolidation

 

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

 

Control
is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only
if the Company has all the following:

 

	 	(a)	power
    over the investee;
	 	(b)	exposure,
    or rights, to variable returns from its involvement with the investee; and
	 	(c)	the
    ability to use its power over the investee to affect the amount of the investor’s returns.

 

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

 

The
Company’s material subsidiaries as at August 31, 2020 are as follows:

 

	Name
    of Subsidiary	 	Country
    of Incorporation	 	Ownership
                                         
 Percentage
	 	 	Functional
                                         
 Currency

	PGL Consulting Services
    Inc.	 	Canada	 	 	100	%	 	US Dollar
	Pro Gaming League Inc.	 	Canada	 	 	100	%	 	US Dollar
	Pro Gaming League Nevada Inc.	 	USA	 	 	100	%	 	US Dollar
	Millennial Esports California Corp.	 	USA	 	 	100	%	 	US Dollar
	Stream Hatchet S.L.	 	Spain	 	 	100	%	 	Euro
	IDEAS + CARS Ltd.	 	United Kingdom	 	 	100	%	 	UK Pound
	Eden Games S.A.	 	France	 	 	96	%	 	Euro
	The Race Media Ltd.	 	United Kingdom	 	 	100	%	 	UK Pound
	Frankly Inc.	 	Canada	 	 	100	%	 	Canadian Dollar
	WinView, Inc.	 	USA	 	 	100	%	 	US Dollar
	UMG Media Ltd.	 	Canada	 	 	100	%	 	Canadian Dollar
	Lets Go Racing LTD	 	United Kingdom	 	 	100	%	 	UK Pound
	DriverDB AB	 	Sweden	 	 	100	%	 	Swedish Krona

 

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

 

    	 	 	Page 10  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	2.	Basis
    of preparation (cont’d)

 

	(b)	Basis
    of consolidation (cont’d)

 

Entities
over which the Company exercises significant influence are associates and are accounted for by the equity method. Significant
influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint
control over those policies. Significant influence is assumed to exist where the Company holds, directly or indirectly, at least
a 20% voting interest in an entity, unless it can be clearly demonstrated that this is not the case.

 

Investments
in associates are accounted for using the equity method, where the investment is initially recognized at cost and the carrying
amount is increased or decreased to recognize the investor’s share of the profit or loss, other comprehensive income and
equity movements of the investee after the date of acquisition. Any goodwill or fair value adjustment attributable to the Company’s
share in the equity accounted investee is included in the amount recognized as investment. When the Company’s share of losses
exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments,
is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Company has an obligation
or has made payments on behalf of the investee.

 

Business
combinations are accounted for using the acquisition method under IFRS 3 Business Combinations.

 

Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair
values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the fair value of the
consideration transferred including the recognized amount of any non-controlling interest in the acquiree, over the fair value
of the Company’s share of the identifiable net assets acquired is recorded as goodwill. When the excess is negative, a bargain
purchase gain is recognized immediately in profit or loss.

 

The
measurement period is the period from the date of acquisition to the date the Company obtains complete information about facts
and circumstances that existed as of the acquisition date – and is subject to a maximum of one year. The Company elects
on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share
of the recognized amount of the identifiable net assets, at the acquisition date.

 

Acquisition
costs are expensed as incurred, unless they qualify to be treated as debt issue costs, or as cost of issuing equity securities.

 

	(c)	Basis
    of presentation

 

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

 

    	 	 	Page 11  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	2.	Basis
    of preparation (cont’d)

 

	(d)	Functional
    and presentation currency

 

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

 

	(e)
    	Expense
    Reclassifications 

 

For
comparability, certain fiscal 2019 amounts have been reclassified to conform with classifications adopted in fiscal 2020. With
the significant acquisitions of UMG, Media Ltd., Frankly Inc. and WinView, Inc. during fiscal 2020, many of the prior year’s
expense classifications did not best represent the nature of the ongoing business. These reclassifications had no effect on net
loss or shareholders’ equity (deficiency).

 

	3.	Significant
    judgments, estimates and assumptions

 

The
preparation of these consolidated financial statements requires management to make judgments and estimates and form assumptions
that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts
of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as
at the date of the consolidated financial statements. On an ongoing basis, management evaluates its judgments and estimates in
relation to assets, liabilities, revenues, and expenses. Management uses historical experience and various other factors it believes
to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these
estimates under different assumptions and conditions. Significant estimates and judgments made by management in the preparation
of these consolidated financial statements are outlined below.

 

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

 

	(a)	Significant
    estimates and critical judgments

 

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

 

	 	Note
    1	Going
    concern
	 	Note
    30	Expected
    credit losses
	 	Note
    21	Valuation
    of warrant liability
	 	Note
    15	Income,
    value added, withholding and other taxes
	 	Note
    6	Business
    acquisitions
	 	Note
    12 and 13	Goodwill
    and intangible assets
	 	Note
    23 and 24	Valuation
    of share-based payments
	 	Note
    19	Convertible
    debt
	 	Note
    26	Contingencies

 

    	 	 	Page 12  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

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

 

	(b)	Uncertainty
    about the effects of COVID-19

 

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

 

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

 

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

 

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

 

	4.
    	Changes
    in significant accounting policies

 

	(a)	Accounting
    pronouncements adopted during the period

 

	 	i)
    	IFRS
    3 – Business Combinations (“IFRS 3”)

 

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 added a test that
makes it easier to conclude that a company has acquired a group of assets, rather than a business, if the value of the assets
acquired is substantially all concentrated in a single asset or group of similar 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 Company, as permitted, adopted the Amendments early, at September 1, 2019. The implementation of these
Amendments was considered for acquisitions occurring after that date.

 

	 	ii)	IFRIC
    23 – Uncertainty Over Income Tax Treatments (“IFRIC 23”)

 

IFRIC
23 was issued in June 2017 and clarifies the accounting for uncertainties in income taxes. The interpretation committee concluded
that an entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity
concludes it is probable that the taxation authority will accept an uncertain tax treatment, then the entity shall determine taxable
profit (tax loss), tax bases, unused tax losses and credits or tax rates consistently with the tax treatment used or planned to
be used in its income tax filings. If an entity concludes it is not probable that the taxation authority will accept an uncertain
tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases,
unused tax losses and credits or tax rates. This standard was adopted on September 1, 2019, resulting in no changes to the Company’s
consolidated financial statements.

 

    	 	 	Page 13  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	4.
    	Changes
    in significant accounting policies (cont’d)

 

	(a)	Accounting
    pronouncements adopted during the period (cont’d)

  

	 	iii)	IFRS
    16 – Accounting for Leases (“IFRS 16”)

 

IFRS
16 was issued by the IASB in January 2016, 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
September 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach and accordingly the information presented
for fiscal 2019 has not been restated. Further, the Company has elected to record the transition date right of use asset at the
amount equal to the calculated lease liability and has not accounted for low value or short-term leases (leases with a duration
of less than twelve months). Comparative figures remain as previously reported under IAS 17 and related interpretations. Upon
adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as operating
leases under the principles of International Accounting Standard (“IAS”) 17, “Leases”. The Company’s
new accounting policies for leases are disclosed in Note 5(i).

 

	 	iv)	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 and were implemented by the Company in the year ended
August 31, 2020. The implementation of these standards did not have a material impact on the Company’s consolidated financial
statements.

 

	 	v)	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 and were implemented by the Company in the year ended August 31, 2020. The implementation of these standards did
not have a material impact on the Company’s financial statements.

 

    	 	 	Page 14  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	4.
    	Changes
    in significant accounting policies (cont’d)

 

	(b)	Future
    accounting pronouncements

 

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

 

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

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

 

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

 

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

 

	5.
    	Significant
    accounting policies

 

	(a)	Foreign
    currency translation

 

The
functional currency of the Company and its subsidiaries is disclosed in Note 2. The presentation currency of the consolidated
financial statements is the US Dollar (“USD”).

 

The
financial statements of entities that have a functional currency different from the presentation currency are translated into
US dollars as follows: assets and liabilities at the closing rate at the date of the Company’s consolidated statement of
financial position and income and expenses at the average rate of the year (as this is considered a reasonable approximation of
the actual rates prevailing at the transaction dates). All resulting changes are recognized in other comprehensive income (loss)
as foreign currency translation adjustments, except to the extent that the translation difference is allocated to non-controlling
interest.

 

Foreign
currency transactions are translated into the functional currency of each entity using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an entity’s
functional currency are recognized in the consolidated statements of loss.

  

    	 	 	Page 15  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	5.
    	Significant
    accounting policies (cont’d)

 

	(b)	Revenue
    recognition

 

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)	Games
    development

 

Game
development income is derived from the development and sale of gaming applications. Revenue from game development is recognized
by reference to the stage of completion. Stage of completion is measured by reference to actual costs incurred to date as a percentage
of total estimated costs for each contract.

 

	 	ii)	Sponsorship,
    tournament and event income

 

Sponsorship,
tournament and event income is income directly associated with an e-sport or sporting event or tournament. Sponsorship, tournament
and event income is recognized upon completion of the underlying event.

 

	 	iii)	Platform
    revenue

 

The
Company enters into license agreements with customers for its content management system, video software, and mobile applications
(Frankly) and e-sports data platform (Stream Hatchet). 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.

 

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.

 

	 	iv)	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. 

 

    	 	 	Page 16  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	5.
    	Significant
    accounting policies (cont’d)

 

	(b)	Revenue
    recognition (cont’d)

 

	 	iv)	Advertising
    (cont’d)

 

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.

 

Also
included in advertising revenue is advertising revenue generated by the Company’s various owned and operated properties.

 

	 	v)	Professional
    services

 

Professional
services consist primarily of installation and website design services (Frankly) and data analysis report delivery (Steam Hatchet).
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.

 

The
Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent.
When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the
net amount of commission made by the Company.

 

Deferred
revenue consists of customer advances for Company services to be rendered that will be recognized as income in future periods.

 

	(c)	Cash
    and equivalents, and restricted cash

 

The
“cash and cash equivalents” category consists of cash in banks, call deposits and other highly liquid investments
with initial maturities of three months or less. Any investments in securities, investments with initial maturities greater than
three months without early redemption feature and bank accounts subject to restrictions, other than restrictions due to regulations
specific to a country or activity sector (exchange controls, etc.) are not presented as cash equivalents but as financial assets.
Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as
a component of cash and cash equivalents for the purpose of the statement of cash flows. Restricted cash is presented as a separate
category on the statement of financial position and consists of cash in a bank account restricted for use in the UMG Media Ltd.
and WinView Inc. businesses (Note 17).

 

    	 	 	Page 17  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	5.
    	Significant
    accounting policies (cont’d)

 

	(d)	Accounts
    and other receivables 

 

Trade
receivables are recognized initially at fair value and subsequently measured at amortized cost less provision for impairment of
trade accounts receivable. A provision for impairment of trade accounts receivable is established based on a forward-looking “expected
loss” impairment model. The carrying amount of the trade receivables is reduced through the use of the provision for impairment
account, and the amount of any increase in the provision for impairment is recognized in the consolidated statement of loss and
comprehensive loss. When a trade receivable is uncollectible, it is written off against the provision for impairment account for
trade accounts receivable. Subsequent recoveries of amounts previously written off are credited to the consolidated statement
of loss and comprehensive loss.

 

	(e)	Property
    and equipment

 

Property
and equipment are carried at historical cost less any accumulated depreciation and impairment losses. Historical cost includes
the acquisition cost or production cost as well as the costs directly attributable to bringing the asset to the location and condition
necessary for its use in operations. When property and equipment include significant components with different useful lives, they
are recorded and depreciated separately. Depreciation is computed using the straight-line and declining balance methods based
on the estimated useful life of the assets. Useful life is reviewed at the end of each reporting period.

 

Subsequent
to initial recognition, the cost model is applied to property and equipment. Where parts of an item of property and equipment
have different useful lives, they are accounted for as separate items of property and equipment.

 

The
Company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item
when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Company
and the cost of the item can be measured reliably. All other costs are recognized in the consolidated statement of loss and comprehensive
loss as an expense as incurred. Depreciation is provided at rates calculated to write off the cost of property, plant and equipment
less their estimated residual value on the straight-line and declining balance methods, over the estimated useful lives, as follows.

 

	 	Computer
    equipment 	3
    years, straight-line
	 	Furniture
    and fixtures 	5
    years, straight-line
	 	Leasehold
    improvements 	Term
    of the lease, plus one renewal

 

	(f)
    	Goodwill

 

Goodwill
arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated
impairment losses, if any.

 

	(g)
    	Intangible
    assets

 

Intangible
assets include acquired software used in production or administration and brand names and customer relationships that qualify
for recognition as an intangible asset in a business combination. They are accounted for using the cost model whereby capitalized
costs are amortized on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual
values and useful lives are reviewed at each reporting date.

 

    	 	 	Page 18  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	5.
    	Significant
    accounting policies (cont’d)

 

	(g)
    	Intangible
    assets (cont’d)

 

The
useful lives of the intangibles are as follows:

 

	 	Software
    	3-5
    years 
	 	Brands	1-20
    years 
	 	Customer
    relationships	1-10
    years
	 	Patents	5
    years
	 	Intellectual
    property	3
    years

 

Acquired
computer software licenses are capitalized on the basis of the costs incurred to acquire and install the specific software. Subsequent
expenditure on brands is expensed as incurred. Costs associated with maintaining computer software (expenditure relating to patches
and other minor updates as well as their installation), are expensed as incurred.

 

Patents
and intellectual property with a finite useful life that are acquired in an asset acquisition are initially recognized on the
basis of their relative fair value at the acquisition date. These assets are amortized on a straight-line basis over their useful
life, which is generally up to 5 years. Amortization is calculated over the cost of the asset less its residual value. Amortization
is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill,
from the date that they are available for use.

 

Other
intangible assets, such as brands, that are acquired by the Company are stated at cost less accumulated amortization and impairment
losses. Expenditure on internally generated goodwill, brands, mastheads, publishing titles, customer lists and items similar in
substance is recognized in the consolidated statement of loss and comprehensive loss as an expense as incurred.

 

Research
costs are expensed when incurred. Development costs are capitalized when the feasibility and profitability of the project can
be reasonably considered certain. Expenditure on development activities, whereby research findings are applied to a plan or design
to produce new or substantially improved products and processes, is capitalized if the product or process is technically and commercially
feasible and the Company has sufficient resources to complete development. The expenditure capitalized includes the cost of materials,
direct labour and an appropriate proportion of overheads. Other development expenditure is recognized in the consolidated statement
of loss and comprehensive loss as an expense as incurred. Capitalized development expenditure is stated at cost less accumulated
amortization and impairment losses.

 

	(h)	Impairment
    of property and equipment, intangible assets and goodwill 

 

	 	i)	Timing
    of impairment testing 

 

The
carrying values of property and equipment and finite life intangible assets are assessed at the reporting date as to whether there
is any indication that the assets may be impaired. Goodwill and indefinite life intangible assets are tested for impairment annually
or when there is an indication that the asset may be impaired.

  

    	 	 	Page 19  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	5.
    	Significant
    accounting policies (cont’d)

 

	(h)	Impairment
    of property and equipment, intangible assets and goodwill (cont’d)

 

	 	ii)	Impairment
    testing

 

If
any indication of impairment exists or when the annual impairment testing for an asset is required, the Company estimates the
recoverable amount of the asset or cash generating unit (“CGU”) to which the asset relates to determine the extent
of any impairment loss. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal
and its value in use (“VIU”) to the Company. In assessing VIU, estimated future cash flows are discounted to their
present value using a discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account, if available.
If the recoverable amount of an asset or a CGU is estimated to be less than its carrying amount, the carrying amount is reduced
to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of loss and comprehensive
loss.
 

The
VIU calculation for the recoverable amount of the CGUs to which goodwill has been allocated includes estimates about their future
financial performance based on cash flows approved by management covering a period of three to five years with a terminal rate.
Key assumptions used in the VIU calculations are the discount rate applied and the long-term growth rate of net operating cash
flows. In determining these assumptions, management has taken into consideration the current economic climate and its resulting
impact on expected growth and discount rates. In determining the discount rate applied to a CGU, management uses the Company’s
weighted average cost of capital as a starting point and applies adjustments to take into account specific tax rates, geographical
risk and any additional risks specific to the CGU. The cash flow projections reflect management’s expectations of the operating
performance of the CGU and growth prospects in the CGU’s market.

 

For
impaired assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s
recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used
to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that
the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined,
net of amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated
statement of loss and comprehensive loss. Impairment losses relating to goodwill cannot be reversed.

 

	(i)	Leases

 

The
Company assesses whether a contract is or contains a lease, at inception of the contract. The Company recognises a right-of-use
asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal
computers, small items of office furniture and telephones). For these leases, the Company recognises the lease payments as an
operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of
the time pattern in which economic benefits from the leased assets are consumed.

 

The
lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing
rate.

 

    	 	 	Page 20  of  64

    	 

    

 

	Engine
                                         Media Holdings, Inc.

        (formerly
        Torque Esports Corp.)

        Notes
        to the Consolidated Financial Statements

        August
        31, 2020 and 2019

        (Expressed
        in United States Dollars)
	

 

 

 

	5.
    	Significant
    accounting policies (cont’d)

 

	(i)	Leases
    (cont’d)

 

Lease
payments included in the measurement of the lease liability comprise:

 

	 	●	Fixed
    lease payments (including in-substance fixed payments), less any lease incentives receivable;
	 	●	Variable
    lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
	 	●	The
    amount expected to be payable by the lessee under any residual value guarantees;
	 	●	The
    exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
	 	●	Payments
    of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

 

The
lease liability is presented as a separate line in the consolidated statement of financial position.

 

The
lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the
effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Company remeasures the
lease liability (and makes a corresponding adjustment to the related right-of-use asset)

whenever:

 

	 	●	The
    lease term has changed or there is a significant event or change in circumstances resulting in a change the assessment of
    exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using
    a revised discount rate.
	 	●	The
    lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value,
    in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate
    (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is
    used).
	 	●	A
    lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability
    is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount
    rate at the effective date of the modification.

 

The
Company did not make any such adjustments during the periods presented.

 

The
right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.

 

Right-of-use
assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership
of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option,
the related right-of-use asset is depreciated over the useful life of the

underlying
asset. The depreciation starts at the commencement date of the lease.

 

The
right-of-use assets are presented as a separate line in the consolidated statement of financial position.

 

The
Company applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as
described in the ‘property and equipment’ policy.

 

Variable
rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset.
The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs
and are included in the line “other expenses” in profit or loss.

 

    	 	 	Page 21  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	5.
    	Significant
    accounting policies (cont’d)
	 	 
	(i)	Leases
    (cont’d)
	 	 
	 	As
    a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and
    associated non-lease components as a single arrangement. The Company has not used this practical expedient. For contracts
    that contain a lease component and one or more additional lease or non-lease components, the Company allocates the consideration
    in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate
    stand-alone price of the non-lease components.
	 	 
	(j)	Financial
    instruments

 

Financial
assets

 

Recognition
and Initial Measurement

 

The
Company recognizes financial assets when it becomes party to the contractual provisions of the instrument. Financial assets are
measured initially at their fair value plus, in the case of financial assets not subsequently measured at fair value through profit
or loss, transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition
of financial assets subsequently measured at fair value through profit or loss are expensed in profit or loss when incurred.

 

Classification
and Subsequent Measurement

 

On
initial recognition, financial assets and liabilities are classified as subsequently measured at amortized cost, fair value through
other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). The Company determines
the classification of its financial assets, together with any embedded derivatives, based on the business model for managing the
financial assets and their contractual cash flow characteristics.

 

Financial
assets are classified as follows:

 

	 	●	Amortized
    cost - Assets that are held for collection of contractual cash flows where those cash flows are solely payments of principal
    and interest are measured at amortized cost. Interest revenue is calculated using the effective interest method and gains
    or losses arising from impairment, foreign exchange and derecognition are recognized in profit or loss. Financial assets measured
    at amortized cost are comprised of cash and cash equivalents, restricted cash, accounts and other receivables and advances.
	 	 	 
	 	●	Fair
    value through other comprehensive income - Assets that are held for collection of contractual cash flows and for selling the
    financial assets, and for which the contractual cash flows are solely payments of principal and interest, are measured at
    fair value through other comprehensive income. Interest income calculated using the effective interest method and gains or
    losses arising from impairment and foreign exchange are recognized in profit or loss. All other changes in the carrying amount
    of the financial assets are recognized in other comprehensive income. Upon derecognition, the cumulative gain or loss previously
    recognized in other comprehensive income is reclassified to profit or loss. The Company does not hold any financial assets
    measured at fair value through other comprehensive income.

 

    	 	 	Page 22  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	5.
    	Significant
    accounting policies (cont’d)
	 	 
	(j)	Financial
    instruments (cont’d)
	 	 
	 	Financial
    assets (cont’d)

 

	 	●	Mandatorily
    at fair value through profit or loss - Assets that do not meet the criteria to be measured at amortized cost, or fair value
    through other comprehensive income, are measured at fair value through profit or loss. All interest income and changes in
    the financial assets’ carrying amount are recognized in profit or loss. None of the Company’s assets fall under
    this category.
	 	 	 
	 	●	Designated
    at fair value through profit or loss – On initial recognition, the Company may irrevocably designate a financial asset
    to be measured at fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch that
    would otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases.
    All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. The Company
    does not hold any financial assets designated to be measured at FVTPL.

 

Business
Model Assessment

 

The
Company assesses the objective of its business model for holding a financial asset at a level of aggregation which best reflects
the way the business is managed, and the way information is provided to management. Information considered in this assessment
includes stated policies and objectives.

 

Contractual
Cash Flow Assessment

 

The
cash flows of financial assets are assessed as to whether they are solely payments of principal and interest on the basis of their
contractual terms. For this purpose, ‘principal’ is defined as the fair value of the financial asset on initial recognition.
‘Interest’ is defined as consideration for the time value of money, the credit risk associated with the principal
amount outstanding, and other basic lending risks and costs. In performing this assessment, the Company considers factors that
would alter the timing and amount of cash flows such as prepayment and extension features, terms that might limit the Company’s
claim to cash flows, and any features that modify consideration for the time value of money.

 

Impairment

 

The
Company recognizes a loss allowance for the expected credit losses associated with its financial assets, other than financial
assets measured at fair value through profit or loss. Expected credit losses are measured to reflect a probability-weighted amount,
the time value of money, and reasonable and supportable information regarding past events, current conditions and forecasts of
future economic conditions.

 

The
Company applies the simplified approach for accounts receivable. Using the simplified approach, the Company records a loss allowance
equal to the expected credit losses resulting from all possible default events over the assets’ contractual lifetime.

 

The
Company assesses whether a financial asset is credit-impaired at the reporting date. Regular indicators that a financial instrument
is credit-impaired include significant financial difficulties as evidenced through borrowing patterns or observed balances in
other accounts and breaches of borrowing contracts such as default events or breaches of borrowing covenants. For financial assets
assessed as credit-impaired at the reporting date, the Company continues to recognize a loss allowance equal to lifetime expected
credit losses.

 

    	 	 	Page 23  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	5.
    	Significant
    accounting policies (cont’d)
	 	 
	(j)	Financial
    instruments (cont’d)

 

Financial
assets (cont’d)

 

For
financial assets measured at amortized cost, loss allowances for expected credit losses are presented in the statement of financial
position as a deduction from the gross carrying amount of the financial asset.

 

Financial
assets are written off when the Company has no reasonable expectations of recovering all or any portion thereof.

 

Derecognition
of Financial Assets

 

The
Company derecognizes a financial asset when its contractual rights to the cash flows from the financial asset expire.

 

Financial
Liabilities

 

Recognition
and Initial Measurement

 

The
Company recognizes a financial liability when it becomes party to the contractual provisions of the instrument. At initial recognition,
the Company measures financial liabilities at their fair value plus transaction costs that are directly attributable to their
issuance, with the exception of financial liabilities subsequently measured at fair value through profit or loss for which transaction
costs are immediately recorded in profit or loss.

 

Financial
liabilities are classified as either financial liabilities at FVTPL or at amortized cost. The Company determines the classification
of its financial liabilities at initial recognition.

 

	 	●	Amortized
    cost - Financial liabilities are classified as measured at amortized cost unless they fall into one of the following categories:
    financial liabilities at FVTPL, financial liabilities that arise when a transfer of a financial asset does not qualify for
    derecognition, financial guarantee contracts, or commitments to provide a loan at a below-market interest rate, or contingent
    consideration recognized by an acquirer in a business combination.
	 	 	 
	 	 	The
    Company’s accounts payable and accrued liabilities, players liability account, lease obligation, line of credit, long-term
    debt, promissory notes payable and deferred purchase consideration do not fall into any of the exemptions and are therefore
    classified as measured at amortized cost.
	 	 	 
	 	●	Financial
    liabilities recorded at FVTPL - Financial liabilities are classified as FVTPL if they fall into one of the five exemptions
    detailed above, or they are derivatives or they are designated as such on initial recognition. The Company’s warrants
    that are not issued in exchange for goods or services and have characteristics of derivative financial liabilities as a result
    of the warrants having an exercise price in a currency different from the functional currency of the Company, are measured
    as financial liabilities at FVTPL. The Company’s convertible debt are designated as financial liabilities at FVTPL.

 

Transaction
costs

 

Transaction
costs associated with financial instruments, carried at FVTPL, are expensed as incurred, while transaction costs associated with
all other financial instruments are included in the initial carrying amount of the asset or the liability.

 

    	 	 	Page 24  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	5.
    	Significant
    accounting policies (cont’d)
	 	 
	(j)	Financial
    instruments (cont’d)

 

Financial
Liabilities (cont’d)

 

Subsequent
measurement

 

Instruments
classified as FVTPL are measured at fair value with unrealized gains and losses recognized in profit or loss. Instruments classified
as amortized cost are measured at amortized cost using the effective interest rate method. Instruments classified as FVTOCI are
measured at fair value with unrealized gains and losses recognized in other comprehensive income.

 

Derecognition
of financial liabilities

 

The
Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled,
or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and
payable, including any noncash assets transferred or liabilities assumed, is recognized in profit or loss.

 

Fair
value measurement

 

The
Company categorizes its financial assets and liabilities measured at fair value into one of three different levels depending on
the observability of the inputs used in the measurement.

 

	 	Level
    1: 	This
    level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities
    in active markets that are accessible at the measurement date.
	 	Level
    2: 	This
    level includes valuations determined using directly or indirectly observable inputs other than quoted prices included within
    Level 1.
	 	Level
    3: 	This
    level includes valuations based on inputs which are unobservable.

