ESE Entertainment Inc. — Audit Report / Information 2020

Feb 24, 2021

ESE ENTERTAINMENT INC.

(formerly Kepler Acquisition Corp.)

CONSOLIDATED FINANCIAL STATEMENTS

For the year ended October 31, 2020

(Expressed in Canadian Dollars)

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Crowe MacKay LLP

1100 - 1177 West Hastings St. Vancouver, BC V6E 4T5 Main +1 (604) 687-4511 Fax +1 (604) 687-5805 www.crowemackay.ca

Independent Auditor's Report

To the Shareholders of ESE Entertainment Inc.

Opinion

We have audited the consolidated financial statements of ESE Entertainment Inc. ("the Group"), which comprise the consolidated statements of financial position as at October 31, 2020 and October 31, 2019 and the consolidated statements of loss and comprehensive loss, changes in shareholders' equity and cash flows for the periods then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at October 31, 2020 and October 31, 2019, and its consolidated financial performance and its consolidated cash flows for the periods then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

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

Material Uncertainty Related to Going Concern

We draw attention to Note 1 to the consolidated financial statements which describes the material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information comprises:

• Management's Discussion and Analysis

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

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained the other information prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

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

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

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

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

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

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

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

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are

responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

The engagement partner on the audit resulting in this independent auditor's report is Diana Huang.

"Crowe MacKay LLP"

Chartered Professional Accountants Vancouver, Canada February 22, 2021

ESE ENTERTAINMENT INC.

(formerly Kepler Acquisition Corp.) Consolidated Statements of Financial Position As at October 31, 2020 and 2019

(Expressed in Canadian Dollars)

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Consolidated Statements of Financial Position As at October 31, 2020 and 2019 (Expressed in Canadian Dollars)
		2020		2019
ASSETS
Current assets
Cash	$	550,011	$	154,044
Receivables (Note 6)		262,596		17,133
Prepaid expense and deposits		29,486		240
Total assets	$	842,093	$	171,417
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (Notes 7 and 11)	$	263,425	$	85,364
Deferred revenue		115,040		-
		378,465		85,364
SHAREHOLDERS’ EQUITY
Share capital (Note 8)		4,088,263		273,000
Share subscriptions received in advance (receivable) (Note 8)		-		(2,450)
Commitment to issue shares		50,000		-
Contributed surplus		305,416		-
Accumulated other comprehensive loss		5,983		(796)
Deficit		(3,986,034)		(183,701)
Total shareholders’equity		463,628		86,053
Total liabilities and shareholders’ equity	$	842,093	$	171,417

Nature and continuance of operations – Note 1 Subsequent events – Note 14

APPROVED ON BEHALF OF THE BOARD:

“Konrad Marian Wasiela” Director “Robert Kang” Konrad Marian Wasiela

Robert Kang

Director

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

5

ESE ENTERTAINMENT INC.

(formerly Kepler Acquisition Corp.)

Consolidated Statements of Loss and Comprehensive Loss

for the year ended October 31, 2020 and for the period from June 18, 2019 (date of incorporation) to October 31, 2019 (Expressed in Canadian Dollars )

(Expressed in Canadian Dollars)
			Period from June 18, 2019
		For the year ended	(date of incorporation) to
		October 31, 2020		October 31, 2019
Revenue	$	390,171	$	337
Expenses
Advertising and event planning		282,192		22,156
Consulting fees (Note 11)		1,394,191		2,500
Office and miscellaneous		115,589		27,325
Professional fees		286,660		72,082
Rent		18,192		-
Share-based payments (Notes 8 and 11)		150,651		-
Transfer agent and filing fees		42,644		-
Travel and conferences		48,230		-
Wages and benefits		245,315		10,329
Website hosting and development		13,048		9,600
		2,596,712		143,992
Loss before other items:		(2,206,541)		(143,655)
Other items:
Foreign exchange (loss)		(14,150)		-
Listing costs (Note 4)		(1,600,287)		-
Other income		18,645		338
Impairment (Note 5)		-		(40,384)
		(1,595,792)		(40,046)
Net loss for the period before other comprehensive loss		(3,802,333)		(183,701)
Other comprehensive income (loss)
Gain (loss) on translation of foreign operations		6,779		(796)
Total comprehensive loss for theperiod	$	(3,795,554)	$	(184,497)
Basic and diluted lossper common share	$	(0.14)	$	(0.01)
Weighted average number of common shares outstanding		26,785,387		16,670,519

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

6

ESE ENTERTAINMENT INC.

(formerly Kepler Acquisition Corp.)

Consolidated Statements of Changes in Shareholders’ Equity For the year ended October 31, 2020 and for the period ended October 31, 2019 (Expressed in Canadian Dollars)

