UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC   20549

 

Form 6-K 

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of October 2020

 

Commission File No. 000-19884

 

LIQUID MEDIA GROUP LTD.

 

(Translation of registrant’s name into English)

 

#202, 5626 Larch Street, Vancouver, BC  V6M 4E1  Canada

 

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under the cover Form 20-F or Form 40-F

Form 20-F x Form 40-F  o 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):   o

 

Incorporation by Reference

 

The information contained in this Report on Form 6-K and the exhibits filed herewith are hereby incorporated by reference into the registration statement on Form F-3 (Registration Number 333-237982), filed by Liquid Media Group Ltd. (the “Company”) with the U.S. Securities and Exchange Commission (“SEC”) on May 4, 2020, as amended by Amendment No. 1 to Form F-3, filed with the SEC on May 14, 2020, to the extent not superseded by documents or reports subsequently filed or furnished.

 

Documents included as part of this Report:

 

Exhibit No.

Document

 

 

99.1

Unaudited interim financial statements for the nine months ended August 31, 2020

99.2

Management’s Discussion & Analysis for the nine months ended August 31, 2020

99.3

CEO Certification of Interim Filings

99.4

CFO Certification of Interim Filings


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

LIQUID MEDIA GROUP LTD.

(Registrant)

 

 

By:

/s/ Charles Brezer

 

Charles Brezer

 

Director

 

 

Date:

October 15, 2020

 

Picture 2 

 

 

 

 

 

 

 

 

 

 

 

 

LIQUID MEDIA GROUP LTD.

 

 

Condensed Interim Consolidated Financial Statements

For the three and nine months ended August 31, 2020 and 2019

(Expressed in Canadian Dollars)

(Unaudited)


Liquid Media Group Ltd.

Table of Contents

(Expressed in Canadian Dollars - Unaudited)


Financial Statements

 

Condensed Interim Consolidated Statements of Financial Position2 

 

Condensed Interim Consolidated Statements of Loss3 

 

Condensed Interim Consolidated Statements of Comprehensive Loss5 

 

Condensed Interim Consolidated Statements of Cash Flows6 

 

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity 8 

 

Notes to Condensed Interim Consolidated Financial Statements9 


Page 1


Liquid Media Group Ltd.

Condensed Interim Consolidated Statements of Financial Position

(Expressed in Canadian Dollars - Unaudited)


 

Note

August 31,
2020

November 30, 2019

 

 

$

$

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

Cash

 

2,022,774

4,587,405

Restricted cash

3

652,639

672,663

Receivables

5

197,857

698,361

Prepaids

6

1,025,463

296,352

Loans receivable

7

-

94,882

 

 

3,898,733

6,349,663

Loans receivable

7

261,630

233,837

Licenses

8

1,057,868

1,840,836

Investment in equity instruments

10

2,095,831

1,551,324

Equipment

11

93,779

123,305

Intangible assets

12

5,711,771

1,707,959

Goodwill

13

-

3,582,548

 

 

13,119,612

15,389,472

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

Accounts payable and accrued liabilities

14

1,456,691

4,367,381

Loans payable

15,19

1,402,061

1,437,933

Convertible debentures

16,19

521,438

-

 

 

3,380,190

5,805,314

Convertible debentures

16,19

-

1,388,402

Deferred income taxes

 

-

23,163

Derivative liability

17

-

1,102,277

 

 

3,380,190

8,319,156

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

Share capital

17

29,340,604

21,118,940

Commitment to issue shares

17

574,457

137,197

Reserves

17

3,209,739

2,166,098

Accumulated other comprehensive income

 

60,452

303,465

Accumulated deficit

 

(23,445,830)

(18,441,785)

Equity attributable to shareholders of the company

 

9,739,422

5,283,915

 Non-controlling interest

20

-

1,786,401

 

 

9,739,422

7,070,316

 

 

13,119,612

15,389,472

 

Nature and continuance of operations (Note 1)

Contingencies (Note 24)

Subsequent events (Note 26)

 

 

Approved on behalf of the Board of Directors on October 15, 2020:

 

Joshua JacksonStephen Jackson 

     Director   Director 

 

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


Page 2


Liquid Media Group Ltd.

Condensed Interim Consolidated Statements of Loss

(Expressed in Canadian Dollars - Unaudited)


 

 

 

Three months ended

Nine months ended

 

 

 

August 31,

August 31,

 

 

Note

2020

2019

2020

2019

 

 

 

$

$

$

$

 

 

 

 

 

 

 

Sales

 

6,752

17,783

21,925

25,186

Cost of sales

8

184,755

582,685

591,383

1,746,361

Gross profit (loss)

 

(178,003)

(564,902)

(569,458)

(1,721,175)

Operating expenses

 

 

 

 

 

 

Accretion expense

16

11,568

89,040

55,951

183,454

 

Amortization

12

25,311

23,875

76,521

75,345

 

Consulting and director fees

19

400,346

324,671

1,195,063

953,940

 

Depreciation

11

9,344

-

28,251

-

 

Foreign exchange loss

 

97,061

22,371

24,415

12,088

 

Insurance

 

20,308

14,334

60,962

42,973

 

Interest expense

15,16,19

35,404

48,647

127,718

131,617

 

Investor relations, filing, and compliance fees

 

83,161

53,412

223,237

198,555

 

Marketing

 

538,933

19,154

1,507,173

492,688

 

Other general and administrative expenses

 

18,971

26,163

52,946

57,417

 

Professional fees

 

13,423

16,047

432,715

586,741

 

Share-based compensation

17,19

793,949

-

1,011,582

1,173,512

 

Travel

 

13,960

18,511

28,527

25,199

 

 

 

2,061,739

656,225

4,825,061

3,933,529

 

 

(2,239,742)

(1,221,127)

(5,394,519)

(5,654,704)

Other income (expenses)

 

 

 

 

 

 

Interest income

7

16,244

18,013

51,431

50,082

 

Share of profit of equity investment

9

-

-

-

195,726

 

Write-off of licenses

8

-

-

(330,276)

-

 

Project investigation

 

-

(1,350)

-

(192,100)

 

Gain on derivative liability

17

-

335,349

1,102,277

472,725

 

Gain (loss) on settlement of debt

14,15

-

-

39,032

(98,487)

 

Unrealized gains on equity instruments

10

293,583

-

592,894

-

 

Allowance for credit loss

7

(6,000)

-

(17,286)

-

 

 

 

303,827

352,012

1,438,072

427,946

Loss before income taxes

 

(1,935,915)

(869,115)

(3,956,447)

(5,226,758)

 

Deferred income tax recovery

16

-

-

-

(160,917)

Loss attributable to Liquid Media Group from continuing operations

 

(1,935,915)

(869,115)

(3,956,447)

(5,065,841)

Profit (loss) from discontinued operations

18

(2,928,319)

36,952

(2,813,889)

(22,917)

Loss for the period

 

(4,864,234)

(832,163)

(6,770,336)

(5,088,758)

 

 

 

 

 

 

 

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


Page 3


Liquid Media Group Ltd.

Condensed Interim Consolidated Statements of Loss

(Expressed in Canadian Dollars - Unaudited)


 

 

 

Three months ended

Nine months ended

 

 

 

August 31,

August 31,

 

 

Note

2020

2019

2020

2019

 

 

 

$

$

$

$

Loss attributable to:

 

 

 

 

 

 

Shareholders of the Company

 

(3,041,872)

(850,269)

(5,004,045)

(5,077,529)

 

Non-controlling interest from discontinued operations

8,20

(1,822,362)

18,106

(1,766,291)

(11,229)

Loss for the period

 

(4,864,234)

(832,163)

(6,770,336)

(5,088,758)

 

 

Loss per common share (Note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


Page 4


Liquid Media Group Ltd.

Condensed Interim Consolidated Statements of Comprehensive Loss

(Expressed in Canadian Dollars - Unaudited)


 

 

 

Three months ended

Nine months ended

 

 

 

August 31,

August 31,

 

 

Note

2020

2019

2020

2019

 

 

 

$

$

$

$

 

 

 

 

 

 

 

Loss for the period

 

(4,864,234)

(832,163)

(6,770,336)

(5,088,758)

Other comprehensive income

 

 

 

 

 

 

Foreign currency translation adjustment

 

(470,974)

(156,960)

(263,123)

19,960

Comprehensive loss for the period

 

(5,335,208)

(989,123)

(7,033,459)

(5,068,798)

 

 

 

 

 

 

 

Comprehensive loss attributable to:

 

 

 

 

 

 

Shareholders of the company

 

(3,419,143)

(905,046)

(5,247,058)

(4,976,778)

 

Non-controlling interest

20

(1,916,065)

(84,077)

(1,786,401)

(92,020)

Comprehensive loss for the period

 

(5,335,208)

(989,123)

(7,033,459)

(5,068,798)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


Page 5


Liquid Media Group Ltd.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars - Unaudited)


 

 

 

Nine months ended

 

 

 

August 31,

 

 

 

2020

2019

 

 

 

$

$

Cash flows used in operating activities

 

 

Loss from continuing operations for the period

(3,956,447)

(5,065,841)

 

Operating expenses of discontinued operations

246,198

(13,660)

 

Items not affecting cash:

 

 

 

 

Accretion expense

55,951

183,454

 

 

Accrued interest income

(45,495)

(44,957)

 

 

Accrued interest expense

100,359

121,388

 

 

Allowance for credit loss

17,286

-

 

 

Amortization - intangibles

76,521

75,345

 

 

Amortization - licenses

457,642

1,735,673

 

 

Depreciation

28,251

-

 

 

Change in value of derivatives

(1,102,277)

(472,724)

 

 

Commitment to issue shares

-

19,833

 

 

Deferred income tax recovery

-

(160,917)

 

 

(Gain) loss on settlement of debt

(39,032)

98,487

 

 

Share of (profit) loss on equity investment

-

(195,726)

 

 

Share-based compensation

1,011,582

1,173,512

 

 

Shares issued for services

66,557

73,980

 

 

Unrealized foreign exchange

(2,584)

(39,150)

 

 

Unrealized gains on equity instruments

(592,894)

-

 

 

Write-off of license fees

330,276

-

 

Changes in non-cash working capital:

 

 

 

 

Receivables

(160,707)

3,839

 

 

Prepaids

(729,111)

(924,176)

 

 

Accounts payable and accrued liabilities

(761,995)

6,046

 

 

 

(4,999,919)

(3,425,594)

 

 

 

 

 

Cash flows used in investing activities

 

 

Cash disposed on sale of Majesco

(103,794)

-

 

Investment in intangibles

(4,557,667)

-

 

Loan receivable received

83,231

10,000

 

Interest received on loans

12,067

7,807

 

Restricted cash received

13,622

569,390

 

Purchase of restricted deposit certificate

(5,936)

(664,717)

 

Investing expenses of discontinued operations

-

(106,778)

 

 

 

(4,558,477)

(184,298)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


Page 6


Liquid Media Group Ltd.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars - Unaudited)


 

 

 

Nine months ended

 

 

 

August 31,

 

 

 

2020

2019

 

 

 

$

$

Cash flows provided by financing activities

 

 

Loan proceeds

1,535

652,786

 

Loan repayments

-

(137,000)

 

Loan repayments to related parties

-

(172,204)

 

Interest paid on loans

(304,924)

-

 

Convertible debentures received

-

3,502,793

 

Shares issued for cash

5,353,203

-

 

Share issuance costs

(837,456)

-

 

Commitment to issue shares

574,457

-

 

Warrants exercised and issued for cash

2,018,512

-

 

Options exercised and issued for cash

196,427

-

 

 

 

7,001,754

3,846,375

 

 

 

 

 

Effect of foreign exchange on cash

(7,989)

43,133

 

 

 

Change in cash during the period

(2,564,631)

279,616

 

Cash, beginning of period

4,587,405

4,327,331

Cash, end of period

2,022,774

4,606,947

 

 

Supplemental disclosure with respect to cash flows (Note 23)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


Page 7


Liquid Media Group Ltd.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

(Expressed in Canadian Dollars - Unaudited)


 

Shares

Amount  

Commitment to Issue Shares

Reserves

Accumulated Other Comprehensive Income

Deficit  

Non-controlling interest

Total

 

 

$

$

$

$

$

$

$

Balance, November 30, 2018

4,010,108

18,032,601

12,550

771,623

282,082

(10,860,401)

1,838,941

10,077,396

Shares issued to settle debt

159,873

634,175

-

-

-

-

-

634,175

Units issued for convertible debentures

181,834

298,701

-

(44,085)

-

-

-

254,616

Shares issued for services

17,222

73,980

-

-

-

-

-

73,980

Commitment to issue shares

-

-

19,833

-

-

-

-

19,833

Subscriptions reclassified to payables

-

-

(12,550)

-

-

-

-

(12,550)

Share-based compensation

-

-

-

1,173,512

-

-

-

1,173,512

Convertible debenture - equity portion

-

-

-

435,074

-

-

-

435,074

Foreign exchange on translation

-

-

-

-

100,751

-

(80,791)

19,960

Loss for the period

-

-

-

-

-

(5,077,529)

(11,229)

(5,088,758)

Balance, August 31, 2019

4,369,037

19,039,457

19,833

2,336,124

382,833

(15,937,930)

1,746,921

7,587,238

Units issued for convertible debentures

818,333

1,741,645

-

(200,805)

-

-

-

1,540,840

Residual value of warrants issued for convertible debentures

-

(30,779)

-

30,779

-

-

-

-

Commitment to issue shares

-

-

117,364

-

-

-

-

117,364

Warrants exercised for cash

158,291

368,617

-

-

-

-

-

368,617

Foreign exchange on translation

-

-

-

-

(79,368)

-

72,183

(7,185)

Loss for the period

-

-

-

-

-

(2,503,855)

(32,703)

(2,536,558)

Balance, November 30, 2019

5,345,661

21,118,940

137,197

2,166,098

303,465

(18,441,785)

1,786,401

7,070,316

Units issued for cash

2,666,672

4,177,189

-

-

-

-

-

4,177,189

Shares issued to settle debt

107,228

331,967

-

-

-

-

-

331,967

Units issued for convertible debentures and related interest

527,402

1,121,514

-

(134,198)

-

-

-

987,316

Shares issued for services

41,300

99,615

(33,058)

-

-

-

-

66,557

Commitment to issue shares

-

-

574,457

-

-

-

-

574,457

Warrants exercised for cash

1,066,282

2,150,707

(104,139)

(28,056)

-

-

-

2,018,512

Warrants issued for share issue costs

-

-

-

338,558

-

-

-

338,558

Options exercised for cash

53,505

340,672

-

(144,245)

-

-

-

196,427

Share-based compensation

-

-

-

1,011,582

-

-

-

1,011,582

Foreign exchange on translation

-

-

-

-

(243,013)

-

(20,110)

(263,123)

Loss for the period

-

-

-

-

-

(5,004,045)

(1,766,291)

(6,770,336)

Balance, August 31, 2020

9,808,050

29,340,604

574,457

3,209,739

60,452

(23,445,830)

-

9,739,422

 

 

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


Page 8


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


1.NATURE AND CONTINUANCE OF OPERATIONS 

 

Liquid Media Group Ltd. (“Liquid” or the “Company”), formerly Leading Brands Inc. (“LBIX”), is the parent company of Liquid Media Group (Canada) Ltd. (“Liquid Canada”), formerly Liquid Media Group Ltd. The Company is an entertainment company with a portfolio of content IP spanning creative industries.  The Company’s mission is to empower storytellers worldwide to develop, produce and distribute content across channels and platforms. The head office and registered records office of the Company is Suite 202 – 5626 Larch Street, Vancouver, British Columbia, V6M 4E1. The Company’s shares trade on the Nasdaq Stock Market (“Nasdaq”) under the trading symbol “YVR”.

 

These condensed interim consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at August 31, 2020, the Company has generated losses since inception and has an accumulated deficit of $23,445,830. The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing. Management has estimated that it does not have sufficient working capital to meet the Company’s liabilities and commitments as they become due for the upcoming 12 months and, therefore, will be required to obtain additional financing.  These material uncertainties cast substantial doubt upon the Company’s ability to continue as a going concern within one year of the approval of these financial statements.  There is a risk that additional financing will not be available on a timely basis or on terms acceptable to the Company.

 

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including ours. This outbreak could decrease spending, adversely affect demand for our product and harm our business and results of operations; however, the Company has also recognized that the pandemic has led to a global increase in screen time and online gaming which is beneficial to the Company’s operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations, or how it will impact the Company’s ability to conduct financings at this time.

 

These condensed interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.


Page 9


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


2.SIGNIFICANT ACCOUNTING POLICIES 

 

The following is a summary of the significant accounting policies used in the preparation of these condensed interim consolidated financial statements.

 

Statement of compliance

These condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with International Accounts Standards (“IAS”) 34, “Condensed Interim Financial Reporting” using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

 

This condensed interim financial report does not include all of the information required of a full annual financial report and is intended to provide users with an update in relation to events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the end of the last annual reporting period.  Therefore, it is recommended that this financial report be read in conjunction with the audited annual financial statements of the Company for the year ended November 30, 2019.