 

Offsetting

 

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

 

	(k)	Short-term
    employee benefits

 

Short-term
employee benefits include wages, salaries, compensated absences, profit-sharing and bonuses. Short-term employee benefit obligations
are measured on an undiscounted basis and are recognized in operating income as the related service is provided or capitalized
if the service rendered is in connection with the creation of an asset. A liability is recognized for the amount expected to be
paid under short-term cash bonus or profit sharing plans 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 25  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	5.
    	Significant
    accounting policies (cont’d)
	 	 
	(l)	Income
    taxes

 

Income
tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or
loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

 

Current
tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
year end, adjusted for amendments to tax payable with regards to previous years.

 

Deferred
tax is provided 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 the following
temporary differences: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments
in subsidiaries, associates, and jointly controlled entities to the extent that they will probably not reverse in the foreseeable
future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date applicable
to the period of expected realization or settlement.

 

A
deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilized.

 

Deferred
tax assets and liabilities are offset when there is a legally enforceable right to set off 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.

 

	(m)	Share
    capital

 

Common
shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share purchase options
are recognized as a deduction from equity, net of any tax effects. When share capital recognized as equity is repurchased, the
amount of the consideration paid, including directly attributable costs, is recognized as a deduction from total equity.

 

Preference
share capital is classified as equity if it is non-redeemable, or redeemable only at the Company’s option, and any dividends
are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Company’s shareholders.
Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders,
or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued.

 

	(n)	Share-based
    payment

 

The
share-based payment plan allows Company employees and consultants to acquire shares of the Company. The fair value of share-based
payment awards granted is recognized as an employee or consultant expense with a corresponding increase in equity.

 

Each
tranche in an award is considered a separate award with its own vesting period and grant date fair value. The fair value is measured
at grant date and each tranche is recognized on a straight line basis over the period during which the share purchase options
vest. The fair value of the share-based payment awards granted is measured using the Black-Scholes option pricing model taking
into account the terms and conditions upon which the awards

 

    	 	 	Page 26  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	5.
    	Significant
    accounting policies (cont’d)
	 	 
	(n)	Share-based
    payment (cont’d)

 

were
granted such as stock price, term and stock volatility. At each financial position reporting date, the amount recognized as an
expense is adjusted to reflect the actual number of awards, for which the related service and non-market vesting conditions are
expected to be met.

 

For
each Restricted Share Unit (“RSU”) granted, the Company recognizes an expense equal to the market value of a common
share at the date of grant based on the number of RSUs expected to vest, recognized over the term of the vesting period, with
a corresponding increase to contributed surplus for those anticipated to be equity settled or a corresponding increase to a liability
for those anticipated to be cash settled. Compensation expense is adjusted for subsequent changes in management’s estimate
of the number of RSUs that are expected to vest and, for RSUs anticipated to be cash settled, changes in the market value of the
Company’s common shares. The effect of these changes is recognized in the period of the change. Vested RSUs are settled
either in the Company’s common shares or in cash or a combination thereof at the discretion of the Company.

 

For
equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase
in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably,
in which cases, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair
value of the equity instruments granted.

 

	(o)	Discontinued
    operations and assets held for sale

 

A
non-current asset or a group of assets and liabilities is held for sale when its carrying amount will be recovered principally
through its divestiture and not by continuing utilization. To meet this definition, the asset must be available for immediate
sale, and divestiture must be highly probable. These assets and liabilities are recognized as assets held for sale and liabilities
associated with assets held for sale, without offset. The related assets recorded as assets held for sale are valued at the lower
of fair value, net of divestiture fees, and cost less accumulated depreciation and impairment losses, and are no longer depreciated.

 

An
operation is qualified as discontinued when it represents a separate major line of business and the criteria for classification
as an asset held for sale have been met, when the Company has sold the asset, or when the Company has abandoned the asset or ceased
the operation.

 

Discontinued
operations are presented on a single line of the statement of earnings for the periods reported, comprising the earnings after
tax of discontinued operations until divestiture and the gain or loss after tax on sale or fair value measurement, less costs
to sell the assets and liabilities making up the discontinued operations. In addition, the cash flows generated by the discontinued
operations are presented on one separate line of the statement of consolidated cash flows for the periods presented.

 

Assets
held for sale are reflected at the lower of their carrying amount or fair value less costs to sell and are not depreciated while
classified as held for sale. Assets held for sale are classified within this category if their carrying amounts will be recovered
through a sale transaction rather than through continuing use, and they are subject to impairment testing.

 

	(p)	Segment
    reporting

 

A
segment is a distinguishable component of the Company that is engaged either in providing products or services (business segment),
or in providing products or services within a particular economic environment (geographical segment), which is subject to risks
and rewards that are different from those of other segments.

 

    	 	 	Page 27  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	5.
    	Significant
    accounting policies (cont’d)

 

	(q)	Government
    grants

 

Government
grants are recognized when it is probable that the grant will be received and all conditions of the grant are complied with. When
the grant is in the form of a forgivable loan, the loan is initially recognized as a deferred income liability. The Company then
relieves the deferred income liability on a systematic and rational basis in those periods over which the entity recognizes the
expenses that the grant is intended to offset. The Company recognizes the impact of the loan forgiveness as an offset against
related expense.

 

Assistance
for operating expenses is recorded as a reduction of expenses when the assistance is receivable.

 

A
forgivable loan from government is treated as government assistance when there is reasonable assurance that the Company will meet
the terms for forgiveness of the loan. If there is no reasonable assurance that the entity will meet the terms for forgiveness
of the loan, the loan is recognized as a liability in accordance with IFRS 9 Financial Instruments. The liability would become
a government grant (forgivable loan) when there is reasonable assurance that the entity will meet the terms for forgiveness.

 

	6.	Acquisitions
    

 

	(a)	UMG
    Media Ltd.

 

On
December 31, 2019, the Company acquired all issued and outstanding shares of UMG Media Ltd. (“UMG”) which was carried
out by way of a plan of arrangement under the Business Corporations Act (Alberta). UMG shareholders received, on an exchange ratio
of 0.0643205, common shares of Torque. In total, the Company issued 288,560 Engine Media shares (the “Consideration Shares”)
in exchange for the UMG securities exchanged pursuant to the transaction, including the securities issued pursuant to the UMG
Private Placement (defined below) (a total of 54,157 of these Engine Media Shares were issued to the UMG Private Placement shareholders
and the remainder were issued to the former UMG Shareholders). In addition, each outstanding option and warrant to purchase a
UMG Share was exchanged for an option or warrant, as applicable, to purchase an Engine Media share, based upon the exchange ratio.

 

All
transaction costs associated with this acquisition have been expensed. If the acquisition of UMG had occurred at the beginning
of the Company’s fiscal year (September 1, 2019), the loss attributed to UMG’s operations for the year ended August
31, 2020 would have been $3,519,046, with revenue of $491,323. The loss attributed to UMG’s operations from the acquisition
date of December 31, 2019 to August 31, 2020 was $1,875,539, with revenue of $314,948.

 

The
acquisition was accounted for using the acquisition method of accounting under IFRS 3, Business Combinations, which requires that
the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition.

 

The
purchase price allocation is as follows:

 

    	 	 	Page 28  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	6.	Acquisitions
    (cont’d)

 

	(a)	UMG
    Media Ltd. (cont’d)

 

	Consideration
    paid	 	#
    Issued	 	 	Amount	 
	Common shares	 	 	288,560	 	 	$	3,804,344	 
	Options
    and warrants exchanged	 	 	26,553	 	 	 	41,879	 
	 	 	 	 	 	 	$	3,846,223	 
	 	 	 	 	 	 	 	 	 
	Fair value of identifiable
    assets acquired	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	$	(82,528	)
	Restricted cash	 	 	 	 	 	 	112,901	 
	Accounts and other
    receivables	 	 	 	 	 	 	76,052	 
	Prepaid and other
    current assets	 	 	 	 	 	 	88,877	 
	Property and equipment	 	 	 	 	 	 	313,622	 
	Right-of-use asset	 	 	 	 	 	 	388,996	 
	Intangible assets
    - Application platforms (Useful life - 5 years)	 	 	 	 	 	 	560,000	 
	Intangible assets
    - Brand (Useful life - 6 years)	 	 	 	 	 	 	510,000	 
	Intangible assets
    - Customer lists (Useful life - 3 years)	 	 	 	 	 	 	460,000	 
	Goodwill	 	 	 	 	 	 	3,209,045	 
	Accounts payable
    and accrued liabilities	 	 	 	 	 	 	(761,766	)
	Lease liabilities	 	 	 	 	 	 	(420,863	)
	Players liability
    account	 	 	 	 	 	 	(112,902	)
	Promissory notes	 	 	 	 	 	 	(430,745	)
	Deferred
    revenue	 	 	 	 	 	 	(64,466	)
	 	 	 	 	 	 	$	3,846,223	 

 

The
Engine Media common shares issued were valued based on the closing price on the TSX Venture exchange on December 31, 2019.

 

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

 

	 	i)	Intangible
    assets, application platforms 

 

UMG
had certain proprietary technology used in its platform, 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) revenue projections; (ii) royalty
rate of 7%; (iii) technology replacement rate of 5 years; and (iv) discount rate of 17.5%. This asset is amortized on a straight-line
basis over the estimated useful life of five years.

 

	 	ii)	Intangible
    assets, brand

 

UMG
had established itself as a recognized brand in its industry and is well known amongst gaming enthusiasts and the esports community.
The Company expects the brand will contribute to future cash flow. The fair value of the brand intangible asset was determined
based on the relief from royalty method under the income approach. The brand intangible asset was valued using Level 3 inputs
which consisted of the following key inputs: (i) revenue projections with long term growth rate of 3%; (ii) royalty rate of 2%;
and (iv) discount rate of 18.5%. This asset is amortized on a straight-line basis over the estimated useful life of six years.

 

    	 	 	Page 29  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	6.	Acquisitions
    (cont’d)
	 	 
	(a)	UMG
    Media Ltd. (cont’d)

 

	 	iii)	Intangible
    assets, customer lists

 

UMG
had an established customer list which is expected to result in future sales. The fair value of the customer list intangible asset
was determined based on the cost approach. The customer list intangible asset was valued using Level 3 inputs which consisted
of the following key inputs: (i) number of active users; (ii) user acquisition cost; (iii) time to recreate of 1.5 years; (iv)
obsolescence rate of 10% and (v) discount rate of 16.5%. This asset is amortized on a straight-line basis over the estimated useful
life of three years.

 

	 	iv)	Goodwill

 

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 $3,209,045. The goodwill is not expected to be deductible for tax purposes.

 

The
goodwill recorded represents the following:

 

	 	●	Cost
    savings and operating synergies expected to result from combining the operations of UMG with those of the Company
	 	●	Intangible
    assets that do not qualify for separate recognition such as the assembled workforce

 

	(b)	Frankly
    Inc.

 

On
May 8, 2020, the Company acquired all issued and outstanding shares of Frankly Inc. (“Frankly”) which was carried
out by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia). Frankly shareholders
received one share of the Company’s common shares for each share of Frankly. In total, the Company issued 2,258,215 shares
in exchange for the Frankly securities exchanged pursuant to the transaction. In addition, each outstanding option, RSU and warrant
to purchase a Frankly share was exchanged for an option, RSU or warrant, as applicable, to purchase a Company share, based upon
the exchange ratio.

 

All
transaction costs associated with this acquisition were expensed. If the acquisition of Frankly had occurred at the beginning
of the Company’s fiscal year (September 1, 2019), the loss attributed to Frankly’s operations for the year ended August
31, 2020 would have been $8,350,289, with revenue of $23,165,702. The loss attributed to Frankly’s operations from the acquisition
date of May 8, 2020 to August 31, 2020 was $2,266,289, with revenue of $6,404,736.

 

The
acquisition was accounted for using the acquisition method of accounting under IFRS 3, Business Combinations, which requires that
the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition.
The estimated fair values were preliminary and based on the information that was available as of that date. The Company has since
finalized the purchase price allocation with no change to the preliminary amounts.

 

The
purchase price allocation is as follows:

 

    	 	 	Page 30  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	6.	Acquisitions
    (cont’d)
	 	 
	(b)	Frankly
    Inc. (cont’d)

 

	Consideration
    paid	 	#
    Issued	 	 	Amount	 
	Common shares	 	 	2,258,215	 	 	$	12,155,000	 
	Warrants exchanged	 	 	1,055,036	 	 	 	2,157,000	 
	Settlement of
    a pre-existing relationship	 	 	 	 	 	 	(1,099,999	)
	 	 	 	 	 	 	$	13,212,001	 
	 	 	 	 	 	 	 	 	 
	Fair value of identifiable
    assets acquired	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	 	1,241,511	 
	Accounts and other receivables	 	 	 	 	 	 	5,368,562	 
	Prepaid and other current assets	 	 	 	 	 	 	444,690	 
	Property and equipment	 	 	 	 	 	 	40,152	 
	Intangible assets - Software (Useful
    life - 3 years)	 	 	 	 	 	 	2,000,000	 
	Intangible assets - Brand (Useful life
    - 1 year)	 	 	 	 	 	 	100,000	 
	Intangible assets - Customer contracts
    (Useful life - 10 years)	 	 	 	 	 	 	2,700,000	 
	Goodwill	 	 	 	 	 	 	14,895,595	 
	Accounts payable and accrued liabilities	 	 	 	 	 	 	(9,590,547	)
	Deferred revenue	 	 	 	 	 	 	(148,949	)
	Line of credit	 	 	 	 	 	 	(3,839,013	)
	 	 	 	 	 	 	$	13,212,001	 

 

The
Engine Media common shares issued were valued based on the closing price on the TSX Venture exchange on May 8, 2020. The warrants
were valued using the Black Scholes method.

 

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

 

	 	i)	Intangible
    assets, software 

 

Frankly
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) revenue projections; (ii) royalty
rate of 3%; (iii) technology replacement rate of 5 years; and (iv) discount rate of 18%. This asset is amortized on a straight-line
basis over the estimated useful life of three years.

 

	 	ii)	Intangible
    assets, customer contracts

 

Frankly
had established relationships with media companies 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 with long
term growth rate of 3%; (ii) customer attrition rate of 10%; (iii) charges for use of assets; and (iv) discount rate of 21.5%.
This asset is amortized on a straight-line basis over the estimated useful life of ten years.

 

    	 	 	Page 31  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	6.	Acquisitions
    (cont’d)
	 	 
	(b)	Frankly
    Inc. (cont’d)

 

	 	iii)	Goodwill

 

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 $14,895,595. The goodwill is not expected to be deductible for tax purposes.

 

The
goodwill recorded represents the following:

 

	 	●	Cost
    savings and operating synergies expected to result from combining the operations of Frankly with those of the Company 
	 	●	Intangible
    assets that do not qualify for separate recognition such as the assembled workforce

 

	(c)	WinView,
    Inc.

 

On
May 8, 2020, the Company acquired all issued and outstanding shares of WinView, Inc. (“WinView”) which was carried
out pursuant to a statutory merger. The Company issued 1,759,997 shares in exchange for the WinView securities exchanged pursuant
to the transaction. In addition, WinView shareholders are entitled to contingent consideration based on a portion of any future
licensing revenue from its patent portfolio.

 

If
the acquisition of WinView would have occurred at the beginning of the Company’s fiscal year (September 1, 2019), the loss
attributed to WinView’s operations for the year ended August 31, 2020 would have been $6,034,836, with revenue of $68,813.
The loss attributed to WinView’s operations from the acquisition date of May 8, 2020 to August 31, 2020 was $1,557,248,
with revenue of $51,422.

 

IFRS
3 – Business Combinations (“IFRS 3”) was amended in October 2018 to clarify the definition of a business and
added an optional concentration test to assess when a company has acquired a group of assets, rather than a business, if the value
of the assets acquired is substantially all concentrated in a single asset or group of similar assets. The Company concluded that
the value of the WinView assets acquired is substantially concentrated in the patent portfolio, and therefore the acquisition
of WinView was accounted for as an asset acquisition.

 

For
an asset acquisition, the Company’s accounting policy is to recognize a liability for contingent consideration when the
related activity occurs. Accordingly, a liability was not recorded for the contingent consideration as at August 30, 2020.

 

The
purchase price allocation is as follows:

 

    	 	 	Page 32  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	6.	Acquisitions
    (cont’d)
	 	 
	(c)	WinView,
    Inc. (cont’d)

 

	Consideration
    paid	 	#
    Issued	 	 	Amount	 
	Common shares	 	 	1,759,997	 	 	$	7,579,000	 
	 	 	 	 	 	 	$	7,579,000	 
	 	 	 	 	 	 	 	 	 
	Fair value of identifiable
    assets acquired	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	$	359,190	 
	Restricted cash	 	 	 	 	 	 	201,540	 
	Prepaid and other current assets	 	 	 	 	 	 	174,313	 
	Intangible assets - Patents (Useful
    life - 5 years)	 	 	 	 	 	 	9,430,265	 
	Accounts payable and accrued liabilities	 	 	 	 	 	 	(699,053	)
	Players liability account	 	 	 	 	 	 	(201,540	)
	Government grants - PPP Loan	 	 	 	 	 	 	(174,795	)
	Promissory notes	 	 	 	 	 	 	(1,423,738	)
	Deferred revenue	 	 	 	 	 	 	(87,182	)
	 	 	 	 	 	 	$	7,579,000	 

 

The
Company common shares issued for the acquisition of Winview were subject to lock-up restrictions to be discharged 10% at 120 days,
another 15% at 180 days, another 15% at 270 days, another 20% at 360 days and the remaining 40% at 390 days, in each case following
the closing date. The Company common shares issued were valued based on the closing price on TSX Venture exchange on May 8, 2020
reduced by a discount for lack of marketability of twenty percent.

 

	(d)	Acquisitions
    of WTF1, Lets Go Racing and DriverDB

 

During
the year ended August 31, 2020, the Company completed three acquisitions in its motorsports division that were disposed on November
3, 2020, as a result of a strategic business review that began in October 2020 (Note 31).

 

The
Company acquired certain assets of WTF1 on April 2, 2020 for a purchase price of $557,709. The acquisition was accounted for as
an asset acquisition. The purchase price was allocated to the assets acquired on a relative fair value basis. The amount allocated
to software is being amortized over three years.

 

On
June 3, 2020, the Company completed the acquisition of Lets Go Racing pursuant to a share purchase agreement dated June 2, 2020.
Purchase consideration comprised of £50,000 ($63,274) in cash, 200,000 common shares of the Company and deferred cash consideration
of £265,000 ($333,503). Of the deferred cash consideration, £100,000 ($125,850) is due 120 days following closing
and £165,000 ($207,653) is due 240 days following closing. Total purchase consideration discussed above amounted to $2,116,267.
The acquisition was accounted for as an asset acquisition. The purchase price was allocated to software and is being amortized
over three years.

 

On
June 3, 2020, the Company completed the acquisition of DriverDB in exchange for the issuance of 100,000 common shares of the Company
pursuant to a share purchase agreement dated June 1, 2020. The common shares were valued at $859,745. The acquisition was accounted
for as an asset acquisition. The purchase price was allocated to the assets acquired on a relative fair value basis. The amount
allocated to software is being amortized over three years.

 

    	 	 	Page 33  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	7.	Revenue

 

Revenue
streams and disaggregation of revenue from contracts with customers

 

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

 

	 	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Advertising revenue	 	 	4,526,453	 	 	 	-	 
	Games development	 	 	2,732,846	 	 	 	3,371,472	 
	Platform revenue	 	 	2,571,672	 	 	 	303,078	 
	Sponsorship, tournament and event income	 	 	889,862	 	 	 	12,628	 
	Professional services	 	 	386,390	 	 	 	483,185	 
	Other income	 	 	1,154	 	 	 	49,098	 
	 	 	 	11,108,377	 	 	 	4,219,461	 

 

	8.	Net
    income (loss) per share

 

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

 

Due
to the net loss incurred during the years ended August 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 years ended August 31, 2020 and 2019 were 2,949,511 and 146,960, respectively.

 

	9.
    	Accounts
    and other receivables

 

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

 

	 	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Trade accounts receivable	 	 	4,690,922	 	 	 	517,228	 
	Other receivables	 	 	29,406	 	 	 	-	 
	Allowance for
    doubtful accounts	 	 	(874,438	)	 	 	-	 
	 	 	 	3,845,890	 	 	 	517,228	 

 

    	 	 	Page 34  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	9.	Accounts and
    other receivables (cont’d)

 

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

 

	 	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Alowance for doubtful accounts, beginning of year	 	 	-	 	 	 	-	 
	Acquisition of Frankly	 	 	(887,763	)	 	 	-	 
	Provision - bad debt expense	 	 	-	 	 	 	-	 
	Writeoffs	 	 	13,325	 	 	 	-	 
	Alowance for doubtful accounts, end of year	 	 	(874,438	)	 	 	-	 

 

	10.
    	Investment
    in associate and advances

 

	 	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	AIS	 	-	 	 	1,470,000	 
	Play One Up	 	 	2,052,008	 	 	 	-	 
	 	 	 	2,052,008	 	 	 	1,470,000	 

 

In
connection with the proposed acquisition of Allinsports SRL (“AIS”), the Company had advanced AIS $1,200,000 against
the purchase price, as well as $1,425,657 in advances for AIS operations. As discussed in Note 26(c), the Company is in arbitration
with the shareholders of AIS regarding whether conditions of closing, including their failure to deliver audited financial statements,
have been met under the share purchase agreement under which the Company would have acquired the shares of AIS. The Company has
not been able to obtain current financial statements from AIS and therefore does not have sufficient evidence that AIS has the
financial ability to repay the advances. Accordingly, as at August 31, 2020, the Company has fully reserved the $2,625,657 of
advances with an impairment reserve. The Company will seek to collect those advances, including through the arbitration process.

 

On
August 25, 2020, the Company acquired a 20.48% interest in One Up Group, LLC (“One Up”) in exchange for the issuance
of convertible debentures (Note 19). The investment was initially recognized at cost based on the fair value of the convertible
debentures issued as consideration for the investment amounting to $3,078,550. Subsequent to initial recognition, the Company
recorded an impairment loss amounting to $1,026,542 on the investment based on reference to recent financings by One Up, which
indicated that the fair value of the investment was lower than the carrying amount. One Up operates a mobile app which allows
gamers to organize and play one-on-one matches with other gamers and compete for money. The Company believes there will be synergies
with the WinView Inc. business. The Company accounts for this investment as an investment in associate under the equity method.
The Company’s equity in the earnings (loss) of One Up for the six days between the August 25, 2020 acquisition date and
the Company’s year-end of August 31, 2020 were insignificant.

 

    	 	 	Page 35  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	11.	Property
    and equipment

 

	Cost	 	Leasehold

    improvements	 	 	Computer
    equipment	 	 	Furniture
    
 and fixtures	 	 	Total	 
	 	 	 	$
                                         	 	 	 	$
                                         	 	 	 	$
                                         	 	 	 	$
                                         	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2018	 	 	54,465	 	 	 	180,393	 	 	 	113,802	 	 	 	348,660	 
	Additions	 	 	-	 	 	 	17,839	 	 	 	2,612	 	 	 	20,451	 
	Effect of foreign
    exchange	 	 	-	 	 	 	10,894	 	 	 	6,884	 	 	 	17,778	 
	August 31, 2019	 	 	54,465	 	 	 	209,126	 	 	 	123,298	 	 	 	386,889	 
	Acquisition of UMG (Note 6)	 	 	166,193	 	 	 	116,668	 	 	 	30,761	 	 	 	313,622	 
	Acquisition of Frankly (Note 6)	 	 	-	 	 	 	34,461	 	 	 	5,691	 	 	 	40,152	 
	Additions	 	 	-	 	 	 	116,028	 	 	 	8,762	 	 	 	124,790	 
	Disposals	 	 	-	 	 	 	(14,410	)	 	 	-	 	 	 	(14,410	)
	Effect of foreign
    exchange	 	 	995	 	 	 	24,467	 	 	 	4,579	 	 	 	30,041	 
	August 31, 2020	 	 	221,653	 	 	 	486,340	 	 	 	173,091	 	 	 	881,084	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated
    amortiation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2018	 	 	51,151	 	 	 	117,979	 	 	 	13,345	 	 	 	182,475	 
	Depreciation	 	 	696	 	 	 	7,137	 	 	 	788	 	 	 	8,621	 
	Effect of foreign
    exchange	 	 	-	 	 	 	55,973	 	 	 	54,567	 	 	 	110,540	 
	August 31, 2019	 	 	51,847	 	 	 	181,089	 	 	 	68,700	 	 	 	301,636	 
	Depreciation	 	 	4,998	 	 	 	102,241	 	 	 	34,066	 	 	 	141,305	 
	Effect of foreign
    exchange	 	 	672	 	 	 	24,178	 	 	 	3,904	 	 	 	28,754	 
	August 31, 2020	 	 	57,517	 	 	 	307,508	 	 	 	106,670	 	 	 	471,695	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At August 31, 2019	 	 	2,618	 	 	 	28,037	 	 	 	54,598	 	 	 	85,253	 
	At August 31,
    2020	 	 	164,136	 	 	 	178,832	 	 	 	66,421	 	 	 	409,389	 

 

	12.	Goodwill

 

	 	 	Amount	 
	 	 	 	$
                                         	 
	 	 	 	 	 
	Balance, August 31,
    2018	 	 	6,907,801	 
	Impairment of goodwill of Eden Games	 	 	(5,886,260	)
	Effect of foreign
    exchange	 	 	(370,187	)
	Balance, August 31, 2019	 	 	651,354	 
	Acquisition of UMG (Note 6)	 	 	3,209,045	 
	Acquisition of Frankly (Note 6)	 	 	14,895,595	 
	Effect of foreign
    exchange	 	 	29,813	 
	Balance, August
    31, 2020	 	 	18,785,807	 

 

    	 	 	Page 36  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	12.	Goodwill
    (cont’d)

 

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

 

	 	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Accumulated
    impairment losses, beginning of year	 	 	7,192,821	 	 	 	1,391,858	 
	Impairment losses for the year	 	 	-	 	 	 	5,886,260	 
	Effect of foreign
    exchange	 	 	182,420	 	 	 	(85,297	)
	Accumulated impairment
    losses, end of year	 	 	7,375,241	 	 	 	7,192,821	 

 

	 	a)	Frankly

 

The
Company tested the Frankly CGU goodwill balance of $14,895,595 (2019 - $0) as at August 31, 2020 for impairment. When assessing
whether or not there is an impairment, the recoverable amount of the CGU was determined based on a value in use calculation. The
value in use calculation used a five-year projected and terminal period debt-free cash flow model discounted to present value
using a discount rate of 21.9% and a long-term growth rate of 3%. The recoverable value is concluded after making adjustments
to the discounted cash flow model for cash or any other non-operating assets or liabilities as of the measurement date. The concluded
recoverable value is then compared to carrying value of the CGU. No impairment charge was determined to be necessary.

