QYOU Media Inc. (formerly Galleria Opportunities Ltd.) CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars)

Transcription

1 (formerly Galleria Opportunities Ltd.) CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) Three and nine months ended

2 QYOU Media, Inc. (Formerly Galleria Oportunities Ltd.) CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION (expressed in Canadian Dollars) Note March 31, 2018 June 30, 2017 ASSETS CURRENT ASSETS Cash $ 2,447,781 2,582,966 Accounts receivable, net of allowance for doubtful accounts of $0 (December 31, 2016: $0) 1,841, ,245 Other receivable 799, ,139 Prepaid expenses 45,382 11,357 TOTAL CURRENT ASSETS 5,134,118 4,073,707 PROPERTY AND EQUIPMENT, NET 4 355,898 46,422 CAPITALIZED PROGRAMMING ASSET 5 652,310 - APPLICATION DEVELOPMENT COSTS 6 986, ,797 SECURITY DEPOSIT 93,720 7,702 INTANGIBLE ASSETS 6 93,836 87,835 TOTAL ASSETS 7,316,409 4,873,463 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 986, ,389 Accrued expenses 677, ,817 Loan Payable ,000 - TOTAL CURRENT LIABILITIES 1,864,100 1,190,206 COMMITMENTS AND CONTINGENCIES 11 SHAREHOLDERS' EQUITY Share Capital 7 18,326,516 13,689,547 Warrants 8 1,544,395 3,710,968 Contributed surplus 8 & 9 4,509, ,714 Foreign currency translation 31,743 (108,425) Accumulated deficit (18,959,849) (14,590,547) TOTAL SHAREHOLDERS' EQUITY 5,452,309 3,683,257 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 7,316,409 4,873,463 See accompanying notes to the consolidated financial statements

3 QYOU Media, Inc. (Formerly Galleria Oportunities Ltd.) CONSOLIDATED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (expressed in Canadian Dollars) Three months ended March 31, Nine months ended March 31, Note REVENUES Linear Channel $ 1,079,062 $ 898,047 $ 3,703,128 $ 1,926,403 Programming 666, , , ,523 Influencer Marketing - 39, , ,351 1,745,738 1,088,593 4,835,069 2,875,277 OPERATING EXPENSES Content and production costs 952, ,271 2,742,471 2,266,327 Sales and marketing 693, ,664 1,736,942 1,201,161 Salaries and benefits 507, ,538 1,466, ,817 Legal and consulting 458, ,079 1,650, ,516 General and administrative 233, , , ,521 Bad debts written off - 39,051 - Foreign exchange loss (gain) 53,573 23, ,352 53,580 Interest and other expense (income) (5,142) (8,500) (24,035) (19,187) Depreciation 28,751 3,730 44,681 11,366 Stock based compensation expense 7 443, ,618 - TOTAL OPERATING EXPENSES 3,366,444 2,046,074 9,509,162 5,479,101 NET LOSS (1,620,706) (957,481) (4,674,092) (2,603,824) Listing expense 1,477,849 1,477,849 NET LOSS (1,620,706) (2,435,330) (4,674,092) (4,081,673) OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) that may be reclassified to profit and loss in subsequent periods: Exchange differences on translation of foreign operations (53,115) 109, , ,937 TOTAL COMPREHENSIVE INCOME (LOSS) (53,115) 109, , ,937 NET COMPREHENSIVE LOSS $ (1,673,821) $ (2,325,923) $ (4,405,733) $ (3,707,736) Weighted average number of common shares outstanding, 63,742,145 48,737,210 63,742,145 48,737,210 basic and diluted Loss per share, basic and diluted $ (0.03) $ (0.02) $ (0.07) $ (0.05) See accompanying notes to the consolidated financial statements

