Network Media Group Inc - Management Reports 2021

Management’s Discussion and Analysis of

NETWORK MEDIA GROUP INC .

For the year ended November 30, 2020

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www.networkentertainment.ca

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following Management’s Discussion & Analysis (“MD&A”) prepared as of March 29, 2021, should be read in conjunction with Network Media Group Inc.’s (the “Company” or “Network”) audited consolidated financial statements and accompanying notes for the years ended November 30, 2020 and 2019. The Company reports its financial results in accordance with International Financial Reporting Standards (“IFRS”) in Canadian dollars.

Network is a public company incorporated under the Business Corporations Act of the Province of British Columbia whose common shares are traded on the TSX Venture Exchange (“TSXV”) (symbol “NTE.V”). Additional information relating to the Company can be found on SEDAR at www.sedar.com.

Forward-looking Statements

To the extent any statements made in this MD&A contain information that is not historical, these statements constitute “forwardlooking information” under applicable Canadian securities laws and are based on expectations, estimates and projections. These statements are necessarily based upon management’s perceptions, beliefs, assumptions and expectations of historical trends, current conditions and expected future developments, as well as a number of specific factors and assumptions that, while considered reasonable by management of the Company as of the date of such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies that could result in the forward-looking information ultimately, perhaps materially, being incorrect. Words such as “expects”, “anticipates”, “intends”, “plans”, “estimates”, “believes”, “may”, and variations of such words and similar expressions, are intended to identify such forward-looking information.

All forward-looking information in this MD&A involves known and unknown risks, uncertainties and other factors that are beyond the control of the Company and may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such risk factors include, but are not limited to: the Company’s ability to attract foreign and domestic broadcasters and distributors for its programs, whose purchase/licensing patterns and own consumer markets may change, having a material impact on the Company’s revenues and future business opportunities; audience acceptance of the Company’s programs; the Company’s ability to recoup production costs; the availability of tax credits; conditions in the entertainment industry generally; sales cycles, consumer demand and the timing of third party broadcaster and distributor licensing decisions; failure by third party broadcasters and distributors to honour the terms of contracts/licenses entered into with the Company, or comply with the payment terms contained in those contracts/licenses; the timing of when the proceeds of broadcaster and distributor licenses meet the Company’s revenue recognition criteria; disruption of the timing for delivery of the Company’s products to its broadcasters and distributors for reasons including, but not limited to, production schedule changes, availability of production crew, travel disruption and personal schedules of key talent, all of which can prolong delivery times and delay the timing of release of the Company’s products to the public and ultimately delay receipt of licensing and broadcasting fees; fluctuations in currency exchange rates; changes in accounting standards; changes in technology and capital expenditure requirements; acquisitions that Network may undertake in the future; and changes in laws or regulations applicable to the Company’s business, or the interpretation or application of those laws and regulations. These risk factors are not intended to represent a complete list of the factors that could affect the Company and the reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking information. There can be no assurance that such forwardlooking information will prove to be accurate, as actual results and future events could vary or differ materially from those anticipated in such information.

Forward-looking information is provided for the purpose of giving readers more insight into the Company’s future financial and operational results, based on management’s expectations. Readers are cautioned that the information may not be appropriate for other purposes. The Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking information, except to the extent required by applicable law. Material assumptions within the forward looking information are in the section Revenue Recognition and Forward-Looking Statements .

Readers are also directed to review the “ Risks and Uncertainties ” section of this MD&A below.

Overview and Summary of Results

Network develops, produces, distributes and exploits film and television properties, as well as providing production services to third parties.

During the year ended November 30, 2020, the Company delivered the final two episodes of the documentary series on Artificial Intelligence entitled The Age of A.I. for Google’s YouTube Originals and completed two additional titles in the I Am franchise; I Am Jackie Onassis and I Am Burt Reynolds .

Throughout the year, the Company also continued production on:

3 feature length documentaries, and;
2 television series.

For the year ended November 30, 2020, the Company realized the following:

Revenues of $9.9M (2019 – $16.3M)
Net and comprehensive income of $1.5M (2019 – $4.0M):
Adjusted EBITDA of $2.9M (2019 – $4.8M)
Income per share of $0.02 (2019 – $0.06)
Adjusted EBITDA per share of $0.04 (2019 – $0.07)
Backlog of $13.8M

For the three months ended November 30, 2020, the Company realized the following:

Revenues of $2.0M (2019 – $9.9M)
Net and comprehensive income of $0.4M (2019 – $2.5M):
Adjusted EBITDA of $0.8M (2019 – $2.7M)
Income per share of $0.01 (2019 – $0.04)
Adjusted EBITDA per share of $0.01 (2019 – $0.04)

A summary of the operational highlights for Network’s year ended November 30, 2020 include the following:

Network delivered three projects in fiscal 2020 (I Am Jackie Onassis, I Am Burt Reynolds and two episodes of The Age of A.I.);
Completed delivery of The Age of A.I., hosted and executive produced by Robert Downey Jr., which premiered on YouTube Originals;
Record Viewership. The Age of A.I. has received more than 48M views for the first episode alone;
Network Entertainment Announces Agreement with ExtendedSession to produce a Podcast Series;
o Ali Pejman named Chairman of Network Media Group; and
Network won Five Leo Awards Including Best Documentary: winning the 2020 Leo Award for Best Documentary Series for PUNK and the award for Best Cinematography for The Age of A.I.

Operations & Outlook

Network builds its production slate in two primary forms: documentary films and docu-series. The Company works closely with broadcasters, distributors, and exhibitors to maximize the distribution and financial return of its productions. Produced for theatrical, television, online, and home entertainment distribution and exhibition, these productions are the foundation of Network's brand and statement of quality to the marketplace.

On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic. The economic effects within the film industry and in the global markets, including disruptions in the completion and delivery of the Company’s film and television properties, and the measures that have been introduced by the government to curtail the spread of the virus (such as travel restrictions, closures of non-essential municipal and private operations, imposition of quarantines and social distancing) have had an impact on the Company’s operations. To date, the Company has not had any productions cancelled due to COVID-19, but a number have had commencement of the production delayed. The Company has been able to modify and adapt to the changing business environment without a material impact to the Company’s operations and access to capital. Management continues to evaluate additional potential operational and financial risks to the Company at the date these financial statements were approved, March 29, 2021.

Financing

During the year ended November 30, 2020, the Company’s operations were financed by cash generated from operating activities, shares issuance by way of option conversions, and interim production financing.

The Company finances its individual productions by way of advances from funding partners (broadcasters, distributors, and streaming services), as well as by securing interim production loans. During the year, the Company received $1.4M (2019 – $2.9M) of interim production loans which are secured by future contracted funding from broadcasters and distributors, as well as government labour tax credits receivable. In addition, operating activities generated $9.9M (2019 – $9.6M) of cash.

The Company issued shares as a result of an exercise of stock options during the year which provided $145,350 (2019 – $17,500).

History and Business of the Company

Network was founded in 1999 as a television and film production company. Network’s principal business is the development, financing, production, marketing and distribution of factual/non-scripted television series, documentaries, biographies, docudramas, theatrical documentary films, online programming and specialty sports and entertainment productions. Network is focused on developing and producing high quality, high profile content for the North American and international markets.

