Document:

Exhibit 4.12

 

 

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 as issued by the International Accounting
Standards Board (“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.

 

 

    	Page 1

    	 

    

 

 

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:

 

	 	●	Identify and assess the risks
    of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit
    procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
    our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from
    error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
	 	●	Obtain an understanding of internal control
    relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
    of expressing an opinion on the effectiveness of the Company’s internal control.
	 	●	Evaluate the appropriateness of accounting policies
    used and the reasonableness of accounting estimates and related disclosures made by management.
	 	●	Conclude
    on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
    obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
    ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
    in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures
    are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
    report. However, future events or conditions may cause the Company to cease to continue as a going concern.
	 	●	Evaluate the overall
    presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated
    financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

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

 

    	Page 2

    	 

    

 

Torque
Esports Corp.

(Formerly
Millennial Esports Corp.)

Consolidated Statements of Financial Position

(Expressed in United States Dollars)

 

 

	As at August 31,	 	2019	 	 	2018	 
	 	 	 	 	 	 	 
	Assets	 	 	 	 	 	 	 	 
	Current Assets	 	 	 	 	 	 	 	 
	Cash (Note 20)	 	$	2,827,014	 	 	$	607,933	 
	Accounts and other receivables (Note 22)	 	 	517,228	 	 	 	558,825	 
	Government remittances receivable	 	 	711,278	 	 	 	479,587	 
	Prepaid expenses and deposits (Note 22)	 	 	698,842	 	 	 	44,240	 
	Total Current Assets	 	 	4,754,362	 	 	 	1,690,585	 
	Deposit	 	 	-	 	 	 	29,231	 
	Investment (Note 25(ii))	 	 	1,470,000	 	 	 	-	 
	Property and equipment (Note 8)	 	 	82,635	 	 	 	162,871	 
	Intangible assets (Note 7)	 	 	3,724,728	 	 	 	5,969,991	 
	Leasehold improvements (Note 9)	 	 	2,618	 	 	 	3,314	 
	Goodwill (Note 6)	 	 	651,354	 	 	 	6,907,801	 
	Deferred income tax asset (Note 23)	 	 	-	 	 	 	144,822	 
	 	 	 	 	 	 	 	 	 
	Total Assets	 	$	10,685,697	 	 	$	14,908,615	 
	 	 	 	 	 	 	 	 	 
	Liabilities	 	 	 	 	 	 	 	 
	Current Liabilities	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities (Note 22)	 	$	3,910,899	 	 	$	2,757,269	 
	McLaren loan (Note 13)	 	 	-	 	 	 	115,303	 
	Put option redemption liability (Note 4)	 	 	-	 	 	 	1,966,593	 
	Customer points liability	 	 	8,270	 	 	 	8,270	 
	Warrant liability (Note 15)	 	 	296,795	 	 	 	819,245	 
	Current portion of long-term debt (Note 13)	 	 	90,033	 	 	 	79,356	 
	Current portion of contingent performance share obligation (Note 18)	 	 	257,216	 	 	 	262,265	 
	Deferred revenue	 	 	31,656	 	 	 	34,039	 
	Contingent consideration (Note 4)	 	 	-	 	 	 	1,446,719	 
	Promissory notes payable (Note 11)	 	 	852,884	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Total Current Liabilities	 	 	5,447,753	 	 	 	7,489,059	 
	Contingent performance share obligation (Note 18)	 	 	216,148	 	 	 	405,077	 
	Convertible debt (Note 12)	 	 	12,532,723	 	 	 	-	 
	Long-term debt (Note 13)	 	 	156,255	 	 	 	224,807	 
	 	 	 	 	 	 	 	 	 
	Total Liabilities	 	 	18,352,879	 	 	 	8,118,943	 
	 	 	 	 	 	 	 	 	 
	Shareholders’ (Deficiency) Equity	 	 	 	 	 	 	 	 
	Share capital (Note 16)	 	 	29,613,406	 	 	 	29,573,077	 
	Shares to be issued (Note 18)	 	 	760,216	 	 	 	455,736	 
	Contributed surplus	 	 	2,753,037	 	 	 	2,722,686	 
	Accumulated other comprehensive (loss)	 	 	(1,333,172	)	 	 	(945,705	)
	Deficit	 	 	(39,754,120	)	 	 	(25,016,122	)
	 	 	 	 	 	 	 	 	 
	(Deficiency) equity attributable to shareholders	 	 	(7,960,633	)	 	 	6,789,672	 
	 	 	 	 	 	 	 	 	 
	Net assets attributed to non-controlling interest (Note 4)	 	 	293,451	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Equity attributable to non-controlling interest	 	 	293,451	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Total Shareholders’ (Deficiency) Equity	 	 	(7,667,182	)	 	 	6,789,672	 
	 	 	 	 	 	 	 	 	 
	Total Liabilities and Shareholders’ (Deficiency) Equity	 	$	10,685,697	 	 	$	14,908,615	 

 

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:

 

	“Peter
    Liabotis” 	 “Darren
    Cox”
	Director
    	Director

 

    	 	 	 

     

    

 

Torque
Esports Corp.

(Formerly
Millennial Esports Corp.)

Consolidated
Statements of Loss and Comprehensive Loss

(Expressed
in United States Dollars)

 

 

	For the years ended August 31,	 	2019	 	 	2018	 
	 	 	 	 	 	(Note 19)	 
	Revenues	 	 	 	 	 	 	 	 
	Games development	 	$	3,371,472	 	 	$	2,634,395	 
	Event income	 	 	12,628	 	 	 	899,089	 
	Membership income	 	 	835,361	 	 	 	-	 
	Total Revenues	 	 	4,219,461	 	 	 	3,533,484	 
	Expenses	 	 	 	 	 	 	 	 
	Consulting (Note 22)	 	 	812,390	 	 	 	2,664,266	 
	Salaries and wages (Note 22)	 	 	1,724,044	 	 	 	1,610,481	 
	Amortization and depreciation	 	 	2,386,805	 	 	 	1,725,719	 
	Direct costs	 	 	3,550,277	 	 	 	2,585,172	 
	Sponsorships and tournaments	 	 	586,850	 	 	 	1,164,321	 
	Share-based payments (Notes 14 and 22)	 	 	73,843	 	 	 	2,305,039	 
	Professional fees	 	 	711,521	 	 	 	786,411	 
	Advertising and promotion	 	 	865,661	 	 	 	469,679	 
	Travel	 	 	178,623	 	 	 	417,785	 
	Rent	 	 	44,478	 	 	 	107,794	 
	Office and general	 	 	458,436	 	 	 	598,275	 
	Website maintenance and internet	 	 	109,765	 	 	 	169,799	 
	Insurance	 	 	30,394	 	 	 	30,602	 
	Interest and bank charges	 	 	234,852	 	 	 	28,213	 
	(Gain) loss on foreign exchange	 	 	(178,005	)	 	 	101,079	 
	Bad debt expense	 	 	-	 	 	 	4,042	 
	Change in fair value of warrant liability (Note 15)	 	 	(552,820	)	 	 	(4,908,704	)
	Change in fair value of convertible debt (Note 12)	 	 	1,536,532	 	 	 	-	 
	Accretion expense (Notes 4 and 13)	 	 	98,529	 	 	 	34,673	 
	Change in fair value of contingent consideration	 	 	110,501	 	 	 	-	 
	Change in fair value conversion feature and long-term debt	 	 	-	 	 	 	(429,951	)
	Gain on settlement of debt	 	 	(291,784	)	 	 	(98,145	)
	Gain on extinguishment of convertible debt (Note 12)	 	 	(205,407	)	 	 	-	 
	Writedown of long-term investment (Note 5)	 	 	-	 	 	 	1,570,777	 
	Impairment of intangible assets (Note 7)	 	 	-	 	 	 	1,688,980	 
	Impairment of goodwill (Notes 4 and 6)	 	 	5,886,260	 	 	 	1,391,859	 
	 	 	 	 	 	 	 	 	 
	Total Expenses	 	 	18,171,745	 	 	 	14,018,166	 
	 	 	 	 	 	 	 	 	 
	Loss before income taxes	 	 	(13,952,284	)	 	 	(10,484,682	)
	Deferred income tax (expense) recovery (Note 23)	 	 	(144,822	)	 	 	859,643	 
	 	 	$	(14,097,106	)	 	$	(9,625,039	)
	Minority interest in net loss	 	 	254,276	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Net loss for the year from continuing operations, net	 	$	(13,842,830	)	 	$	(9,625,039	)
	 	 	 	 	 	 	 	 	 
	Discontinued operations (Note 19)	 	 	 	 	 	 	 	 
	Loss from operations of discontinued Pro Gaming League Nevada Inc.	 	 	(895,168	)	 	 	(1,878,424	)
	 	 	 	 	 	 	 	 	 
	Loss on discontinued operations	 	 	(895,168	)	 	 	(1,878,424	)
	 	 	 	 	 	 	 	 	 
	Net loss	 	 	(14,737,998	)	 	 	(11,503,463	)

 

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)

 

 

	For the years ended August 31,	 	2019	 	 	2018	 
	 	 	 	 	 	(Note 19)	 
	Net loss	 	 	(14,737,998	)	 	 	(11,503,463	)
	 	 	 	 	 	 	 	 	 
	Other comprehensive loss	 	 	 	 	 	 	 	 
	Items that may be reclassified subsequently to profit or loss	 	 	 	 	 	 	 	 
	Foreign currency translation differences	 	 	(387,467	)	 	 	(945,002	)
	 	 	 	 	 	 	 	 	 
	Comprehensive loss for the year	 	 	(15,125,465	)	 	 	(12,448,465	)
	 	 	 	 	 	 	 	 	 
	Basic and diluted net loss per share from continuing operations (Note 24)	 	$	(6.28	)	 	$	(5.28	)
	Basic and diluted net loss per share from discontinued operations (Note 24)	 	$	(0.41	)	 	$	(1.03	)
	Weighted average number of common shares outstanding (Note 1)	 	 	2,204,409	 	 	 	1,821,328	 

 

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)

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Net Assets	 	 	 	 
	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	 	 	 	 	 	 	 	Attributed to	 	 	 	 
	 	 	 	 	 	Shares	 	 	Other	 	 	 	 	 	 	 	 	 	 	 	Non-	 	 	 	 
	 	 	Share	 	 	to be	 	 	Comprehensive	 	 	Contributed	 	 	 	 	 	 	 	 	Controlling	 	 	 	 
	 	 	 Capital	 	 	Issued	 	 	Loss	 	 	Surplus	 	 	Deficit	 	 	Total	 	 	Interest	 	 	Total	 
	Balance, August 31, 2017	 	$	11,633,752	 	 	$	-	 	 	$	(703	)	 	$	442,146	 	 	$	(13,512,659	)	 	$	(1,437,464	)	 	$	-	 	 	$	(1,437,464	)
	Shares issued for services	 	 	270,340	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	270,340	 	 	 	-	 	 	 	270,340	 
	Performance shares	 	 	-	 	 	 	455,736	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	455,736	 	 	 	-	 	 	 	455,736	 
	Share-based payments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,305,039	 	 	 	-	 	 	 	2,305,039	 	 	 	-	 	 	 	2,305,039	 
	Common shares and call option issued and warrants acquired on acquisition of Eden Games	 	 	2,314,216	 	 	 	-	 	 	 	-	 	 	 	104,883	 	 	 	-	 	 	 	2,419,099	 	 	 	-	 	 	 	2,419,099	 
	Common shares issued on private placements, net of costs	 	 	12,211,746	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	12,211,746	 	 	 	-	 	 	 	12,211,746	 
	Issuance of warrants	 	 	(2,495,354	)	 	 	-	 	 	 	-	 	 	 	32,131	 	 	 	-	 	 	 	(2,463,223	)	 	 	-	 	 	 	(2,463,223	)
	Common shares issued on exercise of options	 	 	296,398	 	 	 	-	 	 	 	-	 	 	 	(161,513	)	 	 	-	 	 	 	134,885	 	 	 	-	 	 	 	134,885	 
	Common shares issued on exercise of warrants	 	 	5,341,979	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,341,979	 	 	 	-	 	 	 	5,341,979	 
	Net loss for the year	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(11,503,463	)	 	 	(11,503,463	)	 	 	-	 	 	 	(11,503,463	)
	Other comprehensive loss	 	 	-	 	 	 	-	 	 	 	(945,002	)	 	 	-	 	 	 	-	 	 	 	(945,002	)	 	 	-	 	 	 	(945,002	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, August 31, 2018	 	$	29,573,077	 	 	$	455,736	 	 	$	(945,705	)	 	$	2,722,686	 	 	$	(25,016,122	)	 	$	6,789,672	 	 	$	-	 	 	$	6,789,672	 
	Convertible debt conversion	 	 	31,026	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	31,026	 	 	 	-	 	 	 	31,026	 
	Share-based payments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	73,843	 	 	 	-	 	 	 	73,843	 	 	 	-	 	 	 	73,843	 
	Shares to be issued	 	 	-	 	 	 	304,480	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	304,480	 	 	 	-	 	 	 	304,480	 
	Non-controlling interest in subsidiary	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(43,492	)	 	 	-	 	 	 	(43,492	)	 	 	547,727	 	 	 	504,235	 
	Common shares issued on exercise of warrants	 	 	9,303	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	9,303	 	 	 	-	 	 	 	9,303	 
	Net loss for the year	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(14,737,998	)	 	 	(14,737,998	)	 	 	(254,276	)	 	 	(14,992,274	)
	Other comprehensive loss	 	 	-	 	 	 	-	 	 	 	(387,467	)	 	 	-	 	 	 	-	 	 	 	(387,467	)	 	 	-	 	 	 	(387,467	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, August 31, 2019	 	$	29,613,406	 	 	$	760,216	 	 	$	(1,333,172	)	 	$	2,753,037	 	 	$	(39,754,120	)	 	$	(7,960,633	)	 	$	293,451	 	 	$	(7,667,182	)

 

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)

 

 

	For the years ended August 31,	 	2019	 	 	2018	 
	Operating activities	 	 	 	 	 	 	 	 
	Net loss for the year	 	$	(14,737,998	)	 	$	(11,503,463	)
	Items not affecting cash used in operating activities:	 	 	 	 	 	 	 	 
	Amortization and depreciation	 	 	2,386,805	 	 	 	1,725,719	 
	Change in fair value of warrants payable	 	 	(552,820	)	 	 	(4,908,704	)
	Write-down of long-term investment	 	 	-	 	 	 	1,570,777	 
	Write-down of leasehold improvements	 	 	-	 	 	 	862,973	 
	Impairment of goodwill	 	 	5,886,260	 	 	 	1,391,859	 
	Impairment of intangible assets	 	 	-	 	 	 	1,688,980	 
	Change in fair value of contingent consideration and convertible debt	 	 	1,647,333	 	 	 	(429,951	)
	(Gain) on settlement and extinguishment of debt	 	 	(497,191	)	 	 	(98,145	)
	Minority interest	 	 	(254,276	)	 	 	-	 
	Bad debt expense	 	 	-	 	 	 	4,042	 
	Unrealized foreign exchange (gain)	 	 	(38,785	)	 	 	(117,085	)
	Deferred income tax (recovery)	 	 	144,822	 	 	 	(859,643	)
	Accretion expense	 	 	98,529	 	 	 	34,673	 
	Share-based payments	 	 	73,843	 	 	 	2,305,039	 
	 	 	 	 	 	 	 	 	 
	 	 	 	(5,843,478	)	 	 	(8,332,929	)
	Changes in non-cash working capital:	 	 	 	 	 	 	 	 
	Accounts and other receivable	 	 	41,597	 	 	 	(437,728	)
	Government remittances receivable	 	 	(231,691	)	 	 	(327,479	)
	Prepaid expenses and deposits	 	 	(625,371	)	 	 	269,414	 
	Accounts payable and accrued liabilities	 	 	1,996,691	 	 	 	3,422,679	 
	Deferred revenue	 	 	(2,383	)	 	 	34,039	 
	 	 	 	 	 	 	 	 	 
	Net cash flows from operating activities	 	 	(4,664,635	)	 	 	(5,372,004	)
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Long-term investment (Note 8)	 	 	-	 	 	 	(242,700	)
	Short-term investments	 	 	-	 	 	 	123,644	 
	Cash acquired on reverse takeover	 	 	-	 	 	 	1,700	 
	Cash paid on acquisition of Eden Games	 	 	-	 	 	 	(8,462,125	)
	Cash acquired on acquisition of Eden Games	 	 	-	 	 	 	425,795	 
	Purchase of property and equipment	 	 	(33,154	)	 	 	(47,613	)
	Investment in Allinsports	 	 	(1,470,000	)	 	 	-	 
	Acquisition of intangible assets	 	 	(154,368	)	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Cash flows from investing activities	 	 	(1,657,522	)	 	 	(8,201,299	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Proceeds from private placements	 	 	-	 	 	 	11,196,627	 
	Proceeds from convertible debentures	 	 	8,821,607	 	 	 	-	 
	Proceeds from promissory notes payable	 	 	200,000	 	 	 	-	 
	Proceeds from exercise of options and warrants	 	 	3,816	 	 	 	1,433,532	 
	Costs of issue	 	 	-	 	 	 	(119,484	)
	Proceeds received from McClaren loan	 	 	-	 	 	 	133,759	 
	Repayment of McClaren loan	 	 	(68,170	)	 	 	(8,337	)
	Repayment of long-term debt	 	 	(102,652	)	 	 	(53,924	)
	Cash paid to settle contingent liability	 	 	(313,363	)	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Net cash flows from financing activities	 	 	8,541,238	 	 	 	12,582,173	 
	 	 	 	 	 	 	 	 	 
	Change in cash	 	 	2,219,081	 	 	 	(991,130	)
	Cash, beginning of year	 	 	607,933	 	 	 	1,599,063	 
	 	 	 	 	 	 	 	 	 
	Cash, end of year	 	$	2,827,014	 	 	$	607,933	 

 

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)

 

 

 

	For the years ended August 31,	 	2019	 	 	2018	 
	Non-Cash Transactions	 	 	 	 	 	 	 	 
	Put option redemption liability on acquisition of Eden Games	 	$	-	 	 	$	2,037,387	 
	Contingent consideration on acquisition of Eden Games	 	 	-	 	 	 	1,148,601	 
	Finders’ warrants	 	 	-	 	 	 	32,131	 
	Shares to be issued	 	 	304,480	 	 	 	455,736	 
	Performance shares	 	 	-	 	 	 	270,340	 
	Debt settled with shares	 	 	-	 	 	 	1,156,512	 
	Option exercise for debt settlement	 	 	-	 	 	 	133,228	 
	Shares issued on acquisition of Eden Games	 	 	-	 	 	 	2,314,216	 
	Extinguishment of option on remaining shares of Eden Games	 	 	547,727	 	 	 	-	 
	Issuance of units on conversion of debt	 	 	61,400	 	 	 	-	 
	Assignment and exchange of debt	 	 	2,719,046	 	 	 	-	 

 

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)

 

 

	1.	Corporate
                                         Information and Going Concern

 

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)

 

 

	2.	Statement
                                         of Compliance and Basis of Presentation

 

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:

 

	 	 	Country of	 	Ownership	 	 	Functional
	Name of Subsidiary	 	Incorporation	 	Percentage	 	 	Currency
	PGL Consulting Services Inc.	 	Canada	 	 	100	%	 	US Dollar
	Pro Gaming League Inc.	 	Canada	 	 	100	%	 	US Dollar
	Pro Gaming League Nevada Inc.	 	USA	 	 	100	%	 	US Dollar
	Millennial Esports California Corp.	 	USA	 	 	100	%	 	US Dollar
	Stream Hatchet S.L.	 	Spain	 	 	100	%	 	Euro
	IDEAS+CARS Ltd.	 	United Kingdom	 	 	100	%	 	UK Pound
	Eden Games S.A.	 	France	 	 	95.67	%1	 	Euro

 

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.