 

The accounting policies applied in preparation of these condensed interim consolidated financial statements are consistent with those applied and disclosed in the Company’s audited consolidated financial statements for the year ended November 30, 2019, except for the following:

 

Business combinations

 

On December 1, 2019, the Company elected to early adopt the amendments to IFRS 3 Business Combinations.  The amendment:

·clarifies minimum requirements to be a business, 

·clarifies market participants ability to replace missing elements, 

·clarifies the assessment of whether an acquired process is substantive, 

·narrows the definition of outputs, and 

·provides for an optional concentration test which is met if substantially all of the fair value of the gross net assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. 

 

Basis of presentation

The condensed interim consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, except for certain financial assets and liabilities, including derivative instruments that are measured at fair value.  The condensed interim consolidated financial statements are presented in Canadian dollars unless otherwise noted.

 

Basis of consolidation

These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries at the end of the reporting period as follows:

 

 

Incorporation

Percentage owned

 

2020

2019

Liquid Media Group (Canada) Ltd.  (“Liquid Canada”)

Canada

100%

100%

Companies owned by Liquid Canada:

 

 

 

Majesco Entertainment Company (“Majesco)

USA

51%

51%

 

On January 9, 2018, Liquid Canada acquired 51% of the shares of Majesco Entertainment Company (“Majesco”), a Nevada corporation.  The Company is a provider of video game products primarily for the mass-market consumer (Note 4 and 18).  The Company deconsolidated Majesco as of August 31, 2020 as control was lost.


Page 10


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


2.SIGNIFICANT ACCOUNTING POLICIES (continued) 

 

Basis of consolidation (continued)

 

All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

 

Non-controlling interest represents the portion of a subsidiary’s earnings and losses and net assets that is not held by the Company.  If losses in a subsidiary applicable to a non-controlling interest exceed the non-controlling interest in the subsidiary’s equity, the excess is allocated to the non-controlling interest except to the extent that the majority has a binding obligation and is able to cover the losses.

 

Subsidiaries

Subsidiaries are all entities over which the Company has exposure to variable returns from its involvement and has the ability to use power over the investee to affect its returns.  The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity.  Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases.

 

Use of estimates

The preparation of financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the period.

 

Although management uses historical experience and its best knowledge of the amount, events or actions to form the basis for judgments and estimates, actual results may differ from these estimates.

 

Significant judgements includes the determination of functional currency, assessments over level of control or influence over companies, the recoverability and measurement of deferred tax assets, assessments of acquisitions of groups of assets versus a business, and the determination of a discontinued operation.

 

The most significant accounts that require estimates as the basis for determining the stated amounts include the valuation of share-based compensation, derivative, and convertible features; the valuation of intangible assets including goodwill; the valuation of investments in equity instruments; the valuation of expected credit loss; and the valuation of convertible debentures.

 

Critical judgment exercised in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is as follows:

 

Functional currency

The functional currency of the Company and its subsidiaries is the United States dollar (“USD”); however, determination of functional currency may involve certain judgments to determine the primary economic environment which is re-evaluated for each new entity or if conditions change.

 

Level of control or influence over companies

The accounting for investments in other companies can vary depending on the degree of control and influence over those other companies.  Management is required to assess at each reporting date the Company’s control and influence over these other companies.  Management has used its judgment to determine which companies are controlled and require consolidation and those which are significantly influenced and require equity accounting.  The Company has considered its ownership position in Waterproof Studios Inc. (“Waterproof”) to constitute significant influence up to February 28, 2019 and thereafter does not have the ability to influence the key operating activities of the entity.  Accordingly, as of March 1, 2019 the Company has accounted for its investment under fair value through profit or loss (Note 9 and 10).  Additionally, the Company has assessed that control of Majesco was lost as of August 31, 2020 (Note 18).


Page 11


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


2.SIGNIFICANT ACCOUNTING POLICIES (continued) 

 

Use of estimates (continued)

 

Income taxes

In assessing the probability of realizing income tax assets, management makes estimates related to expectation of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified.

 

Acquisition of group of assets

The Company acquired platform coding which did not meet the definition of a business and is accounted for as an asset acquisition.  The Company applied the amended IFRS 3 Business Combinations standard in its determination that the acquisition did not meet the definition of a business, in particular, the optional concentration test, as substantially all the fair value of the assets acquired were accounted in a group of similar identifiable assets.

 

Discontinued operations

The Company classifies a component of the Company’s business as discontinued operations when there is a highly probable likelihood of a disposal of that component.

 

Information about assumptions and estimation uncertainties that have a significant risk of resulting in material adjustments are as follows:

 

Valuation of share-based compensation, derivatives, and convertible features

The Company uses the Black-Scholes Option Pricing Model for valuation of share-based compensation and other equity based payments. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate, and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and equity reserves.

 

Valuation of intangible assets including goodwill

Goodwill and intangible assets are tested for impairment at each reporting date.  Management first reviews qualitative factors in determining if an impairment needs to be recorded.  Quantitative factors are then used to calculate the amount of impairment, if needed.  Goodwill and certain intangibles resulted from a business acquisition which were valued based on estimated discounted cash flows.

 

Valuation of investment in equity instrument

The Company values its equity instruments in private companies at fair value at each reporting date.  The determination of fair value is based on estimates made by management on the expected earnings before income, taxes, and amortization multiplied by a reasonable factor for the appropriate industry applicable to the private company.

 

Valuation of expected credit loss

Loans receivable are assessed for an estimated credit loss at each reporting date.  The estimated loss is determined based on management’s knowledge of the debtor and their ability to repay the loan.  As the current debtors’ are private entities, management must rely on assertions provided to them from the debtor to make their estimates.

 

Valuation of convertible debentures

The equity portion of the convertible debenture is calculated using a discounted cash flow method which requires management to make an estimate on an appropriate discount rate.


Page 12


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


2.SIGNIFICANT ACCOUNTING POLICIES (continued) 

 

Equipment

Equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in profit or loss.

 

Assets under construction are not depreciated until available for their intended use.

 

Depreciation is charged over the estimated useful lives using the declining balance method as follows:

Computer equipment30% 

 

Intangible assets

The Company has intangible assets from acquisitions and development of gaming content. The amortization method, useful life and residual values are assessed annually and the assets are tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Amortization expense is recorded on a straight-line basis beginning with the month the corresponding assets are available for use and over the estimated useful lives provided below:

 

Video game catalogues15 years 

Brandsindefinite 

Intellectual propertyindefinite 

 

Upon retirement or disposal, the cost of the asset disposed of and the related accumulated amortization are removed from the accounts and any gain or loss is reflected in profit and loss.  Expenditures for repairs and maintenance are expensed as incurred.

 

Development expenditures, including the cost of material, direct labour, and other direct costs are recognized as an intangible asset when the following recognition requirements are met:

·the development costs can be measured reliably; 

·the project is technically and commercially feasible; 

·the Company intends to and has sufficient resources to complete the project; 

·the Company has the ability to use or sell the asset, and 

·the asset will generate probable future economic benefits. 

 

Intangible assets being developed are amortized once development is complete and the asset starts to generate income.

 

Video game catalogues

The video game catalogues are made up of a diverse variety of games, ranging in age and popularity.  The catalogues are unique due to the diverse nature of the products within the catalogues, making it difficult to assign a useful life. The useful life of 15 years represents management’s view of the expected period over which the Company expects benefits from the acquired gaming content packaged as catalogues. The election of this useful life is supported by internal game titles still producing revenue at this age.


Page 13


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


2.SIGNIFICANT ACCOUNTING POLICIES (continued) 

 

Intangible assets (continued)

 

Platform coding

The platform coding acquired by the Company is currently under development and is not yet subject to amortization.

 

Brand

Through the acquisition of Majesco (Note 4), the Company acquired the “Majesco Entertainment” brand which was determined to have an indefinite life.

 

Discontinued operations

A discontinued operation is a component of the Company’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Company and which:

·represents a separate majour line of business or geographic area of operations; 

·is part of a single coordinated plan to dispose of a separate majour line of business or geographic area of operations; or 

·is a subsidiary acquired exclusively with a view to re-sale. 

 

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.  When an operation is classified as a discontinued operation, the comparative statement of comprehensive loss is re-presented as if the operation had been discontinued from the start of the comparative year.

 

Assets and liabilities held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.

 

Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell.  Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to financial assets which continue to be measured in accordance with the Company’s other accounting policies.  Impairment losses on initial classification as held-for-sale or held-for-distribution and subsequent gains and losses on re-measurement are recognized in profit or loss.

 

Once classified as held-for-sale, intangible assets and equipment are no longer amortized or depreciated, and any equity-accounted invest is no longer equity accounted.

 

Changes in accounting standards

The Company has adopted the following accounting standards effective December 1, 2019, which had no significant impact on the consolidated financial statements:

·IFRS 16 - Leases 

·IFRIC 23 – Uncertainty Over Income Tax Treatments 

 

 

3.RESTRICTED CASH 

 

As at August 31, 2020, the Company had a $652,639 (US$500,444) (November 30, 2019 - $672,663 (US$506,179)) deposit certificate which earns interest at 0.35% per annum and matures and renews monthly.  The deposit certificate has been assigned as security to City National Bank for a revolving bank loan (Note 15).


Page 14


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


4.ACQUISITION OF MAJESCO ENTERTAINMENT COMPANY 

 

On January 9, 2018, the Company acquired 51% of the issued and outstanding shares of Majesco Entertainment Company, a U.S. corporation. As consideration, the Company issued 66,667 common shares with a value of $415,000 and is required to pay cash consideration of up to US$1,000,000.  As at August 31, 2020, the Company had paid US$500,000 (November 30, 2019 – US$500,000) and had $nil (November 30, 2019 – $664,405 (US$500,000)) included in accounts payable.

 

As at August 31, 2020, the Company agreed to settle the remaining $652,061 (US$500,000) as disclosed in Note 18.

 

In connection with the acquisition of Majesco, the Company agreed to pay a finder’s fee of 5% of the total purchase price for a total fee of $97,809 (US$75,000).  As at August 31, 2020, the agent forgave the remaining US$25,000 resulting in $nil (November 30, 2019 - $33,223 (US$25,000)) being included in accounts payable.

 

 

5.RECEIVABLES 

 

 

August 31,

2020

November 30,

2019

 

$

$

Accounts receivable

18,072

25,299

Sales tax receivable

179,785

14,293

Other receivables

-

658,769

 

 

 

 

197,857

698,361

 

Other receivables as at November 30, 2019 includes the Company’s insurance claim for certain legal bills in relation to a lawsuit.

 

 

6.PREPAIDS 

 

As at August 31, 2020, prepaids includes $931,512 (US$714,283) (November 30, 2019 - $208,066 (US$156,570)) for a marketing campaign that is being expensed over the term of the campaign.


Page 15


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


7.LOANS RECEIVABLE 

 

Current amounts

 

As at August 31, 2020, the current loans receivable including accrued interest is as follows:

 

 

Waterproof

Participant Games

Installment Entertainment

Total

 

$

$

$

$

Balance November 30, 2018

104,552

199,806

126,937

431,295

Reclassified as long-term

-

(199,806)

(126,937)

(326,743)

Accrued interest income

8,137

-

-

8,137

Repayments received

(17,807)

-

-

(17,807)

 

 

 

 

 

Balance November 30, 2019

94,882

-

-

94,882

Accrued interest income

416

-

-

416

Repayments received

(95,298)

-

-

(95,298)

 

 

 

 

 

Balance August 31, 2020

-

-

-

-

 

During fiscal 2016, the Company entered into a revolving credit facility agreement with Waterproof and advanced $100,000 to Waterproof.  The revolving credit facility was unsecured, bore interest at 8% per annum and was due on July 21, 2017.  If there is a default or an event of default has occurred and is continuing, all amounts outstanding shall bear interest, after as well as before judgment, at a rate per annum equal to 2% plus the applicable rate.  Interest was payable on the first business day of each month.  As at August 31, 2020, the Company had accrued interest receivable of $nil (November 30, 2019 - $11,651).  The Company received payment in full in December 2019.

 

Long-term amounts

 

Loans receivable are classified as long-term when management has determined that they will not be receiving payment on these loans within the next twelve months.  As at August 31, 2020, the long-term loans receivable including accrued interest are as follows:

 

Participant Games

Installment Entertainment

Total

 

$

$

$

Balance November 30, 2018

-

-

-

Reclassified from current

199,806

126,937

326,743

Accrued interest income

32,120

20,405

52,525

Expected credit loss

(115,963)

(29,468)

(145,431)

 

 

 

 

Balance November 30, 2019

115,963

117,874

233,837

Accrued interest income

27,566

17,513

45,079

Expected credit loss

(13,783)

(3,503)

(17,286)

 

 

 

 

Balance August 31, 2020

129,746

131,884

261,630


Page 16


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


7.LOANS RECEIVABLE (continued) 

 

Long-term amounts (continued)

 

During fiscal 2017, the Company entered into a subordinated convertible note with Participant Games Inc. in the amount of $150,000. The convertible note is unsecured, bears interest at 15% per annum and was due on demand on or before December 21, 2017. The loan was convertible into shares, at any time prior to December 21, 2018 and accordingly the value of the conversion feature remaining from the convertibility feature was nominal as at November 30, 2018.  As at August 31, 2020, the Company has accrued interest receivable of $109,492 (November 30, 2019 - $81,926) and has recorded an allowance for credit loss of $129,746 (November 30, 2019 - $115,963) as the note remains unpaid.

 

During fiscal 2017, the Company entered into a convertible note with Installment Entertainment Inc. in the amount of $100,000. The convertible note is unsecured, bears interest at 15% per annum and was payable on demand on or before April 21, 2018.  The loan was convertible into shares, at any time prior to April 21, 2018.  As at August 31, 2020, the Company has accrued interest receivable of $64,855 (November 30, 2019 - $47,342) and has recorded an allowance for credit loss of $32,971 (November 30, 2019 - $29,468) as the note remains unpaid.

 

 

8.LICENSES 

 

Four licenses were acquired during the year ended November 30, 2018 through the issuance of 888,000 common shares valued at $4,880,639.  During the nine months ended August 31, 2020, the Company wrote-off one license with an unamortized balance of $330,276 (year ended November 30, 2019 – one license with an unamortized balance $717,125).  The remaining two licenses held at August 31, 2020 are being amortized over the term of the corresponding agreements ranging from three to four years.

 

During the nine months ended August 31, 2020, amortization, included in cost of sales, amounted to $458,315 (nine months ended August 31, 2019 - $1,735,673).  The cumulative currency translation adjustment at August 31, 2020 was $105,586 (November 30, 2019 - $100,636).

 

The following table is a reconciliation of the licenses:

 

August 31,

2020

November 30,

2019

 

$

$

Balance, beginning of period

1,840,836

4,382,598

Amortization

(457,642)

(1,819,596)

Write-offs

(330,276)

(717,125)

Currency translation adjustment

4,950

(5,041)

 

 

 

Balance, end of period

1,057,868

1,840,836


Page 17


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


9.INVESTMENT IN ASSOCIATES 

 

Waterproof

 

On April 15, 2015, the Company acquired a 49% interest in Waterproof by paying $475,000 and issuing 100,000 common shares with a fair value of $125,001.  The Company also issued 40,000 common shares as a finder’s fee with a fair value of $50,000 during the year ended November 30, 2015.

 

The Company owns 49% of Waterproof and previously held significant influence over the investment causing the Company to account for its investment using the equity method.  As at March 1, 2019, the Company no longer had the ability to exert significant influence over Waterproof’s operating activities due to ongoing disputes, therefore causing the Company to reclassify the investment as FVTPL (Note 10).

 

The following table is a reconciliation of the investment in Waterproof:

 

August 31,

2020

November 30,

2019

 

$

$

Balance, beginning of period

-

397,629

Share of profit of equity investment

-

195,726

Currency translation adjustment

-

(6,081)

Derecognition to investment in equity instruments (Note 10)

-

(587,274)

 

 

 

Balance, end of period

-

-

 

 

10.INVESTMENT IN EQUITY INSTRUMENTS 

 

Until February 28, 2019, the Company accounted for the investment in Waterproof (Note 9) using the equity method resulting in a carrying value of $587,274 at March 1, 2019, however, the Company no longer exerts significant influence over Waterproof’s operating activities resulting in the investment being reclassified as FVTPL.

 

The fair value as at March 1, 2019 was determined to be $1,649,362 resulting in a gain of $1,062,088 on derecognition from the equity accounting carrying value.

 

As at August 31, 2020, the value of Waterproof’s common shares was estimated to be $2,095,831 (November 30, 2018 - $1,551,324) resulting in an unrealized gain on equity instruments of $592,894 (nine months ended August 31, 2019 - $nil).  The cumulative currency translation adjustment as at August 31, 2020 was $(38,297) (November 30, 2019 - $10,089).