4 QYOU Media, Inc. (Formerly Galleria Oportunities Ltd.) CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY (expressed in Canadian Dollars) Number of common shares Share capital Warrants Contributed Surplus Foreign currency translation Deficit note # $ $ $ $ $ $ Balance, June 30, ,219, ,943,720 2,850,319 23,957 (167,384) (7,822,230) 1,828,382 Issued - Private placement - March ,631,000 7,315,500 $ 7,315,500 Costs of issuance of private placement (479,663) $ (479,663) Legal financing (447,609) $ (447,609) Broker warrants issued (171,899) 171,899 $ - Allocated to warrants (860,649) 860,649 $ - Allocated to employee options 500,175 $ 500,175 Share Issuance - value of Galleria Shares 3,089,150 1,390,147 $ 1,390,147 Exchange difference on translating foreign operations 331,996 $ 331,996 Net loss for the period (4,412,044) (4,412,044) Balance, March 31, ,939,959 13,689,547 3,710, , ,612 (12,234,274) 6,026,884 Total Balance, June 30, ,939,959 13,689,547 3,710, ,714 (108,425) (14,590,547) 3,683,257 Exchange difference on translating foreign operations 140, ,790 $ 444,958 Option Conversion 7a 1,002, , ,375 Allocated to warrants 7a (61,580) 61,580 - Broker options expired 7b 262,046 (308,939) (46,893) Issued - Private placement - November c 15,541,100 5,750,207 5,750,207 Finance cost 7e (987,014) (987,014) Broker options issued 7f (144,319) 144,319 - Allocated to warrants 7d (683,746) 683,746 - Warrants expired 8 (2,911,899) 2,911,899 Allocated to employee options 459, ,029 Allocated to employee RSU's 321, ,482 Net loss for the period (4,674,092) $ (4,674,092) Balance, March 31, ,483,809 18,326,516 1,544,395 4,509,504 31,743 (18,959,849) 5,452,309 See accompanying notes to the consolidated financial statements

5 QYOU Media, Inc. (Formerly Galleria Oportunities Ltd.) CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (expressed in Canadian Dollars) Nine months ended March 31, OPERATING ACTIVITIES Net loss $ (4,674,093) $ (4,081,663) NON-CASH ADJUSTMENTS Foreign exchange loss (gain) 391,352 53,580 Depreciation 44,681 11,366 Amortization 88,934 Stock based compensation 733,618 Working capital changes Accounts receivable (856,699) (515,532) Other receivables and deposits (304,872) (57,279) Prepaid expenses (34,025) (286,606) Accrued revenues Accounts Payable 318, ,513 Accrued expenses 155, ,864 Loan Payable 200,000 - Security deposit (86,018) - CASH USED IN OPERATING ACTIVITIES (4,023,228) (3,864,757) INVESTING ACTIVITIES Purchase of equipment (354,157) - Cash acquired on acqusition of Galleria Opportunities Limited. - Application production costs (283,791) (116,357) Content production cost (741,244) - CASH USED IN INVESTING ACTIVITIES (1,379,192) (116,357) FINANCING ACTIVITIES Share issuance, net of costs 5,264,568 7,751,489 Employee loan - - CASH FROM FINANCING ACTIVITIES 5,264,568 7,751,489 Translation effect on cash 2,667 (51,479) NET CHANGE IN CASH (135,185) 3,718,896 Cash, beginning of period 2,582,966 1,802,694 CASH, END OF PERIOD 2,447,781 5,521,590 See accompanying notes to the consolidated financial statements