Network’s documentaries and docu-series showcase the lives of the world’s most inspiring cultural icons and their endearing legacy. Network’s films have featured a compelling line up of icons from the worlds of Music, Movies, Comedy, Sports, Politics and Business. Network’s premium brand of programming features A-list casts along with highly cinematic, richly crafted storytelling. Network productions are consistently embraced by both popular and critical acclaim, garnering awards, high ratings and media coverage.

Network has a collaborative, interdisciplinary team of producers, directors, cinematographers, editors, writers, and designers who are committed to producing stories that strike a chord with audiences around the world. Network works with global broadcasters and streaming platforms, including ABC, AHC, AMC, Apple TV+, Discovery, ESPN, ESPN Classic, CBC, CMT, CTV, HBO Canada, History Channel, National Geographic, Paramount Network, Peacock, EPIX, Spike, Sundance, TMN , TSN , and YouTube .

Network’s work has been recognized by the Academy Awards, Tribeca Film Festival, the Los Angeles Film Festival, Washington D.C. Silver Docs, Seattle International Film Festival, Hawaii International Film Festival, Houston

International Film Festival , and in Canada by the Gemini’s and Leo’s , Vancouver International Film Festival, Banff Television Festival , the International Film and Television Festival of New Yor k, and by Realscreen with awards for I Am MLK Jr. and the grand prize in the San Antonio Film Festival for I Am Patrick Swayze.

Network’s feature documentaries and specials budgets vary depending on the footage, music rights and any rights fees paid to subjects and or key participants. Once financed, our films are typically produced and released within 18 months, depending on the subject, cast availability and release strategy. Delivery timelines can be delayed and are subject to broadcaster air date changes, talent availability and decisions to add additional shoot days and content.

Network's release strategy often includes a limited theatrical release in key markets supported by a strategic public relations campaign that leads into the US world television premiere. Our public relations campaigns are coordinated with the broadcaster’s marketing efforts and typically include magazine covers ( People, Rolling Stone ) along with interviews on the morning show circuit. Network maximizes the attention drawn to the title with a release to on-line transactional platforms such as iTunes , Amazon and Blu-ray distribution shortly thereafter. Network’s business model is de-risked by the fact it pre-sells its films with commitments from U.S., international and Canadian buyers/partners, minimizing the amount of investment required from the Company, if any. This investment typically comes by way of deferring its overhead or producer fees which are recouped through subsequent sales into the international markets. Network also maximizes the BC and Canadian film tax credit incentives to assist in funding its production budgets.

Distribution and Revenue Model

Network’s revenue is generated from a variety of sources. The main sources are: (1) licensing to television networks, OTT media services (streamers), distributors, and syndicators which provide a license fee or minimum guarantee against future sales/royalties; (2) ancillary distribution including DVD/digital distribution, plus online/Video on Demand (“VOD”) sales; and (3) third party service work:

(1) Television/Streaming Licensing

US Licensing agreements for commercial television and streaming stipulate a broadcaster’s/streamer's rights to telecast/release the property over a prescribed period of time in a specific territory for a negotiated license fee. License fees vary widely from thousands to millions of dollars depending on whether the broadcaster is a conventional network, cable TV operator, or streaming service, and what territory it broadcasts/releases in. The industry is currently undergoing a massive transformation with the introduction of new streaming services by many of the industry's biggest and most influential companies, including Disney, Apple, NBC Universal, CBS, HBO, Amazon, YouTube , and Epix , among others, which will increase the number of potential buyers for Network properties. Other considerations that determine the license fees paid include: the television or film productions market recognition (brand equity), attached brands (talent or organization), and the overall creative. US initial licensing fees are a foundational part of the funding of the production of the television or film property the Company is creating.

(2) Distribution

Network also finances its proprietary productions through minimum guarantees from domestic and international distributors. Once these minimum guarantees have been reached, Network participates in all future revenues received from the distributor. The distributors typically earn a fee plus expenses equaling 25-30% of the sale with the residual going to Network. Similar to the initial television licensing agreements, the minimum guarantees Network receives are typically included in the financing structure of the production of the property.

Network strives to retain digital and online rights to its properties, which it can then distribute directly and thereby maximize revenues. Because Network’s properties typically feature high profile and well known subjects, they are particularly popular in digital and online mediums due to their market recognition. Digital and online distribution provides additional sales primarily through the following mediums:

Digital download, all forms of VOD, including SVOD, TVOD, and AVOD, and mobile distribution are additional revenue platforms for Network’s properties;
DVD/Blu-ray sales

(3) Third party service work

Network not only produces its own proprietary content, but will also work with other major studios/broadcasters to produce properties that are ultimately owned by third parties. Network will work on a concept and pitch these studios/broadcasters the concept for a television or film property. Often, these studios/broadcasters will want to own the concept or idea outright. In such a situation, the contracting party will typically fund 100% of the property’s budget and hire Network to produce the property. Network will earn producing fees, a potential premium fee, overhead allocations, and also typically will have a limited participation on future revenues with these properties, as well as helping to create partnerships, immediate cash flow and profits for the Company.

Revenue Recognition and Forward-Looking Statements

The Company follows a revenue recognition policy that is standard to the film industry (Note 3 of the audited consolidated financial statements for the years ended November 30, 2020 and 2019). Under this policy the Company does not recognize revenues for a film or episode where the copyright is owned by the Company (referred to as proprietary productions) until all of the following events have occurred:

A buyer has signed an agreement to purchase the property;
‎The property is in finished and final form;
Network has shipped the property to the buyer as required under the purchase agreement;
The price agreed between the buyer and Network can be determined as a final amount;
It is reasonable for Network to conclude it will receive the amount that the buyer has agreed to pay; and
The later of the license term commencing and satisfaction of the delivery conditions of the purchase agreement between Network and the buyer.

The expenses and revenues attributable to any specific property are deferred until all of the above factors are satisfied.

If the production is a “work-for-hire” scenario where the Company does not own the copyright (referred to as service work), then the Company records the revenue on a percentage of completion basis. In this scenario, the costs to date are compared to the estimated final costs of the property and the percent of the work completed is applied to the total contracted value of the property to determine the amount of revenue to be recorded. Where the Company receives funds in excess of what the percentage of completion calculation provides, this excess is recorded as deferred revenue.

Forward-looking revenue

The performance (or period to period earnings comparisons) of entertainment companies like Network can often be challenging for readers. As such, the Company feels it is necessary to provide some additional information so that a meaningful assessment of the Company’s potential future financial performance and earnings is possible.

Contracts and funding for a film or television property are secured well in advance of commencement of production of the property. Practically speaking, the only significant element of uncertainty is the specific accounting period in which revenue earned by the Company can be recognized due to the requirements of its revenue recognition policy as described above. Often delivery schedules are changed in mid-production and at the discretion of the broadcaster which can often delay the recognition of the property’s associated revenue. Readers should be cautioned that such adjustments can be material in nature given that the Company is not able to record any revenue until the property is delivered.

