As filed with the Securities and Exchange Commission on February 22, 2021
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-10
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Form F-10
SCORE MEDIA AND GAMING INC.
(Exact name of registrant as specified in its charter)
British Columbia, Canada
(Province or other jurisdiction of incorporation or organization)
7990
(Primary Standard Industrial Classification Code Number, if applicable)
Not applicable
(I.R.S. Employer Identification No., if applicable)
500 King Street West, Fourth Floor
Toronto, ON M5V 1L9
Tel: 416-479-8812
Attention: Josh Sidsworth
(Address and telephone number of Registrant’s principal executive offices)
CT Corporation System
28 Liberty St., New York, New York 10005
Tel: (212) 894-8940
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Copies to:
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Adam M. Givertz
Paul, Weiss, Rifkind, Wharton &
Garrison LLP
1285 Avenue of the Americas
New York, NY 10019
Tel: 212-373-3000
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Robert O. Hansen
McCarthy Tétrault LLP
66 Wellington Street West Suite 5300,
TD Bank Tower Box 48
Toronto Ontario M5K 1E6
Tel: 416-362-1812
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Ryan J. Dzierniejko
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
New York, NY, 10001-8602
Tel: 212-735-3000
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Michael Hickey
Blake, Cassel & Graydon LLP
199 Bay Street Suite 4000
Commerce Court West
Toronto ON M5L 1A9
Tel: 416-863-4318
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
Province of Ontario, Canada
(Principal jurisdiction regulating this offering)
It is proposed that this filing shall become effective (check appropriate box below):
A.
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upon filing with the Commission pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the United States and Canada).
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B.
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at some future date (check the appropriate box below):
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pursuant to Rule 467(b) on ( ) at ( ) (designate a time not sooner than 7 calendar days after filing).
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pursuant to Rule 467(b) on ( ) at ( ) (designate a time 7 calendar days or sooner after filing) because the securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on ( ).
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pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the Registrant or the Canadian securities regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto.
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4.
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after the filing of the next amendment to this Form (if preliminary material is being filed).
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction’s shelf prospectus offering procedures, check the following box. ☒
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Amount to be
Registered(1)
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Proposed
Maximum
Offering Price
per Unit
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Proposed
Maximum
Aggregate
Offering
Price(1)(2)
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Amount of
Registration
Fee(2)
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Class A Subordinate Voting Shares, no par value
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Debt Securities
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Warrants
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Subscription Receipts
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Units
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Total
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US$255,986,137
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(3)
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US$255,986,137
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US$27,928.09
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(1)
There are being registered under this Registration Statement such indeterminate number of Class A Subordinate Voting Shares, debt securities, warrants, subscription receipts and/or units comprised of one or more securities of the Registrant listed above in any combination as shall have an aggregate initial offering price of up to US$255,986,137 (C$325,000,000, based on the daily exchange rate on February 18, 2020, as reported by the Bank of Canada, for the conversion of U.S. dollars into Canadian dollars of US$1.00 equals C$1.2696). The proposed maximum offering price per security will be determined, from time to time, by the Registrant in connection with the sale of the securities under this Registration Statement. Prices, when determined, may be in U.S. dollars or the equivalent thereof in Canadian dollars.
(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).
(3)
The proposed maximum initial offering price per security will be determined, from time to time, by the Registrant in connection with the sale of the securities under this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registration Statement shall become effective as provided in Rule 467 under the Securities Act of 1933, as amended (the “Act”) or on such date as the Commission, acting pursuant to Section 8(a) of the Act, may determine.
PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus supplement shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
Subject to completion, dated February 22, 2021
PRELIMINARY PROSPECTUS SUPPLEMENT
TO THE SHORT FORM BASE SHELF PROSPECTUS
DATED JANUARY 7, 2021
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New Issue
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February , 2021
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SCORE MEDIA AND GAMING INC.
US$
5,000,000 Class A Subordinate Voting Shares
This offering (the “Offering”) is the initial public offering of Class A Subordinate Voting Shares (the “Class A Shares”) of Score Media and Gaming Inc. (the “Corporation”, “theScore”, “we”, “us” or “our”) in the United States and a new issue of Class A Shares in Canada by the Corporation. This preliminary prospectus supplement (the “Prospectus Supplement”), together with the accompanying short form base shelf prospectus dated January 7, 2021 (the “Shelf Prospectus”), qualifies the distribution of 5,000,000 Class A Shares (the “Offered Shares”) at a price of US$ per Class A Share (the “Offering Price”).
The Offering is being made concurrently in Canada under the terms of this Prospectus Supplement and in the United States under the terms of our registration statement on Form F-10 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “SEC”).
We will use the net proceeds from the Offering as described in this Prospectus Supplement. See “Use of Proceeds”.
The outstanding Class A Shares are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “SCR”. On February 19, 2021, the last trading day before the filing of this Prospectus Supplement, the closing price of the Class A Shares on the TSX was C$46.06 or US$36.52 (based on the daily exchange rate for the U.S. dollar in terms of Canadian dollars, as quoted by the Bank of Canada, of C$1.00 = US$0.7928). We have applied to list the Offered Shares and additional Class A Shares to be issued by the Corporation if the Over-Allotment Option (as defined below) is exercised in full (the “Additional Shares”) on the TSX, and have applied to list the Offered Shares, the Additional Shares and our outstanding Class A Shares on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbol “SCR”. Listing is subject to our fulfillment of all of the listing requirements of the TSX and Nasdaq, respectively.
Price: US$ per Offered Share
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Price to the Public
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Underwriters’
Fee(1)
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Net Proceeds to the
Corporation(2)
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Per Class A Share
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US$
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US$
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US$
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Total(3)
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US$
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US$
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US$
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Notes:
(1)
Pursuant to the terms of the Underwriting Agreement, we have agreed to pay the Underwriters a cash commission (the “Underwriters’ Fee”) equal to % of the gross proceeds of the Offering, including any Additional Shares sold pursuant to the exercise of the Over-Allotment Option (as defined below).
(2)
After deducting the Underwriters’ Fee but before deducting the expenses of the Offering, which are estimated to be approximately US$ and which, together with the Underwriters’ Fee, will be paid from the proceeds of the Offering.
(3)
We have granted to the Underwriters an over-allotment option (the “Over-Allotment Option”) to purchase up to Additional Shares at a price of US$ per Additional Share on the same terms and conditions of the Offering, exercisable once in whole or in part at the sole discretion of the Underwriters at any time up to 30 days following the closing of the Offering for the purpose of covering the Underwriters’ over-allocation position, if any, and for market stabilization purposes. If the Over-Allotment Option is exercised in full, the total price to the public, Underwriters’ Fee and net proceeds to us (before deducting the estimated expenses of the Offering) will be US$ , US$ and US$ , respectively. This Prospectus Supplement also qualifies the Over-Allotment Option and the distribution of the Additional Shares pursuant to the exercise of the Over-Allotment Option. A purchaser who acquires securities forming part of the Underwriters’ over-allocation position acquires those securities under this Prospectus Supplement, regardless of whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. References to “Class A Shares” in this Prospectus Supplement will include the Class A Shares issuable upon exercise of the Over-Allotment Option, as applicable in the context used. See “Plan of Distribution”.
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Morgan Stanley
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Credit Suisse
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Canaccord Genuity
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Macquarie Capital
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All dollar amounts in this Prospectus Supplement are in United States dollars, unless otherwise indicated. See “Currency Presentation and Exchange Rate Information”.
Investing in the Class A Shares involves significant risk. Prospective investors should consider the risks outlined in this Prospectus Supplement, the accompanying Shelf Prospectus and in the documents incorporated by reference herein and therein. See “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”.
The Offered Shares are being offered in Canada by Morgan Stanley Canada Limited, Credit Suisse Securities (Canada), Inc. and Canaccord Genuity Corp. (collectively, the “Canadian Underwriters”) and in the United States by Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Canaccord Genuity LLC and Macquarie Capital (USA) Inc. (collectively, the “U.S. Underwriters”, and together with the Canadian Underwriters, the “Underwriters”) pursuant to an underwriting agreement dated February , 2021 (the “Underwriting Agreement”). Macquarie Capital (USA) Inc. is not registered to sell securities in any Canadian jurisdiction and, accordingly, will not, directly or indirectly, solicit offers to purchase, sell or distribute the Offered Shares in Canada and will act as an underwriter for us only in respect of the offer, sale and distribution of the Offered Shares in the United States. See “Plan of Distribution”.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION OR ANY U.S. REGULATORY AUTHORITY NOR HAVE THESE AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Offering is made in the United States by a foreign issuer that is permitted, under a multijurisdictional disclosure system adopted in the United States and Canada, to prepare this Prospectus Supplement and the accompanying Shelf Prospectus in accordance with Canadian disclosure requirements. Prospective investors should be aware that such requirements are different from those of the United States. Financial statements incorporated by reference herein have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
Prospective investors should be aware that the acquisition of Class A Shares may have tax consequences both in Canada and the United States. Such consequences for investors who are resident in, or citizens of, Canada or the United States may not be described fully herein. See “Certain Canadian Federal Income Tax Considerations” and “Certain U.S. Federal Income Tax Considerations”.
The enforcement by investors of civil liabilities under the United States federal securities laws may be affected adversely by the fact that the Corporation is incorporated under and governed by the Business Corporations Act (British Columbia) (the “BCBCA”), that most of our directors and officers reside principally in Canada, that some of the Underwriters or experts named in the Registration Statement (as defined herein) may be residents of a foreign country, and that all or a substantial portion of our assets and said persons may be located outside the United States. See “Enforcement of Civil Liabilities”.
The Underwriters, as principals, conditionally offer the Offered Shares qualified under this Prospectus Supplement and the Shelf Prospectus, subject to prior sale, when, as and if delivered by us to the Underwriters and accepted by them subject to the conditions contained in the Underwriting Agreement, as described under “Plan of Distribution”.
Certain legal matters relating to Canadian law with respect to the Offering will be passed upon on our behalf by McCarthy Tétrault LLP and on behalf of the Underwriters by Blake, Cassels & Graydon LLP. Certain legal matters relating to United States law with respect to the Offering will be passed upon on our behalf by Paul, Weiss, Rifkind, Wharton & Garrison LLP and on behalf of the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP. See “Legal Matters”.
Subject to applicable laws, the Underwriters may, in connection with this Offering, over-allot or effect transactions that stabilize or maintain the market price of the Class A Shares at levels other than those which might otherwise prevail on the open market. Such transactions, if commenced, may be discontinued at any time. After the Underwriters have made reasonable efforts to sell the Offered Shares at the Offering Price, the Underwriters may offer the Offered Shares to the public at prices lower than the Offering Price. See “Plan of Distribution”.
Subscriptions will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. Closing of the Offering is expected to take place on or about , 2021 (the “Closing Date”), or such earlier or later date as we and the Underwriters may agree, but in any event no later than , 2021.
It is expected that we will arrange for the instant deposit of the Offered Shares under the book-based system of registration, to be registered to The Depository Trust Company (“DTC”) or its nominee and deposited with DTC on the Closing Date, or as may otherwise be agreed to between us and the Underwriters. In the case of certain Canadian purchasers, we may alternatively arrange for the electronic deposit of the Offered Shares distributed under the Offering under the book-based system of registration, to be registered in the name of CDS Clearing and Depository Services Inc. (“CDS”) or its nominee and deposited with CDS on the Closing Date. No certificates evidencing the Offered Shares will be issued to purchasers of the Offered Shares. Purchasers of the Offered Shares will receive only a customer confirmation from the Underwriter or other registered dealer from or through whom a beneficial interest in the Offered Shares is purchased. See “Plan of Distribution”.
One of our directors, Angela Ruggiero, resides outside of Canada and has appointed Cartan Limited, Box 48, Suite 5300, Toronto Dominion Bank Tower, Toronto, Ontario, M5K 1E6, as her agent for service of process in Canada. Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process. See “Enforcement of Judgments Against Foreign Persons”.
Our principal place of business is 500 King Street West, Fourth Floor, Toronto, Ontario, M5V 1L9 and our registered office is 745 Thurlow Street, Suite 2400, Vancouver, British Columbia, V6E 0C5.
TABLE OF CONTENTS FOR THIS PROSPECTUS SUPPLEMENT
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Page
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S-1
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S-2
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S-3
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S-3
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S-4
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S-4
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S-5
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S-6
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S-7
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S-17
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S-46
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S-47
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S-49
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TABLE OF CONTENTS FOR THE SHELF PROSPECTUS
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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is composed of two parts. The first part is this Prospectus Supplement, which describes the specific terms of the Offering and adds to and supplements information contained in the accompanying Shelf Prospectus and the documents incorporated by reference therein. The second part is the Shelf Prospectus, which gives more general information, some of which may not apply to the Offering. This Prospectus Supplement is deemed to be incorporated by reference into the Shelf Prospectus solely for the purpose of this Offering.
Neither we nor the Underwriters has authorized any person to provide readers with information different from that contained in this Prospectus Supplement and the accompanying Shelf Prospectus (or incorporated by reference herein or therein). Neither we nor the Underwriters take responsibility for, or can provide any assurance as to the reliability of, any other information that others may give readers of this Prospectus Supplement and the accompanying Shelf Prospectus. If the description of the Offered Shares or any other information varies between this Prospectus Supplement and the accompanying Shelf Prospectus (including the documents incorporated by reference herein and therein), the information in this Prospectus Supplement supersedes the information in the accompanying Shelf Prospectus or documents incorporated by reference herein or therein.
Readers should not assume that the information contained or incorporated by reference in this Prospectus Supplement and the accompanying Shelf Prospectus is accurate as of any date other than the date of this Prospectus Supplement and the accompanying Shelf Prospectus or the respective dates of the documents incorporated by reference herein or therein, unless otherwise noted herein or as required by law. It should be assumed that the information appearing in this Prospectus Supplement, the accompanying Shelf Prospectus and the documents incorporated by reference herein and therein are accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.
This Prospectus Supplement shall not be used by anyone for any purpose other than in connection with the Offering. We do not undertake to update the information contained or incorporated by reference herein or in the Shelf Prospectus, except as required by applicable securities laws. Information contained on, or otherwise accessed through, our websites, www.thescore.com, www.scoremediaandgaming.com, www.thescore.bet and www.thescoreesports.com, shall not be deemed to be a part of this Prospectus Supplement, the accompanying Shelf Prospectus or any document incorporated by reference herein or therein and such information is not incorporated by reference herein or therein and prospective investors should not rely on such information when deciding whether or not to invest in the Offered Shares.
This Prospectus Supplement, the Shelf Prospectus and the documents incorporated by reference herein and therein include certain terms or performance measures that are not defined under or not prepared in accordance with IFRS, including EBITDA, Handle and Gross Gaming Revenue. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our operating performance. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-IFRS measures should be read in conjunction with the financial statements incorporated by reference herein. For a description of the methodology used to calculate these non-IFRS measures, see “Non-IFRS Measures and Key Metrics” in this Prospectus Supplement and in our Q1 2021 MD&A (as defined herein).
This Prospectus Supplement and the documents incorporated by reference herein contain corporation names, product names, trade names, trademarks and service marks of the Corporation and other organizations, all of which are the property of their respective owners.
In this Prospectus Supplement, unless otherwise indicated, all dollar amounts and references to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars. This Prospectus Supplement, the Shelf Prospectus and the documents incorporated by reference herein and therein, contain translations of certain U.S. dollar amounts into Canadian dollars solely for your convenience. See “Currency Presentation and Exchange Rate Information”.
On February 11, 2021, we completed a share consolidation on the basis of a consolidation ratio of 10:1. Our post-consolidation Class A Shares began trading on the TSX on February 18, 2021. Historical trading prices and volumes set out in this Prospectus Supplement have been amended to reflect the 10:1 consolidation. See “Summary Description of the Business — Recent Developments — Share Consolidation”.
Unless otherwise indicated, information contained in this Prospectus Supplement assumes or reflects no exercise of the Over-Allotment Option, no exercise of outstanding stock options and no vesting and settlement of outstanding restricted share units.
This Prospectus Supplement does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this Prospectus Supplement by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.
DOCUMENTS INCORPORATED BY REFERENCE
This Prospectus Supplement is deemed to be incorporated by reference into the accompanying Shelf Prospectus solely for the purposes of this Offering. Other documents are also incorporated, or are deemed to be incorporated by reference, into the Shelf Prospectus and reference should be made to the Shelf Prospectus for full particulars thereof.
Copies of the documents incorporated by reference in this Prospectus Supplement and the accompanying Shelf Prospectus may be obtained on request without charge from the Corporation at 500 King Street West, Fourth Floor, Toronto, Ontario M5V 1L9, telephone (416) 479-8812, and are also available electronically on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and on the SEC’s Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”) at www.sec.gov.
The following documents, filed by the Corporation with securities commissions or similar regulatory authorities in the provinces and territories of Canada, are specifically incorporated by reference into, and form an integral part of, this Prospectus Supplement and the accompanying Shelf Prospectus:
(a)
the annual information form of the Corporation dated October 28, 2020 (the “AIF”) for the year ended August 31, 2020;
(b)
the audited consolidated financial statements of the Corporation as at and for the years ended August 31, 2020 and 2019, together with the notes thereto and the auditors’ report thereon;
(c)
the management’s discussion and analysis of financial condition and results of operations of the Corporation for the years ended August 31, 2020 and 2019;
(d)
the unaudited condensed consolidated interim financial statements for the three months ended November 30, 2020 and 2019, together with the notes thereto;
(e)
the management’s discussion and analysis of financial condition and results of operations of the Corporation for the three months ended November 30, 2020 and 2019 (the “Q1 2021 MD&A”);
(f)
the notice of annual and special meeting of shareholders and management information circular of the Corporation dated January 8, 2021 (the “Information Circular”);
(g)
the material change report of the Corporation dated December 2, 2020 regarding the December 2020 Offering (as defined herein); and
(h)
the material change report of the Corporation dated February 15, 2021 regarding the implementation of the Corporation’s share consolidation on the basis of a consolidation ratio of 10:1.
Any statement contained in this Prospectus Supplement, in the accompanying Shelf Prospectus or in any document incorporated or deemed to be incorporated by reference herein or therein shall be deemed to be modified or superseded, for purposes of this Prospectus Supplement, to the extent that a statement contained in any subsequently filed document which also is, or is deemed to be, incorporated by reference herein or in the accompanying Shelf Prospectus modifies or supersedes such prior statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information
set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus Supplement.
Any document of the type required by National Instrument 44-101 — Short Form Prospectus Distributions to be incorporated by reference into a short form prospectus, including any of our annual information forms, material change reports (except confidential material change reports), business acquisition reports, interim financial statements, annual financial statements and the independent auditor’s report thereon, management’s discussion and analysis and information circulars, filed by us with securities commissions or similar authorities in Canada after the date of this Prospectus Supplement and for the duration of the Offering, shall be deemed to be incorporated by reference into this Prospectus Supplement. In addition, all documents filed on or furnished under Form 6-K or Form 40-F by us with the SEC on or after the date of this Prospectus Supplement shall be deemed to be incorporated by reference into the Registration Statement of which this Prospectus Supplement forms a part of, if and to the extent, in the case of any Report on Form 6-K, expressly provided in such document.
Furthermore, any “template version” of any “marketing materials” (each such term as defined in National Instrument 41-101 — General Prospectus Requirements) filed on SEDAR in connection with the Offering after the date of this Prospectus Supplement but prior to the termination of the distribution of the Offered Shares pursuant to the Offering is deemed to be incorporated by reference in this Prospectus Supplement and in the accompanying Shelf Prospectus.
The documents incorporated or deemed to be incorporated herein by reference contain meaningful and material information relating to us and readers should review all information contained in this Prospectus Supplement, the accompanying Shelf Prospectus and the documents incorporated or deemed to be incorporated by reference herein and therein.
U.S. REGISTRATION STATEMENT
The Offering is being made concurrently in Canada pursuant to this Prospectus Supplement and the accompanying Shelf Prospectus and in the United States pursuant to the Registration Statement filed with the SEC under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”). This Prospectus Supplement and the accompanying Shelf Prospectus do not contain all of the information set forth in the Registration Statement, certain items of which are contained in the exhibits to the Registration Statement as permitted or required by the rules and regulations of the SEC.
MARKETING MATERIALS
Before filing this Prospectus Supplement, we and the Underwriters held road shows that potential investors in the United States attended.
In doing so, we and the Canadian Underwriters are relying on a provision in applicable Canadian securities legislation that allows issuers in certain U.S. cross-border offerings to not have to file marketing materials relating to those road shows on SEDAR or include or incorporate by reference those marketing materials in the final prospectus supplement in respect of the offering. To rely on this exemption, we and the Canadian Underwriters must give contractual rights to Canadian investors in the event the marketing materials contain a misrepresentation.
Accordingly, the Canadian Underwriters, in signing the certificate to be contained in the final prospectus supplement, and we, in signing the certificate contained in the Shelf Prospectus, in respect of the Offering have agreed that in the event the marketing materials relating to the road shows described above contain a misrepresentation (as defined in securities legislation in each of the provinces of Canada, other than Québec), a purchaser resident in a province of Canada, other than Québec, who was provided with those marketing materials in connection with the road shows and who purchases Offered Shares under the Prospectus Supplement during the period of distribution shall have, without regard to whether the purchaser relied on
the misrepresentation, rights against us and each such Canadian Underwriter with respect to the misrepresentation which are equivalent to the rights under the securities legislation of the jurisdiction of Canada where the purchaser is resident, subject to the defenses, limitations and other terms of that legislation, as if the misrepresentation was contained in the Prospectus Supplement in respect of the Offering.
However, this contractual right does not apply (i) to the extent that the contents of the marketing materials relating to the road shows have been modified or superseded by a statement in the Prospectus Supplement in respect of this Offering, and (ii) to any “comparables” as such term is defined in National Instrument 41-101 — General Prospectus Requirements in the marketing materials provided in accordance with applicable securities legislation.
NON-IFRS FINANCIAL MEASURES AND KEY METRICS
This Prospectus Supplement, the Shelf Prospectus and the documents incorporated by reference herein and therein make reference to certain non-IFRS measures, including EBITDA, Handle and Gross Gaming Revenue. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore not necessarily comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. These non-IFRS measures and metrics are used to provide investors with supplemental measures of our operating performance and liquidity and thus highlight trends in our business that may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures, including industry metrics, in the evaluation of companies in our industry. Management also uses non-IFRS measures and industry metrics in order to facilitate operating performance comparisons from period to period, the preparation of annual operating budgets and forecasts and to determine components of executive compensation.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus Supplement, in the accompanying Shelf Prospectus and in certain documents incorporated by reference herein and therein, constitute “forward-looking information” and “forward-looking statements” within the meaning of applicable securities legislation (collectively, “forward-looking statements”). All statements other than statements of historical fact contained in this Prospectus Supplement and in documents incorporated by reference in this Prospectus Supplement, including, without limitation, those regarding our future financial position and results of operations, strategy, plans, objectives, goals and targets, including in light of the ongoing and evolving COVID-19 pandemic, regulatory approvals, future developments in the markets where we participate or is seeking to participate, and any statements preceded by, followed by or that include the words “believe”, “expect”, “aim”, “intend”, “plan”, “continue”, “will”, “may”, “would”, “anticipate”, “estimate”, “forecast”, “predict”, “project”, “seek”, “should” or similar expressions or the negative thereof, are forward-looking statements. These statements are not historical facts but instead represent only our expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements.
Additional known and unknown risks, uncertainties, and other factors that could cause actual results, performance or achievements to differ materially include, but are not limited to: the impact of the ongoing and evolving COVID-19 pandemic on our future financial position and results of operations, strategy, plans, objectives, goals and targets; the enactment of enabling legislation and regulations in the jurisdictions in which we operate, or intend to operate, to facilitate online sports betting and online casino, including (without limitation) the enactment of federal legislation in Canada to permit single event sports betting (including the timing of such legislation and regulations being passed and proclaimed in force (if at all) and the terms and conditions imposed in such legislation and regulations on applicable industry participants); our receipt of all relevant licences and approvals under the applicable legislation and regulations (as applicable) of the jurisdictions in which we operate, or intend to operate; the rate of adoption of online gaming in Canada and
other jurisdictions, as permitted by applicable legislation and/or regulations; and those discussed under “Risk Factors” in the AIF, in this Prospectus Supplement, in the accompanying Shelf Prospectus and in certain documents incorporated by reference herein and therein. Management provides forward-looking statements because it believes they provide useful information to readers when considering their investment objectives and cautions readers that the information may not be appropriate for other purposes. Consequently, all of the forward-looking statements made in this Prospectus Supplement, in the accompanying Shelf Prospectus and in certain documents incorporated by reference herein and therein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us.
The forward-looking statements discussed under “Risk Factors” in the AIF, in this Prospectus Supplement, in the accompanying Shelf Prospectus and in certain documents incorporated by reference herein and therein are based on numerous assumptions regarding our present and future business strategies and the environment in which we will operate in the future, including assumptions regarding business and operating strategies, and our ability to operate on a profitable basis.
In addition to the factors discussed under “Risk Factors” in the AIF, in this Prospectus Supplement, in the accompanying Shelf Prospectus and in certain documents incorporated by reference herein and therein, other factors not currently viewed as material could cause actual results to differ materially from those described in the forward-looking statements. Although we have attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be anticipated, estimated or intended. Accordingly, readers should not place any undue reliance on forward-looking statements.
These forward-looking statements are made as of the date of this Prospectus Supplement and neither we nor the Underwriters assume any obligation to update or revise any forward-looking statement even if new information becomes available as a result of future events or for any other reason, unless required by applicable securities laws and regulations.
MARKET AND INDUSTRY DATA
Market and industry data presented throughout this Prospectus Supplement, the accompanying Shelf Prospectus and/or the documents incorporated by reference herein or therein was obtained from third-party sources and industry reports, publications, websites and other publicly available information, including industry and other data prepared by us or on our behalf on the basis of our knowledge of the markets in which we operate.
We believe that the market and economic data presented throughout this Prospectus Supplement, the accompanying Shelf Prospectus and/or the documents incorporated by reference herein or therein is accurate and, with respect to data prepared by us or on our behalf, that our estimates and assumptions are currently appropriate and reasonable, but there can be no assurance as to the accuracy or completeness thereof. The accuracy and completeness of the market and economic data presented throughout this Prospectus Supplement, the accompanying Shelf Prospectus and/or the documents incorporated by reference herein or therein are not guaranteed and none of us or any of the Underwriters makes any representation as to the accuracy of such data. Actual outcomes may vary materially from those forecast in such reports or publications, and the prospect for material variation can be expected to increase as the length of the forecast period increases. Although we believe it to be reliable, none of us or any of the Underwriters has independently verified any of the data from third-party sources referred to in this Prospectus Supplement, the accompanying Shelf Prospectus and/or the documents incorporated by reference herein or therein, analyzed or verified the underlying studies or surveys relied upon or referred to by such sources, or ascertained the underlying market, economic and other assumptions relied upon by such sources. Market and economic data is subject to variations and cannot be verified due to limits on the availability and reliability of data inputs, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. In addition, certain of these publications, studies and reports were published before the global COVID-19 pandemic and therefore do not reflect any impact of the COVID-19 pandemic on any specific market or globally.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the full informational requirements of the securities commissions or similar regulatory authority in all provinces of Canada. Purchasers are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the Canadian provincial securities commissions or similar regulatory authority. These filings are also electronically available from SEDAR at www.sedar.com and from EDGAR at www.sec.gov. Except as expressly provided herein, documents filed on SEDAR or on EDGAR are not, and should not be considered, part of this Prospectus Supplement or the accompanying Shelf Prospectus.
We have filed with the SEC under the U.S. Securities Act the Registration Statement relating to the Offered Shares, of which this Prospectus Supplement and the accompanying Shelf Prospectus form a part. This Prospectus Supplement and the accompanying Shelf Prospectus do not contain all of the information set forth in the Registration Statement, certain items of which are contained in the exhibits to the Registration Statement as permitted or required by the rules and regulations of the SEC. Items of information omitted from this Prospectus Supplement but contained in the Registration Statement are available on the SEC’s website at www.sec.gov.
As a foreign private issuer, we are exempt from the rules under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) prescribing the furnishing and content of proxy statements, and our officers and directors are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. Our reports and other information filed or furnished with or to the SEC are available from EDGAR at www.sec.gov, as well as from commercial document retrieval services.
SUMMARY DESCRIPTION OF THE BUSINESS
This summary does not contain all the information that may be important to a prospective investor in deciding whether to invest in the Offered Shares. A prospective investor should read the entire Prospectus Supplement, including the section entitled “Risk Factors”, the Shelf Prospectus and any documents incorporated by reference herein and therein, before making such decision.
Overview
The Corporation was incorporated pursuant to the Business Corporations Act (Ontario) on August 30, 2012 under the name “theScore, Inc.” and continued under the BCBCA on August 29, 2019 under the name “Score Media and Gaming Inc.”
Business of the Corporation
General Description of the Business
We empower millions of sports fans through our digital media and sports betting products. Our media app ‘theScore’ is one of the most popular in North America, delivering fans highly-personalized live scores, news, stats, and betting information from their favorite teams, leagues, and players. Our sports betting app ‘theScore Bet’ delivers an immersive and holistic mobile sports betting experience and is currently available to place wagers in New Jersey, Colorado, Indiana and Iowa. We also create and distribute innovative digital content through our web, social and esports platforms.
theScore
Natively developed for iOS and Android operating systems, theScore app is free to end users and delivers comprehensive and customizable news, scores, stats, and notifications for all major leagues and sports, including the National Football League (“NFL”), NCAA Football and Basketball, the National Basketball Association (“NBA”), Major League Baseball (“MLB”), the National Hockey League (“NHL”), PGA Golf, NASCAR Racing and major European soccer leagues, including the English Premier League and Champions League, as well as special events such as the Olympic Games and FIFA World Cup. theScore app provides sports fans with deep personalization options, allowing them to follow and receive push notifications on news, scores and stats from their favorite teams and fantasy players in real-time with customizable feeds and seamless social sharing. We deliver comprehensive original news content across all major leagues and competitions, presenting stories in a way to make them easily consumable on mobile devices, including rich visuals and multimedia such as videos and embedded tweets. theScore app also includes innovative public chat and messaging features, enabling our community of fans to connect around the games and content they love. News stories are produced by our industry-leading mobile-first newsroom, where a team of news editors creates content via our in-house content management system that allows them to deliver mobile news to the user. During the 2019 fiscal year, we also introduced additional sports betting data and content into theScore app. Coinciding with the launch of theScore Bet, in September 2019 we unveiled ‘Bet Mode’ in our sports media app. When Bet Mode is activated, sports app users unlock access to even faster scoring updates and data, with no need to pull-to-refresh, real-time odds, and additional betting content. In November 2020 we unveiled ‘Bet Section’ in our sports media app. Bet Section provides a new suite of highly personalized betting-related features, including personalized markets, bet tracking, exclusive promotions and community polling, bringing the action of theScore Bet deeper into our sports media app than ever before.
theScore app is one of the most popular mobile sports apps in North America, ranking 3rd in North America and 1st in Canada among multi-sport news and data applications for the twelve months ended
November 2020.1 In Canada, for the month of November 2020, theScore app had approximately double the users of its closest competitors, TSN and Sportsnet, and approximately ten times the users of ESPN’s app.2
theScore app also generates significant user engagement. theScore app generated approximately 3.7 billion user sessions over the twelve-month period ended November 30, 2020, with average monthly sessions per active user growing at a compound annual growth rate of approximately 9% from 2016 to present.3 Users of theScore app engaged with the application for approximately 101 minutes per month on average, ranking first among our peers for the twelve-month period ended November 30, 2020.4 We also send on average over 1 billion push alerts per month to users of our personalized push alert service.5 Our user chat features are also very popular, particularly among users focused on sports betting, with approximately 48% of users who chat sending betting-related messages, and approximately 40% of our overall monthly active users consuming public chat content.6
theScore esports
We also provide comprehensive coverage of the growing competitive video gaming scene through theScore esports. Via a dedicated newsroom of specialist content creators, theScore esports produces and shares original video content pieces across its web and social platforms, including features and documentaries on high-profile teams, games and players from across the world of esports, as well as highlights and interviews. theScore esports’ video content is distributed across YouTube, Facebook, Twitter, Instagram, and TikTok. Our primary distribution platform for our video content is YouTube, and as of November 30, 2020 theScore esports had approximately 1.6 million subscribers to its YouTube channel.7We also distribute our video content through other channels, including TikTok, where our channel has approximately 1.1 million followers as of December 2020.8Our esports video content also generates significant engagement, with approximately 357 million views across all channels during the three-month period ended November 30, 2020 (representing approximately a 358% year-over-year growth in total views of our esports video content from the same period during the preceding year).9
Worldwide, it is estimated that 495 million people watched esports online or on television in 2020, and that viewership could grow up to 646 million people annually by 2023.10 As a result of growth of interest in younger generations of sports fans, it is estimated that esports will become one of the biggest categories of sports betting over the long-term.11
theScore Bet
Launched in New Jersey in September 2019, theScore Bet is a comprehensive mobile sports betting platform natively built for iOS and Android devices that delivers an immersive and holistic sports betting experience. theScore Bet delivers a wide variety of pre-game and in-game markets and betting options, scores and in-game data, features like early cash-out, and easy and secure deposit and withdrawal options. Fans are able to place bets on sports including NFL and NCAA football, NBA and NCAA basketball, MLB baseball, NHL hockey, PGA golf, ATP and WTA tennis, MMA, and boxing as well as soccer from the UEFA
1
Source: comScore.
2
Source: comScore.
3
Source: Internal analytics.
4
Source: comScore.
5
Source: Internal analytics.
6
Source: Internal analytics.
7
Source: YouTube Analytics.
8
Source: TikTok.
9
Source: YouTube Analytics, Facebook Insights, Twitter Analytics, Instagram, TikTok.
10
Source: Eilers & Krejcik Gaming: Esports Betting Monitor — 2H20.
11
Source: Eilers & Krejcik Gaming: Esports Betting Monitor — 2H20.
Champions League and Europa League, English Premier League, La Liga, Bundesliga, Ligue 1 and MLS. theScore Bet also delivers a seamless cross-state experience for sports fans as it expands across the United States via its mobile app.
In November 2020, we introduced ‘Bet Section’ to theScore app. Currently available on iOS devices, Bet Section provides users with a new suite of highly personalized betting-related features, including personalized markets, bet tracking, exclusive promotions and community polling, bringing the action of theScore Bet deeper into our sports media app than ever before. Approximately 50% of users of theScore Bet on iOS devices are also users of theScore app, engaging with our content and our integrated media and betting ecosystem.12
theScore Bet is authorized to provide sports betting services in New Jersey (by the New Jersey Division of Gaming Enforcement, via our market access agreement with Darby Development LLC, the operator of Monmouth Park Racetrack), in Colorado (by the Colorado Division of Gaming, via our market access agreement with a subsidiary of Jacobs Entertainment Inc.), in Indiana (by the Indiana Gaming Commission, via a multi-state market access framework agreement with Penn National Gaming), and in Iowa (by the Iowa Racing and Gaming Commission, via a multi-state market access framework agreement with Penn National Gaming). We also have market access for up to nine additional states via our multi-state market access agreements with Penn National Gaming, subject to the enactment of enabling state gaming laws and regulations, and the receipt of relevant licenses and approvals. theScore Bet also has market access to operate an online casino in New Jersey via a multi-year agreement with Twin River Worldwide Holdings, Inc., which was subsequently assigned to Premier Entertainment AC LLC, the operator of Bally’s Atlantic City casino hotel, and anticipates launching its online casino product in the state in the second half of calendar 2021, subject to securing applicable licensing and regulatory approvals from the New Jersey Division of Gaming Enforcement. According to Macquarie Research, by 2025, the total online gross gaming revenue generated in the United States is estimated to reach approximately $18 billion, of which approximately $6.4 billion is estimated to be generated in the states covered by our market access agreements. See “Risk Factors”.
We are a Platinum member of the National Council on Problem Gambling, whose mission is to lead state and national stakeholders in the development of comprehensive policy and programs for all those affected by problem gambling. theScore Bet is committed to promoting safe, responsible gaming, and we provide our users with access to responsible gaming resources and a suite of tools within theScore Bet app in order to help keep betting safe and fun.
theScore Bet — Regulatory Regimes/Gaming Licensure
New Jersey
In New Jersey, the provision of online casino, online sports betting and other aspects of casino gaming are subject to the requirements of the New Jersey Casino Control Act (the “NJ Act”) and the regulations promulgated thereunder. Under the sports betting laws in New Jersey, third-party companies, such as theScore Bet, may provide services to casino and racetrack licensees to facilitate online sports betting, including website hosting. Such service providers must obtain a casino service industry enterprise (a “CSIE”) license. The New Jersey Division of Gaming Enforcement (the “NJ DGE”) is responsible for investigating all license applications, issuing such required licenses and approvals, and prosecuting violations of the NJ Act.
theScore Bet is authorized to provide sports betting services in New Jersey by the NJ DGE, via a market access agreement with Darby Development LLC, the operator of Monmouth Park Racetrack (“Monmouth Park”), a licensed racetrack in the State of New Jersey. The New Jersey Racing Commission (“Racing Commission”) issued a sports betting license to Monmouth Park on June 13, 2018. Due to the length of investigative time prior to issuing of a plenary CSIE license, the New Jersey regulations allow a CSIE applicant to petition the NJ DGE for authorization to conduct business, including sports betting operations, prior to the issuance of a license at the discretion of the NJ DGE and subject to certain conditions, including the filing of a complete application. On May 14, 2019, theScore Bet submitted its application to the NJ DGE for a CSIE license. In addition to the application for theScore Bet, separate application forms
12
Source: Internal analytics.
were submitted to the NJ DGE for various entities holding ownership interests in theScore Bet, including theScore as well as for individuals affiliated with and those entities holding a beneficial ownership interest of 5% or more in theScore.
The NJ DGE deemed these applications complete on June 24, 2019 and thereafter the NJ DGE conducted a preliminary review of theScore Bet’s suitability and that of its qualifiers. On August 24, 2019, the NJ DGE issued an order authorizing theScore Bet to commence sports betting operations, while the NJ DGE completes its investigation of theScore Bet and its qualifiers. Those qualifiers include theScore’s directors, officers, key employees and certain investors of 5% or more, unless otherwise waived from such qualification requirements. If the NJ DGE were to find such a person or investor unsuitable, theScore would be required to sever its relationship with that person or the investor and may be required to dispose of his, her or its interest in theScore. The NJ DGE may conduct investigations into the conduct or associations of our directors, officers, key employees or investors to ensure compliance with applicable standards set for in the NJ Act.
The NJ DGE has input into our operations, including the types of sports wagers and promotions we can offer to New Jersey patrons. The NJ DGE may also levy substantial fines against or seize our assets or the people involved in violating gaming laws or regulations. To date we have demonstrated suitability to obtain and have obtained all NJ DGE approvals necessary for us to operate our existing sports betting operations within the state of New Jersey.
While our application for plenary CSIE licensure is under review, the NJ DGE permits us to conduct business with land based licensed casino operators in New Jersey through a transactional waiver process. Our online casino market access agreement with Premier Entertainment AC LLC required the payment of an initial market access fee and the reimbursement of certain costs prior to issuance of our plenary CSIE license. In order to make that payment, a transactional waiver was necessary. That waiver was issued by the NJ DGE and we have paid the initial payment and reimbursement. Upon approval of our online casino gaming platform by the NJ DGE Technical Services Bureau, we will be ready to go live with our online casino game product. Prior to the launch of that product, we will apply for and obtain a transactional waiver from the NJ DGE allowing the launch of our online casino platform. This waiver will run for an initial term of 6 months and thereafter may be renewed for successive 6-month periods, via submission of a petition to the NJ DGE for each such renewal, until our plenary CSIE license is issued.
