FP Newspapers Inc. — Interim / Quarterly Report 2021

May 27, 2021

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FP NEWSPAPERS INC.

FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

FP Newspapers Inc. Condensed Balance Sheets

(unaudited, in thousands of Canadian dollars)

As at March 31, Note 2021	As at December 30, 2020
ASSETS CURRENT ASSETS Cash and cash equivalents $ 67 Prepaid expenses 6	$ 61 5
73 LONG-TERM ASSETS Investment in FP Canadian Newspapers Limited Partnership3 7,825	66 8,116
TOTAL ASSETS $7,898	$8,182
LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 52 Income taxes payable 266	$ 48 406
318 LONG-TERM LIABILITIES Deferred income tax liability 5 292	454 781
TOTAL LIABILITIES 610	1,235
SHAREHOLDERS’ EQUITY Share capital 71,373 Deficit (64,085)	71,373 (64,426)
TOTALSHAREHOLDERS’ EQUITY 7,288	6,947
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $7,898	$8,182

(See accompanying notes)

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FP Newspapers Inc. Condensed Statements of Income and Comprehensive Income (Loss)

(unaudited, in thousands of Canadian dollars except per share amounts)

		For the three	months ended
	Note	March 31, 2021	March 31, 2020
Equity interest in FP Canadian Newspapers Limited Partnership
Income (Loss)	3	$ (194)	$ 112
Administration expenses		(40)	(43)
Other income		-	-
Net income (loss) before income taxes		(234)	69
Current income tax recovery (expense)		86	(12)
Deferred income tax recovery	5	489	3
Net income for the period		$ 341	$ 60
Items that will not be reclassified to net income (loss):
Equity interest of other comprehensive (loss) income from FP
Canadian Newspapers Limited Partnership	3	-	(1,595)
Deferred income tax recovery		-	431
Comprehensive income (loss) for the period		$ 341	$ (1,104)
Weighted average number of Common Shares outstanding		6,902,592	6,902,592
Net income per share–basic and diluted		$ 0.049	$ 0.009

(See accompanying notes)

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FP Newspapers Inc. Condensed Statements of Changes in Equity

(unaudited, in thousands of Canadian dollars)

Share Capital Deficit	Total Shareholders’ Equity
At December 30, 2019 $ 71,373 $ (66,361) Net income for the period - 60 Other comprehensive (loss) for the period - (1,164)	$ 5,012 60 (1,164)
Comprehensive income for the period - (1,104)	(1,104)
At March 31,2020 $71,373 $ (67,465)	$3,908
At December 30, 2020 $ 71,373 $ (64,426) Comprehensive income for the period - 341	$ 6,947 341
At March 31,2021 $71,373 $ (64,085)	$7,288

(See accompanying notes)

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FP Newspapers Inc. Condensed Statements of Cash Flows

(unaudited, in thousands of Canadian dollars)

For the three months ended March 31, Note 2021 2020 Cash provided by (used in): Operating activities Net income for the period $ 341 $ 60 Items not affecting cash: Equity interest from Class A Units of FP Canadian Newspapers Limited Partnership 3 194 (112) Deferred income tax (recovery) (489) (3) Distributions received on Class A units of FP Canadian Newspapers Limited Partnership 97 - Net changein non-cash working capital items (137) 32 Increase (Decrease) in cash and cash equivalents $ 6 $ (23) Cash and cash equivalents–beginning of period 61 32 Cash and cash equivalents–end ofperiod $67 $9 Supplemental Cash Flow information: Income tax paid during the period $ 53 $ -	For the three months ended March 31, Note 2021 2020	For the three months ended March 31, Note 2021 2020
	Cash provided by (used in): Operating activities Net income for the period $ 341 Items not affecting cash: Equity interest from Class A Units of FP Canadian Newspapers Limited Partnership 3 194 Deferred income tax (recovery) (489) Distributions received on Class A units of FP Canadian Newspapers Limited Partnership 97 Net changein non-cash working capital items (137)	$ 60 (112) (3) - 32
	Increase (Decrease) in cash and cash equivalents $ 6 Cash and cash equivalents–beginning of period 61	$ (23) 32
	Cash and cash equivalents–end ofperiod $67	$9
		$ -

( See accompanying notes)

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FP Newspapers Inc. Notes to Condensed Financial Statements at March 31, 2021 (unaudited, in thousands of Canadian dollars)

1. GENERAL INFORMATION

FP Newspapers Inc. (“FPI”), owns securities entitling it to 49% of the distributable cash flow of FP Canadian Newspapers Limited Partnership (“FPLP”). FPLP owns and operates the Winnipeg Free Press, along with several other Manitoba based news and media publications that are available in both print and digital formats. The informative and engaging content FPLP produces has an extensive reach throughout the province of Manitoba. The breadth of our reach provides compelling platforms for those looking to effectively reach a Manitoba audience.