6 1. BUSINESS AND ORGANIZATION The Company focuses on the curation and programming of short-form video content from the Video-Everywhere age. The Company finds and licenses videos from around the world in categories ranging from factual to viral and everything in between; packaging them for linear and on-demand TV and video channels, playlist-driven mobile apps, custom shows and influencer marketing campaigns. Using sub-contracted production staff, production facilities and third-party contractors, the Company identifies sources for content material, records original video programming, edits content and prepares final video product for distribution. The registered and head office of QYOU Media Inc. ( QYOU or the Company ) is 110 Spadina Avenue, Suite 300, Toronto Ontario, M5V 2K4. 2. BASIS OF PRESENTATION These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ( IAS 34 ) using accounting principles consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations issued by the IFRS Interpretations Committee ( IFRIC ). These unaudited interim condensed consolidated financial statements were prepared under the historical cost convention, except for certain items not carried at historical costs as discussed in the applicable accounting policies. These unaudited interim condensed consolidated financial statements are based on IFRS issued and outstanding as of March 31, The board of directors of the Company authorized the statements for issue and approved the policies the Company adopted in its consolidated financial statements for the three and nine months ending March 31, 2018 on May 24, As per National Instrument Continuous Disclosure Obligations Part 4.3 Disclosure of Auditor Review, the auditors of the Company have not performed a review of these interim financial statements. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES Basis of Presentation The accompanying consolidated financial statements include the accounts of QYOU Media Inc. and its wholly-owned subsidiaries, QYOU Media Holdings Inc. (Ontario), QYOU Productions Inc. (Canada), QYOU Limited (Ireland), QYOUTV International Limited (Ireland) and QYOU USA Inc. (United States). The unaudited interim condensed consolidated financial statements incorporate the assets and liabilities of the Company and its wholly-owned subsidiaries as at March 31, 2018 and 2017 and the results of these subsidiaries for the three and nine months then ended. The unaudited interim condensed consolidated financial statements should be read in conjunction with the Company s audited consolidated financial statements for the year ended June 30, Going concern uncertainty These unaudited interim condensed consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material. As at March 31, 2018, the Company has not yet achieved profitable operations, and has an accumulated deficit of $18.9 million. Whether, and when, the Company can attain profitability and positive cash flows from operations has material uncertainty, which may cast significant doubt upon the Company s ability to continue as a going concern.

7 The application of the going concern assumption is dependent upon the Company s ability to generate future profitable operations and obtain necessary financing to do so. While the Company has been successful in obtaining financing to date, there can be no assurance that it will be able to do so in the future. The Company will need to raise capital in order to fund its operations. This need may be adversely impacted by uncertain market conditions, approval by regulatory bodies, and adverse results from operations. The Company believes it will be able to acquire sufficient funds to cover planned operations through the next twelve-month period from anticipated revenue growth during such period, plus other financing alternatives and strategic options currently being explored. The availability of such funds is not assured and, if available, the terms thereof are not determinable. The outcome of these matters cannot be predicted at this time. NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE COMPANY The following new accounting standards applied or adopted during the period ended March 31, 2018 had no material impact on the consolidated financial statements. Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization ( IAS 16 and IAS 38 ) The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with earlier adoption permitted. These amendments do not have any impact on the consolidated financial statements as the Company has not used a revenue-based method to depreciate its non-current assets. FUTURE ACCOUNTING POLICY CHANGES Amendments to IFRS 2 Share-based Payment ( IFRS 2 ) In 2016, the IASB issued the final amendments to IFRS 2 in relation to the classification and measurement of sharebased payment transactions. The amendments are intended to eliminate diversity in practice in three main areas: the effects of vesting conditions on the measurement of cash-settled share-based payments; the classification of a sharebased payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cashsettled to equity-settled. The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The amendments are to be applied prospectively. However, retrospective application is permitted if elected for all three amendments and other criteria are met. IFRS 9 Financial Instruments: Classification and Measurement ( IFRS 9 ) In July 2014, the IASB issued the final amendments to IFRS 9, which provides guidance on the classification and measurement of financial assets and liabilities, impairment of financial assets, and general hedge accounting. The classification and measurement portion of the standard determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. The amended IFRS 9 introduced a new, expected-loss impairment model that will require more timely recognition of expected credit losses. In addition, the amended IFRS 9 includes a substantially reformed model for hedge accounting, with enhanced disclosures about risk management activity. The new standard is effective for annual periods beginning on or after - 2 -