The Company has certain properties currently in production which have been sold to buyers under binding purchase agreements. Deferred revenue totaling approximately $0.6M as at November 30, 2020 (2019 – $4.5M), represents funding advances received on these properties. Below is an estimate of the ultimate gross revenue and the expected period of recognition for these properties:

Contracted Future Production Revenues Deferred revenue as at November 30, 2020 Contracted future revenue Total expected revenue - contracted Revenues expected within 6 months Revenues expected within 7 to 12 months Revenues beyond 12 months	$ Millions 0.6 $ 13.2
	13.8 $ 1.3 $ 7.2 $ 5.3 $

As stated above, under IFRS the Company is not able to recognize revenue until all of the above-mentioned conditions have been met. As at March 29, 2021, Network has contracts for $13.8M (2019 – $17.9M) that have yet to be recorded as revenue, but are expected to be received and recognized as revenue within the periods noted above.

In addition, as at the date of this MD&A, the global community is amidst the COVID-19 economic crisis. The full effect of the crisis has not been determined at this time, but readers are to be cautioned that the Company’s estimates of delivery dates, and thus, recognition of revenues, could be significantly adjusted from the estimates above.

The above statements regarding the Company’s anticipated, or contracted for, future revenue constitutes “forward-looking information” under applicable Canadian securities laws – readers are directed to refer to the Forward-Looking Statement disclosures at the beginning of this MD&A. The above calculations are based on expectations, estimates and projections as of the date of this MD&A and are necessarily based upon assumptions and expectations regarding future production revenues and partial revenues generated from properties under contract. Estimates of future revenues are based on the terms of contracts entered into. Such assumptions and expectations include, but are not limited to the following: the terms of the contracts will not be altered; delivery of the Company’s products will occur as scheduled; the purchasing party will make payment as and when due under the contract, and will comply with all payment terms; the US-Canadian currency exchange rates remain stable (assumed to be 1.3 USD-CDN for the purposes of the estimates made herein); no unforeseen event interrupts business in the ordinary course; and the purchasing party will pay, or has paid, Network on a pro-rata to percent completed for a film or episode that is in progress. Should conditions change, the above revenue estimates may not be met and actual results may differ, perhaps materially.

Summary Consolidated Financial Information

The summary consolidated financial information set out below has been prepared in accordance with IFRS and is derived from the Company’s audited consolidated financial statements and accompanying notes for the years ended November 30, 2020, 2019 and 2018, and can be found at www.sedar.com.

		As at		As at		As at
		November 30,		November 30,	November 30,
Consolidated Summary of Financial Position		2020		2019		2018
Cash	$	685,731	$	1,182,454	$	3,597,623
Current assets		3,355,971		7,246,106		7,411,492
Investment in film and television		10,196,898		11,425,431		9,095,904
Total assets		14,115,660		19,750,448		18,270,161
Current liabilities		4,758,438		12,035,693		14,800,767
Total liabilities		4,899,046		12,457,834		14,930,540
Shareholders'equity		9,216,614		7,292,614		3,339,621
Working capital deficiency	$	(1,402,467)	$	(4,789,587)	$	(7,389,275)

Consolidated Statements of Net and Comprehensive Income (Loss)

Expressed in Canadian dollars

		Year Ended		Year Ended		Year Ended
	November 30,			November 30,		November 30,
		2020		2019		2018
Total revenue	$	9,924,236	$	16,278,621	$	2,674,579
Production costs		531,149		1,153,157		25,621
Amortization of film and television properties		5,579,362		9,357,783		1,798,877
Amortization of property, equipment and right of use assets		683,292		174,698		138,622
General and administrative		945,348		906,554		407,533
Impairment of investment in film and television properties		597,342		138,801		74,312
Selling and distribution		15,737		74,075		139,204
Share-based compensation		262,711		205,499		540,746
Foreign exchange gain		(27,698)		(186,826)		(102,255)
Forgiveness of debt and reversal of accounts payable		(22,312)		(18,078)		(9,402)
		8,564,931		11,805,663		3,013,258
Income (losses) before other items		1,359,305		4,472,958		(338,679)
Financing expense, net		84,866		118,314		97,479
Settlement on claim		-		-		100,000
Loss on disposal of property and equipment		-		733		-
Income (losses) before income taxes		1,274,439		4,353,911		(536,158)
Income tax expense (recovery)		(241,500)		324,100		-
Net and comprehensive income (loss) for the year	$	1,515,939	$	4,029,811	$	(536,158)
Income (loss) per share
- basic	$	0.02	$	0.06	$	(0.01)
- diluted	$	0.02	$	0.06	$	(0.01)
Weighted average number of shares outstanding
- basic		73,609,069		72,858,796		71,952,919
- diluted		79,141,070		73,018,276		71,952,919
Adjusted EBITDA	$	2,852,640	$	4,787,052	$	303,344
Adjusted EBITDA per share	$	0.04	$	0.07	$	0.00

Non-IFRS Measures

In addition to results reported in accordance with IFRS, the Company reports using certain non-IFRS financial measures as supplemental indicators of the Company’s financial and operating performance. These non-IFRS financial measures include EBITDA and Adjusted EBITDA. The Company believes these supplemental financial measures reflect the Company's on-going business in a manner that assist the reader’s meaningful period-to-period comparisons and analysis of trends in its business.

“Adjusted EBITDA” is calculated based on EBITDA (known as earnings/loss before interest, taxes, depreciation and amortization) plus share-based compensation expense, finance costs (income), foreign exchange gain (loss) and losses and other items of an unusual nature that do not reflect ongoing operations.

EBITDA and Adjusted EBITDA are commonly reported and widely used by investors and lenders as an indicator of a company’s operating performance and ability to incur and service debt, and as a valuation metric. EBITDA and Adjusted EBITDA are not an earnings measure recognized by IFRS and therefore do not have a standardized meaning prescribed by IFRS. Therefore, EBITDA and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Below is a table detailing the adjustments to earnings made by the Company to calculate Adjusted EBITDA:

Earnings (loss) for the year Adjustments Amortization of property, equipment and right of use assets Impairment of investment in film and television properties Financing expense, net Share-based compensation Foreign exchange gain Forgiveness of debt and reversal of accounts payable Settlement on claim Income tax expense (recovery) Loss on disposal of property and equipment Adjusted EBITDA	Year Ended Year Ended Year Ended November 30, November 30, November 30, 2020 2019 2018 1,515,939 $ 4,029,811 $ (536,158) $ 683,292 174,698 138,622 597,342 138,801 74,312 84,866 118,314 97,479 262,711 205,499 540,746 (27,698) (186,826) (102,255) (22,312) (18,078) (9,402) - - 100,000 (241,500) 324,100 - - 733 -
	2,852,640 $ 4,787,052 $ 303,344 $

Overall Financial Position – Fiscal 2020

Net and comprehensive income decreased by $2,513,872 to $1,515,939 for the year ended November 30, 2020, as compared to $4,029,811 in 2019.

The $5.6M decrease in total assets was primarily due to the receipt of tax credits during the year and recording right of use assets as a result of the adoption of IFRS 16 (see Note 3 of the audited consolidated financial statements and accompanying notes for the years ended November 30, 2020 and 2019).