 

The
recoverable amounts for the UMG, Stream Hatchet and Eden CGUs below were based on fair value less costs of disposal, estimated
using a guideline public company method which is a market-based approach. The fair value measurement was categorized as a Level
3 fair value based on inputs in the valuation technique used.

 

Revenue
multiples from publicly traded companies operating within the same industry and location and having similar business activities
to the Company were utilized, after adjusting for differences in size, margins and growth rates when compared to the Company and
its CGUs. These adjusted multiples were applied to the financial metrics of the CGU to determine indicative enterprise values.
Recoverable amounts were determined after an adjustment for costs of disposal, estimated at 5% of indicative enterprise values.

 

	 	b)	UMG

 

The
Company tested the UMG goodwill balance of $3,209,045 (2019 - $0) as at August 31, 2020 for impairment. The Company used year
ending August 31, 2020 actual operating results on revenue and applied a reasonable revenue multiple from comparable public companies
of 15.5 times revenue. No impairment charge was determined to be necessary.

 

	 	c)	Stream
    Hatchet

 

The
Company tested the Stream Hatchet goodwill balance of $339,255 (2019 - $ 312,623) as at August 31, 2020 and 2019 for impairment.
The Company used year ending August 31, 2020 actual operating results on revenue and applied a reasonable revenue multiple from
comparable pubic companies of 10 times revenue. No impairment charge was determined to be necessary.

 

	 	d)	Eden
    Games

 

During
the year ended August 31, 2019, it was determined that Eden underperformed relative to revenue forecasts for the fiscal year.
Accordingly, as at August 31, 2019, the Company recorded a goodwill impairment charge of $5,886,260 on its consolidated statement
of loss and comprehensive loss.

 

The
Company tested the remaining Eden goodwill balance of $341,912 (2019 post-impairment - $338,732) as at August 31, 2020 for impairment.
The Company used year ending August 31, 2020 actual operating results on revenue and applied a reasonable revenue multiple from
comparable public companies of 5 times revenue. No impairment charge was determined to be necessary.

 

    	 	 	Page 37  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	13.	Intangible
    assets

 

	Cost	 	Patents	 	 	Application
    Platforms	 	 	Software	 	 	Brand	 	 	Customer
    
 Lists and 
 Contracts	 	 	Total	 
	 	 	 	$
                                         	 	 	 	$
                                         	 	 	 	$
                                         	 	 	 	$
                                         	 	 	 	$
                                         	 	 	 	$
                                         	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2018	 	 	-	 	 	 	793,144	 	 	 	5,273,196	 	 	 	1,733,266	 	 	 	350,310	 	 	 	8,149,916	 
	Additions	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	140,239	 	 	 	140,239	 
	Effect of foreign
    exchange	 	 	-	 	 	 	(32,821	)	 	 	(217,398	)	 	 	(70,273	)	 	 	(12,957	)	 	 	(333,449	)
	August 31, 2019	 	 	-	 	 	 	760,323	 	 	 	5,055,798	 	 	 	1,662,993	 	 	 	477,592	 	 	 	7,956,706	 
	Acquisition of UMG (Note 6)	 	 	-	 	 	 	560,000	 	 	 	-	 	 	 	510,000	 	 	 	460,000	 	 	 	1,530,000	 
	Acquisition of Frankly (Note 6)	 	 	-	 	 	 	-	 	 	 	2,000,000	 	 	 	100,000	 	 	 	2,700,000	 	 	 	4,800,000	 
	Acquisition of Winview (Note 6)	 	 	9,430,265	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	9,430,265	 
	Acquisition of WTF1 (Note 6)	 	 	-	 	 	 	-	 	 	 	557,709	 	 	 	-	 	 	 	-	 	 	 	557,709	 
	Acquisition of Driver DB (Note 6)	 	 	-	 	 	 	-	 	 	 	854,158	 	 	 	-	 	 	 	-	 	 	 	854,158	 
	Acquisition of Lets Go Racing (Note
    6)	 	 	-	 	 	 	-	 	 	 	2,116,267	 	 	 	-	 	 	 	-	 	 	 	2,116,267	 
	Effect of foreign
    exchange	 	 	-	 	 	 	2,479	 	 	 	180,043	 	 	 	37,482	 	 	 	34,362	 	 	 	254,366	 
	August 31, 2020	 	 	9,430,265	 	 	 	1,322,802	 	 	 	10,763,975	 	 	 	2,310,475	 	 	 	3,671,954	 	 	 	27,499,471	 

 

	Accumulated
    amortization	 	Patents	 	 	Application
    Platforms	 	 	Software	 	 	Brand	 	 	Customer
    
 Lists and 
 Contracts	 	 	Total	 
	 	 	 	 $
                                         	 	 	 	 $
                                         	 	 	 	 $
                                         	 	 	 	 $
                                         	 	 	 	 $
                                         	 	 	 	 $
                                         	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2018	 	 	-	 	 	 	560,817	 	 	 	973,873	 	 	 	392,874	 	 	 	252,361	 	 	 	2,179,925	 
	Amortization	 	 	-	 	 	 	90,667	 	 	 	1,700,615	 	 	 	296,357	 	 	 	53,033	 	 	 	2,140,672	 
	Foreign exchange	 	 	-	 	 	 	(23,207	)	 	 	(40,150	)	 	 	(15,929	)	 	 	(9,333	)	 	 	(88,619	)
	August 31, 2019	 	 	-	 	 	 	628,277	 	 	 	2,634,338	 	 	 	673,302	 	 	 	296,061	 	 	 	4,231,978	 
	Amortization	 	 	628,684	 	 	 	162,804	 	 	 	2,205,781	 	 	 	375,514	 	 	 	228,267	 	 	 	3,601,050	 
	Effect of foreign
    exchange	 	 	-	 	 	 	1,960	 	 	 	68,881	 	 	 	28,675	 	 	 	124,605	 	 	 	224,121	 
	August 31, 2020	 	 	628,684	 	 	 	793,041	 	 	 	4,909,000	 	 	 	1,077,491	 	 	 	648,933	 	 	 	8,057,149	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At August 31, 2019	 	 	-	 	 	 	132,046	 	 	 	2,421,460	 	 	 	989,691	 	 	 	181,531	 	 	 	3,724,728	 
	At August 31,
    2020	 	 	8,801,581	 	 	 	529,761	 	 	 	5,854,975	 	 	 	1,232,984	 	 	 	3,023,021	 	 	 	19,442,322	 

 

 

    	 	 	Page 38  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

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

 

	 	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Accumulated
    impairment losses, beginning of year	 	 	1,585,474	 	 	 	1,688,980	 
	Impairment losses for the year	 	 	-	 	 	 	-	 
	Effect of foreign
    exchange	 	 	154,302	 	 	 	(103,506	)
	Accumulated impairment
    losses, end of year	 	 	1,739,776	 	 	 	1,585,474	 

 

	14.	Right-of-use
    assets

 

	 	 	Amount	 
	 	 	$	 
	 	 	 	 
	Balance, August 31, 2019	 	 	-	 
	Additions to right-of-use assets on adoption of IFRS 16, September 1, 2019	 	 	258,756	 
	Acquired in acquisition of UMG	 	 	388,996	 
	Acquired	 	 	36,375	 
	Depreciation	 	 	(148,687	)
	Effect of foreign exchange	 	 	15,038	 
	Balance, August 31, 2020	 	 	550,478	 

 

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

 

	15.	Income
    taxes

 

The
Company had no income tax expense or benefit for the year ended August 31, 2020.

 

	(a)	Reconciliation
    of the effective tax rate

 

The
reconciliation of the combined federal and provincial statutory income tax rate of 26.5% (2019 - 26.5%) to the effective tax rate
is as follows:

 

	 	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Income (loss) before income
    taxes	 	 	(32,416,108	)	 	 	(14,847,452	)
	Statutory income
    tax rate	 	 	26.5	%	 	 	26.5	%
	Expected income tax (benefit)	 	 	(8,590,269	)	 	 	(3,906,000	)
	 	 	 	 	 	 	 	 	 
	Reconciling
    items:	 	 	 	 	 	 	 	 
	Foreign rate differential	 	 	443,749	 	 	 	5,000	 
	Stock-based compensation and other non-deductible
    expenses	 	 	484,247	 	 	 	20,000	 
	Deferred tax
    assets not recognized	 	 	7,662,273	 	 	 	4,025,822	 
	Income tax expense	 	 	-	 	 	 	144,822	 

 

    	 	 	Page 39  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	15.	Income
    taxes (cont’d)
	 	 
	(b)	Deferred
    income taxes

 

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

 

	 	 	2020	 	 	2019	 
	 	 	 	$
                                         	 	 	 	$
                                         	 
	Deferred
    tax assets	 	 	 	 	 	 	 	 
	Net operating losses	 	 	1,340,296	 	 	 	1,599,382	 
	 	 	 	 	 	 	 	 	 
	Deferred
    tax liabilities	 	 	 	 	 	 	 	 
	Intangible assets	 	 	(919,340	)	 	 	(1,009,478	)
	Other - Canada	 	 	(14,052	)	 	 	-	 
	Other - United States	 	 	(318,712	)	 	 	-	 
	Convertible Debt	 	 	(88,192	)	 	 	(589,904	)
	Net deferred
    tax asset	 	 	-	 	 	 	-	 

 

Deferred
tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company
has the legal right and intent to offset.

 

Movement
in deferred tax liabilities:

 

	 	 	2020	 	 	2019	 
	 	 	 	$
                                         	 	 	 	$
                                         	 
	 	 	 	 	 	 	 	 	 
	Balance, beginning of year	 	 	-	 	 	 	144,822	 
	Recognized in profit/loss	 	 	-	 	 	 	(144,822	)
	Recognized in
    goodwill	 	 	-	 	 	 	-	 
	Balance, end
    of year	 	 	-	 	 	 	-	 

 

Unrecognized
Deductible Temporary Differences

 

Deferred
taxes are provided as a result of temporary differences that arise due to the difference between the income tax values and the
carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible
temporary differences:

 

    	 	 	Page 40  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	15.	Income
    taxes (cont’d)

 

	 	 	2020	 	 	2019	 
	 	 	 	$
                                         	 	 	 	$
                                         	 
	 	 	 	 	 	 	 	 	 
	Intangible assets	 	 	25,826,171	 	 	 	-	 
	Net operating losses	 	 	133,010,627	 	 	 	19,961,337	 
	Property and equipment	 	 	552,680	 	 	 	397,238	 
	Share issuance costs	 	 	67,250	 	 	 	104,177	 
	Warrants	 	 	-	 	 	 	2,467,289	 
	Other	 	 	8,998,673	 	 	 	-	 
	 	 	 	168,455,401	 	 	 	22,930,041	 

 

The
Company’s net operating losses expire in the manner discussed below. The remaining deductible temporary differences may
be carried forward indefinitely. Deferred tax assets have not been recognized in respect to these items because it cannot be determined
as probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.

 

As
of August 31, 2020, the Company has net operating loss carryforwards related to its domestic and international operations of approximately
$138.0 million; $89.9 million of which have expiration periods ranging between 15 to 20 years, and $48.2 million have an indefinite
carryforward period. Certain of these foreign, federal and state net operating loss carryforwards may be subject to Internal Revenue
Code Section 382 or similar provisions, which impose limitations on their utilization.

 

	16.	Lease
    liabilities

 

Lease
liabilities are measured at the present value of the lease payments that were not paid at that date. The lease payments are discounted
using an average interest rate of 7.75%, which is the Company’s estimated incremental borrowing rate. The continuity of
the lease liabilities is presented in the table below:

 

	 	 	Equipment	 	 	Office Lease	 	 	Total	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Balance, August 31, 2019	 	 	-	 	 	 	-	 	 	 	-	 
	Additions to right-of-use assets on adoption of IFRS 16, 
 September 1, 2019	 	 	-	 	 	 	258,756	 	 	 	258,756	 
	Acquired on acquisition of UMG Media Ltd.	 	 	-	 	 	 	401,441	 	 	 	401,441	 
	Acquired	 	 	36,375	 	 	 	-	 	 	 	36,375	 
	Payments	 	 	(918	)	 	 	(139,019	)	 	 	(139,937	)
	Effect of foreign exchange	 	 	-	 	 	 	15,513	 	 	 	15,513	 
	Balance, August 31, 2020	 	 	35,457	 	 	 	536,691	 	 	 	572,148	 
	As at August 31, 2020:	 	 	 	 	 	 	 	 	 	 	 	 
	Less than one year	 	 	11,409	 	 	 	174,262	 	 	 	185,671	 
	Greater than one year	 	 	24,048	 	 	 	362,429	 	 	 	386,477	 
	Total lease obligation	 	 	35,457	 	 	 	536,691	 	 	 	572,148	 
	Maturity analysis - contractual undiscounted cash flows as at August 31, 2020:	 	 	 	 	 	 	 	 	 	 	 	 
	Less than one year	 	 	13,380	 	 	 	205,531	 	 	 	218,911	 
	Greater than one year	 	 	25,645	 	 	 	395,250	 	 	 	420,895	 
	Total undiscounted lease obligation	 	 	39,025	 	 	 	600,781	 	 	 	639,806	 

 

    	 	 	Page 41  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	17.	Players
    liability account

 

The
Players liability account consists of UMG and Winview cash deposited by players, plus any prize winnings, less any fees for match
game play and withdrawal requests processed to date. As at August 31, 2020, the players liability account balance is the total
amount payable if all players were to request closure of their accounts. As at August 31, 2020, the players account liability
and corresponding restricted cash balances were the same.

 

	18.	Promissory
    notes payable and other borrowings

 

	(a)	Promissory
    notes

 

On
September 30, 2018, the Company received $200,000 in working capital advances in the form of promissory notes from two companies.
These promissory notes are unsecured, due on demand, and carry interest at 18%. As of August 31, 2020, interest of $83,435 has
been accrued (2019 – $33,131).

 

As
of August 31, 2020, net advances and payments under a promissory note of $907,833 (2019 – $618,431) were outstanding to
a company. The notes are unsecured, bear interest at 12%, and are due on demand. As of August 31, 2020, interest of $179,967 has
been accrued. (2019 – $1,322).

 

The
Company, through its Frankly subsidiary, has promissory notes with two parties for $400,000. The notes were issued in May 2020,
after the acquisition of Frankly by the Company on May 8, 2020. The notes are unsecured, bear interest at 12%, and are due on
October 31, 2020. As of August 31, 2020, interest of $14,423 has been accrued on these notes.

 

The
Company, through its Winview subsidiary, has a secured promissory note outstanding for amounts due for the provision of services
by the noteholder. As of August 31, 2020, $1,527,582 was due under the note. The note is secured by the assets of Winview, bears
interest at 8%, and is currently due. As of August 31, 2020, interest of $63,612 has been accrued on this note.

 

The
Company, through its UMG subsidiary, has two promissory notes outstanding as at August 31, 2020 in the amount of $112,168, representing
principal and accrued interest. The larger note has an outstanding balance of principal and accrued interest at August 31, 2020
of $75,492, has an interest rate of 12% and is currently due.

 

As
of August 31, 2020, the Company, through its UMG subsidiary, has a balance of $330,000 due to a former UMG shareholder. This balance
is the remaining cash due for the purchase of UMG Events LLC (subsidiary of UMG Media Ltd.) and has a due date of September 1,
2020 and is non-interest bearing until the due date.

 

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

 

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

 

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

 

    	 	 	Page 42  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	18.	Promissory
    notes payable and other borrowings (cont’d)

 

	(b)	Paycheck
    Protection Program (the “PPP”) loans (cont’d)

 

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

 

Upon
the receipt of the proceeds of $1,589,559 from the Notes, the Company accounted for the Notes as a grant in the form of forgivable
loan and recorded the amount as a deferred income liability. The liability was reduced as the Company recognized expenses which
qualified for forgiveness of the loan. At August 31, 2020, the Company had incurred greater than $1,589,559 in qualifying expenses
and therefore had a remaining deferred income liability of nil. The Company recognized the impact of the loan forgiveness as an
offset against related expense, salaries and wages in the consolidated statement of loss and comprehensive loss.

 

	(c)	Frankly
    line of credit

 

On
January 7, 2020, the Company’s Frankly Media LLC subsidiary (“Frankly Media”) entered an agreement with an arm’s
length lender, EB Acquisition Company, LLC (the “Lender”), whereby the Lender agreed, subject to the terms and conditions
thereof, to provide Frankly Media with a revolving term line of credit in the principal amount of up to $5 million (the “EB
Loan”). In connection with entering into the EB Loan, Frankly Media drew $4 million under the EB Loan under an initial advance,
and in July 2020 borrowed an additional $1 million.

 

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 $15 million 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$7.50 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.

 

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 on the consolidated statements of loss and comprehensive
loss over the one-year loan term. Amortization of debt discount included in interest expense, net for the period from May 8, 2020
to August 31, 2020 amounted to $80,493 and (2019 – $Nil). The carrying value of the line of credit at August 31, 2019 is
$4,919,507.

 

    	 	 	Page 43  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	19.	Convertible
    debt

 

The
continuity of convertible debt for the year ended August 31, 2020, is as follows:

 

	 	 	2019 Series	 	 	2020 Series	 	 	Total	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Balance, August 31, 2018	 	 	-	 	 	 	-	 	 	 	-	 
	Issuances	 	 	8,970,495	 	 	 	-	 	 	 	8,970,495	 
	Conversion of series one convertible debt	 	 	2,431,489	 	 	 	-	 	 	 	2,431,489	 
	Conversion - common shares issued	 	 	(31,026	)	 	 	-	 	 	 	(31,026	)
	Conversion - warrants issued	 	 	(30,374	)	 	 	-	 	 	 	(30,374	)
	Interest expense	 	 	72,035	 	 	 	-	 	 	 	72,035	 
	Effect of foreign exchange	 	 	(416,428	)	 	 	-	 	 	 	(416,428	)
	Change in fair value	 	 	1,536,532	 	 	 	-	 	 	 	1,536,532	 
	Balance, August 31, 2019	 	 	12,532,723	 	 	 	-	 	 	 	12,532,723	 
	Issuances	 	 	-	 	 	 	8,828,550	 	 	 	8,828,550	 
	Conversion - common shares issued	 	 	(5,152,023	)	 	 	-	 	 	 	(5,152,023	)
	Conversion - warrants issued	 	 	(5,037,535	)	 	 	-	 	 	 	(5,037,535	)
	Interest expense	 	 	358,123	 	 	 	11,917	 	 	 	370,040	 
	Accrued interest on conversion	 	 	(317,508	)	 	 	-	 	 	 	(317,508	)
	Effect of foreign exchange	 	 	(200,661	)	 	 	-	 	 	 	(200,661	)
	Change in fair value	 	 	(61,250	)	 	 	(168,877	)	 	 	(230,127	)
	Balance, August 31, 2020	 	 	2,121,869	 	 	 	8,671,590	 	 	 	10,793,459	 

 

During
the year ended August 31, 2020, the 2019 Series convertible debentures with a principal amount of CAD$13,047,122 were converted
into 1,739,615 units, and as a result, the Company issued 1,739,615 common shares and 1,739,615 warrants. The fair value of the
convertible debentures at the time of conversion was estimated using the binomial lattice model with the below assumptions. The
fair value assigned to the convertible debt conversions was $10,189,558. This value was allocated between common shares and warrants
as $5,152,023 and $5,037,535, respectively.

 

	 	 	At
    time of conversion	 
	Share price	 	 	7.05
                                         - 18.00 	 
	Conversion price	 	 	7.50	 
	Warrant exercise price 	 	 	7.50	 
	 	 	 	 	 
	Term, in years	 	 	1.85
                                         - 2.52	 
	Interest rate	 	 	6	%
	Expected volatility	 	 	168.65%
                                         - 181.93	%
	Risk-free interest rate	 	 	0.26%
                                         - 0.96	%
	Exchange rate	 	 	0.6899
                                         - 0.7651	 
	Expected
    dividend yield 	 	 	0	%

 

    	 	 	Page 44  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	19.	Convertible
    debt (cont’d)

 

As
at August 31, 2020, the fair value of the 2019 Series convertible debentures was estimated using the binomial lattice model with
the below assumptions:

 

	 	 	2019
    Series
 (CA$)	 
	 	 	 	 
	Share price	 	 	11.65	 
	Conversion price	 	 	7.50	 
	Warrant exercise price  	 	 	7.50	 
	 	 	 	 	 
	Term, in years	 	 	1.85
                                         - 1.94	 
	Interest rate	 	 	6	%
	Expected volatility	 	 	179.00	%
	Risk-free interest rate	 	 	0.25	%
	Exchange rate	 	 	0.7651	 
	Expected
    dividend yield 	 	 	0	%

 

In
August 2020, the Company commenced a non-brokered private placement of convertible debentures (the “2020 Series” debentures)
and closed total principal of $5,750,000 on August 19, 2020. The 2020 Series debentures will mature twenty-four (24) months from
the date of issuance and bear interest at a rate of 5% per annum (subject to adjustment as described below), payable on maturity.
At the Company’s option, interest under the 2020 Series debentures is payable in kind in common shares at an issue price
which would be based on the trading price of the common shares at the time of such interest payment. The interest rate under the
2020 Series debentures will increase from 5% to 10% per annum on a prospective basis on December 19, 2020, if a public offering
has not occurred by that date.

 

The
2020 Series debenture holders may convert all or a portion of the principal amount of the debentures into units (“Units”)
of the Company at a price (the “Conversion Price”) equal to the lesser of (a) US$11.25 per Unit, and (b) if such conversion
occurs after a public offering of securities by the Company (the “Public Offering”), a fifteen percent (15%) discount
to the public offering price, provided that such conversion price shall not be less than US$7.50 per Unit. Notwithstanding the
foregoing, if by December 19, 2020, the Company has not obtained registration rights in the United States to allow sale in the
United States of the common shares (“Common Shares”) of the Company and the exercise of warrants (the “Warrants”)
of the Company to be issued pursuant to the conversion of the 2020 Series debentures, holders of 2020 Series debentures may convert
such debentures into Units at US$7.50 per Unit.

 

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

 

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

 

    	 	 	Page 45  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	19.	Convertible
    debt (cont’d)

 

Issuance
of Convertible Debt in Exchange for Investment in One Up Group LLC

 

The
Company closed an additional $3,000,000 of convertible debentures on August 25, 2020 in exchange for a 20.48% equity interest
in One Up (Note 10). These convertible debentures (the “2020 Series One Up” debentures) have identical terms as the
2020 Series debentures except that the minimum conversion price of US$7.50 per Unit (as described above) will be US$9.50 per Unit.
The One Up convertible debentures had a fair value at issuance of $3,078,550.

 

As
at August 31, 2020, the fair value of the 2020 Series and 2020 Series One Up convertible debentures was estimated using the binomial
lattice model with the below assumptions:

 

	 	 	2020
    Series
 (US$)	 	 	2020
    Series 
 One Up
 (US$)	 
	 	 	 	 	 	 	 
	Share price	 	 	8.92	 	 	 	8.92	 
	Conversion price	 	 	7.50	 	 	 	9.50	 
	Warrant exercise price 	 	 	15.00	 	 	 	15.00	 
	 	 	 	 	 	 	 	 	 
	Term, in years	 	 	1.97	 	 	 	1.98	 
	Interest rate	 	 	5%
                                         and 10	%	 	 	5%
                                         and 10	%
	Expected volatility	 	 	200.00	%	 	 	200.00	%
	Risk-free interest rate	 	 	0.14	%	 	 	0.14	%
	Expected
    dividend yield 	 	 	0	%	 	 	0	%

 

	20.	Long-term
    debt 

 

The
Company has an unsecured, non-interest bearing loan that matures on June 30, 2022. The loan bears interest at 0% per annum. As
at August 31, 2020, the present value of the loan was $230,932 (2019 – $246,288), with accretion of $16,239 (2019 –
$58,896) having been charged to interest expense on the Company’s consolidated statements of loss and comprehensive loss
for the year then ended. A discount rate of 10% was used (2019 – 10%).

 

Scheduled
repayments are: €90,000 ($107,472) in 2021, and €135,000 ($161,209) in 2022.

