UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 40-F

Torque Esports Corp.

(Exact name of Registrant as specified in its charter)

77 King Street West

Suite 3000, PO Box 95
Toronto, Ontario, Canada M5K 1G8
(705)-445-3006
(Address and telephone number of Registrant’s principal executive offices)

C T Corporation System

1015 15^th Street N.W., Suite 1000

Washington, DC 20005

(202) 572-3100

(Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this Form:

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: N/A

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. [  ] Yes [  ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). [  ] Yes [  ] No

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company [X]

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. [  ]

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

EXPLANATORY NOTE

Torque Esports Corp. (the “Company” or the “Registrant”) is a Canadian issuer eligible to file its registration statement pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F pursuant to the multi-jurisdictional disclosure system of the Exchange Act. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.

FORWARD LOOKING STATEMENTS

The Exhibits incorporated by reference into this Registration Statement of the Registrant contain forward-looking information and forward-looking statements within the meaning of applicable securities legislation (together, “forward-looking statements”). These statements relate to future events or future performance and reflect the Company’s expectations and assumptions regarding such future events and performance. In particular, all statements, other than historical facts, contained in documents incorporated by reference in this Registration Statement that address activities, events or developments that management of the Company expect or anticipate will or may occur in the future are forward-looking statements, including but not limited to, statements with respect to:

Forward-looking statements also include, without limitation, the information concerning possible or assumed future results of operations of the Company set out in the Company’s Annual Information Form for the year ended August 31, 2019 filed as Exhibit 99.2 to this Registration Statement. Such statements are not historical facts, but instead represent only the Company’s expectations, estimates and projections regarding future events. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.

Such statements, made as of the date of the document containing such forward-looking statements unless otherwise specified, reflect the Company’s views at the time of such statements with respect to future events and are, or were, as applicable, based on information available to the Company and are, or were, as applicable, subject to and involve certain known and unknown risks, uncertainties, assumptions and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed in or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.

These assumptions, risks and uncertainties include, but are not limited to: assumptions that the projections relating to growth and trends in the industry of the Company and adoption of the technologies underlying the Company’s products are accurate; assumptions and uncertainties related to the expected size of the esports market and other markets for the Company’s products and the acceptance of the Company’s product in existing and new markets; risks related to the limited operating history of the Company; risks related to the management of growth; risks related to disruption from failure of website or third party streaming; risks related to reliance on key business relationships and executives; reputational risks; risks related to reliance on professional esports gamers and teams; risks related to security and privacy breaches; risks related to publisher authorization; risks related to the development of high-quality products; risks related to rapid technological changes; risks related to competition; risks related to proprietary protection and intellectual property disputes; risks related to integrating acquisitions; risks related to system failures and delays; risks related to liquidity; risks related to the global economy; risks related to foreign operations; risks related to regulation; risks related to dividends; risks related to acquisition of Eden Games and UMG Media Ltd.; and risks related to the common shares.

Management of the Company provides forward-looking statements because it believes they provide useful information to readers when considering their investment objectives and cautions readers that the information may not be appropriate for other purposes. Consequently, all of the forward-looking statements made in documents incorporated by reference in this Registration Statement are qualified by these cautionary statements and other cautionary statements or factors contained herein and therein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. These forward-looking statements are made as of the date of the document containing such forward-looking statement unless otherwise specified and the Company assumes no obligation to update or revise them to reflect subsequent information, events or circumstances or otherwise, except as required by law.

DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

The Registrant is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this report in accordance with Canadian disclosure requirements, which are different from those of the United States. The Registrant prepares its financial statements, which are filed with this report on Form 40-F in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and the audit is subject to Canadian auditing and auditor independence standards.

PRINCIPAL DOCUMENTS

In accordance with General Instruction B.(1) of Form 40-F, the Registrant hereby incorporates by reference Exhibits 99.1 through 99.160, inclusive, as set forth in the Exhibit Index attached hereto.

In accordance with General Instruction D.(9) of Form 40-F, the Registrant has filed the written consents of the experts named in the foregoing Exhibits as Exhibits 99.161 to 99.163, as set forth in the Exhibit Index attached hereto.

TAX MATTERS

Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this registration statement on Form 40-F.

