Thunderbird Entertainment Group — Interim / Quarterly Report 2020

Feb 29, 2020

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Unaudited Interim Condensed Consolidated Financial Statements of

Thunderbird Entertainment Group Inc.

For the Three and Six Months Ended December 31, 2019 and 2018

Notice of No Auditor Review of Interim Financial Statements

In accordance with National Instrument 51–102, Continuous Disclosure Obligations , Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of these interim financial statements, they must be accompanied by a notice indicating that the interim financial statements have not been reviewed by an auditor.

The Company’s external auditors, PricewaterhouseCoopers LLP, have not performed a review of these interim financial statements.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Consolidated Statements of Financial Position

		At December 31,		At June 30,
(in thousands of Canadian dollars)	Notes	2019		2019
ASSETS
Current
Cash and cash equivalents	$	9,451	$	13,430
Trade receivables and other	5	68,101		63,261
Income taxes recoverable		281		141
Other current assets		19		55
		77,852		76,887
Long-term trade receivables and other	5	882		1,259
Investment in content	6	27,286		25,136
Deferred tax assets		8,038		6,444
Property and equipment	3(a)	29,884		7,211
Goodwill and intangible assets	7	13,753		13,888
Total Assets	$	157,695	$	130,825
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities	$	6,411	$	7,519
Income taxes payable		628		1,085
Interim production financing	8	50,993		48,371
Deferred revenue	13	19,691		15,389
Current portion of long-term debt	9	-		1,433
Current portion of lease obligations	3(a)	6,045		2,496
Redeemable preferred shares	10	926		926
		84,694		77,219
Long-term debt	9	250		504
Long-term lease obligations	3(a)	20,677		1,540
Deferred tax liabilities		4,485		3,919
Total Liabilities		110,106		83,182
Shareholders' Equity
Common shares	11	62,634		62,517
Preferred shares	10	132		132
Accumulated other comprehensive income		270		264
Warrants reserve	11	168		168
Contributed surplus	11	4,207		3,900
Deficit		(19,822)		(19,338)
Equity attributable to owners of the Company		47,589		47,643
Non-controlling interest		-		-
Total Shareholders' Equity		47,589		47,643
Total Liabilities and Shareholders' Equity	$	157,695	$	130,825

Commitments and Contingencies - Note 17

Approved on behalf of the Board:

“Jennifer Twiner McCarron”

Jennifer Twiner McCarron, Director

“Mark Miller”

Mark Miller, Director

See accompanying notes to the consolidated financial statements.

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THUNDERBIRD ENTERTAINMENT GROUP INC.

Consolidated Statements of Operations and Comprehensive Loss

				Three	months			Six	months
				ended December		31,		ended December		31,
(in thousands of Canadian dollars except for share data)	Notes			2019		2018		2019		2018
Revenue	13	$		14,270	$	11,589	$	31,321	$	25,950
Expenses	20
Direct operating				7,173		5,479		15,486		10,631
Distribution and marketing				609		818		1,298		1,620
General and administrative				5,978		5,254		11,155		9,729
Share-based compensation	11			166		618		404		932
Amortization of property and equipment and intangible assets				1,795		783		2,975		1,539
Finance costs, net	19			312		(72)		459		167
Chargerelated to public companylisting	4			-		5,316		-		5,316
				16,033		18,196		31,777		29,934
Loss before income taxes				(1,763)		(6,607)		(456)		(3,984)
Income tax (recovery) expense				(401)		(502)		58		668
Net loss from continuing operations				(1,362)		(6,105)		(514)		(4,652)
Income from discontinued operations				-		-		30		-
Income from discontinued operations				-		-		30		-
Net loss for the period				(1,362)		(6,105)		(484)		(4,652)
Net loss attributable to
Owners of the parent				(1,362)		(6,113)		(484)		(4,660)
Non-controllinginterest				-		8		-		8
				(1,362)		(6,105)		(484)		(4,652)
Other comprehensive (loss) income
Items that may be subsequently reclassified to net (loss) income
Foreigncurrency translationadjustment				10		24		6		15
Comprehensive loss for the period				(1,352)		(6,081)		(478)		(4,637)
Total comprehensive loss attributable to
Owners of the parent				(1,352)		(6,089)		(478)		(4,645)
Non-controllinginterest				-		8		-		8
		$		(1,352)	$	(6,081)	$	(478)	$	(4,637)
Basic lossper share - continuing operations	11		$	(0.029)	$	(0.194)	$	(0.011)	$	(0.160)
Diluted loss per share -continuing operations	11		$	(0.029)	$	(0.194)	$	(0.011)	$	(0.160)
Basic earnings per share - discontinued operations	11		$	-	$	-	$	0.001	$	-
Diluted earnings per share -discontinued operations	11		$	-	$	-	$	0.001	$	-

See accompanying notes to the consolidated financial statements.

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THUNDERBIRD ENTERTAINMENT GROUP INC.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders' Equity

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Accumulated
Non- other
Common Preferred controlling comprehensive Warrants Contributed
(in thousands of Canadian dollars) Notes shares shares interest income reserve surplus Deficit Total
Balance at June 30, 2018 $ 29,799 $ 19,526 $ (8) $ 269 $ - $ 1,777 $ (13,214) $ 38,149
Adoption of IFRS 15 - - - - - - (1,861) (1,861)
Balance at July 1, 2018 29,799 19,526 (8) 269 - 1,777 (15,075) 36,288
Comprehensive income (loss) - - 8 15 - - (4,660) (4,637)
Dividends - - - - - - (386) (386)
Repurchase of common shares 11 (6,000) - - - - - - (6,000)
Conversion of subscription receipts 11 10,250 - - - - - - 10,250
Share issue costs - cash 11 (737) - - - - - - (737)
Share issue costs - non-cash 11 (549) - - - 171 - - (378)
Conversion of convertible debentures 11 2,250 - - - - - - 2,250
Conversion of redeemable preferred shares 11 1,076 (607) - - - - - 469
Conversion of preferred shares 11 18,787 (18,787) - - - - - -
Shares of Golden Secret upon RTO 11 6,660 - - - - - - 6,660
Revaluation of Golden Secret options and warrants 11 - - - - 201 694 - 895
Shares issued as transaction fee on completion of RTO 4 378 - - - - - - 378
Share based compensation 11 - - - - - 932 - 932
Exercise of options 11 196 - - - - (92) - 104
Exercise of warrants 11 14 - - - (3) - - 11
Balance at December 31, 2018 $ 62,124 $ 132 $ - $ 284 $ 369 $ 3,311 $ (20,121) $ 46,099
Balance at June 30, 2019 $ 62,517 $ 132 $ - $ 264 $ 168 $ 3,900 $ (19,338) $ 47,643
Comprehensive income (loss) - - - 6 - - (484) (478)
Share-based compensation 11 - - - - - 404 - 404
Exercise of options 11 117 - - - - (97) - 20
Balance at December 31, 2019 $ 62,634 $ 132 $ - $ 270 $ 168 $ 4,207 $ (19,822) $ 47,589
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See accompanying notes to the consolidated financial statements.