Indiana
theScore Bet is classified by the Indiana Gaming Commission (“IGC”) as a “sports wagering vendor” (“Vendor”) and has received its “temporary vendor license” (the “Temporary License”). As part of the Temporary License application process, theScore Bet submitted all level-one individual/occupational license applications required by the IGC. Those applications, along with theScore Bet’s corporate Vendor application, were deemed substantially complete and preliminarily acceptable to the IGC, pending completion of a full background investigation and individual applicant interviews (which will conclude in due course). In addition, theScore Bet has also (i) secured the requisite occupational licensing approvals for applicable “lower level” employees and continues to engage in the occupational licensing process as required by the IGC; (ii) received IGC approval of all internal controls and house rules associated with theScore Bet’s Indiana mobile application; and (iii) demonstrated the product to the satisfaction of IGC staff, including functionality of geolocation technology. Certain third-party providers of services to theScore Bet were also required to complete various licensing and/or registration requirements with the IGC, all of which have been completed. theScore Bet received authorization from the IGC to commence its mobile sports betting services in Indiana on September 17, 2020. Full investigations related to theScore Bet’s corporate Vendor application and level-one occupational applications are continuing, individual interviews will be conducted, and permanent licenses are expected to be awarded by the IGC at a future date.
theScore Bet is obligated to report to the IGC any transfers of 5% or greater beneficial ownership in theScore Bet. In order to determine the necessary licensing requirements for a new investor, the IGC must receive and review information related to such a transaction and provide to such new investor a determination as to which of its corporate entities / individuals will be required to file a license application and which may satisfy the definition of “institutional investor” at 68 IAC 1-1-52 and which may therefore be eligible to
complete an institutional investor waiver application rather than engage in the full licensing process. This determination is subject to the discretion of the IGC staff.
theScore Bet’s Temporary and/or permanent Vendor license, as well as any occupational licenses held by key individuals, may be subject to disciplinary action up to and including revocation (or theScore Bet may not receive its permanent Vendor license) if theScore Bet violates any of the Indiana Emergency Sports Wagering Rules (the “Emergency Rules”) or related statutes or IGC directives. Either the Vendor license or individual occupational licenses may be subject to disciplinary action or revocation at the discretion of the IGC for reasons including, but not limited to, failure to update the IGC with information initially disclosed as part of the application process; failure to comply with reporting requirements; and/or failure to comply with any other ongoing requirements related to license fee payments, renewals, and all other requirements detailed in the Emergency Rules or related statutes or IGC directives.
theScore Bet’s Vendor license, individual level-one occupational licenses, and all level-two occupational licenses are to be renewed on an annual basis, including payment of annual renewal fees. The Vendor license is also contingent on theScore Bet maintaining its market access agreement with Ameristar East Chicago, LLC (a subsidiary of Penn National Gaming Inc.), as Indiana law requires Vendors to remain in contract with a casino partner to maintain a Vendor license through the IGC.
Colorado
theScore Bet holds an “internet sports betting operator” license which was approved by the Colorado Limited Gaming Control Commission (the “Colorado Commission”) and issued from the Colorado Division of Gaming (“Division”). The internet sports betting operator license allows theScore Bet to offer sports betting on theScore Bet app in Colorado. Once the Division completes its full investigation and the Colorado Commission approves the Division’s findings, this temporary sports betting license will be converted to a permanent license.
Colorado allows sports betting to be conducted by a licensed internet sports betting operator on behalf of a Colorado casino holding a sports betting “master license.” theScore Bet has an agreement with a master licensee — The Gilpin Casino, located in Black Hawk, Colorado (“The Gilpin”) — to conduct online sports betting on behalf of The Gilpin.
Further, Colorado requires operational approval of an internet sports betting operator’s “sports betting system,” which includes the interactive components, software, and associated equipment that comprise the operator’s sports betting platform. Colorado also requires approval of the “internal control standards” that govern the internet sports betting operator’s sports betting system and that demonstrate how the internet sports betting operator will abide by, among other requirements, ensuring geofencing restrictions, prohibiting excluded participants, managing participant wagering accounts, and establishing house rules. theScore Bet has received operational approval of both its sports betting system and internal control standards from the Division.
In Colorado, all sports betting licenses expire two years after issuance but may be renewed upon the filing and approval of a renewal application by the Colorado Commission. Renewal applications for internet sports betting operators and vendor majors must be received by the Division no later than 120 days before the expiration of the current license. Colorado sports betting licensees have an ongoing obligation to disclose any changes in board directors or corporate officers, as well as other key individuals who oversee the licensee’s sports betting operations. Licensees must also disclose any person who acquires “any voting or controlling interest of ten percent or more,” and any person who acquires “any nonvoting or passive ownership interest of twenty-five percent or more.” In addition, licensees must disclose changes in their corporate structure, including all parent, holding, intermediary, and subsidiary companies of the licensee.
The Colorado Commission has broad powers to suspend, revoke, or not renew sports betting licenses. Licenses shall be revoked if a licensee has: provided misleading information to the Division or to the Colorado Commission; been convicted of a felony or any gambling-related offense; become a person whose character is no longer consistent with the protection of the public interest and trust in sports betting; or intentionally refused to pay a prize to a person entitled to receive the price. Licenses may be suspended, revoked, or not renewed if a licensee: is delinquent in remitting money rightfully owed to players, contractors, or others
involved in sports betting; fails to ensure the trustworthy operation of sports betting; or commits any intentional violation of any sports betting law, regulation, or other rule or guidance.
Iowa
theScore Bet’s operations in Iowa are subject to Chapters 99D and 99F of the Iowa Code and the regulations promulgated under those Chapters (“Iowa Laws”), and the licensing and regulatory control of the Iowa Racing and Gaming Commission (“IRGC” or “Commission”). theScore Bet is classified by the IRGC as an “Advance Deposit Sports Wagering Operator” (“ADSW”) and has received its “temporary authorization” (the “Temporary Authorization”). Upon the expiration of the Temporary Authorization, the IRGC routinely issues an extension until such time as a final license (“Permanent ADSW License”) can be issued to ADSWs operating under Temporary Authorization. As part of the Temporary Authorization application process, theScore Bet submitted all Class A individual/occupational license applications required by the IRGC. Those applications, along with theScore Bet’s corporate Class D application, were deemed substantially complete and preliminarily acceptable to the IRGC, pending completion of a full background investigation and individual applicant interviews, which will conclude in due course.
theScore Bet’s Temporary Authorization and/or Permanent ADSW License, as well as any occupational licenses held by key individuals, may be subject to disciplinary action up to and including revocation if theScore Bet violates any of the Iowa Sports Wagering Rules (the “Rules”) or related statutes or IRGC directives. Further, the Temporary Authorization, Permanent ADSW License and individual occupational licenses may be subject to disciplinary action or revocation at the discretion of the IRGC for reasons including, but not limited to, failure to update the IRGC with information initially disclosed as part of the application process; failure to comply with reporting requirements; and/or failure to comply with any other ongoing requirements related to license fee payments, renewals, and all other requirements detailed in the Iowa Laws and Rules.
The Rules require that Permanent ADSW Licenses, individual Class A licenses and all Class C licenses be renewed on an annual basis, including payment of annual renewal fees. In order to maintain its Temporary Authorization and to obtain and maintain a Permanent ADSW License, theScore Bet must also maintain its market access agreement with Ameristar Casino Bluffs, LLC (a subsidiary of Penn National Gaming Inc.).
Canadian Gaming Regulatory Landscape
Canada’s federal Criminal Code, R.S.C., 1985, c. C-46 (the “Code”), makes it an offence for any entity other than a provincial government to offer sports-betting services to residents of Canada. The Code contains an exception that allows each provincial government to ‘conduct and manage’ gambling operations, including sports betting, within its jurisdiction. The provinces responded to this exception by establishing purpose-specific corporations (typically lottery corporations) to conduct and manage gaming on behalf of the applicable provincial government. Lottery corporations are, for all intents and purposes, the monopoly providers of legal gaming, including sports-betting, in their respective provinces.
Notwithstanding that broad exception for provincial operations, the Code maintains a blanket prohibition on certain betting activities, including the taking of bets on a single sporting event. As this prohibition extends to provincial governments, there is currently no legal avenue for betting on single sports events.
In April 2019, Ontario’s provincial government commenced consultations with key industry stakeholders to establish a more competitive market for online legal gambling, including sports betting. It is now anticipated that within the next two fiscal quarters, the Ontario government will introduce a new legal structure for online gaming in the province. If introduced, we expect that this will permit companies like ours to provide sports betting and other gaming services directly to Ontario residents. Further, the general consensus of Canadian regulatory and industry groups is that once Ontario introduces this new model for online gaming, other provinces and territories will likely follow suit. Assuming this does occur, there is the prospect of a significant Canadian online gaming market within the next two to three years.
On November 5, 2020, the Government of Ontario introduced the 2020 Ontario Budget in which the Government of Ontario confirmed its intention to introduce legislation that, if passed, would give the Alcohol and Gaming Commission of Ontario (the “AGCO”), through a dedicated subsidiary, authority to
conduct and manage online gaming within Ontario and to serve as the regulator therefor. We understand that the Province of Ontario and the AGCO intend to continue consulting with key stakeholders, including theScore, on the design of the online gaming market to reflect consumer preferences and foster an exciting gaming experience, while ensuring that appropriate responsible gaming protections are in place.
On February 25, 2020, a federal Member of Parliament introduced Bill C-218 (the “Safe and Regulated Sports Betting Act”) to the House of Commons as a private member’s bill (“Bill C-218”). Bill C-218 would decriminalize single event sport betting through the amendment of Section 207(4)(b) of the Code. If passed into law, the proposed changes will give the provinces and territories of Canada the ability to offer single event sport betting products and the discretion to manage single event sport betting in their respective jurisdictions. Subsequently, on November 26, 2020, the Minister of Justice and Attorney General of Canada introduced a similar bill to decriminalize single event sport betting (“Bill C-13”). On February 17, 2021, Bill C-218 passed second reading in the House of Commons by a vote of 303 to 15 and was subsequently referred to the Justice Committee for further consideration. As a consequence, consideration of Bill C-13 has been paused while Bill C-218 advances through the legislative process. If either Bill C-218 or Bill C-13 becomes law, then upon the implementation by a province or territory of an applicable online gaming framework, we expect that companies like ours will, subject to securing necessary regulatory approvals, be permitted to offer betting on single sports events to residents of Canada located in that jurisdiction.
theScore Bet — Market Opportunities
North America
We believe the regulated North American online gaming market has the potential for significant growth. As depicted below, the total gross gaming revenue of the North American online gaming market is projected to reach approximately $22.3 billion by 2025:
Notes:
(1)
Figures represent theScore’s 2025E estimated size of the Canadian market, implied based on 2019 United Kingdom sports betting gross gaming revenue of $56 per adult and iGaming gross gaming revenue of $87 per adult (Source: Wall Street Equity Research).
(2)
Source: Wall Street Equity Research.
Canada
Market estimates also indicate that the Canadian market, in particular, presents substantial growth potential. Using the United Kingdom and the state of New Jersey as market comparators, Canada’s country-wide market for online gaming is forecasted to reach between $4.3 billion to $5.4 billion, whereas Ontario’s market for online gaming is projected to reach between $1.7 billion to $2.1 billion:
Notes:
(1)
Figures represent theScore’s 2025E estimated size of the Canadian market, implied based on 2019 United Kingdom sports betting gross gaming revenue of $56 per adult and iGaming gross gaming revenue of $87 per adult (Source: Wall Street Equity Research).
(2)
Figures represent theScore’s 2025E estimated size of the Canadian market, implied based on LTM October 31, 2020 New Jersey sports betting gross gaming revenue of $46 per adult and iGaming gross gaming revenue of $130 per adult (Source: NJ DGE reports).
The figures included above relating to North American market size projections and implied Canadian and Ontario market size projections are based on numerous assumptions, including assumptions relating to evolving regulatory landscapes, and there can be no assurance that actual market sizes in the future will be consistent with such projections. In addition, there can be no assurance that any market participant, including us, will be capable of capturing any particular percentage of market share or of generating gross gaming revenue of any particular amount in any jurisdiction.
Given our strong existing user-base in Canada of approximately 3.75 million active monthly users,13 we believe that the Canadian market presents a significant growth opportunity as the regulatory landscape evolves. The following is an approximate breakdown of users of theScore app by province:
|
|
|
|
Jurisdiction
|
|
|
(in ‘000s)
|
|
|
Ontario
|
|
|
Quebec
|
|
|
British
Columbia
|
|
|
Alberta
|
|
|
Manitoba
|
|
|
Saskatchewan
|
|
|
Other
Provinces
|
|
|
Total
|
|
|
Users of theScore App(1)
|
|
|
|
|
1,434
|
|
|
|
|
|
692
|
|
|
|
|
|
583
|
|
|
|
|
|
543
|
|
|
|
|
|
120
|
|
|
|
|
|
104
|
|
|
|
|
|
274
|
|
|
|
|
|
3,750
|
|
|
|
Adult Population(2)
|
|
|
|
|
11,801
|
|
|
|
|
|
6,900
|
|
|
|
|
|
4,203
|
|
|
|
|
|
3,401
|
|
|
|
|
|
1,060
|
|
|
|
|
|
902
|
|
|
|
|
|
2,099
|
|
|
|
|
|
30,366
|
|
|
|
Total Population(2)
|
|
|
|
|
14,567
|
|
|
|
|
|
8,485
|
|
|
|
|
|
5,071
|
|
|
|
|
|
4,371
|
|
|
|
|
|
1,369
|
|
|
|
|
|
1,174
|
|
|
|
|
|
2,551
|
|
|
|
|
|
37,558
|
|
|
13
We are using calendar year 2019 data as a measure of our yearly mobile app reach to normalize for the impact COVID-19 on the 2020 North American sports calendar.
Notes:
(1)
Figures reflect the use of calendar year 2019 data as a measure of our yearly mobile app reach to normalize for the impact COVID-19 on the 2020 North American sports calendar.
(2)
Source: Statistics Canada.
Our approximate user penetration in the province of Ontario alone, relative to our user penetration in several of the largest U.S. states, serves as another indicator of the potential significance of the Canadian market:
|
|
|
|
Jurisdiction
|
|
|
(in ‘000s)
|
|
|
Ontario
|
|
|
New York
|
|
|
Florida
|
|
|
Pennsylvania
|
|
|
Texas
|
|
|
California
|
|
|
Users of theScore App(1)
|
|
|
|
|
1,434
|
|
|
|
|
|
910
|
|
|
|
|
|
979
|
|
|
|
|
|
574
|
|
|
|
|
|
936
|
|
|
|
|
|
1,156
|
|
|
|
Total Population(2)
|
|
|
|
|
14,567
|
|
|
|
|
|
19,454
|
|
|
|
|
|
21,478
|
|
|
|
|
|
12,802
|
|
|
|
|
|
28,996
|
|
|
|
|
|
39,512
|
|
|
|
User Penetration(3)
|
|
|
|
|
10%
|
|
|
|
|
|
5%
|
|
|
|
|
|
5%
|
|
|
|
|
|
4%
|
|
|
|
|
|
3%
|
|
|
|
|
|
3%
|
|
|
Notes:
(1)
Figures reflect the use of calendar year 2019 data as a measure of our yearly mobile app reach to normalize for the impact COVID-19 on the 2020 North American sports calendar.
(2)
Source: Statistics Canada and U.S. Census Bureau.
(3)
Calculated by dividing the number of users of theScore app from 2019 on an annual basis by the total population of the applicable jurisdiction. Figures reflects the use of calendar year 2019 data as a measure of our yearly mobile app reach to normalize for the impact COVID-19 on the 2020 North American sports calendar
Recent Developments
Share Consolidation
On February 11, 2021, we completed a share consolidation on the basis of a consolidation ratio of 10:1. Upon the completion of the share consolidation, there were 43,442,568 Class A Shares outstanding and 557 Special Voting Shares (“Special Voting Shares”) outstanding. Our post-consolidation Class A Shares began trading on the TSX on February 18, 2021.
Launch of theScore Bet in Iowa
On February 16, 2021, we launched theScore Bet in Iowa. With this launch, theScore Bet is now offering a wide variety of pre-game and in-game markets and betting options, scores and in-game data, features like early cash-out, and easy and secure deposit and withdrawal options to sports betting users in New Jersey, Colorado, Indiana and Iowa.
Second Amended and Restated Stock Option and Restricted Stock Unit Plan
On February 10, 2021, our shareholders approved our second amended and restated stock option and restricted stock unit plan (the “Option & RSU Plan”), which reflected the amendment and restatement of our amended and restated stock option and restricted stock unit plan to: (i) increase the number of Class A Shares reserved for issuance under our amended and restated stock option and restricted stock unit plan from 55,000,000 Class A Shares to 65,000,000 Class A Shares; and (ii) implement certain other changes in connection with our voluntary delisting of our Class A Shares from the TSX Venture Exchange and concurrent listing of our Class A Shares on the TSX. For further information related to the Option & RSU Plan, see our Information Circular. Upon completion of a share consolidation on February 11, 2021 on the basis of a consolidation ratio of 10:1, there were 1,804,624 Class A Shares reserved for issuance under the Option & RSU Plan.
Google Play Policy Update
On January 28, 2021, Google announced that it is updating Google Play’s Real-Money Gambling, Games and Contests policy and that, effective March 1, 2021, Google Play will allow licensed apps that
enable or facilitate online gambling in certain countries, including Canada and the United States, to be available for download through the Google Play storefront, and will allow certain related advertising activities, in each case subject to certain conditions, as well as to engage in related advertising activities. As a result of this policy update, apps such as theScore Bet will be capable of being offered to users of the Google Play storefront in numerous new jurisdictions, subject to a Google review and approval process.
December 2020 Offering
On December 17, 2020, we completed an offering (the “December 2020 Offering”), on a bought deal basis, of 28,572,000 of our Class A Shares at a price per share of C$1.40 pursuant to a short form prospectus dated December 11, 2020. On December 31, 2020, the underwriters exercised their over-allotment option in connection with the December 2020 Offering in full, pursuant to which we issued an additional 4,285,800 of our Class A Shares at a price per share of C$1.40, resulting in aggregate gross proceeds of the December 2020 Offering of approximately C$46.0 million.
COVID-19 Operational Update
We continue to actively respond to the rapidly evolving COVID-19 pandemic by taking measures to ensure the health and safety of our team members, and to mitigate the business impact on the Corporation caused by the unprecedented postponement, suspension or cancellation of global sporting events. We successfully adopted a mandatory work-from-home program on March 16, 2020. As substantially all of our day-to-day activities can be fully performed by personnel working remotely, we have remained fully operational during this period. The extent to which the COVID-19 pandemic may impact our business and activities will depend on future developments which remain highly uncertain and cannot be predicted with confidence, such as the spread and severity of the disease, the duration of the outbreak including any possible resurgence, and actions taken by the Canadian and U.S. authorities to control the spread of the virus, as well as the postponement, suspension, cancellation, rescheduling and resumption of sporting events, the impact of the pandemic on consumer and advertiser spending, and the ability or willingness of suppliers and vendors to provide products and services.
RISK FACTORS
An investment in the Offered Shares is speculative and involves a high degree of risk that should be carefully considered by a prospective purchaser. Before deciding whether to invest in the Offered Shares, prospective investors should carefully consider, in light of their own financial circumstances, the risks described below and in the Shelf Prospectus and those incorporated by reference into this Prospectus Supplement and/or the Shelf Prospectus, including in the AIF and those described in our Q1 2021 MD&A. See “Documents Incorporated by Reference”. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Information”.
The current COVID-19 pandemic could have a material adverse effect on our business, affairs, operations, results of operations, financial condition, liquidity, availability of credit and foreign exchange exposure.
The current COVID-19 pandemic crisis is evolving rapidly and could have a material adverse impact on our business, affairs, operations, results of operations, financial condition, liquidity, availability of credit and foreign exchange exposure. COVID-19 is altering business and consumer activity in affected areas and beyond. The global response to the COVID-19 outbreak has resulted in, among other things, border closures, severe travel restrictions, the temporary shut-down of non-essential services and extreme fluctuations in financial and commodity markets. Additional measures may be implemented by one or more governments in jurisdictions where we operate. Labor shortages due to illness, company or government-imposed isolation programs, or restrictions on the movement of personnel could result in a reduction or cessation of all or a portion of our operations.
The extent to which the COVID-19 pandemic may impact our business and activities will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the spread of the disease, the duration of the outbreak, new information which may emerge concerning the spread and severity of the coronavirus, actions taken by Canadian and U.S. authorities to manage this pandemic, the postponement, suspension, cancellation or rescheduling of sports leagues and sporting events, the impact of the pandemic on consumer and advertiser spending, and the ability or willingness of suppliers and vendors to provide products and services. If the coronavirus continues to spread at the current pace, disruption to consumer spending and trade could trigger a global recession.
The actual and threatened spread of COVID-19 globally could also have a material adverse effect on the regional economies in which we operate, could continue to negatively impact stock markets, including the trading price of the Class A Shares, could cause continued interest rate volatility and could cause movements in the trading price of our Class A Shares that could adversely impact our ability to raise capital.
Any of these developments, and others, could have a material adverse effect on our business, affairs, operations, results of operations, financial condition, liquidity, availability of credit and foreign exchange exposure. In addition, because of the severity and global nature of the COVID-19 pandemic, it is possible that estimates in our financial statements could change in the near term and the effect of any such changes could be material, which could result in, among other things, an impairment of non-current assets and a change in the expected credit losses on accounts receivable.
Our company and our officers, directors, major shareholders, key employees, and business partners are generally subject to the gaming laws and regulations of the jurisdictions in which we conduct or will conduct business.
While gaming regulations, including online sports betting and online casino regulations, are a creature of state law and vary from state to state, in general there are a number of common principles that underline the concept of gaming regulation. Participation in the gaming industry is considered to be a privilege, not a right, and thus those who seek to participate must submit themselves to licensure as required by the state regulatory body. In this regard, gaming licenses do not create or entail a property right and such licenses cannot be sold or transferred (although ownership interests in license holders may be transferred subject to regulatory approval). A good example of this is the preliminary provisions to New Jersey’s Casino Control Act, which provides that a key element of regulation of gaming is “public confidence and trust in the credibility and integrity of the regulatory process and of casino operations,” and therefore the model is to
extend “strict State regulation to all persons, locations, practices, and associations related to the operation of licensed casino enterprises and all related service industries.” Gaming legislation in virtually all jurisdictions contain substantively similar provisions.
Our company and our officers, directors, major shareholders, key employees, and business partners are generally subject to the sports betting and gaming laws and regulations of the jurisdictions in which we conduct or will conduct business. In addition, we are subject to the general laws and regulations that apply to all online, digital and e-commerce businesses, such as those related to privacy and personal information, data security, tax, and consumer protection. The laws and regulations vary in each jurisdiction and future legislative and regulatory action, court decisions, and/or other governmental action, which could be affected by, among other things, political pressures, attitudes and climates, may have a material impact on our operations and financial outcomes.
The jurisdictions where we operate, or will operate, each have their own regulatory framework. More often than not these frameworks will require us to receive a license. Each jurisdiction will normally require us to make detailed and extensive disclosures as to our beneficial ownership, our source of funds, the probity and integrity of certain persons associated with our business, our management competence, structure, and business plans, our proposed geographical territories of operation, and our ability to operate a gaming business in a socially responsible manner in compliance with regulation. Such jurisdictions will also impose ongoing reporting and disclosure obligations, both on a periodic and ad hoc basis in response to material issues affecting the business. Our current and future gaming licenses or approvals in each jurisdiction in which we operate or intend to operate are subject to our ongoing compliance with applicable laws, rules and regulations in each such jurisdiction. There can be no assurance that we will be able to retain existing licenses or approvals or demonstrate suitability to obtain new licenses or approvals. In addition, the loss of a license or approval in one jurisdiction could trigger the loss of a license or approval or affect our eligibility for a license or approval in another jurisdiction. As we expand our online sports betting and online casino operations, we may also have to meet additional suitability requirements and obtain additional licenses or approvals from gaming authorities in such jurisdictions and we cannot be sure that we will be successful in this regard.
Our gaming-related technology will also be subject to testing and certification by the regulators in the jurisdictions in which we operate or will operate. Such testing and certification is generally designed to confirm matters such as the fairness of the gaming products offered by the business, our ability to accurately generate settlement instructions, and our ability to recover from outages.
Any gaming license may be revoked, suspended, or conditioned at any time. The loss of a gaming license in one jurisdiction could prompt the loss of a gaming license, or affect our eligibility for such a license, in another jurisdiction. These potential losses of licenses would cause us to cease offering some or all of our product offerings in the impacted jurisdiction(s). We may be unable to obtain or maintain all necessary registrations, licenses, permits or approvals, and could incur fines or experience delays related to the licensing process, which could adversely affect our operations. The process of determining suitability may be expensive and time-consuming. Delay or failure to obtain gaming licenses in any jurisdiction may prevent us from offering our products in such jurisdiction, increasing our customer base and/or generating revenues. A gaming regulatory body may refuse to issue or renew a gaming license if our company, or one of our directors, officers, employees, major shareholders or business partners: (i) is considered to be a detriment to the integrity or lawful conduct or management of gaming, (ii) no longer meets a licensing or registration requirement, (iii) has breached or is in breach of a condition of licensure or registration or an operational agreement with a regulatory authority, (iv) has made a material misrepresentation, omission or misstatement in an application for licensure or registration or in reply to an inquiry by a person conducting an audit, investigation or inspection for a gaming regulatory authority, (v) has been refused a similar gaming license in another jurisdiction, (vi) has held a similar gaming license in that province, state or other jurisdiction which has been suspended, revoked or cancelled, or (vii) has been convicted of an offence, inside or outside of Canada or the United States that calls into question the honesty or integrity of our company or any of our directors, officers, employees or associates.
Furthermore, our product offerings must be approved in most regulated jurisdictions in which they are offered; this process is not assured or guaranteed. It is a prolonged, potentially extremely costly process to obtain these approvals. A developer and provider of online sports betting and online casino products may
pursue corporate regulatory approval with regulators of a particular jurisdiction while it pursues technical regulatory approval for its product offerings by that same jurisdiction. It is also possible that, after incurring significant expenses and dedicating substantial time and effort towards such regulatory approvals, we may not obtain such approvals. In the event we fail to obtain the necessary gaming license in a given jurisdiction, we would likely be prohibited from operating in that particular jurisdiction altogether. If we fail to seek, do not receive, or receive a suspension or revocation of a license in a particular jurisdiction for our product offerings (including any related technology and software), then we cannot operate in that jurisdiction and our gaming licenses in other jurisdictions may be impacted. We may not be able to obtain all necessary gaming licenses in a timely manner, or at all. These delays in regulatory approvals or failure to obtain such approvals may also serve as a barrier to entry to the market for our product offerings. Our operations and future prospects will be affected if we are unable to overcome these barriers to entry.
To the extent new online sports betting and/or online casino jurisdictions are established or expanded, we cannot guarantee we will be successful in penetrating such new jurisdictions or expanding our business or customer base in line with the growth of existing jurisdictions. As we directly or indirectly enter into new markets, we may encounter legal, regulatory, and political challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. In the event we are unable to effectively develop and operate directly or indirectly within these new markets or if our competitors are able to successfully penetrate geographic markets that we cannot access or where we face other restrictions, then our business, operating results, and financial condition could be impaired. Our failure to obtain or maintain the necessary regulatory approvals in jurisdictions, whether individually or collectively, would have a material adverse effect on our business, results of operations, financial condition and prospects. We may need to be licensed, obtain approvals of our products and/or seek licensure of our officers, directors, major shareholders, key employees or business partners to expand into new jurisdictions. This is a costly and time-consuming process. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing markets or into new jurisdictions can negatively affect our opportunities for growth. This includes the growth of our customer base, or delay in our ability to recognize revenue from our product offerings in any such jurisdictions.
Future legislative and regulatory action, and court decisions or other governmental action, may have a material impact on our operations and financial results. There can be no assurance that legally enforceable and prohibiting legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to our business to prohibit, legislate, or regulate various aspects of the Internet, e-commerce, payment processing, or the online wagering and interactive entertainment industries (or that existing laws in those jurisdictions will not be interpreted negatively). Moreover, legislation may require us to pay certain fees in order to operate a sports betting and online casino-related business. Such fees may include integrity fees paid to sports leagues and/or fees required to obtain official sports-wagering related data. Compliance with any such legislation may have a material adverse effect on our business, results of operations, financial condition and prospects.
The success of online sports betting and our product offerings may also be affected by future regulatory and marketplace developments related to mobile platforms and application storefronts, social networks, advertising networks, payment processing and banking, data and information privacy, cloud and other infrastructure hosting, and other regulatory and marketplace developments that we are unable to predict and are beyond our control. As a result, our future operating results relating to our sports betting products are difficult to anticipate, and we cannot provide assurance that our product offerings will grow as expected or with success in the long term. Adverse developments in these areas may have a material adverse effect on our business, results of operations, financial condition and prospects.
Additionally, our ability to successfully pursue our sports betting and online casino strategy in the United States and Canada depends on the laws and regulations relating to wagering through interactive channels both federally and in individual states and provinces in each of these countries, respectively. There is considerable debate and opposition to online and interactive real-money gaming in certain jurisdictions in the United States and Canada and there can be no assurance that this opposition will not succeed in preventing the legalization of online sports betting and online casino in jurisdictions where it is presently prohibited, including Canada and certain states in the United States, thereby prohibiting or limiting the expansion of such activities where it is currently permitted or causing the repeal of legalized online betting
and/or online casino in any jurisdiction. Any successful effort to limit the expansion of, or prohibit legalized online sports betting and/or online casino could have an adverse effect on our results of operations, cash flows and financial condition. Combatting such efforts to curtail expansion of, or limit or prohibit, legalized online sports betting and/or online casino can again be time-consuming and can be extremely costly.
In the United States, the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) prohibits among other things, the acceptance by a business of a wager by means of the Internet where such wager is prohibited by any federal or state law where initiated, received or otherwise made, thus requiring the gambling to be unlawful under existing federal or state law to trigger any criminal liability. Under UIGEA severe criminal and civil sanctions may be imposed on the owners and operators of such systems and on financial institutions that process wagering transactions. The law contains a safe harbour for wagers placed within a single state (disregarding intermediate routing of the transmission) where the method of placing the wager and receiving the wager is authorized by that state’s law, provided the underlying regulations establish appropriate age and location verification.
The Illegal Gambling Business Act (“IGBA”), makes it a crime to conduct, finance, manage, supervise, direct or own all or part of an “illegal gambling business” that violates state law. The Travel Act makes it a crime to use the mail or any facility in interstate commerce with the intent to “distribute the proceeds of any unlawful activity,” or “otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity.” Unlawful activity includes “any business enterprise involving gambling” in violation of state or federal laws. For there to be a violation of either the IGBA or the Travel Act there must be a violation of underlying state law.
Until 2011, there was uncertainty as to whether the Federal Wire Act of 1961 (the “Wire Act”) prohibited states from conducting intrastate lottery transactions via the Internet if such transactions crossed state lines. In late 2011, the Office of Legal Counsel (the “OLC”) of the Department of Justice (“DOJ”) issued an opinion which concluded that the prohibitions of the Wire Act were limited to sports gambling and thus did not apply to state lotteries at all (the “2011 DOJ Opinion”). Following the issuance of the 2011 DOJ Opinion, within the past few years, state-authorized Internet casino gaming has been launched in Delaware, New Jersey, Michigan, Pennsylvania, and West Virginia and state authorized online poker has been launched in Nevada and Michigan.
In 2018, at the request of the Criminal Division, the OLC reconsidered the 2011 DOJ Opinion’s conclusion that the Wire Act was limited to sports gambling. On January 14, 2019, the OLC published a legal opinion dated November 2, 2018 (the “2018 DOJ Opinion”), which concluded that the 2011 DOJ Opinion had incorrectly interpreted the Wire Act. In the 2018 DOJ Opinion, the OLC concluded that the restrictions on the transmission in interstate or foreign commerce of bets and wagers in the Wire Act were not limited to sports gambling but instead applied to all bets and wagers, including online gambling and online lotteries. The OLC also found that the enactment of the UIGEA described above did not modify the scope of the Wire Act. The OLC acknowledged that its conclusion in the 2018 DOJ Opinion, which was contrary to the 2011 DOJ Opinion, will make it more likely that the executive branch’s view of the law will be tested in the courts.
The United States District Court for the District of New Hampshire disagreed with the 2018 DOJ Opinion. In an opinion dated June 3, 2019, in New Hampshire Lottery Commission, et. al. vs. William Barr, AG, Case No. 1:19-cv-00163, Opinion No. 2019 DNH 091P, p. 60, United States District Judge Barbadoro held that § 1084(a) of the Federal Wire Act “applies only to transmissions related to bets or wagers on a sporting event or contest” and granted summary judgment to the Plaintiff (who effectively challenged the position taken in the 2018 DOJ Opinion). The DOJ appealed the District Court ruling to the United States Court of Appeals for the First Circuit.
On January 20, 2021, the First Circuit affirmed the District Court’s ruling and rejected the 2018 DOJ Opinion’s interpretation. The First Circuit concluded that the Wire Act only prohibits the interstate transmission of wire communications related to sporting events or contests, and not non-sporting events, like online casino or online lottery. The DOJ has the ability to appeal the First Circuit’s decision to the United States Supreme Court, but with the new executive administration under President Biden, we believe a DOJ appeal appears less likely, and therefore, the Wire Act’s inapplicability to non-sporting events or contests remains the prevailing interpretation.
If we fail to comply with any existing or future laws, rules, regulations, approvals, registrations, permits, licenses or other requirements, regulators may take action against us. Such action may include fines, the conditioning, suspension or revocation of approvals, registrations, permits or licenses, and other disciplinary action. If we fail to adequately adjust to any such potential changes, our business, results of operations or financial condition could also be harmed.
We transmit and store a large volume of user data in the course of supporting our website and mobile sports applications and the continuously evolving approaches to interpreting and applying applicable privacy and data protection laws across jurisdictions in which we operate may have a material adverse effect on our business.
We may require the registration of our users prior to accessing our products or services or certain features of our products or services and we may be subject to increased legislation and regulations on the collection, storage, retention, transmission and use of user-data that is collected. Our efforts to protect the personal information of our users may be unsuccessful due to the actions of third parties, software bugs or technical malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data. If any of these events occur, users’ information could be accessed or disclosed improperly. Any incidents involving the unauthorized access to or improper use of the information of users or incidents involving violation of our terms of service or policies could damage our reputation and our brand and diminish our competitive position. In addition, the affected users or governmental authorities could initiate legal or regulatory action against us in connection with such incidents, including in respect of mandatory breach reporting and record-keeping obligations in Canada and all states in the United States, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices and remediate the effects of any such incidents of unauthorized access or use. Any of these events could have a material adverse effect on our prospects, business, financial condition or results of operations.
We transmit and store a large volume of data in the course of supporting our website and mobile sports applications. The interpretation of privacy and data protection laws and their application to the Internet is unclear and subject to rapid change in numerous jurisdictions. There is a risk that these laws may be interpreted and applied in a manner that is not consistent with our data protection practices and results in additional compliance or changes in our business practices, or both, and liability or sanction under these laws. In addition, because our website and mobile sports applications are accessible in many jurisdictions, we may be subject to foreign privacy laws. In particular, in the spring of 2018, the General Data Protection Regulation (“GDPR”), which provides for extraterritorial application in some cases and includes the possibility of substantial monetary penalties for non-compliance, came into effect in the European Union. In addition, the United Kingdom’s decision to leave the European Union has created uncertainty in data protection issues involving the United Kingdom. The impact and interpretation of the GDPR and any version of the GDPR adopted in the United Kingdom on our business is uncertain. Likewise, California enacted a Consumer Privacy Act, effective on January 1, 2020, that creates additional rights for consumers with respect to the collection and use of their data, and depending on how it is interpreted by the California Attorney General in the promulgation of regulations and enforcement, it could negatively impact our business model. Furthermore, we may face conflicting obligations arising from the potential concurrent application of laws of multiple jurisdictions. In the event that we are not able to reconcile such obligations, we may be required to change business practices or face liability or sanction.
In addition, in the Fall of 2020, Canada’s federal government introduced a new privacy bill. If enacted, the bill would replace Part I of the Personal Information Protection and Electronic Documents Act (Canada) (the Part that regulates personal information) and enact two new federal privacy statutes: the Consumer Privacy Protection Act and the Personal Information and Data Protection Tribunal Act. These new statutes will, if enacted, introduce new compliance obligations, new administrative enforcement powers and new financial penalties for non-compliance.
If we are unable to ultimately generate sufficient revenues to become profitable and have positive cash flows it could have a material adverse effect on our prospects, business, financial condition, results of operations or overall viability as an operating business.
We have a history of operating losses and we can be expected to generate continued operating losses and negative cash flows in the future while we carry out our current business plan to further develop and
expand our businesses in digital sports media and mobile sports betting. We have made significant up-front investments in research and development, sales and marketing, market access for mobile sports betting and general and administrative expenses in order to rapidly develop and expand our business. We are currently incurring expenditures related to our operations that have generated negative operating cash flows from operations. The successful development and commercialization of these operations will depend on a number of significant financial, logistical, technical, marketing, legal, regulatory, competitive, economic and other factors, the outcome of which cannot be predicted. In addition, we have a limited operating history with respect to our newer product offerings such as our sports betting products, which makes it difficult to forecast future results. There is no guarantee that such operations will become profitable or produce positive cash flow or that we will be successful in generating significant revenues in the future or at all. While we can utilize cash and cash equivalents to fund our operating and development expenditures, we do not have access to material amounts under committed credit facilities or other committed sources of funding. Our inability to ultimately generate sufficient revenues to become profitable and have positive cash flows could have a material adverse effect on our prospects, business, financial condition, results of operations or overall viability as an operating business.
We may use the proceeds from the sale of securities for purposes other than those set out in this Prospectus Supplement.
We cannot specify with certainty the particular uses of the net proceeds we will receive from the Offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in “Use of Proceeds”. Accordingly, a purchaser of Offered Shares will have to rely upon the judgment of our management with respect to the use of the proceeds, with only limited information concerning management’s specific intentions. Our management may spend a portion or all of the net proceeds from this Offering in ways that our shareholders might not desire, that might not yield a favorable return and that might not increase the value of a purchaser’s investment. The failure by our management to apply these funds effectively could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows. Notably, we have in the past made, and in the future may make, acquisitions and investments that could divert management’s attention, result in operating difficulties and dilution to our shareholders and otherwise disrupt our operations and adversely affect our business, operating results or financial position, and involve other risks and uncertainties outlined in this Prospectus Supplement, the accompanying Shelf Prospectus and in the documents incorporated by reference herein and therein. Pending their use, we may invest the net proceeds of the Offering in a manner that does not produce income or that loses value.
Our Class A Shares do not currently trade on a stock exchange in the United States and we do not know whether a market for the Class A Shares will develop to provide you with adequate liquidity.