The $7.6M decrease in total liabilities was mainly due to the repayment of interim production financing with the receipt of tax credits along with recording deferred revenues as income during the year.

A more detailed analysis of the other components of earnings from operations is provided below under the title Results of Operations – Fiscal 2020 Compared to Fiscal 2019 and Results of Operations – Fourth Quarter of Fiscal 2020 .

Results of Operations – Fiscal 2020 Compared to Fiscal 2019

The following discussion describes the significant changes in the consolidated results from operations:

Revenue

Revenue decreased by $6,354,385 from $16,278,621 in 2019 to $9,924,236 in 2020. The decrease in revenues is primarily attributed to the record level of production the Company experienced in 2019. In addition, the implementation of COVID-19 restrictions around travel did impede the Company’s ability to complete certain projects in production as anticipated. These projects have been delayed and the anticipated delivery dates have been pushed into fiscal 2021

Contract production service revenues were $388,398 in 2020 as compared to $1,347,406 in 2019. The decrease in revenues is due to a reduced amount of work for hire projects in the studio during the year, coupled with the production delays imposed by the COVID-19 travel restrictions.

Other revenue consists primarily of the receipt of funding from the Canadian government’s various COVID-19 relief programs.

The detailed breakdown of revenues is as follows:

Production revenue Contract production services revenue Distribution revenue Other revenue	Year ended Year ended November 30, November 30, 2020 2019
	8,675,637 $ 14,725,440 $ 388,398 1,347,406 616,941 176,642 243,260 29,133
	9,924,236 $ 16,278,621 $

Additional information about future revenue of the Company can be found at the section Revenue Recognition and Forward-Looking Statements.

Production costs

Production costs were $531,149 in 2020 as compared to $1,153,157 in 2019. The prior year’s costs were in relation to the service work contract with A&E’s Chris Farley biography in 2019.

Amortization of film and television properties

Amortization of film and television properties decreased $3,778,421 from $9,357,783 in 2019 to $5,579,362 in 2020. Please refer to the accounting policies in Note 3 of the audited consolidated financial statements for the years ended November 30, 2020 and 2019 for information on how the amortization of the properties is calculated.

Amortization of property, equipment and right of use assets

Amortization of property, equipment and right of use assets increased by $508,594 to $683,292 in 2020 as compared to $174,698 in 2019. The increase is due to the Company’s continued investment in its infrastructure and editing capabilities during the last couple of years as well as the additional assets recorded as right of use assets through the adoption of IFRS 16 .

General and administrative expenses

General and administrative expenses increased by $38,794 from $906,554 in 2019 to $945,348 in 2020. The increase in expenses is primarily due to increases in interest and bank charges, salaries and wages and technology costs. The other office and administrative costs decreased due to the reduced operations and overhead caused by the vacancy of office space and reduced overheard in connection with the Company’s response to COVID-19. In particular, office expenses and travel were significantly reduced.

A detailed breakdown of the expenses is as follows:

Insurance Interest and bank charges Office and general Professional fees Rent and utilities Salaries and wages Technology and licenses Telecomunications Transfer agent and filing fees Travel	Year ended Year ended November 30, November 30, 2020 2019
	23,025 $ 30,342 $ 73,564 33,326 93,051 121,745 118,169 200,054 3,933 - 426,867 294,018 102,821 86,502 20,015 20,764 23,148 30,749 60,755 89,054
	945,348 $ 906,554 $

Impairment of investment in film and television properties

Management makes an estimate of the future value on a property by property basis at each period end. If in management’s estimation, the future value of the property does not exceed the current carrying amount, then it will record an impairment.

Network recorded impairment of film and television properties of $597,342 in 2020 compared to $138,801 in 2019. The significant increase in impairments is due specifically to a project commissioned by Quibi. Quibi closed operations during production. The capitalized costs of the production were written down to management’s estimated recoverable amount.

The impairment in Fiscal 2020 was the result of management’s decision to cease further development of certain properties which resulted in the write-off of the property’s carrying amounts. Per the Company’s accounting policies, a property that does not have prevailing evidence of going into production will be written off. As such, the Company assessed its development slate and wrote off properties which were older than three years and didn’t have a high likelihood of going into production. These properties may still be taken to market in hopes of being financed, but will not be carried on the Company’s consolidated statement of financial position as an asset.

Selling and distribution expenses

Selling and distribution expenses decreased to $15,737 in 2020 as compared to $74,075 in 2019.

Share-based compensation

Share-based compensation increased $57,212 from $205,499 in 2019 to $262,711 in 2020. The increase is due to the vesting of options previously issued as calculated using the Black-Scholes model.

Foreign exchange gain

Foreign exchange gain decreased by $159,128 to $27,698 in 2020 as opposed to $186,826 in 2019. The change is due to the fluctuation of the Canadian dollar against the US dollar throughout the fiscal year.

Financing expense, net

Total net financing expense decreased $33,448 from $118,314 in 2019 to $84,866 in 2020. This decrease was due to interest from the receipt of film tax credits.

Income/Adjusted EBITDA for the year

Income for the year ended November 30, 2020 was $1,515,939 ($0.02 per share) as compared to $4,029,811 ($0.06 per share) for the year ended November 30, 2019.

In each period, a number of expenses were attributed to non-cash items such as share-based compensation, amortization and impairments, which provided Adjusted EBITDA of $2,852,640 ($0.04 per share) in 2020 and $4,787,052 ($0.07 per share) in 2019.

Results of Operations – Fourth Quarter of Fiscal 2020

The following discussion describes the significant changes in the results from operations for the three-month period ended November 30, 2020, compared to the same period in 2019.

Revenue

Revenue decreased by $7,902,107 from $9,867,488 in 2019 to $1,965,381 in 2020.

The detailed breakdown of revenues is as follows:

Production revenue Contract production services revenue Distribution revenue Other revenue	Three months ended Three months ended November 30, November 30, 2020 2019
	1,323,902 $ 9,822,740 $ 388,398 10,681 178,659 4,934 74,422 29,133
	1,965,381 $ 9,867,488 $

The decrease in revenue was mainly attributed to the completion of six episodes of The Age of A.I. for Google in Q4 of fiscal 2019. In addition,

In Q4 fiscal 2020, the Company has recorded revenues in relation to a break fee from Paramount for I Am Alfred Hitchcock as well as revenues in relation to the final payments for Beauty from Quibi.

Contract production service revenues were $388,398 in 2020 as compared to $10,681 in 2019. The increase in revenues is due to the budget size of the work for hire project in the studio in Q4 fiscal 2020.

Other revenue consists primarily of the receipt of funding from the Canadian government’s various COVID-19 relief programs.

Production costs

Production costs were $531,149 in 2020 as compared to $21,247 in 2019 due to the service work contract in the studio during Q4 2020.

Amortization of film and television properties

Amortization of film and television properties decreased $6,398,589 from $6,857,914 in 2019 to $459,325 in 2020. The decrease is associated with the deliveries of The Age of A.I. in Q4 2019. Please refer to the accounting policies in Note 3 of the audited consolidated financial statements for the years ended November 30, 2020 and 2019 for information on how the amortization of the properties is calculated.