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THUNDERBIRD ENTERTAINMENT GROUP INC.

Consolidated Statements of Cash Flows

		Six months ended	Six months ended	December 31,
(inthousands of Canadian dollars)	Notes	2019		2018
OPERATING ACTIVITIES
Net loss from operations	$	(484)	$	(4,652)
Net incomefromdiscontinued operations		(30)		-
Net loss from continuing operations		(514)		(4,652)
Items not involving cash:
Amortization of investment in content	6	2,297		1,891
Amortization of property and equipment		411		1,220
Amortization of right-of-use assets	3(a)	2,428		-
Amortization of intangible assets	7	135		319
Share-based compensation	11	404		932
Deferred income taxes recovery		(1,029)		(72)
Unrealized foreign exchange gain		(32)		(136)
Charge related to public company listing	4	-		5,316
Loss on disposal of equipment		11		-
Changes in non-cash working capital	18	(2,504)		2,587
Investment in content		(3,780)		(8,532)
Cash flows from continuing operations		(2,173)		(1,127)
Cash flows from discontinued operations		30		-
		(2,143)		(1,127)
FINANCING ACTIVITIES
Repayment of interim production financing	18	(20,287)		(24,029)
Proceeds from interim production financing	18	22,909		26,795
Repayment of obligations under leases	18	(2,596)		(874)
Proceeds from obligations under leases	18	322		27
Repayment of long-term debt	18	(1,699)		(4,269)
Proceeds from long-term debt	18	12		6,244
Repurchase of preferred shares	11	-		(1,110)
Repurchase of common shares	11	-		(6,000)
Proceeds from issuance of shares in private placement	11	-		10,250
Proceeds from issuance of convertible debentures	11	-		2,250
Share issue costs	11	-		(1,009)
Proceeds from exercise of warrants and share options	11	20		115
Dividends		-		(386)
		(1,319)		8,004
INVESTING ACTIVITIES
Cash acquired in reverse takeover, net of transaction costs	4	-		2,378
Purchase ofpropertyand equipment		(562)		(1,737)
		(562)		641
Effect of exchange rate changes on cash and cash equivalents		45		201
Net increase in cash and cash equivalents during the period		(3,979)		7,719
Cash and cash equivalents, beginning of period		13,430		12,886
Cash and cash equivalents, end of period	$	9,451	$	20,605

See accompanying notes to the consolidated financial statements.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

1. NATURE OF BUSINESS

Thunderbird Entertainment Group Inc. (formerly Golden Secret Ventures Ltd.) (the “Company”), the ultimate parent, and its primary wholly owned subsidiaries: Thunderbird Entertainment Inc., Great Pacific Media Inc., Atomic Cartoons Inc., Thunderbird Releasing Ltd., and Thunderbird International Limited, are an integrated group of companies that develop, produce and distribute film and television programming for the domestic and international markets. As an independent distribution company, the Company also acquires, licenses and merchandises distribution rights. Thunderbird Entertainment Group Inc. is incorporated under the laws of British Columbia, Canada. The Company’s head office is located at 400 – 2233 Columbia Street, Vancouver, BC, V5Y 0M6.

On October 30, 2018, the Company completed the acquisition of the issued and outstanding shares of a private company, Thunderbird Entertainment Inc. (“TEI”), through a reverse takeover transaction (the “RTO Transaction”). The Company is considered to be a continuation of TEI with the net assets of the Company at the date of the RTO Transaction deemed to have been acquired by TEI (note 4). The Company has changed its year end to June 30 to align to TEI’s.

Thunderbird Entertainment Group Inc. is a public company which is listed on the TSX Venture Exchange (“TSX-V”) and commenced trading under the symbol “TBRD” on November 2, 2018.

The interim condensed consolidated financial statements were approved and authorized for issuance by the Board of Directors on February 27, 2020.

2. BASIS OF PRESENTATION

Statement of compliance

These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting , using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). Certain disclosures required by IFRS have been condensed or omitted in the following note disclosures as they are disclosed or have been disclosed on an annual basis only. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the years ended June 30, 2019 and 2018, which have been prepared in accordance with IFRS and can be found on www.sedar.com.

Basis of measurement

These interim condensed consolidated financial statements have been prepared under the historical cost convention.

Functional and presentation currency

The interim condensed consolidated financial statements are presented in Canadian dollars (“CA$”) which is also the Company’s functional currency.

Reclassification of comparatives

Certain prior period amounts in the unaudited interim condensed consolidated statement of operations have been reclassified to conform with the current period presentation. Amortization of property and equipment and intangibles have been aggregated to provide more useful information. This reclassification had no effect on the reported results of operations.

3. SIGNIFICANT ACCOUNTING POLICIES

These interim condensed consolidated financial statements have been prepared using the same accounting policies and methods as the Company’s consolidated financial statements for the year ended June 30, 2019, except for the new and amended accounting standards adopted and described below.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

New and amended standards adopted

(a) IFRS 16, Leases

IFRS 16, Leases (“IFRS 16”) was issued by the IASB in January 2016 and supersedes IAS 17, Leases (“IAS 17”); IFRIC 4, Determining whether an Arrangement contains a Lease ; SIC-15, Operating Leases – Incentives ; and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease . The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for leases, with limited exemptions for leases that are 12 months or less in duration or for leases of low-value assets. A lessee is required to recognize a right-of-use asset (“ROU asset”) representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of the expenses related to these leases will change as IFRS 16 replaces the straightline operating lease expense with depreciation expense on the ROU asset and a finance charge on the lease obligation. The standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors.

Initial adoption of IFRS 16

Under IAS 17 the Company’s operating leases consisted of property leases for office space, studio space and storage; computer and office equipment leases; and vehicles leases. Property lease terms range from short-term periods of less than one year to nine and half years with certain leases containing renewal options. Computer and office equipment leases have terms ranging from short-term periods of less than one year to three years. Vehicle leases have terms of ranging from approximately two to four years. Finance leases consist of computer equipment and data network infrastructure equipment with terms ranging from short-term periods of less than one year to three years.