DESCRIPTION OF COMMON SHARES

The required disclosure is included under the heading “Description of Share Capital” in the Registrant’s Annual Information Form, attached hereto as Exhibit 99.2.

OFF-BALANCE SHEET ARRANGEMENTS

The Registrant has no off-balance sheet arrangements other than disclosed in note 18(iv) of the Unaudited Condensed Interim Consolidated Financial Statements of Torque Esports Corp. for the three and six months ended February 29, 2020 and 2019 filed as Exhibit 99.156 to this Registration Statement.

CONTRACTUAL OBLIGATIONS

The following table lists, as of August 31, 2019, information with respect to the Registrant’s known contractual obligations (in thousands):

NASDAQ CORPORATE GOVERNANCE

A foreign private issuer that follows home country practices in lieu of certain provisions of NASDAQ Stock Market Rules must disclose any significant ways in which its corporate governance practices differ from those followed by domestic companies. As required by NASDAQ Stock Market Rule 5615(a)(3), the Company will disclose on its website, as of the listing date, each requirement of the NASDAQ Stock Market Rules that it does not follow and describe the home country practice followed in lieu of such requirements.

UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to Form 40-F or transactions in said securities.

CONSENT TO SERVICE OF PROCESS

The Registrant has concurrently filed a Form F-X in connection with the class of securities to which this Registration Statement relates.

Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: July 14, 2020

EXHIBIT INDEX

The following documents are being filed with the Commission as Exhibits to this Registration Statement:

*To be filed by amendment.

Exhibit 99.1

TORQUE ESPORTS CORP.

(formerly Millennial Esports Corp.)

Consolidated Financial Statements

For the Years Ended August 31, 2019 and 2018

(Expressed in United States Dollars)

Independent Auditor’s Report

To the Shareholders of Torque Esports Corp. (formerly, Millennial Esports Corp.)

Opinion

We have audited the consolidated financial statements of Torque Esports Corp. (formerly, Millennial Esports Corp.) and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as at August 31, 2019 and 2018, and the consolidated statements of loss and comprehensive loss, consolidated statements of changes in shareholders’ (deficiency) equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at August 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for opinion

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

Material uncertainty related to going concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company has incurred losses to date resulting in a cumulative deficit as at August 31. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that material uncertainties exist that cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other information

Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.

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

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

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

Responsibilities of management and those charged with governance for the consolidated financial statements

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

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

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

Auditor’s responsibilities for the audit of the consolidated financial statements

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

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

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

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

The engagement partner of the audit resulting in this independent auditor’s report is Koko Yamamoto.

McGovern Hurley LLP

Chartered Professional Accountants
Licensed Public Accountants

Toronto, Ontario
February 14, 2020

Torque Esports Corp.

(Formerly Millennial Esports Corp.)
Consolidated Statements of Financial Position
(Expressed in United States Dollars)

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

Going Concern (Note 1)

Commitments and Contingencies (Note 18)

Subsequent Events (Notes 15 and 25)

On Behalf of the Board:

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Consolidated Statements of Loss and Comprehensive Loss

(Expressed in United States Dollars)

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

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Consolidated Statements of Loss and Comprehensive Loss (Continued)

(Expressed in United States Dollars)

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

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Consolidated Statements of Changes in Shareholders’ (Deficiency) Equity

(Expressed in United States Dollars)

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

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Consolidated Statements of Cash Flows

(Expressed in United States Dollars)

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

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Consolidated Statements of Cash Flows (Continued)

(Expressed in United States Dollars)

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

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Torque Esports Corp. (formerly Millennial Esports Corp.) (“Torque” or the “Company”) was incorporated under the Business Corporations Act (Ontario) on April 8, 2011. The registered head office of the Company is 82 Richmond Street East, Toronto, Ontario, M5C 1P1.

The Company focuses on three areas: esports data provision, esports tournament hosting and esports racing.

On June 7, 2019, the Company consolidated its issued and outstanding common shares on the basis of 15 pre-consolidation shares for every 1 post consolidation share. The consolidation was approved during a meeting of shareholders on May 11, 2018. Subsequent to August 31, 2019, on October 17, 2019, the Company further consolidated its shares on the basis of 5 pre-consolidation shares for every 1 post-consolidation share. The consolidation was approved during a meeting of shareholders on October 16, 2019. Current and comparative disclosure has been amended to reflect these two share consolidations.