 

    	 	 	Page 46  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	21.	Warrant
    liability

 

The
following table reflects the continuity of the Company’s warrant liability for the years ended August 31, 2020 and 2019:

 

	 	 	Amount	 
	 	 	$	 
	 	 	 	 
	Balance at August 31, 2018	 	 	819,245	 
	Warrants issued	 	 	28,551	 
	Expiration of warrants	 	 	(3,667	)
	Change in fair value	 	 	(552,820	)
	Impact of warrants exercised during
    the year	 	 	(5,488	)
	Foreign exchange	 	 	10,974	 
	Balance as at August 31, 2019	 	 	296,795	 
	Issued in acquisition of Frankly	 	 	2,157,000	 
	Issued on conversion of convertible
    debt	 	 	5,037,535	 
	Issued in Private Placements	 	 	991,709	 
	Change in fair value	 	 	6,189,921	 
	Impact of warrants exercised during
    the year	 	 	(1,345,573	)
	Foreign exchange	 	 	807,934	 
	Balance as at
    August 31, 2020	 	 	14,135,321	 

 

The
following table reflects the continuity of the Company’s outstanding warrants for the years ended August 31, 2020 and 2019:

 

	 	 	Number
    of	 	 	 	 	 	Weighted-average
    exercise price	 
	 	 	warrants	 	 	CAD	 	 	USD	 
	 	 	#	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Outstanding, August 31,
    2018	 	 	22,637	 	 	 	675.00	 	 	 	528.75	 
	Issued	 	 	9,600	 	 	 	7.50	 	 	 	5.70	 
	Exercised	 	 	(88	)	 	 	(56.25	)	 	 	(45.00	)
	Expired	 	 	(2,831	)	 	 	(810.00	)	 	 	(630.00	)
	Oustanding as at August 31, 2019	 	 	29,318	 	 	 	448.50	 	 	 	347.10	 
	Issued in acquisition of UMG	 	 	9,943	 	 	 	174.18	 	 	 	133.55	 
	Issued in acquisition of Frankly	 	 	1,055,036	 	 	 	9.69	 	 	 	7.43	 
	Issued	 	 	1,990,890	 	 	 	8.45	 	 	 	6.48	 
	Expired	 	 	(25,275	)	 	 	551.26	 	 	 	422.68	 
	Exercised	 	 	(654,543	)	 	 	7.50	 	 	 	5.75	 
	Outstanding,
    August 31, 2020	 	 	2,405,369	 	 	 	9.60	 	 	 	7.36	 

 

    	 	 	Page 47  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	21.	Warrant
    liability (cont’d)

 

The
following table reflects the warrants issued and outstanding as of August 31, 2020:

 

	 	 	 	 	 	Warrants
    outstanding	 	 	Warrants
    exercisable	 
		 	Number	 	 	Average
    exercise price	 	 	Average
    remaining contractual	 	 	Weighted
    number	 	 	Weighted
    number exercisable price	 
	Expiry
    date	 	outstanding	 	 	CAD	 	 	USD	 	 	life
    (years)	 	 	exercisable	 	 	CAD	 	 	USD	 
	22-Nov-20	 	 	4,191	 	 	$	179.63	 	 	$	137.73	 	 	 	0.23	 	 	 	4,191	 	 	$	179.63	 	 	$	137.73	 
	10-May-21	 	 	252,089	 	 	 	9.75	 	 	 	7.48	 	 	 	0.69	 	 	 	252,089	 	 	 	9.75	 	 	 	7.48	 
	15-May-21	 	 	268,123	 	 	 	9.75	 	 	 	7.48	 	 	 	0.70	 	 	 	268,123	 	 	 	9.75	 	 	 	7.48	 
	22-May-21	 	 	411,664	 	 	 	9.75	 	 	 	7.48	 	 	 	0.72	 	 	 	411,664	 	 	 	9.75	 	 	 	7.48	 
	11-Jul-21	 	 	194	 	 	 	153.52	 	 	 	117.71	 	 	 	0.86	 	 	 	194	 	 	 	153.52	 	 	 	117.71	 
	13-Mar-22	 	 	123,159	 	 	 	10.50	 	 	 	8.05	 	 	 	1.53	 	 	 	123,159	 	 	 	10.50	 	 	 	8.05	 
	20-Dec-22	 	 	29,066	 	 	 	27.00	 	 	 	20.70	 	 	 	2.30	 	 	 	29,066	 	 	 	27.00	 	 	 	20.70	 
	20-Mar-23	 	 	27,777	 	 	 	13.50	 	 	 	10.35	 	 	 	2.55	 	 	 	27,777	 	 	 	13.50	 	 	 	10.35	 
	30-Mar-23	 	 	46,909	 	 	 	13.50	 	 	 	10.35	 	 	 	2.58	 	 	 	46,909	 	 	 	13.50	 	 	 	10.35	 
	31-Mar-23	 	 	17,222	 	 	 	13.50	 	 	 	10.35	 	 	 	2.58	 	 	 	17,222	 	 	 	13.50	 	 	 	10.35	 
	27-May-23	 	 	130,304	 	 	 	13.50	 	 	 	10.35	 	 	 	2.74	 	 	 	130,304	 	 	 	13.50	 	 	 	10.35	 
	8-Jul-24	 	 	451,982	 	 	 	7.50	 	 	 	5.75	 	 	 	3.85	 	 	 	451,982	 	 	 	7.50	 	 	 	5.75	 
	25-Jul-24	 	 	361,556	 	 	 	7.50	 	 	 	5.75	 	 	 	3.90	 	 	 	361,556	 	 	 	7.50	 	 	 	5.75	 
	8-Aug-24	 	 	281,133	 	 	 	7.50	 	 	 	5.75	 	 	 	3.94	 	 	 	281,133	 	 	 	7.50	 	 	 	5.75	 
	 	 	 	2,405,369	 	 	$	9.60	 	 	$	7.36	 	 	 	2.40	 	 	 	2,405,369	 	 	$	9.60	 	 	$	7.36	 

 

As
at August 31, 2020, the fair value of the 2,405,369 warrants outstanding was determined to be $14,135,321 as calculated using
the Black Scholes option pricing model with the following range of assumptions: 0.23 – 3.94 years as expected average life;
share price of CAD$11.65; exercise price of CAD$7.50 – CAD$205.20; 115% - 136% expected volatility; risk free interest rate
of 0.23% - 0.32%; and an expected dividend yield of 0%. 

 

	(a)	Warrants
    exercised during the year ended August 31, 2020

 

During
the year ended August 31, 2020, the holders of 654,543 warrants exercised their right to convert the warrants into the Company’s
common shares at an exercise price of CAD$7.50. As a result of the underlying exercise of warrants, the Company received $3,574,023
in cash proceeds and the intrinsic value of the underlying warrants at the date of exercise of $1,345,573 was transferred to share
capital, for a total addition to share capital of $4,919,596.

 

	(b)	Warrants
    issued during the year ended August 31, 2020

 

The
Company issued 1,739,613 warrants in connection with conversion of convertible debt and 251,281 warrants in connection with private
placements, for a total number of 1,990,891 warrants issued, excluding warrants issued in connection with acquisitions (Note
6) as highlighted in the continuity above.

 

	(c)	Warrants
    issued on conversion of convertible debt 

 

During
the year ended August 31, 2020 the Company issued 1,739,613 CAD$7.50 warrants in conjunction with the conversion of 1,739,613
units of convertible debt. Each resulting unit was comprised of one common share of the Company and one common share purchase
warrant of the Company. Each whole warrant entitles the holder to acquire one common share of the Company for a period of five
years from the date of issuance at an exercise price of CAD$7.50 per warrant. The fair value of the 1,739,613 warrants issued
was determined to be $5,037,535 as 

    	 	 	Page 48  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	21.	Warrant
    liability (cont’d)

 

	(c)	Warrants
    issued on conversion of convertible debt (cont’d)

 

calculated
using the Black Scholes option pricing model with the following assumptions: a 3.92 to 4.91 year as expected average life; share
price of between CAD$7.05 and CAD$25.65; exercise price of CAD$7.50; 136% expected volatility; risk free interest rate of between
0.28% and 1.71%; and an expected dividend yield of 0%. Volatility is calculated using a weighted approach based on the changes
in the Company’s historical stock price and volatility for comparable public companies. The final fair value allocated to
the warrants on conversion of convertible debt is based on a relative fair value allocation between the common shares issued and
warrants issued on conversion. 

 

	(d)	Warrants
    issued on private placement

 

On
December 18, 2019, the Company closed a non-brokered private placement at a price of CAD$18.75 ($14.25) per unit. The Company
issued 58,133 units for gross proceeds of CAD$1,090,000 ($830,907). Each unit is comprised of one common share of the Company
and one half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share of the Company
for a period of 36 months from the date of issuance of the warrant, at an exercise price of CAD$27.00 per share. The proceeds
were allocated to the common shares and warrants using the relative fair value method, with $612,745 being allocated to the 58,133
common shares issued and the remaining $218,162 allocated to the 29,067 warrants. The fair value of the 29,067 warrants issued
was determined to be $218,162 as calculated using the Black Scholes option pricing model using the relative value method with
the following assumptions: a three year as expected average life; share price of CAD$18.45; exercise price of CAD$27.00; 136%
expected volatility; risk free interest rate of 1.72%; and an expected dividend yield of 0%. Volatility is calculated based on
the changes in the Company’s historical stock prices over the expected life of the warrants.

 

During
the third quarter the Company closed a non-brokered private placement at a price of CAD$9.00 per unit in four tranches. The Company
issued a total of 444,429 units for gross proceeds of CAD$3,999,860 ($2,875,593). Each unit is comprised of one common share of
the Company and one half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share
of the Company for a period of 36 months from the date of issuance of the warrant, at an exercise price of CAD$13.50 per share.
The proceeds were allocated to the common shares and warrants using the relative fair value method, with $2,102,047 being allocated
to the 444,429 common shares issued and the remaining $773,546 allocated to the 222,214 warrants issued. The fair value of the
222,214 warrants issued was determined to be $773,546 as calculated using the Black Scholes option pricing model using the relative
value method with the following assumptions: a three year as expected average life; share price of CAD$8.55 – CAD$12.15;
exercise price of CAD$13.50; 136% expected volatility; risk free interest rate of 0.3237% - 0.6861%; and an expected dividend
yield of 0%. Volatility is calculated based on the changes in the Company’s historical stock prices over the expected life
of the warrants.

 

	22.	Share
    capital

 

	(a)	Authorized

 

The
Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares.

 

    	 	 	Page 49  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	22.	Share
    capital (cont’d)

 

	(b)	Issued
    and outstanding, common shares

 

	 	 	Shares	 	 	Consideration	 
	 	 	#	 	 	$	 
	 	 	 	 	 	 	 
	Balance, as at August 31,
    2018	 	 	146,750	 	 	 	29,573,077	 
	Convertible debt
    conversion	 	 	9,600	 	 	 	31,026	 
	Common shares issued on exercise of
    warrants	 	 	88	 	 	 	9,303	 
	Balance, August 31, 2019	 	 	156,438	 	 	 	29,613,406	 
	Impact of share consolidation	 	 	(114	)	 	 	-	 
	Shares issued on
    vesting of RSUs (Note 24)	 	 	26,666	 	 	 	159,895	 
	Convertible debt
    conversion (Note 19)	 	 	1,739,615	 	 	 	5,152,023	 
	Private placements,
    net of costs	 	 	502,562	 	 	 	2,694,076	 
	Shares issued for
    cancellation of debt	 	 	59,654	 	 	 	724,231	 
	Shares issued on
    acquisition of UMG (Note 6)	 	 	288,560	 	 	 	3,804,344	 
	Shares issued on
    acquisition of Frankly (Note 6)	 	 	2,258,215	 	 	 	12,155,000	 
	Shares issued on
    acquisition of Winview (Note 6)	 	 	1,759,997	 	 	 	7,579,000	 
	Shares issued on
    acquisition of Driver Database (Note 6)	 	 	100,000	 	 	 	859,745	 
	Shares issued on
    acquisition of Lets Go Racing (Note 6)	 	 	200,000	 	 	 	1,719,491	 
	Common shares issued
    on exercise of warrants (Note 21)	 	 	654,543	 	 	 	4,919,596	 
	Balance, August
    31, 2020	 	 	7,746,136	 	 	 	69,380,807	 

 

	(c)	Activity
    for the year ended August 31, 2020

 

During
the year ended August 31, 2020, the Company issued 26,666 common shares upon vesting of an equal number of RSUs (Note 24), issued
1,739,615 common shares in connection with conversion of convertible debt (Note 19), and issued 502,562 common shares in connection
with a series of non-brokered private placements as follows:

 

On
December 18, 2019, the Company closed a non-brokered private placement at a price of CAD$18.75 ($14.25) per unit. The Company
issued 58,133 units for gross proceeds of CAD$1,090,000 ($830,907). Each unit is comprised of one common share of the Company
and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share of the Company
for a period of 36 months from the date of issuance of the warrant, at an exercise price of CAD$27.00 per share. The proceeds
were allocated to the common shares and warrants using the relative fair value method, with $612,745 being allocated to the 58,133
common shares issued and the remaining $218,162 allocated to the 29,067 warrants issued (Note 21).

 

During
the third quarter the Company closed a non-brokered private placement at a price of CAD$9.00 per unit in four tranches. The Company
issued a total of 444,429 units for gross proceeds of CAD$3,999,860 ($2,875,593). Each unit is comprised of one common share of
the Company and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share
of the Company for a period of 36 months from the date of issuance of the warrant, at an exercise price of CAD$13.50 per share.
The proceeds were allocated to the common shares and warrants using the relative fair value method, with $2,102,047 being allocated
to the 444,429 common shares issued and the remaining $773,546 allocated to the 222,214 warrants issued (Note 21).

 

On
March 20, 2020, the Company issued 46,300 common shares in settlement of select trade payables through a shares for debt placement
amounting to CAD$900,003 ($632,522). The fair value of the shares issued were based on market price on the date of settlement.
In addition, on June 13, 2020, the Company issued 13,354 common

 

    	 	 	Page 50  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	22.	Share
    capital (cont’d)

 

	(c)	Activity
    for the year ended August 31, 2020 (cont’d)

 

shares
in settlement of select trade payables through a shares for debt placement amounting to CAD$125,000 ($91,709).

 

On
December 31, 2019, the Company issued 288,560 common shares with a fair value of $3,804,344 in connection with the acquisition
of UMG (Note 6).
On May 8, 2020, the Company issued 2,258,215 common shares with a fair value of $12,155,000 in connection with the acquisition
of Frankly (Note 6). On May 8, 2020, the Company issued 1,759,997 common shares with
a fair value of $7,579,000 in connection with the acquisition of Winview (Note 6).

On
June 3, 2020, the Company issued 100,000 common shares with a fair value of $859,745 in connection with the acquisition of DriverDB
(Note 6). On
June 3, 2020, the Company issued 200,000 common shares with a fair value of $1,719,491 in connection with the acquisition of Lets
Go Racing (Note 6).

 

During
the year ended August 31, 2020, the Company issued 654,543 common shares in connection with the exercise of warrants. In connection
with these exercises, amounts recorded to share capital of $4,919,596 are comprised of exercise proceeds of $3,574,023 and intrinsic
value of warrants on exercise of $1,345,573 (Note
21).

 

	23.	Stock
    options

 

On
July 15, 2020, the Company adopted an amended and restated equity incentive plan (“Omnibus Plan”), which amends and
restates the equity incentive plan which was previously established as of October 9, 2019. Under the amendments, there were no
changes in the terms of previously issued awards. Under the Omnibus Plan, the total number of common shares reserved and available
for grant and issuance pursuant to awards shall not exceed 1,501,084 common shares.

 

Options
may be exercisable over periods of up to 10 years as determined by the Board of Directors of the Company and the exercise price
shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. The
following table reflects the continuity of stock options for the years ended August 31, 2020 and 2019:

 

	 	 	Weighted-average	 
	 	 	Number
    of
 stock options	 	 	Exercise
    
 price	 	 	Grant-date

    fair value	 	 	Remaining

    contractual 

    term	 
	 	 	#	 	 	$	 	 	$	 	 	(yrs.)	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, August 31, 2018	 	 	10,936	 	 	 	211.50	 	 	 	63.45	 	 	 	7.28	 
	Granted	 	 	1,777	 	 	 	109.95	 	 	 	29.70	 	 	 	 	 
	Expired/Cancelled	 	 	(5,742	)	 	 	404.85	 	 	 	121.46	 	 	 	 	 
	Balance, August 31, 2019	 	 	6,971	 	 	 	166.20	 	 	 	49.86	 	 	 	5.84	 
	Issued on acquisition
    of UMG Media Ltd.	 	 	16,606	 	 	 	63.30	 	 	 	2.32	 	 	 	 	 
	Issued on acquisition
    of Frankly Inc.	 	 	64,659	 	 	 	9.22	 	 	 	5.07	 	 	 	 	 
	Granted	 	 	169,995	 	 	 	7.91	 	 	 	4.38	 	 	 	 	 
	Expired/Cancelled	 	 	(5,110	)	 	 	185.97	 	 	 	55.79	 	 	 	 	 
	Balance, August 31, 2020	 	 	253,121	 	 	 	12.73	 	 	 	4.39	 	 	 	4.31	 
	Vested and expected
    to vest, August 31, 2020	 	 	246,979	 	 	 	12.91	 	 	 	4.37	 	 	 	4.19	 
	Exerciseable
    as at August 31, 2020	 	 	191,730	 	 	 	15.00	 	 	 	4.15	 	 	 	2.74	 

 

    	 	 	Page 51  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	23.	Stock
    options (cont’d)

 

The
following tables reflect the stock options issued and outstanding as of August 31, 2020:

 

	 	 	Outstanding	 	 	 	 	 	Weighted
    average exercise price	 	 	Weighted
    average remaining contractual term	 
	Expiry
    date	 	options	 	 	CAD	 	 	USD	 	 	(Years)	 
	22-Nov-20	 	 	492	 	 	 	93.30	 	 	 	71.84	 	 	 	0.23	 
	11-Jul-21	 	 	632	 	 	 	164.40	 	 	 	126.58	 	 	 	0.86	 
	15-Jul-21	 	 	9,490	 	 	 	41.10	 	 	 	31.64	 	 	 	0.87	 
	10-Dec-21	 	 	1,564	 	 	 	93.30	 	 	 	71.84	 	 	 	1.28	 
	30-Jun-22	 	 	4,428	 	 	 	153.45	 	 	 	118.15	 	 	 	1.83	 
	20-Mar-23	 	 	44	 	 	 	765.00	 	 	 	586.57	 	 	 	2.55	 
	1-Apr-23	 	 	104,998	 	 	 	11.25	 	 	 	7.91	 	 	 	2.58	 
	31-Oct-23	 	 	64,997	 	 	 	11.25	 	 	 	7.91	 	 	 	3.17	 
	29-Jan-25	 	 	46	 	 	 	106.50	 	 	 	76.43	 	 	 	4.42	 
	25-Aug-25	 	 	340	 	 	 	106.50	 	 	 	76.43	 	 	 	4.99	 
	14-Sep-25	 	 	1,777	 	 	 	146.25	 	 	 	112.14	 	 	 	5.04	 
	23-Sep-25	 	 	11	 	 	 	106.50	 	 	 	76.43	 	 	 	5.07	 
	10-Feb-26	 	 	1,553	 	 	 	106.50	 	 	 	76.43	 	 	 	5.45	 
	19-May-26	 	 	4	 	 	 	106.50	 	 	 	76.43	 	 	 	5.72	 
	23-May-26	 	 	9	 	 	 	106.50	 	 	 	76.43	 	 	 	5.73	 
	9-Nov-26	 	 	40	 	 	 	157.50	 	 	 	120.76	 	 	 	6.19	 
	3-Mar-27	 	 	1,256	 	 	 	106.50	 	 	 	76.43	 	 	 	6.51	 
	31-Jul-27	 	 	159	 	 	 	106.50	 	 	 	76.43	 	 	 	6.92	 
	3-Nov-27	 	 	133	 	 	 	106.50	 	 	 	76.43	 	 	 	7.18	 
	7-Nov-29	 	 	56,483	 	 	 	7.50	 	 	 	5.38	 	 	 	9.19	 
	20-Apr-30	 	 	4,665	 	 	 	7.05	 	 	 	5.06	 	 	 	9.64	 
	 	 	 	253,121	 	 	 	17.41	 	 	 	12.73	 	 	 	4.31	 

 

Of
the 253,121 options outstanding as at August 31, 2020 (2019 – 6,971), 191,730 are exercisable as at August 31, 2020 (2019
– 167). During the year ended August 31, 2020, share-based compensation expense for the Company’s stock options was
$929,906 (2019 – $73,843).

 

	24.	Restricted
    share units

 

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

 

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

 

    	 	 	Page 52  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	24.	Restricted
    share units (cont’d)

 

The
Company’s outstanding RSUs are as follows:

 

	 	 	Number	 
	 	 	#	 
	Balance, August
    31, 2019	 	 	-	 
	Issued
    on acquisition of Frankly Inc.	 	 	50,037	 
	Granted	 	 	379,001	 
	Vested	 	 	(26,666	)
	Cancelled	 	 	-	 
	Balance, May
    31, 2020	 	 	402,372	 

 

On
April 1, 2020, the Company granted a 26,666 RSUs to compensate directors, officers and key employees, which vested immediately.
On August 13, 2020, the Company granted 352,335 RSUs to compensate directors and officers. The director RSUs vest at the end of
one year, and the officer RSUs vest over three years. The remaining 50,037 RSUs were granted on May 8, 2020 in connection with
the acquisition of Frankly. These RSUs have a vesting period of three years from the original date of the grant.

 

The
fair value of RSUs granted on April 1, 2020 was estimated based on a closing price of CAD$8.55 (US$6.01) for a total fair value
on date of grant of CAD$228,000 ($159,895). As these RSUs had immediate vesting, the fair value was recognized in full on the
date of grant as stock-based compensation expense and 26,666 common shares were issued. The fair value of RSUs granted on August
13, 2020 was estimated based on a closing price of CAD$8.40 (US$6.34) for a total fair value on date of grant of CAD$2,959,614
($2,232,997). The fair value of these RSUs will be recognized as stock-based compensation expense over the vesting period. The
fair value of the RSUs granted on May 8, 2020 in connection with the acquisition of Frankly will be recognized as stock-based
compensation expense over the vesting period.

 

During
the year ended August 31, 2020, share-based compensation expense for the Company’s RSUs was $479,663 (2019 – $nil).

 

	25.	Capital
    management

 

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

 

As
at August 31, 2020, the Company had shareholders’ equity (deficit) before non-controlling interests of $45,907 (2019 –
($7,960,633)). The Company’s objective when managing its capital is to seek continuous improvement in the return to its
shareholders while maintaining a moderate to high tolerance for risk. The objective is achieved by prudently managing the capital
generated through internal growth and profitability, through the use of lower cost capital, including raising share capital or
debt when required to fund opportunities as they arise.

 

The
Company may also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines
any of these to be an effective method of achieving the above objective. The Company does not use ratios in the management of
its capital. There have been no changes to management’s approach to managing its capital during the years ended August 31,
2020 and 2019.

 

    	 	 	Page 53  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	26.	Commitments
    and contingencies

 

	(a)	Royalty
    expenses

 

Royalty
expenses relate to royalties paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology
or other intellectual property or proprietary rights in the development or sale of the Eden Games’ products. Eden Games
has royalty agreements to utilize trademarks, copyrights, software, technology or other intellectual property or proprietary rights
in the development or sale of its products. Eden Games has committed to pay royalties ranging from 4% to 25% of revenues after
certain thresholds have been met, in connection with the underlying license agreements. Royalty expenses were €nil for the
years ended August 31, 2020 and 2019.

 

	(b)	Consulting
    contracts

 

Under
the terms of a consulting agreement dated July 27, 2017, the Company is committed to pay to certain employees of Eden Games, nine
months severance in the event of termination, amounting to £144,500 ($175,911). If revenue from the Eden Games mobile app
exceeds specified amounts, a bonus shall be paid up to a maximum of £100,000 ($121,561) on an annual basis. As no triggering
events have taken place related to the contingencies to August 31, 2020, no provision has been made in these consolidated financial
statements.

 

	(c)	Litigation
    and Arbitration

 

In
April 2020, the Company announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provides
for the acquisition of 100% of Allinsports in exchange for the issuance of 966,667 common shares of the Company. The purchase
agreement included the requirement of $1.2 million to be advanced against the purchase price. In September 2020, the Company advised
the shareholders of Allinsports that closing conditions of the transaction, including the failure to provide audited financial
statements, had not been satisfied. In response, in November 2020, the shareholders of Allinsports commenced arbitration in Ontario
seeking, among other things, to compel the Company to complete the acquisition of Allinsports without the audited financial statements,
and to issue 966,667 common shares of the Company to those shareholders. As alternative relief, the shareholders of Allinsports
are seeking US$20,000,000 in damages. The Company will defend itself vigorously in this proceeding. 

 

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

 

	(d)	Contingent
    Consideration and Shares to be Issued

 

In
connection with the Company’s acquisition of IDEAS+CARS Ltd. on July 27, 2017, the principal shareholder of IDEAS+CARS,
entered into a three-year agreement with the Company to act as Chief Marketing Officer of the Company and received CAD$357,000
($256,911) of common shares (369 shares issued January 17, 2018) and up to 7,111 additional common shares upon meeting certain
performance milestones based on an issuance price of the greater of CAD$652.50 ($490.80) and the common share closing price on
the day prior to the respective milestone date. The agreement stipulates an equivalent share payout of CAD$600,000 ($451,320)
in the first year, and CAD$957,000 ($720,000) on the second, third, and fourth anniversaries of the agreement upon meeting annual
revenue targets of £272,000 ($347,700), £416,047 ($531,900), £535,707 ($684,900) and £655,023 ($837,400)
in the first through fourth years, respectively, with a minimum share equivalent payout of CAD$400,000 ($300,880) annually.

 

    	 	 	Page 54  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	26.	Commitments
    and contingencies (cont’d)

 

	(d)	Contingent
    Consideration and Shares to be Issued (cont’d)

 

As
at August 31, 2020, the estimated fair value of the contingent consideration is $262,067 (2019 - $473,364), which is calculated
based on the final milestone minimum share equivalent payout of CAD$400,000 and a discount rate of 19% (2019 – 19%). Based
on milestones met to August 31, 2020, $1,059,214 (2019 - $760,216) was reflected as shares to be issued as at August 31, 2020.

 

	27.	Discontinued
    operations

 

During
the year ended August 31, 2019, the Company ceased operations of the Pro Gaming League Nevada, Inc., a subsidiary. Accordingly,
the operational results for this subsidiary have been presented as a discontinued operation.