 

The following table is a reconciliation of the investment in Waterproof:

 

August 31,

2020

November 30,

2019

 

$

$

Balance, beginning of period

1,551,324

-

Recognition from investment in associates (Note 9)

-

587,274

Change in fair value

592,894

953,961

Currency translation adjustment

(48,387)

10,089

 

 

 

Balance, end of period

2,095,831

1,551,324


Page 18


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


11.EQUIPMENT 

 

 

 

Computer Equipment

 

 

$

Cost:

 

 

At November 30, 2018

 

-

Additions

 

125,143

Net exchange differences

 

(277)

At November 30, 2019

 

124,866

Net exchange differences

 

(2,328)

At August 31, 2020

 

122,538

Depreciation::

 

 

At November 30, 2018

 

-

Additions

 

1,553

Net exchange differences

 

8

At November 30, 2019

 

1,561

Additions

 

28,251

Net exchange differences

 

(1,053)

At August 31, 2020

 

28,759

Net book value:

 

 

At November 30, 2019

 

123,305

At August 31, 2020

 

93,779


Page 19


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


12.INTANGIBLE ASSETS 

 

 

Video Game Catalogues

Platform
Coding

Brands

Total

 

$

$

$

$

Cost:

 

 

 

 

At November 30, 2018

1,589,258

-

105,286

1,694,544

Additions - paid or accrued

133,356

-

-

133,356

Net exchange differences

(7,053)

-

5,013

(2,040)

At November 30, 2019

1,715,561

-

110,299

1,825,860

Additions - paid or accrued

-

4,557,667

-

4,557,667

Disposition

(208,659)

-

(111,454)

(320,113)

Net exchange differences

(31,993)

(131,357)

1,155

(162,195)

At August 31, 2020

1,474,909

4,426,310

-

5,901,219

 

 

 

 

 

Amortization:

 

 

 

 

At November 30, 2018

17,722

-

-

17,722

Additions

100,202

-

-

100,202

Net exchange differences

(23)

-

-

(23)

At November 30, 2019

117,901

-

-

117,901

Additions

76,521

-

-

76,521

Net exchange differences

(4,974)

-

-

(4,974)

At August 31, 2020

189,448

-

-

189,448

 

 

 

 

 

Net book value:

 

 

 

 

At November 30, 2019

1,597,660

0

110,299

1,707,959

At August 31, 2020

1,285,461

4,426,310

-

5,711,771

 

As at August 31, 2020, included in video game catalogues is $nil (November 30, 2019 - $212,625) of development costs which the Company has not begun amortizing.

 

Brands pertained to Majesco Entertainment which were disposed of at August 31, 2020. (Note 18)

 

During the nine months ended August 31, 2020, the Company acquired platform coding for a cash payment of $4,464,885 (US$3,325,000) and associated development costs of $92,782 (US$69,095) which is currently under development and not yet subject to amortization.


Page 20


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


13.GOODWILL 

 

Goodwill of $3,356,355 was acquired during the year ended November 30, 2018 pursuant to the acquisition of Majesco.  As at August 31, 2020, the goodwill was disposed of upon the deconsolidation of the Majesco operations (Note 18). The currency translation adjustment as at August 31, 2020 was $nil (November 30, 2019 - $226,193).

 

Goodwill is tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired.  At November 30, 2019, the Company performed its impairment review of goodwill by comparing each cost center’s fair value to the net book value including goodwill.  The Company has determined that it has one cost center: Majesco.  The fair value of the cost center was determined by management based on a valuation using the income approach.  The income approach uses future projections of cash flows from the cost center and includes, among other estimates, projections of future revenue and operating expenses, market supply and demand, projected capital spending and an assumption of the weighted average cost of capital.  Management’s evaluation of fair values includes analysis based on the future cash flows generated by the underlying assets, estimated trends and other relevant determinants of fair value for these assets.

 

 

14.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 

 

 

August 31,

2020

November 30,

2019

 

$

$

Accounts payable

989,247

2,845,308

Accrued liabilities

467,444

821,014

Payroll taxes payable

-

474

Sales tax payable

-

2,911

Payable on Majesco acquisition (Note 4)

-

697,674

 

 

 

 

1,456,691

4,367,381

 

During the nine months ended August 31, 2020, the Company issued 100,317 (nine months ended May 31, 2019 – 159,873) common shares valued at $306,620 (nine months ended August 31, 2019- $634,175) to settle accounts payable of $346,000 (nine months ended August 31, 2019 - $535,688) resulting in a gain of $39,380 (nine months ended August 31, 2019 – loss of $98,487) which is included in gain (loss) on settlement of debt.

 

During the nine months ended August 31, 2020, the Company issued 12,402 units valued at $26,130 to convert interest on the convertible debentures included in accounts payable (Notes 16 and 17).


Page 21


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


15.LOANS PAYABLE 

 

A summary of loans payable balances and transactions is as follows:

 

 

Related party

Third party

Credit Facility

Bank Loan

Total

 

$

$

$

$

$

Balance, November 30, 2018

172,203

12,000

750,000

-

934,203

Advance

-

150,000

-

662,933

812,933

Repayment - cash

(172,203)

(137,000)

-

-

(309,203)

 

 

 

 

 

 

Balance, November 30, 2019

-

25,000

750,000

662,933

1,437,933

Repayment – shares

-

(25,000)

-

-

(25,000)

Net exchange differences

-

-

-

(10,872)

(10,872)

 

 

 

 

 

 

Balance, August 31, 2020

-

-

750,000

652,061

1,402,061

 

Related party loans

Related party loans consisted of amounts advanced by directors or companies controlled by them.  Several of the loans were secured by assets of the Company with due dates ranging from demand loans to periods of one year and interest rates ranging from 0.0% to 8.0% per annum.  As at November 30, 2019, all loans have been paid in full.  As at August 31, 2020, interest of $nil (November 30, 2019 - $39,747) remains outstanding and is included in accounts payable and accrued liabilities.

 

Third party loans

Third party loans included loans secured by assets of the Company with due dates ranging from demand loans to periods of one year and interest rates ranging from 0.0% to 14.4% per annum.  As at November 30, 2019, the amount outstanding was due on demand and incurred interest of 14.4% per annum.  During the nine months ended August 31, 2020, the Company issued 6,911 common shares valued at $25,347 to settle the $25,000 loan outstanding resulting in a loss of $348. Interest of $nil (November 30, 2019 - $2,192) remains outstanding and is included in accounts payable and accrued liabilities.

 

Credit facility

In fiscal 2016 a $2,500,000 Credit facility was secured by assets of the Company under a general security agreement with a due date of November 30, 2018 and an interest rate of 14.4% per annum.  A fee of $60,000 was settled through the issuance of shares during the year ended November 30, 2017.  The Company repaid $1,750,000 of principal and $147,945 of interest during the year ended November 30, 2017.

 

In June 2018, a new lender acquired the remaining $750,000 loan and under new terms, the loan was due on August 20, 2018.  The new lender obtained a Limited Power of Attorney over the Company’s 49% interest in Waterproof (“Waterproof POA”).  In December 2018, the lender registered a general security agreement over all the Company’s current and future assets.

 

In November 2019, the new lender signed a Forebearance Agreement which extended the maturity date of the loan to November 30, 2020 and required the Company to make quarterly payments of $250,000 commencing on March 31, 2020 until the principal and interest on the loan have been paid in full.  In accordance with the Forebarance Agreement, the Company issued 215,000 treasury shares of the Company as security for the loan which will be transferred to the lender upon any default of the loan.  Additionally, the new lender released the Waterproof POA and amended their general security agreement to exclude the Company’s investment in Waterproof.  In March 2020, the new lender provided an extension allowing the delay of the quarterly payments to commence June 30, 2020.  The first loan payment was paid and applied to the outstanding interest.


Page 22


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


15.LOANS PAYABLE (continued) 

 

Credit facility (continued)

Interest of $120,652 (November 30, 2019 - $289,282) remains outstanding and is included in accounts payable and accrued liabilities.

 

Bank loan

In May 2019, the Company entered into a revolving note for US$500,000 with City National Bank which bears interest at 2.35% per annum and is secured by a deposit certificate of US$500,000 (Note 3).  As at August 31, 2020, the Company had received advances of $652,061 (US$500,000) (November 30, 2019 - $662,933 (US$498,857)) against this loan.

 

 

16.CONVERTIBLE DEBENTURES 

 

 

Liability component

Equity component

Total

 

$

$

$

Balance, November 30, 2018

-

-

-

Cash received

2,930,477

595,991

3,526,468

Deferred income tax liability

-

(160,917)

(160,917)

Interest expense and accretion

259,885

-

259,885

Settlement of convertible debentures

(1,795,455)

(244,890)

(2,040,345)

Reallocation of interest to accounts payable

(25,156)

-

(25,156)

Currency translation adjustment

18,651

-

18,651

 

 

 

 

Balance, November 30, 2019

1,388,402

190,184

1,578,586

Interest expense and accretion

69,807

-

69,807

Settlement of convertible debentures

(961,186)

(134,198)

(1,095,384)

Reallocation of interest to accounts payable

(21,202)

-

(21,202)

Currency translation adjustment

45,617

-

45,617

 

 

 

 

Balance, August 31, 2020

521,438

55,986

577,424

 

On February 28, 2019, the Company closed its private placement offering of unsecured convertible debentures raising $3,526,468 (US$2,678,000).  Each debenture will mature two years from closing, will bear interest at 2% per annum, and can be converted into units at a price of US$1.50 per unit.  Each unit will consist of one common share and one share purchase warrant with each warrant entitling the holder to acquire one common share of the Company for US$1.75 up to February 28, 2021.

 

For accounting purposes, the convertible debentures are separated into their liability and equity components by first valuing the liability component.  The fair value of the liability component at the time of issue was calculated as the discounted cash flows for the convertible debentures assuming a 12% discount rate, which was the estimated rate for a similar debenture without a conversion feature.  The fair value of the equity component (conversion feature) was determined at the time of issue as the difference between the face value of the convertible debentures and the fair value of the liability component, less a deferred income tax adjustment to reflect the book to tax difference in value of the convertible debentures at the time of issuance.  As the Company has excess tax assets to offset the deferred tax liability, which was created from the book to tax difference in value of the convertible debentures, the deferred tax liability was reversed, resulting in a deferred tax recovery of $160,917.


Page 23


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


16.CONVERTIBLE DEBENTURES (continued) 

 

During the nine months ended August 31, 2020, debentures of $1,095,384 (US$777,286) were converted into 515,000 units of the Company of which $nil was allocated to reserves relating to the value of the warrants issued.  As a result, the Company transferred $134,198 from reserves to share capital representing the proportionate balance of the unamortized equity component.

 

Interest and accretion expense for the nine months ended August 31, 2020 was $69,807 (August 31, 2019 - $222,697).

 

 

17.SHARE CAPITAL AND RESERVES 

 

Authorized share capital

 

The Company is authorized to issue 500,000,000 common shares without par value.

 

The Company is authorized to issue the following preferred shares:

 

 

 

 

Preferred shares without par value

 

9,999,900

Series “A” preferred shares

 

1,000,000

Series “B” preferred shares

 

100

Series “C” preferred shares

 

1,000,000

Series “D” preferred shares

 

4,000,000

Series “E” preferred shares

 

4,000,000

 

 

 

 

 

20,000,000

 

Issued share capital

 

Common shares

 

The Company had the following share issuances during the nine months ended August 31, 2020:

 

a)On January 22, 2020, the Company issued 57,125 common shares valued at $148,198 to settle debt of $190,706 (Note 14) resulting in a gain of $42,508 which is included in gain (loss) on debt settlements. 

 

b)On January 22, 2020, the Company issued 11,764 common shares valued at $39,615 to a consultant of the Company for public relations services provided to the Company of which $33,058 of services were rendered during the year ended November 30, 2019. 

 

c)On April 27, 2020, the Company issued 50,103 common shares valued at $183,769 to settle debt of $180,294 (Notes 14 and 15) resulting in a loss of $3,476 which is included in gain (loss) on debt settlements. 

 

d)On June 8, 2020, the Company closed a registered direct offering, under its F-3 registration statement in the United States, by issuing 2,666,672 common shares of the Company at US$1.50 per common share for total proceeds of $5,353,203 (US$4,000,002).  Concurrent with this offering, the Company issued to the investors 1,333,334 share purchase warrants exercisable for USD$1.88 per common share with a maturity date of June 9, 2025.  In connection with these offerings, the Company paid legal fees of $409,200 (US$305,761), agent fees of $428,256 (US$320,000), and issued 213,333 agent warrants with a value of $338,558 and an exercise price of $1.88 per common share with a maturity date of June 4, 2025. 


Page 24


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


17.SHARE CAPITAL AND RESERVES (continued) 

 

Issued share capital (continued)

 

Common shares (continued)

 

e)On July 29, 2020, the Company issued 29,536 shares valued at $60,000 to a consultant of the company for advisory services provided to the Company. 

 

f)During the nine months ended August 31, 2020, the Company issued the following for exercised stock options, warrants, and conversions: 

·issued 515,000 units on the conversion of $1,095,384 (US$777,286) worth of net convertible debentures (Note 16) and 12,402 units on the conversion of $26,130 (US$18,605) worth of interest on the convertible debentures.  As a result, the Company transferred $134,198 from reserves to share capital representing the proportionate balance of the unamortized equity component.  Each unit comprised of one common share and one warrant with each warrant entitling the holder to acquire one common share of the Company for US$1.75 up to February 26, 2021. 

 

·issued 493,111 common shares for total proceeds of $1,111,476 in connection with the exercise of 493,111 share purchase warrants at US$1.75 per warrant of which $104,139 was received during the year ended November 30, 2019.  As a result, the Company transferred $28,056 representing the fair value of the exercised warrants from reserves to share capital. 

 

·issued 573,171 common shares for total proceeds of $907,036 in connection with the exercise of 573,171 share purchase warrants at US$1.20 per warrant. 

 

·received $574,457 for the exercise of 367,084 share purchase warrants with an exercise price of US$1.20 and an expiry date of August 30, 2020 which is included in commitment to issue shares. 

 

·issued 53,505 common shares for total proceeds of $196,427 in connection with the exercise of 53,505 stock options at US$2.55 per option.  As a result, the Company transferred $144,245 representing the fair value of the exercised options from reserves to share capital. 

 

The Company had the following share issuances during the year ended November 30, 2019:

 

g)On February 28, 2019, the Company issued 113,334 common shares valued at $391,013 to settle debt of $335,792 resulting in a loss of $55,221 which is included in loss on debt settlements. 

 

h)On April 30, 2019, the Company issued 46,539 common shares valued at $243,162 to settle debt of $199,896 resulting in a loss of $43,266 which is included in loss on debt settlements. 

 

i)On April 30, 2019, the Company issued 17,222 common shares valued at $73,980 to various consultants of the Company for consulting and public relations services provided to the Company. 

 

j)In November 2019, the Company issued 158,291 common shares valued at $368,617 for the exercise of warrants with an exercise price of US$1.75. 

 

k)During the year, the Company issued 1,000,167 units on the conversion of $1,795,455 (US$1,133,761) worth of net convertible debentures (Note 16).  As a result, the Company transferred $244,890 from reserves to share capital representing the proportionate balance of the unamortized equity component.  Additionally, the Company allocated $30,779 to reserves representing the value of the warrants issued.  Each unit comprised of one common share and one warrant with each warrant entitling the holder to acquire one common share of the Company for US$1.75 up to February 26, 2021. 


Page 25


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


17.SHARE CAPITAL AND RESERVES (continued) 

 

Preferred shares

 

As at August 31, 2020 and November 30, 2019, no preferred shares were issued and outstanding.

 

Treasury shares

 

On November 27, 2019, the Company issued 215,000 common shares into treasury as security against a loan in accordance with a Forbearance Agreement (Note 15).

 

Profit (loss) per share

 

 

Three months ended
August 31,

Nine months ended
August 31,

 

2020

2019

2020

2019

 

$

$

$

$

Basic and diluted loss per share attributable to the Company from continuing operations

(0.24)

(0.21)

(0.56)

(1.23)

Basic and diluted loss per share attributable to the Company

(0.38)

(0.20)

(0.70)

(1.24)

Basic and diluted loss per share attributable to the non-controlling interest

(0.23)

0.00

(0.25)

(0.00)

Weighted average number of common shares outstanding

7,929,936

4,206,959

7,123,637

4,108,794

 

Stock options

 

The Company does not have a formal stock option plan.  The Company occasionally grants stock options to its employees, officers, directors and consultants to purchase common shares of the Company. The options granted are exercisable at a price which is equal to or greater than the fair market value of the common shares at the date the options are granted. The options are granted with varied vesting periods but generally vest immediately on grant. Options granted generally have a life of five years.

 

During the year ended November 30, 2019, the Company granted 461,500 stock options with a total fair value of $1,136,731 that vested immediately on grant.

 

During the nine months ended August 31, 2020, the Company granted 550,000 stock options with a total fair value of $1,011,582 that vested immediately on grant.

 

The following weighted average assumptions were used in the Black-Scholes option-pricing model for the valuation of the stock options granted:

 

 

 

August 31,

2020

November 30, 2019

Risk-free interest rate

 

0.47%

1.82%

Dividend yield

 

Nil

nil

Expected life

 

5.0 years

5.0 years

Volatility

 

103%

92%

Weighted average fair value per option

 

$1.79

$2.46


Page 26


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


17.SHARE CAPITAL AND RESERVES (continued) 

 

Stock options (continued)

 

Stock option transactions are summarized as follows:

 

 

Number of

Stock Options

Weighted Average Exercise Price

 

 

$

Balance, November 30, 2018

117,000

18.34 (US$13.30)

Granted

461,500

3.52 (US$2.55)

Cancelled

(117,000)

18.34 (US$13.30)

Balance, November 30, 2019

461,500

3.39

Granted

550,000

3.33 (US$2.55)

Exercised

(53,505)

3.33 (US$2.55)

 

 

 

Balance, August 31, 2020

957,995

3.33

 

A summary of the share options outstanding and exercisable at August 31, 2020 is as follows:

 

Number of Stock Options

Exercise Price

Expiry Date

 

$

 

407,995

3.33 (US$2.55)

February 28, 2024

25,000

3.33 (US$2.55)

January 8, 2025

25,000

3.33 (US$2.55)

February 13, 2025

25,000

3.33 (US$2.55)

March 10, 2025

25,000

3.35 (US$2.57)

April 13, 2025

450,000

3.33 (US$2.55)

July 23, 2025

957,995

 

 

 

The weighted average life of share options outstanding at August 31, 2020 was 4.26 years.