Prior to the adoption of IFRS 16, contracts identified as operating leases under IAS 17 were recognized as expenses in general and administration expense in the consolidated statement of operations and comprehensive income (loss) or capitalized to investment in content in the consolidated statement of financial position and subsequently amortized over a period of time.

Under IFRS 16 entities are required to assess contracts to determine if the contract is or contains a lease based on the definition of a lease under IFRS 16: a contract is or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. In addition, the standard requires a lessee to separate lease components and non-lease components of a contract and allocate the consideration in the contract to each lease and non-lease component based on their relative stand-alone prices. However, the standard allows entities to elect to apply the practical expedient whereby it is not required to separate a lease component from any associated non-lease components and can instead elect to treat these as a single lease component. The Company has elected to apply this practical expedient to all of its leases.

The Company has adopted the new standard for the fiscal year beginning July 1, 2019, using the modified retrospective transition approach, which does not require restatement of comparative periods. In addition, as the Company has elected to initially measure the ROU asset at the amount equal to the lease liability on July 1, 2019, plus any prepaid lease payments, the adjustment to retained earnings is nil.

The Company has elected to apply the following options and practical expedients on the date of initial adoption:

• to grandfather the assessment of which contracts are leases and to apply the new standard to those contracts identified as leases under IAS 17 and IFRIC 4;

• for leases previously classified as finance leases, the Company will recognize a ROU asset and lease liability measured initially at the previous carrying amount of the finance lease under IAS 17;

• the ROU asset will be based on the lease liability, plus any prepaid lease payments excluding any initial direct costs incurred;

• apply the short-term lease exemption to leases for which the lease term ends within 12 months of the date of initial adoption on a lease by lease basis;

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

• apply the low-value exemption to leases for which the underlying asset’s value is $6,500 or less;

• rely on previous assessments of whether leases are onerous; and

• use hindsight in determining the lease term if the contract contains options to extend or terminate the lease.

• The following table summarizes the impact on the consolidated statement of financial position as at June 30, 2019, resulting from the adoption of IFRS 16 on July 1, 2019.

				IFRS 16
		June 30, 2019		adoption		July 1, 2019
Trade receivables and other	$	63,261	$	(51)	$	63,210
Property and equipment1		7,211		18,149		25,360
Current obligations under finance leases		2,496		(2,496)		-
Current obligations under leases		-		3,823		3,823
Long-term obligations under finance leases		1,540		(1,540)		-
Long-term obligations under leases		-		18,307		18,307

1ROU assets are included in property and equipment.

The following table reconciles the Company’s operating lease commitments as at June 30, 2019, to the lease obligations recognized on the initial application of IFRS 16 as at July 1, 2019.

Commitments note at June 30, 2019	$	18,937
Add:
Adjustments due to elected lease renewal options		10,537
Finance lease liabilities previously recorded under IAS 17		4,036
Less:
Effect of discounting at the Company’s incremental borrowing rate		(7,041)
Variable lease payments		(3,872)
Short-term leases		(457)
Low-value leases		(10)
Lease liabilities arising from the initial adoption of IFRS 16 as at July 1, 2019	$	22,130

At the date of initial adoption, the Company discounted the remaining lease payments using the Company’s following incremental borrowing rates (“IBR”) as of July 1, 2019: premises leases – 3.88% to 5.71%; equipment leases – 4.04% to 4.34%; and vehicle leases – 2.20% to 2.30%.

Accounting policies under IFRS 16

Right-of-use assets

At the lease commencement date, the Company recognizes a ROU asset at an amount equal to the lease liability and adjusted to include any prepaid lease payments, less any lease incentives, plus initial direct costs incurred, and any costs of dismantling and restoring an asset to a specific condition. The ROU assets are amortized on a straight-line basis over a period which is the earlier of the end of the asset’s estimated useful life or the end of the lease term. Amortization of ROU assets are included in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss) and ROU assets are presented as a part of property and equipment in the consolidated statement of financial position.

Under IFRS 16, ROU assets are tested for impairment in accordance with IAS 36, Impairment of Assets , which replaces the previous requirement to recognize a provision for onerous lease contracts under IAS 37, Provisions, Contingent Liabilities and Contingent Assets .

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

Lease obligations

The lease obligation is initially measured as the present value of the future payments discounted using the rate implicit in the lease. However, if that rate is not readily determinable, the entity’s IBR is to be used. An entity’s IBR is the rate the Company would have to pay for similar assets at similar locations over a similar term. Subsequent to initial measurement, lease obligations are amortized in a similar manner to finance leases under IAS 17. Interest charges are reported as part of finance costs in the consolidated statement of operations and comprehensive income (loss) and lease obligations are reported as a separate line item in the consolidated statement of financial position.

Lease modifications

A lease modification, depending upon the nature of the modification, will be accounted for as a separate lease or as a remeasurement of the lease liability with a corresponding adjustment to the ROU asset or as a gain or loss if the carrying amount of the ROU asset has been reduced to zero.

Significant judgments in determining the lease term of contracts with renewal options

The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. In its determination as to whether the Company is reasonably certain to exercise a renewal option, it considers all facts and circumstances that create an economic incentive for it to exercise the option. After the commencement date the Company reassesses the lease term for whether a significant event or change in circumstances affects its ability to exercise the option or not has occurred.

ROU assets and lease obligations as at and for the six months ended December 31, 2019.

ROU assets		Premises		Equipment		Vehicles		Total
Lease liability on initial adoption of IFRS 16	$	17,717	$	318	$	63	$	18,098
Prepaid lease payments		51		-		-		51
Property and equipment – reclass existing
assets under finance leases		-		3,729		-		3,729
Balance July 1, 2019		17,768		4,047		63		21,878
Additions		2,439		4,788		-		7,227
Lease incentives		(360)		-		-		(360)
Amortization		(858)		(1,611)		(10)		(2,479)
Balance December 31, 2019	$	18,989	$	7,224	$	53	$	26,266

In the six months ended December 31, 2019, $51 of amortization was capitalized to production costs.

Lease obligations		Premises		Equipment		Vehicles		Total
Lease liabilityon initial adoption of IFRS 16	$	17,714	$	4,353	$	63	$	22,130
Balance July 1, 2019		17,714		4,353		63		22,130
Additions		2,403		4,785		-		7,188
Amortization		(677)		(1,909)		(10)		(2,596)
Balance December 31, 2019	$	19,440	$	7,229	$	53	$	26,722

On the date of initial adoption, the Company applied the practical expedient to designate leases with terms of less than 12 months as short-term. As a result, for the six months ended December 31, 2019, under the short-term exemption, $608 was expensed to rent, equipment rentals and office expenses and under the low-value exemption, $6 was expensed to office expense.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

The following table presents a reconciliation of the Company’s undiscounted cash flows at December 31, 2019 and June 30, 2019, to their present value for the Company’s lease obligations.