 

The
operating results of PGL Nevada for the years ended August 31, 2020 and 2019 are presented as discontinued operations as follows:

 

	 	 	2020	 	 	2019	 
	Revenues	 	 	 	 	 	 	 	 
	Event
    income	 	$	-	 	 	$	538,137	 
	 	 	 	 	 	 	 	 	 
	Operating expenses	 	 	 	 	 	 	 	 
	Salaries and wages	 	 	-	 	 	 	75,010	 
	Sponsorships and
    tournaments	 	 	-	 	 	 	-	 
	Professional fees	 	 	827	 	 	 	152,670	 
	Advertising and
    promotion	 	 	-	 	 	 	(341	)
	Office and general	 	 	-	 	 	 	1,152,060	 
	Interest expense	 	 	-	 	 	 	53,906	 
	Net loss from
    discontinued operations	 	$	(827	)	 	$	(895,168	)

 

The
net cash flows from discontinued operations for the years ended August 31, 2020 and 2019 are as follows:

 

	 	 	2020	 	 	2019	 
	Net cash provided by (used
    in) operating activities	 	$	125	 	 	$	111,227	 
	Net cash used
    in financing activities	 	 	-	 	 	 	(118,191	)
	Change in cash	 	 	125	 	 	 	(6,964	)
	Cash, beginning of period	 	 	-	 	 	 	6,964	 
	Cash, end of period	 	$	125	 	 	$	-	 

 

    	 	 	Page 55  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	28.	Segmented
    information

 

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

 

	E-Sports	-	Services
    related to competitive organized video gaming or sporting events
	Media
    and Advertising	-	Platform
    and advertising services provided to other broadcasters, primarily local tv and radio broadcasters 
	Corporate
    and Other	-	Services
    provided to other businesses and other revenues

 

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

 

The
following is an analysis of the Company’s revenue and results by reportable segment in fiscal 2020:

 

	 	 	E-Sports	 	 	Media
    and
 Advertising	 	 	Corporate

    and Other	 	 	Total	 
	 	 	 	$
	 	 	 	$
	 	 	 	$
	 	 	 	$
	 
	Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	External
    sales	 	 	4,703,265	 	 	 	6,404,736	 	 	 	376	 	 	 	11,108,377	 
	 	 	 	4,703,265	 	 	 	6,404,736	 	 	 	376	 	 	 	11,108,377	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Results	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Segment
    loss	 	 	(10,718,153	)	 	 	(833,891	)	 	 	376	 	 	 	(11,551,668	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Central administration
    costs	 	 	-	 	 	 	-	 	 	 	9,691,640	 	 	 	9,691,640	 
	Other gains and
    losses	 	 	15	 	 	 	(14,011	)	 	 	10,276,041	 	 	 	10,262,045	 
	Finance
    costs	 	 	103,758	 	 	 	241,520	 	 	 	564,650	 	 	 	909,928	 
	Loss before tax	 	 	(10,821,926	)	 	 	(1,061,400	)	 	 	(20,531,955	)	 	 	(32,415,281	)
	Income tax	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Gain (Loss) for
    the year from	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	discontinued operations	 	 	-	 	 	 	-	 	 	 	(827	)	 	 	(827	)
	non-controlling
    interest in net loss	 	 	-	 	 	 	-	 	 	 	76,066	 	 	 	76,066	 
	Net
    loss	 	 	(10,821,926	)	 	 	(1,061,400	)	 	 	(20,456,716	)	 	 	(32,340,042	)

 

    	 	 	Page 56  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	28.	Segmented
    information (cont’d)

 

The
following is an analysis of the Company’s revenue and results by reportable segment in 2019:

 

	 	 	E-Sports	 	 	Media
    and
 Advertising	 	 	Corporate

    and Other	 	 	Total	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	Revenue	 	 	 	 	 	 	      	 	 	 	 	 	 	 	 	 
	External
    sales	 	 	4,218,987	 	 	 	-	 	 	 	474	 	 	 	4,219,461	 
	 	 	 	4,218,987	 	 	 	-	 	 	 	474	 	 	 	4,219,461	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Results	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Segment loss	 	 	(1,986,170	)	 	 	-	 	 	 	474	 	 	 	(1,985,696	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Central administration
    costs	 	 	-	 	 	 	-	 	 	 	5,327,930	 	 	 	5,327,930	 
	Other gains and
    losses	 	 	(26,954	)	 	 	-	 	 	 	6,332,231	 	 	 	6,305,277	 
	Finance costs	 	 	70,834	 	 	 	-	 	 	 	262,547	 	 	 	333,381	 
	Loss before tax	 	 	(2,030,050	)	 	 	-	 	 	 	(11,922,234	)	 	 	(13,952,284	)
	Income tax	 	 	-	 	 	 	-	 	 	 	(144,822	)	 	 	(144,822	)
	Gain (Loss) for
    the year from	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	discontinued operations	 	 	-	 	 	 	-	 	 	 	(895,168	)	 	 	(895,168	)
	non-controlling
    interest in net loss	 	 	-	 	 	 	-	 	 	 	254,276	 	 	 	254,276	 
	Net
    loss	 	 	(2,030,050	)	 	 	-	 	 	 	(12,707,948	)	 	 	(14,737,998	)

 

Geographical
breakdown 

 

	 	 	North

    America	 	 	United

    Kingdom	 	 	European

    Union	 	 	Total	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	August 31, 2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Assets	 	 	4,414,852	 	 	 	261,196	 	 	 	6,009,649	 	 	 	10,685,697	 
	Long-term assets	 	 	1,470,000	 	 	 	17,889	 	 	 	4,443,446	 	 	 	5,931,335	 
	Net (loss)	 	 	(5,504,961	)	 	 	(760,155	)	 	 	(8,472,882	)	 	 	(14,737,998	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2020	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Assets	 	 	48,230,804	 	 	 	2,896,582	 	 	 	2,288,091	 	 	 	53,415,477	 
	Long-term assets	 	 	37,664,748	 	 	 	2,507,761	 	 	 	1,067,495	 	 	 	41,240,004	 
	Net
    loss	 	 	(24,550,779	)	 	 	(5,786,648	)	 	 	(2,002,615	)	 	 	(32,340,042	)

 

	29.	Related
    party transactions and balances

 

	(a)	Key
    management compensation

 

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

 

    	 	 	Page 57  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	29.	Related
    party transactions and balances (cont’d)

 

	(a)	Key
    management compensation (cont’d)

 

	 	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Total compensation paid
    to key management	 	 	929,958	 	 	 	1,401,724	 
	Share based payments
    	 	 	1,409,569	 	 	 	28,834	 

 

Total
compensation paid to key management is recorded in consulting fees and salaries and wages in the consolidated statement of loss
and comprehensive loss for the year ended August 31, 2020 and 2019.

 

Amounts
due to related parties as at August 31, 2020 with respect to the above fees were $275,502 (2019 – $124,717). The amounts
due to related parties are recorded within accounts payable and accrued liabilities on the consolidated statement of loss and
comprehensive loss. These amounts are unsecured, non-interest bearing and due on demand.

 

	30.	Financial
    instruments and risk management

 

	(a)	Financial
    risk management objectives and policies

 

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

 

	(b)	Credit
    risk

 

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

 

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

 

The
Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Company establishes
an allowance for doubtful accounts that represents its estimate of expected losses in respect of accounts receivable. The main
components of this allowance are a specific loss component that relates to individually significant exposures, and a collective
loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The
collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The allowance
for doubtful accounts was $874,438 and $0 as at August 31, 2020 and 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

 

    	 	 	Page 58  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

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

 

	(b)	Credit
    risk (cont’d)

 

evaluations
of its major customers, maintains reserves for expected credit losses, and does not require any collateral deposits. As at August
31, 2020 one customer (2019 - two) accounted for greater than 10% of the Company’s accounts receivable balance. In total,
this one customer (2019 - two) accounted for 13% of the

 

Company’s
accounts and other receivables balance as at August 31, 2020 (2019 - 54%). During the year ended August 31, 2020, three (2019
- two) customers represented 50% (2019 - 75%) of total revenue.

 

The
below table reflects the aging of the Company’s aging by invoice date of gross trade accounts receivable and allowance for
doubtful accounts as at August 31, 2020:

 

	 	 	0
    - 30	 	 	31
    - 60	 	 	61
    - 90	 	 	91+	 	 	Total	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade accounts receivable
    (Note 9)	 	 	1,622,846	 	 	 	881,830	 	 	 	771,291	 	 	 	1,414,955	 	 	 	4,690,922	 
	Allowance for doubtful accounts (Note
    9)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(874,438	)	 	 	(874,438	)
	% Allowance	 	 	0	%	 	 	0	%	 	 	0	%	 	 	62	%	 	 	19	%

 

	(c)	Liquidity
    risk

 

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

 

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

 

	 	 	<
    1 year	 	 	1-2
    years	 	 	3-5
    years	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued
    liabilities	 	 	17,144,346	 	 	 	-	 	 	 	-	 
	Players liability account	 	 	388,587	 	 	 	-	 	 	 	-	 
	Lease obligation	 	 	185,671	 	 	 	386,477	 	 	 	-	 
	Contingent performance share obligation	 	 	262,067	 	 	 	-	 	 	 	-	 
	Line of credit	 	 	4,919,507	 	 	 	-	 	 	 	-	 
	Long-term debt	 	 	97,702	 	 	 	133,230	 	 	 	-	 
	Promissory notes payable	 	 	3,818,920	 	 	 	-	 	 	 	-	 
	Deferred purchase consideration	 	 	333,503	 	 	 	-	 	 	 	-	 
	Convertible debt	 	 	-	 	 	 	10,793,459	 	 	 	-	 

 

	(d)	Interest
    rate risk

 

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

 

    	 	 	Page 59  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

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

 

	(e)	Foreign
    exchange rates

 

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

 

	(f)	Fair
    value hierarchy

 

The
following tables combine information about:

 

	 	●	classes
    of financial instruments based on their nature and characteristics;
	 	●	the
    carrying amounts of financial instruments;
	 	●	fair
    values of financial instruments (except financial instruments when carrying amount approximates their fair value); and
	 	●	fair
    value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed.

 

Fair
value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable.

 

For
the year ended August 31, 2020:

 

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

    cost	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financial
    assets:	 	 	       	 	 	 	       	 	 	 	       	 	 	 	 	 
	Cash
    and cash equivalents	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,243,278	 
	Restricted cash	 	 	-	 	 	 	-	 	 	 	-	 	 	 	388,587	 
	Accounts and other
    receivables	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,845,890	 
	Government remittances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,125,912	 
	Advances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	10,603,667	 

 

    	 	 	Page 60  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

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

 

	(f)	Fair
    value hierarchy (cont’d)

 

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

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

 

For
the year ended August 31, 2019:

 

	Carrying
    value at August 31, 2019	 	FVTPL
    -
 mandatorily
 measured	 	 	FVOCI
    -
 mandatorily
 measured	 	 	FVOCI
    -
 designated	 	 	Amortized

    cost	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financial
    assets:	 	 	       	 	 	 	        	 	 	 	        	 	 	 	 	 
	Cash
    and cash equivalents	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,818,744	 
	Restricted cash	 	 	-	 	 	 	-	 	 	 	-	 	 	 	8,270	 
	Accounts and other
    receivables	 	 	-	 	 	 	-	 	 	 	-	 	 	 	517,228	 
	Government remittances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	711,278	 
	Advances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,470,000	 
	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,525,520	 

 

    	 	 	Page 61  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

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

 

	(f)	Fair
    value hierarchy (cont’d)

 

	Carrying
    value at August 31, 2019	 	FVTPL
    -
 mandatorily
 measured	 	 	FVTPL
    -
 designated	 	 	Amortized

    cost	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Financial
    liabilities:	 	 	      	 	 	 	 	 	 	 	 	 
	Accounts
    payable and accrued liabilities	 	 	-	 	 	 	-	 	 	 	3,910,899	 
	Players liability
    account	 	 	-	 	 	 	-	 	 	 	8,270	 
	Line of credit	 	 	-	 	 	 	-	 	 	 	-	 
	Long-term debt	 	 	-	 	 	 	-	 	 	 	246,288	 
	Promissory notes
    payable	 	 	-	 	 	 	-	 	 	 	852,884	 
	Deferred purchase
    consideration	 	 	-	 	 	 	-	 	 	 	-	 
	Convertible debt	 	 	-	 	 	 	12,532,723	 	 	 	-	 
	 	 	 	-	 	 	 	12,532,723	 	 	 	5,018,341	 

 

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

 

	 	 	Level
    1	 	 	Level
    2	 	 	Level
    3	 	 	Fair
    value
 as at August
 31, 2020	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Convertible debt	 	 	-	 	 	 	-	 	 	 	10,793,459	 	 	 	10,793,459	 
	 	 	 	-	 	 	 	-	 	 	 	10,793,459	 	 	 	10,793,459	 

 

	 	 	Level
    1	 	 	Level
    2	 	 	Level
    3	 	 	Fair
    value
 as at August
 31, 2019	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Convertible debt	 	 	-	 	 	 	-	 	 	 	12,532,723	 	 	 	12,532,723	 
	 	 	 	-	 	 	 	-	 	 	 	12,532,723	 	 	 	12,532,723	 

 

Some
of the Company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period.
The following table gives information about how the fair values of these financial assets and financial liabilities are determined
(in particular, the valuation technique and key inputs used).

 

    	 	 	Page 62  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

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

 

	(f)	Fair
    value hierarchy (cont’d)

 

	 	Financial
                                         assets / 

        financial
        liabilities
	 	Valuation
    technique	 	Key
    Inputs	 	Relationship
                                         and

        sensitivity
        of

        unobservable
        inputs

        to
        fair value

	 	Convertible
    debt	 	The
    fair value of the convertible debentures at year-end has been calculated using a binomial lattice methodology.	 	Key
                                         observable inputs

        Share
        price (August 31, 2020: USD $8.92)

        Risk-free
        interest rate (August 31, 2020: 0.14%)

        Dividend
        yield (August 31, 2020: 0%)

        Key
        unobservable inputs

        Credit
        spread (August 31, 2020: 18.35%)

        Discount
        for lack of marketability (August 31, 2020: 47%)
	 	The
                                         estimated fair value would increase (decrease) if:

        The
        share price was higher (lower)

        The
        risk-free interest rate was higher (lower)

        The
        dividend yield was lower (higher)

        The
        credit spread was lower (higher)

        The
        discount for lack of marketability was lower (higher)

 

There
has been no change to the valuation technique during the year. There were no transfers between Levels 1, 2 and 3 during the year.

 

	31.	Subsequent
    events

 

The
Company has evaluated subsequent events from the balance sheet date through January 7, 2021, 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)	Convertible
    debentures

 

In
September and October 2020, the Company issued additional tranches of the convertible debenture private placement which resulted
in the issuance of a total principal amount of $2,901,393 of convertible debentures. In August 2020, the Company had commenced
a non-brokered private placement of convertible debentures and closed $8,750,000 (Note 19).

 

	(b)	$8,000,000
    Standby debenture facility

 

In
September 2020, the Company has entered into an $8,000,000 stand-by convertible debenture facility (the “Standby Debentures”).
The Standby Debenture has substantially similar terms as the 2020 Series debentures, except the following: (i) the references
therein to a minimum US$7.50 conversion price have been changed to US$8.90; and (ii) the Standby Debentures are only convertible
into common shares of the Company, not units. The Company issued 224,719 warrants in connection with this first draw of Standby
Debentures, with each warrant exercisable into one common share the Company at an exercise price of US$15.00 per share for a period
of two years, subject to the same acceleration clause as the warrants underlying the 2020 Series debentures. The remaining $6,000,000
of convertible debentures that are issuable under this facility have substantially similar terms as the 2020 Series debentures,
including conversion into units consisting of one share and one-half warrant, provided that the conversion price of any additional
convertible debentures will be based on the market price of the common shares at the time of such subscriptions and are subject
to TSX-V approval. In November 2020, the Company completed the draw of the first $2,000,000 under this facility.

 

    	 	 	Page 63  of  64

    	 

    

 

	Engine
    Media Holdings, Inc.	
	(formerly
    Torque Esports Corp.)
	Notes
    to the Consolidated Financial Statements
	August
    31, 2020 and 2019
	(Expressed
    in United States Dollars)

 

 

 

	31.	Subsequent
    events cont’d 

 

	(c)	Amendment
    of credit facility

 

In
December 2020, the Company amended the $5,000,000 revolving term line of credit (“EB Loan”). In connection with the
amendment, the maturity date of the EB Loan was extended from January 5, 2021 until January 5, 2022. Additionally, the Company
guaranteed the obligations under the EB Loan and has granted a security interest in favour of the Lender over the assets of the
Company. In consideration of the extension of the maturity date, the Company has agreed to issue to the Lender an aggregate of
6,666 common shares in the capital of the Company at a deemed price per share equal to $5.77 and an amendment fee of $100,000
which forms part of the outstanding principal under the EB Loan. The Bonus Shares issuable will be subject to a hold period expiring
four months and a day following the date of issuance.

 

	(d)	Sale
    of Motorsport Assets 

 

On
November 3, 2020, the Company, following a detailed strategic review in connection with the merger of Torque Esports, Frankly
Media and WinView Games, announced that it has completed the sale of IDEAS+CARS, The Race Media, WTF1, Driver DataDB and Lets
Go Racing (collectively the “Motorsport Assets”) to Ideas + Cars Holdings Limited, a third party investment group
based in the UK. As a result, the Company is eliminating its funding obligations related to the cost of maintaining and growing
these auto media businesses and certain accrued liabilities.

 

	(e)	Shares
    for Debt Transaction 

 

In
December 2020, the Company settled outstanding debt of CAD$294,000 with two arm’s length creditors by issuing 40,000 common
shares of the Company at a deemed price of CAD$7.35 per share. The amount of indebtedness represents an outstanding balance of
consulting fees and expense reimbursement owed to former consultants to the Company.

 

	(f)	Restricted
    share unit grants

 

In
November 2020, the Company granted 317,047 restricted share units pursuant to the Company’s incentive plan to one officer
and key management employees.

 

    	 	 	Page 64  of  64Exhibit
4.5

 

 

ENGINE
MEDIA HOLDINGS, INC.

(formerly
Torque Esports Corp.)

 

Management’s
Discussion and Analysis

 

For
the years ended

August
31, 2020 and 2019

 

(Expressed
in United States Dollars)

 

    	 

     

    

  

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Introduction

 

The
following Management’s Discussion and Analysis (“MD&A”) is provided to enable a reader to assess the results
of operations and financial condition of Engine Media Holdings, Inc. for the year ended August 31, 2020 and 2019 and should be
read in conjunction with the Company’s Fiscal 2020 Consolidated Financial Statements and accompanying notes. The words “we”,
“our”, “us”, “Company”, and “Engine Media” refer to Engine Media Holdings, Inc.
and its subsidiaries and/or the management and employees of the Company (as the context may require). 

 

Cautionary
Note Regarding Forward-Looking Statements

 

This
MD&A contains certain “forward-looking information” and “forward-looking statements” as defined under
applicable Canadian and U.S. securities laws (collectively, “forward-looking statements”) which are based upon
the Company’s current internal expectations, estimates, projections, assumptions and beliefs. Such statements can be identified
by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”,
“should”, “intend”, or “anticipate”, “potential”, “proposed”, “estimate”
and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions
“may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans,
expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of fact. Such forward-looking
statements are made as of the date of this MD&A. Forward-looking statements in this MD&A include, but are not limited
to, statements with respect to:

 

	 	●	financial,
    operational and other projections and outlooks as well as statements or information concerning future operation plans, objectives,
    performance, revenues, growth, acquisition strategy, profits or operating expenses; 
	 	●	our
    ability to successfully execute our business plan; 
	 	●	our
    intent to complete a private placement of our common shares and common share purchase warrants, and to have a substantial
    portion of its convertible debt converted to common shares;
	 	●	any
    expectation of regulatory approval and receipt of certifications with respect to the Company’s current and proposed
    business transactions; 
	 	●	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. (“WinView”) and Frankly Inc.
    (“Frankly”); 
	 	●	the
    expectation of obtaining new customers for the Company’s products and services, as well as expectations regarding expansion
    and acceptance of the Company’s brand and products to new markets; 
	 	●	 estimates
    and projections regarding the industry in which the Company operates and adoption of technologies, including expectations
    regarding the growth and impact of esports; 
	 	●	requirements
    for additional capital and future financing options; 
	 	●	the
    risks inherent in international operations; 
	 	●	marketing
    plans; 
	 	●	our
    ability to compete with our competitors and their technologies; 
	 	●	our
    reliance on key executives and the ability to attract and retain qualified personnel; 
	 	●	the
    availability of intellectual property protection for the Company’s products, and our ability to expand and exploit our
    intellectual property; 
	 	●	statements
    related to the expected or potential impact of the novel coronavirus (“COVID-19”) pandemic; 
	 	●	the
    completion of and our use of the proceeds of any offering; and other expectations of the Company. 

 

Forward-looking
statements contained in this MD&A are based on the assumptions described in this MD&A. Although management believes the
expectations reflected in such forward-looking statements are reasonable, forward-looking statements are based on the opinions,
assumptions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties
and other factors, both known and unknown, that could cause actual events or results to differ materially from those projected
in the forward-looking statements. These factors include, but are not limited to:

 

    	Page 2 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Cautionary
Note Regarding Forward-Looking Statements (cont’d)

 

	 	●	our
    ability to obtain additional financing to fund near term operating cash flow deficits and to continue as a going concern;
	 	●	that
    the projections relating to growth and trends in the industry of the Company and adoption of the technologies underlying the
    Company’s products are accurate; 
	 	●	execution
    of business plan; 
	 	●	the
    integration of recent acquisitions such as WinView, Frankly, and UMG Media Ltd. (“UMG”); 
	 	●	the
    management of growth; 
	 	●	reduced
    cash reserves from future operating losses; 
	 	●	failure
    to compete successfully in various markets; 
	 	●	the
    development of high-quality products; 
	 	●	rapid
    technological changes; 
	 	●	proprietary
    protection and intellectual property disputes; 
	 	●	transmission
    of user data; 
	 	●	data
    collection risk; 
	 	●	mobile
    gaming and the free-to-play business model; 
	 	●	the
    condition of the global economy; 
	 	●	risks
    inherent in foreign/international operations; 
	 	●	changing
    governmental regulations; 
	 	●	COVID-19
    related risks; 
	 	●	volatility
    in the market price of the Common Shares; 
	 	●	those
    risks discussed in this MD&A under the heading “Risk Factors”. 

 

These
factors are not intended to represent a complete list of the factors that could affect the Company. A more detailed assessment
of the risks that could cause actual events or results to materially differ from our current expectations can be found under the
heading “Risks and Uncertainties” in this MD&A.

 

Should
one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may
vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made. Although the Company has attempted to identify important
factors that could cause actual results to differ materially from forward-looking statements, there may be other factors that
cause results not to be as anticipated, estimated, described or intended.

 

A
number of factors could cause actual events, performance or results to differ materially from what is projected in forward- looking
statements. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations,
and such forward-looking statements may not be appropriate for any other purpose. You should not place undue reliance on forward-looking
statements contained in this MD&A or in any document incorporated by reference herein.

 

Although
the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct. We undertake no obligation to update or revise any forward- looking statements,
whether as a result of new information, future events or otherwise, except as required by applicable law.

 

We
qualify all the forward-looking statements contained in this MD&A by the foregoing cautionary statements.

 

    	Page 3 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Corporate
Structure

 

Engine
Media was formed during the year ended August 31, 2020 with the merger of Torque Esports, Frankly Media and WinView Games, and
the acquisition of UMG. Engine Media sold its Motorsport Assets in November 2020. The following is a summary of the inter-corporate
relationships between the Company and its subsidiaries, which together comprise the consolidated Company as at the date hereof:

 

 

    	Page 4 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Corporate
Profile

 

Engine
Media Holdings, Inc. is addressing massive market opportunities in esports, gaming, data, and streaming content distribution.
The three-way merger of Torque Esports, Frankly Media and WinView Games which closed on May 8, 2020 brings together a unique combination
of technology assets that include (i) a market leading video gaming competition platform – UMG; (ii) a skills-based mobile
engagement platform for traditional sports and esports – WinView; (iii) a data intelligence platform – Stream Hatchet;
(iv) a content management and streaming video platform that supports over 1,200 news sites and engages over 100 million monthly
active users across some of the top media companies in world - Frankly; and (v) a development studio that’s dedicated to
making the best racing games for mobile – Eden Games. The Company is a publicly traded company listed on the TSX Venture
Exchange (“TSXV”) under the symbol “GAME”. It is also dual listed in the United States on the OTCQB market
under the symbol “MLLLF”. The registered head office of the Company is 3000-77 King Street, West, P.O. Box 95, TD
Centre North Tower, Toronto, Ontario, Canada M5K 1G8.

 

Market
Opportunity

 

Video
gaming is one of the largest and fastest growing markets in the entertainment sector, with an estimated 2.6 billion gamers globally
with esports being the major source of growth. Esports is a term that comprises a diverse offering of competitive electronic games
that gamers play against each other. One of the biggest differences between esports and video games of old is the community and
spectator nature of esports, whereby competitive play against another person, either one-on-one or in teams, this is a central
feature of esports. Since players play against each other online, a global network of players and viewers has developed as these
players compete against each other worldwide. Additionally, game developers have greatly increased the entertainment value of
games, which has made the spectator aspect of gaming much more prevalent and further drives expansion of the gaming market.

 

The
expanded reach of broadband service and the computer technology advances in the last decade have also greatly accelerated the
growth of esports. Esports has become so popular that many high schools and colleges now offer programs to support students’
interest in esports, as well as tournaments and scholarships. The best-known esports teams are receiving marquee sponsorships
and are being purchased or invested in by a range of financial and strategic partners. The highest profile esports gamers have
significant online audiences as they stream themselves playing against other players online and potentially can generate millions
of dollars in sponsorship money and affiliate fees from their online streaming channels. It is projected that by 2023, approximately
650 million people will be watching esports globally. Most major professional esports events and a wide range of amateur esports
events are broadcast live via streaming services, including Twitch.tv, Youtube.com and Facebook Gaming.

 

Strategy
for Growth

 

Engine
Media generates revenue through a combination of (i) direct-to-consumer fees (subscription, rake, advertising and sponsorship,
and merchandise sales); (ii) business-to-business software-as-a-service (“SaaS”) subscription and professional
service fees; and (iii) programmatic advertising sales and brand sponsorships. The Company is uniquely positioned with a base
of predictable business-to-business revenues and an extensive network of media and gaming publisher relationships. These media
and gaming publishers engage over one hundred (100) million monthly active users. Leveraging these relationships to efficiently
create awareness for our gaming competition platform, where players and fans can play, watch and engage with other members of
the esports community, is key to our long-term growth strategy.

 

    	Page 5 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Our
Brands

 

		UMG

         

        UMG
        is a premier esports company in North America, offering live gaming entertainment events and online play. UMG provides
        online and live tournaments as well as the creation and distribution of original esports content.

         

        UMG,
        through its wholly owned subsidiary UMG Events LLC, which was founded in 2012, is actively involved in many aspects of
        the esports industry. UMG is deeply ingrained in the gaming community and very well established within the competitive
        gaming sector with approximately 2.1 million registered users and over 18 million matches played live and online through
        its platform.

         

        UMG
        is a diversified esports company that has operations involved in:

         

        ●    Live
        tournaments

        ●    Online
        contests

        ●    Creation
        and distribution of original content

        ●    Esports
        tournament operations through its proprietary tournament management app

         

        UMG
        TV by UMG Gaming is a live 24/7 linear and on-demand streaming video channel dedicated to gaming, esports and entertainment
        audiences. UMG TV is distributed across a broad range of media platforms including Twitch, YouTube, Apple TV, Roku, Amazon
        Fire, VIZIO and more. Some of the featured programming on UMG TV includes the following: UMG Rewind, The Race, Collegiate
        Clash, Emergence Days, Valorant, and UMG Classic.

	 	 
		WinView
        Games

         

        WinView
        Games is a digital technology company that pioneered second-screen interactive television technologies and holds foundational
        patents on the synchronized second-screen experience. 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 currently an end-to-end two screen TV synchronization platform for both television programming
        and commercials. The paid entry, skill-based 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. WinView has a
        portfolio of more than 68 issued patents on mobile sports gaming technologies and distributed entertainment systems.

 

    	Page 6 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Our
Brands (cont’d)

 

		Stream
                                         Hatchet

         

        Stream
        Hatchet is a data analytics company based in Terrassa, Spain, providing intelligence for persons and entities involved
        in video game streaming. Stream Hatchet provides real-time data analytics and viewership information that assists in the
        development and marketing decisions of the Company’s initiatives. These unique data analytic capabilities provide
        the Company an edge in accessing sponsorships and promotions from major brands focused on esports, as the Company has
        proprietary data on esports viewership, brand exposure and sponsorship valuation to quantify the value of our brand exposure
        on multiple streaming platforms around the globe.