 

Warrants

 

Agents’ warrants

 

During the nine months ended August 31, 2020, the Company issued 213,333 share purchase warrants with a total fair value of $338,558 and an exercise price of US$1.88 per warrant in connection with the private placement which closed on June 8, 2020.


Page 27


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


17.SHARE CAPITAL AND RESERVES (continued) 

 

Warrants

 

Agents’ warrants

 

The following weighted average assumptions were used in the Black-Scholes option-pricing model for the valuation of the warrants granted:

 

 

 

August 31,

2020

November 30, 2019

Risk-free interest rate

 

0.48%

-

Dividend yield

 

nil

-

Expected life

 

5.0 years

-

Volatility

 

103%

-

Weighted average fair value per option

 

$1.55

-

 

Agents’ warrant transactions are summarized as follows:

 

 

Number of

Agents’ Warrants

Weighted Average Exercise Price

 

 

$

Balance, November 30, 2018

10,737

4.35

Cancelled

(2,737)

1.25

Balance, November 30, 2019

8,000

5.32

Issued

213,333

2.45

 

 

 

Balance, August 31, 2020

221,333

2.55

 

A summary of the agents’ warrants outstanding and exercisable at August 31, 2020 is as follows:

 

Number of Agent’s Warrants

Exercise Price

Expiry Date

 

$

 

8,000

5.22 (US$4.00)

October 15, 2020

213,333

2.45 (US$1.88)

June 4, 2025

221,333

 

 

 

The weighted average life of agent’s warrants outstanding at August 31, 2020 was 4.60 years.


Page 28


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


17.SHARE CAPITAL AND RESERVES (continued) 

 

Warrants (continued)

 

Share purchase warrants

 

During the year ended November 30, 2019, the Company issued 1,000,167 share purchase warrants with an exercise price of US$1.75 per warrant in connection with the conversion of various convertible debentures.

 

On October 18, 2019, the Company repriced six tranches of share purchase warrants to US$1.20.

 

During the nine months ended August 31, 2020, the Company:

·issued 527,402 share purchase warrants with an exercise price of US$1.75 per warrant in connection with the conversion of various convertible debentures; 

·621,865 share purchase warrants with an exercise price of US$1.20 per warrant in connection with the exercise of the “B” share purchase warrants described under Derivative liability below; and  

·1,333,334 share purchase warrants with an exercise price of US$1.88 per warrant in connection with the registered direct offering which closed in June 2020. 

 

Share purchase warrant transactions are summarized as follows:

 

 

Number of

Share Purchase Warrants

Weighted Average Exercise Price

 

 

$

Balance, November 30, 2018

1,142,598

6.05

Issued

1,000,167

2.35 (US$1.75)

Exercised

(158,291)

2.35 (US$1.75)

Balance, November 30, 2019

1,984,474

1.92

Issued

2,482,601

2.19

Exercised

(1,433,366)

1.81

 

 

 

Balance, August 31, 2020

3,033,709

2.16

 

A summary of the share purchase warrants outstanding and exercisable at August 31, 2020 is as follows:

 

Number of Share Purchase Warrants

Exercise Price

Expiry Date

 

$

 

24,208

1.56 (US$1.20)

April 6, 2022

800,000

1.56 (US$1.20)

October 15, 2021

876,167

2.28 (US$1.75)

February 26, 2021

1,333,334

2.45 (US$1.88)

June 9, 2025

3,033,709

 

 

 

The weighted average life of share purchase warrants outstanding at August 31, 2020 was 2.55 years.


Page 29


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


17.SHARE CAPITAL AND RESERVES (continued) 

 

Derivative liability

 

a)On August 30, 2017, the Company completed a non-brokered private placement of 132,043 units for cash proceeds of $126,000. Each unit consisted of one “A” share purchase warrant and one “B” share purchase warrant. Each “A” warrant entitles the holder to purchase one share of the Company for a period of three years from closing at a price of $3.00 per warrant. Each “B” warrant entitles the holder to purchase one share of the Company for a period of three years from closing at a price of $6.00, repriced to USD$1.20 on October 18, 2019.  The warrant agreement provides an anti-dilution clause for each of the A and B warrants that, upon exercise of the warrants, will cause the Company to issue additional warrants sufficient to entitle the warrant holder to acquire 10% of the issued and outstanding common shares of the Company.  Such right is limited to one exercise of either of the A and B warrants and all of the A warrants must be exercised prior to exercising any of the class B warrants. 

 

The anti-dilution right for the A and B share purchase warrants was valued at $126,000 as at November 30, 2017 as the acquisition price approximated fair value due to the recency of the transaction.  During the year ended November 30, 2018, certain A warrants were exercised causing the rights to expire resulting in a decrease to the liability.

 

During the nine months ended August 31, 2020, certain B warrants were exercised causing the rights to expire resulting in the elimination of the liability.

 

As at August 31, 2020, the rights attached to the B warrants were valued at $nil (November 30, 2019 - $1,102,277) resulting in a derivative gain of $1,102,277 for the nine months ended August 31, 2020 (nine months ended August 31, 2019 – $79,775).

 

b)Due to the Company changing its functional currency from the CAD to the USD during the year ended November 30, 2018, a derivative liability occurred on the date of change on the Company’s previously issued share purchase warrants with CAD exercise prices.  During the year ended November 30, 2019, the share purchase warrants with a CAD exercise price was repriced to USD resulting in the elimination of the derivative liability. 

 

As at August 31, 2020, the Company revalued the derivative liability to $nil (November 30, 2019 - $nil) and recorded a gain of $nil (nine months ended August 31, 2020 – $392,950).

 

 

18.DISCONTINUED OPERATIONS 

 

On August 31, 2020, the Company agreed to settle $652,061 (US$500,000) payable for the Majesco acquisition (Note 4), along with $452,772 in consulting fees owed to the previous owner of Majesco, for $260,824 (US$200,000) in cash and the return of the 51% ownership of Majesco.  Upon signing of the agreement, the Majesco operations were considered discontinued and the balances were reclassified as such.


Page 30


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


18.DISCONTINUED OPERATIONS (continued) 

 

The following is the breakdown of the discontinued operations on the statement of comprehensive loss:

 

Three months ended
August 31,

Nine months ended
August 31,

 

2020

2019

2020

2019

 

$

$

$

$

Sales

118,122

110,040

415,335

362,767

Cost of sales

57,526

23,371

141,815

100,404

Gross profit (loss)

60,596

86,669

273,520

262,363

 

 

 

 

 

Operating expenses

 

 

 

 

Consulting and director fees

4,028

5,289

12,179

105,394

Other general and administrative expenses

5,476

3,921

14,371

17,778

Professional fees

7,251

4,760

30,462

69,540

Salaries and benefits

31,421

29,413

89,658

86,234

 

48,176

43,383

146,670

278,946

 

 

 

 

 

Other expenses

 

 

 

 

Impairment of goodwill

(2,940,739)

-

(2,940,739)

-

 

 

 

 

 

Profit (loss) before income taxes

(2,928,319)

43,286

(2,813,889)

(16,583)

Income tax expense

-

6,334

-

6,334

 

 

 

 

 

Profit (loss) from discontinued operations

(2,928,319)

36,952

(2,813,889)

(22,917)

Profit (loss) attributable to non-controlling
  interest from discontinued operations

(1,822,362)

18,106

(1,766,291)

(11,229)

Profit (loss) attributable to the Company
  from discontinued operations

(1,105,957)

18,846

(1,047,598)

(11,688)

 

The following is a breakdown of the change in cash flows for the discontinued operations:

 

Nine months ended
August 31,

 

2020

2019

 

$

$

Net cash provided by (used in) operating activities

246,198

(13,660)

Net cash used in investing activities

-

(106,778)

 

 

 

Net cash flows for the period

246,198

(120,438)


Page 31


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


19.RELATED PARTY TRANSACTIONS 

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Director members.

 

A summary of related party loans and related transactions is included in Notes 4 and 15.  Interest paid or accrued to related parties during the nine months ended August 31, 2020 was $nil (August 31, 2019 - $5,174).

 

Accounts payable and accrued liabilities at August 31, 2020 includes $22,240 (November 30, 2019 - $627,003) owing to directors, officers, or to companies controlled by common directors for unpaid consulting fees, expense reimbursements, and loan interest.  Additionally, accounts payable and accrued liabilities includes $nil (November 30, 2019 - $664,452) payable to a director of Majesco relating to the purchase of the Company’s 51% interest in Majesco.

 

During the nine months ended August 31, 2020, the Company received $nil (August 31, 2019 - $781,707 (US$588,000)) for convertible debentures detailed in Note 16 from three directors of the Company.  In July 2019, two directors converted their debentures worth $116,990 (US$88,000) into 58,667 units of the Company.  In April 2020, the remaining director converted his debenture of $706,350 (US$500,000) and the associated accrued interest of $14,941 (US$10,576) into 340,384 units of the Company.

 

As at November 30, 2019, a loan was due from Waterproof, which included accrued interest receivable, amounting to $94,882.  As at August 31, 2020, the loan was repaid in full.  During the nine months ended August 31, 2020, the Company recorded interest income of $416 (August 31, 2019 - $6,270) in connection to this loan receivable. (Note 7).

 

Summary of key management personnel compensation:

 

 

For the nine months ended

August 31,

 

2020

2019

 

$

$

Consulting and directors fees

512,500

420,000

Salaries and benefits

19,000

19,000

Share-based compensation

724,940

890,418

Interest expense

-

5,174

 

 

 

 

1,256,440

1,334,592


Page 32


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


20.NON-CONTROLLING INTEREST 

 

The following table presents the changes in equity attributable to the 49% non-controlling interest in Majesco:

 

 

August 31,

2020

November 30,

2019

 

$

$

Balance, beginning of period

1,786,401

1,838,941

Share of loss for the period

(1,766,291)

(43,932)

Foreign exchange on translation

(20,110)

(8,608)

 

 

 

Balance, end of period

-

1,786,401

 

The following table presents the non-controlling interest as at August 31, 2020 and November 30, 2019:

 

 

August 31,

2020

November 30,

2019

 

$

$

Assets

 

 

Current

-

33,770

Non-current

-

3,905,471

 

-

3,939,241

 

 

 

Liabilities

 

 

Current

-

270,362

Non-current

-

23,163

 

-

293,525

 

 

 

Net assets

-

3,645,716

Non-controlling interest

-

1,786,401

 

The following table presents the loss and comprehensive loss attributable to non-controlling interest:

 

 

 

Three months ended
August 31,

Nine months ended
August 31,

 

Note

2020

2019

2020

2019

 

 

$

$

$

$

Profit (loss) attributable to non-controlling interest from discontinued operations

18

(1,822,362)

18,106

(1,766,291)

(11,229)

Foreign exchange translation adjustment

 

(93,703)

(49,574)

(20,110)

(80,791)

 

 

 

 

 

 

Comprehensive loss attributable to non-controlling interest

 

(1,916,065)

(31,468)

(1,786,401)

(92,020)


Page 33


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


21.CAPITAL DISCLOSURE AND MANAGEMENT 

 

The Company defines its capital as shareholders’ equity. The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern. The Company manages its capital structure to maximize its financial flexibility making adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital. The Company is not subject to externally imposed capital requirements other than disclosed in Note 15.

 

 

22.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 

 

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

 

·Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; 

·Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and  

·Level 3 – Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumption that market participants would use in pricing. 

 

The Company’s financial instruments consist of cash, restricted cash, receivables, loans receivable, assets held for resale, investment in equity instruments, accounts payable and accrued liabilities, loans payable, liabilities held-for-resale, convertible debentures, and derivative liability.  The fair value of receivables, loans receivable, accounts payable and accrued liabilities, and loans payable approximates their carrying values.  Cash and restricted cash are measured at fair value using level 1 inputs.  Convertible debentures and derivative liability are measured using level 2 inputs.  The investment in equity instruments is measured at fair value using level 3 inputs.

 

As at August 31, 2020, the fair value of the level 3 asset was $2,095,831 (November 30, 2019 - $1,551,324) based on a multiple of 6.9 times management’s estimate of Waterproof’s expected earnings before interest, taxes, and expected amortization.  The Company’s investment in Waterproof does not have a quoted market price on an active market and the Company has assessed the fair value of the investment based on Waterproof’s unobservable earnings.  As a result, the fair value is classified as level 3 of the fair value hierarchy.  The process of estimating the fair value of Waterproof is based on inherent measurement uncertainties and is based on techniques and assumptions that emphasize both qualitative and quantitative information.  There is no reasonable quantitative basis to estimate the potential effect of changing the assumptions to reasonably possible alternative assumptions on estimated fair value of the investment.

 

The Company is exposed to a variety of financial risks by virtue of its activities including currency, credit, interest rate, and liquidity risk.

 

a)Currency risk 

 

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. The Company’s operations are carried out in Canada and the United States. As the Company’s functional currency is USD, the Company is subject to foreign currency exchange rate risk on its net assets denominated in CAD which could have an adverse effect on the profitability of the Company. As at August 31, 2020, the Company had current assets totaling CAD$619,535 and current liabilities totalling CAD$1,606,851. A 1% change in the exchange rate would change other comprehensive income/loss by approximately US$7,500.  The Company currently does not have plans to enter into foreign currency future contracts to mitigate this risk, however it may do so in the future.


Page 34


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


22.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) 

 

b)Credit risk 

 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

 

The Company’s cash is held in a large Canadian financial institution. The Company maintains certain cash deposits with Schedule I financial institutions, which from time to time may exceed federally insured limits. The Company has not experienced any significant credit losses and believes it is not exposed to any significant credit risk. The Company’s restricted cash is held with a law firm in trust in which credit risk exposure is low. The Company’s sales tax receivable is due from the Government of Canada; therefore, the credit risk exposure is low.

 

The maximum exposure to credit risk as at August 31, 2020 and November 30, 2019 is the carrying value of the loans receivable. The Company has allowed for an expected credit loss of $162,717 on the loans receivable as at August 31, 2020.  During the nine months ended August 31, 2020, the Company increased the allowance by $17,286 which is included in the consolidated statements of comprehensive loss.

 

c)Interest rate risk 

 

Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.  Financial assets and liabilities with variable interest rates expose the Company to cash flow interest rate risk.  The Company does not hold any financial liabilities with variable interest rates.  As at August 31, 2020, the loans included in loans payable and convertible debentures bear interest at rates of 2.35% and 14.4% per annum and are due on demand. The Company does maintain bank accounts which earn interest at variable rates but it does not believe it is currently subject to any significant interest rate risk.

 

d)Liquidity risk 

 

The Company’s ability to continue as a going concern is dependent on management’s ability to raise required funding through future equity issuances and through short-term borrowing. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments.  As at August 31, 2020, the Company had a cash balance, including restricted cash, of $2,675,413 to settle current financial liabilities of $3,380,190.  Additionally, as there is no assurance the convertible debentures will be converted into common shares of the Company. The Company is exposed to liquidity risk.


Page 35


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


23.SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS 

 

 

For the nine months ended

August 31,

 

2020

2019

 

$

$

Supplemental cash-flow disclosures

 

 

Interest received

12,067

7,807

Interest paid

304,924

8,117

 

 

 

Supplemental non-cash disclosures

 

 

Reallocation of warrants upon exercise

28,056

-

Reallocation of options upon exercise

144,245

-

Shares issued for debt settlements

331,967

634,175

Accounts payable applied to convertible debentures

-

23,675

Shares issued for commitment

137,197

-

Units issued for conversion of convertible debentures and associated interest

1,121,514

298,701

Acquisition of equipment in accounts payable

-

125,143

Accounts payable applied to convertible debentures

-

23,675

Derecognition of investment in associate

-

587,274

Warrants issued for share issue costs

338,558

-

Accounts receivable applied to accounts payable

648,091

-

 

 

24.CONTINGENCIES 

 

a)In January 2020, a consultant of the Company filed a lawsuit in the Supreme Court of British Columbia against the Company for approximately $400,000 for unpaid consulting fees, US$500,000 for the unpaid cash consideration for the purchase of 51% interest in Majesco, and a payment for the difference between US$500,000 and the value of the Company’s shares issued on the purchase of the 51% interest in Majesco.  On August 31, 2020, a settlement agreement had been reached whereby the Company would pay US$200,000 and transfer the 51% interest in the common shares of Majesco back to the consultant (Note 18).  As at August 31, 2020, the Company accrued $260,824 (US$200,000), which was paid subsequent to August 31, 2020, and deconsolidated Majesco. 

 

b)In February 2020, a consultant of the Company filed a lawsuit in the Supreme Court of British Columbia against the Company in relation to the issuance of a share certificate for 59,706 common shares of the Company, 32,149 of which the consultant states is owing to him and general and special damages in relation to the shares.  In May 2020, the Company settled this lawsuit for $68,937 (US$50,000). 