2. SIGNIFICANT ACCOUNTING POLICIES

These interim condensed financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including IAS 34 “Interim Financial Reporting”. In accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”), these interim condensed financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 30, 2020. In management’s opinion, the interim condensed financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented.

These interim condensed financial statements were approved by the Board of Directors of FPI on May 26, 2021.

Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates. In preparation of the condensed interim consolidated financial statements the estimates and judgements made by management in applying judgements the Company’s accounting policies were the same as those that applied to the consolidated financial statements for the year ended December 30, 2020.

The COVID-19 pandemic is affecting economic and financial markets and virtually all industries are facing challenges associated with the economic conditions resulting from efforts to address it. Reactions and responses to COVID-19 continue to evolve and change, and developments are highly uncertain and cannot be accurately predicted. New information which may emerge concerning the severity, duration and actions by government authorities to contain the outbreak or manage its impact increase the possibility that circumstances may arise which cause actual results to differ from the estimates applied in these interim consolidated financial statements and such differences may effect FPI’s future financi al position, liquidity and operating results.

Regular impairment testing requires predicting future revenues and cash flows in addition to other forward information. The outbreak of COVID-19 has resulted in significantly increased risks with respect to predicting future operating results used in FPI’s impairment testing at March 31, 202 1.

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FP Newspapers Inc. Notes to Condensed Financial Statements at March 31, 2021 (unaudited, in thousands of Canadian dollars)

3. INVESTMENT IN FP CANADIAN NEWSPAPERS LIMITED PARTNERSHIP

FPI holds all of the Class A limited partner units of FPLP, which entitles it to 49% of the distributable cash, as defined in the Partnership Agreement of FPLP.

The investment in FPLP is summarized as follows:

	Class A limited partner units
Balance at December 30, 2019	$ 5,617
Equity interest in comprehensive income for the year ended December 30, 2020 Distributionsreceivedfor the yearendedDecember30,2020	2,803 (304)
Balance at December 30,2020	$8,116
Equity interest in comprehensive income (loss) for the three months ended March 31, 2021 Distributionsreceivedfor the period endedMarch31,2021	(194) (97)
Balance at March 31,2021	$7,825

The equity interest in net income (loss) and other comprehensive income (loss) from FPI’s investment in Class A limited partner units is calculated as follows:

	For the three months ended March 31, 2021 2020
Net income (loss) of FPLP Interest attributable to FPI	$ (395) $ 227 49% 49%
Equity interest in net income (loss) of FPLP before goodwill and intangible assets impairment charge	(194) 112
Other comprehensive (loss) income of FPLP Interest attributable toFPI	- (3,256) 49% 49%
Equityinterest in other comprehensive(loss)income of FPLP	$- $ (1,595)

4. FINANCIAL INSTRUMENTS

The fair value of current assets and liabilities including cash and cash equivalents and accounts payable approximates their carrying value due to the short-term nature of these financial instruments. FPI does not carry any assets or liabilities at fair value, and therefore does not prepare a fair value hierarchy.

5. DEFERRED TAXES

During the quarter, FPI recognized an adjustment to its net deferred tax liability relating to eligible capital expenditures, and historical goodwill and intangible assets of FPLP. The non-cash adjustment resulted in a deferred tax recovery of $489.

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CANADIAN fp NEWSPAPERS LIMITED PARTNERSHIP

FP CANADIAN NEWSPAPERS LIMITED PARTNERSHIP

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

FP Canadian Newspapers Limited Partnership Condensed Consolidated Balance Sheets

(unaudited, in thousands of Canadian dollars)

		As at	As at
		March 31,	December 31,
	Note	2021	2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$ 5,549	$ 5,300
Accounts receivable		2,779	3,139
Due from related parties	6	1,225	1,904
Inventories		995	969
Prepaid expenses and other assets		705	1,190
		11,253	12,502
LONG-TERM ASSETS
Property, plant and equipment		18,923	19,471
Right of use assets		277	287
Intangible assets		2,549	2,257
TOTAL ASSETS		$33,002	$34,517
LIABILITIES AND UNITHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities		$ 4,935	$ 5,951
Prepaid subscriptions and deferred revenue		3,129	3,014
Lease obligation		83	75
Mortgage loan	7	716	733
Term loan	7	1,000	1,000
		9,863	10,773
LONG-TERM LIABILITIES
Lease obligation		194	212
Term loan	7	6,948	6,940
TOTAL LIABILITIES		17,005	17,925
UNITHOLDERS’ EQUITY
Partner units		100,449	100,184
Deficit		(84,452)	(83,592)
TOTAL UNITHOLDERS’ EQUITY		15,997	16,592
TOTAL LIABILITIES AND UNITHOLDERS’ EQUITY		$ 33,002	$ 34,517