Our Class A Shares are currently listed only on the TSX. Prior to this Offering, the Class A Shares have not been listed on a stock exchange in the United States. We have applied to list our Class A Shares on Nasdaq in connection with this Offering. However, if an active trading market does not develop in the United States, you may have difficulty selling any of the Class A Shares that you buy over a U.S. exchange. We cannot predict the extent to which investor interest in the Corporation will lead to the development of an active trading market on the Nasdaq or otherwise, or how liquid that market might become. The price of the Class A Shares in this Offering may not be indicative of prices that will prevail in the United States trading market or otherwise following the Offering. Listing of our Class A Shares on the Nasdaq in addition to the TSX may increase price volatility on the TSX and also result in volatility of the trading price on the Nasdaq because trading will be in two markets, which may result in less liquidity on both exchanges. In addition, different liquidity levels, volumes of trading, currencies and market conditions on the two exchanges may result in different prevailing trading prices.
We may not be able to meet our financial obligations as they fall due which could have a material adverse effect on our prospects, business, financial condition and results of operations.
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. Our objective in managing liquidity is to ensure we will always have sufficient liquidity to meet our liabilities when due, under both normal and distressed conditions, without incurring unacceptable losses or risking
damage to our reputation. There is no assurance that our approach to managing liquidity will prove successful and should we be unable to meet our liabilities when due it could have a material adverse effect on our prospects, business, financial condition and results of operations.
We may require substantial additional equity or debt financing in order to carry out our business objectives and failure to obtain sufficient financing could have a material adverse effect on our business, financial condition and results of operations.
Despite the anticipated net proceeds from the Offering, we may require substantial additional equity or debt financing in order to carry out our business objectives, including the continued development of new and upgraded functionality of our products and services. There can be no assurance that debt or equity financing or cash generated by operations would be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it would be on terms acceptable to us. Failure to obtain sufficient financing may result in the delay or indefinite postponement of development or production on any or all of our products and services which could have a material adverse effect on our business, financial condition and results of operations. In addition, any future financing may also be dilutive to our existing shareholders.
There is no guarantee that the Class A Shares will earn any positive return in the short term or long term.
A holding of Class A Shares is speculative and involves a high degree of risk and should be undertaken only by holders whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. A holding of Class A Shares is appropriate only for holders who have the capacity to absorb a loss of some or all of their holdings.
We may sell additional Class A Shares or other securities that are convertible or exchangeable into Class A Shares in subsequent offerings or may issue additional Class A Shares or other securities to finance future acquisitions.
We cannot predict the size or nature of future sales or issuances of securities or the effect, if any, that such future sales and issuances will have on the market price of the Class A Shares. Sales or issuances of substantial numbers of Class A Shares (including the issuance of Class A Shares upon conversion of the Convertible Debenture (as defined below)) or other securities that are convertible or exchangeable into Class A Shares, or the perception that such sales or issuances could occur, may adversely affect prevailing market prices of the Class A Shares. With any additional sale or issuance of Class A Shares or other securities that are convertible or exchangeable into Class A Shares, investors will suffer dilution to their voting power and economic interest in the Corporation. Furthermore, to the extent holders of our stock options or other convertible securities convert or exercise their securities and sell the Class A Shares they receive, the trading price of the Class A Shares may decrease due to the additional amount of Class A Shares available in the market.
The market price for our Class A Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control.
The factors which may contribute to market price fluctuations of the Class A Shares include the following:
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actual or anticipated fluctuations in our quarterly results of operations;
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recommendations by securities research analysts;
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changes in the economic performance or market valuations of companies in the industry in which we operate;
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addition to or departure of our executive officers, directors and/or other key personnel;
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sales or perceived sales of additional Class A Shares;
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operating and financial performance that vary from the expectations of management, securities analysts and investors;
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regulatory changes affecting our industry generally and our business and operations;
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announcements of developments and other material events by us or our competitors;
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fluctuations to the costs of vital products and services used by us in our business;
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changes in global financial markets and global economies and general market conditions, such as interest rates;
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significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
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litigation or regulatory action against us;
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operating and share price performance of other companies that investors deem comparable to us or from a lack of market comparable companies;
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news reports, investor speculation, social media, chat rooms and other methods of information dissemination concerning trends, concerns, technological or competitive developments, regulatory matters and other related issues in our industry or target markets; and
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current and future global economic, political and social conditions, including the COVID-19 pandemic.
We have not declared and paid dividends in the past and may not declare and pay dividends in the future, and consequently, purchasers in the Offering may never receive a return on their investment.
We have not paid any dividends on either the Class A Shares or the Special Voting Shares. Our current policy is to retain earnings for our future growth. Any future declaration of dividends is, subject to certain statutory restrictions and certain restrictions set out in our Credit Facility (as defined below), within the discretion of our board of directors based on their assessment of, among other factors, our overall financial condition, results of operations, capital and operating expenditure requirements and other relevant factors. At this time, we have negative operating cash flow and anticipate using all available cash resources towards our stated business objectives and retaining all earnings, if any, to finance our business operations and accordingly, have no plans to pay any dividend.
The rights of holders of Class A Shares may be subordinated to those of other of our securityholders in certain circumstances.
In any liquidation, dissolution or winding up of the Corporation, the Class A Shares would rank below all debt claims against us. In addition, any convertible or exchangeable securities or other equity securities that we may issue in the future may have rights, preferences and privileges more favorable than those of the Class A Shares. As a result, holders of Class A Shares will not be entitled to receive any payment or other distribution of assets upon the liquidation or dissolution until after our obligations to our debt holders and holders of equity securities that rank senior to the Class A Shares, if any, have been satisfied.
We have a major shareholder with 100% of the Special Voting Shares and the ability to significantly influence the election of directors and to generally direct our affairs.
Mr. John Levy controls or directs 100% of the issued and outstanding Special Voting Shares and approximately 17.9% of the outstanding Class A Shares. As a result, Mr. Levy is entitled to nominate a majority of the members of our board of directors and he has the ability to influence the outcome of matters submitted to our shareholders for approval, which include amendments to our corporate governing documents and business combinations. Our interests and the interests of other shareholders may at times conflict with those of Mr. Levy, and this conflict might be resolved against our interests and the interests of other shareholders. Due to these shareholdings and contractual rights of Mr. Levy and John Levy Family Holdings Ltd., Mr. Levy will be in a position to determine whether we or our operations are acquired by a third party, to significantly influence the election of the members of our board of directors and the board of directors of our subsidiaries and to generally direct our affairs.
Future sales, or the perception of future sales, of Class A Shares by existing shareholders could adversely affect prevailing market prices for the Class A Shares.
Sales of a large number of Class A Shares in the public markets, or the potential for such sales, could decrease the trading price of the Class A Shares and could impair our ability to raise capital through future sales of Class A Shares. In particular, Mr. John Levy controls or directs approximately 17.9% of the issued and outstanding Class A Shares. If either Mr. Levy or any other significant shareholder decides to liquidate all or a significant portion of the Class A Shares held, it could adversely affect the price of the Class A Shares.
In addition, as of the date of this Supplement, there are up to approximately 5.76 million Class A Shares issuable upon the conversion of the Convertible Debenture, which is held by a fund managed and controlled by Fengate (as defined below). To the extent that the Convertible Debenture is converted, any Class A Shares issuable on such conversion may also be sold into the market from time to time, and we cannot predict the effect, if any, that a future conversion under the Convertible Debenture and any sales of the resulting issued Class A Shares thereafter may have on the market price of our Class A Shares. Moreover, the market price of our Class A Shares could drop if Fengate sells the underlying Class A Shares issuable upon conversion of the Convertible Debenture, or if the market perceives that Fengate intends to sell the Class A Shares issuable upon conversion of the Convertible Debenture. The existence of the Convertible Debenture may also encourage short selling by market participants because any conversion pursuant to the Convertible Debenture could depress the price of our Class A Shares.
If our Class A Shares failed to qualify as permitted investments under the investment policies or guidelines of certain institutional investors and such institutions were forced to liquidate their position, it could adversely affect the price of our Class A Shares.
Our shareholders are subject to extensive governmental regulation which may negatively affect the trading price and/or liquidity of the Class A Shares.
A number of jurisdictions’ gaming laws may require any of our shareholders to file an application, be investigated, and qualify or have their suitability determined by gaming authorities. Gaming authorities have very broad discretion when ruling on whether an applicant should be deemed suitable or not. Subject to certain administrative proceeding requirements, the gaming regulators have the authority to deny any application or limit, condition, revoke or suspend any gaming license, or fine any person licensed, registered or found suitable or approved, for any cause deemed reasonable by the gaming authorities.
Any person found unsuitable by a gaming authority may not hold directly or indirectly ownership of any voting security or the beneficial or record ownership of any non-voting security or any debt security of any company that is licensed with the relevant gaming authority beyond the time prescribed by the relevant gaming authority. A finding of unsuitability by a particular gaming authority impacts that person’s ability to associate or affiliate with gaming licensees in that specific jurisdiction and could impact the person’s ability to associate or affiliate with gaming license holders in other jurisdictions.
Many jurisdictions also require any person who obtains a beneficial ownership of more than a certain percentage, typically 5%, of voting securities of a publicly traded gaming company or parent company thereof and, in some jurisdictions, non-voting securities to report the acquisition to gaming authorities. Gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions in certain jurisdictions for “institutional investors” that hold a company’s voting securities for investment purposes only. Other jurisdictions may also limit the number of gaming licenses with which a person may be associated.
Our corporate articles and bylaws include certain provisions to ensure that we comply with applicable gaming regulations. These provisions provide, among other things, that we shall have the right, subject to the conditions set out in our articles and bylaws, to repurchase securities shares held by an unsuitable person. Such repurchase rights may negatively affect the trading price and/or liquidity of the Class A Shares.
Our constating documents permit us to issue additional securities in the future, including Class A Shares and preferred shares without additional shareholder approval.
Our articles permit us to issue an unlimited number of Class A Shares. We anticipate that we will, from time to time, issue additional Class A Shares in the future, including in connection with potential acquisitions.
Subject to the requirements of the TSX and the Nasdaq, we will not be required to obtain the approval of shareholders for the issuance of additional Class A Shares. Any further issuances of Class A Shares will result in immediate dilution to existing shareholders and may have an adverse effect on the value of their shareholdings.
Our articles of amendment also permit us to issue an unlimited number of preferred shares, issuable in series. While we have no present plans to issue any preferred shares, our board of directors has the authority to issue preferred shares and determine the price, designation, rights, (including voting and dividend rights), preferences, privileges, restrictions and conditions of such preferred shares and to determine to whom they shall be issued. Any issuance of preferred shares may result in further dilution to existing shareholders and have an adverse effect on the value of their shareholdings. We cannot foresee the terms and conditions of any future offerings of preferred shares nor the effect they may have on the market price of the Class A Shares.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade our Class A Shares, the price of our Class A Shares could decline.
The trading market for our Class A Shares depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, the price of our Class A Shares would likely decline. In addition, if our results of operations fail to meet the forecast of analysts, the price of our Class A Shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A Shares could decrease, which might cause the price and trading volume of our Class A Shares to decline.
The market price of our Class A Shares is subject to fluctuations and may not reflect our long-term value at any given time, and we may be subject to securities litigation as a result.
The price of the Class A Shares is likely to be significantly affected by a variety of factors and events including short-term changes to our financial condition or results of operations as reflected in our quarterly earnings reports. Other factors unrelated to our performance that may have an effect on the price of our Class A Shares include the following: (i) the extent of analytical coverage available to investors concerning our business may be limited if investment banks with research capabilities do not follow our securities; (ii) lessening in trading volume and general market interest in our securities or technology companies more generally may affect an investor’s ability to trade significant numbers of the Class A Shares; (iii) the size of our public float may limit the ability of some institutions to invest in our securities; and (iv) a substantial decline in the price of the Class A Shares that persists for a significant period of time could cause our securities, if listed on an exchange, to be delisted from such exchange, further reducing market liquidity.
As a result of any of these factors, the market price of the Class A Shares is subject to fluctuations and may not accurately reflect our long-term value at any given point in time. Securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and damages and divert management’s attention and resources.
We will incur increased costs as a result of being a public company in the United States, and our management will be required to devote substantial time to United States public company compliance efforts.
As a public company in the United States, we will incur additional legal, accounting, Nasdaq, reporting and other expenses that we did not incur as a public company in Canada. The additional demands associated with being a U.S. public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue-producing activities to additional management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our business. Any of these effects could harm our business, results of operations and financial condition.
If our efforts to comply with new United States laws, regulations and standards differ from the activities intended by regulatory or governing bodies, such regulatory bodies or third parties may initiate legal proceedings against us and our business may be adversely affected. As a public company in the United States, it is more expensive for us to obtain director and officer liability insurance, and we will be required to accept reduced coverage or incur substantially higher costs to continue our coverage. These factors could also make it more difficult for us to attract and retain qualified directors.
The U.S. Sarbanes-Oxley Act 2002, as amended (the “U.S. Sarbanes-Oxley Act”) requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. Pursuant to Section 404 of the U.S. Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our internal control over financial reporting (“ICFR”), which, if or when we are no longer an emerging growth company, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm.
To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This could result in a determination that there are one or more material weaknesses in our ICFR, which could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. In addition, in the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate, or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the price of our Class A Shares may decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq.
As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our shareholders.
We are a “foreign private issuer” as such term is defined in Rule 405 under the U.S. Securities Act, and are permitted, under a multijurisdictional disclosure system adopted by the United States and Canada, to prepare our disclosure documents filed under the Exchange Act in accordance with Canadian disclosure requirements. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we will not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors, and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell shares, as the reporting deadlines under the corresponding Canadian insider reporting requirements are longer.
As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. We are also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While we expect to comply with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive in every case the same information at the same time as such information is provided by U.S. domestic companies.
In addition, as a foreign private issuer, we have the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the Canadian practices we follow instead. For example, we do not intend to follow the minimum quorum requirements for shareholder meetings as well as certain shareholder approval requirements prior to the issuance of securities under
Nasdaq listing standards, as permitted for foreign private issuers. As a result, our shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all U.S. corporate governance requirements. If we cease to qualify as a foreign private issuer, we will be subject to the same reporting requirements and corporate governance requirements as a U.S. domestic issuer which may increase our costs of being a public company in the United States.
If tax authorities were to successfully challenge the transfer pricing of our cross-border intercompany transactions, our tax liability may increase.
We have cross-border transactions among the Company and its subsidiaries in relation to various aspects of our business, including operations, financing, marketing, sales and delivery functions. Canadian and U.S. transfer pricing regulations, as well as regulations applicable in other countries in which we operate, require that any international transaction involving associated enterprises be on arm’s-length terms and conditions. We view the transactions entered into among the Company and our subsidiaries to be priced on arm’s length terms and conditions and to be in accordance with the relevant transfer pricing regulations. If, however, a tax authority in any jurisdiction successfully challenges our position and asserts that the terms and conditions of such transactions are not on arm’s length terms and conditions, or that other income of our subsidiaries should be taxed in that jurisdiction, we may incur increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase, possibly materially, thereby reducing our profitability and cash flows, which in turn could have a material adverse effect on our future cash flows, future earnings and financial condition.
We rely on the continued support of banks and payment processors and any interference with or harm to our relationships with those banks and payment processors may have a material adverse effect on our business.
We rely on payment processing and banking providers to facilitate the movement of funds between us and our customer base for our sports betting platform. Anything that could interfere with or otherwise harm our relationships with payment and banking service providers could have a material adverse effect on our business, results of operations, financial condition and prospects. Our ability to accept payment from our customers or facilitate withdrawals by them may be restricted by any introduction of legislation or regulations restricting financial transactions with online sports betting operators or prohibiting the use of credit cards and other banking instruments for online sports betting transactions, or any other increase in the stringency of regulation of financial transactions, whether in general or in relation to the gambling industry in particular.
Stricter anti-money laundering regulations may also affect the quickness and accessibility of payment processing systems, resulting in added inconvenience to our customers. Card issuers and acquirers may dictate how transactions and products need to be coded and treated which could also make an impact on acceptance rates. Card issuers, acquirers, payment processors and banks may also cease to process transactions relating to the online sports betting industry as a whole or certain operators, such as ourselves. This could be due to reputational and/or regulatory reasons or in light of increased compliance standards of such third parties that seek to limit their business relationships with certain industry sectors considered as “high risk”. It may also result in customers being dissuaded from accessing our product offerings if they cannot use a preferred payment option, or the quality or the speed of the supply is not suitable or accessible to the customers. Any such developments may have a material adverse effect on our business, results of operations, financial condition and prospects.
We must continually introduce and successfully market new and innovative technologies, product offerings and product enhancements to remain competitive.
Our current and potential competitors in mobile sports betting include Barstool Sports, Bet 365, Caesars, DraftKings, FanDuel, FOX Bet, BetMGM, PointsBet, and William Hill, and other online sports betting and online casino operators. Certain competitors have more established relationships and greater financial resources and they can use their resources against us in a variety of competitive ways, including by making acquisitions, investing aggressively in research and development, and competing aggressively for strategic partners, advertisers, employees, technologies, digital media rights, websites and applications. These competitors also may spend more money and time on developing and testing products and services,
undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies, or otherwise develop more commercially successful products or services than our own, which could negatively impact our business by affecting our ability to attract and retain existing and new sports betting customers.
Our current and potential competitors in digital sports media include large and established companies, such as CBS Sports, ESPN, Fox Sports, SB Nation, Sportsnet, TSN, Turner Sports, and Yahoo Sports, the digital media divisions of major sports leagues, independent fantasy sports companies, other digital media companies that cover esports, as well as start-up companies. The digital media divisions of major sports leagues have more access to proprietary content that may not be made available to us. Emerging start-ups may be able to innovate and provide products and services faster than we can. If competitors are more successful than us in developing compelling products and engaging content or in attracting and retaining users, advertisers and digital media rights, our revenues and growth rates and the value of the capitalized digital assets could be negatively affected. There is no assurance that we will be able to maintain our position in the marketplace.
We must continually introduce and successfully market new and innovative technologies, product offerings and product enhancements to remain competitive and effectively procure customer demand, acceptance, and engagement as a result of the intense industry competition, along with other factors. The process of developing new product offerings and systems is complex, and new product offerings may not be well received by customers. Although we intend to continue investing in research and development, there can be no assurance that such investments will lead to successful new technologies or timely new product offerings or enhanced existing product offerings with product life cycles long enough to be successful. We may not recover the substantial up-front costs of developing and marketing new technologies and product offerings, or recover the opportunity cost of diverting management and financial resources away from other technologies and product offerings.
Competition within the broader entertainment industry is intense and our existing and potential users may be attracted to competing forms of entertainment such as television, movies and sporting events, as well as other entertainment and gaming options on the Internet. If our offerings do not continue to be popular, our business could be harmed.
We operate in the global entertainment and gaming industries within the broader entertainment industry with our product and service offerings. Our users face a vast array of entertainment choices. Other forms of entertainment, such as television, movies, sporting events and in-person casinos, are more well established and may be perceived by our users to offer greater variety, affordability, interactivity and enjoyment. We compete with these other forms of entertainment for the discretionary time and income of our users. If we are unable to sustain sufficient interest in our recently launched sports betting and online gaming platforms in comparison to other forms of entertainment, including new forms of entertainment, our business model may not continue to be viable.
The specific industries in which we operate are characterized by dynamic customer demand and technological advances, and there is intense competition among online gaming and entertainment providers. A number of established, well-financed companies producing online gaming and/or interactive entertainment products and services compete with our offerings, and other well-capitalized companies may introduce competitive services. Such competitors may spend more money and time on developing and testing products and services, undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies or otherwise develop more commercially successful products or services than ours, which could negatively impact our business. Our competitors may also develop products, features, or services that are similar to ours or that achieve greater market acceptance. Such competitors may also undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. Furthermore, new competitors, whether licensed or not, may enter the online gaming industry. There has also been considerable consolidation among competitors in the entertainment and gaming industries and such consolidation and future consolidation could result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable them to offer more competitive products, gain a larger market share, expand offerings and broaden their geographic scope of operations. If we are not able to maintain or improve our market share, or if our offerings do not continue to be popular, our business could suffer.
We have received, and may receive in the future, formal and informal inquiries from governmental authorities and regulators regarding our compliance with applicable laws which may have a material adverse effect on our financial condition.
We expect to continue to be the subject of investigations and audits in the future as we continue to grow and expand our gaming operations. Violation of existing or future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties providing a negative effect on our financial condition and results of operations. In addition, there is a possibility that future orders issued by, or inquiries or enforcement actions initiated by, government or regulatory authorities may cause us to incur substantial costs, expose us to unanticipated civil and criminal liability or penalties, or require us to change our business practices that may have materially adverse effects on our business.
We are subject to market-access limitations which, subject to evolving regulatory landscapes and the decisions of applicable regulatory bodies, may have a material adverse effect on our business.
The prevailing trend in the United States is for states to require sports betting to be conducted by or through an existing licensed casino or racetrack. In such states where mobile or internet based sports betting is legal, each casino or racetrack often is permitted to offer sports betting through a limited number of branded websites, known as skins. The number of skins each casino or racetrack is permitted to offer varies by state and is dictated by law, regulation or policy. Casinos and racetracks have, accordingly, begun to enter into agreements to allow third-party sports betting operators to operate skins through the casino’s or racetrack’s license. Further, certain of these agreements provide for a sports betting operator to obtain “second skin” or “third skin” access, meaning that another operator has the right to operate the first, and potentially the second, skin of a casino or racetrack, to the extent permitted by law, regulation or policy. Consequently, if a state does not permit casinos or racetracks to have more than one skin (or more than two skins as the case may be), an operator’s right to utilize a second (or third skin as the case may be) is rendered meaningless in such state. We have entered into multiple agreements allowing us market access via the right to operate specific skins. Certain of these agreements contemplate us receiving second or third skins. Accordingly, should states not permit our casino or racetrack partners to offer sports betting through an adequate number of skins, we would not have access to such markets (unless we enter into additional agreements for market access in such states). Our inability to gain access to offer mobile and internet sports betting in states as such states legalize sports betting could have a material adverse effect on our business, results of operations, financial condition and prospects.
Further, a state may change its law, regulation or policy framework to alter the number of skins a casino or racetrack is permitted to offer. An increase to the number of skins could result in increased competition within such state, while a decrease to the number of skins a casino or racetrack may offer could reduce or eliminate the ability for us to gain access to operate in such state. Such changes could have a material adverse effect on our business, results of operations, financial condition and prospects.
We may experience losses with respect to individual events or betting outcomes.
Sports betting involves betting where winnings are paid on the basis of the stake placed and the odds quoted. Odds are determined with the objective of providing an average return to the bookmaker over a large number of events and therefore, over the long term. In contrast, there can be significant variation in gross win percentage event-by-event and day-by-day. We have systems and controls intended to reduce the risk of daily losses occurring on a gross-win basis, but there can be no assurance that these will be effective in reducing our exposure. As a result, in the short term, there is less certainty of generating a positive gross win, and we may experience significant losses with regard to individual events or betting outcomes, specifically if large, individual bets are placed on an event or betting outcome or series of events or betting outcomes. Odds compilers and risk managers are capable of human error, thus, even noting that a number of betting products are subject to capped pay-outs, significant volatility can occur. Any significant losses on a gross-win basis could have a material adverse effect on our business, results of operations, financial condition and prospects.
Sports betting can also fluctuate due to seasonal trends and other factors. Our operations, and thus our financial performance, are also dependent on the seasonal variations dictated by various sports calendars, which will have an effect on our financial performance.
We are subject to the gaming industry’s social responsibility concerns and a negative shift in the perception of sports betting by the public, by politicians, or by others could impact future legislation or regulation in different jurisdictions.
Public opinion can meaningfully affect sports betting regulation. A negative shift in the perception of sports betting by the public, by politicians, or by others could impact future legislation or regulation in different jurisdictions. Moreover, such a shift could cause jurisdictions to abandon proposals to legalize sports betting, thereby limiting the number of new jurisdictions into which we could expand. Negative public perception can also lead to new, harsher restrictions on sports betting, including restrictions on marketing, betting product offerings, other restrictions on our gaming operations and increased compliance costs. Such changes could have a material adverse effect on our business, results of operations, financial condition and prospects.
We are subject to governmental regulation of the Internet which continues to evolve over time, which evolution may have a material adverse effect on our business.
Governments and regulatory authorities in some jurisdictions in which our content originates or our users reside, including Canada, impose rules and regulations affecting the third-party-owned communications networks over which our services are accessed, including Internet and mobile connectivity (“network services”), and affecting the audiovisual content distributed to the public as part of our services (“audiovisual media”). In certain circumstances this governmental regulation of the Internet, which is frequently controversial, protects our activities from certain tactics by competitors or potential competitors. Should efforts to overturn this governmental regulation prove successful, network services providers could impose restrictions that adversely impact our ability to deliver content on an equal footing with other audiovisual media providers, which could have a material adverse effect on our prospects, business, financial condition and results of operations.
Canada
In Canada, the country in which we are established, network services fall under the Telecommunications Act (Canada); audiovisual media fall under the Broadcasting Act (Canada); and spectrum regulation falls under the Radiocommunication Act (Canada). In June 2018, the Federal Government established an expert panel to review and recommend amendments to the Telecommunications Act, the Broadcasting Act and (if necessary) the Radiocommunication Act (Canada) (the “Legislative Review”). The Expert Panel tabled its report with 97 recommendations in January 2020, however, to date, no legislative proposals have been tabled.
Both the Telecommunications Act (Canada) and Broadcasting Act (Canada) grant broad discretion to the Canadian Radio-television and Telecommunications Commission (“CRTC”) to pursue the objectives set out in those Acts by regulating and supervising the Canadian broadcasting and telecommunications systems. In addition, the Radiocommunication Act (Canada) grants the Department of Innovation, Science and Economic Development Canada (“ISED”) discretion to pursue the objectives set out in the Telecommunications Act (Canada) by fixing the terms and conditions of the spectrum licences and exemptions which authorize the provision of mobile services in Canada. Both ISED and the CRTC have taken actions to increase competition between network providers, which could lower access costs. The CRTC has also established and clarified its network neutrality rules through several decisions. In recent years, the wholesale regimes for both wireless and wireline services have been changed by the CRTC, and various other decisions have been made with a view to facilitating sustainable competition that provides reasonable prices, innovative services and continued innovation and investment in high-quality wireless and wireline networks. Furthermore, the CRTC has rejected proposals to establish an administrative site-blocking regime to police intellectual property piracy on the Internet.
With respect to the Broadcasting Act (Canada), our activities which involve the transmission of audiovisual content, and fall under that Act, are subject to the Exemption Order for Digital Media Broadcasting Undertakings (“DMBU Order”). The DMBU Order generally exempts audiovisual content transmitted to the public only over the Internet, or through point-to-point mobile applications (including sports applications), from licensing. In September 2014, the CRTC completed a major public proceeding with respect to the manner in which it regulates video services and which proceeding included, among many other topics, a discussion of the DMBU Order. In a series of decisions in the first four months of 2015, the
CRTC refrained from amending or revoking the DMBU Order. However, potential changes to the regulatory obligations applicable to digital media services, which could include new financial contributions and/or content-related obligations, are within the scope of the current Legislative Review.
If the CRTC’s and/or ISED’s approaches to the issues discussed above, or the legislative basis under which they operate, should change, it could negatively impact our business.
In addition, the Canadian Anti-Spam Legislation (“CASL”) came into force on July 1, 2014. CASL prohibits the transmission of commercial electronic messages without an addressee’s consent and includes additional requirements relating to form and content of commercial electronic messages. Failure to comply with CASL can result in financial penalties which could affect our operating profit and financial position.
United States
In the United States, where much of our content is distributed, telecommunications services are subject to regulation by the Federal Communications Commission (“FCC”) under the Communications Act of 1934 (“Communications Act”). While the FCC regulates use of radio spectrum, certain aspects of telephony service, some fiber optic cable services, and some cable infrastructure and programming, content distributed by Internet is generally not considered to be a telecommunications service and thus free of FCC regulation. The extent to which the Federal Trade Commission (“FTC”) intends to fill this void remains uncertain.
Even without direct regulation of Internet content, FCC regulation of infrastructure providers can have an effect on our business. The Open Internet Order, FCC 15-24, 30 FCC Rcd. 5601 (2015) (“Open Internet Order”) declared internet service to be protected as a regulated utility under Title II of the Communications Act. The Open Internet Order was part of a series of regulatory and judicial interpretations of net neutrality, establishing the degree to which Internet content providers will be protected from blocking, paid prioritization and other service restrictions or interference by wireline and mobile infrastructure owners. Even though the FCC declined to impose a full regulatory regime on the Internet, opponents of the Open Internet Order sued to block the new rules. While the lawsuits were pending, the 2016 election brought a change in administration in the United States and a change in control of the FCC. As a result of the changes, the FCC reversed the Open Internet Order. The result is that we will not be regulated in our content distribution or insulated from business practices of infrastructure providers that support distribution of our content.
The State of California passed a comprehensive net neutrality law on September 30, 2018. The California Internet Consumer Protection and Net Neutrality Act of 2018 targets “fixed Internet service providers,” defined to include providers of broadband Internet access service that serves end users primarily at fixed endpoints, including fixed wireless providers. The providers will be prohibited from actions like blocking lawful content, impairing or degrading lawful Internet traffic, and engaging in paid prioritization, among other prohibitions. While the law would insulate our content distribution from business practices of infrastructure providers, the FCC and the U.S. Department of Justice have already challenged the law, calling for injunctive relief. The injunction action is pending as of October 4, 2018.
Some video distributed over the Internet and previously carried on television is subject to closed captioning rules. 47 C.F.R. §79.4. Application of those rules to our video content could add expense and regulatory risk for us.
Before the 2016 election, the FCC had under consideration a proposed rulemaking to treat certain “over-the-top” on-line video programming providers like multi-channel video programming distributors, or cable companies. Notice of Proposed Rulemaking, 29 FCC Rcd 15995 (2014). With the change of administrations, the proposed regulatory changes are in suspense. If implemented in a way that included the content distributed by us, the proposed regulations could add cost and impose traditional cable company obligations on us.
Other Jurisdictions
In other jurisdictions, both network services and media distribution are frequently subject to particular rules or regulations. Guidelines or rules are in place in a number of jurisdictions, with varying degrees of enforcement, with respect to both network services, including network neutrality and audiovisual media,
including content exclusivity and standards. However, although regulatory schemes can vary significantly from jurisdiction to jurisdiction, we are not aware of regulations in any material jurisdiction that would require us to be licensed to carry on our activities over the public Internet in those jurisdictions.
The success of our online sports betting and online casino operations is dependent on a number of factors that are beyond our control.
Our online sports betting and online casino operations compete in rapidly evolving and highly competitive markets against an increasing number of competitors. In order to support our revenue-generation, we have entered into certain market access agreements with certain other sports betting and casino operators and we may not be able to do so on terms that are favorable to us. The success of our online sports betting and online casino operations is dependent on a number of additional factors that are beyond our control, including the ultimate tax rates and license fees charged by jurisdictions across the United States and Canada; our ability to gain market share in newly developing markets; the timeliness and the technological and popular viability of our products, our ability to compete with new entrants in the market; changes in consumer demographics and public tastes and preferences; and the availability and popularity of other forms of entertainment. There can be no assurance that we will be able to compete effectively or that our expansion will be successful and generate sufficient returns on our investment.
We and our business are subject to anti-money laundering and corruption laws and the resultant costs of compliance.
The sports betting industry is exposed to schemes to launder money illegally and there is a risk that our products may be used for those purposes by certain persons. In addition, our activities are subject to money laundering regulations and anti-corruption laws, which may increase our costs of compliance, limit or restrict our ability to do business or subject us to civil or criminal actions or proceedings.
We rely on the continued growth of mobile advertising and there is no assurance that there will continue to be demand for online and mobile advertising services.
We have historically derived all of digital sports media revenues from sales of advertising and sponsorship. The digital sports media industry is a relatively new and rapidly evolving industry and as such it is difficult to predict the prospects for growth. There is no assurance that advertisers will continue to increase their purchases of online and mobile advertising, that the supply of advertising inventory will not exceed demand or that smartphone penetration in the United States and Canada will continue to grow. If the industry grows more slowly than anticipated or our existing products and services lose, or our new products and services fail to achieve, market acceptance, we may be unable to achieve our strategic objectives, which could have a material adverse effect on our prospects, business, financial condition or results of operations.
Disruptions to the scheduling and broadcasting of sporting and other events may have a material impact on our business, results of operations or financial conditions.
We and our suppliers have operations in, and our customers reside in, locations subject to natural occurrences such as natural crises, severe weather and other geological events, including, without limitation, pandemics, epidemics, outbreaks of infectious disease, hurricanes, earthquakes, floods, blizzards, wild fires or tsunamis that could disrupt operations and gameplay. Our betting business is affected by the scheduling and live broadcasting of significant sporting and other events. Disruptions to the scheduling and broadcasting of those events, including disruptions resulting from any of the aforementioned natural occurrences, may have a material impact on our business, results of operations or financial condition for the relevant period. In some instances, the scheduling of major sporting and other events occurs seasonally, or at regular but infrequent intervals.
The cancellation, postponement or curtailment of significant sporting or other events, for example, due to adverse weather conditions, terrorist acts or other acts of war or hostility or the outbreak of infectious diseases, pandemics, or cancellation of, disruption to, postponement of such sporting events, for example due to contractual disputes, technological or communication problems, could materially adversely affect our business, results of operations, financial condition and prospects.
Our net revenues are dependent, in part, upon the volume and spending levels of customers through our product and/or service offerings, and as such, our business has been, and may be in the future, adversely impacted by economic downturns.
Our net revenues are dependent, in part, upon the volume and spending levels of customers through our product and/or service offerings, and as such, our business has been adversely impacted by economic downturns in the past. Decreases in discretionary consumer spending brought about by weakened general economic conditions such as, but not limited to, lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, cultural and demographic changes, high fuel or other transportation costs and increased stock market volatility may negatively impact our revenues and operating cash flow.
We depend on a number of key suppliers and any interruptions to these relationships may have a material adverse effect on our business.
In the operation of our business we depend on a number of key suppliers. including (i) third-party web hosting and other technology service providers to enable us to operate our products and services; (ii) sports data, content and odds providers who provide a significant portion of the content for our mobile applications and websites, (iii) online sports betting and online casino platform providers who provide certain backend platform technology and operational services which are integral to our current and future operation of online sports betting and online casino in the United States and Canada; and (iv) our market access partners, who provide us with the right to operate our sports betting and platform in applicable jurisdictions. If any of these suppliers elect not to renew their contracts at the expiration of their current terms, cease operations or do not meet their contractual obligations or cease to provide their services for any reason, and if we cannot find suitable alternate suppliers in a timely manner (should such suitable alternate suppliers exist), we may be unable to operate our mobile sports applications or websites or our sports betting platform. Our inability to retain such third-party suppliers or find suitable alternate suppliers in a timely manner could lead to significant costs and disruptions that could reduce our revenue, harm our business reputation and have a material adverse effect on our prospects, business, financial condition and results of operations.
We also rely on application storefronts operated by the applicable operating system manufacturers, along with selected third-party application storefronts to distribute our mobile sports applications and mobile sports betting applications to consumers. If these operating system manufacturers cease to make our mobile sports or mobile sports betting applications available in their application storefronts, will only make such mobile applications available on terms unacceptable to us, or otherwise restrict the distribution, integration or promotion of our mobile application, this could prevent the broad distribution of our products and services and could have a material adverse effect on our prospects, business, financial condition and results of operations.
We share and syndicate our editorial content through third-party platforms including Facebook, Twitter, Instagram, YouTube and others. This syndication increases the exposure of our editorial content and generates user traffic for our websites. If these third-party platforms modify or alter their policies with respect to the sharing and/or syndication of content, traffic to our websites could be negatively affected and could have a material adverse effect on our prospects, business, financial condition and results of operations.
We also curate and aggregate content from selected third-party sources, including news articles, social media content and other multimedia content, and present it to our audience through our mobile sports applications and website. If these third parties modify or alter their policies, or otherwise preclude other publishers from curating and aggregating such content, our ability to present this content to our audience could be negatively affected and could have a material adverse effect on our prospects, business, financial condition and results of operations.
The success of our digital sports media platforms depends on our ability to deliver targeted, highly relevant ads to users of our mobile sports applications and website, which mobile device users may choose not to allow.
Targeted advertising is done primarily through analysis of data, much of which is collected on the basis of user-provided permissions. This data might include a mobile device’s location or data collected
when users view an advertisement or when they click on or otherwise engage with an advertisement. Users may elect not to allow data sharing for targeted advertising for a number of reasons, such as privacy concerns, or pricing mechanisms that may charge the user based upon the amount or types of data consumed. In addition, the designers of mobile device operating systems are increasingly promoting features that allow device users to disable some of the functionality, which may impair or disable the delivery of advertisements to their devices, and device manufacturers may include these features as part of their standard device specifications. Although we are not aware of any such products that are widely used in the market today, as has occurred in the online advertising industry, companies may develop products that enable users to prevent advertisements from appearing on their mobile device screens. Finally, as discussed more fully below, the delivery of targeted advertising is under increasing scrutiny by regulators in many of the jurisdictions in which we operate, and regulatory changes could impact our business model and may have similar impact for many if not most entities that rely on targeted advertising. If any of these developments were to occur, it could have a material adverse effect on our prospects, business, financial condition and results of operations.
We compete in new and evolving industries and we may have difficulty adapting to the continuous growth and development of these industries.
The online sports betting and online casino industries are relatively new and continue to evolve. Whether these industries grow and whether our business will ultimately succeed, will be affected by, among other things, developments in social networks, mobile platforms, legal and regulatory developments (such as passing new laws or regulations or extending existing laws or regulations to online sports betting, online casino and related activities), taxation of gaming activities, data and information privacy and payment processing laws and regulations, and other factors that we are unable to predict and which are beyond our control. Given the dynamic evolution of these industries, it can be difficult to plan strategically, including as it relates to product launches in new or existing jurisdictions which may be delayed or denied, and it is possible that competitors will be more successful than us at adapting to change and pursuing business opportunities. Additionally, as the online sports betting and online casino industries advance, including with respect to regulation in new and existing jurisdictions, we may become subject to additional compliance-related costs, including as it relates to licensing and taxes. Consequently, we cannot provide assurance that our online and interactive offerings will grow at the rates expected, or be successful in the long term. If our product offerings do not obtain popularity or maintain popularity, or if they fail to grow in a manner that meets our expectations, or if we cannot offer our product offerings in particular jurisdictions that may be material to our business, it could have a material adverse effect on our prospects, business, financial condition and results of operations.
We rely on, among other things, copyrights, trademarks, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property rights and we may be unable to protect or may not be successful in protecting our intellectual property rights.
Our commercial success depends upon our ability to develop new or improved technologies and products, and to successfully obtain or acquire patent or other proprietary or statutory protection for these technologies and products in Canada, the United States and other countries.
We rely on, among other things, copyrights, trademarks, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. While we enter into confidentiality and non-disclosure agreements with our employees, consultants, users, potential users and others to attempt to limit access to and distribution of proprietary and confidential information, it is possible that:
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some or all of our confidentiality and non-disclosure agreements will not be honored;
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third parties will independently develop equivalent technology or misappropriate our technology or designs;
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disputes will arise with our strategic partners, users or others concerning the ownership of intellectual property;
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unauthorized disclosure or use of our intellectual property, including source code, know-how or trade secrets will occur; or
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contractual provisions may not be enforceable.