Amortization of property, equipment and right of use assets

Amortization of property, equipment and right of use assets increased by $138,353 to $187,893 in 2020 as compared to $49,540 in 2019. The increase is due to the Company’s continued investment in its infrastructure and editing capabilities during the last couple of years as well as the additional assets recorded as right of use assets through the adoption of IFRS 16 .

General and administrative expenses

General and administrative expenses decreased by $117,233 from $257,989 in 2019 to $140,756 in 2020. The decrease in expenses is primarily due to decreases in professional fees, travel and office and general as a result of reduced operations and overhead in relation to COVID-19

Impairment of investment in film and television properties

Network recorded impairment of film and television properties of $558,159 in 2020 compared to $80,650 in 2019. The significant increase in impairments is due specifically to a project commissioned by Quibi. Quibi closed operations during production. The capitalize costs of the production were written down to management’s estimated recoverable amount.

Selling and distribution expenses

Selling and distribution expenses decreased by $31,732 from $32,315 in 2019 to $583 in 2020. The decrease is because the Company was not required to promote its work on the projects completed thus far and also due to the economic slowdown caused by the COVID-19 pandemic.

Share-based compensation

Share-based compensation decreased by $11,394 from $65,855 in 2019 to $54,461 in 2020. The increase is to the vesting of options previously issued as calculated using the Black-Scholes model.

Foreign exchange gain (loss)

Foreign exchange gain decreased by $401,599 to a loss of $57,987 in 2020 as opposed to a gain of $343,612 in 2019. The change is due to the fluctuation of the Canadian dollar against the US dollar throughout the fiscal period.

Financing expense, net

Total net financing expense decreased $23,431 from $43,769 in 2019 to $20,338 in 2020. The decrease is due to the lower amount of interim production loan balances throughout the period.

Income for the quarter

Income and contributed income for the three months ended November 30, 2020 was $446,354 ($0.01 per share) as compared to $2,485,840 ($0.04 per share) in 2019.

Summary of Quarterly Results

The following table contains a summary of certain unaudited information for each of the eight most recent financial quarters. All periods presented have been prepared in accordance with IFRS.

000's of dollars, except per share figures	Quarter ended
	Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
	2020 2020 2020 2020 2019 2019 2019 2019
Total revenue	1,965 $ 1,015 $ 2,722 $ 4,222 $ 9,868 $ 788 $ 4,637 $ 986 $ 446 106 665 299 2,486 (324) 1,702 166 0.01 $ - $ 0.01 $ - $ 0.04 $ - $ 0.02 $ - $
Net and comprehensive income (loss)

Income per share - basic and diluted

The quarterly information is unaudited, but reflects all adjustments of a normal, recurring nature, which are, in our opinion, necessary to present a fair statement of the results of operations for the periods presented. Quarter-toquarter comparisons in the financial results are not necessarily meaningful and should not be relied upon as an indication of future performance due to how revenue is recognized in the entertainment industry (see Seasonality below).

Liquidity and Capital Resources

Network’s liquidity needs are met through a variety of sources. Network generates cash from operations, by borrowing against earned and expected tax credits, through operating lines of credit and through debt and stock issuances. The primary uses of cash are operating expenses, capital expenditures, interest and principal payments on current debt, and investment in its properties.

Overall, the Company’s cash position decreased by $496,723 as at November 30, 2020. Cash provided by operating activities in the year ended November 30, 2020, was $9.9M, compared to $9.6M in the prior year.

Financing activities for the year ended November 30, 2020 resulted in cash used of $4.3M compared to cash provided of $2.1M in 2019. In the year, the Company received $1.4M of interim production financing, but also repaid $5.3M of interim production financing. The cycle of incurring interim production financing and repayments thereof is common in the entertainment industry. Chartered banks regularly lend companies such as Network the funding to produce and complete its production through the financing of future contracted payments and tax credits. Upon receipt of these funds, the interim production financing is paid down and any excess funds go into working capital.

Cash required by investing activities in the year ended November 30, 2020 was $6.1M, compared to requiring cash of $14.1M in the prior year. The Company used the cash primarily for its continued development and production of its film and television properties.

Liquidity

The Company’s capital management objectives are to maintain financial flexibility in order to pursue its strategy of production and distribution growth. The Company manages its capital structure in accordance with financial conditions and timing of various payments from production financings, third party broadcasters and distributors and from government tax credit programs. In order to maintain its capital structure, the Company may elect to issue or repay short-term debt, issue shares or undertake any other activities as deemed appropriate.

As at November 30, 2020, Network had a working capital deficit of $1.4M compared to $4.8M as at November 30, 2019. Readers are cautioned to be aware that deferred revenue is recorded by the Company as a current liability, whereas this funding is invested in film and television properties which is a long-term asset, thus creating an

inherent working capital deficiency. If readers were to adjust the deficiency for the deferred revenue, the Company’s working capital would be as follows:

Current assets Current liabilities Working capital deficiency Deferred revenue adjustment Adjusted working capital (deficiency)	November 30, November 30, 2020 2019
	3,355,971 $ 7,246,106 $ (4,758,438) (12,035,693)
	(1,402,467) $ (4,789,587) $ 601,354 4,473,496
	(801,113) $ (316,091) $

Network believes that between cash flow generated through operations, the Company’s ability to negotiate shortterm debt instruments, stock issuances and interim production financing of its proprietary properties, it will generate sufficient liquidity to meet cash requirements for the next 12 months.

Capital Management

The Company’s objectives when managing capital are to safeguard its assets, maintain a competitive cost structure, continue as a going concern in order to pursue the development of its film and television properties, and provide a return to its shareholders in the form of capital appreciation. The Company defines capital as the aggregate of its shareholders’ equity and long-term debt less cash.

In order to facilitate management of capital, the Company continues to prepare annual expenditure budgets that are updated as necessary and dependent on various factors, including successful deployment of capital and industry conditions. The annual and updated budgets are approved by the Board of Directors.

The Company believes that through operations and production financing of its proprietary properties, it will generate sufficient liquidity to meet cash requirements for the next twelve months.

Related party transactions

The Company has transacted business in the normal course of operations with related parties and entities over which the related parties’ exercise control. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

Key management personnel consist of the Board of Directors and the named Officers of the Company, who have authority and responsibility for planning, directing and controlling the activities of the Company. During the year ended November 30, 2020, the Company:

paid or accrued wages to key management personnel in the following manner:
Recorded as general and administrative expenses – $18,200 (2019 – $52,956);
Recorded as investment in film and television properties – $565,400 (2019 – $617,083);
Recorded as direct production costs – $75,000 (2019 – $29,000)
These costs were paid to the following related parties:
- $nil (2019 – $39,956) for salaries and wage to the former Chairman of the Board of Directors;
- $268,200 (2019 – $256,750) as salaries and wages to the CEO;
- $225,000 (2019 – $220,833) as salaries and wages to the COO, and;

  - $158,400 (2019 – $157,500) as salaries and wages to the CFO and to a company controlled by the CFO.

recorded share-based compensation of $166,193 (2019 – $83,839) on options that vested during the year, as follows:
$22,018 (2019 – $30,896) to three Directors;
$103,334 (2019 – $9,010) to the current and former Chairman of the Board of Directors;
o $18,676 (2019 – $21,688) to the CEO; o $12,758 (2019 – $13,383) to the COO; o $7,839 (2019 – $7,385) to the CFO, and; o $1,568 (2019 – $1,477) to another related party.
granted 1,000,000 (2019 – 1,110,000) stock options under the Company’s stock option plan, as follows: o Nil (2019 – 180,000) options granted to three Directors;

o 1,000,000 (2019 – 460,000) options granted to the current and former Chairman of the Board of Directors; o Nil (2019 – 200,000) options granted to the CEO; o Nil (2019 – 150,000) options granted to the COO; o Nil (2019 – 100,000) options granted to the CFO, and; o Nil (2019 – 20,000) options granted to another related party.