(Expressed in Canadian Dollars)
					Share
					subscriptions						Accumulated
					received in	Commitment					other
	Number		Share		advance		to issue	Contributed		comprehensive
	of Shares		Capital		(receivable)		shares		Surplus		Income (loss)		Deficit		Total
Balance, June 18, 2019	1	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Seed stock issuance	21,999,999		110,000		(2,450)		-		-		-		-		107,550
Private placement	1,086,667		163,000		-		-		-		-		-		163,000
Loss and comprehensive loss for the period	-		-		-		-		-		(796)		(183,701)		(184,497)
Balance, October 31, 2019	23,086,667		273,000		(2,450)		-		-		(796)		(183,701)		86,053
Private placement	200,000		30,000		-		-		-		-		-		30,000
Private placement	3,800,000		950,000		-		-		-		-		-		950,000
Debt settlement	100,000		25,000		-		-		-		-		-		25,000
Eliminated shares of ESE	(27,186,667)		-		-		-		-		-		-		-
Shares issued to shareholders of ESE	27,186,667		-		-		-		-		-		-		-
Shares, warrants and stock options of Kepler on
RTO	6,000,000		1,500,000		-		-		180,513		-		-		1,680,513
Share subscriptions received	-		-		2,450		-		-		-		-		2,450
Conversion of subscription receipts	5,243,724		1,310,931		-		-		-		-		-		1,310,931
Agent’s warrants	-		(21,600)		-		-		21,600		-		-		-
Finder’s fees - cash	-		(41,580)		-		-		-		-		-		(41,580)
Exercise of stock options	217,463		60,305		-		-		(45,735)		-		-		14,570
Exercise of agent’s warrants	8,910		2,207		-		-		(1,613)		-		-		594
Commitment to issue shares	-		-		-		50,000		-		-		-		50,000
Share-based payments	-		-		-		-		150,651		-		-		150,651
Loss and comprehensive loss for the year	-		-		-		-		-		6,779		(3,802,333)		(3,795,554)
Balance October 31,2020	38,656,764	$	4,088,263	$	-	$	50,000	$	305,416	$	5,983	$	(3,986,034)	$	463,628

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

7

(formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

ESE ENTERTAINMENT INC.

				Period from
			June 18, 2019 (date of
	For the year ended			incorporation) to
		October 31, ,2020		October 31, 2019
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the period	$	(3,802,333)	$	(183,701)
Items not affecting cash
Consulting fees to be paid by shares		50,000		-
Share-based payments		150,651		-
Listing cost		1,600,287		-
Impairment		-		40,384
Change in non-cash working capital item:
Receivables		(242,944)		(11,829)
Prepaid expenses and deposits		(29,246)		15,985
Deferred revenue		115,040		-
Accounts payable and accrued liabilities		191,135		83,835
Net cash used in operating activities		(1,967,410)		(55,326)
INVESTING ACTIVITIES
Cash acquired on acquisition of ESE Poland		-		10,348
Cash acquired on acquisition of Kepler		77,873		-
Cash paid to acquire ESE Poland		-		(1,700)
Loan proceeds from Kepler before RTO		25,830		-
Net cash provided by investing activities		103,703		8,648
FINANCING ACTIVITIES
Repayment of ESE Europe’s loan payable		-		(69,032)
Loan repayment		(20,000)		-
Loan proceeds received		20,000		-
Shares issued for cash		2,294,475		270,550
Share issue cost-cash		(41,580)		-
Net cash provided by financing activities		2,252,895		201,518
Foreign exchange effect on cash		6,779		(796)
Change in cash for the period		395,967		154,044
Cash, beginning of period		154,044		-
Cash, end ofperiod	$	550,011	$	154,044
Cashpaid for income tax during theperiod	$	-	$	-
Cashpaid for interest during theperiod	$	1,600	$	-
Supplemental cash flow information
Shares issued for debt settlement	$	25,000	$	-
Issuance of shares, warrants and options for the acquisition of Kepler	$	1,680,513	$	270,550

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

8

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

1 Nature and Continuance of Operations

ESE Entertainment Inc. (the “Company”) formerly Kepler Acquisition Corp. ("Kepler") is the parent company of ESE Entertainment Holdings Inc. (“ESE”), formerly ESE Entertainment Inc. The Company’s principal business activity is focusing on Esports, and particularly, on media rights relating to Esports, physical and digital content creation and distribution of Esports related content. The Company’s registered office is at 6[th] Floor, 905 West Pender Street, Vancouver, British Columbia, V6C 1L6 and its head office is located at 1000-409 Granville Street, Vancouver, British Columbia, V6C 1T2.

On August 12, 2020, the Company completed the proposed business combination with ESE by way of a plan of arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”). Pursuant to the Arrangement, ESE was acquired by and became a wholly-owned subsidiary of Kepler for legal purposes.

Upon closing of the transaction, the shareholders of ESE had control of the Company, and as a result, the transaction is considered a reverse acquisition of Kepler by ESE. For accounting purposes, ESE is considered the acquirer and Kepler, the acquiree. Accordingly, the consolidated financial are a continuation of the financial statements of ESE. See Note 4.

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company was not expected to continue operations for the foreseeable future. At October 31, 2020, the Company has not achieved profitable operations, has accumulated losses of $3,986,034 (2019 - $183,701) since inception and expects to incur further losses in the development of its business. The above material uncertainties cast significant doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent upon successful results from its operating activities, its ability to attain profitable operations to generate funds and/or its ability to raise equity capital or borrowings sufficient to meet its current and future obligations. Although the Company has been successful in the past in raising funds to continue operations, there is no assurance it will be able to do so in the future.

During the year, there was a global pandemic outbreak of COVID-19. The actual and threatened spread of the virus globally has had a material adverse effect on the global economy and, specifically, the regional economies in which the Company operates. The pandemic could continue to have a negative impact on the stock market, including trading prices of the Company’s shares and its ability to raise new capital. These factors, among others, could have a significant impact on the Company’s operations.

9

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

2 Basis of Preparation

Statement of Compliance

These consolidated financial statements, including comparatives, have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”), and Interpretations issued by the International Financial Reporting Interpretations Committee.

The consolidated financial statements were authorized for issue by the Board of Directors on February 22, 2021.

Basis of Measurement

These consolidated financial statements have been prepared on an accrual basis, except for cash flow information, and are based on historical costs except for certain financial instruments which are measured at fair value. The consolidated financial statements are presented in Canadian dollars which is the Company’s functional currency.

3 Significant Accounting Policies

The accounting policies set out below have been applied consistently in the consolidated financial statements.

Principles of consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries at the end of the reporting year.