There can be no assurance that we will be successful in protecting our intellectual property rights or that we will become aware of third-party infringements that might be occurring. Inability to protect our intellectual property rights could have a material adverse effect on our prospects, business, financial condition or results of operations.
Our commercial success depends upon us avoiding the infringement of intellectual property rights owned by others and any such infringements, including those that are inadvertent, may have a material adverse effect on our business.
The industries in which we compete have many participants that own, or claim to own, intellectual property, including participants that have been issued patents and may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those used by us in our products. Some of these patents may grant very broad protection to the third-party owners thereof. Patents can be issued very rapidly and there is often a great deal of secrecy surrounding pending patent applications. We cannot determine with certainty whether any existing third-party patents or the issuance of any new third-party patents would require us to alter our technologies, pay for licenses, challenge the validity or enforceability of the patents, or cease certain activities. Third parties may assert intellectual property infringement claims against us and against our partners and/or suppliers. We may be subject to these types of claims either directly or indirectly through indemnities assuming liability for these claims that we may provide to certain partners. There can be no assurance that our attempts to negotiate favorable intellectual property indemnities in favour of us with our suppliers for infringement of third-party intellectual property rights will be successful or that a supplier’s indemnity will cover all damages and losses suffered by us and our partners and other suppliers due to infringing products, or that we can secure a license, modification or replacement of a supplier’s products with non-infringing products that may otherwise mitigate such damages and losses.
Some of our competitors have, or are affiliated with companies that have, substantially greater resources than us, and these competitors may be able to sustain the costs of complex intellectual property infringement litigation to a greater degree and for longer periods of time than us. Regardless of whether third-party claims of infringement against us have any merit, these claims could:
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adversely affect our relationships with our customers and users;
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be time-consuming to evaluate and defend;
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result in costly litigation;
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result in negative publicity for us;
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divert our management’s attention and resources;
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cause product and software delivery delays or stoppages;
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subject us to significant liabilities;
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require us to enter into costly royalty or licensing agreements;
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require us to develop possible workaround solutions that may be costly and disruptive to implement; or
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require us to cease certain activities or to cease distributing our products and delivering our services in certain markets.
In addition to being liable for potentially substantial damages relating to a patent or other intellectual property following an infringement action against us, we may be prohibited from developing or commercializing certain technologies or products unless we obtain a license from the holder of the patent or other applicable intellectual property rights, or purchase the patent. There can be no assurance that we will be able to obtain any such license or purchase the patent on commercially reasonable terms, or at all. If we do not obtain such a license, our prospects, business, operating results and financial condition could be materially adversely affected and we could be required to cease related business operations in some markets and restructure our business to focus on continuing operations in other markets. In addition, we include and promote certain third-party applications and content with our products. Our support and promotion of
third-party applications and content increases the risk of intellectual property claims being asserted against us if such applications and content infringe on the patents or other intellectual property rights of others.
If we fail to maintain and enhance ‘theScore’ brand, or if we incur excessive expenses in this effort, it could have a material adverse effect on our business.
The brand identity that we have developed has significantly contributed to the success of our business. Maintaining and enhancing ‘theScore’ brand is critical to expanding our base of users, advertisers and partners. ‘theScore’ brand may be negatively impacted by a number of factors, including product malfunctions, delivery of incorrect information or data, data privacy and security issues. If we fail to maintain and enhance ‘theScore’ brand, or if we incur excessive expenses in this effort, it could have a material adverse effect on our prospects, business, financial condition and results of operations. Maintaining and enhancing ‘theScore’ brand will depend largely on our ability to be a technology leader and to continue to provide high-quality products and services, which we may not do successfully.
We may face increased scrutiny related to responsible gaming, social and governance activities, and our reputation, and the value of our brands can be materially adversely harmed if we fail to act responsibly.
Many factors influence our reputation and the value of our brands, including the perception held by our customers, business partners, investors, other key stakeholders and the communities in which we operate regarding theScore and our business and governance practices, such as our social responsibility, corporate governance and responsible gaming practices. We may face increased scrutiny related to responsible gaming, social and governance activities, and our reputation, and the value of our brands can be materially adversely harmed if we fail to act responsibly in a number of areas, such as supply chain management, diversity and inclusion, workplace conduct and labor relations, responsible gaming, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement and retention, the willingness of customers and our partners to do business with us, and current and potential investors to invest in us, which could have a materially adverse effect on the our business, results of operations, cash flows and stock price.
We believe that our reputation is critical to our role as a leader in the online sports betting, online casino and interactive entertainment industries and as a publicly traded company. Our management is heavily focused on the integrity of our directors, officers, senior management, employees, other personnel and third-party suppliers and partners. Illegal, unethical or fraudulent activities perpetrated by any of such individuals, suppliers or partners for personal gain could expose us to potential reputational damage and financial loss.
We strongly depend on the business and technical expertise of our management and key personnel and the loss of any of these individuals or our inability to attract and retain additional highly skilled employees may adversely affect our business.
Our success is dependent on the services and performance of key executives, including our directors and a small number of highly skilled and experienced executives and personnel. We strongly depend on the business and technical expertise of our management and key personnel. Due to our relatively small size, the loss of any of these individuals or our inability to attract and retain additional highly skilled employees may adversely affect our business and future operations. The competition for highly skilled technical, research and development, management and other employees is high and there can be no assurance that we will be able to engage the services of such personnel or retain our current personnel.
We follow the industry practice of restricting and managing betting limits at the individual customer level based on individual customer profiles and risk level to the enterprise; however there is no guarantee that states will allow operators such as us to limit on the individual customer level.
Similar to a credit card company managing individual risk on the customer level through credit limits, it is customary for sports betting operators to manage customer betting limits at the individual level to manage enterprise risk levels. We believe this practice is beneficial overall, because if it were not possible, the betting options would be restricted globally and limits available to customers would be much lower to insulate overall risk due to the existence of a very small segment of highly sophisticated syndicates and
algorithmic bettors, or bettors looking to take advantage of site errors and omissions. We believe virtually all operators balance taking reasonable action from all customers against the risk of individual customers significantly harming the business viability. We cannot assure you that all state legislation and regulators will always allow operators to execute limits at the individual customer level, or at their sole discretion.
Negative events or negative media coverage relating to, or a declining popularity of, daily fantasy sports, sports betting, the underlying sports or athletes, online sports betting or online gaming in particular, or other negative coverage may adversely impact our ability to retain or attract users, which could have an adverse impact on our business.
Public opinion can significantly influence our business. Unfavorable publicity regarding us, for example, our product changes, product quality, litigation, or regulatory activity, or regarding the actions of third parties with whom we have relationships or the underlying sports (including declining popularity of the sports or athletes) could seriously harm our reputation. In addition, a negative shift in the perception of sports betting and online gaming by the public or by politicians, lobbyists or others could affect future legislation of sports betting and online gaming, which could cause jurisdictions to abandon proposals to legalize sports betting and online gaming, thereby limiting the number of jurisdictions in which we can operate. Furthermore, illegal betting activity by athletes could result in negative publicity for our industry and could harm our brand reputation. Negative public perception could also lead to new restrictions on or to the prohibition of online gaming or sports betting in jurisdictions in which we currently operate. Such negative publicity could also adversely affect the size, demographics, engagement, and loyalty of our customer base and result in decreased revenue or slower user growth rates, which could seriously harm our business.
Our insurance may not provide adequate levels of coverage against claims.
We maintain insurance that we believe is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits and policy payments made to us may not be made on a timely basis. Such losses could adversely affect our business prospects, results of operations, cash flows and financial condition.
We rely on third-party providers to validate the identity and identify the location of our users, and if such providers fail to perform adequately, provide accurate information or we do not maintain business relationships with them, our business, financial condition and results of operations could be adversely affected.
There is no guarantee that the third-party geolocation and identity verification systems that we rely on will perform adequately, or be effective. We rely on our geolocation and identity verification systems to ensure we are in compliance with certain laws and regulations, and any service disruption to those systems would prohibit us from operating our platform, and would adversely affect our business. Additionally, incorrect or misleading geolocation and identity verification data with respect to current or potential users received from third-party service providers may result in us inadvertently allowing access to our offerings to individuals who should not be permitted to access them, or otherwise inadvertently deny access to individuals who should be able to access our offerings, in each case based on inaccurate identity or geographic location determination. Our third-party geolocation services provider relies on its ability to obtain information necessary to determine geolocation from mobile devices, operating systems, and other sources. Changes, disruptions or temporary or permanent failure to access such sources by our third-party services providers may result in their inability to accurately determine the location of our users. Moreover, our inability to maintain our existing contracts with third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation and identity verification data necessary for our day-to-day operations. If any of these risks materializes, we may be subject to disciplinary action, fines, lawsuits, and our business, financial condition and results of operations could be adversely affected.
We have limited-term agreements with our advertiser clients and any interruptions to these relationships may have a material adverse effect on our business.
The success of our digital sports media platforms requires us to maintain and expand our current advertiser client relationships and to develop new relationships. Our contracts with our advertiser clients
generally do not include long-term obligations requiring them to purchase our services and may be cancelled upon short or no notice and without penalty. As a result, we may have limited visibility as to our future advertising revenue streams. We cannot ensure our advertiser clients will continue to use our services or that we will be able to replace, in a timely or effective manner, departing clients with new clients that generate comparable revenue. Any non-renewal, renegotiation, cancellation or deferral of significant advertising contracts that in the aggregate account for a significant amount of revenue, could have a material adverse effect on our prospects, business, financial condition and results of operations.
If we are not able to adapt to new technologies and/or standards, if we experience delays in implementing adaptive measures, or if we fail to accurately predict emerging technological trends and the changing needs of users, our business may be materially adversely affected.
The digital sports media and mobile sports betting industries are characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life cycles. To keep pace with the technological developments, achieve product acceptance and remain relevant to users and therefore attractive to advertisers, we will need to continue developing new and upgraded functionality of our products and services and adapt to new business environments and competing technologies and products developed by our competitors. The process of developing new technology is complex and uncertain. To the extent we are not able to adapt to new technologies and/or standards, experiences delays in implementing adaptive measures or fails to accurately predict emerging technological trends and the changing needs of users, we may lose users and advertisers and/or fail to secure new sports data and content licences or renew existing licences as they expire.
We have developed, and are continuing to develop, a number of products and services incorporating advanced technologies and we will pursue those products and services that we expect to have the best chance for success based on our expectations of future market demand. The development and application of new technologies involve time, substantial costs and risks. There can be no certainty that we will be able to develop new products, services and technologies to keep up-to-date with developments in the digital sports media and mobile sports betting industries and, in particular, to launch such products, services or technologies in a timely manner or at all. There can be no certainty that such products will be popular with users or that such products or new technologies will be reliable, robust and not susceptible to failure. Any of these factors could have a material adverse effect on our prospects, business, financial condition or results of operations.
Our products are highly complex and sophisticated and the occurrence of errors and failures in our products may have a material adverse effect on our business.
Our products are highly complex and sophisticated and may contain design defects or errors that are difficult to detect and correct. Defects, errors or bugs found in our new products could delay regulatory review and approval and commercial release for an extended period of time. Errors or defects may be found in new products after launch and, even if discovered, we may not be able to successfully correct such errors or defects in a timely manner or at all. The occurrence of errors and failures in our products could result in loss of or delay in end user acceptance of our products, may harm our reputation and brand, could result in regulatory action being taken against us, could subject us to fines, and could result in the suspension and/or loss of our gaming license(s). Correcting such errors and failures in our products could require significant expenditures by us, involving cost or time and effort of personnel. The consequences of such errors, failures and claims could have a material adverse effect on our prospects, business, financial condition or results of operations.
Our key performance metrics are based on internal company data that are not independently verified, data from third-party analytics providers, and/or data from third-party platforms where our content is distributed and material inaccuracies in those metrics or source data may have a material adverse effect on our business.
Our user metrics are based on internal company data that are not independently verified, data from third-party analytics providers that measure the performance of our mobile applications and websites, and/or data from third-party platforms where our content is distributed, like Facebook, Instagram, TikTok, Twitter and YouTube. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement
across multiple platforms and across our large user base around the world. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology.
If advertisers, partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and advertisers and partners may be less willing to allocate their budgets or resources to our products and services, which could have a material adverse effect on our prospects, business, financial condition or results of operations. Further, as our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer accurate or appropriate measures of our performance.
We rely on collaborative partners and there can be no assurance that we will be able to negotiate acceptable collaborative arrangements in the future.
We may rely on collaborative arrangements to provide services and to develop and commercialize some of our products or services in the future. There can be no assurance that we will be able to negotiate acceptable collaborative arrangements, that such collaborative arrangements will be successful or that we would not be required to relinquish certain material rights to our products or services. In addition, there can be no assurance that our collaborative partners will not pursue alternative technologies or develop alternative products or services either on their own or in collaboration with others, including our competitors. To the extent that we succeed in entering into collaborative arrangements, we will be dependent on the efforts of third parties for the continued development of certain services or products.
Additionally, we employ agents and subcontractors as part of the development, commercialization and operation of our products and services. The ultimate liability for the performance of such agents or subcontractors lies with us. Further, our business model is based on the distribution of our products and services by third parties, including communication network providers, web hosting providers and operating system manufacturers. The failure of such third parties in the performance of their duties and obligations with regards to the development, commercialization, operational support or distribution our products and services could lead to significant costs and disruptions that could reduce our revenue, harm our business reputation and have a material adverse effect on our prospects, business, financial condition or results of operations.
Our growth strategy is dependent upon expanding our products into new business areas or new geographic markets and there can be no assurance that these new business areas and geographic markets will generate the anticipated volume of users or revenue.
There can be no assurance that these new business areas and geographic markets will generate the anticipated volume of users or revenue. In addition, any expansion into new business areas or geographic markets could expose us to new risks, including compliance with applicable laws and regulations, changes in the regulatory or legal environment; different user preferences or habits; adverse exchange rate fluctuations; adverse tax consequences; differing technology standards or user requirements and capabilities; difficulties staffing and managing foreign operations; infringement of third-party intellectual property rights; the cost of localising software (including translations) or otherwise adapting our products and services for new markets; difficulties collecting accounts receivable; or difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner. These factors could cause our expansion into new business areas or geographic markets to be unsuccessful or less profitable than our existing markets, or could cause our operating costs to increase unexpectedly or our sales to decrease, any of which could have a material adverse effect on our prospects, business, financial condition or results of operations.
We expect that a substantial portion of our future revenue will be derived from outside of Canada. Execution of this business strategy is subject to a variety of risks, including operating and technical problems, regulatory uncertainties and possible delays. If we do proceed to operate in different international regions, revenues earned from users may decrease in the future for a variety of reasons, including increased competition and new entrants into geographic markets in which we operate or intend to operate. Depending on the countries involved, any or all of the foregoing factors could have a material adverse effect on our prospects, business, financial condition and results of operations. In addition, there can be no assurance that laws or administrative practices relating to taxation, foreign exchange or other matters in countries within which we
intend to operate will not change. Any such change could have a material adverse effect on our prospects, business, financial condition and results of operations.
We are subject to growth-related risks, capacity constraints and pressure on our internal systems and controls and our inability or failure to deal with these risks or constraints could have a material adverse effect on our business.
Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. This expansion may require us to commit financial, operational and technical resources in advance of an increase in the size of our business, with no assurance that the volume of business will increase or that such initiatives to improve and upgrade our systems and infrastructure will be successful. The inability to deal with this growth or any failure in these initiatives could have a material adverse effect on our prospects, business, financial condition or results of operations.
Any failure of our information technology systems or the telecommunications and/or other third-party infrastructure on which such systems rely could lead to significant costs and disruptions that may have a material adverse effect on our business.
The integrity, reliability and operational performance of our operational information technology (“IT”) systems are critical to our ability to operate our digital sports media applications, websites and mobile sports betting platform. Our IT systems may be damaged or interrupted by increases in usage, human error, unauthorized access, natural hazards or disasters or similarly disruptive events. Any failure of these IT systems or the telecommunications and/or other third-party infrastructure on which such systems rely could lead to significant costs and disruptions that could reduce our revenue, harm our business reputation, subject us to regulatory actions and have a material adverse effect on our prospects, business, financial condition or results of operations.
We have procedures and measures in place to protect against network or IT system failure or disruption. However, those procedures and measures may not be effective to ensure that we are able to carry on our business in the ordinary course if they fail or are disrupted. In addition, our IT systems may not be effective in detecting any intrusion or other security breaches, or safeguarding against sabotage, hackers, denial of service attacks, viruses or cybercrime. Any failure in these protections could harm our business reputation, subject us to regulatory actions and have a material adverse effect on our prospects, business, financial condition or results of operations.
We rely on third-party owned communication networks and no assurance can be given of the continued use and expansion of these networks as a medium of communications for us.
The delivery of our products and services and a significant portion of our revenues are dependent on the continued use and expansion of third-party-owned communication networks, including wireless networks and the Internet. No assurance can be given of the continued use and expansion of these networks as a medium of communications for us. Ongoing regulatory initiatives make it impossible to predict how this segment of the market might respond to such initiatives, which could have a downstream impact on our delivery of products and services.
Effective delivery of our products and services through the Internet is dependent on Internet service providers continuing to expand high-speed Internet access, maintaining reliable networks with the necessary speeds, data capacity and security, and developing complementary products and services for providing reliable and timely access and services. Changes in access fees (for example, revising the application of bandwidth caps or other metered usage schemes) to users may adversely affect the ability or willingness of users to access our content. Changes in access fees to distributors, such as us or our service providers, or a departure from “net neutrality” (the principle that all forms of Internet traffic (including video, voice, and text) are subject to equal treatment in transmission speed and quality) or its governing regulations could result in increased costs to us. All of these factors are out of our control and the manifestation of any of them could ultimately have a material adverse effect on our prospects, business, financial condition or results of operations.
In addition, increasing traffic, user numbers or bandwidth requirements may result in a decline in Internet (or a subset thereof, including in particular mobile Internet) performance and/or Internet reliability. Internet outages or delays or loss of network connectivity may result in partial or total failure of our services, additional and unexpected expenses to fund further product development or to add programming personnel to complete a development project, loss of revenue because of the inability of users or subscribers to use our services, or the cancellation by users or subscribers of their service with us, any of which could have a material adverse effect on our prospects, business, financial condition or results of operations.
Adverse developments in the macro-economic environment may have a material adverse effect on our business.
Our revenue streams are dependent on the overall macro-economic environment (in particular for sales of online advertising and sponsorship, and consumer discretionary spending habits). Advertisers are directly affected by current economic conditions affecting the broader market. Consumer discretionary spending or consumer preferences are driven by socioeconomic factors beyond our control. Current and future conditions in the domestic and global economies remain uncertain and volatile. Accordingly, adverse developments in the macro-economic environment could substantially reduce the funds spent on advertising by advertisers; and decreased consumer confidence in the overall economic environment could cause a decline in consumer discretionary spending on non-essential or leisure products and services; resulting in a material adverse effect on our prospects, business, financial condition or results of operations.
Any significant movement of currencies in which we earn revenue or generate expenses against the Canadian dollar may have a material adverse effect on our business.
Our reporting and functional currency is Canadian dollars but an increasing proportion of our revenue may be earned and expenses may be incurred in other currencies, including the US dollar, pound sterling and the euro. A significant movement of any of these currencies against the Canadian dollar could have a material adverse effect on our prospects, business, financial condition and results of operations.
Changes in taxation rates or law may have a material adverse effect on our business.
Changes in taxation rates or law, or misinterpretation of the law or any failure to manage tax risks adequately could result in increased charges, financial loss, including penalties and reputational damage, and which could have a material adverse effect on our prospects, business, financial condition and results of operations.
If we are found to be resident for tax purposes in a jurisdiction other than Canada, or if our subsidiaries are found to be resident in a jurisdiction other than their respective jurisdictions of incorporation, or if we are found to have a taxable permanent establishment or other taxable presence in a jurisdiction other than Canada, or, in the case of our subsidiaries, other than their respective jurisdictions of incorporation, such a finding may have a material adverse effect on our business.
Our policy will be to manage and operate our business in a way that is intended to ensure that we are resident for tax purposes solely in the jurisdiction in which we are incorporated or domiciled and that we have no taxable permanent establishments or other taxable presence in any other jurisdiction. However, if we are found to be tax-resident elsewhere or to have a taxable permanent establishment or other taxable presence elsewhere, whether on the basis of existing law or the current practice of any tax authority or by reason of a change in law or practice, this may have a material adverse effect on the overall amount of tax payable by us.
From time to time we may become involved in litigation, which may have a material adverse effect on our business.
We may become involved in disputes with other parties in the future which may result in litigation. The results of litigation cannot be predicted with certainty. If we are unable to resolve these disputes favorably, it could have a material adverse effect on our prospects, business, financial condition and results of operations.
Our internal controls cannot provide absolute assurances with respect to the reliability of our financial reporting.
Internal controls over financial reporting are procedures designed to provide reasonable assurance that transactions are properly authorized, recorded and reported and assets are safeguarded against unauthorized or improper use. A control system, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation.
There is no assurance that our allowance for doubtful accounts will be sufficient to cover our potential credit losses in the future.
Credit risk is the risk of financial loss to us if a counterparty to a financial instrument fails to meet its contractual obligations. The carrying amount of financial assets represents the maximum credit exposure. Although we establish an allowance for doubtful accounts that represents our estimate of potential credit losses in respect of accounts receivables and historically we have not experienced any significant losses, there is no assurance that the allowance for doubtful accounts will be sufficient to cover credit losses in the future and future credit losses could have a material adverse effect on our prospects, business, financial condition and results of operations.
We, together with our third-party suppliers and collaborative partners, make use of Free and Open Source Software in the development of our products and systems which may lead to unintended legal consequences and may have a material adverse effect on our business.
The law surrounding the use of Free and Open Source Software (“FOSS”) is in a state of evolution and the legal ramifications of such use remain uncertain in Canada and in other countries. The use of FOSS may therefore lead to unintended legal consequences that may have a material adverse effect on our proprietary technology and intellectual property, or those of our third-party suppliers and collaborative partners, including potential tainting and a loss of our or our suppliers’ or partners’ proprietary positions in relation to the said applications, properties and systems, and the possibility of intellectual property infringement claims or breach of contract claims from FOSS licensors or from our third-party suppliers or collaborative partners.
We are an emerging growth company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make our Class A Shares less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) August 31, 2026 (the last day of the fiscal year ending after the fifth anniversary of the effective date of the Registration Statement); (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; or (iv) the date we qualify as a “large accelerated filer” under the rules of the SEC, which means the market value of our Class A Shares held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter after we have been a reporting company in the United States for at least 12 months. For so long as we remain an emerging growth company, we are permitted to and intend to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
We may take advantage of some, but not all, of the available exemptions available to emerging growth companies. We cannot predict whether investors will find our Class A Shares less attractive if we rely on these exemptions. If some investors find our Class A Shares less attractive as a result, there may be a less active trading market for our Class A Shares and the price of our Class A Shares may be more volatile.
We are governed by the corporate and securities laws of Canada which in some cases have a different effect on shareholders than the corporate laws of Delaware, or other jurisdictions in the United States, and U.S. securities laws.
The Corporation is governed by the BCBCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may,
together with our constating documents, have the effect of delaying, deferring or discouraging another party from acquiring control of the Corporation by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the BCBCA and Delaware General Corporation Law (the “DGCL”) that may have the greatest such effect include, but are not limited to, the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate transactions or amendments to our articles) the BCBCA generally requires a two-thirds majority vote by shareholders (including, in some circumstances, shareholders that otherwise do not have the right to vote), whereas the DGCL generally requires only a majority vote; (ii) under the BCBCA, holders of 5% or more of our shares that carry the right to vote at a meeting of shareholders can requisition a general meeting of shareholders at which special matters may be conducted, whereas such right does not exist under the DGCL; and (iii) unlike the DGCL which does not provide for any oppression remedy for shareholders of Delaware entities, the BCBCA provides an oppression remedy that enables a court to make an order, whether interim or final, if an application is made to the court by a shareholder in a timely manner and it appears to the court that there are reasonable grounds for believing (A) that the affairs of the corporation are being or have been conducted, or the powers of the directors are being or have been exercised, in a manner that is oppressive to one or more shareholders, or (B) that some act of the corporation has been done or is threatened, or that some resolution of the shareholders or of the shareholders holding shares of a class or series of shares has been passed or is proposed, that is unfairly prejudicial to one or more of the shareholders.
As we are a Canadian corporation and most of our directors and officers reside or are organized in Canada or the provinces thereof, it may be difficult for United States shareholders to effect service on us to realize on judgments obtained in the United States. Similarly, it may be difficult for Canadian investors to enforce civil liabilities against our directors and officers residing outside of Canada.
The Corporation is governed by the BCBCA with its principal place of business in Canada, most of its directors and officers reside or are organized in Canada or the provinces thereof and the majority of our assets and all or a substantial portion of the assets of these persons may be located outside the United States. Consequently, it may be difficult for investors who reside in the United States to effect service of process in the United States upon us or upon such persons who are not residents of the United States, or to realize upon judgments of courts of the United States predicated upon the civil liability provisions of the U.S. federal securities laws. A judgment of a U.S. court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. Investors should not assume that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or blue sky laws of any state within the United States, or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws. Similarly, some of our directors and officers are residents of countries other than Canada and all or a substantial portion of the assets of such persons are located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within Canada against these persons. In addition, it may not be possible for Canadian investors to collect from these persons judgments obtained in courts in Canada predicated on the civil liability provisions of securities legislation of certain of the provinces and territories of Canada. It may also be difficult for Canadian investors to succeed in a lawsuit in the United States based solely on violations of Canadian securities laws.
If a United States person is treated as owning at least 10% of our Class A Shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our Class A Shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group. Because our group includes one or more U.S. subsidiaries, we expect that certain of our non-U.S. subsidiaries will be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any
distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may toll the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our Class A Shares.
We may be a passive foreign investment company, which may result in adverse U.S. federal income tax consequences for U.S. Holders of Class A Shares.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Our status as a PFIC may also depend on how quickly we use the cash proceeds from this Offering in our business. Based on the nature of our income and the value and composition of our assets, we do not believe we were a PFIC during the taxable year ended August 31, 2020 and do not believe we are currently a PFIC for U.S. federal income tax purposes. Because PFIC status is determined on an annual basis and generally cannot be determined until the end of the taxable year, there can be no assurance that we will not be a PFIC for the current or future taxable years. If we are characterized as a PFIC, our shareholders who are U.S. Holders may suffer adverse tax consequences, including the treatment of gains realized on the sale of our Class A Shares as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our Class A Shares by individuals who are U.S. Holders, and the addition of interest charges to the tax on such gains and certain distributions. A U.S. shareholder of a PFIC generally may mitigate these adverse U.S. federal income tax consequences by making a Qualified Electing Fund (“QEF”) election, or, to a lesser extent, a mark-to-market election. However, we do not intend to provide the information necessary for U.S. Holders to make QEF elections if we are classified as a PFIC.
CURRENCY PRESENTATION AND EXCHANGE RATE INFORMATION
We express all amounts in this Prospectus Supplement in U.S. dollars, except where otherwise indicated. References to “$”and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars.
The following table sets forth: (i) the daily closing exchange rates for one Canadian dollar, expressed in U.S. dollars, in effect at the end of the periods indicated; (ii) the average daily closing exchange rates for such periods; and (iii) the high and low daily closing exchange rates during such periods, based on rates quoted by the Bank of Canada.
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Year Ended August 31
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Three Months Ended November 30
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2020
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2019
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2018
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2020
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2019
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2018
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(US$)
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(US$)
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(US$)
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(US$)
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(US$)
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(US$)
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Rate at end of period
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0.7668
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0.7522
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0.7660
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0.7713
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0.7525
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0.7518
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Average rate for period
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0.7436
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0.7546
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0.7830
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0.7592
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0.7563
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0.7645
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High for period
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0.7710
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0.7811
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0.8245
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0.7713
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0.7659
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0.7811
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Low for Period
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0.6898
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0.7330
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0.7513
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0.7465
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0.7495
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0.7518
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On February 19, 2021, being the last trading day prior to the filing of this Prospectus Supplement, the daily closing rate of exchange posted by the Bank of Canada for conversion of Canadian dollars into U.S. dollars was C$1.00 equals US$0.7928.
USE OF PROCEEDS
The net proceeds from this Offering are estimated to be approximately $ , after deduction of the Underwriters’ Fee of $ and estimated expenses of this Offering of $ . If the Over-Allotment Option is exercised in full, the net proceeds from this Offering are estimated to be approximately $ after deduction of the Underwriters’ Fee of $ and estimated expenses of this Offering of $ .
We have not specifically allocated the net proceeds amongst the purposes described in this section as at the date of this prospectus. Such decisions will depend on market and competitive factors, as described herein, as they evolve over time. We intend to invest the net proceeds of the Offering in short-term interest-bearing investments or accounts until they are deployed.
We intend to use the net proceeds of the Offering to fund working capital and other general corporate purposes, including the continued growth and expansion of theScore Bet’s operations in the United States and Canada by supporting the multi-jurisdiction deployment and operation of theScore Bet and user acquisition and retention in jurisdictions where we are, or will be, operating.
Growth and Expansion of theScore Bet in the United States and Canada
More specifically, we intend to use the net proceeds of the Offering to fund growth and expansion of theScore Bet in New Jersey, Colorado, Indiana and Iowa, and in additional jurisdictions where we have market access and where we intend to pursue market access or direct licensing (subject in each case to the enactment of enabling state gaming laws and regulations and the receipt of relevant licenses and approvals).
Our growth plan contemplates continued investment in product development to enhance the features and functionality of theScore Bet’s online sports betting platform, including the extension of the platform to support online casino, additional integrations with our sports media app, investments in technology, operations, infrastructure and systems to support the multi-jurisdictional deployment and operation of theScore Bet, and investments in marketing to support user acquisition and retention.
As additional jurisdictions in the United States and Canada enact enabling legislation for online sports betting, online casino, or both, we plan to enter into further market access agreements or pursue operating licenses issued by state or provincial gaming authorities, as applicable. The cost of market access agreements and direct licenses will vary by jurisdiction, depending on the size of the jurisdiction, the nature of the enabling legislation and the number of available market access partners, licenses, or both.
The use of the net proceeds of the Offering to fund the growth and expansion of theScore Bet’s operations in the United States and Canada is subject to change due to the influence of many evolving variables, including the enactment of enabling gaming legislation and regulations, negotiation of market access, applications for direct licensure and the receipt of required licenses and other regulatory approvals. As a result, we cannot definitively provide details with respect to timing or specific uses of the net proceeds of the Offering, nor have we specifically allocated the net proceeds amongst the purposes described in this section as at the date of this prospectus. Such decisions will depend on market and competitive factors, as described herein, as they evolve over time. Subject to the impact of these variables, which may result in us using the net proceeds of the Offering more rapidly or more slowly, we currently intend to use the net proceeds of the Offering over the next 24 months. We intend to invest the net proceeds of the Offering in short-term interest-bearing investments, interest bearing accounts or cash until they are deployed.
If the Over-Allotment Option is exercised in part or in full, the additional net proceeds will be used for general corporate purposes.
Although we intend to expend the net proceeds from the Offering as set forth above, there may be circumstances where for sound business reasons, a reallocation of funds becomes prudent or necessary, and may vary materially from that set forth above. See “Risk Factors”.
We are currently incurring expenditures related to our operations that have generated a negative operating cash flow. Operating cash flow may decline in certain circumstances, including circumstances relating to the impacts of the COVID-19 pandemic on our business and operations, many of which are beyond our control. There is no assurance that sufficient revenues will be generated in the near future, and we may continue to incur negative operating cash flow. We may need to deploy a portion of our working capital to fund such negative operating cash flows or seek additional sources of funding. See “Risk Factors” in the AIF and in this Prospectus Supplement and in the documents incorporated by reference in this Prospectus Supplement.
SUMMARY OF CAPITAL STRUCTURE
Our authorized capital consists of an unlimited number of Special Voting Shares, an unlimited number of Class A Shares and an unlimited number of preference shares (“Preference Shares”), issuable in series, of which there are 557 Special Voting Shares, 43,443,651 Class A Shares and nil Preference Shares outstanding as of the date of this Prospectus Supplement. On February 11, 2021, we completed a share consolidation on the basis of a consolidation ratio of 10:1. See “Summary Description of the Business — Recent Developments — Share Consolidation”.
We also have outstanding a C$40,000,000 8.00% convertible unsecured subordinated debenture due August 31, 2023 (the “Convertible Debenture”) that was issued to a fund managed and controlled by Fengate Asset Management (“Fengate”) pursuant to an investment agreement dated August 31, 2019.
CONSOLIDATED CAPITALIZATION
The table below sets out the consolidated capitalization of the Corporation as of November 30, 2020, both before and after giving effect to the Offering. Other than as described below, there has not been any material change in the share and loan capital of the Corporation, on a consolidated basis, since November 30, 2020.
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As at
November 30, 2020(1)
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As at November 30, 2020
after giving effect to
the Offering(1)(2)
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Debt (convertible debenture)
|
|
|
C$30,948,122
|
|
|
C$
|
|
|
Share capital (unlimited authorized)
|
|
|
C$116,393,000
|
|
|
C$
|
|
|
Share-based payment reserve
|
|
|
C$7,603,000
|
|
|
C$
|
|
|
Equity component of convertible debenture
|
|
|
C$8,891,000
|
|
|
C$
|
|
|
Deficit
|
|
|
C$(115,674,000)
|
|
|
C$( )
|
|
|
Accumulated other comprehensive income
|
|
|
C$831,000
|
|
|
C$
|
|
|
Total shareholders’ equity
|
|
|
C$18,044,000
|
|
|
C$
|
|
|
Total capitalization
|
|
|
C$48,992,122
|
|
|
C$
|
|
|
|
|
|
(40,073,257 Class A Shares)
|
|
|
( (3) Class A Shares)
|
|
Notes:
(1)
Adjusted to reflect the completion of our share consolidation on February 11, 2021, on the basis of a consolidation ratio of 10:1. See “Summary Description of the Business — Recent Developments — Share Consolidation”.
(2)
Adjusted to give effect to the receipt of net proceeds of the Offering, assuming the Underwriters’ Fee of $ and expenses of the Offering of approximately $ and assuming the Over-Allotment Option is not exercised. In the event that the Over-Allotment Option is exercised in full, the net proceeds from this Offering would be approximately $ (after deducting the Underwriters’ Fee and the anticipated expenses of the Offering).
(3)
Amount excludes an additional Class A Shares issued upon the exercise of options and the vesting of restricted share units as well as 3,285,780 Class A shares (as calculated on a post-consolidation basis) issued in connection with the December 2020 Offering, inclusive of Class A Shares issued upon the exercise of the over-allotment option, between December 1, 2020 and , 2021 (the “Option Shares”).
Upon completion of the Offering and after accounting for the Option Shares, there will be an aggregate of Class A Shares outstanding or Class A Shares if the Over-Allotment Option is exercised in full ( on a fully diluted basis (excluding any Class A Subordinate Voting Shares issuable on conversion of the Convertible Debenture), or on a fully diluted basis (excluding any Class A Subordinate Voting Shares issuable on conversion of the Convertible Debenture) if the Over-Allotment Option is exercised in full). We expect to receive approximately $ in net proceeds from the Offering, or approximately $ if the Over-Allotment Option is exercised in full (in each case, after deducting the Underwriters’ Fee and the anticipated expenses of the Offering). See “Plan of Distribution”.
Other than the Convertible Debenture, we do not have any long-term debt.
As at the date of this Prospectus Supplement, we have reserved 65,000,000 Class A Shares for issuance through our Option & RSU Plan. We currently have options to acquire Class A Shares and restricted share units outstanding as of the date of this Prospectus Supplement.
DESCRIPTION OF SECURITIES BEING DISTRIBUTED
This Prospectus Supplement qualifies the distribution of Class A Shares at a price of $ per Class A Share, or Class A Shares if the Over-Allotment Option is exercised in full. Each Class A Share entitles the holder to receive notice of, and to attend, and cast one vote for each Class A Share held by them at all meetings of our shareholders, other than meetings at which only the holders of another class or series of shares (if any) are entitled to vote separately as a class or series and other than with respect to certain matters which are exclusively reserved for the holders of Special Voting Shares.
The holders of Class A Shares, voting separately as a class, have the right to elect that number of members of our board of directors that is not elected by the holders of the Special Voting Shares (other than the director, if any, that holders of the Preference Shares are collectively entitled to elect), provided that at no time will the number of directors to be elected by the holders of the Class A Shares be less than two directors.
The holders of Class A Shares are entitled to receive, subject to the prior rights of the holders of the Preference Shares and to the pari passu rights of the holders of the Special Voting Shares, any dividend declared by our Board on the Class A Shares. Subject to the rights of holders of shares ranking prior to or on a parity with the Class A Shares, the holders of Class A Shares shall be entitled to receive pari passu with the holders of Special Voting Shares, the remaining property of the Corporation in the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of our assets among our shareholders for the purpose of winding-up our affairs.
Pursuant to a trust agreement dated October 19, 2012, between us, Levfam Holdings Ltd. (a corporation controlled by Mr. John Levy that holds all outstanding Special Voting Shares) and Computershare Trust Company of Canada (as assignee of Valiant Trust Company), which was assigned by Levfam Holdings Ltd. to John Levy Family Holdings Ltd. effective May 30, 2014, and was supplemented by a supplemental trust agreement dated May 6, 2019, the holder of the Corporation’s Special Voting Shares has agreed not to sell any Special Voting Shares pursuant to a take — over bid under circumstances in which securities legislation would have required the same offer be made to holders of Class A Shares if the sale had been of Class A Shares rather than Special Voting Shares unless, either (i) an identical offer is made for the Class A Shares, which identical offer has no condition other than the right not to take up and pay for shares tendered if no shares are purchased pursuant to the offer for Special Voting Shares, or (ii) there is a concurrent unconditional offer to purchase all of the Class A Shares at a price per share at least as high as the highest price per share paid pursuant to the take — over bid for the Special Voting Shares.
PLAN OF DISTRIBUTION
General
Pursuant to the Underwriting Agreement, we have agreed to issue and sell and the Underwriters have agreed to purchase, as principals, severally and not jointly (within the meaning of such terms under the laws of the State of New York) on the Closing Date, or such earlier or later date as we and the Underwriters may agree, but in any event no later than , 2021, the number of Offered Shares set out opposite their respective names below, representing an aggregate of 5,000,000 Offered Shares, at a price of US$ per Offered Share, for an aggregate gross consideration of US$ , payable in cash against delivery of the Offered Shares. The Offering Price was determined by negotiation between us and the Underwriters, with reference to the then-current market price for the Class A Shares.
|
Underwriter
|
|
|
Number of
Offered Shares
|
|
|
Morgan Stanley & Co. LLC
|
|
|
|
|
|
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
|
|
|
|
|
|
Canaccord Genuity LLC
|
|
|
|
|
|
|
|
|
Macquarie Capital (USA) Inc.