At November 30, 2020, the Company owed $13,650 (2019 – $13,650) to a company controlled by an Officer of the Company. Amounts due to related parties are unsecured, non-interest bearing and due on demand.

Capital Expenditures

The Company monitors its property and equipment on a continual basis and replenishes on an as needed basis. The Company does not anticipate any significant expenditures on property and equipment in the upcoming year.

Share Issuances

During the year ended November 30, 2020, the Company issued 1,100,000 common shares on the exercise of stock options for proceeds of $145,350, as follows:

a. 300,000 options on December 3, 2019 when stock price was $0.18 b. 300,000 options on February 12, 2020 when stock price was $0.21 c. 500,000 options on June 29, 2020 when stock price was $0.17

Subsequent to November 30, 2020, the Company issued 461,500 common shares upon the exercise of stock options for gross proceeds of $69,225.

Options

Pursuant to the Company’s equity-settled stock option plan, Directors may, from time to time, authorize the granting of options to Directors, employees and consultants of the Company to a maximum of 20% of the outstanding shares of the Company which is limited to a maximum of 14,500,000 options as approved by the shareholders of the Company. Options granted under the plan have contractual option terms not exceeding 10 years and vesting periods as determined by the Company’s Board of Directors.

The Company uses the Black-Scholes option-pricing model to determine the estimated fair value, at the grant date, of the options issued. In all the calculations the annual dividend yield was assumed to be $nil, and expected volatility was based on historical volatility. All other assumptions are summarized below:

							Annual	Risk Free	Fair Value	Fair Value
		Options		Exercise			Volatility	Interest		at Grant	Expected
Grant	Date	Granted		Price	Share	Price	Rate	Rate		Date	Life
Year ended	2019	2,110,000	$	0.13	$	0.15	109%	1.46%	$	0.12	5.0
Year ended	2020	1,000,000	$	0.20	$	0.20	113%	0.78%	$	0.16	5.0

For the year ended November 30, 2020, the Company recognized compensation expense in relation to the above listed options of $262,711 (2019 – $205,499), which is included in profit or loss.

Escrow shares

As at November 30, 2020, the Company had no common shares held in escrow.

Seasonality

Results of operations for any period are dependent on the number and timing of film and television properties delivered, which cannot be predicted with certainty. Consequently, the Company’s results from operations may fluctuate materially from period-to-period and the results of any one period are not necessarily indicative of results for future periods. Cash flows may also fluctuate and are not necessarily correlated with revenue recognition. During the initial license of broadcast rights by the Company, the Company is reliant on the broadcaster’s budget and financing cycles as well as delivery schedules. If the license period gets delayed and commences at a later date than originally predicted, the periods in which revenues are recorded may be affected. Readers of the Financial Statements and this MD&A are therefore cautioned about extrapolating the results for quarterly or annual periods in the financial year ended November 30, 2020, into quarterly or annual expectations in future years.

Financial Instruments

The fair values of the Company’s financial instruments approximate the carrying values, due to their short terms to maturity or attached market rates of interest. The Company is exposed to various risks related to its financial instruments as follows:

Risks arising from financial instruments

(i) Foreign exchange risk

Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Company has not entered into foreign exchange purchase contracts to manage its foreign exchange risk, because, in management’s view, the cost of setting up the contracts is in excess of the risks associated with a sudden change in the exchange rates. Management continually monitors the exchange rates and will enter into risk prevention measures when warranted.

A five percent fluctuation in the US dollar rate impacting US dollar revenues during the year ended November 30, 2020 would result in a $471,256 (2019 – $805,567) impact to profit or loss.

The Company is also exposed to foreign exchange risk on its cash, accounts receivable and accounts payable balances that are denominated in US dollars, being, respectively, $646,322 (2019 – $670,389), $329,857 (2019 – $738,450) and $871,404 (2019 – $709,014).

A five percent fluctuation in the US dollar closing rate at November 30, 2020 would result in a net change to profit or loss of $5,239 (2019 – $34,991).

(ii)

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company is subject to credit risk with respect to cash and accounts receivable. The Company’s maximum exposure to credit risk at the end of the reporting period is the carrying value of these assets. Substantially all of the Company’s customers are in the entertainment industry and are subject to normal industry credit risks. Credit risk is managed through a credit approval process and monitoring procedures.

All cash balances are held at a major Canadian banking institution.

At November 30, 2020, there are $130,006 of accounts receivable past due, over 30 days, but not considered impaired (2019 – $139,458).

(iii) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Interest rate risk arises on interest-bearing financial instruments recognized in the consolidated statement of financial position such as interim production financing.

If the market interest rates had changed 100 basis points, the Company’s cost of capital would have fluctuated by $66,955 (2019 – $54,680).

(iii) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Company’s liquidity needs can be met through a variety of sources. The Company generates cash from operations, by borrowing against earned tax credits through interim production financing, and by issuances of common shares. The Company manages liquidity risk by continuously monitoring actual and forecast cash flows.

The Company will require additional capital in order to meet the payment expectations related to its debts. Accounts payable and accrued liabilities are due on standard commercial terms.

Off-Balance Sheet Arrangements

There are no off-balance sheet obligations that are not disclosed in the financial statements.

Risks and Uncertainties

The following are the specific and general risks that could affect the Company that each reader should carefully consider. Additional risks and uncertainties not presently known to the Company or that the Company does not currently anticipate will be material, may impair the Company’s business operations and its operating results and as a result could materially impact its business, results of operations, prospects, and financial condition. The

risks and uncertainties below are not listed in order of importance, nor are they inclusive of all of the risks and uncertainties the Company may be subject to.

Risks Related to the Nature of the Entertainment Industry

The entertainment industry involves a substantial degree of risk. Acceptance of entertainment programming represents a response not only to the production’s artistic components, but also the quality and acceptance of other competing programs released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, public tastes generally and other intangible factors, all of which could change rapidly or without notice and cannot be predicted with certainty. There is a risk that some or all of the Company’s programming will not be purchased or accepted by the public generally, resulting in a portion of costs not being recouped or anticipated profits not being realized. There can be no assurance that revenue from existing or future programming will replace loss of revenue associated with the cancellation or unsuccessful commercialization of any particular production.