		Percentage of ownership	Percentage of ownership
	Jurisdiction	2020	2019
ESE Entertainment Holdings Inc.	Canada	100%	0%
ESE Europe SP. Z O.O.	Poland	100%	100%

The results of these wholly-owned subsidiaries will continue to be included in the consolidated financial statements of the Company until the date that the Company’s control over the subsidiary ceases. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

ESE Europe SP. Z O.O. (“ESE Europe”) was incorporated on July 25, 2019 in the District Court in Warsaw, Poland, XII Economic Department of the National Court Register (Note 5).

ESE Entertainment Holdings Inc. was incorporated as a private company by Certificate of Incorporation issued pursuant to the provisions of the British Columbia Business Corporations Act on June 18, 2019.

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

10

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Financial instruments

Financial Assets

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (“FVTPL”), the transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Financial assets are considered in the entirety when determining whether their cash flows are solely payment of principal and interest.

Subsequent measurement of financial assets depends on their classification. The classification depends on the Company’s business model for managing the financial assets and contractual terms of the cash flows. These are the measurement categories under which the Company classifies its financial assets:

• Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measures at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.

• Fair value through OCI (“FVOCI”): Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Financial assets classified at FVTOCI are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income (loss). When the financial instrument is sold, the cumulative gain or loss remains in accumulated other comprehensive income or loss and is not reclassified to profit or loss.

• FVTPL: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. A gain or loss on an investment that is subsequently measured at FVTPL is recognized in profit or loss.

The Company’s cash and accounts receivable is measured at amortized cost.

Impairment of Financial Assets at Amortized Cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses of the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the statements of income (loss), as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

11

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Financial instruments – (cont’d)

Financial Liabilities

The Company classifies its financial liabilities into the following categories: financial liabilities at FVTPL and amortized cost.

A financial liability is classified as FVTPL if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. The fair value changes to financial liabilities at FVTPL are presented as follows: the amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and the remaining amount of the change in the fair value is presented in profit or loss. The Company does not designate any financial liabilities at FVTPL.

Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest rate method. The Company classifies its accounts payable and accrued liabilities as financial liabilities held at amortized cost.

Foreign Currency

The consolidated financial statements are presented in Canadian dollars which is the functional currency of ESE Entertainment Inc. and ESE Entertainment Holdings Inc. The functional currency of ESE Europe SP. Z O.O. is Polish Zloty.

Assets and liabilities of the subsidiary having a functional currency other than the Canadian dollar are translated at the rate of exchange at the reporting period date. Revenues and expenses are translated at average rates for the period, unless exchange rates fluctuated significantly during the period, in which case the exchange rates at the dates of the transaction are used. The resulting foreign currency translation adjustments are recognized in the accumulated other comprehensive loss included in the consolidated statements of changes in shareholders’ equity (deficiency).

Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the transactions. At the end of each reporting period, foreign currency denominated monetary assets and liabilities are translated to the functional currency using the prevailing rate of exchange at the reporting period date. Gains and losses on translation of monetary items are recognized in the consolidated statements of loss.

Share Capital

The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component. The fair value of the common shares issued in the private placements was determined to be the more easily measurable component and were valued at their fair value, as determined by the closing quoted bid price on the date of issuance once the shares are listed on a stock exchange. The balance, if any, was allocated to the attached warrants. Any fair value attributed to the warrants is recorded to contributed surplus.

12

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Share-based payments

Equity-settled share-based payments for directors, officers and employees are measured at fair value at the date of grant using the Black-Scholes valuation model and recorded as compensation expense in profit or loss, with a corresponding increase to reserves. The fair value determined at the grant date of the equity-settled share based payments is expensed on a graded vesting basis over the vesting period based on the Company’s estimate of stock options that will eventually vest. Any consideration paid by directors, officers, employees and consultants on exercise of equity-settled share-based payments, along with the amounts reflected in reserves, is credited to share capital. Shares are issued from treasury upon the exercise of the equity-settled share based instruments.

Compensation expense on stock options granted to non-employees is measured at the earlier of the completion of performance and the date the options are vested using the fair value method and is recorded as an expense in the same period as if the Company had paid cash for the goods or services received. When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the fair value is measured by the use of the Black-Scholes valuation model. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Expected volatility was determined based on comparison to similar companies as the Company does not have enough trading history.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period.

All equity-settled share-based payments are reflected in reserves until exercised. Upon exercise, shares are issued from treasury and the amount reflected in reserves is credited to share capital, adjusted for any consideration paid.

Where a grant of options is cancelled and settled during the vesting period, excluding forfeitures when vesting conditions are not satisfied, the Company immediately accounts for the cancellation as an acceleration of vesting and recognizes the amount that otherwise would have been recognized for services received over the remainder of the vesting period. Any payment made to the employee on the cancellation is accounted for as the repurchase of an equity interest except to the extent the payment exceeds the fair value of the equity instrument granted, measured at the repurchase date. Any such excess is recognized as an expense. Amount recorded in reserves for share options which expire unexercised remain in reserves.

Basic and diluted loss per share

Basic loss per share is computed by dividing the net loss by the weighted average number of outstanding shares in issue during the reporting period. Diluted loss per share is computed similar to basic loss except that the weighted average number of outstanding shares include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and the proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods. In a loss reporting period, potentially dilutive common shares are excluded from the loss per share calculation as the effect would be anti-dilutive.

13

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Income taxes

Income tax comprises current and deferred tax. Income tax is recognized in the statement of loss except to the extent that it relates to items recognized directly in equity or other comprehensive income (loss), in which case the income tax is also recognized directly in equity or other comprehensive income (loss).