	December	31, 2019		June 30, 2019
Within one year	$	5,912	$	2,614
Between one and five years		14,082		1,573
Beyond fiveyears		13,972		-
Total undiscounted lease obligations		33,966		4,187
Less future interest charges		(7,244)		(151)
Total discounted lease obligations		26,722		4,036
Less currentportion of lease obligations	$	(6,045)	$	(2,496)
Non-currentportion of lease obligations	$	20,677	$	1,540

(b) IFRIC 23, Uncertainty over Income Tax Treatments

On July 1, 2019, the Company adopted IFRIC 23 which was issued by the IASB in June 2017. The interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments under IAS 12, Income Taxes . There was no impact on the Company upon adoption of this standard.

4. REVERSE TAKEOVER TRANSACTION

On July 27, 2018, Golden Secret Ventures Ltd. (“Golden Secret”) signed a letter of intent with TEI, pursuant to which Golden Secret would acquire 100% of the common shares of TEI via a reverse take-over (the “RTO Transaction”). On October 30, 2018, the RTO Transaction was completed, and Golden Secret changed its name to Thunderbird Entertainment Group Inc. The excess of the fair value of consideration over the net assets acquired resulted in a charge related to public company listing of $5,316. Included in the net assets acquired was cash of $2,378. The Company issued 188,777 common shares as a transaction fee with a deemed value of $378.

5. TRADE RECEIVABLES AND OTHER

		December 31,		June 30,
Current		2019		2019
Trade receivables, net	$	6,874	$	5,781
Deposits and prepaids		2,459		2,415
Contract acquisition costs		139		138
Federal andprovincial film tax credits		58,629		54,927
	$	68,101	$	63,261

		December 31,		June 30,
Non-current		2019		2019
Trade receivables, net	$	349	$	735
Deposits and prepaids		394		386
Contract acquisition costs		139		138
	$	882	$	1,259

Federal and provincial film tax credits receivable from government agencies are subject to audit by the applicable government agency. Management believes that the net amounts recorded are fully collectible. The Company adjusts amounts receivable from government agencies quarterly and annually for any known differences arising from internal or external audit of these balances.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

The aging of current trade receivables is as follows:

		December 31,		June 30,
		2019		2019
Less than 60 days	$	6,621	$	5,718
Over 61 days		253		63
	$	6,874	$	5,781

6. INVESTMENT IN CONTENT

Investment in content represents the unamortized costs of film and television projects in development, content in production, released content and acquired content.

The components are as follows:

		Development		Content in		Released		Acquired
		costs		production		content		content		Total
Cost
At June 30, 2018	$	912	$	4,608	$	109,790	$	9,237	$	124,547
Additions1		482		14,953		-		1,641		17,076
Disposals		(315)		-		-		-		(315)
Transferred		-		(8,298)		8,298		-		-
At June 30, 2019		1,079		11,263		118,088		10,878		141,308
Additions1		173		4,045		-		229		4,447
Transferred		-		(854)		854		-		-
At December 31, 2019	$	1,252	$	14,454	$	118,942	$	11,107	$	145,755
Amortization
At June 30, 2018	$	-	$	-	$	99,660	$	6,922	$	106,582
Additions		-		-		7,915		1,675		9,590
At June 30, 2019		-		-		107,575		8,597		116,172
Additions		-		-		1,612		685		2,297
At December 31, 2019	$	-	$	-	$	109,187	$	9,282	$	118,469
Net book value
June 30, 2019	$	1,079	$	11,263	$	10,513	$	2,281	$	25,136
December 31, 2019	$	1,252	$	14,454	$	9,755	$	1,825	$	27,286

1Net of government assistance (note 12) and third-party participation.

Interest charges capitalized to the cost of film production for the six months ended December 31, 2019, amounted to $561 (June 30, 2019 - $1,081).

For the six months ended December 31, 2019, the Company recorded amortization of investment in content of $250 (December 31, 2018 - $24) as a result of a change in the estimated useful life of certain released content for which the Company has no reasonable expectation of recovery through future exploitation.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

7. GOODWILL AND INTANGIBLE ASSETS

The continuity of goodwill and intangible assets is as follows:

				Distribution		Customer
		Goodwill		libraries	**relationships **			Total
Cost
At December 31, 2019, June 30, 2019
and 2018	$	12,402	$	2,700	$	1,470	$	16,572
Amortization
At June 30, 2018		-		944		1,103		2,047
Charge for theperiod		-		270		367		637
At June 30, 2019		-		1,214		1,470		2,684
Charge for theperiod		-		135		-		135
At December 31, 2019	$	-	$	1,349	$	1,470	$	2,819
Net book value
June 30, 2019	$	12,402	$	1,486	$	-	$	13,888
December 31, 2019	$	12,402	$	1,351	$	-	$	13,753

Amortization of intangible assets is included in direct operating expenses.

8. INTERIM PRODUCTION FINANCING

Interim production credit facilities represent individual loans for the production of television programs that the Company produces.

December 31, 2019 June 30, 2019 Interim production credit facilities with various institutions, bearing interest at bank’s prime rate plus 0.50% to 1.25% (June 30, 2019 - 0.50% to 1.25%). Secured by assignment and direction of trade receivables and tax credits of approximately $42,659 at December 31, 2019 (June 30, 2019 - $41,409). The Company also enters into General Security Agreements. All facilities are repayable on demand. $ 44,858 $ 41,724 Revolving term loan with Royal Bank of Canada (“RBC”), bearing interest at bank’s prime plus 1.25% (June 30, 2019 – 0.75% to 1.25%). Maximum funds available of $5.0 million and secured by a general security agreement. Repayable on the earlier of 15 days after the closing of the applicable single purpose production company (“SPPC”) production facility or 180 days after the first draw has been made. 445 925 Non-interest bearing production loans with various service clients, secured by Canadian tax credits and repayable upon receipt of Canadian tax credits. 5,690 5,722 $ 50,993 $ 48,371

At December 31, 2019, included in interim production credit facilities are loans repayable in US$ in the amount of US$8,271 (CA$10,742) (June 30, 2019 - US$4,029 (CA$5,273)).

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

9. LONG-TERM DEBT

As at December 31, 2019, the Company has $250 (GBP£145) (June 30, 2019 – $504 (GBP£303)) outstanding of a GBP£2,000 non-revolving credit line classified as long-term as it has no fixed schedule of repayment and a maturity date of March 31, 2021 and $nil (June 30, 2019 – $1,433) outstanding of a CA$2,640 non-revolving term loan classified as current portion of long-term debt.