 

 

25.SEGMENTED INFORMATION 

 

During the nine months ended August 31, 2020 and the year ended November 30, 2019, the Company had two offices: a head-office in Vancouver, BC, and Majesco’s office in New York, New York.  In evaluating performance, management does not distinguish or group its sales and cost of sales on a geographic basis. For the year ended November 30, 2019, the Company had one reportable operating segment: the investment in video games.  Upon the acquisition of the Platform coding (Note 12) during the nine months ended August 31, 2020, the Company determined it now has two reportable operating segments:  the investment in distribution of films and the investment in video games.  

 

Revenue derived in the Company’s film and video games segments is earned from a large number of customers located throughout the world.  No one customer exceeds 5% of the Company’s sales.


Page 36


Liquid Media Group Ltd.

Notes to Condensed Interim Consolidated Financial Statements

August 31, 2020

(Expressed in Canadian Dollars - Unaudited)


25.SEGMENTED INFORMATION 

 

Below summarizes the Company’s reportable operating segments for the nine months ended August 31, 2020.

 

 

Film

Video Games

Total

 

$

$

$

Segment Information

 

 

 

Revenue

5,526

16,399

21,925

Cost of sales

(37,563)

(553,820)

(591,383)

Operating expenses

(17,898)

(102,326)

(120,224)

Discontinued operations

-

(2,813,889)

(2,813,889)

Segment profit (loss)

(49,935)

(3,453,636)

(3,503,571)

 

 

 

 

Corporate expenses:

 

 

 

Operating expenses

 

 

(4,704,837)

Other income (expenses)

 

 

1,438,072

Foreign currency translation

 

 

(263,123)

Comprehensive loss for the period

 

 

(7,033,459)

 

 

 

 

Capital expenditures

4,557,667

-

4,557,667

 

 

26.SUBSEQUENT EVENTS 

 

In September 2020, the Company granted 1,000,001 restricted stock units (“RSUs”) to certain directors, officers, and consultants of the Company which vest 25% on grant and 25% each six months thereafter.  The granted RSUs convert to common shares of the Company upon vesting, accordingly, 250,001 common shares were issued upon grant.


Page 37

 

 

Picture 2 

 

 

 

 

 

 

 

 

 

 

 

 

LIQUID MEDIA GROUP LTD.

 

 

 

 

Management’s Discussion and Analysis

For the three and nine months ended August 31, 2020



MANAGEMENT'S DISCUSSION AND ANALYSIS


MANAGEMENT’S DISCUSSION AND ANALYSIS

 

This Management’s Discussion and Analysis (“MD&A”) of Liquid Media Group Ltd. (“Liquid” or the “Company”), provides analysis of the Company’s financial results for the three and nine months ended August 31, 2020. The following information should be read in conjunction with the accompanying unaudited condensed interim consolidated financial statements and accompanying notes for the three and nine months ended August 31, 2020 (“Interim Financial Statements”) and the audited consolidated financial statements and accompanying notes for the year ended November 30, 2019 (“Annual Financial Statements”) which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Board of Directors of the Company have approved the information and disclosures contained in this MD&A. This MD&A is dated as at October 15, 2020. All figures are in Canadian dollars unless otherwise noted. Additional information relating to the Company is available on SEDAR at www.sedar.com and on the Company’s website at www.LiquidMediaGroup.co

 

 

FORWARD-LOOKING STATEMENTS

 

This report includes “forward-looking information” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Statements which are not historical facts, are forward-looking statements. The Company, through its management, makes forward-looking public statements concerning its expected future operations, performance and other developments.  The words “believe”, “intend”, “expect”, “anticipate”, “project”, “estimate”, “predict” and similar expressions are also intended to identify forward-looking statements.  Forward-looking statements are not guarantees of future performance and are subject to a wide range of known and unknown risks and uncertainties and although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized. Forward-looking statements relate to, among other things: business objectives, goals and strategic plans; operating strategies; expected future revenues, earnings and margins; anticipated operating, selling and general and administrative costs; and anticipated capital expenditures.

 

Such forward-looking statements are necessarily estimates reflecting the Company's best judgment based upon current information and involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements. For all such forward-looking statements, we claim the safe harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

 

All forward-looking statements speak only as of the date made.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

 

 

COMPANY BACKGROUND AND DESCRIPTION OF THE BUSINESS

 

The Company is the parent company of Liquid Media Group (Canada) Ltd. (“Liquid Canada”), formerly Liquid Media Group Ltd., and is a digital studio for all platforms in the entertainment industry. Originating in Vancouver’s media and entertainment supercluster, the Company’s mission is to empower storytellers worldwide to develop, produce and distribute content across channels and platforms. Liquid’s intellectual properties are monetized via multiple direct to consumer models: Video on Demand (“VOD”), Subscription VOD (“SVOD”), and Electronic Sell-Through (“EST”).  The Company currently offers third-party film and TV content via its 100% owned digital platforms and corporate owned video games through a licensing agreement with Polycade that will be delivering Retro Gaming to new audiences via the Polycade Arcade platform.


Page 2


MANAGEMENT'S DISCUSSION AND ANALYSIS


On August 9, 2018, the Company announced the successful closing of the proposed business combination with Liquid Canada by way of plan of arrangement under the Business Corporations Act (British Columbia) (the "Arrangement"). Pursuant to the Arrangement, Liquid Canada was acquired by and became a wholly-owned subsidiary of the Company.  As part of the Arrangement, on August 10, 2018, the Company changed its name to Liquid Media Group Ltd. and Liquid Canada changed its name to Liquid Media Group (Canada) Ltd.  At the time of completion of the Arrangement, the Company had 1,848,980 common shares issued and outstanding which included 1,288,497 common shares issued to former Liquid Canada shareholders, representing 69.69% of the Company’s issued and outstanding shares. Initially, the common shares of the Company issued in connection with the Arrangement were listed on NASDAQ under the ticker symbol “LBIX”. Effective August 10, 2018, the trading symbol of the Company was changed to “YVR”.

 

Upon closing of the transaction, the shareholders of Liquid Canada owned 69.69% of the common shares of the Company, and as a result, the transaction is considered a reverse acquisition of the Company by Liquid Canada. All previous common shares and warrants were exchanged at a ratio of one share of Liquid Canada for 0.5741 of a share of the Company (“Conversion Rate”). For accounting purposes, Liquid Canada is considered the acquirer and the Company, the acquiree. Accordingly, the MD&A is in the name of Liquid Media Group Ltd.; however, they are a continuation of the financial records of Liquid Canada.

 

Discontinued Operations

 

On August 31, 2020, the Company agreed to settle a lawsuit with Jesse Sutton, the director of Majesco, whereby Mr. Sutton agreed to settle $652,061 (US$500,000) payable for the acquisition of Majesco, along with $452,772 in consulting fees owed to Mr. Sutton, for $260,824 (US$200,000) in cash and the return of the 51% ownership of Majesco.  Upon signing of the agreement, the Majesco operations were considered discontinued and the balances were reclassified as such.

 

For additional information about the discontinued operations of Majesco, refer to Note 18 in the unaudited condensed interim consolidated financial statements of the Company for the three and nine months ended August 31, 2020.

 

The following discussion is directed at the continuing operations of the Company, which excludes Majesco as a result of the settlement described above.  The results of the Company aside from the discontinued operations are reflective of the operations of the Company without Majesco.

 

Current Year Summary

 

In December 2019, the Company announced the launch of Iridion 3D and its sequel, Iridion II on Steam for PC.

 

In January 2020, a consultant of the Company filed a lawsuit in the Supreme Court of British Columbia against the Company for approximately $400,000 for unpaid consulting fees, US$500,000 for the unpaid cash consideration for the purchase of 51% interest in Majesco, and a payment for the difference between US$500,000 and the value of the Company’s shares issued on the purchase of the 51% interest in Majesco.  On August 31, 2020, a settlement agreement had been reached as described in the Discontinued Operations section above.

 

In February 2020, a consultant of the Company filed a lawsuit in the Supreme Court of British Columbia against the Company in relation to the issuance of a share certificate for 59,706 common shares of the Company, 32,149 of which the consultant states is owing to him and general and special damages in relation to the shares.  In May 2020, the Company settled this lawsuit for $68,937 (US$50,000).

 

In February 2020, the Company acquired a portfolio of assets for $4,464,885 (US$3,325,000).  The acquired assets include the streaming platform Reelhouse, a self-distributed video content platform for independent filmmakers, and tools such as Slipstream, a Subscription Video on Demand (“SVOD”) service that focuses on curated action sports stories.


Page 3


MANAGEMENT'S DISCUSSION AND ANALYSIS


In March 2020, the Company announced the launch of a new chapter of Ancient Aliens mobile game in partnership with A+E Networks.

 

In March 2020, the Company announced the addition of Andrew Kaplan, a capital markets strategist, to its advisory board.  The Company granted 25,000 stock options with an exercise price of US$2.55 and a term of five years to Mr. Kaplan in connection with his appointment.

 

In April 2020, the Company announced the addition of Michael Timothy Doyle, a veteran interactive entertainment industry production executive, to its advisory board.  The Company granted 25,000 stock options with an exercise price of US$2.55 and a term of five years to Mr. Doyle in connection with his appointment.

 

In May 2020, the Company successfully launched the two-day New Faces New Voices 2020 Film Festival on the recently acquired ReelhouseLive platform.

 

In July 2020, the Company announced they partnered with Invoke, the creators of Hootsuite, and Arkitek Creative to transform and advance the Company’s streaming platform.

 

In August 2020, the Company partnered with Arcana Studios whereby Arcana will create animated content for the Company’s streaming platform.

 

In September 2020, the Company partnered with Polycade, the connected arcade platform invented by the son of Atari co-founder Nolan Bushnell, whereby the Company will make available all of its retro gaming titles on the Polycade Game Store which is launching in the fall of 2020.

 

Financings

 

In January 2020, the Company issued 57,125 common shares valued at $148,198 to settle debt of $190,706 resulting in a gain of $42,508 which is included in gain (loss) on debt settlements.

 

In January 2020, the Company issued 11,764 common shares valued at $39,615 to a consultant of the Company for public relations services provided to the Company of which $33,058 of services were rendered during the year ended November 30, 2019.

 

In April 2020, the Company issued 50,103 common shares valued at $183,769 to settle debt of $180,294 resulting in a loss of $3,476 which is included in gain (loss) on debt settlements.

 

In May 2020, the Company filed an F-3 registration statement in the United States which offers an indeterminate number of common shares, debt securities, subscription rights, warrants, and/or units of the Company for proceeds of up to US$25,000,000.

 

In June 2020, the Company closed a registered direct offering, under its F-3 registration statement in the United States, by issuing 2,666,672 common shares of the Company at US$1.50 per common share for total proceeds of $5,353,203 (US$4,000,002).  Concurrent with this offering, the Company issued to the investors 1,333,334 share purchase warrants exercisable for USD$1.88 per common share with a maturity date of June 9, 2025.  In connection with these offerings, the Company paid legal fees of $409,200 (US$305,761), agent fees of $428,256 (US$320,000), and issued 213,333 agent warrants with a value of $500,668 and an exercise price of $1.88 per common share with a maturity date of June 4, 2025

 

In July 2020, the Company issued 29,536 shares valued at $60,000 to a consultant of the company for advisory services provided to the Company.


Page 4


MANAGEMENT'S DISCUSSION AND ANALYSIS


During the nine months ended August 31, 2020, the Company issued:

·issued 515,000 units on the conversion of $1,095,384 (US$777,286) worth of net convertible debentures and 12,402 units on the conversion of $26,130 (US$18,605) worth of interest on the convertible debentures.  As a result, the Company transferred $134,198 from reserves to share capital representing the proportionate balance of the unamortized equity component.  Each unit comprised of one common share and one warrant with each warrant entitling the holder to acquire one common share of the Company for US$1.75 up to February 26, 2021. 

 

·issued 493,111 common shares for total proceeds of $1,111,476 in connection with the exercise of 493,111 share purchase warrants at US$1.75 per warrant of which $104,139 was received during the year ended November 30, 2019.  As a result, the Company transferred $28,056 representing the fair value of the exercised warrants from reserves to share capital. 

 

·issued 573,171 common shares for total proceeds of $907,036 in connection with the exercise of 573,171 share purchase warrants at US$1.20 per warrant. 

 

·issued 53,505 common shares for total proceeds of $196,427 in connection with the exercise of 53,505 stock options at US$2.55 per option.  As a result, the Company transferred $144,245 representing the fair value of the exercised options from reserves to share capital. 

 

Subsequent Events

 

In September 2020, the Company granted 1,000,001 restricted stock units (“RSUs”) to certain directors, officers, and consultants of the Company which vest 25% on grant and 25% each six months thereafter.  The granted RSUs convert to common shares of the Company upon vesting, accordingly, 250,001 common shares were issued upon grant.

 

 

CRITICAL JUDGEMENTS AND ESTIMATES

 

The preparation of financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the period.

 

Although management uses historical experience and its best knowledge of the amount, events or actions to form the basis for judgments and estimates, actual results may differ from these estimates.

 

Significant judgements includes the determination of functional currency, assessments over level of control or influence over companies, the recoverability and measurement of deferred tax assets, assessments of acquisitions of groups of assets versus a business, and the determination of a discontinued operation.

 

The most significant accounts that require estimates as the basis for determining the stated amounts include the valuation of share-based compensation, derivative, and convertible features; the valuation of intangible assets including goodwill; the valuation of investments in equity instruments; the valuation of expected credit loss; and the valuation of convertible debentures.

 

Critical judgment exercised in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is as follows:

 

Functional currency

The functional currency of the Company and its subsidiaries is the United States dollar (“USD”); however, determination of functional currency may involve certain judgments to determine the primary economic environment which is re-evaluated for each new entity or if conditions change.


Page 5


MANAGEMENT'S DISCUSSION AND ANALYSIS


Level of control or influence over companies

The accounting for investments in other companies can vary depending on the degree of control and influence over those other companies.  Management is required to assess at each reporting date the Company’s control and influence over these other companies.  Management has used its judgment to determine which companies are controlled and require consolidation and those which are significantly influenced and require equity accounting.  The Company has considered its ownership position in Waterproof Studios Inc. (“Waterproof”) to constitute significant influence up to February 28, 2019 and thereafter does not have the ability to influence the key operating activities of the entity.  Accordingly, as of March 1, 2019 the Company has accounted for its investment under fair value through profit or loss.  Additionally, the Company has assessed that control of Majesco was lost as of August 31, 2020.

 

Income taxes

In assessing the probability of realizing income tax assets, management makes estimates related to expectation of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified.

 

Acquisition of group of assets

The Company acquired platform coding which did not meet the definition of a business and is accounted for as an asset acquisition.  The Company applied the amended IFRS 3 Business Combinations standard in its determination that the acquisition did not meet the definition of a business, in particular, the optional concentration test, as substantially all the fair value of the assets acquired were accounted in a group of similar identifiable assets.

 

Discontinued operations

The Company classifies a component of the Company’s business as discontinued operations when there is a highly probable likelihood of a disposal of that component.

 

Information about assumptions and estimation uncertainties that have a significant risk of resulting in material adjustments are as follows:

 

Valuation of share-based compensation, derivatives, and convertible features

The Company uses the Black-Scholes Option Pricing Model for valuation of share-based compensation and other equity based payments. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate, and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and equity reserves.

 

Valuation of intangible assets including goodwill

Goodwill and intangible assets are tested for impairment at each reporting date.  Management first reviews qualitative factors in determining if an impairment needs to be recorded.  Quantitative factors are then used to calculate the amount of impairment, if needed.  Goodwill and certain intangibles resulted from a business acquisition which were valued based on estimated discounted cash flows.

 

Valuation of investment in equity instrument

The Company values its equity instruments in private companies at fair value at each reporting date.  The determination of fair value is based on estimates made by management on the expected earnings before income, taxes, and amortization multiplied by a reasonable factor for the appropriate industry applicable to the private company.

 

Valuation of expected credit loss

Loans receivable are assessed for an estimated credit loss at each reporting date.  The estimated loss is determined based on management’s knowledge of the debtor and their ability to repay the loan.  As the current debtors’ are private entities, management must rely on assertions provided to them from the debtor to make their estimates.


Page 6


MANAGEMENT'S DISCUSSION AND ANALYSIS


Valuation of convertible debentures

The equity portion of the convertible debenture is calculated using a discounted cash flow method which requires management to make an estimate on an appropriate discount rate.

 

 

SELECTED QUARTERLY INFORMATION

 

The following financial data is derived from the Company’s unaudited consolidated financial statements for the three and nine months ended August 31, 2020 and 2019.