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Deferred income tax is provided on all temporary differences at the Consolidated Statement of Financial Position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled by the parent, investor or venturer and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilized, except:

• where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income taxes are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each Consolidated Statement of Financial Position date and recognized to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Consolidated Statement of Financial Position date.

14

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Revenue

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration receivable in exchange for those goods or services, net of discounts and sales taxes. Currently the Company generates revenue primarily by delivering advertising services, through videos, text, images, and other advertisements delivered online and through social media.

Some contracts include multiple promised services, for which the contract revenue is allocated to each distinct performance obligation. For performance obligations which are satisfied over time, the Company recognizes the allocated revenue as the promised services are delivered to the clients. For the remaining performance obligations, the Company recognizes the allocated revenue when the promised services are performed, which is generally when the client has the ability to direct the use and/or obtain substantially all the benefits of the advertising services received.

Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the noncontrolling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable new assets. Acquisition costs incurred are expensed.

Significant accounting judgement, estimates and uncertainties

The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the condensed interim consolidated financial statements and notes to the condensed interim consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the estimates are revised. Significant areas requiring the Company to make estimates include functional currency and provision for expected credit losses. These estimates and judgments are further discussed below.

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

Functional currency

The analysis of the functional currency for each entity of the Company is a significant judgment. In concluding that the Canadian dollar (“CDN$”) is the functional currency of the parent and its wholly-own Canadian subsidiary ESE and the Polish Zloty (“PLN”) is the functional currency of ESE Europe, management considered the currency that mainly influences the costs of providing goods and services in each jurisdiction in which the entities operate.

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

15

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Significant accounting judgement, estimates and uncertainties – (cont’d)

Reverse Acquisition

The determination of the acquirer in the Arrangement between Kepler and ESE requires significant judgment assessing the relative voting rights, composition of the governing body, and composition of senior management of the combined entity, amongst other factors. The Company concluded ESE is the acquirer, and its acquisition of all of the outstanding shares of Kepler has been determined to be an asset acquisition as Kepler does not meet the definition of a business under IFRS 3 - Business Combinations. As a result, the transaction has been accounted for as reverse takeover by ESE of Kepler’s net assets and its public listing in accordance with the guidance under IFRS 2, Share-based Payment.

Revenue

Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If management made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue recognized could result. Some contracts include multiple promised services or products, thus management applied judgment to determine whether promised services or products are capable of being distinct and distinct in the context of the contract. Where there are distinct performance obligations, management allocates the total consideration to the performance obligations using its best estimate of their relative fair values. Management also applied judgment to determine if the performance obligation is satisfied over time or at a point time.

Share-based payments

The determination of the fair value related to share-based payments are subject to estimate. The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 8.

16

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Recent accounting pronouncements and changes in accounting policies

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are mandatory for future accounting periods are as follows:

The following accounting policy was adopted on November 1, 2019:

IFRS 16 Leases

Initial adoption

On November 1, 2019, the Company adopted IFRS 16, which specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is twelve months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, International Accounting Standard (“IAS”) 17 Leases.

The Company has elected to apply IFRS 16 using a modified retrospective approach, which does not require restatement of prior period financial information. Modified retrospective application recognizes the cumulative effect of IFRS 16 as an adjustment to opening deficit at November 1, 2019 and applies the standard prospectively. The Company has determined that at November 1, 2019, adoption of IFRS 16 did not result in the recognition of a right-of-use (“ROU”) asset nor a lease obligation.

Ongoing recognition and measurement

On the date that the leased asset becomes available for use, the Company recognizes a ROU asset and a corresponding lease obligation. Interest expense associated with the lease obligation is charged to the statement of income/loss over the lease period with a corresponding increase to the lease obligation. The lease obligation is reduced as payments are made against the principal portion of the lease. The ROU asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Depreciation of the ROU asset is recognized in depreciation expense.

The following new standards and interpretations are not yet effective and have not been applied in preparing these consolidated financial statements.

Amendments to IFRS 3 Business Combinations

Amendments to IFRS 3, Business Combinations assist in determining whether a transaction should be accounted for as a business combination or an asset acquisition. It amends the definition of a business to include an input and a substantive process that together significantly contribute to the ability to create goods and services provided to customers, generating investment and other income, and it excludes returns in the form of lower costs and other economic benefits. These amendments are effective for reporting periods beginning on or after January 1, 2020.

17

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

3 Significant Accounting Policies – (cont’d)

Recent accounting pronouncements and changes in accounting policies – (cont’d)

Onerous Contracts—Cost of Fulfilling a Contract (Amendments to IAS 37)

The amendments to IAS 37 specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract). These amendments are effective for reporting periods beginning on or after January 1, 2022.

Classification of Liabilities as Current or Non-current (Amendments to IAS 1)

The amendments to IAS1 provide a more general approach to the classification of liabilities based on the contractual arrangements in place at the reporting date. These amendments are effective for reporting periods beginning on or after January 1, 2023.

4 Reverse Acquisition

As described in Note 1, On August 12, 2020, ESE completed the Arrangement with Kepler and 1232725 B.C. Ltd. (“Kepler Subco”), a newly incorporated wholly-owned subsidiary of Kepler incorporated for the sole purpose of this amalgamation. Prior to completion of the transaction, Kepler undertook a forward share split on the basis of one and one-half new Kepler shares for each existing Kepler share. As a result of the transaction, the Company issued 27,186,667 common shares to ESE shareholders.