 

		1	See
                                         Note 4

 

	3.	Significant
                                         Accounting Policies

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Amortization of Intangible Assets

 

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

 

	 	Software	36
    months
	 	Customer
    contracts	60
    months
	 	Brands	60
    months
	 	Sports
    gamer platform back end	60
    months
	 	Sports
    gamer platform front end	22
    months
	 	Applications	36
    months

 

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:

 

	Furniture
    and fixtures	5
    years straight line
	Computer
    equipment	3
    years straight line
	Leasehold
    improvements	term
    of the lease, plus one renewal

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Business Combinations

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Income Taxes

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Long-term Investment (Continued)

 

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:

 

		●	Amortized
                                         cost - Assets that are held for collection of contractual cash flows where those cash
                                         flows are solely payments of principal and interest are measured at amortized cost. Interest
                                         revenue is calculated using the effective interest method and gains or losses arising
                                         from impairment, foreign exchange and derecognition are recognized in profit or loss.
                                         Financial assets measured at amortized cost are comprised of cash, accounts and other
                                         receivables, and deposits.

 

    	 	 	 

     

    

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Financial Instruments (Continued)

                                         

                                         

Classification
and Subsequent Measurement (Continued)

 

		●	Fair
                                         value through other comprehensive income - Assets that are held for collection of contractual
                                         cash flows and for selling the financial assets, and for which the contractual cash flows
                                         are solely payments of principal and interest, are measured at fair value through other
                                         comprehensive income. Interest income calculated using the effective interest method
                                         and gains or losses arising from impairment and foreign exchange are recognized in profit
                                         or loss. All other changes in the carrying amount of the financial assets are recognized
                                         in other comprehensive income. Upon derecognition, the cumulative gain or loss previously
                                         recognized in other comprehensive income is reclassified to profit or loss. The Company
                                         does not hold any financial assets measured at fair value through other comprehensive
                                         income.

 

		●	Mandatorily
                                         at fair value through profit or loss - Assets that do not meet the criteria to be measured
                                         at amortized cost, or fair value through other comprehensive income, are measured at
                                         fair value through profit or loss. All interest income and changes in the financial assets’
                                         carrying amount are recognized in profit or loss. Financial assets mandatorily measured
                                         at fair value through profit or loss are comprised of cash. The Company does not hold
                                         any financial assets measured mandatorily at FVTPL.

 

		●	Designated
                                         at fair value through profit or loss – On initial recognition, the Company may
                                         irrevocably designate a financial asset to be measured at fair value through profit or
                                         loss in order to eliminate or significantly reduce an accounting mismatch that would
                                         otherwise arise from measuring assets or liabilities, or recognizing the gains and losses
                                         on them, on different bases. All interest income and changes in the financial assets’
                                         carrying amount are recognized in profit or loss. The Company does not hold any financial
                                         assets designated to be measured at FVTPL.

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Financial Instruments (Continued)

                                         

                                         

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.

 

		i.	Amortized
                                         cost

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Financial Liabilities (Continued)

 

		ii.	Financial
                                         liabilities recorded at FVTPL

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Accounting Pronouncements Adopted During the Year

 

		i)	The
                                         Company has adopted IFRS 15 – Revenue from Contracts with Customers, on September
                                         1, 2018. IFRS 15 was issued by the IASB in May 2014 and specifies how and when revenue
                                         should be recognized based on a five-step model, which is applied to all contracts with
                                         customers. On April 12, 2016, the IASB published final clarifications to IFRS 15 with
                                         respect to identifying performance obligations, principal versus agent considerations,
                                         and licensing.

 

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:

 

		1.	Identifying
                                         the contract with a customer;

		2.	Identifying
                                         the performance obligations;

		3.	Determining
                                         the transaction price;

		4.	Allocating
                                         the transaction price to the performance obligations; and

		5.	Recognizing
                                         revenue when/as performance obligation(s) are satisfied.

 

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.

 

    	 	 	 

     

    

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

 

Accounting
Pronouncements Adopted During the Year (Continued)

 

		ii)	IFRS
                                         9 – Financial instruments (“IFRS 9”) addresses the classification,
                                         measurement and recognition of financial assets and financial liabilities. IFRS 9 was
                                         issued in November 2009, October 2010, November 2013 and finalized in July 2014. It replaces
                                         the parts of IAS 39 Financial Instruments: Recognition and Measurement that relate to
                                         the classification and measurement of financial instruments. IFRS 9 requires financial
                                         assets to be classified into two measurement categories: those measured at fair value
                                         through profit or loss and those measured at amortized cost, with the determination made
                                         at initial recognition. The classification depends on an entity’s business model
                                         for managing its financial instruments and the contractual cash flow characteristics
                                         of the instrument. For financial liabilities, the standard retains most of the IAS 39
                                         requirements. The main change is that in cases where the fair value option is selected
                                         for financial liabilities, the part of a fair value change due to an entity’s own
                                         credit risk is recorded in other comprehensive income rather than the statements of operations,
                                         unless this creates an accounting mismatch. IFRS 9 has also been updated to amend the
                                         requirements around hedge accounting. However, there is no impact to the Company from
                                         these amendments as it does not apply hedge accounting. On September 1, 2018, the Company
                                         adopted these amendments.

 

The
new hedge accounting guidance had no impact on the Company’s consolidated financial statements.

 

Under
IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics
of their contractual cash flows. IFRS 9 contains the primary measurement categories for financial assets: measured at amortized
cost, fair value through other comprehensive income (FVTOCI) and fair value through profit and loss (FVTPL).

 

Below
is a summary showing the classification and measurement bases of the financial instruments as at September 1, 2018 as a result
of adopting IFRS 9 (along with comparison to lAS 39).

 

	 	 	 	 	 
	Classification	 	IAS
    39	 	IFRS
    9
	Cash	 	Loans
    and receivables	 	Amortized
    cost
	Accounts
    and other receivables	 	Loans
    and receivables	 	Amortized
    cost
	Deposits	 	Loans
    and receivables	 	Amortized
    cost
	Accounts
    payable and accrued liabilities	 	Other
    financial liabilties	 	Amortized
    cost
	Convertible
    debentures	 	n/a	 	FVTPL
	Contingent
    consideration	 	Other
    financial liabilties	 	Amortized
    cost
	Put
    option redemption liability	 	Other
    financial liabilities	 	Amortized
    cost
	Warrant
    liability	 	FVTPL	 	FVTPL
	Customer
    points liability	 	Other
    financial liabilities	 	Amortized
    cost
	Promissory
    notes payable	 	Other
    financial liabilties	 	Amortized
    cost
	McLaren
    loan	 	Other
    financial liabilties	 	Amortized
    cost
	Long-term
    debt	 	Other
    financial liabilties	 	Amortized
    cost

 

There
was no impact on the Company’s consolidated financial statements as result of adopting IFRS 9.

 

    	 	 	 

     

    

 

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)

 

 

	3.	Significant
                                         Accounting Policies (Continued)

                                         

                                         Recent Accounting Pronouncements

 

The
following standards have not yet been adopted and are being evaluated to determine their impact on the Company.

 

		i)	IFRS
                                         3 – Business Combinations (“IFRS 3”) was amended in October 2018 to
                                         clarify the definition of a business. This amended definition states that a business
                                         must include inputs and a process and clarified that the process must be substantive
                                         and the inputs and process must together significantly contribute to operating outputs.
                                         In addition it narrows the definitions of a business by focusing the definition of outputs
                                         on goods and services provided to customers and other income from ordinary activities,
                                         rather than on providing dividends or other economic benefits directly to investors or
                                         lowering costs and added a test that makes it easier to conclude that a company has acquired
                                         a group of assets, rather than a business, if the value of the assets acquired is substantially
                                         all concentrated in a single asset or group of similar assets. The amendments are effective
                                         for annual reporting periods beginning on or after January 1, 2020. Earlier adoption
                                         is permitted.

 

		ii)	IFRS
                                         10 – Consolidated Financial Statements (“IFRS 10”) and IAS 28 –
                                         Investments in Associates and Joint Ventures (“IAS 28”) were amended in September
                                         2014 to address a conflict between the requirements of IAS 28 and IFRS 10 and clarify
                                         that in a transaction involving an associate or joint venture, the extent of gain or
                                         loss recognition depends on whether the assets sold or contributed constitute a business.
                                         The effective date of these amendments is yet to be determined, however early adoption
                                         is permitted.

 

		iii)	In
                                         January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). IFRS 16 is effective
                                         for periods beginning on or after January 1, 2019, with early adoption permitted. IFRS
                                         16 eliminates the current dual model for lessees, which distinguishes between on balance
                                         sheet finance leases and off balance sheet operating leases. Instead, there is a single,
                                         on balance sheet accounting model that is similar to current finance lease accounting.

 

		iv)	IFRIC
                                         23 – Uncertainty Over Income Tax Treatments (“IFRIC 23”) was issued
                                         in June 2017 and clarifies the accounting for uncertainties in income taxes. The interpretation
                                         committee concluded that an entity shall consider whether it is probable that a taxation
                                         authority will accept an uncertain tax treatment. If an entity concludes it is probable
                                         that the taxation authority will accept an uncertain tax treatment, then the entity shall
                                         determine taxable profit (tax loss), tax bases, unused tax losses and credits or tax
                                         rates consistently with the tax treatment used or planned to be used in its income tax
                                         filings. If an entity concludes it is not probable that the taxation authority will accept
                                         an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining
                                         the related taxable profit (tax loss), tax bases, unused tax losses and credits or tax
                                         rates. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019.

 

    	 	 	 

     

    

 

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)

 

 

	4.	Acquisition
                                         of Eden Games

 

On
February 27, 2018, the Company closed a share purchase agreement (the “Purchase Agreement”) to acquire a 100% interest
in Eden Games S.A. (“Eden Games”), a French based publisher of racing video games (the “Transaction”),
with payment of the cash and share consideration under the Purchase Agreement previously having been completed on January 16,
2018.

 

The
terms of the Transaction are as follows:

 

		-	The
                                         Company made aggregate cash payments of €6,905,039 ($8,462,125) and issued 59,180
                                         common shares, ascribed a fair value of $2,314,216 to shareholders of Eden Games in exchange
                                         for acquiring an approximate 83.2% majority interest.

		-	The
                                         Company is obligated to pay additional purchase price consideration of €1,275,000
                                         ($1,489,277) to the founders of Eden Games within a five day period after October 31,
                                         2018 should certain milestones be achieved, which have been completed.

 

As
at August 31, 2019 the present value of the contingent consideration is nil (2018 – €1,238,566 ($1,446,719)), which
is calculated based on a combination of probabilities ranging from n/a (2018 -100%; February 27, 2018 - 50% to 100%) or meeting
milestone targets, and a discount rate of 19% (2018 – 19%; February 27, 2018 - 3.5%). During the year ended August 31, 2019,
the Company settled the contingent consideration obligation through cash payments of €280,705 ($313,363), with the remaining
balance settled through the Series Two convertible debt issuance (Note 12).

 

The
Company and the sellers of Eden Games had certain call and put options:

 

		-	Until
                                         February 27, 2019, the Company had an option to purchase the remaining 104,831 common
                                         shares of Eden Games, that is does not own, at €12.16 ($14.20) per share (€1,274,745
                                         ($1,480,744)) in total). This option expired unexercised.

		-	From
                                         February 28, 2019 to March 29, 2019, the founders of Eden Games had an option to sell
                                         their remaining 104,831 common shares to the Company at €12.16 ($14.20) per share
                                         (€1,274,745 ($1,488,600) in total). On March 28, 2019, this option was exercised.

		-	Until
                                         May 30, 2019, the Company had an option to purchase the 36,478 remaining “P”
                                         common shares of Eden Games at €24.32 ($28.40) per share (€887,145 ($1,035,975)
                                         in total). This option expired unexercised.

		-	Until
                                         February 27, 2019, the minority shareholders of Eden Games had an option to sell their
                                         remaining “P” common shares to the Company at €12.16 ($14.20) per share
                                         (€443,572 ($517,120) in total). This option expired unexercised.

		-	During
                                         the six month period starting from the exercise of the 8,250 incentive warrants by their
                                         holders, the Company has an option to exchange the shares receivable upon exercise of
                                         the 8,250 incentive warrants for 3,164 Torque shares.

		-	Before
                                         February 27, 2020, each Eden Games warrant holder has an option to exchange their warrants
                                         for Torque options (3 options in total).

 

The
written put options on the remaining common shares of Eden Games were recorded at the present value of the strike price of the
put options. Using a discount rate of 3.5%, the present value of the common share put option as at August 31, 2018 was €1,249,020
($1,458,930) (February 27, 2018 – €1,227,383 ($1,511,449) and the present value of the “P” common share
put option as at August 31, 2018 was €434,621 ($507,663) (February 27, 2018 – €427,093 ($515,938)). The present
value was accreted to the redemption amount over the term of the option. The Company recorded accretion expense of $39,633 (2018
- $34,673) with respect to the put option redemption liability, during the year ended August 31, 2019.

 

As
the fixed price put options transferred the risks and rewards of ownership of the minority interest to the parent, a non-controlling
interest was not recorded during the year ended August 31, 2018 with respect to the shareholdings covered by the put options.

 

On
expiry of the unexercised option during the year ended August 31, 2019, a non-controlling interest of $547,727, calculated as
4.3% of the net assets of Eden Games at the date of expiration was recognized.

 

    	 	 	 

     

    

 

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)

 

 

	4.	Acquisition
                                         of Eden Games (Continued)

 

The
acquisition was accounted for using the acquisition method of accounting under IFRS 3, Business Combinations, which requires that
the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition.
On a proforma basis, if the acquisition of Eden Games would have occurred at the beginning of the Company’s fiscal year
(September 1, 2017), the net loss and revenue attributed to Eden Games would have been estimated to be $5,159,000 and $3,436,000,
respectively. The net loss and revenue attributed to Eden Games since acquisition (February 28, 2018) to August 31, 2018 is $4,852,000
and $2,634,000, respectively, recorded in the statement of loss.

 

	 	 	€	 	 	$	 
	Consideration Paid	 	 	 	 	 	 	 	 
	Cash	 	 	6,905,039	 	 	 	8,462,125	 
	59,180 common shares	 	 	1,888,385	 	 	 	2,314,216	 
	Put option redemption liability	 	 	1,654,476	 	 	 	2,027,387	 
	Contingent consideration	 	 	937,251	 	 	 	1,148,601	 
	Call option	 	 	16,480	 	 	 	20,196	 
	 	 	 	11,401,631	 	 	 	13,972,525	 
	 	 	 	 	 	 	 	 	 
	Fair value of Identifiable Assets Acquired	 	 	 	 	 	 	 	 
	Cash	 	 	347,446	 	 	 	425,795	 
	Prepaid expenses	 	 	28,300	 	 	 	34,682	 
	Amounts receivable	 	 	283,082	 	 	 	346,917	 
	Tax credits receivable	 	 	285,747	 	 	 	350,183	 
	Deposits	 	 	25,164	 	 	 	30,838	 
	Property and equipment (Note 8)	 	 	106,417	 	 	 	130,414	 
	Intangible assets (Note 7)	 	 	5,773,503	 	 	 	7,075,428	 
	Goodwill (Note 6)	 	 	5,657,060	 	 	 	6,932,727	 
	Deferred tax liability	 	 	(217,903	)	 	 	(267,040	)
	Accounts payable and accrued liabilities	 	 	(477,514	)	 	 	(585,368	)
	Long-term debt (Note 13)	 	 	(318,995	)	 	 	(390,928	)
	Minority interest warrants	 	 	(90,676	)	 	 	(111,123	)
	 	 	 	11,401,631	 	 	 	13,972,525	 

 

    	 	 	 

     

    

 

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)

 

 

	4.	Acquisition
                                         of Eden Games (Continued)

 

The
Company tested Eden Games’ goodwill and long-lived assets for impairment as at August 31, 2019 and 2018. When assessing
whether or not there is an impairment, the recoverable amount of the CGU was determined based on a fair value less cost to sell
calculation which uses cash flow projections based on financial budgets covering a five year period and an after tax discount
rate of 37.7% (2018 - 38.6%) per annum. The cash flows beyond the five year period have been extrapolated using a growth rate
between 0% to 5% (2018 - 2%) per annum.

 

The
Company believes cash flow projections used in estimating the recoverable amounts are generally consistent with results achieved
historically adjusted for anticipated growth. The Company believes that any reasonably possible change in key assumptions to August
31, 2019 on which the recoverable amounts were based would not cause the aggregate carrying amount to exceed the aggregate recoverable
amount of the CGUs.

 

During
the year ended August 31, 2019, it was determined that the Company underperformed relative to revenue forcasts for the year. Accordingly,
performance was assessed and future revenue growth was reduced, which in turn resulted in a reduced value assigned to goodwill.
Accordingly, as at August 31, 2019, the Company recorded a goodwill impairment charge of $5,886,260 on its consolidated statement
of loss and comprehensive loss.

 

	5.	Long-term
                                         Investment

 

In
July 2017, the Company invested €1,125,000 ($1,328,077) to acquire 17.3% of Alt Tab Productions, a Paris, France-based Esports
company and the owner of OGaming.TV (“Alt Tab”). The Company has a contractual obligation to increase its investment
to 38.46% on a fully diluted basis, through a second closing of €1,375,000 ($1,595,000). The Company’s interest was
designated as fair value through profit and loss and recorded at fair value, with changes recognized in the consolidated statements
of loss and comprehensive loss

 

The
Company entered into a call option agreement to purchase the remaining Alt Tab Shares (the “Call Option”). The purchase
price under the Call Option is either: (i) three and a half times Alt Tab’s trailing twelve months of revenue, subject to
adjustments contemplated in the agreement, and exercisable between January 12, 2019 and July 12, 2020, payable, at the election
of the Company, in cash or a combination of cash and common shares of the Company; or (ii) five times Alt Tab’s trailing
twelve months of revenue, subject to adjustments contemplated in the agreement, and exercisable between July 12, 2018 and January
12, 2019, payable, at the election of the Company, in cash or a combination of cash and common shares of the Company. Under either
Call Option (i) or (ii), if the Company chooses to issue common shares of the Company as part of the consideration, it can only
be for up to 30% of the purchase price. An extension was granted with respect to the contractual obligation to increase its investment
to 38.46% in exchange for €200,000 ($233,000) being deposited into escrow as a partial payment of the remaining €1,375,000
($1,606,000) second closing obligation. The Company paid the extension fee to escrow and requested additional financial information
from Alt Tab. To date, this information has not been provided. Furthermore, the Company has become aware of certain breaches by
Alt Tab under the terms of the Agreement. Additionally, during the year ended August 31, 2018, Alt Tab allegedly converted €200,000
($233,000) wired by the Company into shares of Alt Tab improperly and without the requisite consent from the Company.

 

Attempts
to enquire about, or seek remedy to, these breaches have gone unanswered. Accordingly, as at August 31, 2018, the Company recognized
a charge of $1,570,777 on its consolidated statements of loss and comprehensive loss for the year then ended. The Company is assessing
options open to it.