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
5,000,000
|
|
|
The Offered Shares are being offered in the United States by the U.S. Underwriters and in Canada by the Canadian Underwriters pursuant to the Underwriting Agreement. The Offering is being made concurrently in Canada under the terms of the Shelf Prospectus and this Prospectus Supplement and in the United States under the terms of the Registration Statement, of which the Shelf Prospectus and this Prospectus Supplement form part, through the Underwriters and/or affiliates thereof registered to offer the Offered Shares for sale in such jurisdictions in accordance with applicable securities laws and such other registered dealers as may be designated by the Underwriters. Macquarie Capital (USA) Inc. is not registered to sell securities in any Canadian jurisdiction and, accordingly, will not, directly or indirectly, solicit offers to purchase, sell or distribute the Offered Shares in Canada and will act as an underwriter for us only in respect of the offer, sale and distribution of the Offered Shares in the United States. Subject to applicable law, the Underwriters, their affiliates or such other registered dealers as may be designated by the Underwriters, may offer the Offered Shares outside of Canada and the United States.
The Underwriting Agreement provides that we will pay the Underwriters at the time of closing of the Offering a fee of US$ per Offered Share sold pursuant to the Offering, including any Additional Shares sold pursuant to the exercise of the Over-Allotment Option. The Company has agreed to reimburse the Underwriters for FINRA and other expenses in an amount not to exceed US$35,000. We have granted to the Underwriters an Over-Allotment Option, in whole or in part, from time to time not later than 30 days after the date of the Underwriting Agreement, to purchase from the Corporation Additional Shares on the same terms as set out above solely to cover the Underwriters’ over-allocation position, if any, and for market stabilization purposes. This Prospectus Supplement also qualifies the grant of the Over-Allotment Option and the distribution of up to Additional Shares, in aggregate, to be sold by us upon exercise of the Over-Allotment Option. A purchaser who acquires Class A Shares forming part of the over-allocation position acquires those shares under this Prospectus Supplement regardless of whether the over allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases.
The obligations of the Underwriters under the Underwriting Agreement are several and not joint (within the meaning of such terms under the laws of the State of New York) and are subject to certain closing conditions. The Underwriters may terminate their obligations under the Underwriting Agreement by notice given by their representatives to the Corporation, if after the execution and delivery of the Underwriting Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of the Nasdaq, the New York Stock Exchange, the NYSE American or the TSX, (ii) trading of any of our securities shall have been suspended on the Nasdaq or TSX, (iii) a material disruption in securities settlement, payment or clearance services in the United States
or Canada shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by U.S. Federal or New York State or Canadian authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets, currency exchange rates or controls or any calamity or crisis that, in the representatives’ judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in the representatives’ judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Offered Shares on the terms and in the manner contemplated in this Prospectus Supplement. The Underwriters are, however, obligated to take up and pay for all of the Offered Shares if any Offered Shares are purchased under the Underwriting Agreement.
Subject to the terms of the Underwriting Agreement, we have also agreed to indemnify the Underwriters and their respective directors, officers, employees and agents against certain liabilities, including civil liabilities under Canadian and United States securities legislation, or to contribute to any payments the Underwriters may be required to make in respect thereof. The Underwriters, as principals, conditionally offer the Offered Shares qualified under this Prospectus Supplement and the Shelf Prospectus, subject to prior sale, when, as and if delivered to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the Offered Shares, and other conditions contained in the Underwriting Agreement, such as the receipt by the Underwriters of officers’ certificates and legal opinions. The Underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Pursuant to the Underwriting Agreement, we have agreed that until the date that is 60 days following the date of the Underwriting Agreement (the “Restricted Period”), it will not, directly or indirectly, and will not publicly disclose any intention to, without the prior written consent of Morgan Stanley & Co. LLC, subject to certain exceptions: (i) issue, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Class A Shares or Special Voting Shares (together with the Class A Shares, the “Subject Shares”) or any securities convertible into or exercisable or exchangeable for Subject Shares, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Subject Shares, or, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Subject Shares or such other securities, in cash or otherwise (iii) file any registration statement with the SEC or prospectus with any Canadian securities regulatory authority relating to the offering of any Subject Shares or any securities convertible into or exercisable or exchangeable for Subject Shares. The exceptions include: (a) the Offered Shares (and any Additional Shares) to be sold in the Offering; (b) the issuance of incentive compensation or equity (including the Subject Shares) under the incentive plans of the Corporation, as such plans may be adopted, amended or restated, (c) any Subject Shares issued pursuant to any existing employee share purchase plan of the Corporation, (d) the filing of one or more registration statements on Form S-8 relating to stock options, other equity awards or employee benefits of the Corporation, provided certain conditions are met, (e) Subject Shares or other securities issued in connection with an acquisition or a transaction that includes a commercial relationship (including joint ventures, collaborations, partnership or other strategic acquisitions, but excluding stock options); provided certain conditions are met, including that (i) the aggregate amount of Subject Shares issued in connection with such transactions does not exceed 10% of the total shares outstanding of the Company upon consummation of the Offering, and, (ii) in the case of any such issuance prior to the expiration of the Restricted Period, each such recipient of Subject Shares or securities agrees to be bound by restrictions applicable to our directors and officers detailed below or (f) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act or similar plan under Canadian securities laws for the transfer of Subject Shares, provided that certain conditions are met, including that such plan does not provide for the transfer of Subject Shares, during the Restricted Period, and to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by us or on our behalf regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Subject Shares may be made under such plan during the Restricted Period.
In addition, our directors and officers, and certain of our shareholders, have executed “lockup” letters pursuant to which, until the date that is 60 days following the date of the final prospectus supplement relating to this Offering, they have agreed that they will not, and will not publicly disclose the intention to, without the consent of Morgan Stanley & Co. LLC, subject to certain exceptions: (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Class A Shares beneficially owned (as such term is used in Rule 13d-3 of the Exchange Act) by them or any securities convertible into or exercisable or exchangeable for Class A Shares, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Subject Shares. The exceptions include: (a) the Offered Shares and Additional Shares sold in the Offering; (b) transactions relating to Subject Shares or other securities acquired in open market transactions after completion of the Offering, subject to certain exceptions; (c) a bona fide gift, including charitable contributions, of Subject Shares or securities convertible into Subject Shares; (d) distributions of Subject Shares or any security convertible into Subject Shares to limited partners, members or stockholders or other equity holders of the signatory; (e) transfers of Subject Shares or any security convertible into Subject Shares to certain affiliates of the signatory, subject to certain exceptions, (f) a bona fide third-party tender offer, take-over bid, plan of arrangement, merger, consolidation or other similar transaction made to all holders of Subject Shares involving a change of control of the Corporation, provided that certain conditions are met; (g) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act or similar plan under Canadian securities laws for the transfer of Subject Shares, provided that certain conditions are met and (h) receipt of securities (including on a “net” basis with transfers to us) solely made in connection with exercises of outstanding stock options or warrants or vesting and/or redemptions of restricted share units or other equity awards of the Corporation, provided that certain conditions are met.
The outstanding Class A Shares are listed and posted for trading on the TSX under the symbol “SCR”. On February 19, 2021, being the last trading day before the filing of this Prospectus Supplement, the closing price of the Class A Shares on the TSX was C$46.06 or US$36.52 (based on the daily exchange rate for the U.S dollar in terms of Canadian dollars, as quoted by the Bank of Canada, of C$1.00 = US$0.7928). We have applied to list the Offered Shares and the Additional Shares on the TSX, and have applied to list the Offered Shares, the Additional Shares and our outstanding Class A Shares on the Nasdaq under the trading symbol “SCR”. Listing is subject to our fulfillment of all of the listing requirements of the TSX and Nasdaq, respectively.
The Underwriters propose to offer the Offered Shares initially at the Offering Price. After the Underwriters have made reasonable efforts to sell the Offered Shares at the Offering Price, the Underwriters may offer the Offered Shares to the public at prices lower than the Offering Price, and the compensation realized by the Underwriters pursuant to the Offering will effectively be decreased by the amount that the price paid by purchasers for the Offered Shares is less than the original Offering Price. Any such reduction will not affect the net proceeds of the Offering received by us.
Pursuant to the rules and policy statements of certain Canadian securities regulatory authorities, the Underwriters may not, throughout the period of distribution under this Prospectus Supplement, bid for or purchase Class A Shares. The foregoing restriction is subject to certain exceptions. These exceptions include a bid or purchase permitted under the by-laws and rules of applicable Canadian regulatory authorities and the TSX including the Universal Market Integrity Rules for Canadian Marketplaces administered by the Investment Industry Regulatory Organization of Canada relating to market stabilization and market-balancing activities and a bid or purchase made on behalf of a client where the client’s order was not solicited during the period of distribution.
Subject to applicable laws, the Underwriters may, in connection with this Offering, over-allot or effect transactions that stabilize or maintain the market price of the Class A Shares at levels other than those which might otherwise prevail on the open market, including: stabilizing transactions; short sales; purchases to cover positions created by short sales; imposition of penalty bids; and syndicate covering transactions. Such transactions, if commenced, may be discontinued at any time.
Stabilizing transactions consist of bids or purchases made for the purpose of preventing or delaying a decline in the market price of the Class A Shares while the Offering is in progress. Short sales involve the sale by the Underwriters of a greater number of Class A Shares than they are required to purchase in the Offering. Short sales may be “covered short sales”, which are short positions in an amount not greater than the Over-Allotment Option, or may be “naked short sales”, which are short positions in excess of that amount.
The Underwriters may close out any covered short position either by exercising the Over-Allotment Option, in whole or in part, or by purchasing Class A Shares in the open market. In making this determination, the Underwriters will consider, among other things, the price of the Class A Shares available for purchase in the open market compared with the price at which they may purchase Class A Shares through the Over-Allotment Option. If, following the closing of the Offering, the market price of the Class A Shares decreases, the short position created by the over-allocation position in the Class A Shares may be filled through purchases in the open market, creating upward pressure on the price of the Class A Shares. If, following the closing of the Offering, the market price of Class A Shares increases, the over-allocation position in the Class A Shares may be filled through the exercise of the Over-Allotment Option.
The Underwriters must close out any naked short position by purchasing Class A Shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the Class A Shares in the open market that could adversely affect investors who purchase in the Offering. Any naked short position would form part of the Underwriters’ over-allocation position. A purchaser who acquires Class A Shares forming part of the Underwriters’ over-allocation position resulting from any covered short sales or naked short sales will acquire such Class A Shares under this Prospectus Supplement, regardless of whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases.
Subscriptions will be received subject to rejection or allotment in whole or in part and the Underwriters reserve the right to close the subscription books at any time without notice. It is expected that we will arrange for the instant deposit of the Offered Shares by the Underwriters under the book-based system of registration, to be registered to DTC and deposited with DTC on the Closing Date, or as otherwise may be agreed to between us and the Underwriters. In the case of certain Canadian purchasers, we may alternatively arrange for the electronic deposit of the Offered Shares distributed under the Offering under the book-based system of registration, to be registered in the name of CDS or its nominee and deposited with CDS on the Closing Date. No certificates evidencing the Offered Shares will be issued to purchasers of the Offered Shares. Purchasers of the Offered Shares will receive only a customer confirmation from the Underwriter or other registered dealer from or through whom a beneficial interest in the Offered Shares is purchased.
Relationship Between the Corporation and Certain Underwriters
The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the Underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Selling Restrictions
European Economic Area
In relation to each Member State of the EEA (each a “Relevant State”), no Class A Shares have been offered or will be offered pursuant to the Offering to the public in that Relevant State prior to the publication of a prospectus in relation to the Class A Shares that has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent
authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of Class A Shares may be made to the public in that Relevant State at any time:
a)
to any legal entity which is a qualified investor as defined under Article 2 of the Prospectus Regulation;
b)
to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the Prospectus Regulation), subject to obtaining the prior consent of the Underwriters for any such offer; or
c)
in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of Class A Shares shall require the Company or any Underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an “offer to the public” in relation to any Class A Shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and the Class A Shares to be offered so as to enable an investor to decide to purchase or subscribe for any Class A Shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
United Kingdom
No Class A Shares have been offered or will be offered pursuant to the Offering to the public in the United Kingdom prior to the publication of a prospectus in relation to the Class A Shares that either (i) has been approved by the Financial Conduct Authority or (ii) is to be treated as if it has been approved by the Financial Conduct Authority in accordance with the transitional provisions in Regulation 74 of the Prospectus (Amendment etc.) (EU Exit) Regulation 2019, except that offers of Class A Shares may be made to the public in the United Kingdom at any time:
a)
to any legal entity which is a qualified investor as defined under Article 2 of the UK Prospectus Regulation;
b)
to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the UK Prospectus Regulation), subject to obtaining the prior consent of the Underwriters for any such offer; or
c)
in any other circumstances falling within section 86 of the Financial Services and Markets Act 2000, as amended (the “FSMA”),
provided that no such offer of Class A Shares shall require the Company or any Underwriter to publish a prospectus pursuant to section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
For the purposes of these provisions, the expression an “offer to the public” in relation to any Class A Shares in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and the Class A Shares to be offered so as to enable an investor to decide to purchase or subscribe for any Class A Shares, and the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.
In the United Kingdom, this Prospectus Supplement is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the UK Prospectus Regulation) who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “FPO”) and/or (ii) are high net worth entities or other persons falling within Article 49(2)(a) to (d) of the FPO and/or (iii) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) in connection with the issue or sale of any Class A Shares may otherwise lawfully be communicated or caused to be communicated (all such persons together
being referred to as “relevant persons”). Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this Prospectus Supplement or use it as the basis for taking any action. In the United Kingdom, any investment or investment activity that this Prospectus Supplement relates to may be made or taken exclusively by relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this Prospectus Supplement or any of its contents.
Each Underwriter has represented and agreed that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Class A Shares in circumstances in which Section 21(1) of the FSMA does not apply to the Corporation; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Class A Shares in, from or otherwise involving the United Kingdom.
Notice to Prospective Investors in Switzerland
This Prospectus Supplement is not intended to constitute an offer or solicitation to purchase or invest in the Class A Shares. The Class A Shares may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act (“FinSA”), and no application has or will be made to admit the Class A Shares to trading on any trading venue (exchange or multilateral trading facility) in Switzerland. Neither this Prospectus Supplement nor any other offering or marketing material relating to the Class A Shares constitutes a prospectus pursuant to the FinSA, and neither this Prospectus Supplement nor any other offering or marketing material relating to the Class A Shares may be publicly distributed or otherwise made publicly available in Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
This Prospectus Supplement relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This Prospectus Supplement is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this Prospectus Supplement nor taken steps to verify the information set forth herein and has no responsibility for the Prospectus. The Class A Shares to which this Prospectus Supplement relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Class A Shares offered should conduct their own due diligence on the Class A Shares. If you do not understand the contents of this Prospectus Supplement you should consult an authorized financial advisor.
Hong Kong
The Class A Shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation, or document relating to the Class A Shares has been or may be issued or has been or may be in the possession of any person for the purposes of issuance, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Class A Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
No registration pursuant to Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) (“FIEL”) has been made or will be made with respect to the
solicitation of the application for the acquisition of the Class A Shares. Accordingly, the Class A Shares have not been, directly or indirectly, offered or sold and will not be, directly or indirectly, offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the FIEL and the other applicable laws and regulations of Japan. For Qualified Institutional Investors (QII) please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the Class A Shares constitutes either a “QII only private placement” or a “QII only secondary distribution” (each as described in Paragraph 1, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the Class A Shares. The Class A Shares may be transferred only to QIIs. For Non-QII Investors please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the Class A Shares constitutes either a “small number private placement” or a “small number private secondary distribution” (each as is described in Paragraph 4, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the Class A Shares. The Class A Shares may be transferred only en bloc without subdivision to a single investor.
Singapore
This Prospectus Supplement and the accompanying Shelf Prospectus have not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”). Accordingly, this Prospectus Supplement and the accompanying Shelf Prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Class A Shares may not be circulated or distributed, nor may the Class A Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Class A Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the Class A Shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; (3) by operation of law; (4) pursuant to Section 276(7) of the SFA; or (5) as specified in Regulation 32 of the Securities and Futures (Offer of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
Notification under Section 309B(1)(c) of the SFA
The Company has determined that the Class A Shares are (A) prescribed capital markets products (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and (B) Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Solely for the purposes of its obligations pursuant to Section 309B of the SFA, the Company has determined, and hereby notifies all relevant persons (as defined in the CMP Regulations 2018), that the Class A Shares are “prescribed capital markets products” (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Australia
No “prospectus” or other “disclosure document”, as each of those terms are defined in the Corporations Act 2001 of Australia (the “Australian Corporations Act”), in relation to the Class A Shares has been, or will be, lodged with the Australian Securities and Investments Commission. Each Underwriter has represented and agreed that it: (a) has not made (directly or indirectly) or invited, and will not make (directly or indirectly) or invite, an offer of the Class A Shares for issue or sale in Australia (including an offer or invitation which is received by a person in Australia); and (b) has not distributed or published, and will not distribute or publish, this Prospectus Supplement, the accompanying Shelf Prospectus or any other offering material or advertisement relating to the Class A Shares in Australia, unless: (i) the aggregate consideration payable for such Class A Shares on acceptance of the offer is at least A $500,000 (or its equivalent in any other currency, in either case calculated in accordance with both section 708(9) of the Australian Corporations Act and regulation 7.1.18 of the Corporations Regulations 2001 of Australia) or the offer or invitation does not otherwise require disclosure to investors under Parts 6D.2 or 7.9 of the Australian Corporations Act; (ii) the offer or invitation constitutes an offer to either a “wholesale client” or “sophisticated investor” for the purposes of Chapter 7 of the Australian Corporations Act; (iii) such action complies with any applicable laws, regulations and directives (including without limitation, the licensing requirements set out in Chapter 7 of the Australian Corporations Act) in Australia; and (iv) such action does not require any document to be lodged with Australian Securities and Investments Commission or any other regulatory authority in Australia.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of McCarthy Tétrault LLP, Canadian counsel to the Corporation, and Blake, Cassels & Graydon LLP, Canadian counsel to the Underwriters, the following is, as of the date hereof, a summary of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) and the regulations thereunder (collectively, the “Tax Act”) generally applicable to an investor who acquires Class A Shares pursuant to the Offering and who, for the purposes of the Tax Act and at all relevant times, deals at arm’s length with the Corporation and the Underwriters, is not affiliated with the Corporation or any of the Underwriters, and who acquires and holds such Class A Shares (hereinafter sometimes referred to as “Shares”) as capital property (a “Holder”). Generally, the Class A Shares will be considered to be capital property to a Holder thereof provided that the Holder does not use the Shares in the course of carrying on a business of trading or dealing in securities and such Holder has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
This summary does not apply to a Holder (i) that is a “financial institution” for the purposes of the mark-to-market rules contained in the Tax Act; (ii) that is a “specified financial institution” as defined in the Tax Act; (iii) an interest in which would be a “tax shelter investment” as defined in the Tax Act; (iv) that has made a functional currency reporting election under the Tax Act; or (v) that has entered or will enter into a “derivative forward agreement”, or a “synthetic disposition arrangement”, as each term is defined in the Tax Act, with respect to the Shares. Such Holders should consult their own tax advisors with respect to an investment in Class A Shares.
This summary is based upon the current provisions of the Tax Act in force as of the date hereof and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) published by it in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and assumes that the Tax Proposals will be enacted in the form proposed, although no assurance can be given that the Tax Proposals will be enacted in their current form or at all. This summary does not otherwise take into account any changes in law or in the administrative policies or assessing practices of the CRA, whether by legislative, governmental or judicial decision or action, nor does it take into account or consider any other federal or any provincial, territorial or foreign income tax considerations, which considerations may differ significantly from the Canadian federal income tax considerations discussed in this summary.
This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. Holders should consult their own tax advisors with respect to their particular circumstances.
Currency Conversion
For purposes of the Tax Act, all amounts relevant in computing the income, taxable income and taxes payable by a Holder, including the cost and adjusted cost base of Class A Shares, must be determined in Canadian dollars based on the exchange rate quoted by the Bank of Canada on the relevant date or such other rate of exchange that is acceptable to the Minister of National Revenue, as determined in accordance with the provisions of the Tax Act.
Resident Holders
The following section of this summary applies to Holders (“Resident Holders”) who, for the purposes of the Tax Act, are or are deemed to be resident in Canada at all relevant times. A Resident Holder whose Shares might not constitute capital property may make, in certain circumstances, an irrevocable election permitted by subsection 39(4) of the Tax Act to deem the Shares, and every other “Canadian security” as defined in the Tax Act, held by such person, in the taxation year of the election and each subsequent taxation year to be capital property. Resident Holders should consult their own tax advisors regarding this election.
Additional considerations, not discussed herein, may be applicable to a Resident Holder that is a corporation resident in Canada, and is, or becomes, or does not deal at arm’s length with a corporation
resident in Canada that is or becomes, as part of a transaction or event or series of transactions or events that includes the acquisition of Shares, controlled by a non-resident person (or a group of persons that do not deal at arm’s length) for purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Resident Holders should consult their tax advisors with respect to the consequences of acquiring Shares.
Dividends
A dividend received or deemed to be received on the Shares by a Resident Holder who is an individual will be included in computing the Resident Holder’s income, subject to the gross-up and dividend tax credit rules normally applicable under the Tax Act to taxable dividends received from taxable Canadian corporations. Certain dividends may be eligible for the enhanced gross-up and dividend tax credit, to the extent designated as an “eligible dividend” by the Corporation. A dividend received by an individual, or certain trusts, may also give rise to alternative minimum tax under the Tax Act, depending on the circumstances.
A dividend received or deemed to be received on the Shares by a Resident Holder that is a corporation will be included in the corporation’s income and will generally be deductible in computing its taxable income, subject to the restrictions and limitations under the Tax Act. Where a Resident Holder that is a corporation receives or is deemed to receive a dividend on the Shares and such dividend is deductible in computing such Resident Holder’s income, all or part of the dividend may in certain circumstances be treated under the Tax Act as a capital gain from the disposition of a capital property (or as proceeds of disposition of the Shares potentially giving rise to a capital gain) the taxable portion of which must be included in computing the Resident Holder’s income for the year in which the dividend was received. Resident Holders should consult their own tax advisors in this regard.
Certain corporations, including “private corporations” and “subject corporations” (as such terms are defined in the Tax Act) may also be liable to pay a refundable tax under Part IV of the Tax Act to the extent that the dividends received or deemed to be received on the Shares are deductible in computing taxable income.
Dispositions of Shares
Upon a disposition (or a deemed disposition) of a Share (other than to the Corporation, unless purchased by the Corporation in the open market in the manner in which Class A Shares are normally purchased by any member of the public in the open market), a Resident Holder generally will realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base to the Resident Holder of the Share immediately before the disposition.
The Resident Holder’s cost for the purposes of the Tax Act of Class A Shares generally will include all amounts paid or payable by the Resident Holder for the Class A Shares, subject to certain adjustments under the Tax Act. The adjusted cost base of a Class A Share acquired pursuant to the Offering will be determined in accordance with the Tax Act by averaging the cost to the Resident Holder of the Share with the adjusted cost base immediately before the time of acquisition of all other Shares, if any, held by the Resident Holder as capital property.
Taxation of Capital Gains and Capital Losses
In general, one-half of a capital gain realized by a Resident Holder must be included in computing such Resident Holder’s income as a taxable capital gain. One-half of a capital loss must be deducted as an allowable capital loss against taxable capital gains realized in the year and any excess may be deducted against net taxable capital gains in any of the three preceding years or in any subsequent year, to the extent and under the circumstances set out in the Tax Act.
The amount of any capital loss realized on the disposition or deemed disposition of Shares by a Resident Holder that is a corporation may be reduced by the amount of dividends received or deemed to have been received by it on such Shares or shares substituted for such Shares to the extent and in the circumstances specified by the Tax Act. Similar rules may apply where a Share is owned by a partnership or
trust of which a corporation, trust or partnership is a member or beneficiary. Resident Holders to whom these rules may be relevant should consult their own tax advisors.
A Resident Holder that is throughout the relevant taxation year a “Canadian-controlled private corporation” as defined in the Tax Act may be liable to pay an additional refundable tax on its “aggregate investment income”, which is defined in the Tax Act to include amounts in respect of taxable capital gains.
A taxable capital gain realized by an individual, or certain trusts, may give rise to a liability for alternative minimum tax under the Tax Act.
Non-Resident Holders
The following section of this summary is generally applicable to Holders (“Non-Resident Holders”) who (i) for the purposes of the Tax Act and any applicable tax treaty, are neither resident nor deemed to be resident in Canada at any time while they hold the Shares; and (ii) do not and will not use or hold and are not and will not be deemed to use or hold the Shares in carrying on a business in Canada. Special rules, which are not discussed in this summary, may apply to a Non-Resident Holder that is an insurer carrying on business in Canada and elsewhere or an authorized foreign bank. Such Holders should consult their own tax advisors.
Dividends
Dividends paid or credited or deemed to be paid or credited to a Non-Resident Holder by the Corporation are subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend unless such rate is reduced by the terms of an applicable tax treaty. Under the Canada-United States Income Tax Convention (1980) as amended (the “Treaty”), the rate of withholding tax on dividends paid or credited to a Non-Resident Holder who is resident in the U.S. for purposes of the Treaty, is entitled to benefits under the Treaty and is the beneficial owner of the dividend is generally limited to 15% of the gross amount of the dividend. Non-Resident Holders should consult their own tax advisors in relation to any applicable tax treaty relief.
Dispositions of Shares
A Non-Resident Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a Share unless the Share constitutes “taxable Canadian property” to the Non-Resident Holder thereof for purposes of the Tax Act, and the gain is not exempt from tax pursuant to the terms of an applicable tax treaty .
Generally, provided the Shares are listed on a “designated stock exchange” as defined in the Tax Act (which currently includes Nasdaq and the TSX), at the time of disposition, the Shares will not constitute taxable Canadian property of a Non-Resident Holder at that time, unless at any time during the 60 month period immediately preceding the disposition the following two conditions are met concurrently: (i) the Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at arm’s length for the purposes of the Tax Act, partnerships in which the Non-Resident Holder or such non-arm’s length person holds a membership interest (either directly or indirectly through one or more partnerships), or the Non-Resident Holder together with all such persons and partnerships, owned 25% or more of the issued shares of any class or series of shares of the Corporation; and (ii) more than 50% of the fair market value of the shares of the Corporation was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties (as defined in the Tax Act) and an option, an interest or right in any of the foregoing property, whether or not such property exists. Notwithstanding the foregoing, a Share may otherwise be deemed to be taxable Canadian property to a Non-Resident Holder for purposes of the Tax Act.
If the Class A Shares constitute “taxable Canadian property” (as defined in the Tax Act) to the Non-Resident Holder at the time of disposition, and the Non-Resident Holder is not entitled to relief under an applicable income tax treaty or convention between Canada and the country in which the Non-Resident Holder is resident, the consequences above under “Resident Holders — Dispositions of Shares” and “Resident Holders — Taxation of Capital Gains and Losses” will generally apply. Non-Resident Holders whose Shares may constitute taxable Canadian property should consult their own tax advisors.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material U.S. federal income tax consequences relating to the acquisition, ownership and disposition of Class A Shares by U.S. Holders (as defined herein). This discussion applies to U.S. Holders that purchase Class A Shares pursuant to this Offering and hold such Class A Shares as capital assets (generally, assets held for investment purposes). This discussion is based on the Internal Revenue of Code of 1986 as amended (the “IRC”), U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions, insurance companies, broker-dealers and traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, persons who hold Class A Shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or integrated investment, persons that have a “functional currency” other than the U.S. dollar, persons that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities (or arrangements treated as a partnership for U.S. federal income tax purposes), and investors in such pass-through entities). This discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum tax consequences or the requirements of Section 451 of the IRC with respect to conforming the timing of income accruals to financial statements. We have not requested, and will not request, a ruling from the Internal Revenue Service (the “IRS”) with respect to any of the U.S. federal income tax consequences described below, and as a result there can be no assurance that the IRS will not disagree with or challenge any of the conclusions described herein.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of Class A Shares that is, (1) an individual who is a citizen or resident alien of the United States for U.S. federal income tax purposes, (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
If a partnership or pass-through entity for U.S. federal income tax purposes is the beneficial owner of Class A Shares, the U.S. federal income tax consequences relating to an investment in the Class A Shares will depend in part upon the status and activities of such entity and the particular partner. A U.S. Holder that is a partner (or other owner) of a pass-through entity that acquires Class A Shares is urged to consult its own tax advisors regarding the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of Class A Shares.
Persons considering an investment in Class A Shares are urged to consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership and disposition of Class A Shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
Passive Foreign Investment Company Consequences
Special, generally unfavorable, U.S. federal income tax rules apply to U.S. persons owning stock of a PFIC. In general, a corporation organized outside the United States will be treated as a PFIC, for any taxable year in which either (1) at least 75% of its gross income is “passive income”, or (2) on average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities, and other assets that
may produce passive income. Generally, in determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation or partnership in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
We do not believe we were a PFIC for the year ended December 31, 2020 and do not believe we are currently a PFIC for U.S. federal income tax purposes. However, because PFIC status is determined on an annual basis and generally cannot be determined until the end of the taxable year, there can be no assurance that we will not be a PFIC for the current taxable year. Because we may hold a substantial amount of cash and cash equivalents following this Offering, and because the calculation of the value of our assets may be based in part on the value of Class A Shares, which may fluctuate considerably, we may also be a PFIC in the current or future taxable years. Even if we determine that we are not a PFIC for a taxable year, there can be no assurance that the IRS will agree with our conclusion and that the IRS would not successfully challenge our position. Our status as a PFIC is a fact-intensive determination made on an annual basis. Accordingly, our U.S. counsel expresses no opinion with respect to our PFIC status and also expresses no opinion with regard to our expectations regarding our PFIC status.
If we are a PFIC in any taxable year during which a U.S. Holder owns Class A Shares, such U.S. Holder would be liable for additional taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for the Class A Shares, and (2) any gain recognized on a sale, exchange or other disposition, including a pledge, of the Class A Shares, whether or not we continue to be a PFIC. Under the PFIC excess distribution regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s holding period for Class A Shares. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, will be added to the tax.
If we are a PFIC for any year during which a U.S. Holder holds Class A Shares, we must generally continue to be treated as a PFIC by that holder for all succeeding years during which the U.S. Holder holds the Class A Shares, unless we cease to meet the requirements for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to the Class A Shares. If the election is made, the U.S. Holder will be deemed to sell the Class A Shares it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s Class A Shares would not be treated as shares of a PFIC unless we subsequently become a PFIC.
If we are a PFIC for any taxable year during which a U.S. Holder holds Class A Shares and one of our non-U.S. corporate subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier PFIC and on gain from the disposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. Each U.S. Holder is urged to consult its own tax advisors regarding the application of the PFIC rules to our non-U.S. subsidiaries.
If we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain recognized on Class A Shares if such U.S. Holder makes a valid “mark-to-market” election for our Class A Shares. A mark-to-market election is available to a U.S. Holder only for “marketable stock.” Our Class A Shares will be marketable stock as long as they remain listed on the Nasdaq and are regularly traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. If a mark-to-market election is in effect, a U.S. Holder generally would take into account, as ordinary income each year, the excess of the fair market value of Class A Shares held at the end of such taxable year over the adjusted tax basis of such Class A Shares. The U.S. Holder would also take into account, as an ordinary loss each year, the excess of the adjusted tax basis of such Class A Shares over their fair market value at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses deducted as a result of the mark-to-market election. The U.S. Holder’s tax basis in
Class A Shares would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition of Class A Shares in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as capital loss.
A mark-to-market election will not apply to Class A Shares for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any non-U.S. subsidiaries that we may organize or acquire in the future. Accordingly, a U.S. Holder may continue to be subject to tax under the PFIC excess distribution regime with respect to any lower-tier PFICs that we may organize or acquire in the future notwithstanding the U.S. Holder’s mark-to-market election for the Class A Shares.
The tax consequences that would apply if we are a PFIC would also be different from those described above if a U.S. Holder were able to make a valid QEF election. At this time we do not expect to provide U.S. Holders with the information necessary for a U.S. Holder to make a QEF election, and therefore prospective investors should assume that a QEF election will not be available.
As discussed below under “— Distributions,” notwithstanding any election made with respect to the Class A Shares, if we are a PFIC in either the taxable year of the distribution or the preceding taxable year, dividends received with respect to the Class A Shares will not qualify for reduced rates of taxation.
Each U.S. person that is an investor in a PFIC is generally required to file an annual information return on IRS Form 8621 containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
The U.S. federal income tax rules relating to PFICs are very complex. Prospective U.S. investors are strongly urged to consult their own tax advisors with respect to the impact of PFIC status on the purchase, ownership and disposition of Class A Shares, the consequences to them of an investment in a PFIC, any elections available with respect to the Class A Shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of Class A Shares of a PFIC.
Distributions
Subject to the discussion above under “— Passive Foreign Investment Company Consequences,” a U.S. Holder that receives a distribution with respect to Class A Shares generally will be required to include the gross amount of such distribution (before reduction for any Canadian withholding taxes withheld therefrom) in gross income as a dividend when actually or constructively received to the extent paid out of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent that a distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s Class A Shares. To the extent the distribution exceeds the adjusted tax basis of the U.S. Holder’s Class A Shares, the remainder will be taxed as capital gain recognized on a sale, exchange or other taxable disposition (as discussed below). Because we may not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be reported to them as dividends. Distributions on Class A Shares that are treated as dividends generally will constitute income from sources outside the United States for foreign tax credit purposes and generally will constitute passive category income. Such dividends will not be eligible for the “dividends received” deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.
Dividends paid by a “qualified foreign corporation” are eligible for taxation in the case of non-corporate U.S. Holders at a reduced long-term capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain requirements are met.
A non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision
and which includes an exchange of information provision, or (b) with respect to any dividend it pays on Class A Shares that are readily tradable on an established securities market in the United States. We believe that we qualify as a resident of Canada for purposes of, and are eligible for the benefits of, the U.S.-Canada Treaty, which the IRS has determined is satisfactory for purposes of the qualified dividend rules and that it includes an exchange of information provision, although there can be no assurance in this regard as of this filing or prospectively. Further, our Class A Shares will generally be considered to be readily tradable on an established securities market in the United States if they are listed on the Nasdaq, as we intend the Class A Shares to be. Therefore, subject to the discussion above under “— Passive Foreign Investment Company Consequences”, if the U.S. Treaty is applicable, or if the Class A Shares are readily tradable on an established securities market in the United States, dividends paid on Class A Shares will more likely be treated as “qualified dividend income” in the hands of non-corporate U.S. Holders, provided that certain conditions are met, including conditions relating to holding period and the absence of certain risk reduction transactions. Each non-corporate U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends with regard to its particular circumstances.
Sale, Exchange or Other Disposition of Class A Shares
Subject to the discussion above under “— Passive Foreign Investment Company Consequences,” a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of Class A Shares in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in the Class A Shares. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange or other disposition, the Class A Shares were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder from the sale or other disposition of Class A Shares will generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.
Receipt of Foreign Currency
The gross amount of any payment in a currency other than U.S. dollars will be included by each U.S. Holder in income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such U.S. Holder actually or constructively receives the payment in accordance with its regular method of accounting for U.S. federal income tax purposes regardless of whether the payment is in fact converted into U.S. dollars at that time. If the foreign currency is converted into U.S. dollars on the date of the payment, the U.S. Holder should not be required to recognize any foreign currency gain or loss with respect to the receipt of foreign currency. If, instead, the foreign currency is converted at a later date, any currency gains or losses resulting from the conversion of the foreign currency will be treated as U.S. source ordinary income or loss for U.S. foreign tax credit purposes. U.S. Holders are urged to consult their own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Additional Tax on Net Investment Income
U.S. Holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold. A U.S. Holder’s “net investment income” generally includes, among other things, dividends and net gains from disposition of property (other than property held in the ordinary course of the conduct of a trade or business). Accordingly, dividends on and capital gain from the sale, exchange or other taxable disposition of Class A Shares may be subject to this additional tax. U.S. Holders are urged to consult their own tax advisors regarding the additional tax on passive income.
Information Reporting and Backup Withholding
In general, dividends paid to a U.S. Holder in respect of Class A Shares and the proceeds received by a U.S. Holder from the sale, exchange or other disposition of Class A Shares within the United States or
through certain U.S.-related financial intermediaries will be subject to U.S. information reporting rules, unless a U.S. Holder is a corporation or other exempt recipient and properly establishes such exemption. Backup withholding may apply to such payments if a U.S. Holder does not establish an exemption from backup withholding , or fails to provide a correct taxpayer identification number or make any other required certifications.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
In addition, U.S. Holders should be aware of reporting requirements with respect to the holding of certain foreign financial assets, including stock of foreign issuers which is not held in an account maintained by certain financial institutions, if the aggregate value of all of such assets exceeds US$50,000. U.S. Holders must attach a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with their return for each year in which they hold our Class A Shares. U.S. Holders should also be aware that if the Corporation were a PFIC, they would generally be required to file IRS Form 8261, Information Return by a Shareholder of a Passive Foreign Investments Company or Qualified Electing Fund, during any taxable year in which such U.S. Holder recognizes gain or receives an excess distribution or with respect to which the U.S. Holder has made certain elections. U.S. Holders are urged to consult their own tax advisors regarding the application of the information reporting rules to the Class A Shares and their particular situations.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISORS ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN CLASS A SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
PRIOR SALES
The table below sets forth the date on which, number of and prices at which we have issued Class A Shares or securities that are convertible or exercisable into Class A Shares in the 12 months preceding the date hereof. On February 11, 2021, we completed a share consolidation on the basis of a consolidation ratio of 10:1. Historical trading prices and volumes set out in this Prospectus Supplement have been amended to reflect the 10:1 consolidation. See “Summary Description of the Business — Recent Developments — Share Consolidation”.