The transaction constituted a reverse acquisition of Kepler and had been accounted for as a reverse acquisition transaction in accordance with the guidance provided under IFRS 2, Share-based Payment and IFRS 3, Business Combinations . As Kepler did not qualify as a business according to the definition in IFRS 3, this reverse acquisition was accounted for as an asset acquisition by the issuance of share of the Company, for the net assets of Kepler and its public listing. The consideration paid was determined as equity settled share-based payment under IFRS 2, at the fair value of the equity of ESE retained by the shareholders of Kepler based on the fair value of ESE’s common shares on the date of closing of the RTO at $0.25 per share. As a result of the transaction, the Company assumed 600,000 stock options and 300,000 agent’s warrants, valued at $180,513. The stock options and agent’s warrants were valued using the Black-Scholes Option Pricing model using the following assumptions: Risk free rate of 0.26%; Volatility of 100%; Stock price of $0.25; Exercise price of $0.07; Dividend yield of Nil% and expected life of 0.46 to 3.68 years. The sum of the fair value of the consideration paid less Kepler’s net assets acquired, has been recognized as a listing expense in the consolidated statement of loss for the year ended October 31, 2020.

For accounting purposes, ESE has been treated as the accounting parent company (legal subsidiary) and Kepler has been treated as the accounting subsidiary (legal parent) in these consolidated financial statements. As ESE was deemed to be the acquirer for accounting purposes, its assets, liabilities and operations since incorporation are included in these consolidated financial statements at their historical carrying value. The results of operations of Kepler are included in these consolidated financial statements from the date of the reverse acquisition of August 12, 2020.

18

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

4 Reverse Acquisition – (cont’d)

Fair value consideration
6,000,000 notional common shares of ESE at $0.25 per share	$	1,500,000
Fair value of stock options and agent’s warrants assumed		180,513
	$	1,680,513
Allocated to the fair value of Kepler’s net assets as follows:
Cash	$	77,873
Accounts receivable		2,519
Loan receivable		25,830
Liabilities		(11,926)
Share subscription received in advance		(14,070)
		80,226
Allocated to listing expense		1,600,287
	$	1,680,513

5 Acquisition of ESE Poland

By an agreement dated September 18, 2019, the Company acquired 100% of the issued and outstanding common shares of ESE Europe, a private company which is a European based entertainment and technology company focused on Esports related contents. In consideration for the net assets acquired, the Company agreed to pay cash of $1,700 to two of the shareholders of which one is a director and officer of the Company. As a result of this transaction, ESE Poland became a wholly-owned subsidiary of the Company.

ESE Poland’s results of operations have been included from September 19, 2019 date of acquisition.

For purposes of this transaction, the consideration provided was allocated to the fair value of the net liabilities of ESE Poland as at September 18, 2019 as follows:

Cash	$	10,348
VAT receivable		5,304
Prepaid expenses		16,225
Intangible asset and goodwill		40,384
Accounts payable and accrued liabilities		(70,561)
Net assets acquired	$	1,700
Consideration provided
Cash payment	$	1,700
Total consideration	$	1,700

An impairment charge of $40,384 was recognized during the period ended October 31, 2019 as there was uncertainty in the cash flows of the intangible asset and goodwill to support their carrying value.

19

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

6 Receivables

eceivables
		2020		2019
VAT Receivable	$	18,872	$	14,265
GST Receivable		71,199		2,868
Trade accounts receivable		175,525		-
Receivables	$	262,596	$	17,133

7 Accounts Payable and Accrued Liabilities

		2020		2019
Trade payables	$	180,667	$	70,104
Accrued liabilities		82,758		15,260
Accountspayable and accrued liabilities	$	263,425	$	85,364

8 Share Capital

• a) Authorized

Unlimited common shares, without par value.

b) Issued

During the year ended October 31, 2020:

On April 14, 2020, ESE issued 200,000 common at a price of $0.15 per share for total proceed of $30,000. These shares were eliminated upon the RTO and exchanged into the Company’s shares.

On July 1, 2020, ESE issued 100,000 common shares with a fair value of $0.25 per share to settle $25,000 in unpaid consulting fees with the CFO of the Company. These shares were eliminated upon the RTO and exchanged into the Company’s shares.

On July 22, 2020, ESE issued 3,800,000 common shares at a price of $0.25 per share for total proceeds of $950,000. These shares were eliminated upon the RTO and exchanged into the Company’s shares.

On August 12, 2020, a reverse acquisition transaction was completed whereby the Company acquired all of the issued and outstanding 27,186,667 common shares of ESE on a 1:1 basis for the Company’s shares (Note 4).

20

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

8 Share Capital – (cont’d)

b) Issued – (cont’d)

During the year ended October 31, 2020: - (cont’d)

On August 12, 2020, the Company converted 5,243,724 subscription receipts at a price of $0.25 per subscription receipts for gross proceeds of $1,310,931 into common shares of the Company. In connection with the subscription receipts the Company paid a cash finders fee of $41,580 and issued 166,320 Agent’s warrants exercisable into one common share of the Company at an exercise price of $0.25 for two years expiring on August 12, 2022. The Agent’s warrants were fair valued at $21,600 using the Black-Scholes option valuation mode with the following assumptions: Share price at the time of issuance $0.25; risk-free interest rate of 0.29%; Expected life of two years; Dividend rate – 0%; Forfeiture rate – 0% and annualized volatility of 100%. Since the Company does not have enough history of trading prices, the Company utilized annualized volatility of comparable startup companies.

During the year ended October 31, 2020, 217,463 stock options were exercised for total proceeds of $14,570. The Company also transferred $45,735 from contributed surplus. The weighted average share price on the date of exercise was $0.25 per share.

During the year ended October 31, 2020, 8,910 agent’s warrants were exercised for total proceeds of $594. The Company also transferred $1,613 from contributed surplus.

During the period ended October 31, 2019:

On October 25, 2019, ESE issued 1,086,667 shares at a price of $0.15 per share for total proceeds of $163,000.