 

    	 	 	 

     

    

 

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)

 

 

	6.	Goodwill

 

	Balance, August 31, 2017	 	$	1,714,868	 
	Acquired on acquisition of Eden Games (Note 4)	 	 	6,932,727	 
	Impairment of goodwill of Ideas and Cars	 	 	(1,391,859	)
	Effect of foreign exchange	 	 	(347,935	)
	 	 	 	 	 
	Balance, August 31, 2018	 	$	6,907,801	 
	Impairment of goodwill of Eden Games (Note 4)	 	 	(5,886,260	)
	Effect of foreign exchange	 	 	(370,187	)
	Balance, August 31, 2019	 	$	651,354	 
	 	 	 	 	 

 

The
Company tested the Stream Hatchet goodwill balance of $312,623 (2018 - $330,022) as at August 31, 2019 and 2018 for impairment.
When assessing whether or not there is an impairment, the recoverable amount of the CGU was determined based on a fair value less
costs to sell calculation which uses cash flow projections based on financial budgets covering a five year period and an after
tax discount rate of 34.6% (2018 - 34.6%) per annum. The cash flows beyond the five year period have been extrapolated using between
a 0% and 10% growth rate per annum growth rate. No impairment charge was determined to be necessary.

 

In
the case of IDEAS+CARS in 2018, and Eden Games in 2019, revenue forecasts fell short of that achieved, resulting in a revision
of the underlying assumptions and an impairment charge being recognized of $1,391,859 and $5,886,260 for the years ended August
31, 2018 and 2019, respectively. As at August 31, 2019, goodwill attributable to IDEAS+CARS and Eden Games was $nil and $338,731,
respectively.

 

	7.	Intangible Assets

 

	 	 	Application	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cost	 	Platforms	 	 	Software	 	 	Brand	 	 	Contracts	 	 	Total	 
	August 31, 2017	 	$	514,192	 	 	$	370,000	 	 	$	1,090,000	 	 	$	1,137,395	 	 	$	3,111,587	 
	Acquired on acquisition (Note 4)	 	 	294,120	 	 	 	5,147,100	 	 	 	1,519,395	 	 	 	114,813	 	 	 	7,075,428	 
	Impairment	 	 	-	 	 	 	-	 	 	 	(802,645	)	 	 	(886,335	)	 	 	(1,688,980	)
	Foreign exchange	 	 	(15,168	)	 	 	(243,904	)	 	 	(73,484	)	 	 	(15,563	)	 	 	(348,119	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2018	 	$	793,144	 	 	$	5,273,196	 	 	$	1,733,266	 	 	$	350,310	 	 	$	8,149,916	 
	Additions	 	 	-	 	 	 	-	 	 	 	-	 	 	 	140,239	 	 	 	140,239	 
	Foreign exchange	 	 	(32,821	)	 	 	(217,398	)	 	 	(70,273	)	 	 	(12,957	)	 	 	(333,449	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2019	 	$	760,323	 	 	$	5,055,798	 	 	$	1,662,993	 	 	$	477,592	 	 	$	7,956,706	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated Amortization	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2017	 	$	514,192	 	 	$	41,110	 	 	$	24,778	 	 	$	18,957	 	 	$	599,037	 
	Amortization	 	 	47,707	 	 	 	954,779	 	 	 	379,159	 	 	 	241,528	 	 	 	1,623,173	 
	Foreign exchange	 	 	(1,082	)	 	 	(22,016	)	 	 	(11,063	)	 	 	(8,124	)	 	 	(42,285	)
	August 31, 2018	 	$	560,817	 	 	$	973,873	 	 	$	392,874	 	 	$	252,361	 	 	$	2,179,925	 
	Amortization	 	 	90,667	 	 	 	1,700,615	 	 	 	296,357	 	 	 	53,033	 	 	 	2,140,672	 
	Foreign exchange	 	 	(23,207	)	 	 	(40,150	)	 	 	(15,929	)	 	 	(9,333	)	 	 	(88,619	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2019	 	$	628,277	 	 	$	2,634,338	 	 	$	673,302	 	 	$	296,061	 	 	$	4,231,978	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Carrying Value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At August 31, 2018	 	$	232,327	 	 	$	4,299,323	 	 	$	1,340,392	 	 	$	97,949	 	 	$	5,969,991	 
	At August 31, 2019	 	$	132,046	 	 	$	2,421,460	 	 	$	989,691	 	 	$	181,531	 	 	$	3,724,728	 

 

During
the year ended August 31, 2019, the Company recorded an impairment of brands and customer contracts in the amount of $nil (2018
- $802,645 and $886,335, respectively).

 

    	 	 	 

     

    

 

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)

 

 

	8.	Property and Equipment

 

	 	 	Computer	 	 	Furniture	 	 	 	 
	Cost	 	Equipment	 	 	and Fixtures	 	 	Total	 
	August 31, 2017	 	$	126,381	 	 	$	4,000	 	 	$	130,381	 
	Effect of foreign exchange	 	 	(1,335	)	 	 	(7,039	)	 	 	(8,374	)
	Additions	 	 	55,347	 	 	 	116,841	 	 	 	172,188	 
	August 31, 2018	 	$	180,393	 	 	$	113,802	 	 	$	294,195	 
	Additions	 	 	17,839	 	 	 	2,612	 	 	 	20,451	 
	Effect of foreign exchange	 	 	10,894	 	 	 	6,884	 	 	 	17,778	 
	August 31, 2019	 	$	209,126	 	 	$	123,298	 	 	$	332,424	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated Depreciation	 	 	 	 	 	 	 	 	 	 	 	 
	August 31, 2017	 	$	55,401	 	 	$	4,000	 	 	$	59,401	 
	Effect of foreign exchange	 	 	5,826	 	 	 	-	 	 	 	5,826	 
	Depreciation	 	 	56,752	 	 	 	9,345	 	 	 	66,097	 
	August 31, 2018	 	$	117,979	 	 	$	13,345	 	 	$	131,324	 
	Effect of foreign exchange	 	 	7,137	 	 	 	788	 	 	 	7,925	 
	Depreciation	 	 	55,973	 	 	 	54,567	 	 	 	110,540	 
	August 31, 2019	 	$	181,089	 	 	$	68,700	 	 	$	249,789	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Carrying Value	 	 	 	 	 	 	 	 	 	 	 	 
	At August 31, 2018	 	$	62,414	 	 	$	100,457	 	 	$	162,871	 
	At August 31, 2019	 	$	28,037	 	 	$	54,598	 	 	$	82,635	 

 

    	 	 	 

     

    

 

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)

 

 

	9.	Leasehold
                                         Improvements

 

	 	 	Leasehold	 
	Cost	 	Improvements	 
	August 31, 2017	 	$	917,438	 
	Impairment	 	 	(862,973	)
	August 31, 2018	 	$	54,465	 
	Additions	 	 	-	 
	August 31, 2019	 	$	54,465	 
	 	 	 	 	 
	Accumulated Depreciation	 	 	 	 
	August 31, 2017	 	$	47,943	 
	Depreciation	 	 	3,208	 
	August 31, 2018	 	$	51,151	 
	Depreciation	 	 	696	 
	August 31, 2019	 	$	51,847	 
	 	 	 	 	 
	Carrying Value	 	 	 	 
	At August 31, 2018	 	$	3,314	 
	At August 31, 2019	 	$	2,618	 

 

During
the year ended August 31, 2019, the Company impaired leaseholds in the amount of $nil (2018 - $862,973) pertaining to its ESports
facility in Las Vegas.

 

	10.	Credit Facility

 

On
April 23, 2018, the Company entered into an agreement for a $10 million revolving multi-draw credit facility (“Credit Facility”)
with Eastmore Global Ltd. (“Eastmore”), with an initial drawdown under the facility of $1.1 million. During the year
ended August 31, 2018, $1.1 million was advanced and $25,315 of interest incurred. On July 13, 2018, the Company repaid the advance
and accrued interest. The Company does not intend to draw upon this facility in the future.

 

The
terms of the credit facility are as follows:

 

		●	Annual
                                         interest rate of 10% on the principal amounts drawn.

		●	A
                                         maturity date of twelve months from the last drawdown.

		●	The
                                         initial amount will be drawn on the initial funding date (“Initial Funding Date”).
                                         In connection with the initial drawdown, the Company is obligated to issue 516,800 common
                                         shares. Upon the July 13, 2018 principle and interest repayment, Eastmore forgave the
                                         obligation to issue the initial drawdown shares.

		●	For
                                         each subsequent drawdown the lender will receive a number of common shares equal to twenty
                                         per cent (20%) of the drawdown at an issue price equal to the closing price of the common
                                         shares on the TSX-V on the day prior to the drawdown using an exchange rate of CAD$1.292
                                         for $1, rounded down to the nearest share.

		●	Future
                                         draws under the facility do not require specific conditions precedent, but are at the
                                         discretion of the lender.

		●	If
                                         the Company draws down the full $10 million under the facility, the lender shall be entitled
                                         to a security interest against all the assets of the Company, but prior to such occurrence
                                         the facility shall be unsecured.

 

    	 	 	 

     

    

 

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)

 

 

	11.	Promissory Notes Payable

 

On
September 30, 2018, the Company received $200,000 in working capital advances in the form of promissory notes from two companies
for which a director of Torque is a senior officer. These promissory notes are unsecured, have a term of one year, and carry interest
at 18%. As of August 31, 2019, interest of $33,131 has been accrued.

 

During
the year ended August 31, 2019, the Company converted $387,611 in residual Series One convertible debt (see Note 12), to a promissory
note payable from a corporation of which a director of the Company is a senior officer. The note is unsecured, bears interest
at 6% and is due on demand. As of August 31, 2019, interest of $1,322 had accrued.

 

Additionally,
the promissory notes were increased by CAD$320,540 ($230,820), representing additonal amounts owed to an arm’s length corporation
and an individual who is associated with a corporation of which a director of Torque is a senior officer. The notes are unsecured,
non-interest bearing, and are due on demand.

 

	12.	Convertible Debt

 

The
following is the convertible debt activity for the year ended August 31, 2019.

 

Convertible
Debt - Series One

 

Commencing
December 18, 2018 through June 27, 2019 the Company closed seven tranches of a non-brokered private placement of convertible debentures
(“Series One” or “the first series”) with an aggregate principal amount of CAD$3,536,350 ($2,655,090).
The debentures mature 24 months from the date of issuance and bear interest at a rate of 12% per annum, payable on maturity. The
debenture holders may convert at any time, all or a portion of the convertible loan principal into units of the Company at a price
of CAD$6.75 ($5.08) per unit for the first 12 months and thereafter at a price of CAD$7.50 ($5.64) per unit until maturity. Each
unit is comprised of one common share of the Company and one warrant, with each warrant exercisable into a common share of the
Company at an exercise price of CAD$6.75 ($5.08) per share for the first 12 months and thereafter at a price of CAD$7.50 ($5.64)
per share for a period of five years from the issuance of the debentures. The Series One convertible debentures included a call
option in which the Company could force exercise of the warrants if the stock price exceeded CAD$27.00 ($20.30) for five consecutive
trading days.

 

The
funding from this debenture issuance originated from a corporation of which a director of the Company is a senior officer.

 

A
trading restriction of four months is applicable to the common shares issued on exercise of the conversion option. Additionally,
at any time, the holder cannot convert to hold more than 10% of the common shares of the Company.

 

The
fair value of the Series One convertible debentures at the date of issuance was estimated using the binomial lattice model with
the following assumptions: share price of CAD$0.50-$7.87 ($0.37-$6.00); term of 2 years; conversion price and warrant exercise
price of CAD$6.75 ($5.08) for the first twelve months and CAD$7.50 ($5.64) for the last twelve months; interest rate of 12%; expected
volatility of 125%; risk-free interest rate of 1.44%-1.90%; exchange rate of 0.7409-0.7624; and an expected dividend yield of
0%. The fair value assigned to these convertible debentures was CAD$3,536,350 ($2,658,734).

 

On
July 8, 2019, a substantial amount of the convertible debt was extinguished and exchanged for a new “Series Two” convertible
debenture described below. At the date of the exchange, the Series One convertible debentures had a fair value of $2,431,489 (CAD$3,181,676),
resulting in a recognition of a gain on extinguishment of debt of $205,407.

 

The
fair value of the Series One convertible debentures on extinguishment, was estimated using the binomial lattice model with the
following assumptions: share price of CAD$1.80 ($1.38); term of 1.45-1.97 years; conversion price and warrant exercise price of
CAD$6.75 ($5.08) for the first twelve months and CAD$7.50 ($5.64) for the last twelve months; interest rate of 12%; expected volatility
of 125%; risk-free interest rate of 1.66-1.69%; exchange rate of 0.7642; and an expected dividend yield of 0%.

 

    	 	 	 

     

    

 

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)

 

 

	12.	Convertible Debt (Continued)

 

Convertible Debt - Series One

 

	Balance, August 31, 2017 and 2018	 	$	-	 
	Issuance	 	 	2,655,090	 
	Extinguishment of convertible debt	 	 	(205,407	)
	Conversion to Series Two convertible debt	 	 	(2,431,489	)
	Interest	 	 	105,078	 
	Foreign exchange	 	 	264,339	 
	Conversion to promissory note payable (Note 11)	 	 	(387,611	)
	Balance, August 31, 2019	 	$	-	 

 

Convertible
Debt - Series Two

 

On
July 8, 2019 through August 8, 2019, the Company completed three tranches of a non-brokered private placement of convertible debentures
(the “second series” or “Series Two”) in the principal amount aggregating CAD$15,000,012 ($11,401,984).
Included in the amounts raised were CAD$5,113,112 ($3,844,200) received from companies associated with a corporation with which
a director of the Company is a senior officer. The debentures will mature 36 months from the date of issuance and bear interest
at a rate of 6% per annum, payable on maturity. The debenture holders may convert all or a portion of the convertible loan principal
into units of the Company at a price of CAD$0.50 ($0.38) per unit. Each unit is comprised of one common share of the Company and
one warrant, with each warrant exercisable into a common share of the Company at an exercise price of CAD$0.50 ($0.38) per share
for a period of five years from the issuance. The Company shall be entitled to call for the exercise of any outstanding warrants
following the 6 month anniversary of closing in the event that the closing trading price of the shares is above $3.00 for fifteen
consecutive trading days. The Series Two Convertible debentures includes a call option in which the Company may force exercise
of the warrants if the stock price exceeds CAD$3.00 ($2.26) for fifteen consecutive trading days, starting six months from the
closing date.

 

A
trading restriction of four months is applicable to the common shares issued on exercise of the conversion option. Additionally,
at any time, the holder cannot convert to hold more than 10% of the common shares of the Company.

 

The
fair value of the Series Two convertible debentures at the date of issuance was estimated using the binomial lattice model with
the following assumptions: share price of CAD$1.60-$2.20 ($1.21-$1.68); term of 3 years; conversion price and warrant exercise
price of CAD$0.50 ($0.38); interest rate of 6%; expected volatility of 140%; risk-free interest rate of 1.29%-1.61%; exchange
rate of 0.7543-0.7642; and an expected dividend yield of 0%. The fair value assigned to these convertible debentures was CAD$15,000,012
($11,401,984).

 

On
August 20, 2019, convertible debentures in the amount of CAD$72,000 ($54,035) were converted into 144,000 units (see Notes 15
and 16). The fair value of the Series Two convertible debentures at the time of conversion was estimated using the binomial lattice
model with the following assumptions: share price of CAD$5.25 ($3.94); term of 2.97 years; conversion price and warrant exercise
price of CAD$0.50 ($0.38); interest rate of 6%; expected volatility of 140%; risk-free interest rate of 1.27%; exchange rate of
0.7505; and an expected dividend yield of 0%. The fair value assigned to these convertible debentures is CAD$81,813 ($61,400).
This value was split between common shares and warrants as $31,026 and $30,374, respectively.

 

As
at August 31, 2019, the fair value of the Series Two convertible debentures was CAD$16,666,100 ($12,532,723). The fair value of
the Series Two convertible debentures on August 31, 2019 was estimated using the binomial lattice model with the following assumptions:
share price of CAD$5.05 ($3.80); term of 2.85-2.94 years; conversion price and warrant exercise price of CAD$0.50 ($0.38); interest
rate of 6%; expected volatility of 140%; risk-free interest rate of 1.27%; exchange rate of 0.7519; and an expected dividend yield
of 0%.

 

    	 	 	 

     

    

 

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)

 

 

	12.	Convertible Debt (Continued)

Convertible Debt - Series Two

 

	Balance, August 31, 2017 and 2018	 	$	-	 
	Issuance	 	 	8,970,495	 
	Conversion of Series One convertible debt	 	 	2,431,489	 
	Conversion	 	 	(31,026	)
	Warrants issued on conversion	 	 	(30,374	)
	Interest	 	 	72,035	 
	Foreign exchange	 	 	(416,428	)
	Change in fair value	 	 	1,536,532	 
	Balance, August 31, 2019	 	$	12,532,723	 

 

	13.	Long-term Debt and McLaren Loan

 

Long-term
Debt

 

On
September 9, 2014, Eden Games entered into a loan arrangement with Banque Publique d’Investissement (“BPI”)
for €450,000 ($525,600). This loan is unsecured, non-interest bearing and matures on June 30, 2022, with the first payment
paid on September 30, 2017. Fees of €13,000 ($15,000) were paid in connection with the loan. The loan bears interest at 0%
per annum. As at August 31, 2019, the present value of the loan was $246,288 (2018 - $304,163), with accretion of $58,896 (2018
- $nil) having been charged to the Company’s statements of loss and comprehensive loss for the year then ended. A discount
rate of 11% was used (2018 - 11%).

 

The
loan is repayable as follows:

 

	2020	 	€
    90,000 ($99,000)
	2021	 	€
    90,000 ($99,000)
	2022	 	€
    90,000 ($99,000)

 

McLaren
Loan

 

On
February 9, 2018, IDEAS+CARS entered into a loan arrangement with McLaren Marketing Limited (“McLaren”) for £95,320
($123,622). This loan was unsecured, non-interest bearing and payable on April 30, 2018. On April 3, 2018, McLaren discontinued
its involvement and provided termination notice. As at August 31, 2018, £88,906 ($115,303) was due to McLaren. On January
4, 2019, the balance owing to McLaren was settled for a cash payment of $68,170.

 

	14.	Stock Options

 

The
following table reflects the continuity of stock options for the years ended ended August 31, 2019 and 2018:

 

	 	 	 	 	 	Weighted Average	 
	 	 	Number of	 	 	Exercise Price	 
	 	 	Stock Options	 	 	(CAD$)	 	 	(US$)	 
	Balance, August 31, 2017	 	 	93,700	 	 	 	12.75	 	 	 	9.59	 
	Granted(2)	 	 	157,333	 	 	 	36.75	 	 	 	27.64	 
	Exercised	 	 	(16,967	)	 	 	10.50	 	 	 	7.90	 
	Expired/Cancelled	 	 	(70,000	)	 	 	53.25	 	 	 	40.05	 
	Balance, August 31, 2018	 	 	164,066	 	 	 	18.75	 	 	 	14.10	 
	Granted(1)	 	 	26,667	 	 	 	9.75	 	 	 	7.33	 
	Expired/Cancelled	 	 	(86,133	)	 	 	35.88	 	 	 	26.99	 
	Balance, August 31, 2019	 	 	104,600	 	 	 	14.73	 	 	 	11.08	 

 

    	 	 	 

     

    

 

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)

 

 

	14.	Stock
                                         Options (Continued)

 

		(1)	On
                                         September 14, 2018, the Company granted 26,667 stock options to the Company’s Chief
                                         Executive Officer with an exercise price of CAD$9.75 ($7.33) per share, expiring on September
                                         14, 2025. The fair value of these options at the date of grant was estimated using the
                                         Binomial lattice option pricing model with the following assumptions: a share price of
                                         CAD$9.75 ($7.33) a seven year expected life; 194% expected volatility; risk-free interest
                                         rate of 2.30%; and an expected dividend yield of 0%. The fair value assigned to these
                                         options was $188,175. The options vest in accordance with certain established performance
                                         measurements.