Issuance of Class A Shares
|
Date of Issue
|
|
|
Nature of Issue
|
|
|
Number of Class A
Shares
|
|
|
Issue Price
|
|
|
March 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
6,000
|
|
|
|
C$ 3.1000
|
|
|
April 29, 2020
|
|
|
Exercise of options
|
|
|
|
|
3,200
|
|
|
|
C$ 1.4500
|
|
|
April 29, 2020
|
|
|
Exercise of options
|
|
|
|
|
6,000
|
|
|
|
C$ 2.1000
|
|
|
May 5, 2020
|
|
|
Vesting of restricted share units
|
|
|
|
|
232,075
|
|
|
|
C$ 3.950
|
|
|
May 5, 2020
|
|
|
Exercise of options
|
|
|
|
|
600
|
|
|
|
C$ 1.3000
|
|
|
May 7, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,400
|
|
|
|
C$ 1.3000
|
|
|
May 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,667
|
|
|
|
C$ 1.8000
|
|
|
May 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,000
|
|
|
|
C$ 1.3000
|
|
|
May 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.8000
|
|
|
May 12, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,200
|
|
|
|
C$ 1.4500
|
|
|
May 13, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 1.8000
|
|
|
May 13, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,000
|
|
|
|
C$ 3.1000
|
|
|
May 13, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 1.4500
|
|
|
May 14, 2020
|
|
|
Exercise of options
|
|
|
|
|
100
|
|
|
|
C$ 3.1000
|
|
|
May 15, 2020
|
|
|
Exercise of options
|
|
|
|
|
10,000
|
|
|
|
C$ 3.8500
|
|
|
May 15, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,000
|
|
|
|
C$ 3.1000
|
|
|
May 19, 2020
|
|
|
Exercise of options
|
|
|
|
|
950
|
|
|
|
C$ 3.1000
|
|
|
May 20, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 3.1000
|
|
|
May 21, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.1000
|
|
|
May 22, 2020
|
|
|
Exercise of options
|
|
|
|
|
3,200
|
|
|
|
C$ 3.1000
|
|
|
May 27, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,500
|
|
|
|
C$ 3.0000
|
|
|
May 28, 2020
|
|
|
Exercise of options
|
|
|
|
|
800
|
|
|
|
C$ 2.9000
|
|
|
May 28, 2020
|
|
|
Exercise of options
|
|
|
|
|
350
|
|
|
|
C$ 3.0000
|
|
|
June 1, 2020
|
|
|
Exercise of options
|
|
|
|
|
300
|
|
|
|
C$ 2.9000
|
|
|
June 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,300
|
|
|
|
C$ 2.9000
|
|
|
June 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
150
|
|
|
|
C$ 3.0000
|
|
|
June 3, 2020
|
|
|
Exercise of options
|
|
|
|
|
4,000
|
|
|
|
C$ 2.9000
|
|
|
June 3, 2020
|
|
|
Exercise of options
|
|
|
|
|
3,550
|
|
|
|
C$ 2.1000
|
|
|
June 3, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,600
|
|
|
|
C$ 2.9000
|
|
|
June 3, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,000
|
|
|
|
C$ 3.1000
|
|
|
June 4, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 3.0000
|
|
|
June 4, 2020
|
|
|
Exercise of options
|
|
|
|
|
800
|
|
|
|
C$ 1.8000
|
|
|
June 4, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 2.1000
|
|
|
June 4, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
Date of Issue
|
|
|
Nature of Issue
|
|
|
Number of Class A
Shares
|
|
|
Issue Price
|
|
|
June 4, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 2.9000
|
|
|
June 4, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,500
|
|
|
|
C$ 3.1000
|
|
|
June 5, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 2.1000
|
|
|
June 5, 2020
|
|
|
Exercise of options
|
|
|
|
|
100
|
|
|
|
C$ 1.4500
|
|
|
June 5, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 1.4500
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
83
|
|
|
|
C$ 2.1000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 2.1000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 2.9000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,000
|
|
|
|
C$ 3.0000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,850
|
|
|
|
C$ 1.8000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,200
|
|
|
|
C$ 2.1000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
417
|
|
|
|
C$ 3.1000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.4500
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 2.1000
|
|
|
June 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 2.9000
|
|
|
June 9, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 1.4500
|
|
|
June 9, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 2.1000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 3.0000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 3.1000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 2.9000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 3.0000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.1000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
200
|
|
|
|
C$ 1.4500
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
450
|
|
|
|
C$ 1.4500
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
350
|
|
|
|
C$ 1.8000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
June 10, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 1.4500
|
|
|
June 17, 2020
|
|
|
Exercise of options
|
|
|
|
|
450
|
|
|
|
C$ 1.4500
|
|
|
June 18, 2020
|
|
|
Exercise of options
|
|
|
|
|
300
|
|
|
|
C$ 1.4500
|
|
|
June 19, 2020
|
|
|
Exercise of options
|
|
|
|
|
150
|
|
|
|
C$ 1.4500
|
|
|
June 22, 2020
|
|
|
Exercise of options
|
|
|
|
|
650
|
|
|
|
C$ 1.4500
|
|
|
June 25, 2020
|
|
|
Exercise of options
|
|
|
|
|
6,000
|
|
|
|
C$ 3.1000
|
|
|
June 29, 2020
|
|
|
Exercise of options
|
|
|
|
|
10,000
|
|
|
|
C$ 3.8500
|
|
|
July 3, 2020
|
|
|
Exercise of options
|
|
|
|
|
3,333
|
|
|
|
C$ 3.0000
|
|
|
July 3, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,150
|
|
|
|
C$ 3.1000
|
|
|
July 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 1.4500
|
|
|
July 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 1.8000
|
|
|
July 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 2.1000
|
|
|
July 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
833
|
|
|
|
C$ 2.9000
|
|
|
July 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
667
|
|
|
|
C$ 3.0000
|
|
|
Date of Issue
|
|
|
Nature of Issue
|
|
|
Number of Class A
Shares
|
|
|
Issue Price
|
|
|
July 8, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.1000
|
|
|
July 23, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 1.4500
|
|
|
July 23, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 2.1000
|
|
|
July 23, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 3.0000
|
|
|
August 25, 2020
|
|
|
Pursuant to short form
prospectus dated August 19, 2020
(the “August 2020 Offering”)
|
|
|
|
|
3,850,000
|
|
|
|
C$ 6.5000
|
|
|
September 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 3.0000
|
|
|
September 18, 2020
|
|
|
Exercise of over-allotment
option in connection with the
August 2020 Offering
|
|
|
|
|
96,060
|
|
|
|
C$ 6.5000
|
|
|
September 18, 2020
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 3.0000
|
|
|
October 1, 2020
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 3.0000
|
|
|
October 6, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 1.4500
|
|
|
October 6, 2020
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 3.0000
|
|
|
October 6, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 6.0000
|
|
|
October 15, 2020
|
|
|
Exercise of options
|
|
|
|
|
150
|
|
|
|
C$ 3.0000
|
|
|
October 15, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 1.4500
|
|
|
October 15, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 3.0000
|
|
|
November 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
208
|
|
|
|
C$ 2.1000
|
|
|
November 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 1.4500
|
|
|
November 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
667
|
|
|
|
C$ 3.0000
|
|
|
November 13, 2020
|
|
|
Exercise of options
|
|
|
|
|
5,000
|
|
|
|
C$ 6.0000
|
|
|
November 17, 2020
|
|
|
Exercise of options
|
|
|
|
|
950
|
|
|
|
C$ 1.4500
|
|
|
November 17, 2020
|
|
|
Exercise of options
|
|
|
|
|
600
|
|
|
|
C$ 3.0000
|
|
|
November 30, 2020
|
|
|
Exercise of options
|
|
|
|
|
3,333
|
|
|
|
C$ 1.4500
|
|
|
November 30, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,500
|
|
|
|
C$ 3.1000
|
|
|
November 30, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 8.5000
|
|
|
November 30, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.0000
|
|
|
November 30, 2020
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 1.4500
|
|
|
December 1, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 1.4500
|
|
|
December 1, 2020
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
December 1, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 8.5000
|
|
|
December 1, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 1.3000
|
|
|
December 1, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 1.8000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 2.9000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 3.1000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 1.4500
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 3.0000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 8.5000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.3000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.8000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 2.9000
|
|
|
Date of Issue
|
|
|
Nature of Issue
|
|
|
Number of Class A
Shares
|
|
|
Issue Price
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
1,500
|
|
|
|
C$ 3.1000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 2.1000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
160
|
|
|
|
C$ 8.5000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
167
|
|
|
|
C$ 8.5000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 3.1000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
375
|
|
|
|
C$ 3.0000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 8.5000
|
|
|
December 2, 2020
|
|
|
Exercise of options
|
|
|
|
|
3,000
|
|
|
|
C$ 6.0000
|
|
|
December 4, 2020
|
|
|
Exercise of options
|
|
|
|
|
667
|
|
|
|
C$ 8.5000
|
|
|
December 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
375
|
|
|
|
C$ 3.0000
|
|
|
December 11, 2020
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 8.5000
|
|
|
December 17, 2020
|
|
|
December 2020 Offering
|
|
|
|
|
2,857,200
|
|
|
|
C$14.0000
|
|
|
December 31, 2020
|
|
|
Exercise of over-allotment
option in connection with the
December 2020 Offering
|
|
|
|
|
428,580
|
|
|
|
C$14.0000
|
|
|
January 18, 2021
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 1.4500
|
|
|
January 18, 2021
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 1.4500
|
|
|
January 19, 2021
|
|
|
Exercise of options
|
|
|
|
|
375
|
|
|
|
C$ 3.0000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 1.4500
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
417
|
|
|
|
C$ 2.1000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.4500
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 1.4500
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 2.9000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.3000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.8000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 2.1000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 1.4500
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
375
|
|
|
|
C$ 3.0000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
300
|
|
|
|
C$ 3.0000
|
|
|
January 20, 2021
|
|
|
Exercise of options
|
|
|
|
|
325
|
|
|
|
C$ 3.0000
|
|
|
January 21, 2021
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 8.5000
|
|
|
January 22, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,667
|
|
|
|
C$ 8.5000
|
|
|
January 25, 2021
|
|
|
Exercise of options
|
|
|
|
|
7,360
|
|
|
|
C$ 2.9000
|
|
|
January 25, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 1.3000
|
|
|
January 25, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 1.8000
|
|
|
January 25, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 2.9000
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 3.1000
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 2.1000
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
80
|
|
|
|
C$ 1.4500
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 8.5000
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
140
|
|
|
|
C$ 2.9000
|
|
|
Date of Issue
|
|
|
Nature of Issue
|
|
|
Number of Class A
Shares
|
|
|
Issue Price
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 3.1000
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 3.1000
|
|
|
January 26, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,300
|
|
|
|
C$ 3.1000
|
|
|
January 27, 2021
|
|
|
Exercise of options
|
|
|
|
|
660
|
|
|
|
C$ 8.5000
|
|
|
January 27, 2021
|
|
|
Exercise of options
|
|
|
|
|
167
|
|
|
|
C$ 3.0000
|
|
|
January 27, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,200
|
|
|
|
C$ 3.1000
|
|
|
January 27, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 2.1000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 2.1000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 1.4500
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 2.1000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
2,500
|
|
|
|
C$ 1.4500
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,500
|
|
|
|
C$ 1.4500
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,333
|
|
|
|
C$ 8.5000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 1.4500
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.8000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 2.9000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.1000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 1.4500
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 8.5000
|
|
|
January 28, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 8.5000
|
|
|
January 29, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,920
|
|
|
|
C$ 1.4500
|
|
|
January 29, 2021
|
|
|
Exercise of options
|
|
|
|
|
7
|
|
|
|
C$ 8.5000
|
|
|
February 01, 2021
|
|
|
Exercise of options
|
|
|
|
|
667
|
|
|
|
C$ 8.5000
|
|
|
February 01, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,333
|
|
|
|
C$ 3.0000
|
|
|
February 05, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 8.5000
|
|
|
February 08, 2021
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 8.5000
|
|
|
February 08, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.1000
|
|
|
February 08, 2021
|
|
|
Exercise of options
|
|
|
|
|
667
|
|
|
|
C$ 3.0000
|
|
|
February 08, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.0000
|
|
|
February 09, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 2.1000
|
|
|
February 09, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 8.5000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 8.5000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
3,750
|
|
|
|
C$ 2.1000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.1000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
375
|
|
|
|
C$ 3.0000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 2.1000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 1.4500
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 3.0000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
333
|
|
|
|
C$ 8.5000
|
|
|
February 10, 2021
|
|
|
Exercise of options
|
|
|
|
|
175
|
|
|
|
C$ 3.0000
|
|
|
Date of Issue
|
|
|
Nature of Issue
|
|
|
Number of Class A
Shares
|
|
|
Issue Price
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
300
|
|
|
|
C$ 3.0000
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
750
|
|
|
|
C$ 1.4500
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 3.1000
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.4500
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,250
|
|
|
|
C$ 2.1000
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
150
|
|
|
|
C$ 3.0000
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
150
|
|
|
|
C$ 8.5000
|
|
|
February 11, 2021
|
|
|
Exercise of options
|
|
|
|
|
1,000
|
|
|
|
C$ 1.3000
|
|
|
February 12, 2021
|
|
|
Exercise of options
|
|
|
|
|
250
|
|
|
|
C$ 8.5000
|
|
|
February 12, 2021
|
|
|
Exercise of options
|
|
|
|
|
500
|
|
|
|
C$ 3.0000
|
|
|
February 12, 2021
|
|
|
Exercise of options
|
|
|
|
|
200
|
|
|
|
C$ 2.1000
|
|
|
February 12, 2021
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 3.0000
|
|
|
February 12, 2021
|
|
|
Exercise of options
|
|
|
|
|
125
|
|
|
|
C$ 8.5000
|
|
|
February 12, 2021
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|
|
Exercise of options
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|
|
|
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2,500
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|
|
|
C$ 1.8000
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|
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February 17, 2021
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|
|
Exercise of options
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|
|
|
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500
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|
|
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C$ 3.0000
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|
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February 17, 2021
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|
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Exercise of options
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|
|
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333
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|
|
|
C$ 8.5000
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Grant of Options
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Date of Grant
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Number of Class A Shares
Issuable upon Exercise of
Options
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Exercise Price
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Expiry Date
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October 23, 2019
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200,000
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C$ 6.00
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October 23, 2029
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|
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January 22, 2020
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|
|
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841,250
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|
|
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C$ 8.50
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|
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January 22, 2030
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|
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January 13, 2021
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|
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132,125
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|
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C$21.10
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January 13, 2031
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Award of Restricted Share Units
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Date of Award
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Number of Class A Shares
Issuable upon Vesting of
Restricted Share Units
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April 22, 2020
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232,075
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|
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January 13, 2021
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|
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374,922
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|
TRADING PRICE AND VOLUME
The Class A Shares are listed for trading on the TSX under the symbol “SCR”. After receiving final approval to graduate to the TSX from the TSX Venture Exchange and the TSX, our Class A Shares commenced trading on the TSX at market open on September 15, 2020 under the existing ticker “SCR”. Our Class A Shares were voluntarily delisted from the TSX Venture Exchange concurrently with the commencement of trading on the TSX. The table below sets forth, for the periods indicated, the reported high and low prices and the trading volume of the Class A Shares on the TSX and the TSX Venture Exchange, as applicable. On February 11, 2021, we completed a share consolidation on the basis of a consolidation ratio of 10:1. Historical trading prices and volumes set out in this Prospectus Supplement have been amended to reflect the 10:1 consolidation. See “Summary Description of the Business — Recent Developments — Share Consolidation”.
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Month
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High ($)
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Low ($)
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Volume
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February 2020
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C$ 7.80
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C$ 5.50
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|
|
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447,592
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|
|
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March 2020
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|
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C$ 6.60
|
|
|
C$ 2.75
|
|
|
|
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809,550
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|
|
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April 2020
|
|
|
C$ 4.70
|
|
|
C$ 3.40
|
|
|
|
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761,726
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|
|
|
May 2020
|
|
|
C$ 6.20
|
|
|
C$ 4.15
|
|
|
|
|
661,330
|
|
|
|
June 2020
|
|
|
C$10.60
|
|
|
C$ 5.70
|
|
|
|
|
2,964,375
|
|
|
|
July 2020
|
|
|
C$ 8.40
|
|
|
C$ 6.60
|
|
|
|
|
980,032
|
|
|
|
August 2020
|
|
|
C$ 7.20
|
|
|
C$ 6.00
|
|
|
|
|
1,295,936
|
|
|
|
September 2020
|
|
|
C$ 8.70
|
|
|
C$ 5.50
|
|
|
|
|
2,007,584
|
|
|
|
October 2020
|
|
|
C$ 8.50
|
|
|
C$ 6.70
|
|
|
|
|
932,165
|
|
|
|
November 2020
|
|
|
C$18.80
|
|
|
C$ 6.70
|
|
|
|
|
6,795,443
|
|
|
|
December 2020
|
|
|
C$18.50
|
|
|
C$12.70
|
|
|
|
|
5,895,182
|
|
|
|
January 2021
|
|
|
C$36.10
|
|
|
C$14.20
|
|
|
|
|
10,350,656
|
|
|
|
February 2021 (1 – 19)
|
|
|
C$56.70
|
|
|
C$28.10
|
|
|
|
|
7,752,895
|
|
|
As of the close of business on February 19, 2021, the last trading day prior to the date of this Prospectus Supplement, the closing price of the Class A Shares on the TSX was C$46.06.
DIVIDEND RECORD AND POLICY
We have not paid any dividends on either the Class A Shares or the Special Voting Shares. Our current policy is to retain earnings, if any, for our future growth. Any future declaration of dividends is, subject to certain statutory restrictions and certain restrictions set out in our amended and restated credit facility dated July 14, 2020, between us and a Canadian chartered bank (the “Credit Facility”), within the discretion of our board of directors based on their assessment of, among other factors, our overall financial condition, results of operations, capital and operating expenditure requirements and other relevant factors. See “Risk Factors”.
LEGAL MATTERS
Certain legal matters relating to the Offering will be passed upon on our behalf by McCarthy Tétrault LLP with respect to Canadian legal matters and Paul, Weiss, Rifkind, Wharton & Garrison LLP with respect to U.S. legal matters, and on behalf of the Underwriters by Blake, Cassels & Graydon LLP with respect to Canadian legal matters and Skadden, Arps, Slate, Meagher & Flom LLP with respect to U.S. legal matters. As at the date of this Prospectus Supplement, the partners and associates of each of McCarthy Tétrault LLP and Blake, Cassels & Graydon LLP beneficially own, directly and indirectly, less than 1% of our outstanding securities or other property, or that of our affiliates.
INTERESTS OF EXPERTS
The financial statements as at and for the years ended August 31, 2020 and 2019 incorporated by reference in this Prospectus Supplement have been so incorporated in reliance on the report of KPMG LLP, an independent auditor, given on the authority of said firm as experts in auditing and accounting. KPMG LLP is independent of the Corporation within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario, and are independent with respect to the Corporation within the meaning of the U.S. Securities Act and the applicable rules and regulations thereunder adopted by the SEC and the Public Company Accounting Oversight Board (United States).
AUDITORS, REGISTRAR AND TRANSFER AGENT
Our independent auditor is KPMG LLP, Chartered Professional Accountants, Licensed Public Accountants, Vaughan Metropolitan Centre, 100 New Park Place, Suite 1400, Vaughan, Ontario L4K 0J3.
The registrar and transfer agent of the Class A Shares in Canada is Computershare Trust Company of Canada at its principal office at 100 University Avenue, North Tower, 8th Floor, Toronto, Ontario, and in the United States is Computershare Trust Company, N.A. at its principal office in 250 Royall Street, Canton, Massachusetts.
ENFORCEMENT OF CIVIL LIABILITIES
Certain of our operations and assets are located outside the United States, and certain of our officers, directors and shareholders reside outside of the United States.
We have appointed an agent for service of process in the United States. It may be difficult for investors who reside in the United States to effect service of process in the United States upon us, or to enforce a U.S. court judgment predicated upon the civil liability provisions of the U.S. federal securities laws against us or its directors and officers. There is substantial doubt whether an action could be brought in Canada in the first instance predicated solely upon U.S. federal securities laws.
We filed with the SEC, concurrently with the Registration Statement of which this Prospectus Supplement forms a part, an appointment of agent for service of process on Form F-X. Under Form F-X, we appointed CT Corporation System as our agent for service of process in the United States in connection with any investigation or administrative proceeding conducted by the SEC and any civil suit or action brought against or involving us in a United States court arising out of or related to or concerning the offering of securities under this Prospectus Supplement.
Certain of our operations and assets are also located outside of Canada, and certain of our officers, directors and shareholders, reside outside of Canada. See “Enforcement of Judgments Against Foreign Persons”.
ENFORCEMENT OF JUDGMENTS AGAINST FOREIGN PERSONS
One of our directors resides outside of Canada. This person has appointed the following agent for service of process in Canada:
|
Name of Person
|
|
|
Name and Address of Agent
|
|
|
Angela Ruggiero
|
|
|
Cartan Limited, Box 48, Suite 5300, Toronto Dominion Bank Tower, Toronto, Ontario, M5K 1E6
|
|
Purchasers are advised that it may not be possible to enforce judgments obtained in Canada against any person or company that is incorporated, continued or organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been filed or furnished with the SEC as part of the Registration Statement of which this Prospectus Supplement forms a part: (i) the documents listed under the heading “Documents Incorporated by Reference”; (ii) powers of attorney from our directors and officers, as applicable; (iii) the consent of KPMG LLP; (iv) the consent of McCarthy Tétrault LLP; (v) the consent of Blake, Cassels & Graydon LLP; and (vi) the Underwriting Agreement.
SHORT FORM BASE SHELF PROSPECTUS
New Issue and/or Secondary Offering January 7, 2021
SCORE MEDIA AND GAMING INC.
$325,000,000
Class A Subordinate Voting Shares
Debt Securities
Warrants
Subscription Receipts
Units
Score Media and Gaming Inc. (the “Corporation”, “theScore”, “we”, “us” or “our”) may from time to time offer and issue (i) Class A Subordinate Voting Shares (“Class A Shares”) of the Corporation, (ii) debt securities (“Debt Securities”) of the Corporation, (iii) warrants (“Warrants”) to purchase Class A Shares and/or any other securities of the Corporation, (iv) subscription receipts (“Subscription Receipts”) of the Corporation exchangeable into any of the foregoing, and (v) units (“Units”) of the Corporation comprised of any combination of such securities (Class A Shares, Debt Securities, Warrants, Subscription Receipts and Units are collectively referred to herein as the “Securities”) with an aggregate offering not to exceed $325,000,000 (or its equivalent in any other currency or currency unit used to denominate the Securities at the time of offering) during the 25 month period that this short form base shelf prospectus (this “Prospectus”), including any amendments hereto, remains valid. One or more of our securityholders (“Selling Securityholders”, and each is a “Selling Securityholder”) may also offer and sell Securities under this Prospectus. See “Selling Securityholders”.
Our head office is located at 500 King St. W., Fourth Floor, Toronto, Ontario, M5V 1L9 and our registered office is located at 745 Thurlow Street, Suite 2400, Vancouver, British Columbia, V6E 0C5.
The specific terms of the Securities in respect of which this Prospectus is being delivered will be set forth in an accompanying shelf prospectus supplement (a “Prospectus Supplement”) and may include, where applicable, (i) in the case of Class A Shares, the number of Class A Shares offered, the offering price (in the event the offering is a fixed price distribution) or the manner of determining the offering price (in the event the offering is a non-fixed price distribution), whether the Class A Shares are being offered for cash and any other specific terms, (ii) in the case of Debt Securities, the aggregate principal amount and ranking of Debt Securities being offered, the issue and delivery date, the maturity date, the offering price, the interest provisions, the currency or currency unit for which the Debt Securities may be purchased, the authorized denominations, the covenants, the events of default, any terms for redemption or retraction, any exchange or conversion rights attached to the Debt Securities, the method of distribution, the form of Debt Securities, whether the Debt Securities will be secured by any of our assets or guaranteed by any other person, and any other specific terms, (iii) in the case of Warrants, the offering price or manner of determining the offering price, whether the Warrants are being offered for cash, the designation, the number and the terms of the Class A Shares or other securities purchasable upon exercise of the Warrants, any procedures that will result in the adjustment of these numbers, the exercise price, the dates and periods of exercise and any other specific terms, (iv) in the case of Subscription Receipts, the number of Subscription Receipts being offered, the offering price or manner of determining the offering price, whether the Subscription Receipts are being offered for cash, the Securities issuable in exchange for the Subscription Receipts, the release conditions in respect thereof, the procedures for the exchange of the Subscription Receipts for Securities and any other specific terms, and (v) in the case of Units, the number of Units offered, a description of the Units (including the Securities comprising the Units), the offering price or manner of determining the offering price, and any other specific terms. Where required by statute, regulation or policy, and where Securities are offered in currencies other than Canadian dollars, appropriate disclosure of foreign exchange rates applicable to the offering price of the Securities will be included in the Prospectus Supplement describing the Securities.
All information omitted from this Prospectus will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus. Each Prospectus Supplement will be deemed to be incorporated by reference into this Prospectus for the purposes of securities legislation as of the date of the applicable Prospectus Supplement and only for the purposes of the distribution of the Securities to which the applicable Prospectus Supplement pertains.
The outstanding Class A Shares are listed on the Toronto Stock Exchange (the “TSX”) under the symbol “SCR”. There is currently no market through which Securities, other than the Class A Shares, may be sold and purchasers may not be able to resell such Securities purchased under this Prospectus. In the case of Securities other than Class A Shares, this may affect the pricing of the Securities in the secondary market, the transparency and availability of trading prices, the liquidity of these Securities and the extent of issuer regulation. See “Risk Factors”.
This Prospectus constitutes a public offering of the Securities only in those jurisdictions where they may be lawfully offered for sale and only by persons permitted to sell the Securities in those jurisdictions. We and/or any Selling Securityholders may offer and sell the Securities to or through underwriters or dealers purchasing as principals, and may also offer and sell certain Securities directly to other purchasers or through agents pursuant to exemptions from registration or qualification under applicable securities laws. See “Plan of Distribution”. A Prospectus Supplement relating to each issue and/or transfer of Securities offered thereby will identify each underwriter, dealer or agent, as the case may be, engaged by us and/or any Selling Securityholder in connection with the offering and sale of the Securities and will set forth the terms of the offering of such Securities, including the method of distribution, the identity of any Selling Securityholders, the proceeds to the Corporation and/or any Selling Securityholders and any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms relating to the offering of such Securities.
Unless otherwise specified in the applicable Prospectus Supplement, each series or issue of Securities will be a new issue of Securities. The Securities may be sold from time to time in one or more transactions at a fixed price or prices or at non-fixed prices. If offered on a non-fixed price basis, the Securities may be offered at market prices prevailing at the time of sale, at prices determined by reference to the prevailing price of a specified security in a specified market or at prices to be negotiated with purchasers, in which case the compensation payable to an underwriter, dealer or agent in connection with any such sale will be increased or decreased by the amount, if any, by which the aggregate price paid for the Securities by the purchasers exceeds or is less than the gross proceeds paid by the underwriter, dealer or agent to us and/or any Selling Securityholders. The price at which the Securities will be offered and sold may vary from purchaser to purchaser and during the period of distribution.
In connection with any offering of the Securities, the underwriters, dealers or agents may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a higher level than that which might exist in the open market. These transactions may be commenced, interrupted or discontinued at any time. See “Plan of Distribution”.
One of our directors (Angela Ruggiero) resides outside of Canada. This individual has appointed Cartan Limited, Box 48, Suite 5300, Toronto Dominion Bank Tower, Toronto, Ontario M5K 1E6 as agent for service of process in Canada. Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if such person or company has appointed an agent for service of process.
No underwriter has been involved in the preparation of this Prospectus nor has any underwriter performed any review of the contents of this Prospectus.
Investing in the Securities involves certain risks. Prospective purchasers of the Securities should carefully consider all the information in this Prospectus, in the documents incorporated by reference in this Prospectus and, if applicable, in the applicable Prospectus Supplement. See “Risk Factors”.
We are not, nor is any Selling Securityholder, making an offer of the Securities in any jurisdiction where such offer is not permitted.
TABLE OF CONTENTS
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22
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22
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, in any associated Prospectus Supplement, and in certain documents incorporated by reference in this Prospectus, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation (“forward-looking statements”). All statements other than statements of historical fact contained in this Prospectus, in any associated Prospectus Supplement, and in documents incorporated by reference in this Prospectus, including, without limitation, those regarding our future financial position and results of operations, strategy, plans, objectives, goals and targets, including in light of the ongoing and evolving COVID-19 pandemic, regulatory approvals, future developments in the markets where we participate or is seeking to participate, and any statements preceded by, followed by or that include the words “believe”, “expect”, “aim”, “intend”, “plan”, “continue”, “will”, “may”, “would”, “anticipate”, “estimate”, “forecast”, “predict”, “project”, “seek”, “should” or similar expressions or the negative thereof, are forward-looking statements. These statements are not historical facts but instead represent only our expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements.
Additional known and unknown risks, uncertainties, and other factors that could cause actual results, performance or achievements to differ materially include, but are not limited to: the impact of the ongoing and evolving COVID-19 pandemic on our future financial position and results of operations, strategy, plans, objectives, goals and targets; the enactment of enabling legislation and regulations in the jurisdictions in which we operate, or intend to operate, to facilitate internet gaming, including (without limitation) the enactment of federal legislation in Canada to permit single event sports wagering (including the timing of such legislation and regulations being passed and proclaimed in force (if at all) and the terms and conditions imposed in such legislation and regulations on applicable industry participants); our receipt of all relevant licences and approvals under the applicable legislation and regulations (as applicable) of the jurisdictions in which we operate, or intend to operate; the rate of adoption of online gaming in Canada and other jurisdictions, as permitted by applicable legislation and/or regulations; and those discussed under “Risk Factors” in the AIF (as defined herein) and in this Prospectus and in documents incorporated by reference in this Prospectus. Management provides forward-looking statements because it believes they provide useful information to readers when considering their investment objectives and cautions readers that the information may not be appropriate for other purposes. Consequently, all of the forward-looking statements made in this Prospectus and in documents incorporated by reference in this Prospectus are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us.
The forward-looking statements discussed under “Risk Factors” in the AIF and in this Prospectus and in documents incorporated by reference in this Prospectus are based on numerous assumptions regarding our present and future business strategies and the environment in which we will operate in the future, including assumptions regarding business and operating strategies, and our ability to operate on a profitable basis.
In addition to the factors discussed under “Risk Factors” in the AIF and in this Prospectus and in documents incorporated by reference in this Prospectus, other factors not currently viewed as material could cause actual results to differ materially from those described in the forward-looking statements. Although we have attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be anticipated, estimated or intended. Accordingly, readers should not place any undue reliance on forward-looking statements.
All of the forward-looking information made in this Prospectus and the documents incorporated by reference herein is qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Corporation.
THIRD PARTY INFORMATION
This Prospectus, the Prospectus Supplement(s) and the documents incorporated by reference herein include market share information and industry data and forecasts, which we obtained from independent industry publications and surveys that we commissioned and our internal surveys. Although we believe these sources to be reliable, we have not independently verified any of the data nor ascertained the underlying economic assumptions relied upon therein. Some data is also based on our estimates, which are derived from our review of internal surveys, as well as independent sources. We cannot and do not provide any assurance as to the accuracy or completeness of such included information. Market forecasts, in particular, are likely to be inaccurate, especially over long periods of time.
CURRENCY PRESENTATION
Unless otherwise indicated, all dollar amounts in this Prospectus are expressed in Canadian dollars.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference into this Prospectus from documents filed with securities commissions or similar authorities in each of the provinces of Canada, other than the Province of Quebec. Copies of documents incorporated herein by reference may be obtained on request without charge from the Corporation at 500 King Street West, Fourth Floor, Toronto, Ontario M5V 1L9, telephone (416) 479-8812, and are also available electronically at www.sedar.com (“SEDAR”).
The following documents, filed with the securities commissions or similar authorities in each of the provinces of Canada, other than the Province of Quebec, are specifically incorporated by reference into and form an integral part of this Prospectus:
(a)
the annual information form of the Corporation dated October 28, 2020 (the “AIF”) for the year ended August 31, 2020;
(b)
the audited consolidated financial statements of the Corporation as at and for the years ended August 31, 2020 and 2019, together with the notes thereto and the auditors’ report thereon;
(c)
the management’s discussion and analysis of financial condition and results of operations of the Corporation for the year ended August 31, 2020 (the “Annual MD&A”);
(d)
the notice of annual and special meeting of shareholders and management information circular of the Corporation dated December 15, 2019; and
(e)
the material change report of the Corporation dated December 2, 2020 regarding the December 2020 Offering (as defined herein).
Any document of the type required by National Instrument 44-101 — Short Form Prospectus Distributions to be incorporated by reference into a short form prospectus, including any annual information forms, material change reports (except confidential material change reports), business acquisition reports, interim financial statements, annual financial statements and the independent auditors’ report thereon, management’s discussion and analysis and information circulars and any template version of “marketing materials” (as defined in National Instrument 41-101 — General Prospectus Requirements (“NI 41-101”)) filed with securities commissions or similar authorities in Canada after the date of this Prospectus, and prior to the completion or withdrawal of the distribution of Securities, shall be deemed to be incorporated by reference into this Prospectus.
Any statement in this Prospectus or contained in a document incorporated or deemed to be incorporated by reference in this Prospectus is deemed to be modified or superseded, for the purposes of this Prospectus, to the extent that a statement contained in this Prospectus or in any other subsequently filed document which also is or is deemed to be incorporated by reference in this Prospectus, modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseded statement will not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a
material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this Prospectus.
Upon a new annual information form and related annual audited consolidated financial statements and management’s discussion and analysis being filed by the Corporation with, and where required, accepted by, the applicable securities regulatory authorities during the term of this Prospectus: (i) the previous annual information form, the previous annual audited consolidated financial statements and related management’s discussion and analysis of financial condition and results of operations; (ii) all interim financial statements and related management’s discussion and analysis of financial condition and results of operations, all material change reports and all business acquisition reports filed by the Corporation prior to the commencement of our financial year in respect of which the new annual information form is filed; and (iii) any business acquisition report for acquisitions completed since the beginning of the financial year in respect of which the new annual information form is filed (only if such report is incorporated by reference into the current annual information form or at least nine months of the acquired business or related businesses operations are incorporated into our current annual audited consolidated financial statements) shall be deemed no longer to be incorporated by reference into this Prospectus for purposes of future offers and sales of Securities hereunder.
Upon new interim financial statements and related management’s discussion and analysis of financial condition and results of operations being filed by the Corporation with the applicable securities regulatory authorities in Canada during the term of this Prospectus, all interim financial statements and related management’s discussion and analysis of financial condition and results of operations filed prior to the new interim consolidated financial statements shall be deemed no longer to be incorporated by reference into this Prospectus for purposes of future offers and sales of Securities hereunder.
In addition, upon a new information circular relating to an annual meeting of shareholders being filed by the Company with applicable securities regulatory authorities in Canada subsequent to the date of this Prospectus and prior to the date on which this Prospectus ceases to be effective, the information circular for the preceding annual meeting of shareholders and any other information circular filed by the Company prior to the commencement of the Company’s financial year in respect of which the new annual information form is filed shall be deemed no longer to be incorporated by reference into this Prospectus for purposes of offers and sales of Securities under this Prospectus.
A Prospectus Supplement containing the specific variable terms in respect of an offering of the Securities will be delivered to purchasers of such Securities together with this Prospectus, unless an exemption from the prospectus delivery requirements has been granted or is otherwise available, and will be deemed to be incorporated by reference into this Prospectus as of the date of such Prospectus Supplement only for the purposes of the offering of the Securities covered by such Prospectus Supplement.
Investors should rely only on the information contained in or incorporated by reference in this Prospectus or any applicable Prospectus Supplement. We have not authorized anyone to provide investors with different or additional information. We are not making an offer of Securities in any jurisdiction where the offer is not permitted by law. Investors should not assume that the information contained in or incorporated by reference in this Prospectus or any applicable Prospectus Supplement is accurate as of any date other than the date on the front of the applicable Prospectus Supplement.
Certain “marketing materials” (as that term is defined under NI 41-101) may be used in connection with a distribution of Securities under this Prospectus and the applicable Prospectus Supplement(s). Any “template version” of any “marketing materials” (as those terms are defined in NI 41-101) that is provided in connection with a distribution of Securities and filed by the Corporation with applicable regulatory authorities after the date of the applicable Prospectus Supplement for the offering and before the termination of the distribution of such Securities will be deemed to be incorporated by reference into that Prospectus Supplement.
SUMMARY DESCRIPTION OF THE BUSINESS
This summary does not contain all the information that may be important to a prospective investor in deciding whether to invest in the Securities. A prospective investor should read the entire Prospectus, including the section entitled “Risk Factors”, each Prospectus Supplement filed in connection herewith and any documents incorporated by reference herein, before making such decision.
Overview
The Corporation was incorporated pursuant to the Business Corporations Act (Ontario) on August 30, 2012 under the name “theScore, Inc.” and continued under the Business Corporations Act (British Columbia) on August 29, 2019 under the name “Score Media and Gaming Inc.”
Our head office is located at 500 King St. W., Fourth Floor, Toronto, Ontario, M5V 1L9 and our registered office is located at 745 Thurlow Street, Suite 2400, Vancouver, British Columbia, V6E 0C5.
Our Class A Shares are listed and trade on the TSX under the symbol “SCR”.
Business of the Corporation
General Description of the Business
We empower millions of sports fans through our digital media and sports betting products. Our media app ‘theScore’ is one of the most popular in North America, delivering fans highly-personalized live scores, news, stats, and betting information from their favourite teams, leagues, and players. Our sports betting app ‘theScore Bet’ delivers an immersive and holistic mobile sports betting experience and is currently available to place wagers in New Jersey, Colorado, and Indiana. We also create and distribute innovative digital content through our web, social and esports platforms.
theScore
Natively developed for iOS and Android operating systems, theScore app is free to end users and delivers comprehensive and customizable news, scores, stats, and notifications for all major leagues and sports, including the National Football League (“NFL”), NCAA Football and Basketball, the National Basketball Association (“NBA”), Major League Baseball (“MLB”), the National Hockey League (“NHL”), PGA Golf, NASCAR Racing and major European soccer leagues, including the English Premier League and Champions League, as well as special events such as the Olympic Games and FIFA World Cup. theScore app provides sports fans with deep personalization options, allowing them to follow and receive push notifications on news, scores and stats from their favourite teams and fantasy players in real-time with customizable feeds and seamless social sharing. We deliver comprehensive original news content across all major leagues and competitions, presenting stories in a way to make them easily consumable on mobile devices, including rich visuals and multimedia such as videos and embedded tweets. theScore app also includes innovative public chat and messaging features, enabling our community of fans to connect around the games and content they love. News stories are produced by our industry-leading mobile-first newsroom, where a team of news editors creates content via our in-house content management system that allows them to deliver mobile news to the user. During the 2019 fiscal year, we also introduced additional sports betting data and content into theScore app. Coinciding with the launch of theScore Bet, in September 2019 we unveiled ‘Bet Mode’ in our sports media app. When Bet Mode is activated in our sports media app, users unlock access to even faster scoring updates and data, with no need to pull-to-refresh, real-time odds, and additional betting content. In November 2020 we unveiled ‘Bet Section’ in our sports media app. Bet Section provides a new suite of highly personalized betting-related features, including personalized markets, bet tracking, exclusive promotions and community polling, bringing the action of theScore Bet deeper into our sports media app than ever before.
theScore esports
We also provide comprehensive coverage of the growing competitive video gaming scene through theScore esports. Via a dedicated newsroom of specialist content creators, theScore esports produces and
shares original video content pieces across its web and social platforms, including features and documentaries on high-profile teams, games and players from across the world of esports, as well as highlights and interviews. theScore esports’ video content is distributed across YouTube, Facebook, Twitter, Instagram, and TikTok. Our primary distribution platform for our video content is YouTube, and as of August 31, 2020 theScore esports had more than 1.4 million subscribers to its YouTube channel.
theScore Bet
Launched in New Jersey in September 2019, theScore Bet is a comprehensive mobile sports betting platform natively built for iOS and Android devices that delivers an immersive and holistic sports betting experience. theScore Bet delivers a wide variety of pre-game and in-game markets and betting options, scores and in-game data, features like early cash-out, and easy and secure deposit and withdrawal options. Fans are able to place bets on sports including NFL and NCAA football, NBA and NCAA basketball, MLB baseball, NHL hockey, PGA golf, ATP and WTA tennis, MMA, and boxing as well as soccer from the UEFA Champions League and Europa League, English Premier League, La Liga, Bundesliga, Ligue 1 and MLS. theScore Bet also delivers a seamless cross-state experience for sports fans as it expands across the U.S. via its mobile app.