On July 21, 2019, ESE issued 21,999,999 common shares at a price of $0.005 per share for total proceeds of $110,000 of which $2,450 was received subsequent to October 31, 2019.

On June 18, 2019, ESE issued 1 incorporator’s share value at a nominal amount.

c) Stock Options

The Company adopted a stock option plan under which it is authorized to grant options to officers, directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. The options can be granted for a maximum of ten years and vest as determined by the Board of Directors. The exercise price of each option granted may not be less than the fair market value of the common shares.

On August 17, 2020, the Company granted 2,050,000 stock options to directors, officers and consultants of the Company. The stock options entitle the holders thereof the right to purchase one common share for each option at $0.25 per share expiring on August 17, 2025. 375,000 stock options vested on the date of grant with the remaining 1/6 every 6 months thereafter. The fair value of the stock options of $150,651 was determined using the Black Scholes option valuation model with the following assumptions – Share price on date of grant of $0.30; Risk-free interest rate of 0.41%; Dividend yield of 0%; Expected life of 5 years; forfeiture rate of 0% and Expected volatility of 100%. Since the Company does not have enough history of trading prices, the Company utilized annualized volatility of comparable start-up companies.

21

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

8 Share Capital – (cont’d)

c) Stock Options – (cont’d)

The following table summarized the continuity of the Company’s stock options:

	Number of	Number of Stock	Weighted Average
	Stock Options	Options	Exercise Price
	Outstanding	Exercisable
Balance October 31, 2018 and 2019	-	-	$ -
Assumed from Kepler (Note 4)	600,000	600,000	0.07
Granted	2,050,000	1,675,000	0.25
Exercised	(217,463)	(217,463)	0.07
Balance,October 31,2020	2,432,537	2,057,537	$ 0.22

As at October 31, 2020, the Company had stock options outstanding enabling holders to acquire the following:

Number of	Vested	Exercise price
options		per option	Expiry date
*382,537	382,537	$0.07	April 23, 2024
2,050,000	375,000	$0.25	August 17, 2025
2,432,537

*Subsequent to October 31, 2020 382,537 stock options were exercised for total proceeds of $25,515.

d) Agent’s Warrants

The following table summarized the continuity of the Company’s Agent’s Warrants:

	Number of	Weighted
	Agent’s	Average
	Warrants	Exercise Price
Balance October 31, 2018 and 2019	-	$-
Assumed from Kepler (Note 4)	300,000	0.07
Issued	166,320	0.25
Exercised	(8,910)	0.07
Balance,October 31,2020	457,410	$0.13

As at October 31, 2020, the Company had agent’s warrants outstanding enabling holders to acquire the following:

Number of	Exercise price
Agent’s Warrants	per warrant	Expiry date
*291,090	$0.07	April 23, 2021
166,320	$0.25	August 12, 2022
457,410

*Subsequent to October 31, 2020, 293,165 agent’s warrants were exercised for total proceeds of $44,515.

22

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

8 Share Capital – (cont’d)

e) Escrow Agreement

25,000,000 shares were placed into escrow. Under the escrow agreement, 10% of the shares were released on the issuance of the final exchange bulletin (the TSXV’s acceptance of the Transaction) and an additional 15% will be released on each of the dates which are 6 months, 12 months, 18 months, 24 months, 30 months and 36 months following the initial release. As at October 31, 2020, 22,500,000 shares are in escrow.

9 Financial Instruments

Determination of Fair Value:

Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Fair Value Hierarchy:

Financial instruments that are measured subsequent to initial recognition at fair value are grouped in Levels 1 to 3 based on the degree to which the fair value is observable:

• Level 1 – Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

• Level 2 – Applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly such as quoted prices for similar assets or liabilities in active markets or indirectly such as quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions.

• Level 3 – Applies to assets or liabilities for which there are unobservable market data.

The fair value hierarchy level at which a fair value measurement is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s financial instruments are exposed to certain financial risks which are in common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments. The following note describes the Company’s objectives, policies and processes for managing those risks and the methods used to measure them.

General Objectives, Policies and Processes

The Board of Directors have overall responsibility for the determination of the Company’s risk management objectives and policies and have delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Board of Directors are kept apprised on the process and would monitor the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

23

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

9 Financial Instruments – (cont’d)

General Objectives, Policies and Processes – (cont’d)

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility.

The Company’s risk exposures and the impact on the Company’s consolidated financial statements are summarized below.

Fair Value:

The carrying values of financial assets and liabilities approximate its fair value due to the short-term nature of these instruments.

Financial risk factors

The Company’s risk exposures and the impact on the Company’s consolidated financial statements are summarized below.

Credit risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and trade accounts receivable. The Company limits its exposure to credit loss by placing its cash with major financial institutions. Trade accounts receivable of $172,525 was collected subsequent to October 31, 2020.

Interest rate risk

The Company is exposed to interest rate risk to the extent that the cash maintained at the financial institutions is subject to floating rate of interest. The interest rate risks on cash and on the Company’s obligations are not considered significant.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in the note.

The Company monitors its ability to meet its short-term administrative expenditures by matching investment income received to expenditures to be incurred. All of the Company’s financial liabilities have contractual maturities of 30 days or are due on demand and are subject to normal trade terms.

As at October 31, 2020, the Company had a cash balance of $550,011 and receivable of $262,596 to settle accounts payable and accrued liabilities of $263,425.