 

		(2)	On
                                         October 30, 2017, the Company granted 40,000 stock options to a director with an exercise
                                         price of CAD$58.50 ($44.00) per share, expiring on October 30, 2027. The fair value of
                                         these options at the date of grant was estimated using the Black-Scholes option pricing
                                         model with the following assumptions: a ten year expected life; 238% expected volatility,
                                         share price of CAD$63.75 ($47.95) risk-free interest rate of 1.96%; and an expected dividend
                                         yield of 0%. The fair value assigned to these options was $1,989,526. The options vest
                                         in tranches over two years from the date of grant, subject to certain performance milestones.
                                         These options were cancelled on May 4, 2018.

 

On
November 3, 2017, the Company granted 6,667 stock options with an exercise price of CAD$60.00 ($45.13) per share, expiring on
November 3, 2022. The fair value of these options at the date of grant was estimated using the Black-Scholes option pricing model
with the following assumptions: a share price of CAD$60.00 ($45.13); a five year expected life; 263% expected volatility; risk-free
interest rate of 1.66%; and an expected dividend yield of 0%. The fair value assigned to these options was $341,886. The options
vest monthly over a three year period. These options were cancelled on July 30, 2018.

 

On
November 22, 2017, the Company granted 13,333 stock options with an exercise price of CAD$57.75 ($43.44) per share, expiring on
November 22, 2027. The fair value of these options at the date of grant was estimated using the Black-Scholes option pricing model
with the following assumptions: a share price of CAD$63.00 ($47.39); a ten year expected life; 246% expected volatility; risk-free
interest rate of 1.90%; and an expected dividend yield of 0%. The fair value assigned to these options was $659,354. The options
vest monthly over a two year period.

 

On
January 12, 2018, the Company granted 14,667 stock options with an exercise price of CAD$54.00 ($40.62) per share, expiring on
January 12, 2023. The fair value of these options at the date of grant was estimated using the Black-Scholes option pricing model
with the following assumptions: a share price of CAD$63.00 ($47.38); a five year expected life; 251% expected volatility; risk-free
interest rate of 1.97%; and an expected dividend yield of 0%. The fair value assigned to these options was $733.181. The options
vest monthly over a three year period. On July 30, 2018, 13,333 of these options were cancelled. The remaining options were cancelled
during the year ended August 31, 2019.

 

On
January 13, 2018, the Company granted 3.333 stock options with an exercise price of CAD$54.75 ($41.18) per share, expiring on
January 12, 2023. The fair value of these options at the date of grant was estimated using the Black-Scholes option pricing model
with the following assumptions: a share price of CAD$63.00 ($47.39); a five year expected life; 251% expected volatility; risk-free
interest rate of 1.97%; and an expected dividend yield of 0%. The fair value assigned to these options was $166,625. The options
vest monthly over a three year period. These options were cancelled on July 30, 2018.

 

On
January 19, 2018, the Company granted 10,000 stock options with an exercise price of CAD$54.00 ($40.62) per share, expiring on
January 12, 2023. The fair value of these options at the date of grant was estimated using the Black-Scholes option pricing model
with the following assumptions: a share price of CAD$60.00 ($45.13); a five year expected life; 251% expected volatility; risk-free
interest rate of 2.02%; and an expected dividend yield of 0%. The fair value assigned to these options was $476,041. The options
vest monthly over a two year period.

 

    	 	 	 

     

    

 

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)

 

 

	14.	Stock
                                         Options (Continued)

 

		(2)	(Continued)

 

On
February 28, 2018, the Company granted 2,000 stock options with an exercise price of CAD$40.50 ($30.46) per share, expiring on
February 28, 2023. The fair value of these options at the date of grant was estimated using the Black-Scholes option pricing model
with the following assumptions: a share price of CAD$48.00 ($36.11); a five year expected life; 246% expected volatility; risk-free
interest rate of 2.04%; and an expected dividend yield of 0%. The fair value assigned to these options was $75,112. The options
vest quarterly over a two year period.

 

On
March 20, 2018, the Company granted 667 stock options with an exercise price of CAD$51.00 ($38.36) per share, expiring on March
20, 2023. The fair value of these options at the date of grant was estimated using the Black-Scholes option pricing model with
the following assumptions: a share price of CAD$51.00 ($38.36); a five year expected life; 264% expected volatility; risk-free
interest rate of 2.04%; and an expected dividend yield of 0%. The fair value assigned to these options was $20,387. The options
vest quarterly over a three year period.

 

On
July 25, 2018, the Company granted 66,667 stock options with an exercise price of CAD$10.50 ($7.90) per share, expiring on July
25, 2025. The fair value of these options at the date of grant was estimated using the Binomial lattice option pricing model with
the following assumptions: a share price of CAD$10.50 ($7.90) a seven year expected life; 181% expected volatility; risk-free
interest rate of 2.30%; and an expected dividend yield of 0%. The fair value assigned to these options was $560,334. The options
vest in accordance with certain established performance measurements.

 

Volatility
is calculated based on the changes in the Company’s historical stock prices over the expected life of the options.

 

The
following table reflects the stock options issued and outstanding as of August 31, 2019:

 

	 	 	Remaining

                                                                                Exercise

                                                                                Price
	 	 	Weighted Average Number of Contractual	 	 	Options	 
	Expiry Date	 	(CAD)	 	 	(USD)	 	 	Life (years)	 	 	Outstanding	 
	January 12, 2023	 	 	54.00	 	 	 	40.62	 	 	 	3.37	 	 	 	10,000	 
	March 20, 2023	 	 	51.00	 	 	 	38.36	 	 	 	3.55	 	 	 	667	 
	July 30, 2025	 	 	10.50	 	 	 	7.90	 	 	 	5.92	 	 	 	66,667	 
	September 14, 2025	 	 	9.75	 	 	 	7.33	 	 	 	6.04	 	 	 	26,666	 
	November 9, 2026	 	 	10.50	 	 	 	7.90	 	 	 	7.20	 	 	 	600	 
	 	 	 	12.74	 	 	 	9.58	 	 	 	5.84	 	 	 	104,600	 

 

Of
the 104,600 options outstanding (2018 - 164,066), 2,511 (2018 - 19,748) are exercisable as at August 31, 2019. During the year
ended August 31, 2019, share-based compensation expense was $73,843 (2018 - $2,305,039).

 

    	 	 	 

     

    

 

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)

 

 

	15.	Warrant Liability

 

	 	 	Warrant	 
	 	 	Liability	 
	Balance at August 31, 2017	 	$	7,188,957	 
	Change in fair value	 	 	(4,908,704	)
	Impact of warrants exercised during the year	 	 	(3,910,215	)
	Units issued as part of private placement	 	 	2,474,324	 
	Foreign exchange	 	 	(25,117	)
	 	 	 	 	 
	Balance as at August 31, 2018	 	$	819,245	 
	Warrants issued	 	 	28,551	 
	Change in fair value	 	 	(552,820	)
	Expiration of warrants	 	 	(3,667	)
	Impact of warrants exercised during the year	 	 	(5,488	)
	Foreign exchange	 	 	10,974	 
	 	 	 	 	 
	Balance as at August 31, 2019	 	$	296,795	 

 

The
movements in the number and estimated fair value of outstanding warrants issued are as follows:

 

	 	 	Number of	 	 	Weighted-average exercise price	 	 	Weighted-average exercise price	 
	 	 	warrants	 	 	(CAD)	 	 	(USD)	 
	Outstanding, August 31, 2017	 	 	184,299	 	 	$	23.25	 	 	$	17.49	 
	Granted	 	 	253,935	 	 	 	51.00	 	 	 	38.36	 
	Exercised	 	 	(98,676	)	 	 	(18.75	)	 	 	(14.10	)
	Outstanding, August 31, 2018	 	 	339,558	 	 	$	45.00	 	 	$	35.25	 
	Granted (vii)	 	 	144,000	 	 	 	0.50	 	 	 	0.38	 
	Exercised (i)	 	 	(1,333	)	 	 	(3.75	)	 	 	(3.00	)
	Expired (iii)	 	 	(42,471	)	 	 	(54.00	)	 	 	(42.00	)
	Outstanding, August 31, 2019	 	 	439,754	 	 	$	29.90	 	 	$	23.14	 

 

	Exercisable	 	Warrants Outstanding	 	 	Warrants	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Weighted	 
	 	 	 	 	 	Average	 	 	Average	 	 	 	 	 	Average	 
	 	 	 	 	 	Exercise	 	 	Remaining	 	 	Weighted	 	 	Exercise	 
	 	 	Number	 	 	Price	 	 	Contractual	 	 	Number	 	 	Price	 
	Expiry Date	 	Outstanding	 	 	(CAD)	 	 	(USD)	 	 	Life (years)	 	 	Exercisable	 	 	(CAD)	 	 	(USD)	 
	August 8, 2024 (vii)	 	 	144,000	 	 	$	0.50	 	 	$	0.38	 	 	 	4.94	 	 	 	144,000	 	 	$	0.50	 	 	$	0.38	 
	October 20, 2019 (i)	 	 	41,818	 	 	 	3.75	 	 	 	2.82	 	 	 	0.14	 	 	 	41,818	 	 	 	3.75	 	 	 	2.82	 
	January 9, 2020 (vi)	 	 	115,442	 	 	 	90.00	 	 	 	67.70	 	 	 	0.36	 	 	 	115,442	 	 	 	90.00	 	 	 	67.70	 
	February 8, 2020 (v)	 	 	9,919	 	 	 	90.00	 	 	 	67.70	 	 	 	0.44	 	 	 	9,919	 	 	 	90.00	 	 	 	67.70	 
	July 12, 2020 (iv)	 	 	128,575	 	 	 	12.75	 	 	 	9.59	 	 	 	0.37	 	 	 	128,575	 	 	 	12.75	 	 	 	9.59	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	439,754	 	 	$	30.56	 	 	$	22.99	 	 	 	1.84	 	 	 	439,754	 	 	$	30.56	 	 	$	22.99	 

 

    	 	 	 

     

    

 

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)

 

 

	15.	Warrant
                                         Liability (Continued)

                                         

                                         Warrants

 

		(i)	During
                                         the year ended August 31, 2018, the holders of 534 of the 43,685 warrants exercised their
                                         right to convert the warrants into the Company’s shares at an exercise price of
                                         CAD$3.75 ($2.82).
As a result of the underlying exercise of warrants, the Company received CAD$2,000 ($1,550) in cash proceeds and a proportionate
fair value of $25,025 of the underlying warrants was transferred to share capital. The value was calculated using the Black Scholes
option pricing model with the following assumptions: a 1.57 years as expected average life; share price of CAD$51 ($38.36); exercise
price of CAD$3.75 ($2.82); 137% expected volatility based on the changes in the Company’s historical stock prices over the
expected life of the warrants; risk free interest rate of 1.84%; and an expected dividend yield of 0%.

 

As
at August 31, 2018, the fair value of the remaining 43,151 warrants payable was determined to be $264,881 as calculated using
the Black Scholes option pricing model with the following assumptions: a 1.14 years as expected average life; share price of CAD$10.50
($7.90); exercise price of CAD$3.75 ($2.82); 139% expected volatility; risk free interest rate of 2.04%; and an expected dividend
yield of 0%. Volatility is calculated based on the changes in the Company’s historical stock prices over the expected life
of the options.

 

During
the year ended August 31, 2019, the holders of 1,333 warrants exercised their right to convert the warrants into the Company’s
shares at an exercise price of CAD$3.75 ($3.00). As a result of the underlying exercise of warrants, the Company received CAD$5,000
($3,815) in cash proceeds and a proportionate fair value of $5,488 of the underlying warrants was transferred to share capital.

 

As
at August 31, 2019, the fair value of the remaining 41,818 warrants payable was determined to be $60,391 as calculated using the
Black Scholes option pricing model with the following assumptions: a 0.14 years as expected average life; share price of CAD$5.05
($3.80); exercise price of CAD$3.75 ($2.82); 114% expected volatility; risk free interest rate of 1.62%; and an expected dividend
yield of 0%. Volatility is calculated based on the changes in the Company’s historical stock prices over the expected life
of the options. On October 20, 2019, these options expired unexercised.

 

		(ii)	During
                                         the year ended August 31, 2018, the holders of all 88,889 warrants exercised their right
                                         to convert the warrants into the Company’s shares at an exercise price of CAD$15.00
                                         ($11.28). As
a result of the underlying exercise of warrants, the Company received CAD$1,333,333 ($1,000,000) in cash proceeds and a proportionate
fair value of $3,611,986 of the underlying warrants was transferred to share capital.
	 	 	 
		(iii)	As
                                         at August 31, 2018, the fair value of 42,471 warrants payable was determined to be $3,660
                                         as calculated using the Black Scholes option pricing model with the following assumptions:
                                         a 0.39 years as expected average life; share price of CAD$10.50 ($7.90); exercise price
                                         of CAD$54.00 ($40.62); 124% expected volatility; risk free interest rate of 2.04%; and
                                         an expected dividend yield of 0%. During the year ended August 31, 2019, these warrants
                                         expired unexercised.

 

    	 	 	 

     

    

 

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)

 

 

	15.	Warrant
                                         Liability (Continued)

 

		(iv)	On
                                         July 13, 2018, the Company closed a non-brokered private placement at a price of CAD$9.00
                                         ($6.77) per unit. The Company issued 257,149 units for gross proceeds of CAD$2,314,344
                                         ($1,757,050). Each unit is comprised of one common share of the Company and one-half
                                         of one common share purchase warrant of Torque. Each whole warrant entitles the holder
                                         to acquire one common share of Torque for a period of 18 months from the date of issuance
                                         of the warrant, at an exercise price of CAD$12.75 ($9.59) per share. Cash costs of issue
                                         were $11,487.

 

On
issuance, the fair value of the 128,575 warrants issued was $267,750 as calculated using the Black-Scholes option pricing model
with the following assumptions: a 18 months expected average life; share price of CAD$7.50 ($5.64); 102% expected volatility;
risk free interest rate of 1.92%; and an expected dividend yield of 0%. Volatility is calculated based on the changes in the Company’s
historical stock prices over the expected life of the warrants.

 

As
at August 31, 2018, the fair value of the 128,575 warrants issued was $469,789 as calculated using the Black-Scholes option pricing
model with the following assumptions: a 1.37 year expected average life; share price of CAD$10.50 ($7,90); 268% expected volatility;
risk free interest rate of 1.62%; and an expected dividend yield of 0%. Volatility is calculated based on the changes in the Company’s
historical stock prices over the expected life of the warrants.

 

As
at August 31, 2019, the fair value of the 128,575 warrants issued was $167,285 as calculated using the Black-Scholes option pricing
model with the following assumptions: a 0.37 year expected average life; share price of CAD$5.05 ($3.80); 268% expected volatility;
risk free interest rate of 1.62%; and an expected dividend yield of 0%. Volatility is calculated based on the changes in the Company’s
historical stock prices over the expected life of the warrants.

 

		(v)	As
                                         at August 31, 2018, the fair value of the 9,919 warrants issued was determined to be
                                         $8,625 as calculated using the Black Scholes option pricing model with the following
                                         assumptions: a 1.44 years as expected average life; share price of CAD$10.50 ($7.90);
                                         exercise price of CAD$90 ($67.70); 114% expected volatility; risk free interest rate
                                         of 2.04%; and an expected dividend yield of 0%. Volatility is calculated based on the
                                         changes in the Company’s historical stock prices over the expected life of the
                                         warrants.

 

As
at August 31, 2019, the fair value of the 9,919 warrants issued was determined to be $4,514 as calculated using the Black Scholes
option pricing model with the following assumptions: a 0.44 years as expected average life; share price of CAD$5.05 ($3.80); exercise
price of CAD$90 ($67.66); 265% expected volatility; risk free interest rate of 1.62%; and an expected dividend yield of 0%. Volatility
is calculated based on the changes in the Company’s historical stock prices over the expected life of the warrants. On January
9, 2020, these warrants expired unexercised.

 

		(vi)	As
                                         at August 31, 2018, the fair value of the 115,442 warrants issued was determined to be
                                         $72,290 as calculated using the Black Scholes option pricing model with the following
                                         assumptions: a 1.36 years as expected average life; share price of CAD$10.50 ($7.89);
                                         exercise price of CAD$90 ($67.70); 114% expected volatility; risk free interest rate
                                         of 2.04%; and an expected dividend yield of 0%. Volatility is calculated based on the
                                         changes in the Company’s historical stock prices over the expected life of the
                                         warrants.

 

As
at August 31, 2019, the fair value of the 115,442 warrants issued was determined to be $34,231 as calculated using the Black Scholes
option pricing model with the following assumptions: a 0.36 years as expected average life; share price of CAD$5.05 ($3.80); exercise
price of CAD$90 ($67.66); 268% expected volatility; risk free interest rate of 1.62%; and an expected dividend yield of 0%. Volatility
is calculated based on the changes in the Company’s historical stock prices over the expected life of the warrants. On February
8, 2020, these warrants expired unexercised.

 

    	 	 	 

     

    

 

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)

 

 

	15.	Warrant
                                         Liability (Continued)

 

		(vii)	On
                                         August 20, 2019, the Company issued 144,000 warrants in conjunction with the conversion
                                         of 144,000 units of convertible debt. Each resulting unit was comprised of one common
                                         share of the Company and one common share purchase warrant of the Company. Each whole
                                         warrant entitles the holder to acquire one common share of the Company for a period of
                                         five years at an exercise price of CAD$0.50 ($0.38) per share. The fair value of the
                                         144,000 warrants issued was determined to be $26,735 as calculated using the Black Scholes
                                         option pricing model using the cyclical method with the following assumptions: a 5 years
                                         as expected average life; share price of CAD$0.25 ($0.19); exercise price of CAD$0.50
                                         ($0.38); 211% expected volatility; risk free interest rate of 1.19%; and an expected
                                         dividend yield of 0%. Volatility is calculated based on the changes in the Company’s
                                         historical stock prices over the expected life of the warrants.

 

As
at August 31, 2019, the fair value of the 144,000 warrants was determined to be $30,374 as calculated using the Black Scholes
option pricing model with the following assumptions: a 4.96 years as expected average life; share price of CAD$0.25 ($0.19); exercise
price of CAD$0.50 ($0.38); 211% expected volatility; risk free interest rate of 1.19%; and an expected dividend yield of 0%. Volatility
is calculated based on the changes in the Company’s historical stock prices over the expected life of the warrants.

 

    	 	 	 

     

    

 

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)

 

 

	16.	Share
                                         Capital

 

		(a)	Authorized

 

The
Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares

 

		(b)	Issued
                                         and outstanding - Common Shares

 

	 	 	Shares	 	 	Consideration	 
	Balance, as at August 31, 2017	 	 	1,513,032	 	 	$	11,633,752	 
	Common shares issued on private placements, net of costs (i)(iii)	 	 	507,870	 	 	 	12,211,746	 
	Common shares issued for services (ii)	 	 	5,535	 	 	 	270,340	 
	Issuance of warrants	 	 	-	 	 	 	(2,495,354	)
	Common shares issued on acquisition (Note 4)	 	 	59,180	 	 	 	2,314,216	 
	Common shares issued on exercise of options	 	 	16,967	 	 	 	296,398	 
	Common shares issued on exercise of warrants	 	 	98,676	 	 	 	5,341,979	 
	 	 	 	 	 	 	 	 	 
	Balance, August 31, 2018	 	 	2,201,260	 	 	$	29,573,077	 
	Common shares issued on conversion of convertible debt (Note 12)	 	 	144,000	 	 	 	31,026	 
	Common shares issued on exercise of warrants	 	 	1,333	 	 	 	9,303	 
	 	 	 	 	 	 	 	 	 
	Balance, August 31, 2019	 	 	2,346,593	 	 	$	29,613,406	 

 

		i)	On
                                         January 9, 2018 and February 8, 2018, the Company closed two tranches of a non-brokered
                                         private placement at a price of CAD$52.50 ($39.49) per unit. The Company issued 250,721
                                         units for gross proceeds of CAD$13,162,852 ($10,596,096). Each unit is comprised of one
                                         common share of the Company and one-half of one common share purchase warrant of Torque.
                                         Each whole warrant entitles the holder to acquire one common share of Torque for a period
                                         of 24 months from the date of issuance of the warrant, at an exercise price of CAD$90
                                         ($67.70) per share.