Risks Related to Television and Film Industries

Because the performance of television and film programs in ancillary markets, such as home video and pay and free television, is often directly related to reviews from critics and/or television ratings, poor reviews from critics or television ratings may negatively affect future revenue. The Company’s results of operations will depend, in part, on the experience and judgment of its management to select and develop new investment and production opportunities. The Company cannot make assurances that the Company’s films and television programs will obtain favourable reviews or ratings that its films will perform well in ancillary markets or that broadcasters will license the rights to broadcast any of the Company’s film and television programs in development or renew licenses to broadcast film and television programs in the Company’s library. The failure to achieve any of the foregoing could have a material adverse effect on the Company’s business, results of operations or financial condition.

Licensed distributors’ decisions regarding the timing of release and promotional support of the Company’s films, television programs and related products are important in determining the success of these films, programs, and related products. The Company does not control the timing and manner in which our licensed distributors distribute our films, television programs, or related products. Any decision by those distributors not to distribute or promote one of the Company’s films, television programs, or related products or to promote competitors’ films, programs, or related products to a greater extent than they promote the Company’s, could have a material adverse effect on the Company’s business, results of operations, or financial condition.

Risks Related to Doing Business Internationally

The Company distributes films and television productions outside Canada through third party licensees and derives revenues from these sources. As a result, the Company’s business is subject to certain risks inherent in international business, many of which are beyond its control. These risks include: changes in local regulatory requirements, including restrictions on content; changes in the laws and policies affecting trade, investment and taxes (including laws and policies relating to the repatriation of funds and to withholding taxes); differing degrees of protection for intellectual property; instability of foreign economies and governments; cultural barriers; wars and acts of terrorism; and the spread of COVID-19 or other widespread health hazard.

Loss of Canadian Status

The Company could lose its ability to exploit Canadian government tax credits and incentives described above if it ceases to be “Canadian” as defined under the Investment Canada Act. In particular, the Company would not qualify as a Canadian if Canadian nationals cease to beneficially own shares of the Company having more than 50% of the combined voting power of its outstanding shares. In Canada and under international treaties, under applicable regulations, a program will qualify as a Canadian-content production if, among other things: (i) it is produced by Canadians with the involvement of Canadians in principal functions; and (ii) a substantial portion of the budget is spent on Canadian elements. As well, substantially all of the Company’s programs are contractually required by broadcasters to be certified as “Canadian”. In the event a production does not qualify for

certification as Canadian, the Company would be in default under any government incentive and broadcast licenses for that production. In the event of such default, the broadcaster could refuse acceptance of the Company’s productions.

Competition

Substantially all of the Company’s revenues are derived from the production and distribution of television and film programs. The business of producing and distributing television and film programs is highly competitive. The Company faces intense competition with other producers and distributors, both in the cable television market, but now also from on-line broadcasters like Netflix, Apple, Disney+ and Amazon, many of whom are substantially larger and have greater financial, technical, and marketing resources than the Company. The Company competes with other television and film production companies for ideas and storylines created by third parties as well as for actors, directors, and other personnel required for a production. The Company may not be successful in any of these efforts which may adversely affect business, results of operations, or financial condition.

The Company intends to increase its penetration of the prime-time television network market. The Company competes for time slots with a variety of companies which produce televised programming. The number of network prime-time slots remains limited (a “slot” being a broadcast time period for a program), even though the total number of outlets for television programming has increased over the last decade. Competition created by the emergence of new broadcasters has generally caused the market shares of the major networks to decrease. Even so, the license fees paid by the major networks remain the most lucrative. As a result, there continues to be intense competition for the time slots offered by those networks. There can be no assurance that the Company will be able to increase its penetration of the prime-time network market or obtain favourable stats, the failure to do so may have a negative impact on the Company’s business.

Limited Ability to Exploit Filmed and Television Content Library

The Company depends on a limited number of titles for the majority of the revenues generated by its film and television content library. In addition, many of the titles in its library are not presently distributed and generate substantially no revenue. If the Company cannot acquire new products and rights to popular titles through production, distribution agreements, acquisitions, mergers, joint ventures, or other strategic alliances, it could have a material adverse effect on its business, results of operations or financial condition.

Protecting and Defending Against Intellectual Property Claims

The Company’s ability to compete depends, in part, upon successful protection of its intellectual property. Furthermore, the Company’s revenues are dependent on the unrestricted ownership of its rights to television and film productions. Any successful claims to the ownership of these intangible assets could hinder the Company’s ability to exploit these rights. The Company does not have the financial resources to protect its rights to the same extent as its competitors. The Company attempts to protect proprietary and intellectual property rights to its productions through available copyright and trademark laws in a number of jurisdictions and licensing and distribution arrangements with reputable international companies in specific territories and media for limited durations. Despite these precautions, existing copyright and trademark laws afford only limited practical protection in certain countries in which the Company may distribute its products and in other jurisdictions no assurance can be given that challenges will not be made to the Company’s copyright and trade-marks. In addition, technological advances and conversion of motion pictures into digital format have made it easier to create, transmit, and share unauthorized copies of motion pictures, DVDs, and television shows. Users may be able to download and distribute unauthorized or “pirated” copies of copyrighted material over the Internet. As long as pirated content is available to download digitally, some consumers may choose to digitally download material illegally. As a result, it may be possible for unauthorized third parties to copy and distribute the Company’s productions or certain portions or applications of its intended productions, which could have a material adverse effect on its business, results of operations, or financial condition.

Litigation may also be necessary in the future to enforce the Company’s intellectual property rights, to protect its trade secrets, or to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and the diversion of resources and could have a material adverse effect on the Company’s business, results of operations, or

financial condition. The Company cannot provide assurances that infringement or invalidity claims will not materially adversely affect its business, results of operations, or financial condition. Regardless of the validity or the success of the assertion of these claims, the Company could incur significant costs and diversion of resources in enforcing its intellectual property rights or in defending against such claims, which could have a material adverse effect on the Company’s business, results of operations, or financial condition.

Fluctuating Results of Operations

Results of operations for any period are significantly dependent on the number and timing of television programs and films delivered or made available to various media. Consequently, the Company’s results of operations may fluctuate materially from period-to-period and the results of any one period are not necessarily indicative of results for future periods. Cash flows may also fluctuate and are not necessarily closely correlated with revenue recognition. Although traditions are changing, due in part to increased competition from new channels, industry practice is that broadcasters make most of their annual programming commitments between February and June in order that new programs can be ready for telecast at the start of the broadcast season in September, or as midseason replacements in January. Because of this annual production cycle, the Company’s revenues are not earned on an even basis throughout the year. Results from operations fluctuate materially from quarter to quarter and the results for any one quarter are not necessarily indicative of results for future quarters.

Raising Additional Capital – Going Concern Risk

The Company is likely to require capital in the future, to meet additional working capital requirements or capital expenditures or to take advantage of investment or acquisition opportunities. Accordingly, it may need to raise additional capital in the future. The Company’s ability to obtain additional financing will be subject to a number of factors including market conditions and its operating performance. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable for the Company. If the Company raises additional funds by issuing equity securities, the relative equity ownership of its existing investors could be diluted or new investors could obtain terms more favourable than previous investors. If the Company raises additional funds through debt financing it could incur significant borrowing costs. If the Company is unable to raise additional funds when needed, or on terms acceptable to the Company, its ability to operate as a going concern and grow its business could be impeded.