24

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

9 Financial Instruments – (cont’d)

Foreign currency risk

The Company may be exposed to foreign currency risk on fluctuations related to cash, trade accounts receivable included in receivables, accounts payable and accrued liabilities that are denominated in a foreign currency. As at October 31, 2020, the Company held cash denominated in Polish Zloty of PLN115,004 (2019 – PLN7,282), accounts receivable of PLN270,108 (2019 – Nil) and accounts payable and accrued liabilities of PLN181,353 (2019 – PLN54,613) translated at PLN1 for every CDN$0.34. These factors expose the Company to foreign currency exchange rate risk, which could have a material adverse effect on the profitability of the Company. A 10% change in the exchange rate would change other comprehensive income/loss by approximately $7,000. The Company currently does not plan to enter into foreign currency future contracts to mitigate this risk.

10 Capital Management

The Company’s objective when managing capital is to safeguard its 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. In order to pay for general administrative costs, the Company will raise additional amounts as needed.

The Company reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company considers shareholders’ equity and working capital as components of its capital base. The Company may access capital through the issuance of shares or the disposition of assets. Management historically funds the Company’s expenditures by issuing share capital rather than using capital sources that require fixed repayments of principal and/or interest. The Company is not subject to externally imposed capital requirements and does not have exposure to asset-backed commercial paper or similar products. The Company believes it will be able to raise additional equity capital as required, but recognizes the uncertainty attached thereto. There is no change to the Company’s approach to capital management during the period ended October 31, 2020.

11 Related Party Transactions

Related party transactions are comprised of services rendered by directors and/or officers of the Company or by a company with a director and/or officer in common. Related party transactions are in the ordinary course of business and are measured at the exchange amount.

25

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

11 Related Party Transactions – (cont’d)

Key Management Compensation

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

	For the year ended October 31, 2020 Period from June 18, 2019 (date of incorporation) to October 31, 2019
	Consulting fees Konrad Wasiela, CEO and Director $ 114,000 $ - 1176149 BC Ltd., a company controlled by Ryan Maarschalk, Director 54,000 - Wasiela Services Ltd., a company controlled by Konrad Wasiela 66,000 - Ron Segev,Director 50,000
	284,000 - Share-based payments Konrad Wasiela, CEO and Director 21,147 - Rob Kang, CFO and Director 11,535 - Ryan Maarschalk, Director 25,901 - Raj Dewan, Director 11,535 - Ron Segev,Director 69,000 -
	139,118 -
	$ 423,118 $ -

Included in accounts payable and accrued liabilities at October 31, 2020 is $Nil (2019 - $7,200) in unpaid consulting fees and other balances owing to an officer of the Company and to companies with an officer or director in common.

On May 13, 2020, the Company entered into a promissory note with Konrad Wasiela, CEO in the amount of $20,000, unsecured bears interest at 8% per annum and due on or before May 13, 2021. On August 17, 2020 the Company repaid the loan plus interest of $1,600.

On October 7, 2019, the Company obtained a credit facility of $50,000 which bears interest at prime rate plus 3% which is secured by the CEO of the Company. As at October 31, 2020 and 2019, the Company has not utilized any of the credit facility.

On August 11, 2020, the Company entered into an agreement with Ron Segev to be a director of the Company, as consideration, the Company agreed to issue 200,000 common shares and granted 300,000 in stock options at a price of $0.25 per share for a period of 5 years. On August 17, 2020, the Company granted the stock option and recorded the 200,000 common shares at the fair market value of $0.25 per share for $50,000. This amount is included in commitment to issue shares at October 31, 2020.

26

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

11 Related Party Transactions – (cont’d)

Consulting agreements

On November 6, 2019, the Company entered into a management consulting agreement with 1176149 BC Ltd., a company controlled by Ryan Maarschalk, for the position of CFO commencing on December 1, 2019 for a period of six months at a monthly rate of $4,000 per month and on a month to month basis thereafter. In addition, the Company agreed to granted 75,000 stock options at $0.15 per share upon listing on the TSXV. On August 17, 2020, the Company granted the 75,000 stock option at a revised price of $0.25 per share. On August 12, 2020, Ryan resigned as CFO and became a director of the Company.

On November 12, 2019, the Company entered into a management consulting agreement with Konrad Wasiela for the position of CEO for a period of one year at a monthly rate of $9,500 per month which shall automatically be renewed annually unless one party provides written notice at least one month prior to the end of the term.

On November 18, 2019, the Company entered into a management consulting agreement with Wasiela Services Ltd. for management and advisory services for a period of one year at a monthly rate of $5,500 per month which shall automatically be renewed annually unless one party provides written notice at least one month prior to the end of the term.

12 Segmented Information and Revenue Disclosures

The Company operates in one industry segment of digital media and entertainment. The majority of the Company’s assets are located in Canada and Poland. The Company has determined that it has a single reportable segment as the Company’s decision makers review information on a consolidated basis. Substantially all of the revenue recognized for the year ended October 31, 2020 were derived from Europe (2019 – Poland) and three customers accounted for more than 10% of revenue and in aggregate accounted for 57% of sales.

The Company’s revenues are allocated to geographic segments for the periods ended October 31, 2020 and 2019 as follows:

				Period from
			June 18, 2019 (date
	For the year ended		of incorporation to
		October 31, 2020		October 31, 2019
Canada	$	9,142	$	-
Europe		381,029		337
Total revenue	$	390,171	$	337

27

ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

12 Segmented Information and Revenue Disclosures – (cont’d)

Revenue is derived from the following sources during the periods ended October 31, 2020 and 2019:

				Period from
			June 18, 2019 (date
	For the year ended		of incorporation to
		October 31, 2020		October 31, 2019
Contract revenue – advertising and events	$	295,496	$	337
Prize winnings and other		94,006		-
Sales of merchandises		669		-
Revenue	$	390,171	$	337

The Company expects to recognize as revenue the remaining performance obligations represented by the deferred revenue balance as at October 31, 2020 in the next twelve months.