 

The
Company paid certain finder’s fees to eligible parties in connection with the private placement and 1,389 finder warrants,
each finder warrant exercisable into a common share of the Company for a period of 24 months at CAD$90 ($67.70) per share. Total
cash costs of issue and finders fees amounted to CAD$105,034 ($95,450).

 

The
grant date fair value of the 115,442 warrants issued upon close of the first tranche was $2,062,162 as calculated using the Black-Scholes
option pricing model with the following assumptions: a 24 months expected average life; share price of CAD$41.25 ($31.03); 137%
expected volatility; risk free interest rate of 1.79%; and an expected dividend yield of 0%. Volatility is calculated based on
the changes in the Company’s historical stock prices over the expected life of the warrants.

 

    	 	 	 

     

    

 

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)

 

 

	16.	Share
                                         Capital (Continued)

 

		(b)	Issued
                                         and outstanding - Common Shares (Continued)

 

The
grant date fair value of the 9,919 warrants issued upon close of the second tranche was $175,442 as calculated using the Black-Scholes
option pricing model with the following assumptions: a 24 months expected average life; share price of CAD$41.25 ($31.03) ; 137%
expected volatility; risk free interest rate of 1.83%; and an expected dividend yield of 0%. Volatility is calculated based on
the changes in the Company’s historical stock prices over the expected life of the warrants.

 

The
fair value of the 1,389 finders’ warrants issued upon close of the second tranche was $34,463 as calculated using the Black-Scholes
option pricing model with the following assumptions: a 24 months expected average life; share price of CAD$41.25 ($31.03); 177%
expected volatility; risk free interest rate of 1.83%; and an expected dividend yield of 0%. Volatility is calculated based on
the changes in the Company’s historical stock prices over the expected life of the warrants.

 

		ii)	On
                                         November 28, 2018, the Company issued 5,535 common shares (ascribed a fair value of $270,340,
                                         based on the quoted price of shares on the date of issue) to the Company’s chief
                                         marketing officer as a contractually obligated performance bonus.

 

		iii)	On
                                         July 13, 2018 the Company closed a non-brokered private placement at a price of CAD$9.00
                                         ($6,77) per unit. The Company issued 257,149 units for gross proceeds of CAD$2,314,344
                                         ($1,757,050). Each unit is comprised of one common share of the Company and one-half
                                         of one common share purchase warrant of Torque. Each whole warrant entitles the holder
                                         to acquire one common share of Torque for a period of 18 months from the date of issuance
                                         of the warrant, at an exercise price of CAD$12.75 ($9.59) per share. Cash costs of issue
                                         were $11,487.

 

The
grant date fair value of the 128,575 warrants issued was $257,750 as calculated using the Black-Scholes option pricing model with
the following assumptions: a 18 months expected average life; share price of $11.63; 102% expected volatility; risk free interest
rate of 1.92%; and an expected dividend yield of 0%. Volatility is calculated based on the changes in historical stock prices
over the expected life of the warrants.

 

	17.	Capital Management

 

The
Company considers its capital to be its shareholders’ equity. As at August 31, 2019, the Company had
shareholders’ deficiency of $ 7,960,633 (2018 - shareholders’ equity of $6,789,672. The Company’s objective
when managing its capital is to seek continuous improvement in the return to its shareholders while maintaining a moderate to
high tolerance for risk. The objective is achieved by prudently managing the capital generated through internal growth and
profitability, through the use of lower cost capital, including raising share capital or debt when required to fund
opportunities as they arise. The Company may also return capital to shareholders through the repurchase of shares, pay
dividends or reduce debt where it determines any of these to be an effective method of achieving the above objective. The
Company does not use ratios in the management of its capital. There have been no changes to management’s approach to
managing its capital during the years ended August 31, 2019 and 2018. The Company is subject to Policy 2.5 of the TSXV
Venture Exchange (“TSXV”) which requires adequate working capital or financial resources of the greater of (i)
$50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a
period of 6 months. As of August 31, 2019, the Company was not compliant with Policy 2.5.

 

    	 	 	 

     

    

 

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)

 

 

	18.	Commitments
                                         and Contingencies

 

		i)	Operating
                                         Leases

 

Eden
Games is obligated under operating leases for use of its office premises for the period ending April 15, 2025. Eden Games can
end the lease at end of every three-year period on six months advance notice. Payment of €25,000 ($27,463) is required every
quarter. Annual future minimum rental payments under operating leases are as follows:

 

	2020 	 	€ 100,000 ($109,851)
	2021 	 	€ 100,000 ($109,851)
	2022 	 	€31,250 ($34,328)

 

Ideas
+ Cars is obligated under the terms of a facilities use agreement for event and meeting premises amounting to €180,851 ($198,997)
for an event planned in July 2020.

 

		ii)	Royalty
                                         Expenses

 

Royalty
expenses relate to royalties paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology
or other intellectual property or proprietary rights in the development or sale of the Eden Games’ products. Eden Games
has royalty agreements to utilize trademarks, copyrights, software, technology or other intellectual property or proprietary rights
in the development or sale of its products. Eden Games has committed to pay royalties ranging from 4% to 25% of revenues after
certain thresholds have been met, in connection with the underlying license agreements. Royalty expenses were €nil ($nil)
and €125,560

($149,880)
for the years ended August 31, 2019 and 2018, respectively.

 

		iii)	Software
                                         Contract

 

The
Company is committed under the terms of a software license agreement until June 1, 2021 for annual fees of $87,907, or $154,484
in aggregate.

 

    	 	 	 

     

    

 

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)

 

 

	18.	Commitments
                                         and Contingencies (Continued)

 

		iv)	Consulting
                                         Contracts

 

Under
the terms of three consulting agreements, the Company is committed to pay 0.5% of tokens issued to each consultant, should the
Company ever undertake a initial coin offering.

 

Under
the terms of a consulting agreement dated July 27, 2017, the Company is committed to pay six months severance in the event of
termination, amounting to £144,500 ($175,911). If revenue from the Eden Games mobile app exceeds £100,000 ($121,561)
in a month, in the first year of this agreement, a bonus equal to 2.5% of the excess shall be paid up to a maximum of £100,000
($121,561) on an annual basis. Each successive year, the monthly target will increase by 20% but the maximum will remain at £100,000
($121,561). As no triggering events have taken place related to the contingencies to August 31, 2019, no provision has been made
in these consolidated financial statements

 

The
Company is committed under the terms of a business development services contract for aggregate payments of CAD$586,500 ($441,143)
over a period of 36 months commencing July 1, 2019 to Rockstar Kids Ltd., a corporation controlled by a company where a senior
officer is a director of Torque.

 

The
Company is committed under the terms of a management services agreement commencing September 3, 2019 for six months at $20,000
per month and a 25% success fee, or $150,000 in aggregate.

 

		v)	Employment
                                         Contracts

 

Under
the terms of an employment contract undertaken with the Company’s controller, the Company is committed to pay three months
severance in the event of termination, amounting to $42,500. Additionally, the controller’s employment agreement contains
a provision for a discretionary annual bonus for up to 20%.

 

		vi)	Litigation

 

The
Company is subject to various claims, lawsuits and other complaints arising in the ordinary course of business. The Company records
provisions for losses when claims become probable and the amounts are estimable. Although the outcome of such matters cannot be
determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect
on the Company’s financial condition, operations or liquidity.

 

		vii)	Contingent
                                         Consideration and Shares to be Issued

 

In
connection with the Company’s acquisition of IDEAS+CARS Ltd. on July 27, 2017, the principal shareholder of IDEAS+CARS,
entered into a three-year agreement with the Company to act as Chief Marketing Officer of the Company and received CAD$357,000
($256,911) of common shares (5,535 shares issued January 17, 2018) and up to 106,667 additional common shares upon meeting certain
performance milestones based on an issuance price of the greater of CAD$43.50 ($32.72) and the common share closing price on the
day prior to the respective milestone date. The agreement stipulates an equivalent share payout of CAD$600,000 ($451,320) in the
first year, and CAD$957,000 ($720,000) on the second, third, and fourth anniversaries of the agreement upon meeting annual revenue
targets of £272,000 ($347,700), £416,047 ($531,900), £535,707 ($684,900) and £655,023 ($837,400) in the
first through fourth years, respectively, with a minimum share equivalent payout of CAD$400,000 ($300,880) annually.

 

As
at August 31, 2019, the estimated fair value of the contingent consideration is $473,364 (2018 - $667,342), which is calculated
based on a combination of probabilities ranging from 5%-10% (2018 – 10%-100%) of meeting milestone targets, and a discount
rate of 19% (2018 – 19%). Based on milestones met to August 31, 2019, $760,216 (2018 - $455,736) was reflected as shares
to be issued as at August 31, 2019.

 

    	 	 	 

     

    

 

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)

 

 

	19.	Discontinued Operations

 

During
the year ended August 31, 2019, the Company ceased operations in PGL Nevada subsidiary. Accordingly, the operational results for
this subsidiary have been presented as a discontinued operation and accordingly, comparative figures for the year ended August
31, 2018 have been restated.

 

The
operating results of PGL Nevada for the years ended August 31, 2019 and 2018 are presented as discontinued operations as follows:

 

	For the year ended August 31,	 	2019	 	 	2018	 
	 	 	 	 	 	 	 
	Revenues	 	 	 	 	 	 	 	 
	Event income	 	$	538,137	 	 	$	99,354	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	Salaries and wages	 	 	75,010	 	 	 	175,106	 
	Sponsorships and tournaments	 	 	-	 	 	 	232,603	 
	Professional fees	 	 	152,670	 	 	 	278,201	 
	Advertising and promotion	 	 	(341	)	 	 	80,361	 
	Travel	 	 	34,170	 	 	 	1,345	 
	Rent	 	 	955,272	 	 	 	235,468	 
	Office and general	 	 	140,730	 	 	 	95,078	 
	Insurance	 	 	19,128	 	 	 	16,643	 
	Interest and bank charges	 	 	56,666	 	 	 	-	 
	Impairment of leasehold improvements	 	 	-	 	 	 	862,973	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	1,433,305	 	 	 	1,977,778	 
	 	 	 	 	 	 	 	 	 
	Net loss from discontinued operations	 	$	(895,168	)	 	$	(1,878,424	)

 

The
net cash flows from discontinued operations for the years ended August 31, 2019 and 2018 are as follows:

 

	For the year ended August 31,	 	2019	 	 	2018	 
	 	 	 	 	 	 	 
	Net cash provided by (used in) operating activities	 	$	111,227	 	 	$	(10,666	)
	Net cash used in financing activities	 	 	(118,191	)	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Change in cash	 	 	(6,964	)	 	 	(10,666	)
	Cash, beginning of year	 	 	6,964	 	 	 	17,630	 
	 	 	 	 	 	 	 	 	 
	Cash, end of year	 	$	-	 	 	$	6,964	 

 

    	 	 	 

     

    

 

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)

 

 

	20.	Segmented Information

 

IFRS
8 requires operating segments to be determined based on the Company’s internal reporting to the Chief Operating Decision
Maker (‘CODM’). The CODM has been determined to be the Company’s CEO as they are primarily responsible for the
allocation of resources and the assessment of performance.

 

The
CODM uses net loss, as reviewed at periodic business review meetings, as the key measure of the Company’s results as it
reflects the Company’s underlying performance for the period under evaluation.

 

The
CODM’s primary focus for review and resource allocation is the Company as a whole and not any component part of the business.
All revenue streams for the business are managed by divisional managers. Having considered these factors, management has judged
that the Company comprises one operating segment under IFRS 8. As such, the disclosures required under IFRS 8 for the consolidated
financial statements are shown on the face of the consolidated statement of loss and comprehensive loss and consolidated statement
of financial position.

 

Geographical
Breakdown

 

August
31, 2019 

 

	 	 	North	 	 	United	 	 	European	 	 	 	 
	 	 	America	 	 	Kingdom	 	 	Union	 	 	Total	 
	Assets	 	$	4,414,852	 	 	$	261,196	 	 	$	6,009,649	 	 	$	10,685,697	 
	Long-term assets	 	$	1,470,000	 	 	$	17,889	 	 	$	4,443,446	 	 	$	5,931,335	 
	Net (loss)	 	$	(5,504,961	)	 	$	(760,155	)	 	$	(8,472,882	)	 	$	(14,737,998	)

 

August
31, 2018

 

	 	 	North	 	 	United	 	 	European	 	 	 	 
	 	 	America	 	 	Kingdom
 	 	 	Union	 	 	Total	 
	Assets	 	$	318,744	 	 	$	2,541	 	 	$	14,587,330	 	 	$	14,908,615	 
	Long-term assets	 	$	-	 	 	$	-	 	 	$	13,218,030	 	 	$	13,218,030	 
	Net (loss)	 	$	(6,521,189	)	 	$	(3,329,195	)	 	$	(1,653,079	)	 	$	(11,503,463	)

 

As
at August 31, 2019, cash of $nil and $2,217,819 (2018 - $9,748 and $60,760) was held in US and Canadian Chartered banks, respectively,
$529,642 held in Euros in the European Union (2018 - $537,163), and $79,553 held in GBP in the United Kingdom (2018 - $262).

 

The
Group’s revenue disaggregated by primary geographical markets is as follows:

 

For
the Year Ended August 31, 2019

 

	 	 	North	 	 	United	 	 	European	 	 	 	 
	 	 	America	 	 	Kingdom	 	 	Union	 	 	Total	 
	Games development income	 	$	-	 	 	$	-	 	 	$	3,371,472	 	 	$	3,371,472	 
	Membership income	 	$	-	 	 	$	-	 	 	$	835,361	 	 	$	835,361	 
	Event income	 	$	474	 	 	$	12,154	 	 	$	-	 	 	$	12,628	 
	Total	 	$	474	 	 	$	12,154	 	 	$	4,206,833	 	 	$	4,219,461	 

 

For
the Year Ended August 31, 2018

 

	 	 	North	 	 	United	 	 	European	 	 	 	 
	 	 	America	 	 	Kingdom	 	 	Union	 	 	Total	 
	Games development income	 	$	-	 	 	$	-	 	 	$	2,634,395	 	 	$	2,634,395	 
	Membership income	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 
	Event income	 	$	36,486	 	 	$	585,554	 	 	$	277,049	 	 	$	899,089	 
	Total	 	$	36,486	 	 	$	585,554	 	 	$	2,911,444	 	 	$	3,533,484	 

 

    	 	 	 

     

    

 

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)

 

 

	21.	Fair
                                         Value and Financial Risk Factors

                                         

                                         Risk Management

 

In
the normal course of business, the Company is exposed to a number of risks that can affect its operating performance. These risks,
and the actions taken to manage them, are as follows:

 

Fair
Values

 

The
Company has designated its cash and short term and long term investments as FVTPL which are measured at fair value. Fair value
of cash is determined based on transaction value and is categorized as a Level 1 measurement. Short term investments are categorized
as Level 2 measurement, long-term investment is classified as Level 3 measurement, and warrant liability is categorized as Level
2 measurement.

 

		-	Level
                                         1 - includes quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

		-	Level
                                         2 - includes inputs that are observable other than quoted prices included in Level 1.

 

		-	Level
                                         3 - includes inputs that are not based on observable market data.

 

As
at August 31, 2019 and 2018, both the carrying and fair value amounts of the Company’s cash, accounts and other receivables,
government remittances receivable, accounts payable, promissory notes payable and accrued liabilities, McLaren loan, put option
redemption liability, customer points liability, and contingent consideration are approximately equivalent due to their short
term nature.

 

Fair
Value of Financial Instruments

 

The
following table presents the changes in fair value measurements of the investment in Alt Tab (Note 5) classified as Level 3 during
the years ended August 31, 2019 and 2018. These financial instruments are measured at fair value utilizing non-observable market
inputs. The net realized losses and net unrealized gains are recognized in the statements of loss.

 

	 	 	2019	 	 	2018	 
	Balance, beginning of year	 	$	-	 	 	$	1,328,077	 
	Purchase at cost	 	 	-	 	 	 	242,700	 
	Unrealized (loss)	 	 	-	 	 	 	(1,570,777	)
	Balance, end of year	 	 	-	 	 	 	-	 

 

A
sensitivity analysis was performed on key inputs of the convertible debenture valuations (see Note 12) using the binomial lattice
model:

 

		-	A
                                         10% increase or decrease in volatility would result in a $7,000 change in the fair value
                                         of the convertible debt outstanding as of August 31, 2019.

		-	A
                                         10% increase or decrease in share price would result in a $200,000 change in the fair
                                         value of the convertible debt outstanding as of August 31, 2019.

		-	A
                                         10% increase or decrease conversion price would result in a $13,000 change in the fair
                                         value of the convertible debt outstanding as of August 31, 2019.

 

Credit
Risk

 

Credit
risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s
credit risk is primarily attributable to accounts and other receivables. Management believes credit risk with respect to financial
instruments included in accounts and other receivable is minimal. As at August 31, 2019 and 2018, all of the Company’s accounts
receivable are current and the allowance for doubtful accounts is $nil. The Company’s maximum exposure to credit risk as
at August 31, 2019 and 2018 is the carrying value of accounts and other receivables.

 

    	 	 	 

     

    

 

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)

 

 

	21.	Fair
                                         Value and Financial Risk Factors (Continued)

                                         

                                         Liquidity Risk

 

Liquidity
risk is the risk that the Company will encounter difficulty in satisfying its financial obligations. The Company manages its
liquidity risk by forecasting it operations and anticipating its operating and investing activities. All amounts comprising
of accounts payable and accrued liabilities, customer points liability, McLaren Loan, put option redemption liability,
contingent consideration, current portion of long-term debt and promissory notes payable of $ 4,862,086 (2018 -
$6,635,775) are due within one year.

 

Market
Risk

 

Market
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market risk
factors. The market risk factor that affects the Company is foreign currency risk.

 

Foreign
Currency Risk

 

The
Company is exposed to foreign currency risk due to the timing of their accounts payable balances, valuation of its warrant liability
and contingent share obligation due to the use of prevailing exchange rates in the valuation process. The risk associated with
accounts payable mitigated by timely payment of creditors and monitoring of foreign exchange fluctuations by management. Warrant
liability and contingent share liability are noncash items with foreign exchange variances presented as gains or losses on the
Company’s consolidated statements of loss and comprehensive loss. Aside from these items, the Company is not exposed to
significant foreign currency risk based on its current operations.

 

Concentration
of Risk

 

During
the year ended August 31, 2019, two (2018 - three) customers represented 75% (2018 - 87%) of revenue and as at August 31, 2019,
54% (2018 - 75%) of accounts and other receivables.

 

Sensitivity
Analysis

 

Based
on management’s knowledge and experience of the financial markets, the Company believes the following movements are reasonably
possible over the next twelve months:

 

The
Company is exposed to foreign currency risk on fluctuations of financial instruments related to cash, accounts and other receivables,
and accounts payable denominated in Euros, GBP and Canadian dollars. Sensitivity to a plus or minus one percentage point change
in exchange rates would impact the reported net loss by approximately $37,836 for the year ended August 31, 2019 (2018 - $125,000).
The Company is also exposed to foreign currency risk on fluctations of financial instruments related to short-term debt, long-term
debt, promissory notes payable and convertible debt. Sensitivity to a plus or minus one percentage point change in exchange rates
would impact the reported net loss by approximately $134,011 for the year ended August 31, 2019 (2018 - $3,041).