         

        Stream
        Hatchet, through a SaaS offering, also generates significant independent revenue for the Company as a standalone unit
        without infringing upon its strategic value to the Company. Stream Hatchet provides holistic data to its users, which
        include streamers, esports organizations and video game producers. Stream Hatchet provides a clearly-delineated product
        offering with a high degree of automation, and a strong pipeline of clients and brands looking for intelligence in the
        esports & gaming landscape. Stream Hatchet’s innovative reporting and data analytics are unique in the industry,
        with services and reporting having been sold to major brands in the technology space. Stream Hatchet’s customers
        include industry leaders such as Microsoft, Allied Esports, Activision and Twitch.

	 	 
		Frankly
                                         Media

         

        Frankly
        Media provides a complete suite of content management, video streaming and engagement solutions that give broadcasters
        and publishers a unified workflow for the creation, management, publishing and monetization of digital content to any
        device, while maximizing audience value and revenue. Frankly delivers publishers and their audiences the solutions and
        services to meet the dynamic challenges of a multi-screen content distribution world. Frankly Media’s products include
        a groundbreaking online video platform for Live, VOD and Live-to-VOD workflows, a full-featured CMS with rich storytelling
        capabilities, as well as native apps for iOS, Android, Apple TV, Fire TV and Roku. Additionally, Frankly’s in-house
        team of digital advertising sales and operations experts monetize billions of monthly display and video advertising impressions
        through programmatic and direct brand sales across client and owned and operated media properties. Frankly has over 1,200
        radio, TV and print media brands, including CNN, Newsweek and Vice Media; TV affiliates of NBC, CBS, FOX and ABC, and
        radio station groups such as Cumulus. 

 

    	Page 7 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Our
Brands (cont’d)

 

		Eden
                                         Games

         

        Eden
        Games is a game developer with market-leading competency in building mobile racing games. They are well-known in the industry
        for the multiple racing franchises they have created and are considered experts in the fields of licensing and racing
        technology. Founded in 1998 in Lyon, France, by two experienced Atari developers, Eden Games is a household name in development
        circles and has both a storied history of success and a strong pipeline of future engagements. Its current development
        deals are for the official F1 mobile game and porting its Gear.Club franchise onto the hugely successful Nintendo Switch.
        These two contracts provide regular revenue contracted from third parties and a share of the revenue from game sales or
        in-app purchases.

         

        Eden
        has produced the following video game titles: V-Rally (1998); V-Rally 2 (1999); Need for Speed: Porsche (2000); V- Rally
        3 (2002); KYA: Dark Lineage (2003); TITEUF: Mega Compet’ (2004); Test Drive Unlimited (2006); Alone in the Dark
        (2008); Test Drive Unlimited 2 (2011); TDU2 Casino Online (2011); Gear.Club Mobile (2016 – 2020); Gear.Club Unlimited
        (2017); F1 Mobile (2018 – 2020); and Gear.Club Unlimited 2 (2018 – 2020).

 

Disposition
of Motorsport Assets 

 

In
November 2020, following a detailed strategic review in connection with the merger of Torque Esports, Frankly Media and WinView
Games, the Company sold IDEAS+CARS, The Race Media, WTF1 and Driver DataBase (collectively the “Motorsport Assets”)
to Ideas + Cars Holdings Limited, a third-party investment group based in the UK. As a result, Engine is eliminating its funding
obligations related to the cost of maintaining and growing these auto media businesses and certain accrued liabilities. These
auto-related businesses sold are not focused on gaming but instead, are developing esport and traditional sport racing audiences
with the creation and production of auto racing content. While reducing its cost base, Engine will maintain the ability to work
with the Motorsports Assets. Engine will continue to support racing as a category through its competitive gaming platform, UMG,
as it expands relationships across the entire esports sector as the leading destination for tournament play. For the year ended
August 31, 2020, the Motorsport Assets had revenue of approximately $0.56 million and an operating loss of $5.86 million.

 

As
part of the disposition of the Motorsport Assets, Darren Cox resigned as co-CEO of the Company, which enabled Engine Media to
reorganize its leadership team by moving to a single CEO role under Lou Schwartz, with Tom Rogers remaining Executive Chairman.

 

Senior
Management Team

 

Engine
Media has a deep and cohesive executive management team with diverse skillsets and unparalleled understanding of the gaming industry.
This experience provides a powerful competitive edge against our competitors, as it enables our team to anticipate patterns before
they become trends, to identify influential shifts as they develop and to adjust strategy accordingly.

 

    	Page 8 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Senior
Management Team (cont’d)

 

Tom
Rogers

Executive
Chairman & Director

 

Mr.
Tom Rogers is a media/technology executive who has shaped the communications industry over the past 40 years. He was the former
chairman of Frankly Media, executive chairman of WinView Games and the previous president and CEO of Tivo. Rogers was the founder
of CNBC and established MSNBC. He was inducted into the Broadcasting Hall of Fame & the Cable Hall of Fame and an Emmy Award
winner for the development of advanced TV.

 

Lou
Schwartz

Chief
Executive Officer & Director

 

Mr.
Lou Schwartz is a seasoned technology and digital media executive and pioneer in internet video management and over-the-top (“OTT”)
video delivery. At WWE, he oversaw all digital platforms and helped lead the development of the WWE Network. He was also CEO of
UUX, where he successfully led the merger of Totalmovie, a leading Latin American retail OTT service, with OTT Networks. Previously,
Schwartz was CEO of the Americas and General Counsel for Piksel and he co-founded Multicast Media Technologies, one of the first
Internet video platform companies, which sold to Piksel in 2010.

 

Impact
of the Global COVID-19 Pandemic

 

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

 

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

 

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

 

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

 

    	Page 9 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Presentation
of financial information

 

Unless
otherwise specified within, financial results, including historical comparatives, contained in this MD&A are based on Engine
Media’s audited consolidated financial statements which have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Unless otherwise
specified, amounts are in U.S. dollars and percentage changes are calculated using whole numbers.

 

Results
from operations

 

Selected
Annual Information

 

	Year
    ended August 31,      	 	Note	 	2020	 	 	2019	 
	 	 	 	 	 	 	 	 	 
	Operating results	 		 	 	 	 	 	 	 	 
	Total revenues	 	 	 	$	11,108,377	 	 	$	4,219,461	 
	Total expenses	 	 	 	 	43,523,658	 	 	 	18,171,745	 
	Total net loss from continuing operations	 	 	 	 	(32,339,215	)	 	 	(13,842,830	)
	Total net loss	 	 	 	 	(32,340,042	)	 	 	(14,737,998	)
	Comprehensive loss	 	 	 	 	(33,341,145	)	 	 	(15,125,465	)
	 	 	 	 	 	 	 	 	 	 	 
	Loss per share – Continuing operations	 	 	 	 	 	 	 	 	 	 
	Basic and diluted loss per share	 	 	 	$	(10.96	)	 	$	(94.19	)
	Loss per share – Discontinued
    operations	 	 	 	 	 	 	 	 	 	 
	Basic and diluted loss per share	 	 	 	$	(0.00	)	 	$	(6.09	)

 

The
total expenses above for the year ended August 31, 2020 include a non-cash increase in the fair value of warrant liability of
$6.2 million, discussed in more detail below. The total loss for the loss the year ended August 31, 2020 includes a loss of $5.9
million from the Motorsports assets that were sold in November 2020. 

 

	As
    at August 31,	 	Note	 	2020	 	 	2019	 
	 	 	 	 	 	 	 	 	 
	Financial position	 	 	 	 	 	 	 	 	 	 
	Total assets	 	 	 	$	53,415,477	 	 	$	10,685,697	 
	Total liabilities	 	 	 	 	53,152,185	 	 	 	18,352,879	 
	Working capital deficiency	 	(i)	 	 	(29,663,546	)	 	 	(693,391	)
	Total debt	 	(ii)	 	 	20,334,966	 	 	 	13,631,895	 
	 	 	 	 	 	 	 	 	 	 	 
	Other metrics	 	 	 	 	 	 	 	 	 	 
	Debt to total assets	 	(iii)	 	 	38	%	 	 	128	%

 

	(i)	Working
    capital deficiency is defined as total current assets less total current liabilities.
	(ii)	Total
    debt is defined as the aggregate total of convertible debt, line of credit, promissory notes, long-term debt and lease obligations.
	(iii)	Debt
    to total assets is calculated as total debt divided by total assets.

 

The
comparison between fiscal 2020 and 2019 is impacted significantly by the acquisitions of UMG on December 31, 2020 and Frankly
and WinView on May 8, 2020. See discussion below.

 

    	Page 10 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Results
from operations (cont’d)

 

Revenue

 

	For
    the year ended August 31,	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Games development	 	 	2,732,846	 	 	 	3,371,472	 
	Sponsorship, tournament and event income	 	 	889,862	 	 	 	12,628	 
	Platform revenue	 	 	2,571,672	 	 	 	303,078	 
	Advertising revenue	 	 	4,526,453	 	 	 	-	 
	Professional services	 	 	386,390	 	 	 	483,185	 
	Other income	 	 	1,154	 	 	 	49,098	 
	 	 	 	11,108,377	 	 	 	4,219,461	 

 

	●	Games
    development for the year ended August 31, 2020 was $2,732,846 in comparison to $3,371,472 for the year ended August 31, 2019.
    The decrease of $638,626 was due to Eden Games resources assigned to internal development projects for Ideas and Cars, for
    which revenue is not recognized. 
	 	 
	●	Sponsorship,
    tournament and event income for the year ended August 31, 2020 was $889,862 in comparison to $12,628 for the year ended August
    31, 2019. The increase of $877,234 was due to the inclusion of UMG and WinView during the period and the addition of new revenue
    from The Race.
	 	 
	●	Platform
    revenue for the year ended August 31, 2020 was $2,571,672 in comparison to $303,078 for the year ended August 31, 2019. The
    increase of $2,268,594 was due to the inclusion of post-acquisition revenue from Frankly and higher platform revenue recognized
    at Stream Hatchet for the period.
	 	 
	●	Advertising
    revenue for the year ended August 31, 2020 was $4,526,453 in comparison to $nil for the year ended August 31, 2019. The increase
    was due to post-acquisition revenue from Frankly and small additional revenue from The Race and UMG.
	 	 
	●	Professional
    services revenue for the year ended August 31, 2020 was $386,390 in comparison to $483,185 for the year ended August 31, 2019.
    The decrease of $96,795 was due to slightly lower professional services revenue recognized at Stream Hatchet for the period
    due to Stream Hatchet’s emphasis on recurring platform revenue. 
	 	 
	●	Other
    income was insignificant for both fiscal 2020 and 2019. 

 

    	Page 11 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Results
from operations (cont’d)

 

Expenses

 

	For
    the year ended August 31,	 	2020	 	 	2019	 
	 	 	 	$	 	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Salaries and wages	 	 	7,069,321	 	 	 	4,277,676	 
	Consulting	 	 	3,768,175	 	 	 	1,723,584	 
	Professional fees	 	 	2,853,141	 	 	 	711,521	 
	Revenue sharing expense	 	 	3,380,017	 	 	 	-	 
	Sponsorships and tournaments	 	 	4,282,232	 	 	 	586,850	 
	Advertising and promotion	 	 	2,544,495	 	 	 	865,661	 
	Office and general	 	 	1,927,352	 	 	 	797,382	 
	Technology expenses	 	 	1,226,341	 	 	 	109,765	 
	Amortization and depreciation	 	 	3,891,042	 	 	 	2,386,805	 
	Share-based payments	 	 	1,409,569	 	 	 	73,843	 
	Interest expense	 	 	909,928	 	 	 	333,381	 
	(Gain) loss on foreign exchange	 	 	562,350	 	 	 	(178,005	)
	Change in fair value of warrant liability	 	 	6,189,921	 	 	 	(552,820	)
	Change in fair value of convertible
    debt	 	 	(230,127	)	 	 	1,536,532	 
	Change in fair value of contingent consideration	 	 	87,702	 	 	 	110,501	 
	Gain on settlement of debt	 	 	-	 	 	 	(497,191	)
	Impairment of investment in associate
    and advances	 	 	3,652,199	 	 	 	-	 
	Impairment of goodwill	 	 	-	 	 	 	5,886,260	 
	 	 	 	43,523,658	 	 	 	18,171,745	 

 

	●	Salaries
    and wages for the year ended August 31, 2020 was $7,069,321 in comparison in comparison to $4,277,676 for the year ended August
    31, 2019. The increase of $2,791,645 was due to post acquisition salary and wages of Frankly, WinView and UMG. As discussed
    in the Financing section, the Company received forgivable loans under the Paycheck Protection Program and under government
    grant accounting recognized the impact of the loan forgiveness of $1,589,559 as an offset against salaries and wages in the
    consolidated statement of loss and comprehensive loss for the year ended August 31, 2020. 
	 	 
	●	Consulting
    for the year ended August 31, 2020 was $3,768,175 in comparison to $1,723,584 for the year ended August 31, 2019. The increase
    of $2,044,591 was due to costs relating to the acquisition activities of the group and taking up the post-acquisition costs
    of Frankly, WinView and UMG.
	 	 
	●	Professional
    fees for the year ended August 31, 2020 was $2,853,141 in comparison to $711,521 for the year ended August 31, 2019. The increase
    of $2,141,620 was due to primarily to the increase in legal and accounting fees relating to the business combinations, asset
    acquisitions and pending transactions including Frankly, WinView, UMG, WTF1, Lets Go Racing, Driver DB and AIS.
	 	 
	●	Revenue
    sharing for the year ended August 31, 2020 was $3,380,017 in comparison to $nil for the year ended August 31, 2019. These
    costs are the share of our gross advertising revenue paid to Frankly’s customers.
	 	 
	●	Sponsorships
    and tournaments for the year ended August 31, 2020 was $4,282,232 in comparison to $586,850 for the year ended August 31,
    2019. The increase of $3,695,382 was due to costs of $2.7 million relating to production of the World’s Fastest Gamer
    season 2 including winner’s prizes, plus various other MotorSports projects including All Stars. as well as post-acquisition
    costs from UMG. With the sale of the MotorSports Assets, the World’s Fastest Gamer costs will not recur.

 

    	Page 12 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Results
from operations (cont’d)

 

Expenses
(cont’d)

 

	●	Advertising
    and promotion for the year ended August 31, 2020 was $2,544,495 in comparison to $865,661 for the year ended August 31, 2019.
    The increase of $1,678,834 was due to promotion costs relating to The World’s Fastest Gamer season 2, the All-Star racing
    series and post-acquisition costs of Frankly, WinView and UMG. With the sale of the MotorSports Assets, the World’s
    Fastest Gamer costs will not recur.
	 	 
	●	Office
    and general for the year ended August 31, 2020 was $1,927,352 in comparison to $797,382 for the year ended August 31, 2019.
    The increase of $1,129,970 was due to post-acquisition costs of Frankly, WinView and UMG and higher infrastructure and usage
    rights costs at Eden Games.
	 	 
	●	Technology
    for the year ended August 31, 2020 was $1,226,341 in comparison to $109,765 for the year ended August 31, 2019. The increase
    of $1,116,576 was due to post-acquisition costs of Frankly, WinView and UMG.
	 	 
	●	Amortization
    and depreciation for the year ended August 31, 2020 was $3,891,042 in comparison to $2,386,805 for the year ended August 31,
    2019. The increase of $1,504,237 was due to the amortization relating to the post acquisition intangible assets of Frankly,
    WinView and UMG.
	 	 
	●	Share-based
    payments expense for the year ended August 31, 2020 was $1,409,569 in comparison to $73,843 for the year ended August 31,
    2019. The increase of $1,335,726 was due stock options and restricted stock units granted to officers and directors, during
    the year, as well as stock options and RSUs assumed in the acquisitions of Frankly, WinView and UMG.
	 	 
	●	Interest
    expense for the year ended August 31, 2020 was $909,928 in comparison to $333,381 for the year ended August 31, 2019. The
    increase of $576,547 was due higher average balance of convertible debt outstanding during fiscal 2020 than 2021, other debt
    issued in fiscal 2020 in the form of promissory notes to fund operations and the assumption of debt in the Frankly and WinView
    acquisitions. 
	 	 
	●	Loss
    on foreign exchange for the year ended August 31, 2020 was $562,350 compared to a gain for the year ended August 31, 2020
    of $178,005, a change of $740,355 due to the strengthening of the Canadian dollar against the USD during fiscal 2020 compared
    to weakening in 2019. Engine has significant liabilities denominated in Canadian dollars. Therefore, the strengthening of
    the Canadian dollar against the USD results in a foreign exchange loss for the period.
	 	 
	●	Change
    in fair value of warrant liability for the year ended August 31, 2020 increased expense by $6,189,921 in comparison to reducing
    expense by $552,820 for the year ended August 31, 2019. The change of $6,742,741 in the warrant liability is a result of the
    revaluation of the Company’s warrant obligation at each period end impacted by larger warrant base resulting from significant
    convertible debenture conversions during the period, and the increase in the Company’s share price to $11.65 at August
    31, 2020.
	 	 
	●	Change
    in fair value of convertible debt for the year ended August 31, 2020 decreased expense by $230,127 in comparison to an increase
    in expense of $1,536,532 for the year ended August 31, 2019. The change of $1,766,659 was due to a reduction in the fair value
    of our convertible debt.
	 	 
	●	Gain
    on settlement of debt was $nil for the year ended August 31, 2020 compared to $497,191 for the year ended August 31, 2019,
    a change of $497,191. There was no debt settlement in fiscal 2020.

 

    	Page 13 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Results
from operations (cont’d)

 

Expenses
(cont’d)

 

	●	Impairment
    of investments and advances for the year ended August 31, 2020 was $3,652,199 in comparison to $nil for the year ended 31,
    2019, a change of $3,652,199. The increase was due to full reserve of the $2,625,657 of advances to AIS for purchase consideration
    and working capital. The investment in One Up was valued at $2,052,008 based on reference to recent financings by One Up.
    The Company recognized a day one loss of $947,992, representing the difference in principal value of the debenture issued
    of $3,000,000 and the fair value of the investment in One Up. One Up operates a mobile app which allows gamers to organize
    and play one-on-one matches with other gamers and compete for money. The Company believes there will be synergies with the
    WinView Inc. business.
	 	 
	●	Impairment
    of goodwill for the year ended August 31, 2020 was $nil in comparison to $5,886,260 for the year ended August 31, 2019. The
    decrease of $5,886,260 was due to no impairment being recognized in the 2020 period. The fiscal 2019 impairment related to
    Eden Games and was due to under performance of actual revenues in comparison to forecast, and a future decline of revenue
    growth.

 

Other
items

 

	For
    the year ended August 31,	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Deferred income taxes	 	 	-	 	 	 	(144,822	)
	Non-controlling interest in net loss	 	 	76,066	 	 	 	254,276	 
	Pro Gaming League Nevada Inc.	 	 	(827	)	 	 	(895,168	)
	Foreign currency
    translation differences	 	 	(1,001,103	)	 	 	(387,467	)

 

	●	The
    deferred income taxes for the year ended August 31, 2019 relate to the expensing of the deferred tax asset that existed as
    at August 31, 2018. 
	 	 
	●	The
    minority interest in net loss was reduced to a proportionately smaller loss in Eden Games S.A. 
	 	 
	●	The
    discontinued operations of Pro Gaming League Nevada Inc. (PGL) for the year ended August 31, 2020 was $827 in comparison to
    $(895,168) for the year ended August 31, 2019. The decrease of $827 was due to the ceasing of operations of PGL during fiscal
    2019.
	 	 
	●	Foreign
    currency translation differences for the year ended August 31, 2020 were a loss of $ $1,001,103 in comparison to a loss of
    $387,467 for the year ended August 31, 2019. The increase of $613,636 was due to various functional currencies of our subsidiaries,
    in particular EUR and GBP strengthening against the USD.

 

    	Page 14 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Results
from operations (cont’d)

 

Segmented
analysis

 

For
the year ended August 31, 2020

 

	 	 	E-Sports	 	 	Media
    and
 Advertising	 	 	Corporate

    and Other	 	 	Total	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	External
    sales	 	 	4,703,265	 	 	 	6,404,736	 	 	 	376	 	 	 	11,108,377	 
	 	 	 	4,703,265	 	 	 	6,404,736	 	 	 	376	 	 	 	11,108,377	 
	Results	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Segment
    loss	 	 	(10,718,153	)	 	 	(833,891	)	 	 	376	 	 	 	(11,551,668	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Central administration
    costs	 	 	-	 	 	 	-	 	 	 	9,691,640	 	 	 	9,691,640	 
	Other gains and
    losses	 	 	15	 	 	 	(14,011	)	 	 	10,276,041	 	 	 	10,262,045	 
	Finance
    costs	 	 	103,758	 	 	 	241,520	 	 	 	564,650	 	 	 	909,928	 
	Loss before tax	 	 	(10,821,926	)	 	 	(1,061,400	)	 	 	(20,531,955	)	 	 	(32,415,281	)
	Income tax	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Gain (Loss) for
    the year from	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	discontinued operations	 	 	-	 	 	 	-	 	 	 	(827	)	 	 	(827	)
	non-controlling
    interest in net loss	 	 	-	 	 	 	-	 	 	 	76,066	 	 	 	76,066	 
	Net
    loss	 	 	(10,821,926	)	 	 	(1,061,400	)	 	 	(20,456,716	)	 	 	(32,340,042	)

 

For
the year ended August 31, 2019

 

	 	 	E-Sports	 	 	Media
    and
 Advertising	 	 	Corporate

    and Other	 	 	Total	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	External
    sales	 	 	4,218,987	 	 	 	      -	 	 	 	474	 	 	 	4,219,461	 
	 	 	 	4,218,987	 	 	 	-	 	 	 	474	 	 	 	4,219,461	 
	Results	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Segment loss	 	 	(1,986,170	)	 	 	-	 	 	 	474	 	 	 	(1,985,696	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Central administration
    costs	 	 	-	 	 	 	-	 	 	 	5,327,930	 	 	 	5,327,930	 
	Other gains and
    losses	 	 	(26,954	)	 	 	-	 	 	 	6,332,231	 	 	 	6,305,277	 
	Finance costs	 	 	70,834	 	 	 	-	 	 	 	262,547	 	 	 	333,381	 
	Loss before tax	 	 	(2,030,050	)	 	 	-	 	 	 	(11,922,234	)	 	 	(13,952,284	)
	Income tax	 	 	-	 	 	 	-	 	 	 	(144,822	)	 	 	(144,822	)
	Gain (Loss) for
    the year from	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	discontinued operations	 	 	-	 	 	 	-	 	 	 	(895,168	)	 	 	(895,168	)
	non-controlling
    interest in net loss	 	 	-	 	 	 	-	 	 	 	254,276	 	 	 	254,276	 
	Net
    loss	 	 	(2,030,050	)	 	 	-	 	 	 	(12,707,948	)	 	 	(14,737,998	)

 

    	Page 15 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Results
from operations (cont’d)

 

Segmented
analysis (cont’d)

 

	●	E-Sports
    net loss for the year ended August 31, 2020 was $10,821,926 in comparison to $2,030,050 for the year ended August 31, 2019.
    The increase of $8,791,876 was primarily due to MotorSports Assets expenses relating to the production, promotion and prize
    payouts of the World’s Fastest Gamer season 2, the All Star racing series and related projects. 
	 	 
	●	Media
    and Advertising net loss for the year ended August 31, 2020 was $1,061,400 in comparison to $nil for the year ended August
    31, 2019. This was due to addition on May 8, 2020 of Frankly, Inc. to the group resulting in the creation of a new segment.
	 	 
	●	Corporate
    and Other net loss for the year ended August 31, 2020 was $20,456,716 in comparison to $12,707,948 for the year ended August
    31, 2019. The increase of $7,748,768 was primarily due to the change in fair value of warrant liability that increased the
    loss by $6,189,921 in fiscal 2020 versus decreasing the loss by $552,820 in fiscal 2019. 

 

	 	 	 	 	 	 	 	From
                                         continuing operations	 	 	 	 	 
	Three-month
    period ended	 	 	Total
                                         revenue	 	 	 	Total
                                         loss	 	 	 	Basic
                                         and
 diluted loss per share	 	 	 	Total
                                         assets 	 
	August 31, 2020	 	 	7,179,173	 	 	 	(10,071,255	)	 	 	(1.33	)	 	 	53,415,477	 
	May 31, 2020	 	 	2,758,440	 	 	 	(11,701,648	)	 	 	(3.63	)	 	 	42,747,189	 
	February 29, 2020	 	 	662,516	 	 	 	(2,506,244	)	 	 	(0.22	)	 	 	12,664,332	 
	November 30, 2019	 	 	808,248	 	 	 	(8,051,391	)	 	 	(3.26	)	 	 	8,555,893	 
	August 31, 2019	 	 	801,039	 	 	 	(10,127,745	)	 	 	(6.28	)	 	 	10,685,697	 
	May 31, 2019	 	 	800,149	 	 	 	(2,058,314	)	 	 	(0.95	)	 	 	13,144,665	 
	February 28, 2019	 	 	1,544,729	 	 	 	(1,195,488	)	 	 	(0.75	)	 	 	13,731,836	 
	November 30, 2018	 	 	1,668,639	 	 	 	(1,356,451	)	 	 	(0.75	)	 	 	14,206,010	 
	August 31, 2018	 	 	1,025,713	 	 	 	(9,818,790	)	 	 	(5.25	)	 	 	14,908,615	 

 

Quarterly
revenues declined from the quarter ended February 28, 2019 compared to the quarter ended May 31, 2019 primarily due to a decline
in revenue for Eden Games. Quarterly revenues increased from the quarter ended February 29, 2020 compared to the quarter ended
May 31, 2020 and increased further in the quarter ended August 31, 2020 primarily due to inclusion of the revenues of Frankly
for 18 days after the May 8, 2020 acquisition and for the full quarter ended August 31, 2020.

 

The
total loss was larger in the quarters ended August 31, 2019, November 30, 2019 and May 31, 2020 and August 31, 2020 primarily
due to one-time charges for impairments, as well as increases in the fair value of the warrant liability. In the quarter ended
August 31, 2019, the Company recorded a goodwill charge of $5.9 million related to the Eden Games business, and the Company also
had change in fair value of convertible debt of $1.5 million. In the quarter ended November 30, 2019, the change in value of the
warrant and convertible debt added $2.4 million to the loss and promotion for the World’s Fastest Gamer and other advertising
was a $2.8 million increase. For the quarter ended May 31, 2020, the change in warrant liability added $7.0 million to the loss.
For the quarter ended August 31, 2020, an impairment on investments and advances of $2.6 million and changes in the fair value
of warrant liability and convertible debt of $1.3 million added to the quarterly loss.