In November 2019, we introduced FUSE, a new suite of innovative integrations linking theScore app with theScore Bet. Currently available on iOS devices, FUSE allows users to create bet slips from within theScore app, including markets for money lines, spreads and totals. These native integrations have been embedded into theScore app’s box scores, where users can leverage deep data, scores, and stats to inform, support and now build their bet slip. A single tap then takes registered users directly into theScore Bet to complete the wager.
theScore Bet is authorized to provide sports betting services in New Jersey (by the New Jersey Division of Gaming Enforcement, via our market access agreement with Darby Development LLC, the operator of Monmouth Park Racetrack), in Colorado (by the Colorado Division of Gaming, via our market access agreement with a subsidiary of Jacobs Entertainment Inc.), and in Indiana (by the Indiana Gaming Commission, via a multi-state market access framework agreement with Penn National Gaming). We also have market access for up to 10 additional states via our multi-state market access agreements with Penn National Gaming, subject to the enactment of enabling state gaming laws and regulations, and the receipt of relevant licenses and approvals. theScore Bet also has market access to operate an online casino in New Jersey via a multi-year agreement with Twin River Worldwide Holdings, Inc. and anticipates launching its online casino product in the state in the second half of calendar 2021, subject to securing applicable licensing and regulatory approvals from the New Jersey Division of Gaming Enforcement.
We are a Platinum member of the National Council on Problem Gambling, whose mission is to lead state and national stakeholders in the development of comprehensive policy and programs for all those affected by problem gambling. theScore Bet is committed to promoting safe, responsible gaming, and we provide our users with access to responsible gaming resources and a suite of tools within theScore Bet app in order to help keep betting safe and fun.
theScore Bet — Regulatory Regimes/Gaming Licensure
New Jersey
In New Jersey, the provision of online gaming, sports betting and other aspects of casino gaming are subject to the requirements of the New Jersey Casino Control Act (the “NJ Act”) and the regulations promulgated thereunder. Under the sports wagering laws in New Jersey, third-party companies, such as theScore Bet, may provide services to casino and racetrack licensees to facilitate online/mobile sports wagering, including website hosting. Such service providers must obtain a casino service industry enterprise (a “CSIE”) license. The New Jersey Division of Gaming Enforcement (the “NJ DGE”) is responsible for investigating all license applications, issuing such required licenses and approvals, and prosecuting violations of the NJ Act.
theScore Bet is authorized to provide sports wagering services in New Jersey by the NJ DGE, via a market access agreement with Darby Development LLC, the operator of Monmouth Park Racetrack,
(“Monmouth Park”), a licensed racetrack in the State of New Jersey. The New Jersey Racing Commission (“Racing Commission”) issued a sports wagering license to Monmouth Park on June 13, 2018. Due to the length of investigative time prior to issuing a plenary CSIE license, the New Jersey regulations allow a CSIE applicant to petition the NJ DGE for authorization to conduct business, including sports wagering operations, prior to the issuance of a license at the discretion of the NJ DGE and subject to certain conditions, including the filing of a complete application. On May 14, 2019, theScore Bet submitted its application to the NJ DGE for a CSIE license. In addition to the application for theScore Bet, separate application forms were submitted to the NJ DGE for various entities holding ownership interests in theScore Bet, including theScore as well as for individuals affiliated with and those entities holding a beneficial ownership interest of 5% or more in theScore.
The NJ DGE deemed these applications complete on June 24, 2019 and thereafter the NJ DGE conducted a preliminary review of theScore Bet’s suitability and that of its qualifiers. On August 24, 2019, the NJ DGE issued an order authorizing theScore Bet to commence permanent sports wagering operations, while the NJ DGE completes its investigation of theScore Bet and its qualifiers. Those qualifiers include theScore’s directors, officers, key employees and certain investors of 5% or more, unless otherwise waived from such qualification requirements. If the NJ DGE were to find such a person or investor unsuitable, theScore would be required to sever its relationship with that person or the investor and may be required to dispose of his, her or its interest in theScore. The NJ DGE may conduct investigations into the conduct or associations of our directors, officers, key employees or investors to ensure compliance with applicable standards set for in the NJ Act.
The NJ DGE has input into our operations, including the types of sports wagers and promotions we can offer to New Jersey patrons. The NJ DGE may also levy substantial fines against or seize our assets or the people involved in violating gaming laws or regulations. To date we have demonstrated suitability to obtain and have obtained all NJ DGE approvals necessary for us to operate our existing sports wagering operations within the state of New Jersey.
Indiana
theScore Bet is classified by the Indiana Gaming Commission (“IGC”) as a “sports wagering vendor” (“Vendor”) and has received its “temporary vendor license” (the “Temporary License”). As part of the Temporary License application process, theScore Bet submitted all level-one individual/occupational license applications required by the IGC. Those applications, along with theScore Bet’s corporate Vendor application, were deemed substantially complete and preliminarily acceptable to the IGC, pending completion of a full background investigation and individual applicant interviews (which will conclude in due course). In addition, theScore Bet has also (i) secured the requisite occupational licensing approvals for applicable “lower level” employees; (ii) received IGC approval of all internal controls and house rules associated with theScore Bet’s Indiana mobile application; and (iii) demonstrated the product to the satisfaction of IGC staff, including functionality of geolocation technology. Certain third-party providers of services to theScore Bet were also required to complete various licensing and/or registration requirements with the IGC, all of which have been completed. theScore Bet received authorization from the IGC to commence its mobile sports betting services in Indiana on September 17, 2020. Full investigations related to theScore Bet’s corporate Vendor application and level-one occupational applications are continuing, individual interviews will be conducted, and permanent licenses may be awarded by the IGC at a future date.
theScore Bet is obligated to report to the IGC any transfers of 5% or greater beneficial ownership in theScore Bet. In order to determine the necessary licensing requirements for a new investor, the IGC must receive and review information related to the transaction and provide to such new investor a determination as to which of its corporate entities / individuals will be required to file a license application and which may satisfy the definition of “institutional investor” at 68 IAC 1-1-52 and may therefore be eligible to complete an institutional investor waiver application rather than engage in the full licensing process. This determination is subject to the discretion of the IGC staff.
theScore Bet’s Temporary and/or permanent Vendor license, as well as any occupational licenses held by key individuals, may be subject to disciplinary action up to and including revocation (or theScore Bet may not receive its permanent Vendor license) if theScore Bet violates any of the Indiana Emergency Sports
Wagering Rules (the “Emergency Rules”) or related statutes or IGC directives. Either the Vendor license or individual occupational licenses may be subject to disciplinary action or revocation at the discretion of the IGC for reasons including, but not limited to, failure to update the IGC with information initially disclosed as part of the application process; failure to comply with reporting requirements; and/or failure to comply with any other ongoing requirements related to license fee payments, renewals, and all other requirements detailed in the Emergency Rules.
theScore Bet’s Vendor license, individual level-one occupational licenses, and all level-two occupational licenses are to be renewed on an annual basis, including payment of annual renewal fees. The Vendor license is also contingent on theScore Bet maintaining its market access agreement with Ameristar East Chicago, LLC (a subsidiary of Penn National Gaming Inc.), as Indiana law requires Vendors to remain in contract with a casino partner to maintain a Vendor license through the IGC.
Colorado
theScore Bet holds an “internet sports betting operator” license which was approved by the Colorado Limited Gaming Control Commission (“Commission”) and issued from the Colorado Division of Gaming (“Division”). The internet sports betting operator license allows theScore Bet to offer sports wagering on theScore Bet app in Colorado. Once the Division completes its full investigation and the Commission approves the Division’s findings, this temporary sports betting license will be converted to a permanent license.
Colorado allows sports betting to be conducted by a licensed internet sports betting operator on behalf of a Colorado casino holding a sports betting “master license.” theScore Bet has an agreement with a master licensee — The Gilpin Casino, located in Black Hawk, Colorado (“The Gilpin”) — to conduct online sports wagering on behalf of The Gilpin.
Further, Colorado requires operational approval of an internet sports betting operator’s “sports betting system,” which includes the interactive components, software, and associated equipment that comprise the operator’s sports betting platform. Colorado also requires approval of the “internal control standards” that govern the internet sports betting operator’s sports betting system and that demonstrate how the internet sports betting operator will abide by, among other requirements, ensuring geofencing restrictions, prohibiting excluded participants, managing participant wagering accounts, and establishing house rules. theScore Bet has received operational approval of both its sports betting system and internal control standards from the Division.
In Colorado, all sports betting licenses expire two years after issuance but may be renewed upon the filing and approval of a renewal application by the Commission. Renewal applications for internet sports betting operators and vendor majors must be received by the Division no later than 120 days before the expiration of the current license. Colorado sports betting licensees have an ongoing obligation to disclose any changes in board directors or corporate officers, as well as other key individuals who oversee the licensee’s sports betting operations. Licensees must also disclose any person who acquires “any voting or controlling interest of ten percent or more,” and any person who acquires “any nonvoting or passive ownership interest of twenty-five percent or more.” In addition, licensees must disclose changes in their corporate structure, including all parent, holding, intermediary, and subsidiary companies of the licensee.
The Commission has broad powers to suspend, revoke, or not renew sports betting licenses. Licenses shall be revoked if a licensee has: provided misleading information to the Division or to the Commission; been convicted of a felony or any gambling-related offense; become a person whose character is no longer consistent with the protection of the public interest and trust in sports betting; or intentionally refused to pay a prize to a person entitled to receive the price. Licenses may be suspended, revoked, or not renewed if a licensee: is delinquent in remitting money rightfully owed to players, contractors, or others involved in sports betting; fails to ensure the trustworthy operation of sports betting; or commits any intentional violation of any sports betting law, regulation, or other rule or guidance.
RECENT DEVELOPMENTS
December 2020 Bought Deal Offering
On December 17, 2020, we closed a bought deal offering (the “December 2020 Offering”) of 28,572,000 Class A Shares pursuant to a short form prospectus dated December 11, 2020 (the “December Prospectus”) at a price of $1.40 per Class A Share for aggregate gross proceeds of $40,000,800. Canaccord Genuity Corp. and Eight Capital acted as lead underwriters for the December 2020 Offering on behalf of a syndicate of underwriters which also included Cormark Securities Inc., INFOR Financial Inc. and Scotia Capital Inc. (collectively, the “Underwriters”). We intend to use the net proceeds from the December 2020 Offering to fund working capital and other general corporate purposes, including the continued growth and expansion of theScore Bet’s operations in the United States and Canada by supporting the multi-jurisdiction deployment and operation of theScore Bet and user acquisition and retention in jurisdictions where we currently operate, or will be operating in the future.
In connection with the December 2020 Offering, we granted the Underwriters an over-allotment option (the “Over-Allotment Option”) to purchase up to an additional 4,285,800 Class A Shares (the “Over-Allotment Shares”) at a price of $1.40 per Over-Allotment Share for aggregate gross proceeds of up to $6,000,120 on the same terms and conditions of the December 2020 Offering, exercisable once in whole or in part at the sole discretion of the Underwriters at any time on or before 5:00 P.M. (Toronto time) on January 16, 2021 for the purpose of covering the Underwriters’ over-allocation position, if any, and for market stabilization purposes. The Underwriters subsequently exercised the Over-Allotment Option in full, resulting in our issuance on December 31, 2020 of 4,285,800 Over-Allotment Shares for aggregate gross proceeds of $6,000,120. Further detail relating to our intended use of the net proceeds of the December 2020 Offering, including the net proceeds from the Underwriters’ exercise of the Over-Allotment Option, is provided in the December Prospectus.
Canadian Gaming Regulatory Landscape
Canada’s federal Criminal Code, R.S.C., 1985, c. C-46 (the “Code”), makes it an offence for any entity other than a provincial government to offer sports-betting services to residents of Canada. The Code contains an exception that allows each provincial government to ‘conduct and manage’ gambling operations, including sports betting, within its jurisdiction. The provinces responded to this exception by establishing purpose-specific corporations (typically lottery corporations) to conduct and manage gaming on behalf of the applicable provincial government. Lottery corporations are, for all intents and purposes, the monopoly providers of legal gaming, including sports-betting, in their respective provinces.
Notwithstanding the broad exception for provincial operations described above, the Code maintains a blanket prohibition on certain betting activities, including the taking of bets on a single sporting event. As this prohibition extends to provincial governments, there is currently no legal avenue for betting on single sports events.
In April 2019, Ontario’s provincial government commenced consultations with key industry stakeholders to establish a more competitive market for online legal gambling, including sports betting. It is now anticipated that within the next two fiscal quarters, the Ontario government will introduce a new legal structure for online gaming that will be based on a license, tax and regulate model. If introduced, we expect that this will permit companies like ours to provide sports betting and other gaming services directly to Ontario residents. Further, the general consensus of Canadian regulatory and industry groups is that once Ontario introduces this new model for online gaming, other provinces and territories will likely follow suit. Assuming this does occur, there is the prospect of a significant Canadian internet gaming market within the next two to three years.
On November 5, 2020, the Government of Ontario introduced the 2020 Ontario Budget in which the Government of Ontario confirmed its intention to introduce legislation that, if passed, would give the Alcohol and Gaming Commission of Ontario (the “AGCO”), through a dedicated subsidiary, authority to conduct and manage internet gaming within Ontario and to serve as the regulator therefor. We understand that the Province of Ontario and the AGCO intend to continue consulting with key stakeholders, including
theScore, on the design of the internet gaming market to reflect consumer preferences and foster an exciting gaming experience, while ensuring that appropriate responsible gaming protections are in place.
On November 26, 2020, the Minister of Justice and Attorney General of Canada introduced a bill that proposes to decriminalize single event sport betting through the amendment of Section 207(4)(b) of the Code. If passed into law, the proposed changes will give the provinces and territories of Canada the ability to offer single event sport betting products and the discretion to manage single event sport betting in their respective jurisdictions. If the bill does proceed through the House of Commons and the Senate without significant objections, it may dovetail with the “privatizing” of online gaming by the provinces and territories, permitting us to offer betting on single sports events to residents of Canada located in provinces and/or territories permitting such activities.
Business Enhancements
After receiving final approval to graduate to the Exchange from the TSX Venture Exchange and the Exchange, our Class A Shares commenced trading on the Exchange at market open on September 15, 2020 under the existing ticker “SCR”. Our Class A Shares were voluntarily delisted from the TSX Venture Exchange concurrently with the commencement of trading on the Exchange.
On November 12, 2020, we introduced ‘Bet Section’ to theScore media app. Bet Section provides users with a new suite of highly personalized betting-related features, including personalized markets, bet tracking, exclusive promotions and community polling, bringing the action of theScore Bet deeper into our sports media app than ever before.
COVID-19 Operational Update
We continue to actively respond to the rapidly evolving COVID-19 pandemic by taking measures to ensure the health and safety of our team members, and to mitigate the business impact on the Corporation caused by the unprecedented postponement, suspension or cancellation of global sporting events. We successfully adopted a mandatory work-from-home program on March 16, 2020. As substantially all of our day-to-day activities can be fully performed by personnel working remotely, we have remained fully operational during this period. The extent to which the COVID-19 pandemic may impact our business and activities will depend on future developments which remain highly uncertain and cannot be predicted with confidence, such as the spread and severity of the disease, the duration of the outbreak including any possible resurgence, and actions taken by the Canadian and U.S. authorities to control the spread of the virus, as well as the postponement, suspension, cancellation, rescheduling and resumption of sporting events, the impact of the pandemic on consumer and advertiser spending, and the ability or willingness of suppliers and vendors to provide products and services.
Despite the unprecedented disruption to the sports calendar caused by the COVID-19 pandemic, we achieved 3.0 million average monthly active users of theScore app on iOS and Android in Q4 F2020, representing nearly 83% of our average monthly active users achieved in the same period in the previous year. Live sports drive significant engagement in theScore app, and the disruption to the sports calendar led to an expected decline in engagement in Q4 F2020. However, our focus on delivering innovative and interactive content during this period resulted in users continuing to engage with theScore app, with 70 average monthly sessions-per-user during Q4 F2020.
SUMMARY OF CAPITAL STRUCTURE
Our authorized capital consists of an unlimited number of Special Voting Shares (“Special Voting Shares”), an unlimited number of Class A Shares and an unlimited number of Preference Shares (“Preference Shares”), issuable in series, of which there are 5,566 Special Voting Shares, 433,622,195 Class A Shares and nil Preference Shares outstanding as of January 6, 2021.
We also have outstanding a $40,000,000 8.00% convertible unsecured subordinated debenture due August 31, 2023 that was issued to a fund managed and controlled by Fengate Asset Management pursuant to investment agreement dated August 31, 2019.
As at January 6, 2021, we have reserved 55,000,000 Class A Shares for issuance through our amended and restated stock option and restricted stock unit plan. We currently have 34,708,082 options to acquire Class A Shares issued and outstanding.
Each applicable Prospectus Supplement will describe any material change, and the effect of such material change, on our share and loan capitalization that will result from the issuance of Securities pursuant to such Prospectus Supplement.
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the net proceeds to the Corporation from the sale of the Securities will be used to fund the continued growth and expansion of theScore Bet’s operations in the United States and Canada by supporting the multi-jurisdiction deployment and operation of theScore Bet and user acquisition and retention in jurisdictions where we are, or will be, operating, and for working capital and other general corporate purposes. We will not receive any proceeds from any sale of Securities by a Selling Securityholder.
Growth and Expansion of theScore Bet in the United States and Canada
More specifically, we intend to use the net proceeds of any sale of Securities to fund growth and expansion of theScore Bet in New Jersey, Colorado and Indiana, and in additional jurisdictions where we have market access and where we intend to pursue market access or direct licensing (subject in each case to the enactment of enabling state gaming laws and regulations and the receipt of relevant licenses and approvals).
Our growth plan contemplates continued investment in product development to enhance the features and functionality of theScore Bet’s mobile sports betting platform, including the extension of the platform to support online gaming, additional integrations with our sports media app, investments in technology, operations, infrastructure and systems to support the multi-jurisdictional deployment and operation of theScore Bet, and investments in marketing to support user acquisition and retention.
As additional jurisdictions in the United States and Canada enact enabling legislation for mobile sports betting, online gaming, or both, we plan to enter into further market access agreements or pursue operating licenses issued by state or provincial gaming authorities, as applicable. The cost of market access agreements and direct licenses will vary by jurisdiction, depending on the size of the jurisdiction, the nature of the enabling legislation and the number of available market access partners, licenses, or both.
The use of the net proceeds of any sale of Securities to fund the growth and expansion of theScore Bet’s operations in the United States and Canada is subject to change due to the influence of many evolving variables, including the enactment of enabling gaming legislation and regulations, negotiation of market access, applications for direct licensure and the receipt of required licenses and other regulatory approvals. As a result, we cannot definitively provide details with respect to timing or specific uses of the net proceeds of any sale of Securities, nor have we specifically allocated the net proceeds amongst the purposes described in this section as at the date of this Prospectus. Such decisions will depend on market and competitive factors, as described herein, as they evolve over time. We intend to invest the net proceeds of any sale of Securities in short-term interest-bearing investments or accounts until they are deployed.
The amount of net proceeds expected to be received from each sale of Securities, each of the principal purposes for which we intend to use those net proceeds, and periods of time during which we intend to use
those net proceeds, will be set forth in the applicable Prospectus Supplement. We may, from time to time, issue securities (including Securities) other than pursuant to this Prospectus.
Although we intend to expend the net proceeds from the Offering as set forth above, there may be circumstances where for sound business reasons, a reallocation of funds becomes prudent or necessary, and may vary materially from that set forth above. See “Risk Factors”.
We are currently incurring expenditures related to our operations that have generated a negative operating cash flow. Operating cash flow may decline in certain circumstances, including circumstances relating to the impacts of the COVID-19 pandemic on our business and operations, many of which are beyond our control. There is no assurance that sufficient revenues will be generated in the near future, and we may continue to incur negative operating cash flow. We may need to deploy a portion of our working capital to fund such negative operating cash flows or seek additional sources of funding. See “Risk Factors” in the AIF and in this Prospectus and in the documents incorporated by reference in this Prospectus.
On December 17, 2020, we closed the December 2020 Offering for aggregate net proceeds of $37,286,724.71. On December 31, 2020, we closed the exercise by the Underwriters of the Over-Allotment Option for aggregate net proceeds of $5,622,822.80, which, together with the aggregate net proceeds of the December 2020 Offering received on December 17, 2020, amounted to cumulative net proceeds of $42,831,796.51. We stated in the December Prospectus that we intend to use the net proceeds from the December 2020 Offering, including any exercise by the Underwriters of the Over-Allotment Option, to fund working capital and other general corporate purposes, including the continued growth and expansion of theScore Bet’s operations in the United States and Canada by supporting the multi-jurisdiction deployment and operation of theScore Bet and user acquisition and retention in jurisdictions where we currently operate, or will be operating in the future. To date, there have been no material variances in the use of proceeds from the December 2020 Offering from the disclosures made in the December Prospectus.
PLAN OF DISTRIBUTION
The Corporation and/or the Selling Securityholders may sell Securities (i) to or through underwriters or dealers, (ii) directly to purchasers, (iii) through agents, or (iv) through a combination of any of these methods of sale.
The distribution of the Securities of any series may be effected from time to time in one or more transactions at a fixed price or prices or at non-fixed prices. If offered on a non-fixed price basis the Securities may be offered at market prices prevailing at the time of sale, at prices determined by reference to the prevailing price of a specified security in a specified market or at prices to be negotiated with purchasers. The price at which the Securities will be offered and sold may vary from purchaser to purchaser and during the period of distribution.
In connection with the sale of the Securities, underwriters, dealers or agents may receive compensation from the Corporation, any Selling Securityholders and/or from other parties, including in the form of underwriters’, dealers or agents’ fees, commissions or concessions. Underwriters, dealers and agents that participate in the distribution of the Securities may be deemed to be underwriters for the purposes of applicable Canadian securities legislation and any such compensation received by them from the Corporation and/or any Selling Securityholders and any profit on the resale of the Securities by them may be deemed to be underwriting commissions.
The Prospectus Supplement relating to each distribution of Securities will also set forth the terms of the offering of the Securities including to the extent applicable, the initial offering price, the proceeds to the Corporation and/or any Selling Securityholders, and the underwriters’, dealers’ or agents’ compensation or other discount or selling concession to be allowed or re-allowed to underwriters’ or dealers. Any underwriters, dealers or agents with respect to a particular offering of Securities will be named in the Prospectus Supplement relating to such offering. See “Selling Securityholders”.
In connection with any offering of Securities, the underwriters may over-allot or effect transactions which stabilize, maintain or otherwise affect the market price of the Securities at a level other than those which otherwise might prevail on the open market. Such transactions may be commenced, interrupted or
discontinued at any time. Any purchaser who acquires Securities forming part of the underwriters’ over-allocation position acquires those Securities under the applicable Prospectus Supplement, regardless of whether the over-allocation position is ultimately filled through the exercise of the over- allotment option or secondary market purchases.
Under agreements which we and/or any Selling Securityholders may enter, underwriters, dealers and agents who participate in the distribution of the Securities may be entitled to indemnification by the Corporation and/or any Selling Securityholders against certain liabilities, including liabilities under the securities legislation of each of the provinces of Canada or to contribution with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof. The underwriters, dealers and agents with whom we enter into agreements may be customers of, engage in transactions with, or perform services for, us and/or any Selling Securityholders in the ordinary course of business.
Unless otherwise stated in a Prospectus Supplement relating to such Securities, each distribution of Securities will be a new issue of securities for which there is no established trading market. Unless otherwise specified in a Prospectus Supplement relating to a series of Securities, the Securities will not be listed on any securities exchange. Certain broker dealers may make a market in the Securities, but will not be obligated to do so and may discontinue any market making at any time without notice. No assurance can be given that any broker dealer will make a market in the Securities of any series or as to the liquidity of the trading market, if any, for the Securities of any series.
Unless otherwise specified in the applicable Prospectus Supplement, this Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any Securities in the United States. Unless otherwise specified in the applicable Prospectus Supplement, the Securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state securities laws, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons, unless the Securities are registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration requirements is available. Each underwriter, dealer and agent who participates in the distribution will agree not to sell or offer to sell or to solicit any offer to buy any Securities within the United States or to, or for the account or benefit of, a U.S. Person, unless the Securities are registered under the U.S. Securities Act and applicable state securities laws or pursuant to an exemption from the registration requirements of the U.S. Securities Act and any applicable state securities laws.
SELLING SECURITYHOLDERS
This Prospectus may also, from time to time, relate to the offering of Securities by way of a secondary offering by certain Selling Securityholders.
The terms under which Securities may be offered by Selling Securityholders will be described in the applicable Prospectus Supplement. The Prospectus Supplement for or including any offering of Securities by Selling Securityholders will include, without limitation, where applicable: (i) the names of the Selling Securityholders; (ii) the number and type of Securities owned, controlled or directed by each Selling Securityholder; (iii) the number of Securities being distributed for the accounts of each Selling Securityholder; (iv) the number of Securities to be owned, controlled or directed by each Selling Securityholder after the distribution and the percentage that number or amount represents out of the total number of outstanding Securities; (v) whether the Securities are owned by the Selling Securityholders, both of record and beneficially, of record only or beneficially only; (vi) if a Selling Securityholder purchased any of the Securities held by him, her or it in the 12 months preceding the date of the Prospectus Supplement, the date or dates the Selling Securityholder acquired the Securities in question; (vii) if a Selling Securityholder acquired the Securities held by him, her or it in the 12 months preceding the date of the Prospectus Supplement, the cost thereof to the Selling Securityholder in the aggregate and on a per security basis; and (viii) the disclosure required by Item 1.11 of Form 44-101F1 Short Form Prospectus and Selling Securityholders will file a non-issuer’s submission to jurisdiction form with the applicable Prospectus Supplement.
DESCRIPTION OF EQUITY SECURITIES
The holders of Class A Shares are entitled to receive notice of and to attend, and to cast one vote for each Class A Share held by them at all meetings of our shareholders, other than meetings at which only the
holders of another class or series of shares (if any) are entitled to vote separately as a class or series and other than with respect to certain matters which are exclusively reserved for the holders of the Special Voting Shares.
The holders of Class A Shares, voting separately as a class, have the right to elect that number of members of the Board that is not elected by the holders of the Special Voting Shares (other than the director, if any, that holders of the Preference Shares are collectively entitled to elect), provided that at no time will the number of directors to be elected by the holders of the Class A Shares be less than two directors.
In particular, the holders of Special Voting Shares, voting separately as a class, have the right to elect that number of members of the Board that is equal to the sum of: (i) the number of members of the Board that would constitute a majority of the authorized number of our directors (after deducting one from such authorized number if the holders of the Preference Shares are collectively entitled to elect one director), plus (ii) two, subject to the rights of the holders of the Class A Shares to elect at least two members of the Board.
The holders of Class A Shares are entitled to receive, subject to the prior rights of the holders of the Preference Shares and to the pari passu rights of the holders of the Special Voting Shares, any dividend declared by the Board on the Class A Shares. We have not declared any dividends or distributions on the Class A Shares since our incorporation. Any future determination to pay dividends or make distributions will be at the discretion of the Board and will depend on our capital requirements, financial performance and such other factors as the Board considers relevant.
Subject to the rights of holders of shares ranking prior to or on a parity with the Class A Shares, the holders of Class A Shares shall be entitled to receive pari passu with the holders of Special Voting Shares, the remaining property of theScore in the event of any liquidation, dissolution or winding-up of theScore, whether voluntary or involuntary, or other distribution of the assets of theScore among its shareholders for the purpose of winding-up its affairs.
The Securities offered pursuant to this Prospectus may include Class A Shares issuable upon exercise of any Warrants, Class A Shares issuable upon conversion of any Debt Securities or Subscription Receipts, and Units comprised, in whole or in part, by Class A Shares.
DESCRIPTION OF DEBT SECURITIES
We may issue Debt Securities independently or together with other Securities, and Debt Securities sold with other Securities may be attached to or separate from the other Securities. The following description of Debt Securities sets forth certain general terms and provisions of the Debt Securities that may be offered under this Prospectus and in respect of which a Prospectus Supplement may be filed. We will provide particular terms and provisions of a series of Debt Securities and a description of how the general terms and provisions described below may apply to that series in the Prospectus Supplement relating to such series. Prospective investors should rely on information in the applicable Prospectus Supplement if it is different from the following information.
Debt Securities will be issued under one or more indentures (each, a “Debt Indenture”), in each case between the Corporation and an appropriately qualified financial institution authorized to carry on business as a trustee (each, a “Trustee”). The description below is a summary of certain anticipated provisions of the applicable Debt Indenture and should be read together with the provisions of such Debt Indenture. Accordingly, reference should also be made to the applicable Debt Indenture, a copy of which will be filed by the Corporation with applicable provincial securities commissions or similar regulatory authorities in Canada after it has been entered into and before the issue of any Debt Securities thereunder, and will be available electronically on SEDAR under our profile.
Debt Securities may be offered separately or in combination with one or more other Securities. We may also, from time to time, issue Debt Securities and incur additional indebtedness other than pursuant to Debt Securities issued under this Prospectus.
General
Debt Securities may be issued from time to time in one or more series. The Corporation may specify a maximum aggregate principal amount for the Debt Securities of any series and, unless otherwise provided in the applicable Prospectus Supplement, a series of Debt Securities may be reopened for issuance of additional Debt Securities of that series.
The Prospectus Supplement will set forth, as applicable, the following terms relating to the Debt Securities being offered:
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the specific designation and any limit on the aggregate principal amount of the Debt Securities;
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the currency or currency units for which the Debt Securities may be purchased and in which the principal and any premium or interest is payable (in either case, if other than Canadian dollars);
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the offering price (at par, at a discount or at a premium) of the Debt Securities;
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the date(s) on which the Debt Securities will be issued and delivered;
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the authorized denominations;
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whether the Debt Securities will be secured by any of the Corporation’s assets or guaranteed by any other person;
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the date(s) on which the Debt Securities will mature, including any provision for the extension of a maturity date, or the method of determining such date(s);
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the rate(s) per annum (either fixed or floating) at which the Debt Securities will bear interest (if any) and, if floating, the method of determining such rate(s);
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the date(s) from which any interest obligation will accrue and on which interest will be payable, and the record date(s) for the payment of interest or the method of determining such date(s);
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if applicable, the provisions for subordination of the Debt Securities to our other indebtedness;
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the identity of the Trustee under the applicable Debt Indenture pursuant to which the Debt Securities are to be issued;
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any redemption terms, or terms under which the Debt Securities may be defeased prior to maturity;
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any repayment or sinking fund provisions;
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any events of default applicable to the Debt Securities;
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whether the Debt Securities are to be issued in registered form or in the form of temporary or permanent global securities, and the basis of exchange, transfer and ownership thereof;
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whether the Debt Securities may be converted or exchanged for other of our Securities or those of any other entity;
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if the Debt Securities are issued as a Unit with another Security, the date on and after which the Debt Securities and the other Security will be separately transferable;
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if applicable, our ability to satisfy all or a portion of any redemption of the Debt Securities, payment of any premium or interest thereon, or repayment of the principal owing upon the maturity through the issuance of our Securities or those of any other entity, and any restrictions on the persons to whom such Securities may be issued;
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provisions applicable to amendment of the Debt Indenture; and
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any other material terms, conditions or other provisions (including covenants) applicable to the Debt Securities.
Modifications
The Corporation may amend the indentures and the Debt Securities, without the consent of the holders of the Debt Securities, to cure any ambiguity, to cure, correct or supplement any defective or
inconsistent provision, or in any other manner that will not materially and adversely affect the interests of holders of the outstanding Debt Securities. Other amendment provisions shall be as indicated in the Prospectus Supplement.
DESCRIPTION OF WARRANTS
We may issue Warrants independently or together with other Securities, and Warrants sold with other Securities may be attached to or separate from the other Securities. Warrants will be issued under and governed by the terms of one or more warrant agreements or indentures that we will enter into with one or more banks or trust companies acting as warrant agent or trustee that will be named in the applicable Prospectus Supplement.
Selected provisions of the Warrants and the warrant agreements or indentures are summarized below. This summary is not complete. The statements made in this Prospectus relating to any warrant agreement or indenture, and any Warrants to be issued thereunder, are summaries of certain anticipated provisions thereof and should be read together with the applicable Prospectus Supplement and the provisions of the applicable warrant agreement or indenture.
A description of the material terms of any Warrants that we offer, and the extent to which the general terms and provisions described in this section apply to those Warrants, will be set out in the applicable Prospectus Supplement. The Prospectus Supplement will describe some or all of the following terms relating to the Warrants being offered:
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the designation of the Warrants;
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the aggregate number of Warrants offered and the offering price, if any;
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the designation, number and terms of the Class A Shares or other Securities purchasable upon exercise of the Warrants, and procedures that will result in the adjustment of those numbers;
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the exercise price of the Warrants;
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the dates or periods on, after or during which the Warrants are exercisable;
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the designation and terms of any Securities with which the Warrants are issued and the number of Warrants that will be issued with each such Security;
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if the Warrants are issued as a Unit with another Security, the date on and after which the Warrants and the other Security will be separately transferable;
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the currency or currency unit in which the offering price, if any, and exercise price are denominated;
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any minimum or maximum amount of Warrants that may be exercised at any one time;
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whether such Warrants will be listed on any securities exchange;
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any terms, procedures and limitations relating to the transferability, exchange or exercise of the Warrants;
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whether the Warrants will be subject to redemption or call and, if so, the terms of such redemption or call provisions; and
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any other terms of the Warrants.
Warrant certificates will be exchangeable for new warrant certificates of different denominations at the office indicated in the Prospectus Supplement. Prior to the exercise of their Warrants, holders of Warrants will not have any of the rights of holders of the securities subject to the Warrants.
Modifications
The Corporation may amend the warrant agreements or indentures and the Warrants, without the consent of the holders of the Warrants, to cure any ambiguity, to cure, correct or supplement any defective or inconsistent provision, or in any other manner that will not materially and adversely affect the interests of holders of the outstanding Warrants. Other amendment provisions shall be as indicated in the Prospectus Supplement.
Enforceability
The warrant agent or trustee, as applicable, will act solely as our agent. The warrant agent or trustee, as applicable, will not have any duty or responsibility if we default under the warrant agreements or indentures or the warrant certificates. A Warrant holder may, without the consent of the warrant agent or trustee, as applicable, enforce by appropriate legal action on its own behalf the holder’s right to exercise the holder’s Warrants.
DESCRIPTION OF SUBSCRIPTION RECEIPTS
We may issue Subscription Receipts, independently or together with other Securities, and Subscription Receipts sold with other Securities may be attached to or separate from the other Securities. Subscription Receipts will be issued under one or more subscription receipt agreements that we will enter into with one or more escrow agents. If underwriters or agents are involved in the sale of Subscription Receipts, one or more of such underwriters or agents may also be parties to the subscription receipt agreement governing those Subscription Receipts. The relevant subscription receipt agreement will establish the terms of the Subscription Receipts.
A Subscription Receipt is a security of the Corporation that will entitle the holder to receive a specified number of Securities, for no additional consideration, upon satisfaction of one or more release conditions. A description of the material terms of any Subscription Receipts that we offer, and the extent to which the general terms and provisions described in this section apply to those Subscription Receipts, will be set out in the applicable Prospectus Supplement. The Prospectus Supplement will describe some or all of the following terms relating to the Subscription Receipts being offered:
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the designation of the Subscription Receipts;
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the aggregate number of Subscription Receipts offered and the offering price;
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the currency or currency unit in which the Subscription Receipts will be offered;
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the terms, conditions and procedures for which the holders of Subscription Receipts will become entitled to receive Securities;
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the number of Securities that may be obtained upon the conversion of each Subscription Receipt, the anti-dilution provisions that will result in the adjustment of that number and the period or periods during which any conversion must occur;
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the designation and terms of any other Securities with which the Subscription Receipts will be offered and the number of Subscription Receipts that will be offered with each Security;
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the gross proceeds from the sale of such Subscription Receipts, including (if applicable) the terms applicable to the escrow agent holding in escrow all or a portion of the gross proceeds from the sale of such Subscription Receipts, plus any interest earned thereon, pending satisfaction of the release conditions;
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the material income tax consequences of owning, holding and disposing of such Subscription Receipts;
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whether such Subscription Receipts will be listed on any securities exchange;
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procedures for the refund by the escrow agent to holders of Subscription Receipts of all or a portion of the subscription price for their Subscription Receipts, plus any pro rata entitlement to interest earned or income generated on such amount, if the release conditions are not satisfied;
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any entitlement of the Corporation to purchase the Subscription Receipts in the open market by private agreement or otherwise;
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if the Subscription Receipts are issued as a Unit with another Security, the date on and after which the Subscription Receipts and the other Security will be separately transferable;
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provisions as to modification, amendment or variation of the subscription receipt agreement or any rights or terms attaching to the Subscription Receipts;
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any terms, procedures and limitations relating to the transferability, exchange or conversion of the Subscription Receipts; and
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any other material terms and conditions of the Subscription Receipts.
DESCRIPTION OF UNITS
We may issue Units comprised of one or more of the other Securities described in this Prospectus in any combination. Each Unit will be issued so that the holder of the Unit is also the holder of each Security included in the Unit. Thus, the holder of a Unit will have the rights and obligations of a holder of each included Security. The unit agreement, if any, under which a Unit is issued may provide that the Securities included in the Unit may not be held or transferred separately, at any time or at any time before a specified date.
A description of the material terms of the Units that we offer, and the extent to which the general terms and provisions described in this section apply to those Units, will be set out in the applicable Prospectus Supplement. The Prospectus Supplement will describe some or all of the following terms relating to the Units being offered:
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the designation and terms of the Units and of the Securities comprising the Units, including whether and under what circumstances those Securities may be held or transferred separately;
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any provisions for the issuance, payment, settlement, transfer or exchange of the Units or of the Securities comprising the Units; and
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whether the Units will be issued as global securities and, if so, who the depositary will be.
OTHER MATTERS RELATING TO THE SECURITIES
General
The foregoing descriptions of the terms of the Debt Securities, Warrants, Subscription Receipts and Units set forth certain general terms and provisions of such Securities. The particular terms and provisions of the Debt Securities, Warrants, Subscription Receipts and Units offered by any Prospectus Supplement, and the extent to which the general terms and provisions described herein may apply to them, will be described in the Prospectus Supplement filed in respect of such Securities.
The Corporation reserves the right to include in a Prospectus Supplement specific terms pertaining to Debt Securities, Warrants, Subscription Receipts and Units that are not within the descriptions set forth in this Prospectus, provided that such Securities will not be specified derivatives or asset-backed securities. To the extent that any terms or provisions or other information pertaining to Debt Securities, Warrants, Subscription Receipts and Units described in a Prospectus Supplement differ from any of the terms or provisions or other information described in this Prospectus, the description set forth in this Prospectus shall be deemed to have been superseded by the description set forth in the Prospectus Supplement with respect to those Securities. If applicable, prospective investors should rely on information in the applicable Prospectus Supplement and read this Prospectus.
Securities offered under this Prospectus may be issued in certificated form or in book-entry-only form.
Certificated Form
Securities issued in certificated form will be registered in the name of the purchaser or its nominee on the registers maintained by our transfer agent and registrar or the applicable Trustee.
Book-Entry-Only Form
Securities issued in “book-entry-only” form must be purchased, transferred or redeemed through participants (“participants”) in a depository service of a depository identified in the Prospectus Supplement for the particular offering of Securities. Each of the underwriters, dealers or agents, as the case may be, named in the Prospectus Supplement will be a participant of the depository. On the closing of a book-entry-only
offering, we will cause a global certificate or certificates representing the aggregate number of Securities subscribed for under such offering to be delivered to, and registered in the name of, the depository or its nominee. Except as described below, no purchaser of Securities issued in book-entry-only form will be entitled to a certificate or other instrument from the Corporation or the depository evidencing that purchaser’s ownership thereof, and no purchaser will be shown on the records maintained by the depository except through a book-entry account of a participant acting on behalf of such purchaser. Each purchaser of such Securities will receive a customer confirmation of purchase from the registered dealer from which the Securities are purchased in accordance with the practices and procedures of such registered dealer. The practices of registered dealers may vary, but generally customer confirmations are issued promptly after execution of a customer order. The depository will be responsible for establishing and maintaining book-entry accounts for its participants having interests in the book-entry-only Securities. Reference in this Prospectus to a holder of book-entry-only Securities means, unless the context otherwise requires, the owner of the beneficial interest in the Securities.