 

	22.	Related Party Transactions and Balances

 

Key
management includes the Company’s directors, officers and any consultants with the authority and responsibility for planning,
directing and controlling the activities of an entity, directly or indirectly. Compensation awarded to key management includes
the following:

 

	 	 	2019	 	 	2018	 
	Total compensation paid to key management	 	$	1,401,724	 	 	$	1,112,051	 
	Share based payments	 	$	28,834	 	 	$	1,853,445	 

 

Total
compensation paid to key management is recorded in consulting and salaries and wages in the statement of loss and comprehensive
loss for the years ended August 31, 2019 and 2018. Amounts due to related parties as at August 31, 2019 with respect to the above
fees were $124,717 (2018 - $252,797). These amounts are unsecured, non-interest bearing and due on demand.

 

    	 	 	 

     

    

 

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)

 

 

	22.	Related Party Transactions and Balances (Continued)

 

Included
in accounts and other receivables is $35,365 (2018 - $nil) in advances due from the Company’s Chief Executive Officer. This
amount is unsecured, bear no interest and are due on demand.

 

Included
in prepaid expenses is $431,608 (2018 - $nil) for future consulting fees paid to a corporation related to a company of which a
director of the Torque is a senior officer.

 

During
the year ended August 31, 2019, the Company expensed $87,281 (2018 - $115,989) to Marrelli Support Services Inc. (“Marrelli
Support”) and DSA Corporate Services Inc. (“DSA”), together known as the “Marrelli Group” for:

 

		(i)	Robert
                                         D.B. Suttie to act as Chief Financial Officer (“CFO”) of the Company;

		(ii)	Bookkeeping
                                         and office support services;

		(iii)	Corporate
                                         filing services; and

		(iv)	Corporate
                                         secretarial services.

 

The
Marrelli Group is also reimbursed for out of pocket expenses.

 

Both
Marrelli Support and DSA are private companies. Robert Suttie is the President of Marrelli Support.

 

During
the year ended August 31, 2018, 16,667 common shares were issued through the exercise of options, in aggregate, to two directors
of the Company on exercise of stock options to settle debt of $135,118.

 

During
the year ended August 31, 2018, 13,295 units were issued to three directors pursuant to the January 9, 2018 and July 13, 3018
private placement for gross proceeds of $412,954.

 

On
January 12, 2018, the Company granted 14,667 stock options to directors of the Company with an exercise price of CAD$54.00 ($40.62)
per share, expiring on January 12, 2023. See Note 14.

 

On
January 13, 2018, the Company granted 3,333 stock options to a director of the Company with an exercise price of CAD$54.75 ($41,18)
per share, expiring on January 12, 2023. See Note 14.

 

On
January 19, 2018, the Company granted 10,000 stock options to an officer of the Company with an exercise price of CAD$54.00 ($40.62)
per share, expiring on January 12, 2023. See Note 14.

 

On
July 25, 2018, the Company granted 66,667 stock options to an officer of the Company with an exercise price of CAD$10.50 ($7.90)
per share, expiring on July 25, 2025. See Note 14.

 

On
October 30, 2017, the Company granted 40,000 stock options to a director with an exercise price of CAD$58.50 ($44.00) per share,
expiring on October 30, 2027. During the year ended August 31, 2018, these options were cancelled. See Note 14.

 

On
November 3, 2017, the Company granted 6,667 stock options with an exercise price of CAD$60.00 ($45.13) per share, expiring on
November 3, 2022 to a director of the Company. During the year ended August 31, 2018, these options were cancelled. See Note 14.

 

On
November 22, 2017, the Company granted 13,333 stock options with an exercise price of CAD$57,75 ($43,44) per share, expiring on
October 31, 2018 to an officer of the Company. The options were cancelled subsequent to the year ended August 31, 2018. During
the year ended August 31, 2018, 10,000 and 3,333 options, with exercise prices of CAD$54.00 ($40.62) and CAD$54.75 ($41.18), respectively,
granted to a director of the Company were cancelled.

 

On
September 14, 2018, the Company granted 26,667 stock options with an exercise price of CAD$9.75 ($7.33) per share, expiring on
September 14, 2025 to the Chief Executive Officer of the Company.

 

See
also Notes 4, 11, 12, 14, 18 and 25.

 

    	 	 	 

     

    

 

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)

 

 

	23.	Income
                                         Taxes

 

The
reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% (2018 - 26.5%) to the effective
tax is as follows:

 

	 	 	2019	 	 	2018	 
	Loss before income taxes	 	$	(14,847,452	)	 	$	(12,363,106	)
	Expected income tax (recovery)	 	 	(3,906,000	)	 	 	(3,276,000	)
	Adjustments resulting from:	 	 	 	 	 	 	 	 
	Difference in foreign tax rates	 	 	5,000	 	 	 	(25,000	)
	Share based compensation and non-deductible expenses	 	 	20,000	 	 	 	611,000	 
	Change in tax benefits not recognized	 	 	4,025,822	 	 	 	1,830,357	 
		 	 	 	 	 	 	 	 
	Income tax expense (recovery) reflected in the statement of loss	 	$	144,822	 	 	 	(859,643	)

 

	Deferred Income Taxes	 	2019	 	 	2018	 
	Deferred tax assets:	 	 	 	 	 	 	 	 
	Net operating losses - UK & Spain	 	$	973,091	 	 	$	109,171	 
	Net operating losses - France	 	 	36,387	 	 	 	1,678,553	 
	Net operating losses - Canada	 	 	589,904	 	 	 	759,190	 
	Deferred tax liabilities	 	 	 	 	 	 	 	 
	Intangible assets - France	 	 	(973,091	)	 	 	(1,596,458	)
	Intangible assets - Spain	 	 	(36,387	)	 	 	(46,444	)
	Warrants	 	 	(589,904	)	 	 	(759,190	)
	 	 	 	 	 	 	 	 	 
	Net deferred tax asset	 	$	-	 	 	$	144,822	 

 

Deferred
tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the company
has the legal right and intent to offset.

 

Movement in deferred tax liabilities: 

 

	 	 	2019	 	 	2018	 
	Balance, beginning of year	 	$	144,822	 	 	$	(447,781	)
	Recognized in profit/loss	 	 	(144,822	)	 	 	859,643	 
	Recognized in goodwill	 	 	-	 	 	 	(267,040	)
	Balance, end of year	 	$	-	 	 	$	144,822	 

 

    	 	 	 

     

    

 

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)

 

 

	23.	Income Taxes (Continued)

 

Unrecognized
Deductible Temporary Differences

 

Deferred
taxes are provided as a result of temporary differences that arise due to the difference between the income tax values and the
carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible
temporary differences:

 

	 	 	2019	 	 	2018	 
	Property and equipment	 	$	397,238	 	 	$	384,124	 
	Net operating losses carried forward - US	 	 	3,710,344	 	 	 	2,814,233	 
	Non-capital losses carried forward - Canada	 	 	16,250,993	 	 	 	8,076,460	 
	Share issuance costs	 	 	104,177	 	 	 	141,103	 
	Convertible debenture	 	 	2,467,289	 	 	 	-	 
	 	 	$	22,930,041	 	 	$	11,415,920	 

 

The
Canadian non-capital loss carry forwards expire as noted in the table below. The remaining deductible temporary differences may
be carried forward indefinitely. Deferred tax assets have not been recognized in respect to these items because it can not be
determined as probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.

 

The
Company’s Canadian non-capital income tax losses expire as follows: 

 

	2034	 	$	462,955	 
	2035	 	 	1,062,354	 
	2036	 	 	487,105	 
	2037	 	 	1,769,706	 
	2038	 	 	3,704,437	 
	2039	 	 	8,764,436	 
	 	 	$	16,250,993	 

 

The
Company has available, non-capital losses of approximately $6,339,000 (€5,752,000). Non-capital losses in France can be carried
forward for an unlimited time; however, tax losses can be applied against taxable income in a future year to a maximum of $1,102,000
(€1,000,000) and 50% of taxable income in excess of $1,102,000 (€1,000,000).

 

	24.	Loss Per Share

 

The
calculation of basic and diluted loss per share for the year ended August 31, 2019 was based on the loss attributable the common
shareholders of $ 13,842,830 for continuing operations and a loss of $895,168 for discontinued operations, respectively (2018
- $9,625,035 and $1,878,424, respectively), and the weighted average number of common shares outstanding of 2,204,409 (2018 -
1,821,328). Diluted loss per share does not include the effect stock of options, warrants or convertible debt as they are 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)

 

 

	25.	Subsequent
                                         Events

 

		i)	On
                                         September 30, 2019, the Company incorporated The Race Media Ltd., a wholly owned subsidiary
                                         in England and Wales.

 

		ii)	On
                                         October 18, 2019, the Company signed a definitive agreement to acquire a 51 percent interest
                                         in motorsport simulator manufacturer, All In Sports SRL (“All In Sports”),
                                         incorporated in Italy, for $5,632,000 comprised of the following:

 

		-	Total
                                         cash consideration of $1,900,000 to be payable to the shareholders of All In Sports in
                                         three tranches on or prior to November 30, 2019.

 

		-	As
                                         at August 31, 2019, $1,470,000 had been advanced to All In Sports and is included in
                                         long-term investment on the consolidated statements of financial position. Of this amount,
                                         a total of $1,350,000 has been advanced as part of the consideration for the purchase
                                         price and $120,000 has been advanced as deposits for the purchase of simulators. No interest
                                         in accruing on this advance.

 

		-	$3,732,000
                                         to be paid in 1,985,424 common shares of Torque

 

Torque
shall have the option to purchase the remaining 49% of All In Sports beginning 18 months following the closing date and ending
24 months following the closing date for the lesser of: (i) ten times EBITDA for fiscal 2020; or (ii) $20,000,000 based on certain
milestones.

 

The
Company shall be entitled to a preferred purchase price for eRacer simulators for a period of two years from the closing date
of the transaction. The preferred price shall be the lesser of (i) 20% discount on current fair value or (ii) $240,000 per simulator.

 

This
transaction is subject to regulatory and exchange approval. As of February 14, 2020, this transaction has yet to close.

 

		iii)	On
                                         November 7, 2019, the Company entered into a binding letter of intent with LetsGoRacing,
                                         a U.K. based automotive YouTube Channel. The parties will enter into a definitive purchase
                                         and sale agreement, which will reflect the following terms:

 

		-	Total
                                         cash consideration of £315,000 ($384,300) to be payable to the shareholders of
                                         LetsGoRacing in tranches ending on the 30th day following the signing of the definitive
                                         agreement.

 

		-	£136,000
                                         ($165,920) worth of common shares of the Company to be issued at a price per
share equal to the greater of the share price on the date of signing the letter of intent or the date of signing the definitive
agreement, with such shares subject to up to a 12 month hold period.

 

This
transaction is subject to regulatory and exchange approval. As of February 14, 2020, this transaction has yet to close.

 

		iv)	On
                                         November 6, 2019, the Company signed a definitive agreement to acquire UMG Media Ltd.
                                         (“UMG”). The transaction closed on December 31, 2019 and was carried out
                                         by way of a plan of arrangement under the Business Corporations Act (Alberta). UMG shareholders
                                         will receive, on an exchange ratio of 0.0643205, common shares of Torque. In total, Torque
                                         will issue approximately 4,329,445 Torque Shares (the “Consideration Shares”)
                                         in exchange for the UMG securities to be exchanged pursuant to the transaction, including
                                         the securities to be issued pursuant to the UMG Private Placement (defined below) (a
                                         total of 812,361 of these Torque Shares will be issued to the UMG Private Placement shareholders
                                         and the remainder shall be issued to the current UMG Shareholders). In addition, each
                                         outstanding option and warrant to purchase a UMG Share will be exchanged for an option
                                         or warrant, as applicable, to purchase a Torque share, based upon the exchange ratio.

 

    	 	 	 

     

    

 

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)

 

 

	25.	Subsequent
                                         Events (Continued)

 

		iv)	(Continued)

 

This
transaction was approved at the special meeting of UMG shareholders held on December 17, 2019 and the final order regarding the
Arrangement was granted by the Court of Queen’s Bench of Alberta on December 18, 2019. Pursuant to the Arrangement, Torque
has acquired all of the issued and outstanding UMG Shares, by way of a plan of arrangement, based on an exchange ratio of 0.0643205
of a Torque common share for each UMG Share held by the former UMG Shareholders. The plan of arrangement was completed on December
31, 2019.

 

		v)	On
                                         November 22, 2019, Torque, Frankly Inc. (“Frankly”), and WinView Inc. (“WinView”)
                                         announced that the three companies have agreed to combine to form an integrated news,
                                         gaming, sports and esports platform. The parties have until February 14, 2020 to close
                                         this transaction, which is subject to various closing conditions, including the audit
                                         of the Company.

 

The
three companies have entered into a binding letter agreement (the “Letter Agreement”) that provides for Torque to
acquire all of the issued and outstanding common shares of Frankly and all of the issued and outstanding securities of
WinView pursuant to (a) a plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”)
or, (b) solely with respect to WinView, a statutory merger under the General Corporation Law of the State of Delaware or
another acquisition structure mutually agreed among Torque, Frankly and WinView in respect of Torque’s acquisition of
the securities of WinView (an “Alternative Structure”) (collectively, the Plan of Arrangement and an Alternative
Structure, if applicable, are referred to as the “Transaction”). In addition, should any amount be awarded from
WinView’s patent portfolio, 50% of the net license fees, damage awards or settlement amounts collected from third
parties, with such payments to be calculated after deduction for all associated legal costs incurred in connection to such
amounts. Upon closing of this transaction, it is expected that Tom Rogers, Chairman of Frankly and WinView will assume the
role of the Chairman of the Board and Lou Schwartz (CEO of Frankly) and Darren Cox (CEO of the Company) will act as
Co-CEO’s.

 

The
combined company is expected to have the following capital structure:

 

		-	The
                                         common shares of Frankly will be exchanged for common shares of Torque on a oneforone
                                         basis. Frankly convertible securities will remain outstanding and be exercisable for
                                         common shares of Torque on the same terms.

 

		-	Pursuant
                                         to the Plan of Arrangement or Alternative Structure, if applicable, holders of securities
                                         of WinView will receive common shares of Torque having a total value of $35,000,000,
                                         based on a share price of CAD$1.75 ($1.32) per common share of Torque, and/or contingent
                                         rights, in exchange for the securities of WinView held by them. The contingent rights
                                         will entitle holders to proceeds from the enforcement of WinView’s patent portfolio
                                         as further specified in the Letter Agreement.

 

A
certain director of the Company holds 200,000 common shares and 100,000 common share purchase warrants in Frankly. In addition,
SOL Global Investments Corp (“SOL Global”), a company related due to the fact that a certain director of the Company
serves as its Chief Financial Officer, has disclosed that it was a holder of greater than 10% on a partially diluted basis of
shares in the Frankly.

 

    	 	 	 

     

    

 

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)

 

 

	25.	Subsequent
                                         Events (Continued)

 

		vi)	On
                                         November 26, 2019, signed a binding letter of intent to acquire all of the issued and
                                         outstanding shares of DriverDB AB, a Swedish esports racing company, for £400,000
                                         ($488,000) in a combination of cash and common shares of the Company. As of February
                                         14, 2020, a definitive agreement had not been signed.

 

		vii)	On
                                         December 18, 2019, the Company closed the first tranche of a nonbrokered private placement
                                         of up to 4,000,000 units at a price of $0.94 (CAD$1.25) per unit (the “Offering”)
                                         for gross proceeds of up to $3,761,000 (CAD$5,000,000). A total of 872,000 units were
                                         issued for cash proceeds of $414,000 (CAD$550,000) and $406,000 (CAD$540,000) issued
                                         to creditors to settle amounts owing on the closing of this first tranche of the Offering.
                                         Each unit consisted of one common share of the Company and onehalf of one common share
                                         purchase warrant. Each whole warrant entitles the holder to acquire one additional share
                                         of the Company for a period of 36 months from the date of issuance at a price of $1.35
                                         (CAD$1.80) per share. Of the $819,000 (CAD$1,090,000) raised, $75,000 (CAD$100,000) were
                                         subscribed to by a director of the Company.

 

		viii)	Subsequent
                                         to August 31, 2019, $2,454,436 (CAD$3,263,010) of convertible debt was converted into
                                         6,526,020 units, on the same terms as the offering units, resulting in the issuance of
                                         6,526,020 common shares and 6,526,020 warrants.

 

		ix)	Subsequent
                                         to August 31, 2019, the Company received $707,068 (CAD$940,000) in unsecured loans from
                                         SOL Global. These loans are unsecured, bear interest at 12% per annum and are due on
                                         demand.Exhibit 4.13

 

 

TORQUE
ESPORTS CORP.

(formerly
Millennial Esports Corp.)

 

MANAGEMENT’S
DISCUSSION AND ANALYSIS

 

For
the Years Ended August 31, 2019 and 2018

(Expressed in United States Dollars)

 

Dated:
February 17, 2020

 

    	 	 	 

     

    

 

TORQUE
ESPORTS CORP. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the year ended August 31, 2019 and 2018

 

 

INTRODUCTION

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) (“Torque” or the “Company”)
was incorporated on April 8, 2011 as a private company pursuant to the provisions
of the Business Corporations Act (Ontario). As of August 31, 2019,
and 2018, the Company’s
common shares are listed on the Toronto
Venture Stock Exchange (TSXV) under the
symbol “GAME” and
on the OTCQB in the
United States of America
under the symbol “MLLLF”.
The authorized share capital of the Company consists of an unlimited number
of common shares, without nominal or par value.

 

The
United States Dollar
is the Company’s
functional and reporting currency. Unless
otherwise noted, all dollar amounts
are expressed in United
States Dollars.

 

The
following management’s discussion and analysis (“MD&A”) of the
financial condition and results of operations of Torque constitutes management’s review of the factors that
affected the Company’s financial and operating performance for the year ended August 31, 2019 and 2018. This MD&A
has been prepared in compliance with the requirements of National Instrument 51-102
– Continuous Disclosure Obligations.

 

This
MD&A should be read in conjunction with the audited annual consolidated financial statements of the Company for the years
ended August 31, 2019 and 2018, together with the notes thereto.

 

For
the purposes of preparing this MD&A, management, in conjunction with the Board
of the Company (the “Board”), considers the materiality of information.
Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant
change in the market price or value of Torque’s common shares; or (ii) there
is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii)
if it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board,
evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.

 

Further
information about the Company and its operations can be obtained from the offices of
the Company or from https://torqueesport.com/ or
www.sedar.com.

 

CAUTIONARY
NOTE REGARDING FORWARD LOOKING INFORMATION

 

This
MD&A contains forward-looking information and statements (“forward-looking statements”) which may include, but
are not limited to, statements with respect to the future financial or operating performance of the Company. Forward-looking statements
reflect the current expectations of management regarding the Company’s future growth, results of operations, performance
and business prospects and opportunities. Wherever possible, words such as “may”, “would”, “could”,
“will”, “anticipate”, “believe”, “plan”, “expect”, “intend”,
“estimate” and similar expressions have been used to identify these forward-looking statements. These statements reflect
management’s current beliefs with respect to future events and are based on information currently available to management.
Forward-looking statements involve significant risks, uncertainties and assumptions. Many factors could cause the actual results,
performance or events to be materially different from any future results, performance or events that may be expressed or implied
by such forward-looking statements, including, without limitation, those listed in the “Risk Factors” section of this
MD&A. Although the Company has attempted to identify important factors that could cause actual results, performance or events
to differ materially from those described in the forward-looking statements, there could be other factors unknown to management
or which management believes are immaterial that could cause actual results, performance or events to differ from those anticipated,
estimated or intended. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking
statements prove incorrect, actual results, performance or events may vary materially from those expressed or implied by the forward-looking
statements contained in this MD&A. These factors should be considered carefully, and readers should not place undue reliance
on the forward-looking statements. Forward-looking statements contained herein are made as of the date of this MD&A and the
Company assumes no responsibility to update forward looking statements, whether as a result of new information or otherwise, other
than as may be required by applicable securities laws.