The maximum funds available under the above credit facilities consist of the following:

	December 31,	December 31,		June 30,
		2019		2019
Non-revolving credit line bearing interest at a margin of 3.00% plus the
applicable LIBOR (December 31, 2019 – 3.76% to 3.94% (June 30, 2019 - 3.80%
to 3.96%)). Secured byassignment and direction of trade receivables.	£	2,000	£	2,000
Non-revolving term loan with RBC bearing interest at prime plus 0.50%
(December 31,2019 - 4.45%(June 30,2019 – 4.20% to 4.45%))1	$	2,640	$	2,640

1 Under the terms of this loan, payment will include all excess tax credits remaining once RBC has been fully repaid for each SPPC which has obtained interim financing of the tax credits from RBC due within 15 days of the receipt of the tax credit. The original maximum funds available under this credit facility was $6,000. In August 2018, the Company drew down the full amount to repurchase common shares (see note 11). In January 2019 the loan limit was decreased to $2,640 due to the principal repayments made in the prior months. The credit facility is secured by a general security agreement.

As at December 31, 2019, the Company also has the following credit facilities with RBC which have not been drawn on:

• A five-year $10,000 non-revolving term loan at an interest rate of prime plus 0.50%. Under the terms of the loan, an annual cash flow sweep of 5% of the Company’s EBITDA will be due within 120 days of the fiscal yearend of the Company and will be applied to repayment of the loan.

• A $1,500 non-revolving reducing lease facility. This facility may be used to finance equipment purchases and leasehold improvements

Under the terms of the RBC credit facilities disclosed above, the Company is required to meet certain covenants. As at December 31, 2019, the Company was in compliance with all of the covenants.

10. REDEEMABLE PREFERRED SHARES

Issued and outstanding:

_Issued and outstanding: _
			Amount
	Number of		Liability		Equity
	shares		component		component
Class A (formerly Class B Series 2)
Balance June 30,2019 and 2018	1,054,000	$	926	$	132
Balance December 31, 2019	1,054,000	$	926	$	132

Prior to the RTO Transaction (note 4), the Company had the following preferred shares: Class A Series 2 – 244,444 and Class B Series 1 – 1,378,750. In October 2018, 166,666 Class A Series 2 and 943,076 Class B Series 1 preferred shares were redeemed at the option of the shareholder at a value of $1.00 per share. At the same time, 77,778 Class A Series 2 and 435,674 Class B Series 1 preferred shares were converted into common shares on the basis of 0.67 common share for each one preferred share.

Concurrent with the RTO Transaction described in note 4, the Class B Series 2 preferred shares were converted to Class A preferred shares of the Company. The Class A preferred shares hold the same terms as the former Class B Series 2 preferred shares.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

The Class A preferred shares were issued in fiscal 2016 under the provisions of the Small Business Venture Capital Act (British Columbia), and therefore the Company is not permitted to acquire, cancel, or redeem shares held by eligible investors for a period of five years from the date of issue. The Company has the option to retract the shares at a value of $1.00, $1.025, and $1.05 per share after the fifth, sixth and seventh anniversary dates of the share issuance, respectively. In addition, the shareholders may convert their preferred shares into common shares at a ratio of three preferred shares to one common share at any time after the fifth anniversary, or may redeem their shares at a price of $1.00, $1.025, and $1.05 per share after the fifth, sixth and seventh anniversary dates of the share issuance, respectively.

During the three and six months ended December 31, 2019, the Company paid a dividend of $0.07 per Class A preferred share which amounted to $18 and $36 respectively (three and six months ended December 31, 2018 - $0.07 per preferred share; $18 and $36 respectively).

11. SHARE CAPITAL

Authorized

Unlimited number of common shares without par value Unlimited number of preferred shares without par value

Common shares

Issued:

Number of shares1 Amount1 Balance June 30, 2018 29,753,344) $ 29,799) Repurchase of common shares (4,800,000) (6,000) Share issue costs – cash, net of tax effect - (737) Share issue costs – non-cash - (431) Conversion of Class A Series 2 redeemable preferred shares (note 10) 52,109 53) Conversion of Class B Series 1 redeemable preferred shares (note 10) 291,900 1,023) Conversion ofpreferred shares 11,363,208 18,787) Balance October 30, 2018 36,660,561 42,494) RTO Transaction (note 4) Exchanged for Thunderbird Entertainment Group Inc. shares (36,660,561) -) Issued pursuant to acquisition 36,660,561) -) Shares of Golden Secret upon RTO Transaction2 3,329,929) 6,660) Shares issued as transaction fee on completion of RTO Transaction 188,777) 378) Conversion of subscription receipts 5,125,000) 10,250) Conversion of convertible debentures 1,125,000) 2,250) Exercise of options 95,000) 196) Exercise of warrants 107,208) 289) Balance June 30, 2019 46,631,475 $ 62,517 Exercise of options 40,000) 117) Balance December 31, 2019 46,671,475 $ 62,634

1Under reverse takeover accounting, the number of shares issued and outstanding is that of Thunderbird Entertainment Group Inc. (formerly Golden Secret Ventures Ltd.). However, the share capital amount is that of its legal subsidiary Thunderbird Entertainment Inc. plus the share of capital transactions of the Company from the acquisition date of October 30, 2018 onwards. 2As at October 30, 2018, Golden Secret had 3,329,929 common shares issued and outstanding.

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THUNDERBIRD ENTERTAINMENT GROUP INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

In August 2018, the Company repurchased 4,800,000 common shares at a price of $1.25 per share.

Prior to completion of the RTO Transaction described in note 4, TEI completed a brokered private placement financing of 5,125,000 subscription receipts at a price of $2.00 per subscription receipt for aggregate gross proceeds of $10,250. On closing of the RTO Transaction, each subscription receipt was exchanged for one common share of the Company. For their services in connection with the financing, the agent received a cash commission equal to 7% of the gross proceeds raised, a corporate finance fee of $195 and 344,500 agent’s warrants entitling it to purchase that number of common shares. The cash commission and agent’s warrants were reduced to 2% each for subscribers on the President’s List.

In September 2018, the Company issued $2,250 in convertible debentures. The convertible debentures bore interest at 8% per annum payable monthly and were repayable on demand after October 31, 2018. Concurrent with the RTO Transaction as described in note 4, the convertible debentures automatically converted into 1,125,000 common shares of the Company at a price of $2.00 per share.