Pursuant to shareholder approval at the October 16, 2019 shareholders meeting, effective October 18, 2019, the Company changed its name to Torque Esports Corp. The Company’s common shares trade on the TSX Venture Exchange under the trading symbol GAME.V.

Going Concern

These consolidated financial statements have been prepared on a going concern basis, which contemplates that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements. Such adjustments could be material. It is not possible to predict whether the Company will be able to raise adequate financing or to ultimately attain profit levels of operations.

The Company has not yet realized profitable operations and has incurred significant losses to date resulting in a cumulative deficit of $39,754,120 as at August 31, 2019 (2018 - $25,016,122). The recoverability of the carrying value of the assets and the Company’s continued existence is dependent upon the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary. While management has been historically successful in raising the necessary capital, it cannot provide assurance that it will be able to execute on its business strategy or be successful in future financing activities. As at August 31, 2019, the Company had working capital of $(693,391) (August 31, 2018 - working capital deficiency of $4,979,229) which is comprised of current assets less current liabilities, excluding warrant liability.

These conditions indicate the existence of material uncertainties that cast significant doubt about the Company’s ability to continue as a going concern. Changes in future conditions could require material write downs of the carrying values.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Statement of Compliance

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

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on February 14, 2020.

Basis of Presentation

These consolidated financial statements have been prepared on a going concern basis, under the historical cost convention except for certain financial assets and liabilities that are presented at fair value.

These consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

Basis of Consolidation

These consolidated financial statements include the accounts of the Company and all of its subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain variable benefits from its power over the entity’s activities. Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition of control up to the effective date of disposal or loss of control. The Company’s subsidiaries are as follows:

All inter-company balances and transactions have been eliminated.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.

Use of Management Estimates, Judgments and Measurement Uncertainty

The preparation of these consolidated financial statements requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as at the date of the consolidated financial statements. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenues, and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. Significant estimates and judgments made by management in the preparation of these consolidated financial statements are outlined below:

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Use of Management Estimates, Judgments and Measurement Uncertainty (Continued)

Foreign Currency Translation

Under IFRS, each entity must determine its own functional currency, which becomes the currency that entity measures its results and financial position in. Judgment is necessary in assessing each entity’s functional currency. In determining the functional currencies of the Company and its subsidiaries, the Company considered many factors, including the currency that mainly influences sales prices for goods and services, the currency of the country whose competitive forces and regulations mainly determine the sales prices, and the currency that mainly influences labour material and other costs for each consolidated entity.

Valuation of Warrant Liability

The Black-Scholes pricing model is used to determine the fair value for the warrants and utilizes subjective assumptions such as expected price volatility which is based on comparable companies, expected life of the warrant at the risk free rate. Any changes in these input assumptions can significantly affect the fair value estimate.

Income, Valued Added, Withholding and Other Taxes

The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company’s provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company’s income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company’s interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.

Business Acquisitions

The determination of whether a transaction meets the definition of a business combination under IFRS 3 or constitutes an asset acquisition is subject to judgment. Applying the acquisition method to business combinations requires each identifiable asset and liability to be measured at its acquisition date fair value. The excess, if any, of the fair value of consideration over the fair value of the net identifiable assets acquired is recognized as goodwill. The determination of acquisition date fair values and the value of contingent consideration often requires management to make assumptions and estimates about future events and discount rates. The assumptions with respect to the identification and fair value of intangible assets require a high degree of judgment and include estimates for future operating performance, discount rates, technology migration factors and terminal value rates.

The assumptions with respect to valuation of contingent consideration require a high degree of judgment and include estimates for future operating performance and discount rates. Under the terms of the acquisition of Eden Games, the Company is obligated to pay certain additional consideration amounts based on performance milestones being met by Eden Games (See Note 4).

As at August 31, 2019 and 2018 these milestones had been met. The value of the contingent consideration at August 31, 2019 was $nil (2018 - $1,446,719). The Company was also obligated to pay certain additional amounts based on performance milestones related to the IDEAS + CARS acquisition.

Where put options are issued on non-controlling interests, judgement is required in determining whether the risks are considered to be transferred to the parent or whether the risks remain with the non-controlling interest (See Note 4).