 

 

Three months ended
August 31,

Nine months ended

August 31,

 

2020

2019

2020

2019

 

$

$

$

$

Sales

6,752

17,783

21,925

25,186

Cost of sales

(184,755)

(582,685)

(591,383)

(1,746,361)

Gross profit (loss)

(178,003)

(564,902)

(569,458)

(1,721,175)

Operating expenses

(2,061,739)

(656,225)

(4,825,061)

(3,933,529)

Other income (expenses)

303,827

352,012

1,438,072

427,946

Loss before income tax

(1,935,915)

(869,115)

(3,956,447)

(5,226,758)

Income tax (expense) recovery

-

-

-

160,917

Loss attributable to Liquid from continuing operations

(1,935,915)

(869,115)

(3,956,447)

(5,065,841)

Profit (loss) from discontinued operations

(2,928,319)

36,952

(2,813,889)

(22,917)

Loss for the period

(4,864,234)

(832,163)

(6,770,336)

(5,088,758)

Foreign currency translation

(470,974)

(156,960)

(263,123)

19,960

Comprehensive loss

(5,335,208)

(989,123)

(7,033,459)

(5,068,798)

 

 

 

 

 

Loss attributable to:

 

 

 

 

Shareholders of the Company

(3,041,872)

(850,269)

(5,004,045)

(5,077,529)

Non-controlling interest

(1,822,362)

18,106

(1,766,291)

(11,229)

 

 

 

 

 

Comprehensive loss attributable to:

 

 

 

 

Shareholders of the Company

(3,419,143)

(905,046)

(5,247,058)

(4,976,778)

Non-controlling interest

(1,916,065)

(84,077)

(1,786,401)

(92,020)

 

 

 

 

 

Basic and diluted loss per common share:

 

 

 

 

Shareholders of the Company - continuing operations

(0.24)

(0.21)

(0.56)

(1.23)

Shareholders of the Company

(0.38)

(0.20)

(0.70)

(1.24)

Non-controlling interest

(0.23)

0.00

(0.25)

(0.00)

 

 

 

 

 

Working capital (deficiency)

518,543

(2,047,885)

518,543

(2,047,885)

Total assets

13,119,612

15,686,128

13,119,612

15,686,128

Total long-term liabilities

-

2,931,628

-

2,931,628

(1)the comparative figures have been reclassified to account for the discontinued operations of Majesco. 


Page 7


MANAGEMENT'S DISCUSSION AND ANALYSIS


RESULTS OF OPERATIONS – Three Months Ended August 31, 2020

 

During the quarter ended August 31, 2020, the Company’s primary focus was on developing relationships through which the Company could expand its current gaming and film content and advance its streaming platforms.

 

Gross Profit (Loss)

 

Gross profit (loss) decreased by $386,899 to $(178,003) for the three months ended August 31, 2020 from $(564,902) for the comparable period in 2019. The decrease in gross loss is attributable to the Company having two less video game platform license agreements to be amortized during the current period.

 

Operating Expenses

 

For the three months ended August 31, 2020, operating expenses increased by $1,405,514 from $656,225 in the three months ended August 31, 2019 to $2,061,739 in the three months ended August 31, 2020 primarily as a result of:

 

Operating Expense

Increase / Decrease in Expenses

Explanation for Change

 

Accretion expense

Decrease of $77,472

Decreased due to the conversion of convertible debentures in current periods which decreased the balance to be accreted.

Consulting and director fees

Increase of $75,675

Increased due to the Company engaging a new capital markets advisor to assist the Company.

Marketing

Increase of $519,779

Increased due to the Company commencing a seven month digital marketing campaign in the current period.

Share-based compensation

Increase of $793,949

Increased due to stock options being issued in the current period as compared to no stock options being issued in the prior comparative period.

 

Other Income (Expenses)

 

The following occurred during the three months ended August 31, 2020 as compared to the three months ended August 31, 2019:

·The Company recorded an increase in the foreign exchange loss of $74,690 due to differences in the period end spot rate as compared to the daily and average transactional rates for the Canadian dollar and the United States dollar. 

·The Company recorded a decrease in gain on derivative liability of $335,349 due to the derivative liabilities being eliminated at the end of 2020 Q2. 

·The Company recorded an increase in the unrealized gains on equity instruments of $293,583 relating to the revaluation of the Company’s investment in Waterproof at the end of the current period.  No revaluation was done in the comparative period. 


Page 8


MANAGEMENT'S DISCUSSION AND ANALYSIS


RESULTS OF OPERATIONS – Nine Months Ended August 31, 2020

 

During the nine months ended August 31, 2020, the Company’s primary focus was on (1) developing relationships through which the Company could expand its gaming and film content, (2) acquiring a portfolio of streaming platforms, and (3) advancing and improving the acquired streaming platforms to allow for more robust content.

 

Gross Profit (Loss)

 

Gross profit (loss) decreased by $1,151,717 to $(569,458) for the nine months ended August 31, 2020 from $(1,721,175) for the comparable period in 2019. The decrease in gross loss is attributable to the Company writing off one license agreement at the end of fiscal 2019 and another during the first quarter of 2020.

 

Operating Expenses

 

For the nine months ended August 31, 2020, operating expenses increased by $891,532 from $3,933,529 in the nine months ended August 31, 2019 to $4,825,061 in the nine months ended August 31, 2020 primarily as a result of:

 

Operating Expense

Increase / Decrease in Expenses

Explanation for Change

 

Accretion expense

Decrease of $127,503

Decreased due to the conversion of convertible debentures which decreased the balance to be accreted.

Consulting and director fees

Increase of $241,123

Increased due to the Company incurring a settlement in 2020 Q2 of $67,141 (US$50,000) in regards to a lawsuit initiated by a former consultant and the Company engaging additional consultants during the current period.

Marketing

Increase of $1,014,485

Increased due to the Company completing a digital marketing campaign which started in 2019 Q2 and commencing a new campaign in 2020 Q3.  The campaigns focus is to increase awareness of the Company.

Professional fees

Decrease of $154,026

Decrease due to less legal fees incurred in relation to the lawsuit brought on by the former President and director or the Company.

Share-based compensation

Decrease of $161,930

Decreased due to stock options being granted with a lower fair value in the current period as compared to the comparative period.

 

Other Income (Expenses)

 

The following occurred during the nine months ended August 31, 2020 as compared to the nine months ended August 31, 2019:

·The Company recorded a decrease in the share of profit of equity investment of $195,726 from its investment in Waterproof due to the loss of significant control on March 1, 2019. 

·The Company recorded an increase in the write-off of licenses of $330,276 due to management deciding to no longer proceed with an existing license agreement. 

·The Company recorded a decrease in project investigation of $192,100 in relation to the Arrangement between the Company and Liquid Canada during fiscal 2018.  Fiscal 2019 included some additional costs associated with the legacy beverage business. 

·The Company recorded an increase in gain on derivative liability of $629,552 due to the derivative liabilities being eliminated at the end of 2020 Q2. 


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MANAGEMENT'S DISCUSSION AND ANALYSIS


·The Company recorded an increase in the gain on settlement of debt of $137,519 in relation to the settling of various debt through the issuance of the Company’s common shares, cash, and investment during the current period as compared to the settlements recorded in the comparative period. 

·The Company recorded an increase in the unrealized gains on equity instruments of $592,894 relating to the revaluation of the Company’s investment in Waterproof at the end of the current period.  No revaluation was done in the comparative period. 

 

 

SUMMARY OF QUARTERLY RESULTS FOR THE LAST CONSECUTIVE EIGHT QUARTERS

 

The following table presents the unaudited summarized financial information for the last eight quarters:

 

 

Q3

Q2

Q1

Q4

 

F2020

F2020

F2020

F2019

 

$

$

$

$

Sales

6,752

7,541

7,632

1,924

Cost of sales

(184,755)

(178,370)

(228,258)

(91,194)

Gross profit (loss)

(178,003)

(170,829)

(220,626)

(89,270)

Operating expenses

(2,061,740)

(885,597)

(1,877,724)

(1,567,992)

Other income (expenses)

303,827

692,374

441,870

(812,555)

Loss before income taxes

(1,935,915)

(364,052)

(1,656,480)

(2,469,817)

Income tax (expense) recovery

-

-

-

-

Loss attributable to Liquid from continuing operations

(1,935,915)

(364,052)

(1,656,480)

(2,469,817)

Profit (loss) from discontinued operations

(2,928,319)

106,470

7,960

(66,740)

Loss for the period

(4,864,234)

(257,582)

(1,648,520)

(2,536,558)

Non-controlling interest

(1,822,362)

52,171

3,900

(32,702)

Loss attributable to shareholders of the Company

(3,041,872)

(309,753)

(1,652,420)

(2,503,856)

Comprehensive loss attributable to shareholders of the Company

(3,419,143)

(216,716)

(1,611,199)

(2,573,399)

Loss per share

         (0.38)

         (0.05)

         (0.30)

(0.57)

Weighted average shares

7,929,936

5,932,016

5,448,552

4,426,054

(1)the comparative figures have been reclassified to account for the discontinued operations of Majesco. 


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MANAGEMENT'S DISCUSSION AND ANALYSIS


 

Q3

Q2

Q1

Q4

 

F2019

F2019

F2019

F2018

 

$

$

$

$

Sales

17,783

7,403

-

-

Cost of sales

(582,685)

(585,187)

(578,488)

(603,718)

Gross profit (loss)

(564,902)

(577,784)

(578,488)

(603,718)

Operating expenses

(656,225)

(1,480,169)

(1,797,136)

(820,374)

Other income (expenses)

352,012

(222,140)

298,073

(939,460)

Loss before income taxes

(869,115)

(2,280,093)

(2,077,551)

(2,363,552)

Income tax (expense) recovery

-

-

160,917

-

Loss attributable to Liquid from continuing operations

(869,115)

(2,280,093)

(1,916,634)

(2,363,552)

Profit (loss) from discontinued operations

36,952

(10,444)

(49,424)

(49,313)

Loss for the period

(832,163)

(2,290,537)

(1,966,058)

(2,412,865)

Non-controlling interest

18,106

(5,118)

(24,218)

(24,162)

Loss attributable to shareholders of the Company

(850,269)

(2,285,419)

(1,941,840)

(2,388,703)

Comprehensive loss attributable to shareholders of the Company

(905,046)

(2,062,080)

(2,019,476)

(2,106,621)

Loss per share

         (0.20)

         (0.55)

         (0.48)

         (0.80)

Weighted average shares

4,206,959

4,128,857

4,010,419

2,985,309

(1)the comparative figures have been reclassified to account for the discontinued operations of Majesco. 

 

The quarterly fluctuations in net loss are generally correlated to the level of management’s activities related to the acquisition of companies, rights, licenses and other projects.  Loss is also impacted by the non-cash fluctuations in the fair value of the Company’s investment in Waterproof, amortization of licensing agreements, share based compensation, gains and losses on debt settlements, and other corporate costs.  Comprehensive loss is impacted by the foreign currency translation adjustment resulting from the Company reporting their financial statements in CAD rather than their functional currency of USD.

 

During the quarter ended November 30, 2018 (2018 Q4), the Company incurred increased consulting fees with the acquisition of Majesco, increased professional fees relating to the Arrangement with Liquid Canada, and increased fair value adjustments from the recognition of warrants due to the change in the Company’s functional currency.  During the quarter ended February 28, 2019 (2019 Q1), the Company recorded share-based compensation of $1,166,672 due to the granting of stock options during the quarter and continued graded vesting from stock options issued in fiscal 2018.  During the quarter ended May 31, 2019 (2019 Q2), the Company initiated a digital marketing campaign.  During the quarter ended November 30, 2019 (2019 Q4), the Company wrote-off one license for $717,125 and incurred additional marketing costs of $673,880.  During the quarter ended February 29, 2020 (2020 Q1), the Company wrote-off one license for $330,273 and incurred additional marketing costs of $965,493.  During the quarter ended August 31, 2020 (2020 Q3), the Company recorded share-based compensation of $793,949 due to the granting of stock options during the quarter and incurred additional marketing costs of $538,933 from the commencement of a new marketing campaign.


Page 11


MANAGEMENT'S DISCUSSION AND ANALYSIS


LIQUIDITY AND CAPITAL RESOURCES

 

As at August 31, 2020, the Company has current assets of $3,898,733 and current liabilities of $3,380,190, which results in working capital of $518,543 (November 30, 2019 – $544,349).

 

The Company does not have adequate operating revenue to finance its existing obligations and therefore must continue to rely on external financing to generate capital to maintain its capacity to meet working capital requirements. The Company has relied on debt and equity raises to finance its operating activities since incorporation. The Company intends to continue to rely on debt and the issuance of shares to finance its operations. However, there is a risk that additional financing will not be available on a timely basis or on terms acceptable to the Company.

 

Cash Flows

 

The table below sets forth a summary of cash flow activity and should be read in conjunction with the Company’s cash flow statements:

 

 

Nine Months Ended

August 31,

 

2020

2019

 

$

$

Cash flows used in operating activities

(4,999,919)

(3,425,594)

Cash flows used in investing activities

(4,558,477)

(184,298)

Cash flows provided by financing activities

7,001,754

3,846,375

Effect of foreign exchange on cash

(7,989)

43,133

Increase (decrease) in cash during the year

(2,564,631)

279,616

Cash, beginning of period

4,587,405

4,327,331

Cash, end of period

2,022,774

4,606,947

 

The cash flow used in operating activities for nine months ended August 31, 2020 increased by $1,574,325 compared to the comparative period. The use of cash flows from operating activities represents the effect on cash flows from net losses adjusted for items not affecting cash, principally: accrued interest income and expenses, amortization and accretion, share-based compensation expense, changes in the value of derivatives, gains and losses on the settlement of debt, unrealized foreign exchange, the share of profit of its equity investment, the unrealized gains on the revaluation of equity instruments, and the write off of various items, in addition to net changes in non-cash balances relating to operations.

 

Cash used by investing activities for nine months ended August 31, 2020 increased by $4,374,179 compared to the comparative period mostly due to the Company acquiring and developing a portfolio of assets including certain streaming platforms for $4,557,667 (US$3,394,095).

 

Cash provided by financing activities for nine months ended August 31, 2020 increased by $3,155,379 compared to the comparative period mostly due to the Company closing its registered direct offering for total proceeds of $5,353,203 (US$4,000,002) and receiving funds from the exercise of options and warrants during the current period.  The comparative period included a private placement offering of unsecured convertible debentures of $3,502,793.

 

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company did not have any off balance sheet arrangements as at August 31, 2020 or November 30, 2019.


Page 12


MANAGEMENT'S DISCUSSION AND ANALYSIS


COMMITMENTS

 

The Company has no commitments as at August 31, 2020 and the date of this report.

 

 

CONTINGENCIES

 

In January 2020, a consultant of the Company filed a lawsuit in the Supreme Court of British Columbia against the Company for approximately $400,000 for unpaid consulting fees, US$500,000 for the unpaid cash consideration for the purchase of 51% interest in Majesco, and a payment for the difference between US$500,000 and the value of the Company’s shares issued on the purchase of the 51% interest in Majesco.  On August 31, 2020, a settlement agreement had been reached whereby the Company would pay US$200,000 and transfer the 51% interest in the common shares of Majesco back to the consultant.  As at August 31, 2020, the Company accrued $260,824 (US$200,000), which was paid subsequent to August 31, 2020, and deconsolidated Majesco.

 

 

TRANSACTIONS WITH RELATED PARTIES

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Director members.

 

During the nine months ended August 31, 2020, the Company entered into the following transactions with related parties:

a)Incurred consulting and directors fees of $159,500 (August 31, 2019 - $114,500) to Charlie Brezer and Ispani Holdings Inc. (“Ispani”), a company controlled by Charlie Brezer, a director of the Company, interest expense of $nil (August 31, 2019 - $5,174), and share-based compensation of $220,542 (August 31, 2019 - $369,468) to Mr. Brezer.  During the nine months ended August 31, 2019, Mr. Brezer advanced $23,930 (US$18,000) to the Company for the convertible debenture offering.  In July 2019, Mr. Brezer converted his debenture into 12,000 units of the Company with each unit consisting of one common share and one share purchase warrant with each warrant entitling the holder to acquire one common share of the Company for US$1.75 up to February 28, 2021.  As at August 31, 2020, $7,188 (November 30, 2019 - $207,625) was included in accounts payable and accrued liabilities as owing to Mr. Brezer. 

 

b)Incurred consulting and directors fees of $159,500 (August 31, 2019 - $114,500) to Daniel Cruz and Wawel Den Inc. (“Wawel”), a company controlled by Daniel Cruz, the CFO and a director of the Company, and share-based compensation of $220,542 (August 31, 2019 - $369,468) to Mr. Cruz.  During the nine months ended August 31, 2019, Mr. Cruz advanced $93,060 (USD$70,000) to the Company for the convertible debenture offering.  In July 2019, Mr. Cruz converted his debenture into 46,667 units of the Company with each unit consisting of one common share and one share purchase warrant with each warrant entitling the holder to acquire one common share of the Company for US$1.75 up to February 28, 2021.  As at August 31, 2020, $7,766 (November 30, 2019 - $20,460) was included in accounts payable and accrued liabilities as owing to Mr. Cruz. 

 

c)Incurred consulting fees of $180,000 (August 31, 2019 - $180,000) to Zift, a company controlled by Jesse Sutton, the director of Majesco, and salaries of $19,000 (August 31, 2019 - $19,000).  On August 31, 2020, the Company agreed to settle a lawsuit with Mr. Sutton whereby Mr. Sutton agreed to settle $652,061 (US$500,000) payable for the acquisition of Majesco, along with $452,772 in consulting fees owed to Mr. Sutton, for $260,824 (US$200,000) in cash and the return of the 51% ownership of Majesco.  As at August 31, 2020, $260,824 (November 30, 2019 - $908,970) was included in accounts payable and accrued liabilities as owing to Mr. Sutton and Zift. 


Page 13


MANAGEMENT'S DISCUSSION AND ANALYSIS


d)Incurred directors fees of $4,500 (August 31, 2019 - $4,500) and share-based compensation of $220,541 (August 31, 2019 - $28,326) to Joshua Jackson, Chairman and a director of the Company.  During the nine months ended August 31, 2019, Mr. Jackson advanced $664,717 (US$500,000) to the Company for the convertible debenture offering.  In April 2020, Mr. Jackson converted his debenture and accrued interest of $14,941 into 340,384 units of the Company with each unit consisting of one common share and one share purchase warrant with each warrant entitling the holder to acquire one common share of the Company for US$1.75 up to February 28, 2021. As at August 31, 2020, $4,286 (November 30, 2019 - $144,900) was included in accounts payable and accrued liabilities as owing to Mr. Jackson. 