 

    	Page 16 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Liquidity
and capital resources

 

Liquidity
and cash management

 

The
Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when
due. The Company’s liquidity and operating results may be adversely affected if the Company’s access to the capital
market is hindered, whether as a result of a downturn in stock market conditions generally or as a result of conditions specific
to the Company.

 

The
Company regularly evaluates its cash position to ensure preservation and security of capital as well as maintenance of liquidity.
As the Company does not presently generate sufficient revenue to cover its costs, managing liquidity risk is dependent upon the
ability to reduce its monthly operating cash outflow and secure additional financing. The recoverability of the carrying value
of the assets and the Company’s continued existence is dependent upon the ability of the Company to raise financing in the
near term, and ultimately the achievement of profitable operations.

 

As
at August 31, 2020, the Company had a cash balance of $5,243,278 (August 31, 2019: $2,818,744) and current liabilities of $41,839,019
(August 31, 2019: $5,447,753). This represents a working capital deficiency of $29,663,546 (August 31, 2019: deficiency of $693,391)
which is comprised of current assets less current liabilities. The working capital deficiency at August 31, 2020 includes a warrant
liability of $14,135,321 which will not be settled in cash. The Company has not yet realized profitable operations and has incurred
significant losses to date resulting in a cumulative deficit of $72,094,162 as at August 31, 2020 (August 31, 2019: $39,754,120).

 

Following
the acquisitions of Frankly and WinView on May 8, 2020, the Company undertook a strategic review of the business. As a result
of this review, as discussed above, after August 31, 2020, the Company divested its MotorSports Assets Group, which had incurred
a loss of $5.86 million for the year ended August 31, 2020. This will substantially reduce the monthly cash outflow. The Company
also made targeted spending cuts to further reduce the monthly cash outflow.

 

The
Company has raised substantial funds since August 31, 2020, see Financing section for details. Since August 31, 2020, the Company
has raised cash of $4.9 million in issuance of convertible debentures. In addition, the Company has reduced its current liabilities
by $5 million since August 31, 2020 with the extension of the due date of the $5 million line of credit from January 2021 to January
2022. The Company expects to reduce its debt by having a substantial portion of its convertible debt converted to common shares
in the first part of calendar 2021.

 

The
Company will need to raise additional funds no later than February of 2021 to continue its operations. The Company has announced
it intends to complete a private placement in that time frame of up to 3.3 million units at a price of $7.50 per unit. Each unit
consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire
one additional share at a price of $15.00 for a period of 3 years. While management and the board have been historically successful
in raising the necessary capital, it cannot provide assurance that it will be successful in this or other future financing activities.

 

Our
ability to maintain sufficient liquidity could be affected by various risks and uncertainties including, but not limited to, our
ability to raise additional funds through financing, those related to consumer demand and acceptance of our products and services,
our ability to collect payments as they become due, achieving our internal forecasts and objectives, the economic conditions of
the United States and abroad. These risk factors are described in Risks and uncertainties section of this MD&A.

 

    	Page 17 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Liquidity
and capital resources (cont’d)

 

Share
consolidations

 

Three
share consolidations occurred during the period from September 1, 2018 to the date of this MD&A:

 

	●	On
    August 13, 2020, the Company consolidated its common shares on a 15 to 1 basis
	●	On
    October 18, 2019, the Company consolidated its common shares on a 5 to 1 basis
	●	On
    June 5, 2019, the Company consolidated its common shares on a 15 to 1 basis. 

 

Capital
management framework

 

The
Company considers its capital to be its shareholders’ equity. As at August 31, 2020, the Company had shareholders’
equity of $45,907 (August 31, 2019: shareholders’ deficiency of $7,960,633).

 

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

 

The
Company may also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines
any of these to be an effective method of achieving the above objective. The Company does not use ratios in the management of
its capital.

 

There
have been no changes to management’s approach to managing its capital for the year ended August 31, 2020.

 

Financing

 

The
proceeds of the financings disclosed below were intended to be used primarily for working capital and future operating needs.
The proceeds received have been used primarily for those purposes.

 

Equity

 

During
the year ended August 31, 2020, the Company issued 26,666 common shares upon vesting of an equal number of RSUs, issued 1,739,615
common shares in connection with conversion of convertible debt, and issued 502,562 common shares in connection with a series
of non-brokered private placements as follows: 

 

On
December 18, 2019, the Company closed a non-brokered private placement at a price of CAD$18.75 ($14.25) per unit. The Company
issued 58,133 units for gross proceeds of CAD$1,090,000 ($830,907). Each unit is comprised of one common share of the Company
and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share of the Company
for a period of 36 months from the date of issuance of the warrant, at an exercise price of CAD$27.00 per share. The proceeds
were allocated to the common shares and warrants using the relative fair value method, with $612,745 being allocated to the 58,133
common shares issued and the remaining $218,162 allocated to the 29,067 warrants issued.

 

During
the third quarter the Company closed a non-brokered private placement at a price of CAD$9.00 per unit in four tranches. The Company
issued a total of 444,429 units for gross proceeds of CAD$3,999,860 ($2,875,593). Each unit is comprised of one common share of
the Company and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share
of the Company for a period of 36 months from the date of issuance of the warrant, at an exercise price of CAD$13.50 per share.
The proceeds were allocated to the common shares and warrants using the relative fair value method, with $2,102,047 being allocated
to the 444,429 common shares issued and the remaining $773,546 allocated to the 222,214 warrants issued.

 

    	Page 18 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Financing
(cont’d)

 

Equity
(cont’d)

 

On
March 20, 2020, the Company issued 46,300 common shares in settlement of select trade payables through a shares for debt placement
amounting to CAD$900,003 ($632,522). The fair value of the shares issued were based on market price on the date of settlement.
In addition, on June 13, 2020, the Company issued 13,354 common shares in settlement of select trade payables through a shares
for debt placement amounting to CAD$125,000 ($91,709).

 

During
the year ended August 31, 2020, the Company issued 654,543 common shares in connection with the exercise of warrants. In connection
with these exercises, amounts recorded to share capital of $4,919,596 are comprised of exercise proceeds of $3,574,023 and intrinsic
value of warrants on exercise of $1,345,573.

 

Debt

 

Promissory
Notes

 

On
September 30, 2018, the Company received $200,000 in working capital advances in the form of promissory notes from two companies.
These promissory notes are unsecured, due on demand, and carry interest at 18%. As of August 31, 2020, interest of $83,435 has
been accrued (2019 – $33,131).

 

As
of August 31, 2020, net advances and payments under a promissory note of $907,833 (2019 – $618,431) were outstanding to
a company. The notes are unsecured, bear interest at 12%, and are due on demand. As of August 31, 2020, interest of $179,967 had
accrued. (2019 – $1,322).

 

The
Company, through its Frankly subsidiary, has promissory notes with two parties for $400,000. The notes were issued in May 2020,
after the acquisition of Frankly by the Company on May 8, 2020. The notes are unsecured, bear interest at 12%, and are due on
October 31, 2020. As of August 31, 2020, interest of $14,423 had been accrued on these notes.

 

The
Company, through its Winview subsidiary, has a secured promissory note outstanding for amounts due for the provision of services
by the noteholder. As of August 31, 2020, $1,527,582 was due under the note. The note is secured by the assets of Winview, bears
interest at 8%, and is currently due. As of August 31, 2020, interest of $63,612 had accrued on this note.

 

The
Company, through its UMG subsidiary, has two promissory notes outstanding as at August 31, 2020 in the amount of $112,168, representing
principal and accrued interest. The larger note has an outstanding balance of principal and accrued interest at August 31, 2020
of $75,492, has an interest rate of 12% and is currently due.

 

As
of August 31, 2020, the Company, through its UMG subsidiary, has a balance of $330,000 due to a former UMG shareholder. This balance
is the remaining cash due for the purchase of UMG Events LLC (subsidiary of UMG Media Ltd.) and has a due date of September 1,
2020 and is non-interest bearing until the due date.

 

Frankly
line of credit

 

On
January 7, 2020, the Company’s Frankly Media LLC subsidiary (“Frankly Media”) entered an agreement with an arm’s
length lender, EB Acquisition Company, LLC (the “Lender”), whereby the Lender agreed, subject to the terms and conditions
thereof, to provide Frankly Media with a revolving term line of credit in the principal amount of up to $5 million (the “EB
Loan”). In connection with entering into the EB Loan, Frankly Media drew $4 million under the EB Loan under an initial advance,
and in July 2020 borrowed an additional $1 million.

 

    	Page 19 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Debt

 

Frankly
line of credit (cont’d)

 

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 $15 million amount 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$7.50 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.

 

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 over the one-year loan term. Amortization of debt discount included in interest expense, net for the period from May 8, 2020
to August 31, 2020 amounted to $80,493 and (2019 – $Nil). The carrying value of the line of credit at August 31, 2019 is
$4,919,507.

 

In
December 2020, the Company amended the $5,000,000 revolving term line of credit (“EB Loan”). In connection with the
amendment, the maturity date of the EB Loan was extended from January 5, 2021 until January 5, 2022. Additionally, the Company
guaranteed the obligations under the EB Loan and has granted a security interest in favor of the Lender over the assets of the
Company. In consideration of the extension of the maturity date, the Company has issued to the Lender an aggregate of 6,666 common
shares in the capital of the Company at a deemed price per share equal to $5.77 and an amendment fee of $100,000 which forms part
of the outstanding principal under the EB Loan.

 

Paycheck
Protection Program (“PPP”) loans

 

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

 

Interest
will accrue on the outstanding balance of the Notes at a rate of 1.00% per annum. However, the Company expects to apply for and
receive forgiveness of up to all amounts due under the Notes, in an amount equal to the sum of qualified expenses under the PPP
during the twenty-four weeks following disbursement. Notwithstanding the Company’s eligibility to apply for forgiveness,
no assurance can be given that the Company will obtain forgiveness of all or any portion of amounts due under the Notes.

 

    	Page 20 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Debt
(cont’d)

 

Paycheck
Protection Program (“PPP”) loans (cont’d)

 

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

 

Upon
the receipt of the proceeds of $1,589,559 from the Notes, the Company accounted for the Notes as a grant in the form of forgivable
loan and recorded the amount as a deferred income liability. The liability was reduced as the Company recognized expenses which
qualified for forgiveness of the loan. At August 31, 2020, the Company had incurred greater than $1,589,559 in qualifying expenses
and therefore had a remaining deferred income liability of nil. The Company recognized the impact of the loan forgiveness as an
offset against related expense, salaries and wages in the consolidated statement of loss and comprehensive loss.

 

Debentures

 

During
the year ended August 31, 2020, the 2019 Series convertible debentures with a principal amount of CAD$13,047,122 were converted
into 1,739,615 units, and as a result, the Company issued 1,739,615 common shares and 1,739,615 warrants. The fair value of the
convertible debentures at the time of conversion was estimated using the binomial lattice model with the below assumptions. The
fair value assigned to the convertible debt conversions was $10,189,558. This value was allocated between common shares and warrants
as $5,152,023 and $5,037,535, respectively.

 

In
August 2020, the Company commenced a non-brokered private placement (the “Private Placement”) of convertible debentures
(the “Debentures”) and closed a first tranche of $5,750,000. In September and October 2020, the Company issued additional
tranches of the convertible debenture private placement which resulted in the issuance of a total principal amount of $2,901,393
of convertible debentures, which together with the first tranche totals principal amount $7,651,393 of Debentures.

 

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

 

The
Debenture holders may convert all or a portion of the principal amount of the Debentures into units (“Units”) of the
Company at a price (the “Conversion Price”) equal to the lesser of (a) US$11.25 per Unit, and (b) if such conversion
occurs after a public offering of securities by the Company (the “Public Offering”), a fifteen percent (15%) discount
to the public offering price, provided that such conversion price shall not be less than US$7.50 per Unit. Notwithstanding the
foregoing, if by December 19, 2020, the Company has not obtained registration rights in the United States to allow sale in the
United States of the common shares (“Common Shares”) of the Company and the exercise of warrants (the “Warrants”)
of the Company to be issued pursuant to the conversion of the Debentures, holders of Debentures may convert such Convertible Debentures
into Units at US$7.50 per Unit.

 

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

 

    	Page 21 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Debt
(cont’d)

 

Debentures
(cont’d)

 

In
the event that the Common Shares are listed for trading on the NASDAQ Capital Market and the Company completes a Public Offering
for an aggregate amount of at least US$30,000,000, the Company may cause the Debentures to be converted at the Conversion Price
by the Company delivering a notice.

 

The
Company also issued a Debenture with principal amount of $3,000,000 in connection with its equity investment in One-Up in August
2020. Together with the Private Placement Debentures, the total principal amount of the Debentures is $10,651,393

 

$8,000,000
Standby Debenture Facility

 

In
September 2020, the Company entered into a US$8,000,000 stand-by convertible debenture facility (the “Standby Debentures”).
The Standby Debenture has substantially similar terms as the Debentures, except the following: (i) the references therein to a
minimum US$7.50 conversion price have been changed to US$8.90; and (ii) the Standby Debentures are only convertible into common
shares of the Company, not units. The Company issued 224,719 warrants in connection with this first draw of Standby Debentures,
with each warrant exercisable into one common share of the Company at an exercise price of US$15.00 per share for a period of
two years, subject to the same acceleration clause as the warrants underlying the Debentures. The remaining US$6,000,000 of convertible
debentures that are issuable under this facility have substantially similar terms as the Debentures, including conversion into
units consisting of one share and one-half warrant, provided that the conversion price of any additional convertible debentures
will be based on the market price of the common shares at the time of such subscriptions and are subject to TSX-V approval.

 

Commitments
and contingencies

 

Operating
leases

 

Eden
Games is obligated under operating leases for use of its office premises for the period ending April 15, 2025. Eden Games can
end the lease at end of every three-year period on nine months advance notice. Payment of €25,000 ($18,618) is required every
quarter. Annual future minimum rental payments under operating leases are as follows: 2020: € 50,000 ($54,500), 2021: €100,000
($109,000), 2022: € 31,250 ($34,063)

 

UMG
is obligated under the terms of an occupancy lease for use of its office premises until February 28, 2025, renewable for a further
three years with 90 days notice prior to the conclusion of the original term. Annual future minimum rental payments under operating
lease are as follows: 2020: $ 85,688, 2021: $86,545, 2022: $87,411, 2023: $88,285, 2024: $89,168.

 

Royalty
expenses

 

Royalty
expenses relate to royalties paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology
or other intellectual property or proprietary rights in the development or sale of the Eden Games’ products. Eden Games
has royalty agreements to utilize trademarks, copyrights, software, technology or other intellectual property or proprietary rights
in the development or sale of its products. Eden Games has committed to pay royalties ranging from 4% to 25% of revenues after
certain thresholds have been met, in connection with the underlying license agreements. Royalty expenses were €nil for the
year ended August 31, 2020 and 2019.

 

    	Page 22 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Commitments
and contingencies (cont’d)

 

Consulting
contract

 

Under
the terms of a consulting agreement dated July 27, 2017, the Company is committed to pay nine months severance in the event of
termination, amounting to £144,500 ($175,911). If revenue from the Eden Games mobile app exceeds specified amounts, a bonus
shall be paid up to a maximum of £100,000 ($121,561) on an annual basis. As no triggering events have taken place related
to the contingencies to August 31, 2020, no provision has been made in the consolidated financial statements.

 

Litigation
and Arbitration

 

In
April 2020, the Company announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provides
for the acquisition of 100% of Allinsports in exchange for the issuance of 966,667 common shares of the Company. The purchase
agreement included the requirement of $1.2 million to be advanced against the purchase price. In September 2020, the Company advised
the shareholders of Allinsports that closing conditions of the transaction, including the failure to provide audited financial
statements, had not been satisfied. In response, in November 2020, the shareholders of Allinsports commenced arbitration in Ontario
seeking, among other things, to compel the Company to complete the acquisition of Allinsports without the audited financial statements,
and to issue 966,667 common shares of the Company to those shareholders. As alternative relief, the shareholders of Allinsports
are seeking $20,000,000 in damages. The Company will defend itself vigorously in this proceeding.

 

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

 

Contingent
Consideration and Shares to be Issued

 

In
connection with the Company’s acquisition of IDEAS+CARS Ltd. on July 27, 2017, the principal shareholder of IDEAS+CARS,
entered into a three-year agreement with the Company to act as Chief Marketing Officer of the Company and received CAD$357,000
($256,911) of common shares (369 shares issued January 17, 2018) and up to 7,111 additional common shares upon meeting certain
performance milestones based on an issuance price of the greater of CAD$652.50 ($490.80) and the common share closing price on
the day prior to the respective milestone date. The agreement stipulates an equivalent share payout of CAD$600,000 ($451,320)
in the first year, and CAD$957,000 ($720,000) on the second, third, and fourth anniversaries of the agreement upon meeting annual
revenue targets of £272,000 ($347,700), £416,047 ($531,900), £535,707 ($684,900) and £655,023 ($837,400)
in the first through fourth years, respectively, with a minimum share equivalent payout of CAD$400,000 ($300,880) annually.

 

As
at August 31, 2020, the estimated fair value of the contingent consideration is $262,067 (2019 - $473,364), which is calculated
based on the final milestone minimum share equivalent payout of CAD$400,000 and a discount rate of 19% (2019 – 19%). Based
on milestones met to August 31, 2020, $1,059,214 (2019 - $760,216) was reflected as shares to be issued as at August 31, 2020.

 

Financial
instruments and financial 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.

 

    	Page 23 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Financial
instruments and financial risk management (cont’d)

 

Financial
risk management objectives and policies (cont’d)

 

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 $874,438 and $0 as at August 31, 2020 and 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 expected credit losses, and does not require any collateral deposits. As at August 31, 2020 one customer (2019 -
two) accounted for greater than 10% of the Company’s accounts receivable balance. In total, this one customer (2019 - two)
accounted for 13% of the Company’s accounts and other receivables balance as at August 31, 2020 (2019 - 54%). During the
year ended August 31, 2020, three (2019 - two) customers represented 50% (2019 - 75%) of total revenue.

 

The
below table reflects the aging of the Company’s aging by invoice date of gross trade accounts receivable and allowance for
doubtful accounts as at August 31, 2020:

 

	 	 	0
    - 30	 	 	31
    - 60	 	 	61
    - 90	 	 	91+	 	 	Total	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade accounts receivable
    (Note 9)	 	 	1,622,846	 	 	 	881,830	 	 	 	771,291	 	 	 	1,414,955	 	 	 	4,690,922	 
	Allowance for doubtful accounts (Note
    9)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(874,438	)	 	 	(874,438	)
	% Allowance	 	 	0	%	 	 	0	%	 	 	0	%	 	 	62	%	 	 	19	%

 

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.

 

    	Page 24 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Financial
instruments and financial risk management (cont’d)

 

Liquidity
risk (cont’d)

 

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	 		17,144,346	 	 		-	 	 		    -	 
	Players
    liability account	 	 	388,587	 	 	 	-	 	 	 	-	 
	Lease
    obligation	 	 	185,671	 	 	 	386,477	 	 	 	-	 
	Contingent
    performance share obligation	 	 	262,067	 	 	 	-	 	 	 	-	 
	Line
    of credit	 	 	4,919,507	 	 	 	-	 	 	 	-	 
	Long-term
    debt	 	 	97,702	 	 	 	133,230	 	 	 	-	 
	Promissory
    notes payable	 	 	3,818,920	 	 	 	-	 	 	 	-	 
	Deferred
    purchase consideration	 	 	333,503	 	 	 	-	 	 	 	-	 
	Convertible
    debt	 		-	 	 		10,793,459	 	 		-	 

 

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 fluctuations of financial instruments
related to cash, accounts and other receivables, and accounts payable denominated in Euros and GBP, as well as debt denominated
in Canadian dollars.

 

Fair
value hierarchy

 

The
following tables combine information about:

 

	●	classes
    of financial instruments based on their nature and characteristics;
	●	the
    carrying amounts of financial instruments;
	●	fair
    values of financial instruments (except financial instruments when carrying amount approximates their fair value); and
	●	fair
    value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed.

 

The
Company categorizes its financial assets and liabilities measured at fair value into one of three different levels depending on
the observability of the inputs used in the measurement.

 

	Level
    1: 	This
    level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities
    in active markets that are accessible at the measurement date.
	Level
    2: 	This
    level includes valuations determined using directly or indirectly observable inputs other than quoted prices included within
    Level 1.
	Level
    3: 	This
    level includes valuations based on inputs which are unobservable.

 

    	Page 25 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Financial
instruments and financial risk management (cont’d)

 

Fair
value hierarchy (cont’d)

 

For
the year ended August 31, 2020:

 

	Carrying
    value at August 31, 2020	 	FVTPL
    - 
mandatorily 
measured	 	 	FVOCI
                                         -
 mandatorily
 measured
	 	 	FVOCI
                                         -
 designated
	 	 	Amortized
 cost
	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financial assets:	 	 	 	 	 	 	 	 	 	 	 	 
	Cash
    and cash equivalents	 	 	    -	 	 	 	     -	 	 	 	    -	 	 	 	5,243,278	 
	Restricted cash	 	 	-	 	 	 	-	 	 	 	-	 	 	 	388,587	 
	Accounts and other
    receivables	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,845,890	 
	Government remittances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,125,912	 
	Advances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	10,603,667	 

 

	Carrying
    value at August 31, 2020	 	FVTPL
    - 
mandatorily 
measured	 	 	FVTPL
    - 
designated	 	 	Amortized
    cost	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Financial
    liabilities:	 	 	 	 	 	 	 	 	 
	Accounts
    payable and accrued liabilities	 	 	-	 	 	 	-	 	 	 	17,144,346	 
	Players liability
    account	 	 	-	 	 	 	-	 	 	 	388,587	 
	Line of credit	 	 	-	 	 	 	-	 	 	 	4,919,507	 
	Long-term debt	 	 	-	 	 	 	-	 	 	 	230,932	 
	Promissory notes
    payable	 	 	-	 	 	 	-	 	 	 	3,818,920	 
	Deferred purchase
    consideration	 	 	     -	 	 	 	-	 	 	 	333,503	 
	Convertible
    debt	 	 	-	 	 	 	10,793,459	 	 	 	-	 
	 	 	 	-	 	 	 	10,793,459	 	 	 	26,835,795	 

 

    	Page 26 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Financial
instruments and financial risk management (cont’d)

 

Fair
value hierarchy (cont’d)

 

For
the year ended August 31, 2019:

 

	Carrying
    value at August 31, 2019	 	FVTPL
    - 
mandatorily 
measured	 	 	FVOCI
    - 
mandatorily 
measured	 	 	FVOCI
    - 
designated	 	 	Amortized
    
cost	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financial assets:	 	 	 	 	 	 	 	 	 	 	 	 
	Cash
    and cash equivalents	 	 	    -	 	 	 	     -	 	 	 	     -	 	 	 	2,818,744	 
	Restricted cash	 	 	-	 	 	 	-	 	 	 	-	 	 	 	8,270	 
	Accounts and other
    receivables	 	 	-	 	 	 	-	 	 	 	-	 	 	 	517,228	 
	Government remittances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	711,278	 
	Advances	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,470,000	 
	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,525,520	 

 

	Carrying
    value at August 31, 2019	 	FVTPL
    -
mandatorily 
measured	 	 	FVTPL
    - 
designated	 	 	Amortized
    
cost	 
	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 
	Financial
    liabilities:	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts
    payable and accrued liabilities	 	 	     -	 	 	 	-	 	 	 	3,910,899	 
	Players liability
    account	 	 	-	 	 	 	-	 	 	 	8,270	 
	Line of credit	 	 	-	 	 	 	-	 	 	 	-	 
	Long-term debt	 	 	-	 	 	 	-	 	 	 	246,288	 
	Promissory notes
    payable	 	 	-	 	 	 	-	 	 	 	852,884	 
	Deferred purchase
    consideration	 	 	-	 	 	 	-	 	 	 	-	 
	Convertible debt	 	 	-	 	 	 	12,532,723	 	 	 	-	 
	 	 	 	-	 	 	 	12,532,723	 	 	 	5,018,341	 

 

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

 

	 	 	Level
    1	 	 	Level
    2	 	 	Level
    3	 	 	Fair
    value as at August 31, 2020	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	    	 	 	 	    	 	 	 	 	 	 	 	 	 
	Convertible
    debt	 	 	-	 	 	 	-	 	 	 	10,793,459	 	 	 	10,793,459	 
	 	 	 	-	 	 	 	-	 	 	 	10,793,459	 	 	 	10,793,459	 

 

    	Page 27 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Financial
instruments and financial risk management (cont’d)

 

Fair
value hierarchy (cont’d)

 

	 	 	Level
    1	 	 	Level
    2	 	 	Level
    3	 	 	Fair
    value as at August 31, 2019	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Convertible
    debt	 	 	   -	 	 	 	    -	 	 	 	12,532,723	 	 	 	12,532,723	 
	 	 	 	-	 	 	 	-	 	 	 	12,532,723	 	 	 	12,532,723	 

 

Some
of the Company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period.
The following table gives information about how the fair values of these financial assets and financial liabilities are determined
(in particular, the valuation technique and inputs used).

 

	Financial
        assets / 

        financial
        liabilities
	 	Valuation
    technique	 	Key
    Inputs	 	Relationship
    and sensitivity of unobservable inputs to fair value
	Convertible debt	 	The
    fair value of the convertible debentures at year-end has been calculated using a binomial lattice methodology.	 	Key observable inputs	 	The estimated fair value would increase
    (decrease) if:
	 	 	 	●	Share price (August
    31, 2020: USD $8.92)	 	●	The share price
    was higher (lower)
	 	 	 	●	Risk-free interest
    rate (August 31, 2020: 0.14%)	 	●	The risk-free interest
    rate was higher (lower)
	 	 	 	 	●	Dividend
    yield (August 31, 2020: 0%)	 	●	The
    dividend yield was lower (higher)
	 	 	 	 	Key unobservable inputs	 	 	 
	 	 	 	 	 ●
	

        Credit
        spread (August 31, 2020: 18.35%)
	 	

         ●
	

         The
        credit spread was lower (higher)

	 	 	 	 	●	Discount for lack
    of marketability (August 31, 2020: 47%)	 	●	The discount for
    lack of marketability was lower (higher)

 

There
has been no change to the valuation technique during the year. There were no transfers between Levels 1, 2 and 3 during the year.

 

Off-balance
sheet arrangements

 

As
of the date of this MD&A, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely
to have, a current or future material effect on the results of operations or financial condition of the Company including, without
limitation, such considerations as liquidity and capital resources.