 

    	 	 	Page 1 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

BUSINESS
OVERVIEW

 

Torque
focuses on three areas esports data provision, esports tournament hosting and esports racing. Torque aims to revolutionize esports
racing and the racing gaming genre via its industry-leading gaming studio Eden Games which focuses on mobile racing games and
its unique motorsport intellectual property, including World’s Fastest Gamer (created and managed by wholly-owned subsidiary
IDEAS+CARS, Silverstone UK). Torque offers gamers everything from free- to-play mobile games to the high end simulators. Building
on the leading position of Stream Hatchet, a wholly-owned subsidiary, Torque also provides robust esports data and management
information to brands, sponsors, and industry leaders.

 

During
July 2019, Torque restructured its business and leadership team. As such Torque refocused
on parts of the existing business that could be made profitable in the near term and on investigating mergers and acquisition
opportunities that were both synergistic to the existing business and/or could speed up the timeline to profitability. Torque
also focused on reducing overhead dramatically with a reduction in non-essential resources including offices, personnel
and consultants. Unprofitable projects and business units were either streamlined or wound down.

 

In
addition, Torque’s new management focused attention on building
on the leading position of Stream Hatchet (a Barcelona, Spain-based wholly-owned subsidiary)
who provides robust esports data and management information to brands, sponsors, and
industry leaders. This data allows the esports industry to monetize the huge number
of eyeballs in the gaming and esports space. These efforts allowed Torque to
focus short term on being a vertically integrated mobile gaming publisher leading a revolution to fuse esports racing and
professional motorsport through a global competition model.

 

Torque
has transitioned itself in this period from a high overhead, low revenue business to one that is lean, focused and has used mergers
and acquisitions to short cut its structural maturity and path to revenue and profit.

 

Torque
uses the buzz of esports to tell the story about this new booming industry,but is building its revenue streams in known areas
for investors: video games, data, motorsport and now media.

 

Since
July 2019, Torque has made significant strides in lowering costs and focusing investment
in high growth areas. The ground work for the future was being completed in this period but the financial results will not be
clear until the second half of 2020 – when Torque will show leadership
in this space as a diversified company with its centre
of gravity based around the high growth areas of video gaming and esports.

 

Whilst
this rationalization and overhead cutting was being deployed, Torque also looked at how mergers and acquisitions could be used
to speed up its path to profitability and to speed up bolstering its structure and processes. Torque considered a number of opportunities
to support its push in racing esports and diversify its esports focus. It also looked at a wider diversification into ‘digital
entertainment’.

 

    	 	 	Page 2 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

This
consideration resulted in a number of acquisitions that have been publicly announced. These include the following:

 

	 	●	On
    November 6, 2019, the Company signed a definitive agreement to acquire UMG Media Ltd. (“UMG”). The transaction
    closed on December 31, 2019 and was carried out by way of a plan of arrangement under the Business Corporations Act (Alberta).
    UMG shareholders will receive, on an exchange ratio of 0.0643205, common shares of Torque. In total, Torque will issue approximately
    4,329,445 Torque Shares (the “Consideration Shares”) in exchange for the UMG securities to be exchanged pursuant
    to the transaction, including the securities to be issued pursuant to the UMG Private Placement (defined below) (a total of
    812,361 of these Torque Shares will be issued to the UMG Private Placement shareholders and the remainder shall be issued
    to the current UMG Shareholders). In addition, each outstanding option and warrant to purchase a UMG Share will be exchanged
    for an option or warrant, as applicable, to purchase a Torque share, based upon the exchange ratio. This transaction was approved
    at the special meeting of UMG shareholders held on December 17, 2019 and the final order regarding the Arrangement was granted
    by the Court of Queen’s Bench of Alberta on December 18, 2019. Pursuant to the Arrangement, Torque has acquired all
    of the issued and outstanding UMG Shares, by way of a plan of arrangement, based on an exchange ratio of 0.0643205 of a Torque
    common share for each UMG Share held by the former UMG Shareholders. The plan of arrangement was completed on December 31,
    2019.
	 	●	On
    November 22, 2019, Torque, Frankly Inc. (“Frankly”), and WinView Inc. (“WinView”) announced that the
    three companies have agreed to combine to form an integrated news, gaming, sports and esports platform. The parties have until
    February 14, 2020 to close this transaction, which is subject to various closing conditions, including the audit of the Company.
    The three companies have entered into a binding letter agreement (the “Letter Agreement”) that provides for Torque
    to acquire all of the issued and outstanding common shares of Frankly and all of
    the issued and outstanding securities of WinView pursuant to (a) a plan of arrangement under the Business Corporations Act
    (British Columbia) (the “Plan of Arrangement”) or, (b) solely with respect to WinView, a statutory merger under
    the General Corporation Law of the State of Delaware or another acquisition structure mutually agreed among Torque, Frankly
    and WinView in respect of Torque’s acquisition of the securities of WinView (an “Alternative Structure”)
    (collectively, the Plan of Arrangement and an Alternative Structure, if applicable, are referred to as the “Transaction”).
    In addition, should any amount be awarded from WinView’s patent portfolio, 50% of the net license fees, damage awards
    or settlement amounts collected from third parties, with such payments to be calculated after deduction for all associated
    legal costs incurred in connection to such amounts. Upon closing of this transaction, it is expected that Tom Rogers, Chairman
    of Frankly and WinView will assume the role of the Chairman of the Board and Lou Schwartz (CEO of Frankly) and Darren Cox
    (CEO of the Company) will act as Co-CEO’s. The combined company is expected to have the following capital structure.
    The common shares of Frankly will be exchanged for common shares of Torque on a one for one basis. Frankly convertible securities
    will remain outstanding and be exercisable for common shares of Torque on the same terms. Pursuant to the Plan of Arrangement
    or Alternative Structure, if applicable, holders of securities of WinView will receive common shares of Torque having a total
    value of $35,000,000, based on a share price of CAD$1.75 ($1.32) per common share of Torque, and/or contingent rights, in
    exchange for the securities of WinView held by them. The contingent rights will
    entitle holders to proceeds from the enforcement of WinView’s patent portfolio as further specified in the Letter Agreement.
    A certain director of the Company holds 200,000 common shares and 100,000 common share purchase warrants in Frankly. In addition,
    SOL Global Investments Corp (“SOL Global”), a company related due to the fact that a certain director of the Company
    serves as its Chief Financial Officer, has disclosed that it was a holder of greater than 10% on a partially diluted basis
    of shares in the Frankly.

 

    	 	 	Page 3 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

	 	●	On
    October 18, 2019, the Company signed a definitive agreement to acquire a 51 percent interest in motorsport simulator manufacturer,
    All in Sports SRL (“All In Sports”), incorporated in Italy, for $5,632,000 comprised of the following: total cash
    consideration of $1,900,000 to be payable to the shareholders of All In Sports in three tranches on or prior to November 30,
    2019. As at August 31, 2019, $1,470,000 had been paid as advanced to All In Sports and is included in long term prepaid expenses
    and deposits. Of this amount, a total of $1,350,000 has been advanced as part of the consideration for the purchase price
    and $120,000 has been advanced as deposits for the purchase of simulators. No interest in accruing on this advance. (i) $3,732,000
    to be paid in 1,985,424 common shares of Torque; and (ii) Torque shall have the option to purchase the remaining 49% of All
    In Sports beginning 18 months following the closing date and ending 24 months following the closing date for the lesser of:
    (i) ten times EBITDA for fiscal 2020; or (ii) $20,000,000 based on certain milestones. The Company shall be entitled to a
    preferred purchase price for eRacer simulators for a period of two years from the closing date of the transaction. The preferred
    price shall be the lesser of (i) 20% discount on current fair value or (ii) $240,000 per simulator. This transaction is subject
    to regulatory and exchange approval.
	 	●	On
    November 26, 2019, signed a binding letter of intent to acquire all of the issued and outstanding shares of DriverDB AB, a
    Swedish esports racing company, for £400,000 ($488,000) in a combination of cash and common shares of the Company. As
    of February 14, 2020, a definitive agreement had not been signed. On November 7, 2019, the Company entered into a binding
    letter of intent with LetsGoRacing, a U.K. based automotive YouTube Channel. The parties will enter into a definitive purchase
    and sale agreement, which will reflect the following terms: (i) total cash consideration of £315,000 ($384,300) to be
    payable to the shareholders of LetsGoRacing in tranches ending on the 30th day following the signing of the definitive agreement;
    and (ii) £136,000 ($165,920) worth of common shares of the Company to be issued
    at a price per share equal to the greater of the share price on the date of signing the letter of intent or the date
    of signing the definitive agreement, with such shares subject to up to a 12 month hold period. This transaction is subject
    to regulatory and exchange approval. As of February 14, 2020, this transaction has yet to close.

 

FINANCINGS

 

Convertible
Debt Financings

 

On
July 8, 2019 through August 8, 2019, the Company completed three tranches of a non-brokered private placement of convertible debentures
(the “second series” or “Series Two”) in the principal amount aggregating CAD$15,000,012 ($11,401,984).
Included in the amounts raised were CAD$5,113,112 ($3,844,200) received from companies associated with a corporation with which
a director of the Company is a senior officer. The debentures will mature 36 months from the date of issuance and bear interest
at a rate of 6% per annum, payable on maturity. The debenture holders may convert all or a portion of the convertible loan principal
into units of the Company at a price of CAD$0.50 ($0.38) per unit. Each unit is comprised of one common share of the Company and
one warrant, with each warrant exercisable into a common share of the Company at an exercise price of CAD$0.50 ($0.38) per share
for a period of five years from the issuance. The Company shall be entitled to call for the exercise of any outstanding warrants
following the 6 month anniversary of closing in the event that the closing trading price of the shares is above $3.00 for fifteen
consecutive trading days. The Series Two Convertible debentures includes a call option in which the Company may force exercise
of the warrants if the stock price exceeds CAD$3.00 ($2.26) for fifteen consecutive trading days, starting six months from the
closing date.

 

Commencing
December 18, 2018 through June 27, 2019 the Company
closed seven tranches of a non- brokered private placement of convertible debentures
(“Series One” or “the first series”) with an aggregate principal amount of CAD$3,536,350 ($2,655,090).
The debentures mature 24 months from the date of issuance and bear interest at a rate of 12%
per annum, payable on maturity. The debenture holders may convert at any time, all or a portion of the convertible loan principal
into units of the Company at a price of CAD$6.75 ($5.08) per unit for the first 12
months and thereafter at a price of CAD$7.50 ($5.64) per unit until maturity. Each
unit is comprised of one common share of the Company
and one warrant, with each warrant exercisable into a common share of the Company
at an exercise price of CAD$6.75 ($5.08) per share for the first 12 months and
thereafter at a price of CAD$7.50 ($5.64) per share for a period of five years
from the issuance of the debentures. The Series One convertible debentures included
a call option in which the Company could force exercise of the warrants if the stock
price exceeded CAD$27.00 ($20.30) for five
consecutive trading days.

 

    	 	 	Page 4 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

Equity
Financing

 

On
December 18, 2019, the Company closed the first tranche of a non-brokered private placement of up to 4,000,000 units at a price
of $0.94 (CAD$1.25) per unit (the “Offering”) for gross proceeds of up to $3,761,000 (CAD$5,000,000). A total of 872,000
units were issued for cash proceeds of $414,000 (CAD$550,000) and $406,000 (CAD$540,000) issued to creditors to settle amounts
owing on the closing of this first tranche of the Offering. Each unit consisted of one common share of the Company and one-half
of one common share purchase warrant. Each whole warrant entitles the holder to acquire one additional share of the Company for
a period of 36 months from the date of issuance at a price of $1.35 (CAD$1.80) per share. Of the $819,000 (CAD$1,090,000) raised,
$75,000 (CAD$100,000) were subscribed to by a director of the Company.

 

SELECTED
ANNUAL INFORMATION

 

	 	 	Year Ended August 31, 2019
 $
	 	 	Year Ended August 31, 2018
 $
	 
	Total assets	 	 	10,685,697	 	 	 	14,908,615	 
	Total liabilities	 	 	18,352,879	 	 	 	8,118,943	 
	Working capital	 	 	(693,391	)	 	 	(5,798,474	)
	Expenses (Income)	 	 	18,171,745	 	 	 	14,018,166	 
	Net (loss) income	 	 	(14,737,998	)	 	 	(11,503,463	)
	Net (loss) earnings per share, basic and diluted	 	 	(6.28	)	 	 	(5.28	)

 

COMPARISON
OF INCOME STATEMENT FOR THE YEARS ENDED AUGUST 31, 2019 AND 2018

 

The
Company reported a net loss of $14.7 million
the year ended August 31, 2019 (August 31, 2018: $9.6 million). The Company
continues to sustain a recurring loss as it builds its business. Significant variances comparing
the year ended August 31, 2019 to the year ended August 31, 2018 were as follows:

 

	 	●	The
    Company’s revenue grew by $0.7 million from $3.5 million for the year ended
    August 31, 2018 to $4.2 million for the year end August 31, 2019. This increase was driven primarily by games
    and membership income in Eden Games,
    revenue from its data company, Stream Hatchet,
    and event income.
	 	●	The
    change in the fair value of warrants payable resulted in a gain of $0.6
    million compared to a gain of $4.9 million for the prior period.
    This resulted in an increase of net loss by $4.3 million. The modification
    of the fair value of warrants payable is a result of the revaluation of the Company’s
    warrant obligation, with an increase in the gain in value of the obligation primarily driven by favourable variances
    in the Company’s share price during the valuation period.
	 	●	Impairment
    of goodwill increased by $4.5 million from $1.4 million in the prior period to
    $5.9 million in the current period. This is a result of an adjustment of goodwill
    relating to the Company’s wholly -owned subsidiary, Eden Games.
	 	●	The
    change in fair value of the conversion feature of the convertible debt for the current period was $1.5 million compared to
    $Nil in the prior period. The expense is a result of the valuation of probabilities of the exercise of convertible debt held
    by the debtholders into common shares.
	 	●	Direct
    costs increased by $1.0 million to $3.6 million for the year ended August 31, 2019, reflective of production costs in Eden
    Games, as compared with $2.6 million during the year ended August 31, 2018.
	 	●	Amortization
    and depreciation increased by $0.7 million from $1.7 million during the prior
    period to $2.4 million in the current period. This is a result of the increased amortization of intangibles related to Eden
    Games, Stream Hatchet and Ideas & Cars.

 

    	 	 	Page 5 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

	 	●	Share-based
    payments decreased by $2.3 million to
    $0.0 million from $2.3 million in the prior period. This expense release to the
    Black-Scholes value of stock options issued during the respective reporting periods
    to employees, directors and consultants of the Company.
	 	●	Consulting
    decreased by $1.9 million to $0.8 million from $2.7 million and salaries and wages
    increased by $0.1 million to $1.7 million from $1.6 million. Staffing and consultant levels were reduced between
    periods primarily in PGL Nevada, Ideas & Cars and the corporate head office staff.
	 	●	Impairment
    of intangible assets was $Nil in the current period and $1.7 million in the prior period. Provisions were made for both brands
    and contracts in the prior period.
	 	●	Write-down
    of long-term investment totaled $Nil in the current period and $1.6 million in
    the prior period. The prior period write-down relates to the Company’s
    investment in Alt-Tab Productions.
	 	●	Sponsorship
    and tournament expenses decreased by $0.6 million to $0.6 million from $1.2 million. The change is a result of the Company
    deemphasizing the tournaments and events in PGL Nevada during the current
    period.
	 	●	Foreign
    exchange gain/loss fluctuated by $0.3 million
    between periods to a gain of $0.2 million during the current period compared
    to a loss of $0.1 million during the prior period. The company transacts
    a significant portion of its business in currencies other than United States Dollars,
    namely British Pounds, Canadian Dollars and Euros.

 

SELECTED
QUARTERLY INFORMATION

 

A
summary of selected information for each of the quarters presented below is as follows:

 

		 	Net
    Loss	 	 	 	 
	For
    the Period Ended	 	Total
    

($)	 	 	Basic
                    and diluted loss per share
 ($)
	 	 	Total
    assets 

($)	 
	August 31, 2019	 	 	(10,127,745	)	 	 	(6.28	)	 	 	10,685,697	 
	May 31, 2019	 	 	(2,058,314	)	 	 	(0.95	)	 	 	13,144,665	 
	February 28, 2019	 	 	(1,195,488	)	 	 	(0.75	)	 	 	13,731,836	 
	November 30, 2018	 	 	(1,356,451	)	 	 	(0.75	)	 	 	14,206,010	 
	August 31, 2018	 	 	(9,818,790	)	 	 	(5.25	)	 	 	14,908,615	 
	May 31, 2018	 	 	119,992	 	 	 	(0.00	)	 	 	20,318,954	 
	February 28, 2018	 	 	79,758	 	 	 	(0.00	)	 	 	21,175,895	 
	November 30, 2017	 	 	(1,884,423	)	 	 	(1.50	)	 	 	7,897,520	 

 

    	 	 	Page 6 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

LIQUIDITY
AND CAPITAL RESOURCES

 

The
Company’s approach to managing liquidity
risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company’s
liquidity and operating results may be adversely affected if the Company’s access
to the capital market is hindered, whether as a result of a downturn in stock market
conditions generally or as a result of conditions specific to the Company. The
Company regularly evaluates its cash position to ensure preservation and security of
capital as well as maintenance of liquidity. As the Company
does not presently generate sufficient revenue to cover its costs, managing liquidity
risk is dependent upon the ability to secure additional financing. 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, as necessary. While management and the Board have
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 a cash balance of $2.8
million (August 31, 2018: $0.6 million), to settle current liabilities of $5.4 million (August 31, 2018: $7.5 million).
This represents a working capital deficiency of $0.0 million (August 31, 2018: deficiency
of $1.3 million) which is comprised of current assets less current liabilities, excluding long-term debt, contingent performance
share obligation, convertible debt and conversion feature of convertible debt. The Company
has not yet realized profitable operations and has incurred significant losses to date resulting
in a cumulative deficit of $39.8 million as at August 31, 2019 (August 31, 2018:
$25.0 million).

 

SHARE
CAPITAL STRUCTURE

 

As
at the date of this document, the Company had 14,082,385 issued and outstanding common shares, 6,798,595 warrants exercisable
between $0.29 (CAD$0.38) and $50.92 (CAD$67.70), expiring between October 20, 2019 and August 8, 2024, and 27,933 stock options
with a weighted average exercise price of $11.08 (CAD$14.73).

 

SHARE
CONSOLIDATIONS

 

Two
share consolidations occurred during the period from September 1, 2018 to February 13, 2020:

 

	 	●	On
    June 5, 2019, subject to shareholder approval granted May 11, 2018, the Company consolidated
    its common shares on a 15 to 1 basis.
	 	●	On
    October 18, 2019 (post the Company’s August 31, 2019 fiscal year end), the
    Company further consolidated its common shares on a 5 to 1 basis.

 

COMMITMENTS
AND CONTINGENCIES

 

Operating
Leases

 

Eden
Games is obligated under operating leases for use of its office premises for the period ending April 15, 2025. Eden Games can
end the lease at end of every three-year period on six months advance notice. Payment of €25,000 ($27,463) is required every
quarter. Annual future minimum rental payments under operating leases are as follows: 2020 € 100,000 ($109,851); 2021 €
100,000 ($109,851); and 2022 € 31,250 ($34,328).