The Company’s net loss is allocated to geographic segments for the periods ended October 31, 2020 and 2019 as follows:

				Period from
			June 18, 2019 (date
	For the year ended		of incorporation to
		October 31, 2020		October 31, 2019
Canada	$	(3,348,643)	$	(121,595)
Poland		(453,690)		(62,106)
Net loss	$	(3,802,333)	$	(183,701)

13 Income Taxes

A reconciliation of income taxes at statutory rates is as follows:

				Period from
			June 18, 2019 (date
	For the year ended			of incorporation)
		October 31, 2020	to October 31, 2019
Loss before income taxes	$	(3,802,333)	$	(183,701)
Statutory income tax rates		27%		11%
Expected tax recovery	$	(1,026,600)	$	(20,200)
Foreign income taxed at different rate and foreign exchange		81,700		1,200
Permanent differences		481,900		1,700
Effects of tax rate change		-		(13,000)
Tax benefits not recognized		463,000		30,300
Total current and deferred income tax recovery	$	-	$	-

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ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

13 Income Taxes – (cont’d)

Significant components of the Company’s deferred tax assets and liabilities, after applying enacted corporate income tax rate, are as follows.

		2020		2019
Deferred income tax asset (liability)
Non-capital loss carry-forwards	$	535,100	$	30,300
Share issuance costs		18,300		-
Deferred revenue		10,400		-
		563,800		30,300
Unrecognized deferred tax assets		(563,800)		(30,300)
Deferred income tax asset,net	$	-	$	-

The Company has non-capital losses available to reduce taxable income in that expire in stages as follows:

		Canada		Poland
2024	$	-	$	91,800
2025		-		264,200
2038		3,700		-
2039		163,400		-
2040		1,689,400		-
	$	1,856,500	$	356,000

14 Subsequent Events

• (a) On November 19, 2020, the Company entered into an asset purchase agreement with the owner of K1CK Esports Club (“Vendor”), whereby the Company has agreed to acquire certain assets from Vendor. As consideration, the Company will pay an aggregate of $207,500, consisting of the following (1) $120,000 cash with $60,000 payable on closing (paid) and the balance due on demand after January 20, 2021; $87,500 in common shares of the Company at a deemed price of $0.25 per share for a total of 350,000 common shares of the Company. On February 1, 2021, the Company issued the 350,000 common shares.

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ESE ENTERTAINMENT INC. (formerly Kepler Acquisition Corp.) Notes to the Consolidated Financial Statements October 31, 2020 and 2019 (Expressed in Canadian Dollars)

14 Subsequent Events – (cont’d)

• (b) On December 1, 2020, the Company entered into a letter of intent (“LOI”) to acquire the assets (the “Business”) of World Phoning Group Inc. and Encore Telecom Inc. (the “Vendors”). Under the terms of the LOI, the Business will be reorganized into a newly incorporated company, in which the Company will hold 51% interest and WPG will hold the remaining 49%. The Company will have the right to acquire the remaining 49% interest pursuant to a call option, exercisable for three years following closing. Pursuant to the terms of the LOI, the Company advanced a refundable termination fee of $10,000 to WPG. This fee is refundable unless the Company terminates the transaction. The Company has up to 90 days to complete its due diligence and enter into a definitive agreement. On February 15, 2021, the Company entered into a binding share purchase agreement (the “Agreement”), which supersedes the LOI, to acquire 51% of the business of World Phoning Group Inc., Encore Telecom Inc., and their two European operating subsidiaries, WPG Racing Solutions SRL and Foresight Resolution SRL (collectively, “WPG”). Under the terms of the Agreement, substantially all of the assets of WPG will be rolled into a newly incorporated Canadian company, World Performance Group (the “Corporation”). Upon completion of the Agreement, ESE will acquire 51% of the issued and outstanding shares of the Corporation (the “Transaction”). The purchase price will consist of (i) $10,000 refundable deposit (paid), (ii) $128,019 in cash payable on the closing of the Transaction (the “Closing”), (ii)i $146,289 paid by 585,156 common shares of the Company (each, a “Common Share”) issuable on Closing and (iv) $1,666,211 paid by the issuance of 6,664,845 Common Shares to be released in monthly installments over the 36 months following the Closing. ESE will have the option to acquire the remaining 49% of the issued and outstanding shares of the Corporation at any time within 34 months following the Closing by (i) paying $624,613 in cash and (ii) issuing 2,500,000 Common Shares. The Vendors will have the option to require ESE to acquire the remaining 49% of the issued and outstanding shares of the Corporation at any time following a Change in Control (as defined in the Agreement) by (i) paying $780,767 in cash and (ii) issuing 3,125,000 Common Shares.

Closing of the Transaction is subject to customary closing conditions including the approval of the TSXV and completion of the asset transfer to the Corporation.

• (c) On December 7, 2020, the Company granted 750,000 stock options to a consultant exercisable at $0.56 per share expiring on December 7, 2022 which vest in four equal tranches on December 7, 2020, March 7, 2021, June 7, 2021, and December 7, 2021.

• (d) On December 24, 2020, the Company completed a non brokered private placement of 3,315,482 units at a price of $1.10 per unit for total proceeds of $3,647,030. Each unit consisted of one common share and onehalf of one common share purchase warrant, each whole warrant is exercisable into one common share of the Company at a price of $1.50 per share expiring two years from closing. In connection with the private placement, the Company paid cash finders’ fees of $204,983 and issued 180,346 finders’ warrants. Each finders’ warrants is exercisable at $1.10 per share expiring two years from closing.

• (e) On January 25, 2021, the Company granted 750,000 stock options to a consultant exercisable at $1.24 per share expiring on January 25, 2024 which vest in 24 equal monthly tranches on the first day of each month starting February 1, 2021.

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