 

Related
party transactions and balances

 

Related
party transactions policy

 

Our
Board of Directors has adopted a policy that describes the procedures used to process, evaluate, and if necessary, disclose transactions
between the Company and its directors, officers, or greater than 5% beneficial owners. We review any transaction or series of
transactions in which any related parson has a direct or indirect interest. Once a transaction

 

    	Page 28 of 40

     

    

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Related
party transactions and balances (cont’d)

 

Related
party transactions policy (cont’d)

 

has
been identified, senior management and the audit committee will review the transaction and ensure appropriate disclosure in the
Company’s financial statements and management’s discussion and analysis

 

Key
management transactions

 

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

 

Compensation
awarded to key management includes the following:

 

	 	 	2020	 	 	2019	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 
	Total compensation paid
    to key management	 	 	929,958	 	 	 	1,401,724	 
	Share based payments	 	 	1,409,569	 	 	 	28,834	 

 

Total
compensation paid to key management is recorded in consulting fees and salaries and wages in the statement of loss and comprehensive
loss for the years ended August 31, 2020 and 2019.

 

Related
party balances

 

Amounts
due to related parties as at August 31, 2020 with respect to the above fees were $275,502 (August 31, 2019: $124,717). These amounts
are unsecured, non-interest bearing and due on demand. Subsequent to August 31, 2020, $203,502 of the $275,502 was paid.

 

Changes
in accounting policies

 

Accounting
pronouncements adopted during the period

 

IFRS
3 – Business Combinations (“IFRS 3”)

 

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 added a test that
makes it easier to conclude that a company has acquired a group of assets, rather than a business, if the value of the assets
acquired is substantially all concentrated in a single asset or group of similar 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 Company, as permitted, adopted the Amendments early, at September 1, 2019. The implementation of these
Amendments was considered for acquisitions occurring after that date.

 

    	Page 29 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Changes
in accounting policies (cont’d)

 

Accounting
pronouncements adopted during the period (cont’d)

 

IFRIC
23 – Uncertainty Over Income Tax Treatments (“IFRIC 23”)

 

IFRIC
23 was issued in June 2017 and clarifies the accounting for uncertainties in income taxes. The interpretation committee concluded
that an entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity
concludes it is probable that the taxation authority will accept an uncertain tax treatment, then the entity shall determine taxable
profit (tax loss), tax bases, unused tax losses and credits or tax rates consistently with the tax treatment used or planned to
be used in its income tax filings. If an entity concludes it is not probable that the taxation authority will accept an uncertain
tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases,
unused tax losses and credits or tax rates. This standard was adopted on September 1, 2019, resulting in no changes to the Company’s
Financial Statements.

 

IFRS
16 – Accounting for Leases (“IFRS 16”)

 

IFRS
16 was issued by the IASB in January 2016, 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
September 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach and accordingly the information presented
for fiscal 2019 has not been restated. Further, the Company has elected to record the transition date right of use asset at the
amount equal to the calculated lease liability and has not accounted for low value or short-term leases (leases with a duration
of less than twelve months). Comparative figures remain as previously reported under IAS 17 and related interpretations. Upon
adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as operating
leases under the principles of International Accounting Standard (“IAS”) 17, “Leases”.

 

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 and were implemented by the Company in the year ended
August 31, 2020. The implementation of these standards did not have a material impact on the Company’s financial statements.

 

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 and were implemented by the Company in the year ended August 31, 2020. The implementation of these standards did
not have a material impact on the Company’s financial statements.

 

    	Page 30 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Changes
in accounting policies (cont’d)

 

Future
accounting pronouncements

 

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

 

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

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

 

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

 

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

 

Current
global financial conditions and trends

 

Securities
of gaming and technology companies have experienced substantial volatility in the past, often based on factors unrelated to the
financial performance or prospects of the companies involved. These factors include macroeconomic developments globally and market
perceptions of the attractiveness of particular industries.

 

The
price of the securities of companies is also significantly affected by short-term currency exchange fluctuation and the political
environment in the countries in which the Company does business. As of August 31, 2020, the global economy continues to be in
a period of significant economic volatility, in large part due to the COVID-19 pandemic discussed previously, as well US and European
economic and political concerns which have impacted global economic growth.

 

Risks
and uncertainties

 

Liquidity
concerns and future financings 

 

Although
we have been successful in the past in financing our activities, there can be no assurance that we will be able to obtain additional
financing as and when needed in the future to execute our business plan and future operations. Our ability to arrange such financing
in the future will depend in part upon the prevailing capital market conditions as well as our business performance. It may be
difficult or impossible for us to obtain financing on commercially acceptable terms. This may be further complicated by the limited
market liquidity for shares of smaller companies such as us, restricting access to some institutional investors. There is a risk
that interest rates will increase given the current historical low level of interest rates. An increase in interest rates could
result in a significant increase in the amount that we pay to service future debt incurred by us and affect our ability to fund
ongoing operations.

 

Failure
to obtain additional financing on a timely basis could also result in delay or indefinite postponement of further development
of its products. Such delay would have a material and adverse effect on our business, financial condition and results of operations.

 

    	Page 31 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Risks
and uncertainties (cont’d)

 

We
may not be able to successfully execute our business plan 

 

The
execution of our business plan poses many challenges and is based on a number of assumptions. We may not be able to successfully
execute our business plan. If our business plan is more costly than we anticipate or we have significant cost overruns, certain
products and development activities may be delayed or eliminated or we may be compelled to secure additional funding (which may
or may not be available) to execute our business plan. We cannot predict with certainty our future revenues or results from our
operations. If the assumptions on which our revenue or expenditure forecasts are based change, the benefits of our business plan
may change as well. In addition, we may consider expanding our business beyond what is currently contemplated in our business
plan. Depending on the financing requirements of a potential acquisition or new product opportunity, we may be required to raise
additional capital through the issuance of equity or debt. If we are unable to raise additional capital on acceptable terms, we
may be unable to pursue a potential acquisition or new product opportunity.

 

Difficulties
integrating acquisitions and strategic investments 

 

We
have acquired businesses, personnel and technologies in the past and we expect to continue to pursue acquisitions, such as the
completed acquisitions of Frankly, WinView, UMG, Eden Games, Stream Hatchet and other investments that are complementary to our
existing business and expanding our employee base and the breadth of our offerings. Our ability to grow through future acquisitions
will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, the ability to compete
effectively to attract these candidates and the availability of financing to complete larger acquisitions. Since we expect the
esports industry to consolidate in the future, we may face significant competition in executing our growth strategy. Future acquisitions
or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence
of debt, and contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could
adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take
considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended
benefits.

 

The
above risks and difficulties, if they materialize, could disrupt our ongoing business, distract management, result in the loss
of key personnel, increase expenses and otherwise have a material adverse effect on our business, results of operations and financial
performance.

 

Management
of growth 

 

We
have grown rapidly since our inception and we plan to continue to grow at a rapid pace. This growth has put significant demands
on our processes, systems and personnel.

 

We
may be subject to growth-related risks including capacity constraints and pressure on our internal systems and controls. Our ability
to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to
expand, train and manage our employee base. Managing our growth will require significant expenditures and allocation of valuable
management resources. Our inability to deal with this growth may have a material adverse effect on our business, financial condition,
results of operations and prospects.

 

We
may continue to have reduced cash reserves 

 

We
expect our cash reserves will be reduced due to future operating losses, working capital requirements, capital expenditures, and
potential acquisitions and other investments by our business, and we cannot provide certainty as to how long our cash reserves
will last or that we will be able to access additional capital when necessary.

 

    	Page 32 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Risks
and uncertainties (cont’d)

 

We
may continue to have reduced cash reserves (cont’d)

 

We
expect to incur continued losses and generate negative cash flow until we can produce sufficient revenues to cover our costs.
We may never become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability
in the future. For the reasons discussed in more detail below, there are substantial uncertainties associated with our achieving
and sustaining profitability. We expect our cash reserves will be reduced due to future operating losses, and working capital
requirements, and we cannot provide certainty as to how long our cash reserves will last or that we will be able to access additional
capital if and when necessary.

 

Competition

 

Our
potential failure to compete successfully in the various markets we participate in could have a material adverse effect on our
business, financial condition and results of operations. The market for the various types of product and service offerings we
provide is very competitive and rapidly changing. We face competition from other esports businesses, many of which are larger
and better funded than us. There can be no guarantee that our current and future competitors will not develop similar or superior
services to our products and services which may render us uncompetitive. Increasing competition could result in fewer future customers,
reduced revenue, reduced sales margins and loss of market share, any one of which could harm our business.

 

Players
in the current market face a vast array of entertainment choices. Other forms of entertainment, such as offline, traditional online,
personal computer and console games, television, movies, sports and the internet are much larger and more well- established markets
and may be perceived by our customers to offer greater variety, affordability, interactivity and enjoyment. These other forms
of entertainment compete for the discretionary time and income of our customers. If we are unable to sustain sufficient interest
in our games in comparison to other forms of entertainment, including new forms, our business model may no longer be viable.

 

The
development of high-quality products requires substantial up-front expenditures 

 

Consumer
preferences for games are usually cyclical and difficult to predict, and even the most successful titles remain popular for only
limited periods of time, unless refreshed with new content or otherwise enhanced. In order to remain competitive, we must continuously
develop new products or enhancements to existing products. The amount of lead time and cost involved in the development of high-quality
products is increasing, and the longer the lead time involved in developing a product and the greater the allocation of financial
resources to such product, the more critical it is that we accurately predict consumer demand for such product. If its future
products do not achieve expected consumer acceptance or generate sufficient revenues upon introduction, we may not be able to
recover the substantial development and marketing costs associated with those products.

 

Rapid
technological changes 

 

Rapid
technological changes may increase competition and render our technologies, products or services obsolete or cause us to lose
market share. The online gaming software industry is subject to rapid and significant changes in technology, frequent new service
introductions and evolving industry standards. Such changes may adversely affect our revenue. There can be no assurance that we
can improve the features, functionality, reliability and responsiveness of infrastructure. Similarly, the technologies that we
employ may become obsolete or subject to intense competition from new technologies in the future. If we fail to develop, or obtain
timely access to, new technologies, or if we fail to obtain the necessary licenses for the provision of services using these new
technologies, we may lose market share, and our results of operations would be adversely affected.

 

    	Page 33 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Risks
and uncertainties (cont’d)

 

Proprietary
protection and intellectual property disputes 

 

Protection
of our trade secrets, copyrights, trademarks, domain names and other product rights are important to our success. We protect our
intellectual property rights by relying on trademark protection, common law rights as well as contractual restrictions. However,
many of our proprietary technologies are currently unpatented nor have we made any applications for such intellectual property
registrations and we have no present intention to do so in the near future. As such, the current steps that it takes to protect
our intellectual property, including contractual arrangements, may not be sufficient to prevent the misappropriation of our proprietary
information or deter independent development of similar technologies by others.

 

Should
we decide to register our intellectual property in one or more jurisdictions, it will be an expensive and time consuming process
and there is no assurance that we will be successful in any or all of such jurisdictions. The absence of registered intellectual
property rights, or the failure to obtain such registrations in the future, may result in us being unable to successfully prevent
our competitors from imitating our solutions or using some or all of our processes. Even if patents and other registered intellectual
property rights were to be issued to us, our intellectual property rights may not be sufficiently comprehensive to prevent our
competitors from developing similar competitive products and technologies.

 

With
our acquisition of WinView, we acquired WinView’s intellectual property portfolio. WinView’s patent portfolio is an
important asset to us and we intend to further develop and protect it and our technologies. Litigation may be necessary to enforce
our intellectual property rights. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs,
adverse publicity or diversion of management and technical resources, any of which could adversely affect our business and operating
results. Moreover, due to the differences in foreign patent, trademark, copyright and other laws concerning proprietary rights,
our intellectual property may not receive the same degree of protection in foreign countries as it would in Canada or the United
States. Our failure to possess, obtain or maintain adequate protection of our intellectual property rights for any reason could
have a material adverse effect on our business, results of operations and financial condition.

 

We
may also face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of
third parties, including from our competitors and former employers of our personnel. Whether a product infringes a patent or other
intellectual property right involves complex legal and factual issues, the determination of which is often uncertain. As the result
of any court judgment or settlement, we may be obligated to cancel the launch of a new game or product offering, cease offering
a game or certain features of a game, pay royalties or significant settlement costs, purchase licenses or modify our software
and features, or develop substitutes. We have already had communication from trade mark trolls in this respect. At this time these
actions are a nuisance rather than a quantifiable business risk.

 

In
addition, we use open source software in our games and we expect to continue to use open source software in the future. From time
to time, we may face claims from companies that incorporate open source software into their products, claiming ownership of, or
demanding release of, the source code, the open source software and/or derivative works that were developed using such software,
or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation,
require us to purchase a costly license or require us to devote additional research and development resources to change our games,
any of which would have a negative effect on our business and operating results.

 

Transmission
of User Data 

 

In
connection with our operations, we transmit and store data. We are subject to legislation and regulations on the collection, storage,
retention, transmission and use of user-data that we collect. Our efforts to protect the personal information of our users, partners
and clients may be unsuccessful due to the actions of third parties, software bugs or technical malfunctions, employee error or
malfeasance, or other factors.

 

    	Page 34 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Risks
and uncertainties (cont’d)

 

Transmission
of User Data (cont’d)

 

In
addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access
to our data, our users’ data, our partners’ data or our clients’ data. If any of these events occur, users’,
partners’ or clients’ information could be accessed or disclosed improperly. Any incidents involving the unauthorized
access to or improper use of the information of users or incidents involving violation of our terms of service or policies could
damage our reputation and brands and diminish our competitive position.

 

Moreover,
affected users, clients or governmental authorities could initiate legal or regulatory action against us in connection with such
incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to
modify our business practices and remediate the effects of any such incidents of unauthorized access or use. Any of these events
could have a material adverse effect on our prospects, businesses, financial condition or results of operations.

 

Data
collection risks 

 

We
partially rely on data captured by Stream Hatchet for our revenues and for assessing the performance of some of our brands. Capturing
accurate data is subject to various limitations. For example, Stream Hatchet may need to collect certain data from mobile carriers
or other third parties such as various viewing platforms, which limits its ability to verify the reliability of such data. Further,
Stream Hatchet may not be able to collect any data from third parties at all. Failure to capture accurate data or an incorrect
assessment of this data may materially harm business and operating results.

 

Mobile
gaming and the free-to-play business model 

 

Eden
Games is partially reliant on the free-to-play business model where monetization is through in-app purchases. The risks of that
business model include the dependence on a relatively small number of consumers for a significant portion of revenues and profits
from any given game, including the current title, Gear.Club. If we increase our reliance on the free-to-play model, we may be
exposed to increased risk. For example, we may invest in the development of new free-to-play interactive entertainment products
that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated
and we may not recover our development costs. Further, if: (1) we fail to offer monetization features that appeal to our consumers;
(2) these consumers do not continue to play our free-to-play games or purchase virtual items at the same rate; (3) our platform
providers make it more difficult or expensive for players to purchase our virtual currency; or (4) we cannot encourage significant
additional consumers to purchase virtual items in our free-to-play games, our business may be negatively impacted.

 

Retention
and acquisition of new CMS platform customers

 

Our
financial performance and operations are dependent in part on retaining our current CMS platform customers and acquiring new CMS
platform customers. We currently serve a large number of customers with our CMS platform and a typical customer contract runs
for multiple years. However, we compete with the other technology providers in the market and increasing competition may affect
our ability to retain current and acquire new customers. Any number of factors could potentially negatively affect our customer
retention or acquisition. For example, a current customer may request products or services that we currently do not provide and
may be unwilling to wait until we can develop or source such additional features. Other factors that affect our ability to retain
or acquire new CMS platform customers include:

 

	 	●	customers
    increasingly use competing products or services;
	 	●	we
    fail to introduce new and improved products or if we introduce new products or services that are not favourably received;
	 	●	we
    are unable to continue to develop new products and services that work with a variety of mobile operating systems and networks
    and/or that have a high level of market acceptance;

 

    	Page 35 of 40

     

    

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Risks
and uncertainties (cont’d)

 

Retention
and acquisition of new CMS platform customers (cont’d)

 

	 	●	there
    are changes in customer preference;
	 	●	there
    is consolidation or vertical integration of our customers;
	 	●	there
    are changes in customer sentiment about the quality or usefulness of our products and services;
	 	●	there
    are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including settlements
    or consent decrees;
	 	●	technical
    or other problems prevent us from delivering our products in a rapid and reliable manner;
	 	●	we
    fail to provide adequate customer service to our customers; or
	 	●	we,
    our software developers, or other companies in our industry are the subject of adverse media reports or other negative publicity.

 

Exposure
to advertising marketplace 

 

A
significant portion of our projected revenue is generated from the sale of national and local online advertising inventory, which
is dependent on available advertising inventory and market demand and prices for such inventory. A decline in available supply
of advertising inventory, general demand for advertising inventory and general economic conditions may materially and adversely
affect our advertising revenue.

 

A
significant portion of our projected revenue is generated from the sale of national and local online advertising inventory, the
majority of which we sell on an automated basis through real-time bidding. We also sell a small portion of our inventory to premium
direct advertising customers to whom we provide guaranteed advertisement inventory. Our advertising revenue is dependent on the
amount of advertising inventory that is available to us to sell and market demand and prices for such inventory.

 

The
amount of advertising inventory available for us to sell is affected by many variables including but not limited to:

 

	 	●	the
    negotiated amount of inventory we receive from our current CMS customers;
	 	●	the
    amount of additional inventory our current CMS customers permit us to sell on their behalf;
	 	●	our
    ability to acquire inventory to sell on behalf of parties that are not customers of our CMS;
	 	●	the
    amount of inventory available on our owned and operated properties;
	 	●	the
    amount of end-user traffic to our customers’ and our online properties; and
	 	●	the
    specific type of advertising to be sold, such as display, video or mobile advertising.

 

While
we endeavor to maximize the amount of inventory we are able to sell, some of the foregoing variables, and by extension the amount
of inventory we may sell, are affected by market forces and other contingencies that we do not control.

 

The
other principal component of gross advertising revenue is the price at which advertising inventory may be sold. To a large extent,
the prices we are able to achieve for our advertising inventory are a product of the market supply and demand, which may vary
based on several factors including ad size, ad type, geographic region and time of year. At a macro level, advertising spending
is also sensitive to overall economic conditions, and our advertising revenues will be adversely affected if advertisers respond
to weak and uncertain economic conditions, for example as a result of disruptions from COVID-19, by reducing their budgets or
changing their spending patterns. There are limitations on the amount that we can compensate for fluctuations in the prevailing
market prices for advertising inventory. Any reduction in spending by existing or potential advertisers and a decline in available
advertising inventory or demand for such inventory would negatively affect our advertising revenue and could affect our ability
to grow our advertising customer base.

 

    	Page 36 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Risks
and uncertainties (cont’d)

 

Global
economy 

 

Our
business is subject to general economic conditions. Adverse changes in general economic and market conditions could adversely
impact demand for our products, prices, revenue, operating costs, results of financing efforts, and the timing and extent of capital
expenditures.

 

Foreign
operational risks 

 

A
significant portion of our business and operations is conducted in foreign jurisdictions, including the United States, Spain and
France. As such, our business and operations may be adversely affected by changes in foreign government policies and legislation
or social instability and other factors which are not within our control, including, but not limited to, renegotiation or nullification
of existing contracts or licenses, changes in policies, regulatory requirements or the personnel administering them, economic
sanctions, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist
practices, volatility of financial markets, labour disputes and other risks arising out of foreign governmental sovereignty over
the areas in which our business is conducted. Our operations may also be adversely affected by laws and policies of such foreign
jurisdictions affecting foreign trade, taxation and investment.

 

If
our operations are disrupted and/or the economic integrity of our contracts is threatened for unexpected reasons, our business
may be harmed. In the event of a dispute arising in connection with our operations in a foreign jurisdiction where we conduct
or will conduct our business, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting
foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. We may
also be hindered or prevented from enforcing our rights with respect to a governmental instrumentality because of the doctrine
of sovereign immunity. Accordingly, our activities in foreign jurisdictions could be substantially affected by factors beyond
our control, any of which could have a material adverse effect on our business. We believe that our management is sufficiently
experienced to manage these risks.

 

Regulation

 

We
are subject to general business regulations and laws as well as regulations and laws specifically governing the internet, gaming,
e-commerce and electronic devices. Existing and future laws and regulations may impede our growth or strategy. These regulations
and laws cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, consumer
protection, web services, wagering, the provision of online payment services, websites and the characteristics and quality or
products and services. Unfavourable changes in regulations and laws could decrease demand for our events, online offering and
merchandise, increase our cost of doing business or otherwise have a material adverse effect on our reputation, popularity, results
of operations and financial condition.

 

Emerging
diseases, like COVID-19, may adversely affect our operations, our suppliers, or our customers 

 

Emerging
diseases, like COVID-19, and government actions to address them, may adversely affect our operations, our suppliers, or our customers.
The COVID-19 pandemic continues to evolve rapidly and, as a result, it is difficult to accurately assess its continued magnitude,
outcome and duration, but it could:

 

	●	worsen
    economic conditions, which could negatively impact access to capital; 
	●	reduce
    consumer spending; 
	●	limit
    our employees from travelling which could affect the execution of our business plan given the Company is multi- jurisdictional;
    or 
	●	result
    in governmental regulation adversely impacting our business all of which could have a material adverse effect on our business,
    financial condition and results of operations, which could be rapid and unexpected. 

 

    	Page 37 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Risks
and uncertainties (cont’d)

 

The
market price for Common Shares has been volatile in the past, and may be subject to fluctuations in the future 

 

The
market price of the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which
are beyond our control. This volatility may affect the ability of holders of Common Shares to sell their securities at an advantageous
price.

 

Market
price fluctuations in the Common Shares may be due to our operating results failing to meet expectations of securities analysts
or investors in any period, downward revision in securities analysts’ estimates, adverse changes in general market conditions
or economic trends, acquisitions, dispositions or other material public announcements by us or our competitors, along with a variety
of additional factors. These broad market fluctuations may adversely affect the market price of the Common Shares.

 

Financial
markets historically at times experienced significant price and volume fluctuations that have particularly affected the market
prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values
or prospects of such companies. Accordingly, the market price of the Common Shares may decline even if our operating results,
underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause
decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance
that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue,
our operations could be adversely impacted and the trading price of the Common Shares may be materially adversely affected.

 

There
are a number of risk factors that could cause future results to differ materially from those described herein. The risks and uncertainties
described herein are not only ones the Company faces. Additional risks and uncertainties, including those that the Company does
not know about as of the date of this MD&A, or that it currently deems immaterial, may also adversely affect the Company’s
business. If any of the following risks occur, the Company’s business may be harmed, and its financial condition and the
results of operation may suffer significantly.

 

Subsequent
events

 

The
Company has evaluated subsequent events from the balance sheet date through January 7, 2021, the date of this MD&A, and determined
there were no additional items to be disclosed except for the transactions described below:

 

Convertible
debentures

 

In
September and October 2020, the Company issued additional tranches of the convertible debenture private placement which resulted
in the issuance of a total principal amount of $2,901,393 of convertible debentures. In August 2020, the Company had commenced
a non-brokered private placement of convertible debentures and closed $8,750,000.

 

$8,000,000
Standby debenture facility

 

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

 

    	Page 38 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Subsequent
events (cont’d)

 

$8,000,000
Standby debenture facility (cont’d)

 

The
remaining $6,000,000 of convertible debentures that are issuable under this facility have substantially similar terms as the debentures,
including conversion into units consisting of one share and one-half warrant, provided that the conversion price of any additional
convertible debentures will be based on the market price of the common shares at the time of such subscriptions and are subject
to TSX-V approval. In November 2020, the Company completed the draw of the first $2,000,000 under this facility.

 

Amendment
of credit facility

 

In
August 2020, the Company amended the $5,000,000 revolving term line of credit (EB loan). In connection with the amendment, the
maturity date of the EB Loan was extended from January 5, 2021 until January 5, 2022. Additionally, the Company guaranteed the
obligations under the EB Loan and has granted a security interest in favour of the Lender over the assets of the Company. In consideration
of the extension of the maturity date, the Company agreed to issue to the lender an aggregate of 6,666 common shares in the capital
of the Company at a deemed price per share equal to $5.77 and an amendment fee of $100,000 which forms part of the outstanding
principal under the EB Loan.

 

Sale
of Motorsport Assets 

 

In
November 2020, the Company, following a detailed strategic review in connection with the merger of Torque Esports, Frankly
Media and WinView Games, announced that it has completed the sale of IDEAS+CARS, The Race Media, WTF1 and Driver DataBase (collectively
the “Motorsport Assets”) to Ideas + Cars Holdings Limited, a third party investment group based in the UK. As a result,
the Company is eliminating its funding obligations related to the cost of maintaining and growing these auto media businesses
and certain accrued liabilities.

 

Shares
for Debt Transaction 

 

In
December, 2020, the Company settled outstanding debt of C$294,000 with two arm’s length creditors by issuing 40,000 common
shares of the Company at a deemed price of C$7.35 per share. The amount of indebtedness represents an outstanding balance of consulting
fees and expense reimbursement owed to former consultants to the Company.

 

Restricted
share unit grants

 

In
November 2020, the Company granted 317,047 restricted share units pursuant to the Company’s incentive plan to one officer
and key management employees.

 

Management’s
Responsibility for Financial Information

 

The
Company’s financial statements and the other financial information included in this management report are the responsibility
of the Company’s management and have been examined and approved by the Company’s audit committee and Board of Directors.
The accompanying financial statements are prepared by management in accordance with IFRS and include certain amounts based on
management’s best estimates using careful judgment. The selection of accounting principles and methods is management’s
responsibility.

 

Management
recognizes its responsibility for conducting the Company’s affairs in a manner to comply with the requirements of applicable
laws and established financial standards and principles, and for maintaining proper standards of conduct in its activities. The
Board of Directors supervises the financial statements and other financial information through its audit committee, which is comprised
of four non-management directors.

 

    	Page 39 of 40

     

    

 

	Engine
    Media Holdings, Inc.	 
	(formerly
    Torque Esports Corp.)
	Management’s
    Discussion and Analysis
	(Expressed
    in United States Dollars)

 

 

Management’s
Responsibility for Financial Information (cont’d)

 

This
committee’s role is to examine the financial statements and recommend that the Board of Directors approve them, to examine
the internal control and information protection systems and all other matters relating to the Company’s accounting and finances.
In order to do so, the audit committee meets annually with the external auditors, with or without the Company’s management,
to review their respective audit plans and discuss the results of their examination. This committee is responsible for recommending
the appointment of the external auditors or the renewal of their engagement.

 

Additional
information

 

This
MD&A, as well as additional information regarding Engine Media, has been filed electronically with the Canadian securities
regulators through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and may be accessed through
SEDAR’s website at www.sedar.com.

 

    	Page 40 of 40

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