Earnings (loss) per share

The following table calculates basic and diluted net earnings (loss) per share:

	Three months ended Six months ended December 31, December 31, 2019 2018 2019 2018
	Net loss from continuing operations $ (1,363) $ (6,105) $ (513) $ (4,652) Non-controlling interest - (8) - (8) Preferred share dividends issued - - - (386)
	Net loss from continuing operations – attributable to the owners of the parent $ (1,363) $ (6,113) $ (513) $ (5,046) Basic weighted average number of common shares 46,660,338 31,448,281 46,638,763 31,448,281 Diluted weighted average number of common shares 50,075,730 34,269,885 50,054,105 34,269,885
	Basic lossper share – continuing operations $ (0.029) $ (0.194) $ (0.011) $ (0.160)
	Dilutedloss per share – continuing operations $ (0.029) $ (0.194) $ (0.011) $ (0.160)
	Income from discontinued operations $ - $ - $ 30 $ -
	Basic earnings per share – discontinued operations $ - $ - $ 0.001 $ -
	Diluted earnings per share – discontinued operations $ - $ - $ 0.001 $ -
	Preferred shares Issued:
	Number of shares Amount
	Balance June 30, 2018 9,658,750 $ 18,787 Conversion ofpreferred shares (9,658,750) (18,787)
	Balance June 30, 2019 and December 31, 2019 - $ -

Immediately prior to closing of the RTO Transaction described in note 4, the preferred shares automatically converted into common shares of the Company on the basis of 1.176 common share for each one preferred share.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

Warrants

The following table summarizes the share purchase warrants outstanding:

	Number of	Weighted average	Weighted average
	warrants		exercise price
Balance, June 30, 2018	-	$	-
Issued	344,550		2.00
Warrants of Golden Secret upon RTO Transaction (note 4)	100,000		0.70
Exercised	(107,208)		0.80
Balance June 30, 2019 and December 31, 2019	337,342	$	2.00

In connection with the brokered private placement, the Company issued 344,500 agent warrants to acquire 344,500 common shares. The warrants have an exercise price of $2.00 per share, a two-year term and vest immediately.

In connection with the RTO Transaction, Golden Secret’s warrants were re-valued on October 30, 2018. The fair value of the warrants was estimated using the Black-Scholes option pricing model with the following inputs: share price of $2.70, interest rate of 2.30%, expected life of 0.3 years, volatility of 75% and an exercise price of $0.70. During the six months ended December 31, 2019, no warrants were exercised. During the six months ended December 31, 2018, 5,696 agent warrants were exercised for proceeds of $11. An amount of $3 was transferred from the warrant reserve to common shares.

No warrants were issued during the six months ended December 31, 2019. For the six months ended December 31, 2018, the fair value of each warrant granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	December 31, 2019	December 31, 2018
Share price on date of grant	N/A	$2.00
Interest rate	N/A	2.28%
Expected life	N/A	2 years
Volatility	N/A	41.53%
Exerciseprice	N/A	$2.00

The following table summarizes the warrants outstanding at December 31, 2019:

			Weighted average
			remaining	Weighted average
	Number of		contractual life	exercise price
Exerciseprice	warrants	Expiry date	(years)	($ per share)
$2.00	337,342	October 30,2020	0.83	2.00
	337,342		0.83	2.00

Share-based compensation

The Company has established a Share Option Plan (the “option plan”) which provides for options to purchase common shares to be granted by the Company to directors, officers, employees and consultants of the Company. Options will generally vest over a period of 36 months. The fair value of the options issued is recognized in share-based compensation over the vesting period, with a corresponding charge to contributed surplus. The maximum number of common shares issuable under the option plan is 10% of the total number of issued and outstanding shares at the grant date of an option.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

The following table summarizes the changes in stock options outstanding

		Weighted average	Weighted average
	Number of options		exercise Price
Balance, June 30, 2018	1,570,000	$	1.44
Issued	2,801,000		2.00
Stock options of Golden Secret upon RTO transaction (note 4)	310,000		1.85
Exercised	(95,000)		1.09
Forfeited	(30,000)		2.00
Balance June 30, 2019	4,556,000		1.82
Issued	250,000		1.32
Exercised	(40,000)		0.50
Forfeited	(90,000)		2.00
Expired	(60,000)		3.20
Balance December 31, 2019	4,616,000	$	1.78

During the six months ended December 31, 2019, the Company granted options to acquire 250,000 shares of its common stock to a director. The options have an exercise price of $1.32 per share, a seven-year term and vest 25% immediately with the remaining 75% vesting one-third over each anniversary date.

During the six months ended December 31, 2018, the Company granted options to acquire 2,676,000 shares of its common stock to employees, officers and directors. The options have an exercise price of $2.00 per share, a seven-year term and vest 25% immediately with the remaining 75% vesting one-third over each anniversary date.

During the six months ended December 31, 2018, the Company granted options to acquire 90,000 shares of its common stock to consultants. The options have an exercise price of $2.00 per share, a five-year term and vest 25% quarterly over one year.

In connection with the RTO Transaction, Golden Secret’s options were re-valued on October 30, 2018. The fair value of the options was estimated using the Black-Scholes option pricing model with the following inputs: share price of $2.70, interest rate of 2.40%, expected life of 7.4 to 9.4 years, volatility of 75% and an exercise price of $0.50 to $3.20.

The fair value of each option granted during the six months ended December 31, 2019 and 2018, is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

	December 31, 2019	December 31, 2018
Share price on date of grant	$1.32	$2.00
Interest rate	1.60%	2.23% to 2.41%
Expected life	7 years	5 to 7 years
Volatility	46.16%	36.75% to 38.92%
Exerciseprice	$1.32	$2.00

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THUNDERBIRD ENTERTAINMENT GROUP INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

The following table summarizes the stock options outstanding at December 31, 2019:

			Weighted
			average		Weighted			Weighted
	Number		remaining		average	Number of		average
Exercise	of		contractual	exercise price		options	exercise price
price	options	Expiry date	life(years)	($ per share)		exercisable	($ per share)
$ 0.50	95,000	Oct 2019 to Mar 2026	6.19	$	0.50	95,000	$	0.50
$ 1.25	1,100,000	Nov 2020 to Jan 2021	0.89		1.25	1,100,000		1.25
$ 1.32	250,000	December 2026	6.95		1.32	62,500		1.32
$ 2.00	3,076,000	Jun 2021 to Mar 2026	5.31		2.00	1,725,500		2.00
$3.20	95,000	Oct 2019 to Mar 2028	8.21		3.20	95,000		3.20
	4,616,000		4.44	$	1.78	3,078,000	$	1.71

During the three and six months ended December 31, 2019, the Company recorded share-based compensation expense of $166 and $404 respectively (three and six months ended December 31, 2018 - $618 and $932).