 

e)Incurred directors fees of $4,500 (August 31, 2019 - $4,500) and share-based compensation of $8,822 (August 31, 2019 - $123,156) to Stephen Jackson, a director of the Company.  As at August 31, 2020, $1,500 (November 30, 2019 - $6,000) was included in accounts payable and accrued liabilities as owing to Mr. Jackson. 

 

f)Incurred directors fees of $4,500 (August 31, 2019 - $2,000) and share-based compensation of $54,492 (August 31, 2019 - $nil) to Nancy Basi, a director of the Company.  As at August 31, 2020, $1,500 (November 30, 2019 - $3,500) was included in accounts payable and accrued liabilities as owing to Ms. Basi. 

 

g)Earned interest income of $416 (August 31, 2019 – $6,270) from a loan receivable issued to Waterproof.  As at August 31, 2020, Waterproof owed the Company $nil (November 30, 2029 - $94,882) for the outstanding balance of principal and interest on the loan. 

 

Summary of key management personnel compensation:

 

 

For the nine months ended

August 31,

 

2020

2019

 

$

$

Consulting and directors fees

512,500

420,000

Salaries and benefits

19,000

19,000

Share-based compensation

724,940

890,418

Interest expense

-

5,174

 

 

 

 

1,256,440

1,334,592

 

These expenditures were measured by amounts agreed upon by the transacting parties.

 

 

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

 

·Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; 

·Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and  

·Level 3 – Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumption that market participants would use in pricing. 


Page 14


MANAGEMENT'S DISCUSSION AND ANALYSIS


The Company’s financial instruments consist of cash, restricted cash, receivables, loans receivable, assets held for resale, investment in equity instruments, accounts payable and accrued liabilities, loans payable, liabilities held-for-resale, convertible debentures, and derivative liability.  The fair value of receivables, loans receivable, accounts payable and accrued liabilities, and loans payable approximates their carrying values.  Cash and restricted cash are measured at fair value using level 1 inputs.  Convertible debentures and derivative liability are measured using level 2 inputs.  The investment in equity instruments is measured at fair value using level 3 inputs.

 

As at August 31, 2020, the fair value of the level 3 asset was $2,095,831 (November 30, 2019 - $1,551,324) based on a multiple of 6.9 times management’s estimate of Waterproof’s expected earnings before interest, taxes, and expected amortization.  The Company’s investment in Waterproof does not have a quoted market price on an active market and the Company has assessed the fair value of the investment based on Waterproof’s unobservable earnings.  As a result, the fair value is classified as level 3 of the fair value hierarchy.  The process of estimating the fair value of Waterproof is based on inherent measurement uncertainties and is based on techniques and assumptions that emphasize both qualitative and quantitative information.  There is no reasonable quantitative basis to estimate the potential effect of changing the assumptions to reasonably possible alternative assumptions on estimated fair value of the investment.

 

The Company is exposed to a variety of financial risks by virtue of its activities including currency, credit, interest rate, and liquidity risk.

 

a)Currency risk 

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. The Company’s operations are carried out in Canada and the United States. As the Company’s functional currency is USD, the Company is subject to foreign currency exchange rate risk on its net assets denominated in CAD which could have an adverse effect on the profitability of the Company. As at August 31, 2020, the Company had current assets totaling CAD$619,535 and current liabilities totalling CAD$1,606,851. A 1% change in the exchange rate would change other comprehensive income/loss by approximately US$7,500.  The Company currently does not have plans to enter into foreign currency future contracts to mitigate this risk, however it may do so in the future.

 

b)Credit risk 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

 

The Company’s cash is held in a large Canadian financial institution. The Company maintains certain cash deposits with Schedule I financial institutions, which from time to time may exceed federally insured limits. The Company has not experienced any significant credit losses and believes it is not exposed to any significant credit risk. The Company’s restricted cash is held with a law firm in trust in which credit risk exposure is low. The Company’s sales tax receivable is due from the Government of Canada; therefore, the credit risk exposure is low.

 

The maximum exposure to credit risk as at August 31, 2020 and November 30, 2019 is the carrying value of the loans receivable. The Company has allowed for an expected credit loss of $162,717 on the loans receivable as at August 31, 2020.  During the nine months ended August 31, 2020, the Company increased the allowance by $17,286 which is included in the consolidated statements of comprehensive loss.

 

c)Interest rate risk 

Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.  Financial assets and liabilities with variable interest rates expose the Company to cash flow interest rate risk.  The Company does not hold any financial liabilities with variable interest rates.  As at August 31, 2020, the loans included in loans payable and convertible debentures bear interest at rates of 2.35% and 14.4% per annum and are due on demand. The Company does maintain bank accounts which earn interest at variable rates but it does not believe it is currently subject to any significant interest rate risk.


Page 15


MANAGEMENT'S DISCUSSION AND ANALYSIS


d)Liquidity risk 

The Company’s ability to continue as a going concern is dependent on management’s ability to raise required funding through future equity issuances and through short-term borrowing. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments.  As at August 31, 2020, the Company had a cash balance, including restricted cash, of $2,675,413 to settle current financial liabilities of $3,380,190.  Additionally, as there is no assurance the convertible debentures will be converted into common shares of the Company.  The Company is exposed to liquidity risk.

 

 

OTHER RISKS AND UNCERTAINTIES

 

The business and operations of the Company are subject to numerous risks, many of which are beyond the Company’s control. The Company considers the risks set out below to be some of the most significant to potential investors in the Company, but not all of the risks are associated with an investment in securities of the Company. If any of these risks materialize into actual events or circumstances or other possible additional risks and uncertainties of which the Company is currently unaware or which it considers to be material in relation to the Company’s business actually occur, the Company’s assets, liabilities, financial condition, results of operations (including future results of operations), business and business prospects, are likely to be materially and adversely affected. In such circumstances, the price of the Company’s securities could decline and investors may lose all or part of their investment.

 

Global Pandemics

 

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including ours. This outbreak could decrease spending, adversely affect demand for our product and harm our business and results of operations; however, the Company has also recognized that the pandemic has led to a global increase in screen time and online gaming which is beneficial to the Company’s operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations, or how it will impact the Company’s ability to conduct financings at this time.

 

Limited Operating History

 

The Company was created on August 8, 2018 as the resulting issuer of a business combination by plan of arrangement between Liquid Canada and the Company. We cannot assure you that our revenue will increase, or that we will be able to operate profitably in future periods. Our limited operating history and evolving business make the prediction of future results of operations difficult and, therefore, past results should not be taken as indicative of our future performance. You should consider our business and prospects in light of the risks, uncertainties, expenses and challenges that we will face as an early-stage gaming, TV, film media and entertainment company operating in highly competitive, rapidly evolving, and challenging markets. If we fail to address the risks and challenges that we face, our business, financial condition and results of operations could be adversely affected.

 

Competition

 

Competition in our industry is intense and we expect new competitors to continue to emerge throughout the world. Our competitors range from large established companies to emerging start-ups. In our industry, though many new products and services are regularly introduced, only a relatively small number of “hit” titles accounts for a significant portion of total revenue for the industry. We do not yet have a significant number of titles that we develop and the underperformance of a title may have a large adverse impact on our financial results. Also, hit products or services offered by our competitors may take a larger share of consumer spending than we anticipate, which could cause revenue generated from our products and services to fall below expectations.


Page 16


MANAGEMENT'S DISCUSSION AND ANALYSIS


In addition, both the online and mobile games marketplaces are characterized by frequent product introductions, relatively low barriers to entry, and new and evolving business methods, technologies and platforms for development. We expect competition in these markets to intensify. If our competitors develop and market more successful products or services, offer competitive products or services at lower price points or based on payment models perceived as offering a better value proposition (such as free-to-play or subscription-based models), or if we do not continue to develop consistently high-quality and well-received products and services, our revenue, margins, and profitability will decline.

 

The highly competitive market is characterized by pressure to innovate, expand feature sets and functionality, accelerate new product releases and reduce prices. Within the video game segment of the entertainment industry, we compete with other publishers of entertainment software developed for use on the PC, video game consoles and handheld, mobile and tablet devices or social networking sites. Our competitors include very large corporations with significantly greater financial, marketing and product development resources than we have. A relatively small number of titles account for a significant portion of net revenues, and an even greater portion of net profit, in the game entertainment industry, and the availability of significant financial resources is a major competitive factor in the production of high-quality products and in the marketing of products that are ultimately well-received. Our larger competitors may be able to deliver greater innovation, respond more quickly to new or emerging technologies and changes in market demand, devote more resources to the development, marketing and sale of their products, successfully expand into emerging and other international markets, or price their products more aggressively than we can. If our competitors are more successful than we are in developing products, or in attracting and retaining customers, our financial condition and operating results could be adversely affected.

 

History of Operating Losses and Negative Cash Flows

 

We have a history of operating losses and negative cash flows. We anticipate that our operating expenses will increase substantially in the foreseeable future as we increase our sales and marketing activities, and continue to develop our technology, products, projects, and services. For example, we will need additional funds to add to our content library and for development costs incurred to develop new games and redevelop our retro games, for production costs incurred in connection with the development of film and tv projects, costs related to our cloud-based network initiative, and for licensing and distribution expenses. These efforts may prove more expensive than we currently anticipate and we may incur significant additional costs and expenses in connection with our business development activities. In addition, our film and gaming content creation operations are relatively capital intensive while revenue-generating opportunities depend on the availability of projects in the market. During periods of low project volumes, fixed costs can result in operating losses. All of these costs and expenses could prevent us from achieving or maintaining profitability in future periods.

 

Product Development Risks

 

We depend on our internal development studios and third-party software developers to develop new interactive entertainment software within anticipated release schedules and cost projections. The development cycle for emulated titles generally ranges from 3 months to 12 months and for new titles 6 months to 2 years. Therefore our development costs can be substantial. If we or our third party developers experience unanticipated development delays, financial difficulties or additional costs, we may not be able to release titles according to our schedule and at budgeted costs. There can be no assurance that our products will be sufficiently successful so that we can recoup these costs or make a profit on these products.

 

Additionally, in order to stay competitive, our internal development studios must anticipate and adapt to rapid technological changes affecting software development. Any inability to respond to technological advances and implement new technologies could render our products obsolete or less marketable. Further, the failure to pursue the development of new technology, platforms, or business models that obtain meaningful commercial success in a timely manner may negatively affect our business, resulting in increased production costs and more strenuous competition.


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MANAGEMENT'S DISCUSSION AND ANALYSIS


Financing Risks

 

We have limited capital and we may require funds in excess of our existing cash resources to fund operating deficits, develop new products or services, establish and expand our marketing capabilities, and finance general and administrative activities. We do not currently generate sufficient cash from our businesses to fund our operations. We do not have any bank credit facility or other working capital credit line under which we may borrow funds for working capital or other general corporate purposes. We have plans to implement a crowdfunding portal through which we may raise money from investors to fund our operations in the gaming, film and TV industry segments, but we cannot guarantee that we will be successful in raising the funds we need in that manner. If we do not have, or are not able to obtain, sufficient funds, we may have to delay strategic opportunities, investments, or projects. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of, or eliminate some or all of our creative work. Any of these actions could have a material adverse effect on our business, results of operations or financial condition.

 

Reliance on Market Acceptance

 

While we believe that there will be significant customer demand for our game, tv, and film offerings and services, there is no assurance that there will be broad market acceptance of our offerings. There also may not be broad market acceptance of the Company's offerings if its competitors offer products or services that are preferred by prospective customers. Customers consider many factors when evaluating our products relative to those of our competitors, including innovation, ease of use, price, feature sets, functionality, reliability, performance, reputation, and training and support, and we may not compare favorably against our competitors in all respects. There can be no assurance that our efforts will be successful in the near future, or at all, or that our competitors will not take significant market share in similar efforts. If we fail to develop new products and to manage new product introductions and transitions properly, or if our offerings do not receive market acceptance, our financial condition and operating results could be harmed.

 

Failure to Launch Commercially Successful New Products

 

In order for our media and entertainment business strategy to succeed over time, we will need to license, acquire, or develop new digital entertainment products that can generate additional revenue and diversify our revenue sources. A number of factors, including technical difficulties, government approvals and licenses of intellectual property right required for launching new products, lack of sufficient development personnel and other resources, and adverse developments in our relationship with the licensors of our new licensed products could result in delay in launching our new products. Therefore, we cannot assure you that we will be able to meet our timetable for development of our business.

 

There are many factors that may adversely affect the popularity of our new products. For example, we may fail to anticipate and adapt to future technical trends and new business models, fail to satisfy consumer preferences and requirements, fail to effectively plan and organize marketing and promotion activities, fail to effectively detect and prevent programming errors or defects in the products, and fail to operate our new products at acceptable costs. We cannot assure you that our new products will gain market acceptance and become commercially successful. If we are not able to license, develop or acquire additional digital entertainment products that are commercially successful, our future revenues and profitability may decline. If our games and other entertainment offerings do not meet consumer expectations, whether because they fail to function as advertised or otherwise, our sales may suffer. If our games and services do not function as consumers expect, it may negatively impact our business.

 

Rapid Technological Change

 

The entertainment industry in general, and the gaming, tv and film segments thereof in particular, are rapidly evolving, primarily as a result of free content, minimal entry costs for creation and distribution, and expanded use of mobile devices. We must continually anticipate and adapt our products to emerging technologies, delivery platforms and business models in order to stay competitive and try to predict and prepare for rapid changes in consumer demand that could materially alter public preferences for different forms of entertainment and leisure activities. The rapid growth of technology and shifting consumer tastes prevent us from being able


Page 18


MANAGEMENT'S DISCUSSION AND ANALYSIS


to accurately predict the overall effect that technological growth may have on our potential revenue and profitability. When we choose to incorporate a new technology into a product or to develop a product for a new platform, operating system or media format, we often are required to make a substantial investment prior to the introduction of the product. If we invest in the development of products incorporating a new technology or for a new platform that does not achieve significant commercial success, our revenues from those products likely will be lower than we anticipated and may not cover our development costs. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both. If, on the other hand, we elect not to pursue the development of products incorporating a new technology or for new platforms, or otherwise elect not to pursue a new business model, that achieves significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products incorporating that technology or for that platform or against companies using that business model. Any failure to successfully adapt to, and appropriately allocate resources among, emerging technologies and to keep pace with rapid technological change could negatively impact our business and prevent us from achieving profitability or sustaining a meaningful market position.

 

Development of Commercially Successful Products

 

The Company is a provider of video game products primarily for the casual-game consumer and has published video games for interactive entertainment hardware platforms, including Nintendo’s DS, 3DS, Wii and WiiU, Sony’s PlayStation 3 and 4, or PS3 and PS4, Microsoft’s Xbox 360 and Xbox One and the personal computer, or PC. The success of our business is subject to the continued popularity of these platforms and our ability to develop commercially successful products for these platforms.

 

Royalty Rates Set By Platform Providers

 

In order to provide products and service for a video game system such as Nintendo’s DS, 3DS, Wii and WiiU, Sony’s PlayStation 3 and 4, or PS3 and PS4, Microsoft’s Xbox 360 and Xbox One, we must take a license from Nintendo, Sony and Microsoft, respectively, which give these companies the opportunity to set the fee structure that we must pay in order to provide games for that platform. Similarly, these companies have retained the flexibility to change their fee structures, or adopt different fee structures for online purchases of games, online gameplay and other new features for their consoles. The control that hardware manufacturers have over the fee structures for their platforms and online access could adversely impact our costs, profitability and margins. Because providing products for video game systems is the largest portion of our business, any increase in fee structures would significantly harm our ability to generate profits.

 

Potential Acquisitions in the Industry

 

As part of our growth strategy, we may selectively pursue strategic acquisitions in our industry and related industries. We may not be able to consummate such acquisitions, which could adversely impact our growth. If we do consummate acquisitions, integrating an acquired company, business or technology may result in unforeseen operating difficulties and expenditures, including:

·increased expenses due to transaction and integration costs; 

·potential liabilities of the acquired businesses; 

·potential adverse tax and accounting effects of the acquisitions; 

·diversion of capital and other resources from our existing businesses; 

·diversion of our management’s attention during the acquisition process and any transition periods; 

·loss of key employees of the acquired businesses following the acquisition; and 

·inaccurate budgets and projected financial statements due to inaccurate valuation assessments of the acquired businesses. 

 

Our evaluations of potential acquisitions may not accurately assess the value or prospects of acquisition candidates and the anticipated benefits from our future acquisitions may not materialize. In addition, future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, including our common stock, the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill, any of which could harm our financial condition.


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MANAGEMENT'S DISCUSSION AND ANALYSIS


Dependant on Certain Key Personnel

 

We are dependent upon the services of key executives, including our chairman, Joshua Jackson, and our CFO, Daniel Cruz. The loss of our executive officers or our other key personnel, particularly with little or no notice, could cause delays on projects and could have an adverse impact on our client and industry relationships, our business, operating results or financial condition.

 

Due to the relatively small size of our company, the loss of key persons or our inability to attract and retain additional highly-skilled employees may adversely affect our business and future operations. The loss of one or more key employees or contractors, if not replaced, could adversely affect Liquid’s project exploration and development programs, consolidated operations and financial condition.