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Use of Management Estimates, Judgments and Measurement Uncertainty (Continued)

Goodwill and Intangible Assets Valuation

Goodwill and intangible assets are reviewed annually for impairment, or more frequently when there are indicators that impairment may have occurred, by comparing the carrying value to its recoverable amount. Management uses judgment in estimating the recoverable values of the Company’s cash-generating units (“CGUs”) and uses internally developed valuation models that consider various factors and assumptions including estimates for future operating performance, discount rates, technology migration factors and terminal value rates. The use of different assumptions and estimates could influence the determination of the existence of impairment and the valuation of goodwill and intangible assets.

Valuation of Share-based Payments

The valuation of stock options involves key estimates such as volatility, forfeiture rates, estimated lives, market rates, and likelihood of performance measures being met. See Note 14.

Revenue Recognition

Judgement is required in identifying performance obligations and the timing of satisfaction of the performance obligations.

Contingencies

See Notes 1 and 18

Revenue Recognition

Revenue is recognized when the significant risks and rewards of ownership are transferred to the customer, which is at the time service has been rendered, the amount of revenue can be measured reliably, and the receipt of economic benefits is probable.

The Company derives its revenues from three revenue streams: (a) pay-to-enter tournaments; (b) game development income; (c) event revenue; and (d) membership income.

Pay-to-enter tournaments and fees for head-to-head match revenues are deferred until games are played and completed. Revenue is recognized based on the match stipulations, and is a portion of user winnings.

Game development income is derived from the development and sale of gaming applications.

Event revenue is recognized upon completion of the event.

Any consideration received in advance of services being rendered is recorded as deferred revenue and subsequently recognized as it is earned.

Intangible Assets

Intangible assets consist mainly of computer software, intellectual property rights, customer contracts and brands and are recorded at cost. Business solutions developed internally and marketed are capitalized when they meet specific capitalization criteria related to technical, market and financial feasibility. Intellectual property, customer contracts, and brands acquired through business combinations are initially recorded at their fair value based on the present value of expected future cash flows, which involve making estimates about the future cash flows, as well as discount rates.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

The Company amortizes its intangible assets using the straightline method over the following estimated useful lives:

Amortization on any additions to intangible assets commences when assets are available for use.

Property and Equipment

Property and equipment consist of furniture and fixtures, leasehold improvements and computer equipment, which are initially recorded at cost. Amortization is recorded using the following rates and methods:

Amortization on any additions to property and equipment commences when the assets are available for use.

Discontinued Operations

During the year ended August 31, 2019, management decided to abandon the operations of Pro Gaming League Nevada Inc.

A discontinued operation is a component of the Company’s business that represents a separate major line of business or geographical area of operations that has been abandoned or classified as held for sale. The operations and cash flows can be clearly distinguished from the rest of the Company, both operationally and for financial reporting purposes. When the Company classifies an operation as a discontinued operation, it represents the comparative consolidated statements of operations as if the operation had been discontinued from the start of the comparative year. In doing this, the Company excludes the results for the discontinued operations and any gain or loss from disposal from the consolidated statements of operations from continuing operations and presents them on a separate line as profit or loss (net of tax) from the discontinued operation. Per share information and changes to other consolidated comprehensive loss related to discontinued operations are presented separately from continuing operations. Cash flows from discontinued operations are presented separately from cash flows from continuing operations in the consolidated statements of cash flows.

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Impairment of Property and Equipment, Intangible Assets and Goodwill

Timing of Impairment Testing

The carrying values of property and equipment and finite life intangible assets are assessed at the reporting date as to whether there is any indication that the assets may be impaired. Goodwill and indefinite life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Impairment of Property and Equipment, Intangible Assets and Goodwill (Continued)

Impairment Testing

If any indication of impairment exists or when the annual impairment testing for an asset is required, the Company estimates the recoverable amount of the asset or CGU to which the asset relates to determine the extent of any impairment loss. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use (“VIU”) to the Company. The Company generally uses the VIU. In assessing VIU, estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If the recoverable amount of an asset or a CGU is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of loss.