(See accompanying notes)

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FP Canadian Newspapers Limited Partnership Condensed Statements of Income (Loss) and Comprehensive Loss

(unaudited, in thousands of Canadian dollars)

For the three months ended March 31, Note 2021 2020	For the three months ended March 31, Note 2021 2020
Revenue Print Advertising $ 5,329 Circulation 6,130 Digital advertising 524 Other 892	$ 6,776 5,883 562 997
TOTAL REVENUE 12,875 Operating expenses Employee compensation 5,919 Newsprint and other paper 955 Delivery 2,431 Other 2,647 Depreciation and amortization 803	14,218 6,545 1,106 2,563 2,960 681
OPERATING INCOME BEFORE RESTRUCTURING 120 Restructuring charge (453)	363 (5)
OPERATING INCOME (LOSS) (333) Other income 2 Finance costs 5 (64)	358 14 (145)
NET INCOME (LOSS) FOR THE PERIOD $ (395)	$ 227
Items that will not be reclassified subsequently to net income Remeasurements for defined benefit pension plan -	(3,256)
COMPREHENSIVE LOSS FOR THE PERIOD $ (395)	$ (3,029)

(See accompanying notes)

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FP Canadian Newspapers Limited Partnership Condensed Consolidated Statements of Changes in Equity (unaudited. in thousands of Canadian dollars)

Partner Units Deficit	Total Unitholders’ Equity
UNITHOLDERS’ EQUITY – DECEMBER 31,2019 $99,362 $ (87,870)	$11,492
Comprehensiveincome (loss)forthe period - (3,029)	(3,029)
UNITHOLDERS’ EQUITY – MARCH 31,2020 $99,362 $ (90,899)	$8,463
UNITHOLDERS’ EQUITY – DECEMBER31,2020 $100,184 $ (83,592)	$16,592
Comprehensive loss for the period - (395) Partner contributions 265 - Partner distributions - (465)	(395) 265 (465)
UNITHOLDERS’ EQUITY – MARCH 31,2021 $100,449 $ (84,452)	$15,997

(See accompanying notes)

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FP Canadian Newspapers Limited Partnership Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands of Canadian dollars)

		For the three month ended	For the three month ended
		March 31,
	Note	2021	2020
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income (loss) for the year		$ (395)	$ 227
Items not affecting cash:
Depreciation and amortization		803	681
Accretion of deferred financing costs		7	2
(Gain)loss on disposal ofproperty, plant and equipment		1	(3)
		416	907
Net change in non-cash working capital items		598	424
		1,014	1,331
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(144)	(17)
Purchase of intangibles		(396)	(1)
Proceeds form the sale of property, plant and equipment		1	3
		(539)	(15)
FINANCING ACTIVITIES
Distributions paid to partners		(200)	-
Principal repayments of lease obligations		(9)	(26)
Principal repayments of mortgage loan		(17)	(14)
Principal repayment of term loan		-	(2,000)
Term loan refinancing costs		-	(36)
		(226)	(2,076)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		249	(760)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		5,300	4,389
CASH AND CASH EQUIVALENTS - END OF PERIOD		$5,549	$3,629
Supplemental Cash Flow Information:
Interest paid during the year		$ 57	$ 197
Interest received during the year		2	11

(See accompanying notes)

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FP Canadian Newspapers Limited Partnership Notes to the Condensed Consolidated Financial Statements as at March 31, 2021 (In thousands of Canadian dollars, except as otherwise noted)

1. GENERAL INFORMATION

FP Canadian Newspapers Limited Partnership (“FPLP”) owns and operates the Winnipeg Free Press, along with several other Manitoba based news and media publications that are available in both print and digital formats. The informative and engaging content we produce, has reach throughout the province of Manitoba. The breadth of our reach provides compelling platforms for those looking to effectively reach a Manitoba audience. The managing general partner of FPLP is FPCN General Partner Inc. (“FPGP”).

These interim condensed consolidated financial statements include the operating businesses owned by FPLP, and do not include other assets, liabilities, revenues, expenses, or income taxes of the partners.

In March 2020, the outbreak of the novel strain of coronavirus, identified as COVID-19, resulted in governments worldwide enacting emergency measures to combat the spread of the virus. Those measures, which included the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. FPLP is considered an essential service and has continued to operate to service its customers. Governments have started to roll out mass vaccination campaigns and management expects FPLP to be able to meet its financial obligations in the foreseeable future, but it is still difficult to predict the duration and potential impact of the pandemic.

In 2020, the federal government announced a wage subsidy program for eligible Canadian employers whose business was affected by COVID- 19. The Canada Emergency Wage Subsidy (“CEWS”) provided a subsidy based on a prescribed formula. On April 19, 2021, as part of the proposed budget, the Government of Canada announced they will extend CEWS to September 2021. The CEWS recovery for the three months ended March 31, 2021 was $412 (nil at March 31, 2020). The Canadian Journalism Tax Credit amount (see note 6) has been reduced by the amount received under the CEWS program for qualifying employees.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

These interim condensed financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including IAS 34 “Interim Financial Reporting”. In accordance with GAAP, these financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2020 . In management’s opinion, the financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented.