During the six months ended December 31, 2019, 40,000 stock options were exercised at a price of $0.50 per option for gross proceeds of $20; an amount of $97 was transferred from contributed surplus to common shares. During the six months ended December 31, 2018, 95,000 stock options were exercised at prices of $0.50 and $1.25 for gross proceeds of $104; an amount of $92 was transferred from contributed surplus to common shares.

12. GOVERNMENT FINANCING AND ASSISTANCE

Investment in content and direct operating expenses have been reduced by the following:

		Six months ended	Six months ended	Six months ended
		December 31,
		2019		2018
Non-repayable contributions from the Canada Media Fund license fee program	$	5,462	$	5,605
Tax credits relatingtoproduction activities		18,919		18,445
	$	24,381	$	24,050

During the six months ended December 31, 2019, investment in content was reduced by $15,672 and direct operating expenses were reduced by $8,709 (six months ended December 31, 2018 - $17,236 and $6,814 respectively).

The Company is subject to routine inquiries and review by regulatory authorities of its various incentive claims which have been received or are receivable. Adjustments of claims, if any, as a result of such inquiries or reviews will be recorded at the time of such determination. There have been no material adjustments to date.

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THUNDERBIRD ENTERTAINMENT GROUP INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

13. REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table presents components of revenue:

		Three months ended	Three months ended	Three months ended		Six months ended	Six months ended	Six months ended
		December 31,				December 31,
		2019		2018		2019		2018
Revenue from contracts with customers:
Production services	$	11,546	$	7,019	$	21,850	$	13,351
Licensing and distribution		2,700		4,559		9,433		12,581
Revenue from other sources:
Other		24		11		38		18
	$	14,270	$	11,589	$	31,321	$	25,950

Revenues are derived from the following geographical sources, by location of customer:

		Three months ended	Three months ended	Three months ended		Six months ended	Six months ended	Six months ended
		December 31,				December 31,
		2019		2018		2019		2018
Canada	$	4,931	$	2,272	$	8,615	$	8,205
United States		4,754		4,825		10,717		8,047
United Kingdom		949		1,991		2,732		4,204
Denmark		1,416		1,940		2,868		3,602
Republic of Ireland		1,859		397		5,024		1,714
China		361		-		1,342		12
Other countries		-		164		23		166
	$	14,270	$	11,589	$	31,321	$	25,950

As at December 31, 2019, the following non-current assets were attributable to the Company’s entities based in the U.K. and USA: $nil of long-term trade receivables, $1,014 of investment in content, and $60 of property and equipment (June 30, 2019 - $116, $1,350, and $43, respectively). All other non-current assets were attributable to the Company’s entities based in Canada.

The Company’s only contract related liability is deferred revenue, which reflects the timing difference between the receipt of cash and the recognition of revenue. The following table reflects the movement in deferred revenues.

	December 31,	December 31,		June 30,
		2019		2019
Opening balance	$	15,389	$	9,367
Revenue recognized that was included in the deferred revenue balance at the
beginning of the period		(4,967)		(7,983)
Increases due to cash received, excluding amounts recognized as revenue during
theperiod		9,269		14,005
Endingbalance	$	19,691	$	15,389

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Financial instruments measured at fair value are classified into one of three levels that reflect the inputs to valuation techniques used to measure fair value as follows:

Level 1 : quoted prices (unadjusted) in active markets for identical assets or liabilities;

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THUNDERBIRD ENTERTAINMENT GROUP INC.

Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

Level 2 : inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 : inputs for the asset or liability based on unobservable market data.

The Company’s cash and cash equivalents are transacted in active markets and have a hierarchy of Level 1. The carrying amounts reported on the consolidated financial statements for cash and cash equivalents, trade receivables, accounts payable and accrued liabilities approximate their fair values due to their immediate or short-term nature and are classified as Level 2. The carrying value of interim production financing and long-term debt approximates their fair value as the interim production financing and debt bear interest at rates that fluctuate with market rates and are classified as Level 2.

The Company’s Class A (formerly Class B Series 2) redeemable preferred shares are classified as Level 3. The redeemable preferred shares have a liability and equity component. The fair value of liability component was determined by discounted cash flows from expected future dividend payments using a rate of 8%.

Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.

The Company is exposed to credit risk, liquidity risk and market risk in the normal course of operations. The Company does not use derivative instruments to reduce its exposure.

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s financial risk management framework and monitors risk management activities. The Company identifies and analyzes the risks faced by the Company and may utilize financial instruments to mitigate these risks.

Credit risk

The Company is subject to credit risk with respect to cash and cash equivalents and trade receivables and production financing. Production financing receivable is mainly with Canadian broadcasters and large international distribution companies. For certain arrangements with licensees, the Company is considered the agent, and only reports the revenue net of the licensor’s share. When the Company bills a third party in full where it is an agent for the licensor, the Company records an offsetting amount in accounts payable to the licensee when the amount is collected from a third party. This reduces credit risk, as the Company is only exposed to the amounts receivable related to the revenue it records.

At December 31, 2019, two broadcasters/distributors individually accounted for more than 10% of trade and production financing receivables. Receivables from these broadcasters/distributors accounted for 31% of the total trade and financing receivables.

For our trade receivables, we apply the simplified approach for determining expected credit losses, which requires us to determine the lifetime expected losses for all our trade receivables. The expected lifetime credit loss provision for our trade receivables is based on historical counterparty default rates and adjusted for relevant forward-looking information, as required. Since most of our customers are considered to have low default risk and our historical default rate and frequency of loss are low, the lifetime expected credit loss allowance for trade receivables is nominal as at December 31, 2019.

All cash and cash equivalents balances are held at major Canadian banking institutions.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking harm to the Company’s reputation.