The VIU calculation for the recoverable amount of the CGUs to which goodwill has been allocated includes estimates about their future financial performance based on cash flows approved by management covering a period of five years with a terminal rate as the Company generates revenue mainly through long-term contracts. Key assumptions used in the VIU calculations are the discount rate applied and the long-term growth rate of net operating cash flows. In determining these assumptions, management has taken into consideration the current economic climate and its resulting impact on expected growth and discount rates. In determining the discount rate applied to a CGU, management uses the Company’s weighted average cost of capital as a starting point and applies adjustments to take into account specific tax rates, geographical risk and any additional risks specific to the CGU. The cash flow projections reflect management’s expectations of the operating performance of the CGU and growth prospects in the CGU’s market.

For impaired assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of loss. Impairment losses relating to goodwill cannot be reversed.

Basic and Diluted Loss per Share

The Company presents basic and diluted loss per share data for its common shares. Dilution is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares, which comprises the warrants of the Company. For the years ending August 31, 2019 and 2018, potentially dilutive common shares issuable on the exercise of warrants and stock options outstanding and conversion of debt were not included in the computation of loss per share because their effect was anti-dilutive.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

The Company accounts for its business combinations using the acquisition method. Under this method the consideration transferred is measured at fair value. Acquisition related and integration costs associated with the business combination are expensed as incurred. The Company recognizes goodwill as the excess of the cost of the acquisition over the net identifiable tangible and intangible assets acquired and liabilities assumed at their acquisition date fair values. The fair value allocated to tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions of management. Estimates include the forecasting of future cash flows and discount rates. Subsequent changes in fair values are adjusted against the cost of acquisition if they qualify as measurement period adjustments. The measurement period is the period between the date of acquisition and the date where all significant information necessary to determine the fair values is available, not to exceed 12 months. All other subsequent changes are recognized in the consolidated statement of profit and comprehensive income. For all business acquisitions, the Company records the results of operations of the acquired entities as of their respective effective acquisition dates.

Written Put and Call Options on Non-Controlling Interest

Fixed price put options granted to minority shareholders are recognized as liabilities at the present value of the strike price of the put option. Fixed price put options transfer the risks and rewards of ownership of the minority interest to the parent, and accordingly, a non-controlling interest is not recorded with respect to the shareholdings covered by the put options. If the put option expires unexercised, a non-controlling interest is recognized at that time, based on the proportionate share of the net assets of the subsidiary at the date of expiry.

Fixed price call options on the Company’s own shares are recorded as a charge to equity.

Share-based Payments

Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received.

The fair value of share-based payments is established on the grant date using a model deemed appropriate considering the nature of the underlying option. The number of stock options expected to vest are estimated on the grant date and subsequently revised on a periodic basis. The estimation of fair value requires making assumptions for the most appropriate inputs to the valuation model including the expected life of the option, expected stock price volatility and expected forfeitures. The fair values, adjusted for expectations related to performance conditions, are recognized as share-based payment costs in the consolidated statement of loss and comprehensive loss with a corresponding credit to equity-settled employee benefits reserve on a graded vesting basis over the vesting period. When stock options are exercised, any consideration paid is added to share capital and the recorded fair value of the stock option is removed from equity settled employee benefits reserve and added to share capital.

Warrants

All warrants issued under a unit financing arrangement are valued on the date of grant using the Black-Scholes pricing model, net of related issue costs. Expired warrants are removed from contributed surplus and credited directly to retained earnings. Where non-compensation warrants are denominated in a currency other than the Company’s functional currency, they are considered a derivative liability and marked to market at each period using the Black-Scholes pricing model.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Income tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive loss.

Current tax is recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the income tax rates enacted or substantively enacted at the end of the reporting period and includes any adjustment to taxes payable in respect of previous years.

Deferred tax is recognized on any temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized and the liability is settled. The effect of a change in the enacted or substantively enacted tax rates is recognized in net earnings and comprehensive income or in equity depending on the item to which the adjustment relates.

Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.

Convertible Debt

The convertible debentures issued by the Company are convertible into units based on a conversion price in Canadian dollars and the Company’s functional currency is US dollars. As a result, the conversion feature is an embedded derivative liability. The Company has elected to use the “fair value option”. Under this approach, the convertible debenture is measured at fair value through profit or loss at each reporting period.

Long-term Investment

Investment in privately-held companies is initially recorded at cost, being the fair value at the time of acquisition. At the end of each financial reporting period, the Company’s management estimates the fair value of investments based on the criteria below and reflects such valuations in the financial statements. These are included in Level 3 as disclosed in Note 21.