8 January 1, 2018, with earlier adoption permitted. The Company is in the process of evaluating the impact of these amendments on the Company s consolidated financial statements. IFRS 15 Revenue from Contracts with Customers ( IFRS 15 ) In May 2014, the IASB issued IFRS 15, which covers principles for reporting about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The core principle of the new standard is that an entity recognizes revenue to represent the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also provides a model for the recognition and measurement of gains or losses from sale of non-financial assets. IFRS 15 is effective for annual periods beginning on or after January 1, 2018 with earlier adoption permitted. The standard permits the use of either full or modified retrospective application. This new accounting guidance will also result in enhanced disclosures about revenue. The Company is evaluating the effect that IFRS 15 will have on its consolidated financial statements, and related disclosures, as well as the transition method to apply the new standard. IFRS 16 Leases ( IFRS 16 ) In 2016, the IASB issued IFRS 16 replacing IAS 17, Leases and related interpretations. The standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. Early adoption is permitted if IFRS 15 has been adopted. The Company is in the process of evaluating the impact that IFRS 16 may have on the Company s consolidated financial statements. IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration ( IFRIC 22 ) In 2016, the IASB issued IFRIC 22 which provides requirements about which exchange rate to use when recognizing revenue in circumstances where an entity has received advance consideration in a foreign currency. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. On initial application, entities have the option to apply either retrospectively or prospectively

9 4. PROPERTY AND EQUIPMENT Property and equipment are comprised of the following (i) computers and equipment; and (ii) furniture and fixtures as follows: Cost Computer & equipment Furniture and fixtures Total $ $ $ Balance, as at June 30, ,459 1,024 45,483 Acquisitions 0 Balance, as at March 31, ,459 1,024 45,483 Accumulated depreciation Balance, as at June 30, , ,833 Depreciation for the period 11, ,560 Balance, as at March 31, , ,393 Net book value 26, ,090 Cost Computer & equipment Furniture and fixtures Total $ $ $ Balance, as at June 30, ,658 1,024 68,682 Acquisitions 127, , ,157 Balance, as at March 31, , , ,839 Accumulated depreciation Balance, as at June 30, , ,260 Depreciation for the period 25,552 19,129 44,681 Balance, as at March 31, ,239 19,702 66,941 Net book value 148, , , Programming Asset Capitalized Programming Asset The Company has segregated its film investments into two categories: (i) current productions; and (ii) library or acquired productions. Current productions are considered library productions immediately subsequent to their initial availability for licensing as they are considered completed. Current productions are amortized using the declining balance method at rates from 50-70% at the time of the initial episodic delivery and at annual rates of 10-25% thereafter

10 Total $ Cost Balance, as at June 30 & March 0 31, 2017 Acquisitions 741,244 Balance, as at March 31, ,244 Accumulated Amortization Balance, as at June 30, Amortization for the period 88,934 Balance, as at March 31, ,934 Net book value 652, INTANGIBLE ASSETS Intangible assets consist of capitalized application development costs and acquired intangible assets. Capitalized Application Development Capitalized application development costs are costs incurred for the development of a customized mobile application for the Company s curated videos. The product is currently under development. The total amount capitalized as of March 31, 2018 was $986,527 (June 30, 2017 $657,797). Amortization of the capitalized application development cost will commence upon launch of the mobile application. Intangible Asset Brand On July 14, 2015, QYOU Media Holdings Inc. (then called QYOU Media Inc., referred to herein as QYOU Media ) acquired certain assets from Black Forest Production Services ( BFPS ) including the rights to the QYOU brand and related intellectual property and assumed net liabilities of $56,454 for a cash payment of $25,000. Accordingly, a value of $81,454 has been allocated to the QYOU brand. The Company, through its wholly-owned indirect Irish subsidiary, QYOU Limited, owns a Broadcast License granted by the Broadcasting Authority of Ireland, which allows QYOU Limited to broadcast its programs in Ireland and the European Union

11 A summary of the Company s intangible assets are as follow: Cost Intangible Assets Capitalized Development Costs Total $ $ $ Balance, as at June 30, , , ,537 Acquisitions 0 Additions 116, ,357 Impact of foreign exchange (293) (293) Balance, as at March 31, , , ,601 Cost Intangible Assets Capitalized Development Costs Total $ $ $ Balance, as at June 30, , , ,632 Additions 283, ,792 Impact of foreign exchange 6,001 44,938 50,939 Balance, as at March 31, , ,527 1,080,