The Company expects to satisfy obligations through cash on hand, cash flows from operations, refundable tax credit loans and new financing.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and government assistance risk, will affect the Company’s net income (loss) and the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns.

i. Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate risk on its interim production financing which bears a floating interest rate. Based on the average carrying value of these facilities, a fluctuation in interest rates of 1% would represent approximately a $225 change to net loss for the six months ended December 31, 2019 (December 31, 2018 - $228). The Company has no interest rate hedges or swaps outstanding at December 31, 2019.

ii. Foreign currency exchange risk

Foreign currency exchange risk is the risk that future cash flows will fluctuate as a result of changes in foreign exchange rates. The Company’s activities which expose it to currency risk involve the holding of foreign currencies as well as earning revenues and incurring expenses that are denominated in foreign currencies. The Company has not engaged in any foreign exchange hedging activities to date; however, the Company mitigates its currency exchange risk by entering into natural hedges whereby foreign currency liabilities are offset by assets pledged in the same foreign currency. For the six months ended December 31, 2019, revenue denominated in US dollars accounted for 39% (December 31, 2018 - 37%) of total revenue and revenue denominated in GBP accounted for 4% (2018 – 8%) of total revenue. As at December 31, 2019, a 5% fluctuation in the US dollar exchange rate would have an impact of approximately $432 (December 31, 2018 - $336) on net loss and a 5% fluctuation in the GBP exchange rate would have an impact of approximately $52 (December 31, 2018 - $99) on net loss.

The Company is also exposed to foreign exchange risk on its cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities, and interim production financing that are denominated in US dollars. A 5% fluctuation in the US dollar closing rate would result in a change to net loss for the six months ended December 31, 2019, of approximately $381 (December 31, 2018 - $42).

15. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to maintain financial flexibility in order to pursue its strategy of organic growth combined with strategic acquisitions, and to maximize the return to shareholders through the optimization of a reasonable debt and equity balance commensurate with current operating requirements. The Company defines capital as the aggregate of its shareholders’ equity and long-term debt less cash and cash equivalents.

To facilitate the management of its capital structure, the Company prepares annual expenditure budgets that are updated as necessary depending on the various factors, including industry conditions and operating cash flows. The annual and updated budgets are reviewed by the Board of Directors.

The Company expects that its current capital resources will be sufficient to carry out operations beyond its current reporting period. The overall strategy with respect to capital risk management remains unchanged from the year ended June 30, 2019.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

16. RELATED PARTY TRANSACTIONS

		Three months ended	Three months ended			Six months ended	Six months ended
		December 31,				December 31,
		2019		2018		2019		2018
Dividends1	$	2	$	2	$	4	$	180
Producer and consulting fees2		154		20		255		20
Revenue3		(205)		-		(342)		-
Transaction fee4		-		378		-		378
	$	(49)	$	400	$	(83)	$	578

1Paid to directors and key management personnel and companies owned by directors and key management personnel.

2Paid to companies owned by directors and a president.

3Received from a company owned by a director and president.

4In connection with the RTO Transaction (note 4) 188,777 common shares with a deemed value of $378 were issued to a company owned by a director.

At December 31, 2019, $475 (December 31, 2018 - $487) was due from a company owned by a director and president and $120 (December 31, 2018 - $nil) was payable to a director and companies owned by directors.

The related party transactions are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the period-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables/payables.

Key Management Personnel Compensation

Key management includes all directors, as well as the Executive Chair, Vice Chair, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and President. The remuneration of directors and officers is as follows:

		Three months ended	Three months ended			Six months ended	Six months ended	Six months ended
		December 31,				December 31,
		2019		2018		2019		2018
Short-term benefits	$	732	$	632	$	1,349	$	1,320
Share-basedpayments(note 11)		103		230		208		510
	$	835	$	862	$	1,557	$	1,830

17. COMMITMENTS AND CONTINGENCIES

Litigation

The Company and its subsidiaries may from time to time be a party to certain legal disputes and claims arising from commercial issues in the normal course of business. There are currently no legal disputes or claims that will have a material adverse effect on the financial position or results of operations of the Company.

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018 (Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

18. SUPPLEMENTAL CASH FLOW INFORMATION

The following table reconciles the changes in non-cash working capital as disclosed in the consolidated statement of cash flows:

cash flows:
		Six months	ended	December 31,
		2019		2018
Operating activities
Changes in non-cash working capital
Accounts receivable	$	(4,519)	$	1,751
Income taxes recoverable		(141)		99
Other current assets		36		6
Accounts payable and accrued liabilities		(1,725)		(3,017)
Income taxes payable		(457)		(1,808)
Deferred revenue		4,302		5,556
	$	(2,504)	$	2,587
		Six months	ended	December 31,
		2019		2018
Interest and debt service costs paid	$	425	$	464
Income taxes paid	$	1,486	$	1,986
Propertyand equipmentpurchased through lease	$	6,866	$	1,430

The change in liabilities arising from financing activities is as follows:

Balance June 30, 2019	Cash flows from(used in) Non-cash changes Proceeds Repayments Foreign exchange movements Balance December 31, 2019
Interim production financing $ 48,371 Current portion of long-term debt $ 1,433 Long-term debt $ 504 Lease obligations – current1 $ 3,823 Lease obligations – long-term1 $ 18,307	$ 22,909 $ (20,156) $ (131) $ 50,993 $ - $ (1,433) $ - $ - $ 12 $ (266) $ - $ 250 $ 3,234 $ (1,012) $ - $ 6,045 $ 3,954 $ (1,584) $ - $ 20,677

1Adjusted for the adoption of IFRS 16 (note 3(a))

19. FINANCE COSTS, NET

		Three months ended	Three months ended			Six months ended	Six months ended
		December 31,				December 31,
		2019		2018		2019		2018
Interest and dividends	$	486	$	382	$	910	$	793
Interest income		(29)		(243)		(100)		(272)
Realized foreign exchange gain		(198)		(128)		(283)		(168)
Unrealized foreign exchangegain		53		(83)		(68)		(186)
	$	312	$	(72)	$	459	$	167

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THUNDERBIRD ENTERTAINMENT GROUP INC. Notes to the Interim Condensed Consolidated Financial Statements For the three and six months ended December 31, 2019 and 2018

(Unaudited – in thousands of Canadian dollars, except for amounts per share and as noted)

20. EXPENSES BY NATURE

The following table sets out the expenses by nature:

		Three months ended	Three months ended	Three months ended		Six months ended	Six months ended	Six months ended
		December 31,				December 31,
		2019		2018		2019		2018
Investment in content
Direct costs	$	6,601	$	4,285	$	13,129	$	8,424
Amortization of content		563		916		2,297		1,891
Distribution and marketing		609		818		1,298		1,620
Development expenses and other		9		278		60		316
Contractors, salaries and employee benefits		3,989		3,391		7,604		6,104
Share-based compensation		166		618		404		932
Office and administrative		1,765		1,419		3,124		2,767
Finance costs, net		312		(72)		459		167
Legal and professional		224		444		427		858
Amortization of property and equipment and
intangible assets		348		783		546		1,539
Amortization of right-of-use assets		1,447		-		2,429		-
Charge relatingtopublic companylisting		-		5,316		-		5,316
	$	16,033	$	18,196	$	31,777	$	29,934

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