Concentration Risk

Revenue may originate from disproportionately few productions and broadcasters. The value of the Common Shares may be substantially adversely affected should the Company lose the revenue generated by any such production or broadcaster.

Reliance on Key Personnel

The Company is substantially dependent upon the services of certain key personnel, particularly Derik Murray the CEO and an Executive Producer. The loss of the services of any one or more of such individuals could have a material adverse effect on the business, results of operations or financial condition of the Company.

Market Share Price Fluctuation

The market price of the Company’s Common Shares may be subject to significant fluctuation in response to numerous factors, including variations in its annual or quarterly financial results or those of its competitors, changes by financial research analysts in their recommendations or estimates of the Company’s earnings, conditions in the economy in general or in the broadcasting, film or television sectors in particular, unfavourable publicity or changes in applicable laws and regulations, exercise of the Company’s outstanding options and/or warrants, or other factors. Moreover, from time to time, the stock markets on which the Company’s Common Shares will be listed may experience significant price and volume volatility that may affect the market

price of the Company’s Common Shares for reasons unrelated to its economic performance. No prediction can be made as to the effect, if any, that future sales of Common Shares or the availability of Common Shares for future sale (including Common Shares issuable upon the exercise of stock options) will have on the market price of the Common Shares prevailing from time to time. Sales of substantial numbers of Common Shares, or the perception that such sales could occur, could adversely affect the prevailing price of the Company’s Common Shares.

Risks Associated with Acquisitions and Joint Ventures

The Company has made or entered into, and will continue to pursue, various acquisitions, business combinations, and joint ventures intended to complement or expand its business. Any indebtedness incurred or assumed in any such transaction may or may not increase the Company’s leverage relative to its earnings before interest, provisions for income taxes, amortization, non-controlling interests, gain on dilution of investment in subsidiary and discounted operation, or EBITDA, or relative to its equity capitalization, and any equity issued may or may not be at prices dilutive to its then existing shareholders. The Company may encounter difficulties in integrating acquired assets with its operations. Furthermore, the Company may not realize the benefits it anticipated when it entered into these transactions. In addition, the negotiation of potential acquisitions, business combinations or joint ventures as well as the integration of an acquired business could require the Company to incur significant costs and cause diversion of Management’s time and resources. Future acquisitions could also result in impairment of goodwill and other intangibles, development write-offs and other acquisition-related expenses.

The Company continues to pursue opportunities to expand its distribution capacity, production capacity, and product libraries. There can be no assurance that appropriate acquisitions or expansion opportunities will be identified or available; that the Company will have or be able to obtain sufficient financing or acceptable terms to fund any such acquisition or expansion; that any such acquisition or expansion will be consummated, or, if consummated, the timing thereof; or that any such acquisition or expansion can be successfully integrated into or with the Company’s existing operations and business strategy and ultimately prove beneficial to the Company.

Potential for Budget Overruns and Other Production Risks

A production’s costs may exceed its budget. Unforeseen events such as labour disputes, death or disability of a star performer, changes related to technology, special effects or other aspects of production, shortage of necessary equipment, damage to film negatives, master tapes and recordings, or adverse weather conditions, or other unforeseen events may cause cost overruns and delay or frustrate completion of a production. Although the Company has historically completed its productions within budget, there can be no assurance that it will continue to do so. The Company currently maintains insurance policies and when necessary, completion bonds, covering certain of these risks. There can be no assurance that any overrun resulting from any occurrence will be adequately covered or that such insurance and completion bonds will continue to be available or, if available, on terms acceptable to the Company. The Company has never made a material claim on its insurance or called on a completion bond. In the event of budget overruns, the Company may have to seek additional financing from outside sources in order to complete production of a television program. No assurance can be given as to the availability of such financing or, if available, on terms acceptable to the Company. In addition, in the event of substantial budget overruns, there can be no assurance that such costs will be recouped, which could have a significant impact on the Company’s results of operations or financial condition.

Management Estimates in Revenues and Earnings

The Company makes numerous estimates as to its revenues and matching production and direct distribution expenses on a property–by-property basis. As a result of this accounting policy, earnings can widely fluctuate if Management has not accurately forecast the revenue potential of a production.

Financial Risks Resulting from the Company’s Capital Requirements

The production, acquisition and distribution of films and television programs requires a significant amount of capital. The Company cannot provide assurance that it will be able to continue to successfully implement financing arrangements or that it will not be subject to substantial financial risks relating to the production, acquisition, completion, and release of future films and television programs. If the Company increases (through internal growth or acquisition) its production slate or its production budgets, it may be required to increase overhead, make larger up-front payments to talent, and consequently bear greater financial risks. The occurrence of any of the foregoing could have a material adverse effect on the Company’s business, results of operations, or financial condition.

Government Incentive Programs

In addition to license fees from domestic and foreign broadcasters and financial contributions from co-producers, the Company finances a significant portion of its production budgets from federal and provincial governmental agencies and incentive programs, including the Canadian Television and Cable Production Fund, the provincial film equity investment programs, federal tax credits, and provincial tax credits. The tax credits are considered part of the Company’s equity in any production for which they are used as financing. There can be no assurance that individual incentive programs available to the Company will not be reduced, amended, or eliminated or that the Company or any production will qualify for them, any of which may have an adverse effect on the Company’s business, results of operations, or financial condition.

Changes in Regulatory Environment

At the present time, the film industry is subject to a regulatory environment. The Company’s operations may be affected in varying degrees by future changes in the regulatory environment. Any change in the regulatory environment could have a material adverse effect on the Company’s revenues and earnings.

Litigation

Governmental, legal, or arbitration proceedings may be brought or threatened against the Company in the future. Regardless of their merit, any such claims could be time consuming and expensive to evaluate and defend, divert Management’s attention and focus away from the business, and subject the Company to potentially significant liabilities.

Exchange Rates

The returns to the Company from foreign exploitations of its properties are customarily paid in USD, and, as such, may be affected by fluctuations in the exchange rate of the USD. Currency exchange rates are determined by market factors beyond the control of the Company and may vary substantially during the course of a production period. In addition, the ability of the Company to repatriate to Canadian funds arising in connection with foreign exploitation of its properties may also be adversely affected by currency and exchange control regulations imposed by the country in which the production is exploited. At present, the Company is not aware of any existing currency or exchange control regulations in any country in which the Company currently contemplates exploiting its properties which would have an adverse effect on the Company’s ability to repatriate such funds. Where appropriate, the Company will hedge its foreign exchange risk through the use of derivatives.

Any of these factors could have a material adverse effect on the Company’s business, results of operations or financial condition.

Outstanding Shares

As at March 29, 2021, the Company had 74,466,871 common shares issued and outstanding, and has 11,007,920 stock options outstanding.

Other

Additional information and other publicly filed documents relating to Network are available through the internet on the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (“SEDAR”), which can be accessed at www.sedar.com.

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Network Media Group Inc — Management Reports 2021

46673_rns_2021-03-30_5710e8bd-f3ac-422f-b044-c16217b3a514.pdf

Management’s Discussion and Analysis of