12 7. SHARE CAPITAL Common shares issued # $ Balance, as at June 30, ,219,810 6,943,720 Additional shares issued 17,720,150 6,745,827 Balance, as at March 31, ,939,959 13,689,547 Balance, as at June 30, ,939,960 13,689,547 Broker option conversion [a] 1,002, ,375 Allocated to warrants [a] (61,580) Broker option expirations [b] 262,046 Offering in November 2017 [c] 15,541,100 5,750,207 Allocated to warrants [d] (683,746) Offering costs [e] (987,014) Broker options issued [f] (144,319) Balance, as at March 31, ,483,810 18,326,516 [a] [b] [c] In July 2017, the Company received notices to exercise 1,002,750 compensation options in the capital of the Company, each exercisable at a price of $0.50 into one unit of the Company, for gross proceeds of $501,375. Each unit was comprised of one common share of the Company (each, a Common Share ) and one-half of one Common Share purchase warrant, each such whole Common Share purchase warrant exercisable for one Common Share at a price of $0.75, with expiration dates ranging from January 15, 2018 to January 29, The fair value of the Common Share purchase warrants was determined to be $61,580 using the Black- Scholes option pricing model and has been recorded as a reduction of share capital. The fair value of the compensation options that were exercised as noted in [a], above, was determined to be $262,046 using the Black-Scholes option pricing model and has been recorded as an addition to share capital and classified as a separate component of equity in contributed surplus. On November 21, 2017, the Company completed an offering of 15,541,100 units of the Company (the Units ), at a price of $0.37 per Unit on a bought deal basis pursuant to a short form prospectus for gross proceeds of $5,750,207 (the Offering ). Each Unit consists of one Common Share and one-half of one Common Share purchase warrant (each whole Common Share purchase warrant, a Warrant ). Each Warrant entitles the holder thereof to acquire one Common Share at a price of $0.55 per share until November 21, In connection with the Offering, the Company also granted the underwriter, Clarus Securities Inc. ( Clarus ), and other members of its selling group compensation (i) a cash commission of $402,514.49, equal to 7% of the gross proceeds derived from the Offering (the Underwriting Fee ); and (ii) 1,087,877 options of the Company (the Compensation Options ), each Compensation Option exercisable into one Unit until November 21, 2019 at a price of $0.37. Also in connection with the Offering, the Company paid a cash fee - 7 -

13 of $125,000 to PowerOne Capital Markets Limited as compensation for acting as special financial advisor in connection with the Offering (the Advisory Fee ). The net proceeds to the Company from the Offering was $4,763,193, after deducting the Underwriting Fee of $402,514.49, the Advisory Fee of $125,000, legal costs of $359,750 and audit related costs of $99,750. [d] A part of the Offering, 7,770,550 Warrants partially comprising the Units were issued. Each Warrant entitles the holder thereof to acquire one Common Share at a price of $0.55 per share until November 21, The fair value of the Warrants was determined to be $683,746 based on the Black-Scholes option pricing model and has been recorded as a reduction of share capital. [e] In connection with the Offering, the Underwriting Fee was $402,514.49, the Advisory Fee was $125,000, and the Company also incurred $459,500 of legal/audit fees, all of which have been recorded as a reduction of share capital. [f] In connection with the Offering, the Company also granted Clarus and other members of its selling group 1,087,877 Compensation Options, each Compensation Option exercisable into one Unit until November 21, 2019 at a price of $0.37. The fair value of the Compensation Options was determined to be $144,319 based on the Black-Scholes option pricing model and has been recorded as a reduction of share capital. Share-Based Payments Stock Option Plan On October 26, 2017, stock options to acquire an aggregate of 149,725 Common Shares issued to a director and officer of the Company were cancelled. On October 26, 2017, the Company granted stock options to acquire an aggregate of 450,000 Common Shares, subject to the execution of definitive option agreements, to directors, officers, consultants and employees of the Company. Each option is exercisable into one Common Share at an exercise price of $0.50 per Common Share. A summary of the status of the Company s stock option s outstanding as at March 31, 2018 follows: Date Number of Options Weighted Average Exercise Price Options Outstanding at June 30, ,593,966 $0.50 Options Outstanding at March 31, ,694,271 $0.50 Options Exercisable at June 30, ,222,593 $0.50 Options Exercisable at March 31, ,637,500 $0.50 The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with weighted average assumptions for grants as follows: March 2018 Expected volatility 65% Risk free interest rate 0.67% Dividend yield Nil Expected life (years) 5-8 -