 

Retention of Skilled Management

 

Our success depends to a significant extent on our ability to identify, hire, and retain qualified creative, technical and managerial personnel in a competitive job market. We expect competition for personnel with the specialized creative and technical skills needed to create our products and provide our services will continue to intensify in future. Our competitors may be able to offer a work environment with higher compensation or more opportunities to work with cutting-edge technology than we can. If we are unable to retain our key personnel or appropriately match skill sets with our needs, we would be required to expend significant time and financial resources to identify and hire new qualified personnel and to transfer significant internal historical knowledge, which might significantly delay or prevent the achievement of our business objectives.

 

Limited Public Company Experience of Management

 

Members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that govern public companies. These obligations will require significant attention from our management and could divert their attention away from the day-to-day management of our business. In the event that our management team are not successful or efficient as managers of a public company, this could have a material adverse effect on our business, results of operations, or financial condition.

 

Legal Proceedings

 

From time to time, we may be involved in claims, suits, government investigations, audits and proceedings arising from the ordinary course of our business. Such claims, suits, government investigations, audits and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion of management resources and other factors.

 

Adverse Changes in the Economy

 

Most of our products and services involve discretionary spending on the part of consumers. We believe that consumer spending is influenced by general economic conditions and the availability of discretionary income. This makes our products particularly sensitive to general economic conditions and economic cycles as consumers are generally more willing to make discretionary purchases, including purchases of products like ours, during periods in which favorable economic conditions prevail. Adverse economic conditions such as a prolonged general economic downturn, including periods of increased inflation, unemployment levels, tax rates, interest rates, energy prices or declining consumer confidence could also reduce consumer spending. Reduced consumer spending may result in reduced demand for our products and may also require increased selling and promotional expenses, which may have an adverse effect on our business, financial condition and operating results. In addition, uncertainty and adverse changes in the economy could also increase costs associated with developing and publishing our products, increase the cost and availability of sources of financing, and increase our exposure to material losses from bad debts, any of which could have a material adverse effect on our business, financial condition and operating results. If economic conditions worsen, our business, financial condition and operating results could be adversely affected.


Page 20


MANAGEMENT'S DISCUSSION AND ANALYSIS


Management of Potential Growth

 

For us to succeed, our business needs to experience significant expansion. There can be no assurance that it will achieve this expansion. This expansion, if accomplished, may place a significant strain on our management, operational and financial resources. To manage any material growth, we will be required to implement operational and financial systems, procedures and controls. We will also be required to expand our finance, administrative and operations staff. There can be no assurance that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations at any increased level. Our failure to manage growth effectively could have a material adverse effect on our business, results of operations and financial condition.

 

Limited Number of Suppliers

 

We rely on a limited number of suppliers for hardware, software, and film and gaming production equipment. While other sources of supply do exist for this equipment, an unexpected disruption in supply or an increase in pricing could have a negative impact on our earnings.

 

Dependence on Trademarks and Copyrights

 

We hold a number of trademarks and copyrights relating to certain significant products. We rely on trademark laws and contractual provisions to protect these trademarks and copyrights, and there can be no assurance that third parties will not infringe or misappropriate our trademarks and copyrights. Existing trade secret, copyright and trademark laws offer only limited protection and do not account for common law claims. Furthermore, the monitoring and enforcement against the unauthorized use of our intellectual property rights could entail significant expenses and could prove difficult or impossible. As well, the laws of other countries in which we may choose to market our products may afford little or no effective protection of our intellectual property. If we lose some or all of our intellectual property rights, our business may be materially adversely affected.

 

Intellectual Property Claims

 

Development of original content, including publication and distribution, sometimes results in claims of intellectual property infringement. Although we make efforts to ensure our products do not violate the intellectual property rights of others, it is possible that third parties may still allege infringement. These claims and any litigation resulting from these claims may be time consuming and costly to defend, divert management attention, and result in damage awards payable by us. They could also prevent us from selling the affected product; or require us to redesign the affected product to avoid infringement or obtain a license for future sales of the affected product or prevent us from utilizing important technologies, ideas or formats.

 

Security Breaches

 

We securely store the source code for our interactive entertainment software products as it is created. A breach, whether physical, electronic or otherwise, of the systems on which such source code and other sensitive data are stored could lead to damage or piracy of our software. In addition, certain parties with whom we do business are given access to our sensitive and proprietary information in order to provide services and support our team. These third parties may misappropriate our information and engage in unauthorized use of it. If we are subject to data security breaches, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures which could materially and adversely affect our business, financial condition and operating results. Any theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an event could adversely affect our competitive position, reputation, brand, and future sales of our products. Our business could be subject to significant disruption, and we could suffer monetary and other losses and reputational harm, in the event of such incidents and claims.


Page 21


MANAGEMENT'S DISCUSSION AND ANALYSIS


Retention of NASDAQ Listing

 

Our common shares currently trades on the NASDAQ Capital Market. Following our business combination in August 2018, we were required to establish compliance with the NASDAQ initial listing requirements, which we did in October 2018. NASDAQ has continued listing requirements that we must maintain to avoid delisting. The standards include, among others, a minimum bid price requirement of $1.00 per share and any of: (i) a minimum stockholders’ equity of $2.5 million; (ii) a market value of listed securities of $35 million; or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three fiscal years. Our results of operations and our fluctuating shares price directly impact our ability to satisfy these listing standards. If we are unable to maintain these listing standards, we may be subject to delisting.

 

A delisting from NASDAQ would result in our common shares being eligible for quotation on the over-the-counter market which is generally considered to be a less efficient system than listing on markets such as NASDAQ or other national exchanges because of lower trading volumes, transaction delays, and reduced security analyst and news media coverage. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common shares. Additionally, trading of our common shares on the OTCBB may make us less desirable to institutional investors and may, therefore, limit our future equity funding options and could negatively affect the liquidity of our shares.

 

If we make a significant acquisition that requires the issuance of our common shares, we may be required to reapply for NASDAQ listing.

 

Reapplying for NASDAQ listing may require us to satisfy the more stringent original listing standards of the NASDAQ Capital Market, which has substantially higher standards than the continuing listing standards. If any such application is not approved, our shares of common shares could be delisted from the NASDAQ Capital Market.

 

Dilution to Current Shareholders

 

In order to finance our operations, we have raised funds through the issuance of common shares and securities convertible into common shares and may do so again in future. We cannot predict the size of future issuances of common shares or the size or terms of future issuances of debt instruments or other securities convertible into common shares, or the effect, if any, that future issuances and sales of our securities will have on the market price of our common shares. Sales or issuances of substantial numbers of common shares, or the perception that such sales could occur, may adversely affect the market price of our common shares. With any additional sale or issuance of common shares, or securities convertible into common shares, our investors will suffer dilution to their voting power.

 

Loss of “Foreign Private Issuer” Status

 

In order to maintain our current status as a “foreign private issuer” (as defined in Rule 405 under the United States Securities Act of 1933), where more than 50% of our outstanding voting securities are directly or indirectly owned by residents of the United States, we must not have any of the following: (i) a majority of our executive officers or directors being U.S. citizens or residents, (ii) more than 50% of our assets being located in the United States, or (iii) our business being principally administered in the United States. If we were to lose our foreign private issuer status:

·we would no longer be exempt from certain of the provisions of U.S. securities laws, such as Regulation FD and the Section 16 short swing profit rules; 

·we would be required to commence reporting on forms required of U.S. companies, such as Forms l0-K, 10-Q and 8-K, rather than the forms currently available to us, such as Forms 20-F and 6-K; 

·we would be subject to additional restrictions on offers and sales of securities outside the United States, including in Canada; 

·we might lose the ability to rely upon exemptions from the NASDAQ corporate governance requirements that are available to foreign private issuers; and 

·if we engage in capital raising activities after losing our foreign private issuer status, there is a higher likelihood that investors may require the Company to file resale registration statements with the Securities and Exchange Commission as a condition to any such financing.  


Page 22


MANAGEMENT'S DISCUSSION AND ANALYSIS


Characterization as a Passive Foreign Investment Company

 

If 75% or more of our gross income in a taxable year, including our pro-rata share of the gross income of any company, U.S. or foreign, in which we are considered to own, directly or indirectly, 25% or more of the shares by value, is passive income, then we will be a passive foreign investment company, or “PFIC,” for U.S. federal income tax purposes. Alternatively, we will be considered to be a PFIC if at least 50% of our assets in a taxable year, averaged over the year and ordinarily determined based on fair market value and including our pro-rata share of the assets of any company in which we are considered to own, directly or indirectly, 25% or more of the shares by value, are held for the production of, or produce, passive income. Once treated as a PFIC, for any taxable year, a foreign corporation will generally continue to be treated as a PFIC for all subsequent taxable years for any shareholder who owned shares of the foreign corporation when it was treated as a PFIC. If we were to be a PFIC, and a U.S. holder does not make an election to treat us as a “qualified electing fund,” or QEF, or a “mark-to-market” election, “excess distributions” to a U.S. holder, and any gain recognized by a U.S. holder on a disposition of our ordinary shares, would be taxed in an unfavorable way. Among other consequences, our dividends, to the extent that they constituted excess distributions, would be taxed at the regular rates applicable to ordinary income, rather than the 20% maximum rate applicable to certain dividends received by an individual from a qualified foreign corporation, and certain “interest” charges may apply. In addition, gains on the sale of our ordinary shares would be treated in the same way as excess distributions.

 

The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to the determination of PFIC status. In addition, under the applicable statutory and regulatory provisions, it is unclear whether we would be permitted to use a gross loss from sales (sales less cost of goods sold) to offset our passive income in the calculation of gross income. Although we do not expect that we will be a PFIC in the future, in light of the periodic asset and income tests applicable in making this determination, no assurance can be given that we will not become a PFIC. If we do become a PFIC in the future, U.S. holders who hold ordinary shares during any period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to exceptions for U.S. holders who made a timely QEF or mark-to-market election, or certain other elections. We do not currently intend to prepare or provide the information that would enable our shareholders to make a QEF election.

 

Payment of Dividends

 

We have never declared or paid any cash dividends on our common shares and do not intend to pay any cash dividends in the foreseeable future. We currently intend to retain any future earnings to fund the growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. As a result, capital appreciation, if any, of our common shares will be the sole source of gain for the foreseeable future.

 

Sales of a Substantial Number of Our Common Shares

 

Our common shares are traded on the NASDAQ under the symbol “YVR.”  The concurrent sale of a substantial number of our common shares in the public market could cause a reduction in the market price of our common shares.

 

Enforcement of Judgements Against the Company

 

We are a company incorporated under the laws of British Columbia, all but one of our directors and officers are residents of Canada and all our assets and operations are located outside of the United States, with the exception of Majesco. It may not be possible for shareholders to enforce in Canada judgments against the Company obtained in the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws.

 

While reciprocal enforcement of judgment legislation exists between Canada and the United States, we and our insiders may have defenses available to avoid in Canada the effect of U.S. judgments under Canadian law, making enforcement difficult or impossible. There is uncertainty as to whether Canadian courts would enforce (a) judgments of U.S. courts obtained against us or our insiders predicated upon the civil liability


Page 23


MANAGEMENT'S DISCUSSION AND ANALYSIS


provisions of the U.S. federal and state securities laws or (b) in original actions brought in Canada, liabilities against us or our insiders predicated upon the U.S. federal and state securities laws. Therefore, our shareholders in the United States may have to avail themselves of remedies under Canadian corporate and securities laws for any perceived oppression, breach of fiduciary duty and like legal complaints. Canadian law may not provide for remedies equivalent to those available under U.S. law.

 

 

CHANGE IN ACCOUNTING POLICIES

 

On December 1, 2019, the Company elected to early adopt the amendments to IFRS 3 Business Combinations.  The amendment:

·clarifies minimum requirements to be a business, 

·clarifies market participants ability to replace missing elements, 

·clarifies the assessment of whether an acquired process is substantive, 

·narrows the definition of outputs, and 

·provides for an optional concentration test which is met if substantially all of the fair value of the gross net assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. 

 

The Company has also adopted the following accounting standards effective December 1, 2019, which had no significant impact on the consolidated financial statements:

·IFRS 16 - Leases 

·IFRIC 23 – Uncertainty Over Income Tax Treatments 

 

 

DISCLOSURE OF CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

 

The CFO, together with other members of management, have designed the Company’s disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be known to them, and by others, within those entities.

 

Management has also designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with IFRS. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of the nine months ended August 31, 2020. Due to the transition following the Company’s plan of arrangement in fiscal 2018, Management identified a material weakness related to segregation of duties and retained an external accounting firm to provide financial and accounting services to the Company.

 

While the officers of the Company have designed the Company’s disclosure controls and procedures and internal controls over financial reporting, they expect that these controls and procedures may not prevent all errors and fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute assurance that the objectives of the control system are met.


Page 24


MANAGEMENT'S DISCUSSION AND ANALYSIS


DISCLOSURE DATA FOR OUTSTANDING COMMON SHARES, OPTIONS, AND WARRANTS

 

Common Shares

 

The Company has authorized to issue 500,000,000 of commons shares without par value and the following preferred shares:

 

 

 

 

Preferred shares without par value

 

9,999,900

Series “A” preferred shares

 

1,000,000

Series “B” preferred shares

 

100

Series “C” preferred shares

 

1,000,000

Series “D” preferred shares

 

4,000,000

Series “E” preferred shares

 

4,000,000

 

 

20,000,000

 

Below is a summary of the common shares issued, stock options, share purchase warrants, and restricted share units as at August 31, 2020 and the date of this report:

 

 

August 31,

2020

Date of this Report

 

 

 

Common shares

9,808,050

10,058,051

Treasury shares

215,000

215,000

Stock options

957,995

957,995

Agents’ warrants

221,333

221,333

Share purchase warrants

3,033,709

3,033,709

Restricted share units

-

750,000

 

Stock Options

 

The Company has issued incentive options to certain directors, officers, and consultants of the Company.  As of the date of this report, the following options are outstanding and exercisable:

 

Number of Stock Options

Exercise Price

Expiry Date

 

$

 

407,995

3.33 (US$2.55)

February 28, 2024

25,000

3.33 (US$2.55)

January 8, 2025

25,000

3.33 (US$2.55)

February 13, 2025

25,000

3.33 (US$2.55)

March 10, 2025

25,000

3.35 (US$2.57)

April 13, 2025

450,000

3.33 (US$2.55)

July 23, 2025

957,995

 

 


Page 25


MANAGEMENT'S DISCUSSION AND ANALYSIS


Warrants

 

A summary of the agents’ warrants outstanding as at the date of this report is as follows:

 

Number of Agent’s Warrants

Exercise Price

Expiry Date

 

$

 

8,000

5.22 (US$4.00)

October 15, 2020

213,333

2.45 (US$1.88)

June 4, 2025

221,333

 

 

 

 

A summary of the share purchase warrants outstanding as at the date of this report is as follows:

 

Number of Agent’s Warrants

Exercise Price

Expiry Date

 

$

 

24,208

1.56 (US$1.20)

April 6, 2022

800,000

1.56 (US$1.20)

October 15, 2021

876,167

2.28 (US$1.75)

February 26, 2021

1,333,334

2.45 (US$1.88)

June 9, 2025

3,033,709

 

 

 

 

OTHER MD&A REQUIREMENTS

 

Additional information relating to the Company may be found on or in:

·SEDAR at www.sedar.com; 

·the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended August 31, 2020 and 2019; and 

·the Company’s audited consolidated financial statements for the years ended November 30, 2019 and 2018. 

 

This MD&A was approved by the Board of Directors of Liquid Media Group Ltd. effective October 15, 2020.


Page 26

 

_

Form 52-109F2

Certification of Interim Filings

Full Certificate

 

I, Charles Brezer, Interim President of Liquid Media Group Ltd., in the capacity of presently vacant position of Chief Executive Officer, certify the following:

1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Liquid Media Group Ltd. (the “issuer”) for the interim period ended August 31, 2020

 

2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. 

 

3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.  

 

4.Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. 

 

5.Design:  Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings 

 

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that  

 

(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and 

 

(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and  

 

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. 

 

5.1Control framework:  The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework.  

 

5.2ICFR – material weakness relating to design:  

 

(a) a description of the material weakness;  


1


(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and 

 

(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the  

material weakness.

 

5.3Limitation on scope of design:  N/A 

 

6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 1, 2020 and ended on August 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.  

 

Date: October 15, 2020

 

 

/s/ Charles Brezer   

Charles Brezer

Interim President


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Form 52-109F2

Certification of Interim Filings

Full Certificate

 

I, Daniel Cruz, Chief Financial Officer of Liquid Media Group Ltd., certify the following:

1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Liquid Media Group Ltd. (the “issuer”) for the interim period ended August 31, 2020

 

2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. 

 

3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.  

 

4.Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. 

 

5.Design:  Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings 

 

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that  

 

(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and 

 

(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and  

 

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. 

 

5.1Control framework:  The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework.  

 

5.2ICFR – material weakness relating to design:  

 

(a) a description of the material weakness;  


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(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and 

 

(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the  

material weakness.

 

5.3Limitation on scope of design:  N/A 

 

6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 1, 2020 and ended on August 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.  

 

Date: October 15, 2020

 

 

/s/ Daniel Cruz   

Daniel Cruz

Chief Financial Officer


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