With respect to valuation, the financial information of private companies in which the Company has investments may not always be available, or such information may be limited and/or unreliable. Use of the valuation approach described below may involve uncertainties and determinations based on the Company’s judgment and any value estimated from these may not be realized or realizable. In addition to the events described below, which may affect a specific investment, the Company will take into account general market conditions when valuing the privately-held investments in its portfolio. In the absence of occurrence of any of these events or any significant change in general market conditions indicates generally that the fair value of the investment has not materially changed.

An upward adjustment is considered appropriate and supported by pervasive and objective evidence such as a significant subsequent equity financing by an unrelated investor at a transaction price higher than the Company’s carrying value; or if there have been significant corporate, political or operating events affecting the investee company that, in management’s opinion, have a positive impact on the investee company’s prospects and therefore its fair value. In these circumstances, the adjustment to the fair value of the investment will be based on management’s judgment and any value estimated may not be realized or realizable.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

The resulting values may differ from values that would be realized had a ready market existed. The amounts at which the Company’s privately-held investments could be disposed of may differ from the carrying value assigned. Such differences could be material.

Downward adjustments to carrying values are made when there is evidence of a decline in value as indicated by the assessment of the financial condition of the investment based on third party financing, operational results, forecasts, and other developments since acquisition, or if there have been significant corporate, political or operating events affecting the investee company that, in management’s opinion, have a negative impact on the investee company’s prospects and therefore its fair value. The amount of the change to the fair value of the investment is based on management’s judgment and any value estimated may not be realized or realizable.

Provisions

Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

Short-term Investments

Short-term investments include liquid investments with original maturities of greater than three months and less than one year.

Financial Instruments

Financial Assets

Recognition and Initial Measurement

The Company recognizes financial assets when it becomes party to the contractual provisions of the instrument. Financial assets are measured initially at their fair value plus, in the case of financial assets not subsequently measured at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition of financial assets subsequently measured at fair value through profit or loss are expensed in profit or loss when incurred.

Classification and Subsequent Measurement

On initial recognition, financial assets and liabilities are classified as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). The Company determines the classification of its financial assets, together with any embedded derivatives, based on the business model for managing the financial assets and their contractual cash flow characteristics.

Financial assets are classified as follows:

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Classification and Subsequent Measurement (Continued)

Business Model Assessment

The Company assesses the objective of its business model for holding a financial asset at a level of aggregation which best reflects the way the business is managed, and the way information is provided to management. Information considered in this assessment includes stated policies and objectives.

Contractual Cash Flow Assessment

The cash flows of financial assets are assessed as to whether they are solely payments of principal and interest on the basis of their contractual terms. For this purpose, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money, the credit risk associated with the principal amount outstanding, and other basic lending risks and costs. In performing this assessment, the Company considers factors that would alter the timing and amount of cash flows such as prepayment and extension features, terms that might limit the Company’s claim to cash flows, and any features that modify consideration for the time value of money.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Impairment

The Company recognizes a loss allowance for the expected credit losses associated with its financial assets, other than financial assets measured at fair value through profit or loss. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions and forecasts of future economic conditions.

The Company applies the simplified approach for accounts receivable. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses resulting from all possible default events over the assets’ contractual lifetime.

The Company assesses whether a financial asset is credit-impaired at the reporting date. Regular indicators that a financial instrument is credit-impaired include significant financial difficulties as evidenced through borrowing patterns or observed balances in other accounts and breaches of borrowing contracts such as default events or breaches of borrowing covenants. For financial assets assessed as credit-impaired at the reporting date, the Company continues to recognize a loss allowance equal to lifetime expected credit losses.

For financial assets measured at amortized cost, loss allowances for expected credit losses are presented in the statement of financial position as a deduction from the gross carrying amount of the financial asset.

Financial assets are written off when the Company has no reasonable expectations of recovering all or any portion thereof.

Derecognition of Financial Assets

The Company derecognizes a financial asset when its contractual rights to the cash flows from the financial asset expire.

Financial Liabilities

Recognition and Initial Measurement

The Company recognizes a financial liability when it becomes party to the contractual provisions of the instrument. At initial recognition, the Company measures financial liabilities at their fair value plus transaction costs that are directly attributable to their issuance, with the exception of financial liabilities subsequently measured at fair value through profit or loss for which transaction costs are immediately recorded in profit or loss.