14 Total share-based compensation expense recognized in employee compensation and benefits in the consolidated statements of loss and comprehensive loss for the three month period ended March 31, 2018 is $121,71 (March 31, 2017 nil) and $412,136 for the nine months ended March 31, 2018 (March 31, 2017 nil). Restricted Stock Units On February 27, 2018, the Company issued an aggregate of 4,125,000 restricted share units ( RSUs ) of the Company to certain of its existing directors, officers, employees and consultants pursuant to the Company s restricted share unit plan. The RSUs vest over a three year period and upon vesting, each RSU is redeemable for one Common Share. The fair value of each RSU granted is $0.34, determined using the closing price of the Common Shares on the date of grant (February 27, 2018). For the nine months ending March 31, 2018, an expense of $321,482 related to vesting of the RSUs was recorded. The remaining expense of $1,081,018 will be recorded over the remaining vesting period of up to three years for the RSUs. 8. WARRANTS A summary of the Company s outstanding Common Share purchase warrants, including the Warrants, is presented below: Number of warrants outstanding Weighted average exercise price Amount # $ $ Balance, as at June 30, ,082, ,850,319 Additional warrants issued 7,315, ,553,925 Balance, as at March 31, ,397, ,404,244 Balance, as at June 30, ,397, ,710,968 Compensation options exercised [a] 501, ,580 Additional warrants issued [b] 7,770, ,746 Warrants expired [c] (14,583,668) 0.73 (2,911,899) Balance, as at March 31, ,086, ,544,395 [a] [b] In July 2017, the Company received notices to exercise 1,002,750 compensation options in the capital of the Company, each exercisable at a price of $0.50 into one unit of the Company, for gross proceeds of $501,375. Each unit was comprised of Common Share and one-half of one Common Share purchase warrant, each such Common Share purchase warrant exercisable for one Common Share at a price of $0.75, with expiration dates ranging from January 15, 2018 to January 29, As part of the exercise of such compensation options, the Company issued 501,375 Common Share purchase warrants. The fair value of these Common Share purchase warrants was determined to be $61,580 using the Black-Scholes option pricing model and has been recorded as a reduction of share capital. As part of the Offering, on November 21, 2017 the Company issued 7,770,550 Warrants. Each Warrant entitles the holder thereof to acquire one Common Share at a price of $0.55 until November 21,

15 The fair value of the warrants issued during the six months ended December 31, 2017 was determined based on the Black-Scholes option pricing model using the following inputs: July 2017 Exercise of Compensation Options Warrants Issued as part of the Offering Risk-free interest rate 0.67% 0.67% Expected volatility 65% 65% Expected dividend yield Nil Nil Share price $0.51 $0.37 Exercise price $0.75 $0.55 Life to expiry 2 years 2 years [c] In January 2018, 14,583,668 warrants expired in accordance with their terms. 9. COMPENSATION OPTIONS TO BROKERS A summary of the Company s outstanding compensation options of the Company is presented below: Number of options outstanding Weighted average exercise price Amount # $ $ Balance, as at June 30, ,182, ,940 Options issued to brokers Balance, as at March 31, ,182, ,940 Balance, as at June 30, ,141, ,839 Expired options issued to brokers [a] (1,182,190) (308,940) Options issued to brokers [b] 1,087, ,319 Balance, as at March 31, ,046, ,218 [a] [b] Certain compensation options of the Company issued in 2015 expired in July 2017 and have accordingly been recorded as a reduction of share capital. In connection with the Offering, the Company issued 1,087,977 Compensation Options to Clarus and members of its selling group. Each Compensation Option is exercisable for one Unit at a price of $0.37 until November 21, The grant date fair value of the Compensation Options was determined to be $144,319 based on the Black-Scholes option pricing model using the following inputs:

16 Compensation Options Risk-free interest rate 0.67% Expected volatility 65% Expected dividend yield Nil Share price $0.37 Exercise price $0.37 Life to expiry 2.0 years 10. RELATED PARTY TRANSACTIONS The related party transactions entered into by the Company during the nine months ended March 31, 2018 were comprised of the following: On June 5, 2017, the Company agreed to loan Curt Marvis, the Chief Executive Officer of the Company, an aggregate principal amount of US$150,000, as evidenced by a promissory note issued by Mr. Marvis to the Company, which bears interest at a rate of 3% per annum (the Officer Loan ). As at March 31, 2018, the carrying value of the loan, inclusive of principle and interest, was US$153,250 or C$197,469 as determined using the Bank of Canada exchange rate on March 31, 2017 of US$1 = C$ The Company paid consulting fees of $58,228 to a director for services rendered for the three months ended March 31, 2018 (March 31, 2017 nil). For the nine months ended March 31, 2018 the Company paid consulting fees of $217,696 (March 31, 2017 nil). BFPS and the Company are considered to be related parties for accounting purposes as a result of common share ownership and because an officer of the Company also acts as a director of BFPS. In addition, BFPS provides outsourced production services, on a cost plus basis, for the Company s videos under the terms of a production services contract. Total production costs incurred by the Company that were provided by BFPS for the three months ended March 31, 2018 was nil (March 31, 2017 $276,301). For the nine months ended March 31, 2018, the Company paid production cost of $323,645 (March 31, 2017 $1,009,405). As at March 31, 2018, the total amount due to BFPS was $57,029 (March 31, 2017 $78,298) and is included in Accounts Payable. The Company s payment terms to BFPS is due upon receipt and non-interest bearing. During the three months ended March 31, 2018, BFPS paid certain operating expenses of the Company, which include salaries for certain employees as well as related expenses in the amount of 2,473 or C$3,840 as determined using the Bank of Canada average exchange rate as at March 31, 2018 of 1 = C$1.55 (March 31, 2017 $250,762). For the nine months ending March 31, 2018, BFPS paid expenses amounting to $1,112,263 on behalf of the Company (March 31, 2017 $811,025). These amounts were reimbursed by the Company. 11. COMMITMENTS AND CONTINGENCIES Contingencies During the ordinary course of business activities, the Company may be contingently liable for litigation and a party to claims. Management believes that adequate provisions have been made in the accounts where required. There were no legal actions or claims reported at March 31,

17 Production Services Contract The Company has entered into a non-exclusive contract with BFPS whereby BFPS will provide video and music content in the appropriate format for sale and distribution by QYOU Limited. Invoicing for these services is rendered on a monthly basis on a direct cost plus basis. Program Development Loan On November 28, 2017 the Company s wholly-owned indirect subsidiary, QYOU Productions Inc., received an unsecured, non-interest bearing development loan in the amount of $400,000 from Allarco Entertainment 2008 Inc. ( Super Channel ) for the development of a daily esports show (the Super Channel Loan ). Pursuant to the terms of the Super Channel Loan, repayment of the principal amount will occur over a six month period as follows: a) $50,000 on or before January 15, 2018 b) $75,000 on or before February 15, 2018 c) $75,000 on or before March 15, 2018 d) $50,000 on or before April 15, 2018 e) $75,000 on or before May 15, 2018 f) $75,000 on or before June 15, 2018 As of March 31, 2018, the Company has repaid a), b) and c) above per the terms of the Super Channel Loan. The balance of the Super Channel Loan as of March 31, 2018 was $200, FINANCIAL INSTRUMENTS Financial assets are classified into one of the following categories under IFRS: fair value through profit and loss, heldto-maturity investments, available-for-sale financial assets and loans and receivables. Financial liabilities are classified as either financial liabilities at fair value through profit and loss or other financial liabilities. The carrying value of the Company s financial instruments is classified into the following categories: March 31, 2018 June 30, 2017 $ $ Fair value through profit and loss (1) 2,447,781 2,582,966 Loans and receivables (2) 2,640,955 1,479,383 Other financial liabilities (3) 1,864,100 1,190,205 (1) Includes cash. Classified within the level within the level 1 (unadjusted quoted prices in active markets for identical assets) (2) Includes accounts receivable and ITC receivable. (3) Includes accounts payable and accrued liabilities. Fair value IFRS requires that the Company disclose information about the fair value of its financial assets and financial liabilities. Fair value estimates are made at the end of the reporting period, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties in significant