 

Ideas
+ Cars is obligated under the terms of a facilities use agreement for event and meeting premises amounting to €180,851
($198,997) for an event planned in July 2020.

 

Royalty
Expenses

 

Royalty
expenses relate to royalties paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology
or other intellectual property or proprietary rights in the development or sale of the Eden Games’ products. Eden Games
has royalty agreements to utilize trademarks, copyrights, software, technology or other intellectual property or proprietary rights
in the development or sale of its products. Eden Games has committed to pay royalties ranging from 4% to 25% of revenues after
certain thresholds have been met, in connection with the underlying license agreements. Royalty expenses were €nil ($nil)
and €125,560 ($149,880) for the years ended August 31, 2019 and 2018, respectively.

 

    	 	 	Page 7 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

Software
Contract

 

The
Company is committed under the terms of a software license agreement until June 1, 2021 for annual fees of $87,907, or
$154,484 in aggregate.

 

Consulting
Contracts

 

Under
the terms of three consulting agreements, the Company is committed to pay 0.5% of tokens issued to each consultant, should the
Company ever undertake a initial coin offering. Under the terms of a consulting agreement dated July 27, 2017, the Company is
committed to pay six months severance in the event of termination, amounting to £144,500 ($175,911). If revenue from the
Eden Games mobile app exceeds £100,000 ($121,561) in a month, in the first year of this agreement, a bonus equal to 2.5%
of the excess shall be paid up to a maximum of £100,000 ($121,561) on an annual basis. Each successive year, the monthly
target will increase by 20% but the maximum will remain at £100,000 ($121,561). As no triggering events have taken place
related to the contingencies to August 31, 2019, no provision has been made in these consolidated financial statements.

 

The
Company is committed under the terms of a business development services contract for
aggregate payments of CAD$586,500 ($441,143) over a period of 36 months commencing July 1, 2019 to Rockstar Kids Ltd., a corporation
controlled by a company where a senior officer is a director of Torque.

 

The
Company is committed under the terms of a management services agreement commencing September 3, 2019 for six months at $20,000
per month and a 25% success fee, or $150,000 in aggregate.

 

Employment
Contracts

 

Under
the terms of an employment contract undertaken with the Company’s controller, the Company is committed to pay three months
severance in the event of termination, amounting to $42,500. Additionally, the controller’s employment agreement contains
a provision for a discretionary annual bonus for up to 20%.

 

Litigation

 

The
Company is subject to various claims, lawsuits and other complaints arising in the ordinary course of business. The Company records
provisions for losses when claims become probable and the amounts are estimable. Although the outcome of such matters cannot be
determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect
on the Company’s financial condition, operations or liquidity.

 

Contingent
Consideration and Shares to be Issued

 

In
connection with the Company’s acquisition of IDEAS+CARS Ltd. on July 27, 2017, the principal shareholder of IDEAS+CARS,
entered into a three-year agreement with the Company to act as Chief Marketing Officer of the Company and received CAD$357,000
($256,911) of common shares (5,535 shares issued January 17, 2018) and up to 106,667 additional common shares upon meeting certain
performance milestones based on an issuance price of the greater of CAD$43.50 ($32.72) and the common share closing price on the
day prior to the respective milestone date. The agreement stipulates an equivalent share payout of CAD$600,000 ($451,320) in the
first year, and CAD$957,000 ($720,000) on the second, third, and fourth anniversaries of the agreement upon meeting annual revenue
targets of £272,000 ($347,700), £416,047 ($531,900), £535,707 ($684,900) and £655,023 ($837,400) in the
first through fourth years, respectively, with a minimum share equivalent payout of CAD$400,000 ($300,880) annually.

 

As
at August 31, 2019, the estimated fair value of the contingent consideration is $473,363 (2018 - $667,342), which is calculated
based on a combination of probabilities ranging from 5%-10% (2018 – 10%-100%) of meeting milestone targets, and a discount
rate of 19% (2018 – 19%). Based on milestones met to August 31, 2019, $760,216 (2018 -$455,736) was reflected as shares
to be issued as at August 31, 2019.

 

    	 	 	Page 8 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

RELATED
PARTY TRANSACTIONS

 

Key
management includes the Company’s directors, officers and any consultants with the authority and responsibility for planning,
directing and controlling the activities of an entity, directly or indirectly. Compensation awarded to key management includes
the following:

 

	 	 	2019	 	 	2018	 
	 	 	 	 	 	 	 
	Total compensation paid to key management	 	$	1,401,723	 	 	$	1,112,051	 
	Share based payments	 	$	28,834	 	 	$	1,853,445	 

 

Total
compensation paid to key management is recorded in consulting and salaries and wages in the statement of loss and comprehensive
loss for the years ended August 31, 2019 and 2018.

 

Amounts
due to related parties as at August 31, 2019 with respect to the above fees were $124,717 (2018 - $252,797). These amounts are
unsecured, non-interest bearing and due on demand.

 

Included
in accounts and other receivables is $35,365 (2018 - $nil) in advances due from the Company’s Chief Executive Officer. This
amount is unsecured, bear no interest and are due on demand.

 

Included
in prepaid expenses is $431,608 (2018 - $nil) for future consulting fees paid to a corporation related to a company of which a
director of the Torque is a senior officer.

 

During
the year ended August 31, 2019, the Company expensed $87,281 (2018 - $115,989) to Marrelli Support Services Inc. (“Marrelli
Support”) and DSA Corporate Services Inc. (“DSA”), together known as the “Marrelli Group” for: (i)
Robert D.B. Suttie to act as Chief Financial Officer (“CFO”) of the Company; (ii) Bookkeeping and office support services;
(iii)Corporate filing services; and (iv) Corporate secretarial services. The Marrelli Group is also reimbursed for out of pocket
expenses. Both Marrelli Support and DSA are private companies. Robert Suttie is the President of Marrelli Support.

 

During
the year ended August 31, 2018, 16,667 common shares were issued through the exercise of options, in aggregate, to two directors
of the Company on exercise of stock options to settle debt of $135,118.

 

During
the year ended August 31, 2018, 13,295 units were issued to three directors pursuant to the January 9, 2018 and July 13, 3018
private placement for gross proceeds of $412,954.

 

On
January 12, 2018, the Company granted 14,667 stock options to directors of the Company with an exercise price of CAD$54.00 ($40.62)
per share, expiring on January 12, 2023.

 

On
January 13, 2018, the Company granted 3,333 stock options to a director of the Company with an exercise price of CAD$54.75 ($41,18)
per share, expiring on January 12, 2023.

 

On
January 19, 2018, the Company granted 10,000 stock options to an officer of the Company with an exercise price of CAD$54.00 ($40.62)
per share, expiring on January 12, 2023.

 

On
July 25, 2018, the Company granted 66,667 stock options to an officer of the Company with an exercise price of CAD$10.50 ($7.90)
per share, expiring on July 25, 2025.

 

On
October 30, 2017, the Company granted 40,000 stock options to a director with an exercise price of CAD$58.50 ($44.00) per share,
expiring on October 30, 2027. During the year ended August 31, 2018, these options were cancelled.

 

    	 	 	Page 9 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

On
November 3, 2017, the Company granted 6,667 stock options with an exercise price of
CAD$60.00 ($45.13) per share, expiring on November 3, 2022 to a director of the Company. During the year ended August 31, 2018,
these options were cancelled.

 

On
November 22, 2017, the Company granted 13,333 stock options with an exercise price of CAD$57,75 ($43,44) per share, expiring on
October 31, 2018 to an officer of the Company. The options were cancelled subsequent to the year ended August 31, 2018. During
the year ended August 31, 2018, 10,000 and 3,333 options, with exercise prices of CAD$54.00 ($40.62) and CAD$54.75 ($41.18), respectively,
granted to a director of the Company were cancelled.

 

On
September 14, 2018, the Company granted 26,667 stock options with an exercise price of CAD$9.75 ($7.33) per share, expiring on
September 14, 2025 to the Chief Executive Officer of the Company.

 

CRITICAL
ACCOUNTING ESTIMATES

 

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:

 

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.

 

    	 	 	Page 10 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

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.

 

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.

 

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.

 

Revenue
Recognition

 

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

 

ACCOUNTING
PRONOUNCEMENTS ADOPTED DURING THE YEAR

 

Accounting
Pronouncements Adopted During the Year

 

The
Company has adopted IFRS 15 – Revenue from Contracts with Customers, on September 1, 2018. IFRS 15 was issued by the IASB
in May 2014 and specifies how and when revenue should be recognized based on a five-step model, which is applied to all contracts
with customers. On April 12, 2016, the IASB published final clarifications to IFRS 15 with respect to identifying performance
obligations, principal versus agent considerations, and licensing.

 

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.

 

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

 

    	 	 	Page 11 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

To
determine the amount and timing of revenue to be recognized, the Company follows a 5-step process: (i) Identifying the contract
with a customer; (ii) identifying the performance obligations; (iii) determining the transaction price; (iv) allocating the transaction
price to the performance obligations; and (v) recognizing revenue when/as performance obligation(s) are satisfied.

 

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.

 

IFRS
9 – Financial instruments (“IFRS 9”) addresses the classification, measurement and recognition of financial
assets and financial liabilities. IFRS 9 was issued in November 2009, October 2010, November 2013 and finalized in July 2014.
It replaces the parts of IAS 39 Financial Instruments: Recognition and Measurement that relate to the classification and measurement
of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at
fair value through profit or loss and those measured at amortized cost, with the determination made at initial recognition. The
classification depends on an entity’s business model for managing its financial instruments and the contractual cash flow
characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change
is that in cases where the fair value option is selected for financial liabilities, the part of a fair value change due to an
entity’s own credit risk is recorded in other comprehensive income rather than the statements of operations, unless this
creates an accounting mismatch. IFRS 9 has also been updated to amend the requirements around hedge accounting. However, there
is no impact to the Company from these amendments as it does not apply hedge accounting. On September 1, 2018, the Company adopted
these amendments.

 

The
new hedge accounting guidance had no impact on the Company’s consolidated financial statements.

 

Under
IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics
of their contractual cash flows. IFRS 9 contains the primary measurement categories for financial assets: measured at amortized
cost, fair value through other comprehensive income (“FVTOCI”) and fair value through profit and loss (“FVTPL”).

 

    	 	 	Page 12 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

Below
is a summary showing the classification and measurement bases of the financial instruments as at September 1, 2018 as a result
of adopting IFRS 9 (along with comparison to lAS 39).

 

	Classification	 	IAS
    39	 	IFRS
    9
	 	 	 	 	 
	Cash	 	Loans
    and receivables	 	Amortized
    cost
	Accounts
    and other receivables	 	Loans
    and receivables	 	Amortized
    cost
	Deposits	 	Loans
    and receivables	 	Amortized
    cost
	Accounts
    payable and accrued liabilities	 	Other
    financial liabilities	 	Amortized
    cost
	Convertible
    debentures	 	n/a	 	FVTPL
	Contingent
    consideration	 	Other
    financial liabilities	 	Amortized
    cost
	Put
    option redemption liability	 	Other
    financial liabilities	 	Amortized
    cost
	Warrant
    liability	 	FVTPL	 	FVTPL
	Customer
    points liability	 	Other
    financial liabilities	 	Amortized
    cost
	Promissory
    notes payable	 	Other
    financial liabilities	 	Amortized
    cost
	McLaren
    loan	 	Other
    financial liabilities	 	Amortized
    cost
	Long-term
    debt	 	Other
    financial liabilities	 	Amortized
    cost

 

There
was no impact on the Company’s consolidated financial statements as result of adopting IFRS 9.

 

MANAGEMENT
CHANGES

 

On
April 8, 2019, the Company announced that Darren Cox was appointed as president and
director. Mr. Cox was the founder of Nissan and Sony’s GT Academy, Mr. Cox previously served as Nissan’s Head of Global
Motorsport. Further, on July 17, 2019, the Company announced it had appointed Mr. Cox
as its Chief Executive Officer, replacing Mr. Steve Shoemaker.

 

On
April 8, 2019, the Company announced that both Mr. Ron Spoehel and Mr. Alex Igelman resigned from the Board of the Company.

 

As
of the date of this report the Board the following are the members of the Board: Darren Cox, Peter Liabotis and Bryan Reyhani.

 

The
Company’s business and operations are dependent on retaining the services of
a small number of key employees. The success of the Company
is, and will continue to be, to a significant extent, dependent on the expertise
and experience of these employees. The loss of one or more of these employees could
have a materially adverse effect on the Company. The Company
does not maintain insurance on any of its key employees.

 

FINANCIAL
RISK MANAGEMENT

 

Risk
Management

 

In
the normal course of business, the Company is exposed to a number of risks that can affect its operating performance. These risks,
and the actions taken to manage them, are as follows:

 

Fair
Values

 

The
Company has designated its cash and short term and long term investments as FVTPL which are measured at fair value. Fair value
of cash is determined based on transaction value and is categorized as a Level 1 measurement. Short term investments are categorized
as Level 2 measurement, long-term investment is classified as Level 3 measurement, and warrant liability is categorized as Level
2 measurement.

 

	 	●	Level
    1 - includes quoted prices (unadjusted) in active markets for identical assets or liabilities.
	 	●	Level
    2 - includes inputs that are observable other than quoted prices included in Level 1.
	 	●	Level
    3 - includes inputs that are not based on observable market data.

 

    	 	 	Page 13 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

As
at August 31, 2019 and 2018, both the carrying and fair value amounts of the Company’s cash, accounts and other receivables,
government remittances receivable, accounts payable, promissory notes payable and accrued liabilities, McLaren loan, put option
redemption liability, customer points liability, and contingent consideration are approximately equivalent due to their short
term nature.

 

Fair
Value of Financial Instruments

 

The
following table presents the changes in fair value measurements of the investment in Alt Tab classified as Level 3 during the
years ended August 31, 2019 and 2018. These financial instruments are measured at fair value utilizing non-observable market inputs.
The net realized losses and net unrealized gains are recognized in the statements of loss.

 

	 	 	2019	 	 	2018	 
	Balance, beginning of year	 	$	-	 	 	$	1,328,077	 
	Purchase at cost	 	 	-	 	 	 	242,700	 
	Unrealized (loss)	 	 	-	 	 	 	(1,570,777	)
	 	 	 	 	 	 	 	 	 
	Balance, end of year	 	 	-	 	 	 	-	 

 

A
sensitivity analysis was performed on key inputs of the convertible debenture valuation; volatility, share price and conversion
price.

 

	●	A
    10% increase or decrease in volatility would result in a $7,000 change in the fair value of the convertible debt outstanding
    as of August 31, 2019.
	●	A
    10% increase or decrease in share price would result in a $200,000 change in the fair value of the convertible debt outstanding
    as of August 31, 2019.
	●	A
    10% increase or decrease conversion price would result in a $13,000 change in the fair value of the convertible debt outstanding
    as of August 31, 2019.

 

Credit
Risk

 

Credit
risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s
credit risk is primarily attributable to accounts and other receivables. Management believes credit risk with respect to financial
instruments included in accounts and other receivable is minimal. As at August 31, 2019 and 2018, all of the Company’s accounts
receivable are current and the allowance for doubtful accounts is $nil. The Company’s maximum exposure to credit risk as
at August 31, 2019 and 2018 is the carrying value of accounts and other receivables.

 

Liquidity
Risk

 

Liquidity
risk is the risk that the Company will encounter difficulty in satisfying its financial obligations. The Company manages its liquidity
risk by forecasting it operations and anticipating its operating and investing activities. All amounts comprising of accounts
payable and accrued liabilities. Liquidity risk is the risk that the Company will encounter difficulty in satisfying its financial
obligations. The Company manages its liquidity risk by forecasting it operations and anticipating its operating and investing
activities. All amounts comprising of accounts payable and accrued liabilities, customer points liability, McLaren Loan, put option
redemption liability, contingent consideration, current portion of long-term debt and promissory notes payable of $4,862,086 (2018
- $6,635,775) are due within one year.

 

Market
Risk

 

Market
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market risk
factors. The market risk factor that affects the Company is foreign currency risk.

 

    	 	 	Page 14 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

Foreign
Currency Risk

 

The
Company is exposed to foreign currency risk due to the timing of their accounts payable balances, valuation of its warrant liability
and contingent share obligation due to the use of prevailing exchange rates in the valuation process. The risk associated with
accounts payable mitigated by timely payment of creditors and monitoring of foreign exchange fluctuations by management. Warrant
liability and contingent share liability are noncash items with foreign exchange variances presented as gains or losses on the
Company’s consolidated statements of loss and comprehensive loss. Aside from these items, the Company is not exposed to
significant foreign currency risk based on its current operations.

 

Concentration
of Risk

 

During
the year ended August 31, 2019, two (2018 - three) customers represented 75% (2018 - 87%) of revenue and as at August 31, 2019,
54% (2018 - 75%) of accounts and other receivables.

 

Sensitivity
Analysis

 

Based
on management’s knowledge and experience of the financial markets, the Company believes the following movements are reasonably
possible over the next twelve months:

 

The
Company is exposed to foreign currency risk on fluctuations of financial instruments related to cash, accounts and other
receivables, and accounts payable denominated in Euros, GBP and Canadian dollars. Sensitivity to a plus or minus one
percentage point change in exchange rates would impact the reported net loss by approximately $37,836 for the year
ended August 31, 2019 (2018 - $125,000). The Company is also exposed to foreign currency risk on fluctuations of financial
instruments related to short-term debt, long-term debt, promissory notes payable and convertible debt. Sensitivity to a plus
or minus one percentage point change in exchange rates would impact the reported net loss by approximately $134,011 for the
year ended August 31, 2019 (2018 - $3,041).

 

CAPITAL
MANAGEMENT

 

The
Company considers its capital to be its shareholders’ equity. As at August 31, 2019, the Company had shareholders’
deficiency of $ 7,960,633 (2018 - shareholders’ equity of $6,789,672. The Company’s objective when managing its capital
is to seek continuous improvement in the return to its shareholders while maintaining a moderate to high tolerance for risk. The
objective is achieved by prudently managing the capital generated through internal growth and profitability, through the use of
lower cost capital, including raising share capital or debt when required to fund opportunities as they arise. The Company may
also return capital to shareholders through the repurchase of shares, pay dividends or reduce debt where it determines any of
these to be an effective method of achieving the above objective. The Company does not use ratios in the management of its capital.
There have been no changes to management’s approach to managing its capital during the years ended August 31, 2019 and 2018.
The Company is subject to Policy 2.5 of the TSXV Venture Exchange (“TSXV”) which requires adequate working capital
or financial resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general
and administrative expenses for a period of 6 months. As of August 31, 2019, the Company was not compliant with Policy 2.5.

 

    	 	 	Page 15 of 16

     

    

 

Torque
Esports Corp. (formerly Millennial Esports Corp.) 

Management’s
discussion and analysis for the years ended August 31, 2019 and 2018 

 

 

OFF-BALANCE
SHEET ARRANGEMENTS

 

As
of the date of this filing, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to
have, a current or future effect on the results of operations or financial condition of the Company including, without limitation,
such considerations as liquidity and capital resources that have not previously been discussed.

 

CURRENT
GLOBAL FINANCIAL CONDITIONS AND TRENDS

 

Securities
of gaming and technology companies have experienced substantial volatility in the past, often based on factors unrelated to the
financial performance or prospects of the companies involved. These
factors incl ude macroeconomic developments globally and market perceptions
of the attractiveness of particular industries. The price of the securities of companies is also significantly affected by short-term
currency exchange fluctuation and the political environment in the countries
in which the Company does business. As of August 31, 2019, the global economy
continues to be in a period of significant economic volatility, in large part due to US, European, and Middle East economic
and political concerns which have impacted global economic growth.

 

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