Financial liabilities are classified as either financial liabilities at FVTPL or at amortized cost. The Company determines the classification of its financial liabilities at initial recognition.

Financial liabilities are classified as measured at amortized cost unless they fall into one of the following categories: financial liabilities at FVTPL, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, financial guarantee contracts, commitments to provide a loan at a below-market interest rate, or contingent consideration recognized by an acquirer in a business combination.

The Company’s accounts payable and accrued liabilities, McLaren loan, put option redemption liability, customer points liability, promissory notes, long-term debt and amount due to related parties do not fall into any of the exemptions and are therefore classified as measured at amortized cost.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

Financial liabilities are classified as FVTPL if they fall into one of the five exemptions detailed above. The Company has classified its warrant liability and convertible debt as at FVTPL.

Transaction costs

Transaction costs associated with financial instruments, carried at FVTPL, are expensed as incurred, while transaction costs associated with all other financial instruments are included in the initial carrying amount of the asset or the liability.

Subsequent measurement

Instruments classified as FVTPL are measured at fair value with unrealized gains and losses recognized in profit or loss. Instruments classified as amortized cost are measured at amortized cost using the effective interest rate method. Instruments classified as FVTOCI are measured at fair value with unrealized gains and losses recognized in other comprehensive income.

Derecognition

The Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled, or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

Functional Currency

The functional currency of the Company and its subsidiaries is disclosed in Note 2. The presentation currency of the consolidated financial statements is the US Dollar (“USD”).

The financial statements of entities that have a functional currency different from the presentation currency are translated into US dollars as follows: assets and liabilities at the closing rate at the date of the Company’s consolidated statement of financial position and income and expenses at the average rate of the year (as this is considered a reasonable approximation of the actual rates prevailing at the transaction dates). All resulting changes are recognized in other comprehensive income (loss) as foreign currency translation adjustments.

Foreign currency transactions are translated into the functional currency of each entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an entity’s functional currency are recognized in the consolidated statements of loss. Foreign currency differences are recognized in other comprehensive loss and accumulated in the translation reserve except to the extent that the translation difference is allocated to non-controlling interest.

Torque Esports Corp.

(Formerly Millennial Esports Corp.)

Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2019 and 2018
(Expressed in United States Dollars)

The Company has applied IFRS 15 retrospectively and determined that there is no change to the comparative periods or transitional adjustments required as a result of the adoption of this standard.

Revenues reflect the consideration to which the Company expects to be entitled to, in exchange for the transfer of promised goods or services as described below and categorized by operating segments identified and disclosed in Note 20.

The Company’s accounting policy for revenue recognition under IFRS 15 is as follows:

To determine the amount and timing of revenue to be recognized, the Company follows a 5-step process:

The Company’s revenue from the sale of game development services are considered to be revenue from contracts with customers. These contracts relate to the development of gaming applications, which are assessed as a single performance obligation and satisfied over time. Revenue is recognized over time by measuring progress towards completion of the performance obligation. Each customer contract contains deliverables based on a milestone schedule. The customer assumes control of each deliverable upon acceptance and as such, this is the best estimate in measuring satisfaction of the performance obligation.

Membership income is recognized when there is persuasive evidence that a contract or other arrangement exists, collection is reasonably assured and the entity has satisfied all its performance obligations and therefore, has provided service or delivered the product to the customer. The fee billed to customers is recognized as revenue at the end of each month. Revenue from non-recurring transactions are recognized when services are provided in accordance with the contract.

Esports event revenue is recognised upon completion of the event. In some cases, judgement is required in determining whether the customer is a business or the end consumer. This evaluation was made on the basis of whether the business obtains control of the product before transferring to the end consumer. Control of the product transfers at a point in time either upon access to completed code to or receipt by the customer, depending on the contractual terms. The Company recognizes revenue in an amount that reflects the consideration that the Company expects to receive taking into account any variation that may result from rights of return.

As the Company does not enter into contracts with its customers where, once performance has occurred, the Company’s right to consideration is dependent on anything other than the passage of time, the Company does not presently have any contract assets. The related accounts receivable balances are recorded in the balance sheet as trade receivables and generally have terms of 30 days.