18 matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company has designated its cash as fair value through profit and loss, which is measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities, due to related parties, and promissory notes are classified as other financial liabilities, which are measured at amortized cost. As at March 31, 2018, the carrying values of the Company s financial instruments approximate their fair values due to their short term nature. The Company s risk exposures and the impact on the Company s financial instruments are summarized below. Credit risk Credit risk is the risk of loss associated with a counterparty s inability to fulfill its payment obligations. The Company does not use credit derivatives or similar instruments to mitigate this risk and, as such, the maximum exposure is the full carrying value or face value of the applicable financial instruments. The Company minimizes credit risk on cash by depositing only with reputable financial institutions. The Company s primary credit risk relates to its bank accounts. The balance of these accounts as at March 31, 2018 and June 30, 2017 was held with major financial institutions as follows: In Canada March 31, 2018 June 30, 2017 $ $ - At financial institution 2,153,167 2,254,024 - In trust with legal counsel 7,662 18,953 In the United States 132,931 88,335 In Ireland 154, ,654 Additional credit risk is attributable to $574,536 as at March 31, 2018 (June 30, 2017 $329,347) of Harmonized Sales Tax and Value Added Taxes receivable from the Federal Government of Canada and the Government of Ireland. Management believes that the credit risk with respect to these financial instruments is remote. Liquidity risk Liquidity risk arises as a result of an excess of financial obligations due over available financial assets at any point in time. The Company s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. As at March 31, 2018, the Company had a positive working capital of $3,270,018 and cash and cash equivalents of $2,447,781 relative to a current liabilities balance of $1,864,100. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. However, a variation of interest rates would not significantly affect results or equity of the Company as it does not have any interest bearing financial instruments

19 Currency risk Currency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar. The Company is exposed to the risk that the value of its financial instruments will fluctuate due to changes in exchange rates. Sensitivity analysis The Company holds balances in foreign currencies that could give rise to exposure to foreign exchange risk. Sensitivity to a plus or minus 10% change in the Canadian dollar foreign exchange rate against the United States Dollar or the Euro would affect the reported loss and comprehensive loss by approximately $50,000. Limitations of sensitivity analysis The above analysis demonstrates the effect of change in foreign exchange rates. The financial position of the Company may vary at the time those changes in foreign exchange rates occur, causing the impact on the Company s results to differ from that shown above. 13. CAPITAL MANAGEMENT The Company defines its capital as shareholders equity. The Company s objectives when managing capital are to build liquidity and shareholders equity to ensure that strategic objectives are met. The Company makes every attempt to manage its liquidity to minimize shareholder dilution when possible. The Company s policy on dividends is to retain cash to keep funds available to finance operations and growth. Capital structure is managed within guidelines approved by the board of directors of the Company. The Company makes adjustments to its capital structure based on changes in economic conditions and planned requirements. The Company has the ability to adjust its capital structure by issuing new equity or debt. 14. SEGMENT INFORMATION Reportable segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, with appropriate aggregation. The chief operating decision maker is the Chief Executive Officer who is responsible for allocating resources, assessing performance of the reportable segment and making key strategic decisions. The Company operates in a single segment, being the distribution of curated media content on paytelevision platforms. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements

20 The Company operates in three geographical areas, being Canada, United States of America and Ireland. Key assets and liabilities by geography are presented below: Current assets 17,964,064 6,707,202 18,829,649 (38,366,796) 5,134,118 Non-current assets 957, ,185 1,098,163 2,182,291 Intercompany Canada USA Ireland Total As at March 31, 2018 Revenues 600,000 1,317,611 2,917,459 4,835,070 Intercompany Total Canada USA Ireland As at March 31, 2017 Revenues 278,351 2,596,936 2,875,287 Current assets 14,571,982 3,879,407 9,454,688 (21,412,142) 6,493,935 Non-current assets 4, , ,691 The following table sets out the customers that represented 10% or more of total revenue for the nine month periods ending March 31, 2018 and June 30, 2017: March 31, 2018 June 30, 2017 Customer A 59% 51% Customer B 12% Customer C 18% Customer D 13%