These interim condensed consolidated financial statements were approved by the Board of Directors of FPGP on May 26, 2021.

FPLP’s advertising revenue is seasonal. Historically, advertising revenue and accounts receivable are highest in the second and fourth fiscal quarters, while expenses are relatively constant throughout the fiscal year.

3. USE OF ESTIMATES

The preparation of consolidated financial statements requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates. In preparation of the condensed interim consolidated financial statements the estimates and judgements made by management in applying judgements the Company’s accounting policies were the same as those that applied to the consolidated financial statements for the year ended December 31, 2020.

The COVID-19 pandemic is affecting economic and financial markets and virtually all industries are facing challenges associated with the economic conditions resulting from efforts to address it. Reactions and

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FP Canadian Newspapers Limited Partnership Notes to the Condensed Consolidated Financial Statements as at March 31, 2021 (In thousands of Canadian dollars, except as otherwise noted)

responses to COVID-19 continue to evolve and change, and developments are highly uncertain and cannot be accurately predicted. New information which may emerge concerning the severity, duration and actions by government authorities to contain the outbreak or manage its impact increase the possibility that circumstances may arise which cause actual results to differ from the estimates applied in these interim consolidated financial statements and such differences may effect FPLP’s future financial position, liquidity and operating results.

Impairment testing requires predicting future revenues and cash flows in addition to other forward information. The outbreak of COVID-19 has resulted in significantly increased risks with respect to predicting future operating results used in FPLP’s impairment testing at March 31, 202 1.

4. PENSION PLAN

FPLP participates in a defined benefit multi-employer pension plan. This plan is accounted for as defined contribution plan. FPLP pays contributions to the plan on a contractual basis and has no further payment obligations once the contributions have been paid. The contributions are recognized as an expense in the period when they are earned by the employees. The defined benefit plan offered to FPLP’s employees was settled in December 2020.

5. FINANCE COSTS

. FINANCE COSTS
	Three Months Ended March 31,
	2021	2020
Finance Costs
Interest on lease obligations	1	1
Interest on mortgage loan	6	9
Interest on term loan	50	133
Accretion of term loan related to financingcosts	7	2
	$64	$145

6. DUE FROM RELATED PARTIES

This balance relates to amounts owing from the general partners of FPLP who have agreed to pay FPLP for their respective share of the refundable tax credit for qualifying Canadian Journalism Organizations that they receive. The balance of the credit for the three months ended March 31, 2021 was $1,225 ($1,904 at December 31, 2020) and has been recorded as a reduction to employee compensation costs.

7. LONG-TERM DEBT

The mortgage is with the Steinbach Credit Union and has a carrying value of $716 at March 31, 2021 ($733 at December 31, 2020) and carries a five year variable interest rate, at 3.25% at March 31, 2021 (3.25% at December 31, 2020).

The term loan with HSBC Bank Canada matures on January 31, 2023. The loan includes annual principal repayments of $1,000 due on June 1 along with a cash sweep equal to 20% of FPLP’s annual distributable cash as defined by HSBC Bank Canada. The cash sweep is to be paid no later than 90 days after the end of each fiscal year. The loan is subject to negative covenants which must be observed to avoid an accelerated termination of the agreement, as well as, a quarterly minimum fixed charge coverage ratio covenant of 1.5 to 1 as measured on a trailing 12-month basis. FPLP is in compliance with all covenants. The variable interest rate is based on a grid determined by the trailing 12-month leverage ratio and at prevailing market rates ranges from 2.55% to 3.55%. The loan is secured by all the assets of the businesses excluding the specific land and buildings secured by a separate mortgage.

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FP Canadian Newspapers Limited Partnership Notes to the Condensed Consolidated Financial Statements as at March 31, 2021 (In thousands of Canadian dollars, except as otherwise noted)

8. RELATED PARTY TRANSACTION

Total newsprint purchases from a related company for the three months ended March 31, 2021 were $802 ($872 at March 31, 2020).

9. FINANCIAL INSTRUMENTS

The fair value of current assets and liabilities including cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates their carrying value due to the short-term nature of these financial instruments. At March 31, 2021, the fair value of the HSBC term loan, based on Level 3 fair value hierarchy inputs, is approximately $7,948 ($7,940 at December 31, 2020). The fair value of the mortgage loan, based on level 3 fair value hierarchy inputs, approximates its carrying value.

FPLP’s financial assets and liabilities are comprised of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, lease obligations and long-term debt which include the term-loan and mortgage loan.

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