If we determine, or the depository notifies us in writing, that the depository is no longer willing or able to discharge properly its responsibilities as depository with respect to the book-entry-only Securities and we are unable to locate a qualified successor, or if we at our option elect, or are required by law, to terminate the book-entry system, then such Securities will be issued in certificated form to holders or their nominees.
Transfer or Conversion of Securities
Certificated Form
Transfer of ownership or conversion of Securities held in certificated form will be effected by the registered holder of the Securities in accordance with the requirements of our transfer agent and registrar and the terms of the indenture or certificates representing such Securities, as applicable.
Book-Entry-Only Form
Transfer of ownership or conversion of Securities held in book-entry-only form will be effected through records maintained by the depository or its nominee for such Securities with respect to interests of participants, and on the records of participants with respect to interests of persons other than participants. Holders who desire to purchase, sell or otherwise transfer ownership of or other interests in the Securities may do so only through participants. The ability of a holder to pledge a Security or otherwise take action with respect to such holder’s interest in a Security (other than through a participant) may be limited due to the lack of a physical certificate.
Payments and Notices
Certificated Form
Any payment of a dividend or other payment in respect of a Security, as applicable, will be made by us, and any notices in respect of a Security will be given by the Corporation, directly to the registered holder of such Security, unless the applicable indenture in respect of such Security provides otherwise.
Book-Entry-Only Form
Any payment of a dividend or other payment in respect of a Security, as applicable, will be made by the Corporation to the depository or its nominee, as the case may be, as the registered holder of the Security and we understand that such payments will be credited by the depository or its nominee in the appropriate amounts to the relevant participants. Payments to holders of Securities of amounts so credited will be the responsibility of the participants.
As long as the depository or its nominee is the registered holder of the Securities, the depository or its nominee, as the case may be, will be considered the sole owner of the Securities for the purposes of receiving notices or payments on the Securities. In such circumstances, our responsibility and liability in respect of notices or payments on the Securities is limited to giving or making payment of any dividend or other payment due on the Securities to the depository or its nominee.
Each holder must rely on the procedures of the depository and, if such holder is not a participant, on the procedures of the participant through which such holder owns its interest, to exercise any rights with respect to the Securities. We understand that under existing industry practices, if we request any action of holders or if a holder desires to give any notice or take any action which a registered holder is entitled to give or take with respect to any Securities issued in book-entry-only form, the depository would authorize the participant acting on behalf of the holder to give such notice or to take such action, in accordance with the procedures established by the depository or agreed to from time to time by the Corporation, any trustee and the depository. Accordingly, any holder that is not a participant must rely on the contractual arrangement it has, directly or indirectly through its financial intermediary, with its participant to give such notice or take such action.
The Corporation, any underwriters, dealers or agents and any trustee identified in a Prospectus Supplement relating to an offering of Securities in book-entry-only form, as applicable, will not have any liability or responsibility for: (i) records maintained by the depository relating to beneficial ownership interests in the Securities held by the depository or the book-entry accounts maintained by the depository; (ii) maintaining, supervising or reviewing any records relating to any such beneficial ownership; or (iii) any advice or representation made by or with respect to the depository and contained in the Prospectus Supplement or in any indenture relating to the rules and regulations of the depository or any action to be taken by the depository or at the directions of the participants.
EARNINGS COVERAGE RATIOS
Earnings coverage ratios will be provided as required by applicable securities laws in the applicable Prospectus Supplement(s) with respect to the issuance of Debt Securities having a maturity in excess of one year pursuant to this Prospectus.
PRIOR SALES
Prior sales will be provided as required by applicable securities laws in the applicable Prospectus Supplement with respect to the issuance of Securities pursuant to such Prospectus Supplement.
TRADING PRICE AND VOLUME
Trading prices and volume will be provided as required by applicable securities laws in the applicable Prospectus Supplement with respect to the issuance of Securities pursuant to such Prospectus Supplement.
CERTAIN INCOME TAX CONSIDERATIONS
This Prospectus does not address the tax considerations for an investor acquiring, holding or disposing of Securities.
The applicable Prospectus Supplement may describe certain Canadian federal income tax consequences to an investor who is a resident of Canada with respect to the acquisition, ownership and disposition of any Securities offered thereunder.
In addition, the applicable Prospectus Supplement may describe certain Canadian federal income tax consequences to an investor who is a non-resident of Canada and who acquires any Securities offered thereunder, including whether certain payments on the relevant Securities will be subject to Canadian non-resident withholding tax.
The applicable Prospectus Supplement may also describe certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of any Securities offered thereunder by an initial investor who is a U.S. person (within the meaning of the United States Internal Revenue Code of 1986, as amended). Prospective investors should read the tax discussion in any Prospectus Supplement with respect to a particular offering and consult their own tax advisors prior to deciding to purchase any Securities.
RISK FACTORS
Prospective purchasers of Securities should carefully consider the risk factors described in this Prospectus, those described in a document incorporated by reference in this Prospectus (including subsequently filed documents incorporated by reference) and those described in a Prospectus Supplement relating to a specific offering of Securities. An investment in the Securities is subject to various risks, including without limitation those risks inherent to the industries in which we operate. If any of the events contemplated by these risk factors occurs, our revenues or financial condition could be materially harmed, which could adversely affect the value of the Securities. In addition to the below, discussions of certain risks affecting the Corporation in connection with our business are provided in our disclosure documents filed with the various securities regulatory authorities which are incorporated by reference in this Prospectus, including in the AIF and those described in our Annual MD&A. See “Documents Incorporated by Reference”. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Information”. Additional risks not presently known to us or that we currently consider immaterial may also materially and adversely affect us. If any of the events identified in these risks and uncertainties were to actually occur, our business, financial condition or results of operations could be materially harmed.
If we are unable to ultimately generate sufficient revenues to become profitable and have positive cash flows it could have a material adverse effect on our prospects, business, financial condition, results of operations or overall viability as an operating business.
We have a history of operating losses and we can be expected to generate continued operating losses and negative cash flows in the future while we carry out our current business plan to further develop and expand our businesses in digital sports media and mobile sports betting. We have made significant up-front investments in research and development, sales and marketing, market access for mobile sports betting and general and administrative expenses in order to rapidly develop and expand our business. We are currently incurring expenditures related to our operations that have generated negative operating cash flows from operations. The successful development and commercialization of these operations will depend on a number of significant financial, logistical, technical, marketing, legal, regulatory, competitive, economic and other factors, the outcome of which cannot be predicted. In addition, we have a limited operating history with respect to our newer product offerings such as our sports betting products, which makes it difficult to forecast future results. There is no guarantee that such operations will become profitable or produce positive cash flow or that we will be successful in generating significant revenues in the future or at all. While we can utilize cash and cash equivalents to fund our operating and development expenditures, we do not have access to material amounts under committed credit facilities or other committed sources of funding. Our inability to ultimately generate sufficient revenues to become profitable and have positive cash flows could have a material adverse effect on our prospects, business, financial condition, results of operations or overall viability as an operating business.
We may not be able to meet our financial obligations as they fall due which could have a material adverse effect on our prospects, business, financial condition and results of operations.
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. Our objective in managing liquidity is to ensure we will always have sufficient liquidity to meet our liabilities when due, under both normal and distressed conditions, without incurring unacceptable losses or risking damage to our reputation. There is no assurance that our approach to managing liquidity will prove successful and should we be unable to meet our liabilities when due it could have a material adverse effect on our prospects, business, financial condition and results of operations.
The current COVID-19 pandemic could have a material adverse effect on our business, affairs, operations, results of operations, financial condition, liquidity, availability of credit and foreign exchange exposure.
The current COVID-19 pandemic crisis continues to evolve rapidly and could have a material adverse impact on our business, affairs, operations, results of operations, financial condition, liquidity, availability of credit and foreign exchange exposure. COVID-19 is altering business and consumer activity in affected areas and beyond. The global response to the COVID-19 outbreak has resulted in, among other things,
border closures, severe travel restrictions, the temporary shut-down of non-essential services and extreme fluctuations in financial and commodity markets. Additional measures may be implemented by one or more governments in jurisdictions where we operate. Labour shortages due to illness, company or government-imposed isolation programs, or restrictions on the movement of personnel could result in a reduction or cessation of all or a portion of our operations.
The extent to which the COVID-19 pandemic may impact our business and activities will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the spread of the disease, the duration of the outbreak, new information which may emerge concerning the spread and severity of the coronavirus, actions taken by Canadian and U.S. authorities to manage this pandemic, the postponement, suspension, cancellation or rescheduling of sports leagues and sporting events, the impact of the pandemic on consumer and advertiser spending, and the ability or willingness of suppliers and vendors to provide products and services. If the coronavirus continues to spread at the current pace, disruption to consumer spending and trade could trigger a global recession.
The actual and threatened spread of COVID-19 globally could also have a material adverse effect on the regional economies in which we operate, could continue to negatively impact stock markets, including the trading price of the Class A Shares, could cause continued interest rate volatility and movements and could adversely impact our ability to raise capital.
Any of these developments, and others, could have a material adverse effect on our business, affairs, operations, results of operations, financial condition, liquidity, availability of credit and foreign exchange exposure. In addition, because of the severity and global nature of the COVID-19 pandemic, it is possible that estimates in our financial statements could change in the near term and the effect of any such changes could be material, which could result in, among other things, an impairment of non-current assets and a change in the expected credit losses on accounts receivable. We are constantly evaluating the situation and monitoring any impacts or potential impacts on our business.
We may use the Proceeds from the Sale of Securities for purposes other than those set out in this Prospectus and any Prospectus Supplement.
Unless otherwise stated in any Prospectus Supplement, we currently intend to allocate the net proceeds received from any sale of Securities as described under the heading “Use of Proceeds” in this Prospectus. However, management will have discretion in the actual application of the proceeds, and may elect to allocate proceeds differently from that described under the heading “Use of Proceeds” in this Prospectus and any Prospectus Supplement, as applicable, if it believes that it would be in our best interests to do so if circumstances change. The failure by management to apply these funds effectively could have a material adverse effect on our business.
There is currently no existing market through which the Securities, other than the Class A Shares, may be sold.
Other than for Class A Shares, there is no market through which the Securities may be sold and purchasers may not be able to resell any such Securities purchased under this Prospectus and any Prospectus Supplement. There can be no assurance that an active trading market will develop for Debt Securities, Warrants, Subscription Receipts or Units after an offering or, if developed, that such market will be sustained. This may affect the pricing of such Securities in the secondary market, the transparency and availability of trading prices, the liquidity of the Securities, and the extent of issuer regulation.
The public offering prices of the Securities may be determined by our negotiations with the applicable underwriters, dealers, agents or other purchasers based on several factors and may bear no relationship to the prices at which the Securities will trade in the public market subsequent to such offering, if any public market develops. See “Plan of Distribution”.
We may require substantial additional equity or debt financing in order to carry out our business objectives and failure to obtain sufficient financing could have a material adverse effect on our business, financial condition and results of operations.
Despite the anticipated net proceeds from the sale of Securities, we may require substantial additional equity or debt financing in order to carry out our business objectives, including the continued development
of new and upgraded functionality of our products and services. There can be no assurance that debt or equity financing or cash generated by operations would be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it would be on terms acceptable to us. Failure to obtain sufficient financing may result in the delay or indefinite postponement of development or production on any or all of our products and services which could have a material adverse effect on our business, financial condition and results of operations. In addition, any future financing may also be dilutive to our existing shareholders.
We have a major shareholder with 100% of the Special Voting Shares and the ability to significantly influence the election of directors and to generally direct our affairs.
Mr. John Levy controls or directs 100% of our issued and outstanding Special Voting Shares and approximately 18.1% of our outstanding Class A Shares. As a result, Mr. Levy is entitled to nominate a majority of the members of our board of directors and he has the ability to influence the outcome of matters submitted to our shareholders for approval, which include amendments to our corporate governing documents and business combinations. Our interests and the interests of other shareholders may at times conflict with those of Mr. Levy, and this conflict might be resolved against our interests and the interests of other shareholders. Due to these shareholdings and contractual rights of Mr. Levy and John Levy Family Holdings Ltd., Mr. Levy will be in a position to determine whether we or our operations are acquired by a third party, to significantly influence the election of the members of our board of directors and the board of directors of our subsidiaries and to generally direct our affairs.
AUDITORS, TRANSFER AGENT AND REGISTRAR
Our independent auditor is KPMG LLP, Chartered Professional Accountants, Licensed Public Accountants, Vaughan Metropolitan Centre, 100 New Park Place, Suite 1400, Vaughan, Ontario L4K 0J3.
The registrar and transfer agent of the Class A Shares is Computershare Trust Company of Canada at its principal office at 100 University Avenue, North Tower, 8th Floor, Toronto, Ontario.
LEGAL MATTERS AND INTEREST OF EXPERTS
Unless otherwise specified in the Prospectus Supplement relating to the Securities, certain legal matters in connection with the offering of Securities will be passed upon on behalf of the Corporation by McCarthy Tétrault LLP. As of the date of this Prospectus, the partners and associates of McCarthy Tétrault LLP as a group beneficially own, directly or indirectly, less than 1% of the outstanding Class A Shares of the Corporation. In addition, certain legal matters in connection with any offering of Securities will be passed upon for any underwriters, dealers or agents by counsel to be designated at the time of the offering in the applicable Prospectus Supplement by such underwriters, dealers or agents.
KPMG LLP, are the auditors of the Corporation. KPMG LLP has confirmed that it is independent of the Corporation, within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulation.
WHERE TO FIND MORE INFORMATION
Statements included or incorporated by reference in this Prospectus about the contents of any contract, agreement or other documents referred to are not necessarily complete, and in each instance, you should refer to this Prospectus for a complete description of the matter involved. Each time we sell Securities under this Prospectus, we will provide a Prospectus Supplement that will contain specific information about the terms of that offering. The Prospectus Supplement may also add, update or change information contained in this Prospectus.
We file annual and quarterly financial information and material change reports, business acquisition reports and other material with the securities commission or similar regulatory authority in each of the provinces of Canada, other than the Province of Quebec. You may read and download any public document that we have filed with the securities commission or similar regulatory authority in all provinces of Canada except the Province of Quebec on SEDAR at www.sedar.com. Documents filed on SEDAR are not incorporated by reference into the Prospectus unless expressly provided herein or therein.
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED
TO OFFEREES OR PURCHASERS
Indemnification of Directors and Officers
Under the Business Corporations Act (British Columbia) (the “BCBCA”) the Registrant may indemnify a director or officer, a former director or officer, or an individual who acts or acted as a director or officer of an affiliate of the Registrant, or at the Registrant’s request as a director or officer (or in a similar capacity) of another corporation or other entity, against all judgments, penalties or fines awarded or imposed in, or amounts paid in settlement of, any legal proceeding or investigative action, whether current, threatened, pending or completed, in which such individual or any of his or her heirs and personal or other legal representatives is or may be joined as a party, or is or may be liable for in respect of a judgment, penalty or fine in, or expenses related to such legal proceeding or investigative action because of serving in such capacity, on condition that (i) the individual acted honestly and in good faith with a view to the best interests of the Registrant or such other corporation or entity, and (ii) in the case of such a proceeding or investigative action other than a civil proceeding, the individual had reasonable grounds for believing that his or her conduct was lawful. The Registrant may, after the final disposition of such a legal proceeding or investigative action, pay all costs, charges and expenses, including legal and other fees, actually and reasonably incurred by such person described above in respect of such a legal proceeding or investigative action, providing such person complies with (i) and (ii) above. The Registrant may, as they are incurred in advance of the final disposition of such legal proceeding or investigative action, pay such costs, charges and expenses as they are actually and reasonably incurred by such person described above, provided it obtains a written undertaking that such person will repay the amounts advanced if it is ultimately determined that the individual did not comply with (i) and (ii) above. Under the BCBCA, an individual described above is entitled to indemnification from the Registrant in respect of such costs, charges and expenses actually and reasonably incurred after the final disposition of such legal proceeding or investigative action as a matter of right if the individual has not been reimbursed for such costs, charges and expenses and is wholly successful in the outcome of such legal proceeding or investigative action, or is substantially successful on the merits thereof, providing such individual complies with (i) and (ii) above. On application of the Registrant or an individual described above, the Supreme Court of British Columbia may order (A) the Registrant to indemnify a person described above in respect of any liability incurred by such person in respect of such a legal proceeding or investigative action, (B) the Registrant to pay some or all of the expenses incurred by such individual in respect of such legal proceeding or investigative action, (C) the enforcement of, or any payment under, an agreement of indemnification entered into by the Registrant, (D) the Registrant to pay some or all of the expenses actually and reasonably incurred by such person described above in obtaining such an order, and/or (E) any other order that the Court considers appropriate.
The Articles of the Registrant provide that the Registrant must indemnify a person named above, and such person’s heirs and legal personal representatives to the extent permitted by the BCBCA.
The Articles of the Registrant provide that the Registrant may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Registrant) by reason of the fact he or she is or was an employee or agent of the Registrant, or was serving at the request of the Registrant as an employee, agent of or participant in another entity against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by him or her in connection with such action, suit or proceeding, provided that the person acted honestly and in good faith with a view to the best interests of the Registrant or, as the case may be, to the best interests of the other entity for which he or she served at the Registrant’s request, and (ii) with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his or her conduct was lawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction will not, of itself, create a presumption that the person did not act honestly and in good faith with a view to the best interests of the Registrant or other entity and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had no reasonable grounds for believing that his or her conduct was lawful.
A policy of directors’ and officers’ liability insurance is maintained by the Registrant which insures directors and officers for losses as a result of claims against the directors and officers of the Registrant in their capacity as directors and officers and also reimburses the Registrant for payments made pursuant to the indemnity provisions under the Articles of the Registrant and the BCBCA.
* * *
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.
The exhibits listed in the exhibit index, appearing elsewhere in this Registration Statement, have been filed as part of this Registration Statement.
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Item 1. Undertaking
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to Form F-10 or to transactions in said securities.
Item 2. Consent to Service of Process
A written Appointment of Agent for Service of Process and Undertaking on Form F-X for the Registrant and its agent for service of process is being filed concurrently herewith.
Any change to the name or address of the agent for service of process of the Registrant shall be communicated promptly to the Commission by amendment to Form F-X referencing the file number of this Registration Statement on Form F-10.
EXHIBIT INDEX
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Exhibit
Number
|
|
|
Description
|
|
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|
4.1
|
|
|
Annual information form of the Registrant dated October 28, 2020 for the year ended August 31, 2020.
|
|
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|
4.2
|
|
|
Audited consolidated financial statements of the Registrant as at and for the years ended August 31, 2020 and 2019, together with the notes thereto and the auditors’ report thereon.
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|
|
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4.3
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|
|
Management’s discussion and analysis of financial condition and results of operations of the Registrant for the years ended August 31, 2020 and 2019.
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4.4
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|
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Unaudited condensed consolidated interim financial statements for the three months ended November 30, 2020 and 2019, together with the notes thereto.
|
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4.5
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|
|
Management’s discussion and analysis of financial condition and results of operations of the Registrant for the three months ended November 30, 2020 and 2019.
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|
|
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4.6
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|
|
Notice of annual and special meeting of shareholders and management information circular of the Registrant dated January 8, 2021.
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4.7
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|
Material change report of the Registrant dated December 2, 2020 regarding an offering of 28,572,000 of the Registrant’s Class A Subordinate Voting Shares at a price per share of C$1.40.
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4.8
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Material change report of the Registrant dated February 15, 2021 regarding the implementation of the Registrant’s share consolidation on the basis of a consolidation ratio of 10:1.
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5.1
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Consent of KPMG LLP.
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5.2
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Consent of McCarthy Tétrault LLP.
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|
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5.3
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Consent of Blake, Cassels & Graydon LLP.
|
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6.1
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Powers of Attorney (included on the signature page of this Registration Statement).
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-10 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Toronto, Ontario, on February 22, 2021.
SCORE MEDIA AND GAMING INC.
By:
/s/ Benjamin Levy
Name: Benjamin Levy
Title: President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John Levy, Benjamin Levy and Alvin Lobo, or any of them, his or her true and lawful attorneys-in-fact and agents, each of whom may act alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this Registration Statement, including post-effective amendments, and any and all additional registration statements (including amendments and post-effective amendments thereto) in connection with any increase in the amount of securities registered with the Securities and Exchange Commission, and to file the same, with all exhibits thereto, and other documents and in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, and hereby ratifies and confirms all his or her said attorneys-in-fact and agents or any of them or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original, but which taken together shall constitute one instrument.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated and on the dates indicated.
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Signature
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Capacity
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Date
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/s/ John Levy
John Levy
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Chairman and Chief Executive Officer (Principal Executive Officer)
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February 22, 2021
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/s/ Alvin Lobo
Alvin Lobo
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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February 22, 2021
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/s/ Benjamin D. Levy
Benjamin D. Levy
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President, Chief Operating Officer and Director
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February 22, 2021
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/s/ Ralph E. Lean
Ralph E. Lean
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Director
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February 22, 2021
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/s/ John Albright
John Albright
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Director
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February 22, 2021
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/s/ Brian Cooper
Brian Cooper
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Director
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February 22, 2021
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/s/ Angela Ruggiero
Angela Ruggiero
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Director
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February 22, 2021
|
|
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/s/ Mark A. Scholes
Mark A. Scholes
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Director
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February 22, 2021
|
|
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/s/ William E. Thomson
William E. Thomson
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|
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Director
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|
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February 22, 2021
|
|
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, as amended, the undersigned has signed this Registration Statement, in the capacity of the duly authorized representative of the Registrant in the United States, on February 22, 2021.
SCOREMOBILE, INC.
By:
/s/ Benjamin Levy
Name: Benjamin Levy
Title: President and Chief Operating Officer
Exhibit 4.1
SCORE MEDIA AND GAMING
INC.
ANNUAL INFORMATION FORM
For the year ended
August 31, 2020
October 28, 2020
TABLE OF CONTENTS
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Page No.
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ANNUAL INFORMATION FORM
|
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5
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FORWARD-LOOKING INFORMATION AND FORWARD-LOOKING STATEMENTS
|
|
5
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|
CORPORATE STRUCTURE and history
|
|
6
|
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GENERAL DEVELOPMENT OF THE BUSINESS – three year history
|
|
7
|
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THE BUSINESS OF THEscore
|
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9
|
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General Description of the Business
|
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9
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theScore
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9
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theScore esports
|
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9
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theScore Bet
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|
10
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COVID-19 – Operational Update
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10
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Employees
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11
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Properties
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11
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User Demographics and User Metrics
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11
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Revenues
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13
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Competitive Conditions
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13
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Market Trends
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14
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U.S. Gaming Regulatory Landscape
|
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15
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U.S. Jurisdictions where theScore Bet Currently Operates
|
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15
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New Jersey
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15
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Indiana
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16
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Colorado
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|
17
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Canadian Gaming Regulatory Landscape
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|
17
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risk factors
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|
18
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Risks Related to Our Business and Industry
|
|
18
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Regulation of Gaming Industry
|
|
18
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|
Continued Support of Banks and Payment Processors
|
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21
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|
Losses with Respect to Individual Events or Betting Outcomes
|
|
22
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|
Competition in the Online and Mobile Sports Betting and Media Industry
|
|
22
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Digital Sports Media Industry Reliant on Mobile Advertising
|
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24
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Recent Expansion of Sports Betting Operations
|
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24
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|
Historical Losses and Negative Operating Cash Flows
|
|
24
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Liquidity Risk
|
|
25
|
|
COVID-19
|
|
25
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|
Cancellation, Postponement or Curtailing of Sporting and Other Events
|
|
25
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|
Reductions in Discretionary Consumer Spending
|
|
26
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|
Dependence on Key Suppliers
|
|
26
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|
Mobile Device Users May Limit Data Tracking and Targeting
|
|
27
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|
New and Evolving Industry
|
|
27
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|
Limited Long-Term Agreements with Advertisers
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|
27
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|
Substantial Capital Requirements
|
|
28
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|
Protection of Intellectual Property
|
|
28
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|
Infringement on Intellectual Property
|
|
28
|
|
Brand Development
|
|
29
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|
Corporate Social Responsibility, Responsible Gaming, Reputation and Ethical Conduct
|
|
29
|
|
Dependence on Key Personnel and Employees
|
|
30
|
|
Defects in Products
|
|
30
|
|
Real or Perceived Inaccuracies in Key Performance Metrics
|
|
31
|
|
User Data
|
|
31
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|
Reliance on Collaborative Partners
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|
32
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|
New Business Areas and Geographic Markets
|
|
32
|
|
Operational and Financial Infrastructure
|
|
33
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|
Information Technology Defects
|
|
33
|
|
Reliance on Third-Party Owned Communication Networks
|
|
33
|
|
Uncertain Economic Health of the Wider Economy
|
|
34
|
|
Governmental Regulation of the Internet
|
|
34
|
|
Currency Fluctuations
|
|
36
|
|
Changes in Taxation
|
|
36
|
|
Exposure to Taxable Presences
|
|
36
|
|
Risk of Litigation
|
|
36
|
|
Internal Controls
|
|
36
|
|
Free and Open Source Software Utilization
|
|
36
|
|
Risk Relating to Ownership of theScore Shares
|
|
37
|
|
Major Shareholder with 100% of the Special Voting Shares
|
|
37
|
|
Market Price and Trading Volume of Class A Shares
|
|
37
|
|
Debt Obligations Will Have Priority Over Class A Shares in the Event of a Liquidation, Dissolution or Winding Up
|
|
37
|
|
Dividend Policy
|
|
38
|
|
Future Sales of Class A Shares by Existing Shareholders
|
|
38
|
|
Potential Dilution
|
|
38
|
|
Dividends
|
|
38
|
|
Description of Capital Structure
|
|
39
|
|
Class A Shares
|
|
39
|
|
Special Voting Shares
|
|
39
|
|
Preference Shares
|
|
40
|
|
Share Constraints
|
|
42
|
|
MARKET FOR SECURITIES
|
|
42
|
|
DIRECTORS AND OFFICERS
|
|
42
|
|
Name and Occupation
|
|
42
|
|
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
|
|
45
|
|
Conflicts of Interest
|
|
45
|
|
Audit Committee
|
|
46
|
|
Audit Committee
|
|
46
|
|
Relevant Education and Experience
|
|
46
|
|
Pre-Approval Policies and Procedures
|
|
46
|
|
External Auditor Service Fees
|
|
47
|
|
LEGAL PROCEEDINGS
|
|
47
|
|
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
|
|
47
|
|
Registrar and Transfer Agent
|
|
47
|
|
MATERIAL CONTRACTS
|
|
48
|
|
Respective Rights Agreement
|
|
48
|
|
Management Services Agreement
|
|
49
|
|
Board Nomination Agreement
|
|
49
|
|
Relay Ventures Pre-emptive Rights Agreement
|
|
49
|
|
Coat Tail Agreement
|
|
50
|
|
Investment Agreement and Convertible Debenture
|
|
50
|
|
INTEREST OF EXPERTS
|
|
51
|
|
ADDITIONAL INFORMATION
|
|
51
|
|
SCHEDULE A
|
|
52
|
SCORE MEDIA AND GAMING INC.
ANNUAL
INFORMATION FORM
All references in this annual information
form (“AIF”) to “theScore”, “we”, “us” and “our” refers to Score
Media and Gaming Inc. and its direct and indirect subsidiaries unless otherwise noted or the context requires otherwise. All information
contained herein is as of August 31, 2020 unless otherwise noted.
All dollar amounts in this AIF are expressed
in Canadian dollars, unless otherwise noted.
Certain trademarks used in this AIF, such
as “theScore”, “theScore Bet”, “theScore esports”, “theScore.com”, “theScore.bet”,
and “theScoreesports.com”, and theScore logo, theScore | Bet logo, S | Bet logo, theScore esports logo and the “S”
icon are trademarks or registered trademarks of theScore. All other trademarks or services marks appearing in this AIF are the
trademarks or service marks of their respective owners.
References in this AIF to research reports
or articles should not be construed as depicting the complete findings of the entire referenced report or article. The information
in each report or article is not incorporated by reference into this AIF.
FORWARD-LOOKING
INFORMATION AND FORWARD-LOOKING STATEMENTS
Certain statements made in this AIF constitute
forward-looking statements that are made as of the date hereof. All statements other than statements of historical fact contained
in this AIF, including, without limitation, those regarding our future financial position and results of operations, strategy,
plans, objectives, goals and targets, including in light of the ongoing and evolving COVID-19 pandemic, regulatory approvals, future
developments in the markets where we participate or are seeking to participate, and any statements preceded by, followed by or
that include the words “aim,” “anticipate,” “believe,” “continue,” “plan,”
“estimate,” “expect,” “forecast,” “intend,” “predict,” “project,”
“seek,” “will,” “would,” “may” and “should” or similar expressions
or the negative thereof, are forward-looking statements. These forward-looking statements are not historical facts but reflect
our current expectations concerning future results and events, and relate to, among other things, anticipated financial performance,
business prospects, strategies, regulatory developments, new services, market forces, commitments and technological developments.
By its nature, such forward-looking information is subject to various risks and uncertainties, including risks related to our operating
in an evolving regulatory landscape, continued support of banks and payment processors, losses with respect to individual events
or betting outcomes, competition in the online and mobile sports betting industry, regulatory investigations, market access limitations,
shareholders being subject to extensive governmental regulation, industry social responsibility concerns, reliance on mobile advertising,
recent expansion of our sports betting operations, our historical losses and negative operating cash flows, liquidity risk associated
with meeting our financial obligations, the impacts of COVID-19, cancellations and delays of sporting and other events, reductions
in discretionary consumer spending, our dependence on key suppliers, the possibility of mobile device users limiting targeted advertising,
the new and evolving industries in which we operate, our limited long-term agreements with advertisers, our potential requirements
for substantial capital, the protection of our intellectual property, the possibility of infringing on the intellectual property
of others, our brand development, our responsible and ethical conduct, our dependence on key personnel, rapid technology developments,
defects in products, inaccuracies in key performance metrics, user data, reliance on collaborative partners, our expansion into
new business areas and geographic markets and several other risk factors, including those discussed in this AIF, which could cause
our actual results and experience to differ materially from the anticipated results or other expectations expressed (see “RISK
FACTORS”). Readers are cautioned not to place undue reliance on this forward-looking information, and we disclaim any
intention or obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by applicable law. The forward-looking statements and information contained in this AIF
are expressly qualified by this cautionary statement.
CORPORATE
STRUCTURE and history
theScore was incorporated pursuant to the
Business Corporations Act (Ontario) on August 30, 2012 under the name “theScore, Inc.” and continued
under the Business Corporations Act (British Columbia) on August 29, 2019 under the name “Score Media and Gaming
Inc.”
Our fiscal year commences September 1st
of each year and ends on August 31st of the following year. Our fiscal year which ended on August 31, 2020
is referred to as “current fiscal year”, “fiscal 2020”, “F2020” or using similar words. Our
previous fiscal year which ended on August 31, 2019 is referred to as “previous fiscal year”, “fiscal 2019”,
“F2019” or using similar words.
Our principal place of business is 500
King Street West, 4th Floor, Toronto, Ontario, M5V 1L9 and our registered office is 745 Thurlow Street, Suite 2400,
Vancouver, British Columbia, V6E 0C5.
The following chart depicts the intercorporate
relationships among theScore and its material subsidiaries (all of which are wholly-owned) as of the date of this AIF:
GENERAL
DEVELOPMENT OF THE BUSINESS – three year history
Highlights of Fiscal 2020
We began the multi-state expansion of our
mobile sports betting app, theScore Bet, launching in both Colorado and Indiana in September 2020. theScore Bet is authorized
to operate in Colorado by the Colorado Division of Gaming, via our market access agreement with a subsidiary of U.S. gaming operator
Jacobs Entertainment Inc. theScore Bet is authorized to operate in Indiana by the Indiana Gaming Commission, via our multi-state
market access framework agreement with Penn National Gaming Inc. theScore Bet first launched in New Jersey in September 2019
as authorized by the New Jersey Division of Gaming Enforcement, via our December 2018 market access agreement with Darby
Development LLC, the operator of Monmouth Park Racetrack, and the New Jersey Thoroughbred Horsemen’s Association.
After receiving final approval to graduate
to the Toronto Stock Exchange (“TSX”) from the TSX Venture Exchange (“TSXV”), our Class A
Subordinate Voting Shares (“Class A Shares”) commenced trading on the TSX at market open on September 15,
2020 under the existing ticker “SCR”. Our Class A Shares were voluntarily delisted from the TSXV concurrently
with the commencement of trading on the TSX.
theScore Bet secured market access to operate
an online casino (iGaming) in New Jersey via a market access agreement with Twin River Worldwide Holdings Inc. We anticipate launching
our online casino product in New Jersey in the second half of 2021, subject to securing applicable licensing and regulatory approvals
from the New Jersey Division of Gaming Enforcement and the completion of Twin River’s pending acquisition of Bally’s
Atlantic City Hotel & Casino in Atlantic City, New Jersey.
We announced a multi-year agreement to
become an Authorized Gaming Operator of Major League Baseball (“MLB”), providing us with access to Official
MLB Data, league marks, and logos for theScore Bet. We also became an Authorized Sports Betting Operator of the National Basketball
Association (“NBA”) in a multiyear partnership. The agreement provides us with access to Official NBA Betting
Data, leagues marks, and logos for theScore Bet.
We unveiled FUSE, a new suite of innovative
integrations linking our media and sports betting platforms, creating faster and more seamless navigation between theScore and
theScore Bet. Available on iOS devices, FUSE enables sports fans to create betslips from within theScore app for the first time,
with a single tap then taking registered users directly into theScore Bet to complete the wager.
We announced the appointment of two experienced
gaming executives to our senior leadership team. In September 2019, Alvin Lobo joined as Chief Financial Officer from major
U.S.-based casino operator Boyd Gaming Corporation, where he served as Vice President of Corporate Finance. In December 2019,
we appointed Josh Sidsworth as General Counsel and Chief Compliance Officer. Josh previously served as Executive Vice President
Corporate Development and General Counsel with the NRT Group of Companies, a leading supplier of ticket redemption kiosks and payment
processing solutions to casinos worldwide.
We closed a bought deal public offering
of our Class A Shares via short-form prospectus (the “Offering”), raising gross proceeds of $25,649,390.
Canaccord Genuity Corp. and Eight Capital acted as lead underwriters for the Offering on behalf of a syndicate of underwriters
which also included Cormark Securities Inc., INFOR Financial Inc. and Scotia Capital Inc. Net proceeds from the Offering will
be used to fund working capital and other general corporate purposes, including the growth and expansion of our sports betting
operations in the U.S. and Canada by supporting the multi-jurisdiction deployment and operation of theScore Bet and user acquisition
and retention in jurisdictions where we are, or will be, operating.
Highlights of Fiscal 2019
We secured market access rights to offer online and mobile sports betting and iGaming applications in 11 U.S. states in July 2019
via a 20-year multi-state market access framework agreement with Penn National Gaming Inc. In connection with this market
access framework agreement, Penn National took an equity stake in theScore by subscribing for US$7.5 million of Class A Shares
as part of a US$10 million private placement, alongside other investors including John Levy Family Holdings Ltd., the family holding
company of theScore Founder and CEO John Levy, with proceeds used to support the expansion of our sports betting platform in the
U.S., including the funding of an upfront market access fee of US$7.5 million due to Penn National under the framework agreement.
In August 2019, we entered into an
investment agreement with a fund managed and controlled by Fengate Asset Management, raising $40,000,000 to fund the growth and
development of the our businesses. Under the terms of the agreement, Fengate purchased a $40,000,000 8.00% convertible unsecured
subordinated debenture of our company, due August 31, 2024. This strategic investment closed on September 5, 2019.
To support the development and launch of
our mobile sportsbook, we executed a binding term sheet with U.S.-based sportsbook platform provider Bet.Works, whose proprietary
sports betting technology is being used to power theScore’s sports betting platforms. Bet.Works is our exclusive supplier
of sportsbook platform technology in the U.S. and is also providing certain operational services to facilitate our sports betting
operations.
In November 2018, we closed a non-brokered
$8.5 million private placement, with proceeds used to support our sports betting related business development activities, as well
as for working capital and general corporate purposes. Participants included John Levy Family Holdings Ltd., Relay Ventures Fund
II L.P. and Relay Ventures Parallel Fund II L.P., entities controlled by directors of the Company.
We updated our flagship mobile sports media
application ‘theScore’ to include new innovative public chat and messaging features, helping our community of fans
connect around the games and content they love. Public chat is available in every matchup page, while fans can also set-up group
messaging with friends and family or just chat 1-1.
We continued to expand our video strategy
across our primary sports vertical, creating longer-form video content episodes, including features on high-profile athletes including
NBA stars Serge Ibaka, Austin Rivers, and Enes Kanter.
theScore esports continued to establish
itself as a leading provider of esports video content. In F2019, subscribers to our YouTube channel more than doubled from F2018
to over 900,000 subscribers. In November 2018, theScore esports won Best Category Specific YouTube Channel at the 2018 Cynopsis
Model D Awards in New York City, beating out a number of primetime competitors, including The Ellen Show.
Highlights of Fiscal 2018
In May 2018, the Supreme Court of
the United States struck down the Professional and Amateur Sports Protection Act of 1992 (‘PASPA’), an Act that largely
outlawed sports betting outside Nevada, effectively clearing a path for the legalization of sports betting in the United States.
We redesigned our website, theScore.com,
creating a stronger connection between the look and feel of our mobile application and our web platforms. In addition, we redesigned
the PGA golf section of theScore app to provide deeper stats coverage and personalization options.
We extended our video strategy to our primary
sports vertical, launching the first of a new longer-form video content series “theScore X” in Q4 F2018, which debuted
with a feature on NBA star Lance Stephenson.
We launched our service for Bixby Home,
resulting in our news and data content being available to users on Samsung Galaxy devices, including their flagship S9 and S9+
devices, across the United States. Users are able to access our content by swiping through to Bixby Home, the name of Samsung’s
personal assistant.
THE
BUSINESS OF THEscore
General Description of the Business
Score Media and Gaming Inc. empowers
millions of sports fans through our digital media and sports betting products. Our media app ‘theScore’ is one of the
most popular in North America, delivering fans highly-personalized live scores, news, stats, and betting information from their
favourite teams, leagues, and players. Our sports betting app ‘theScore Bet’ delivers an immersive and holistic mobile
sports betting experience and is currently available to place wagers in New Jersey, Colorado, and Indiana. We also create and distribute
innovative digital content through our web, social and esports platforms.
theScore
Natively developed for iOS and Android
operating systems, theScore app is free to end users and delivers comprehensive and customizable news, scores, stats, and notifications
for all major leagues and sports, including the National Football League (“NFL”), NCAA Football and Basketball,
the National Basketball Association (“NBA”), Major League Baseball (“MLB”), the National
Hockey League (“NHL”), PGA Golf, NASCAR Racing and major European soccer leagues, including the English Premier
League and Champions League, as well as special events such as the Olympic Games and FIFA World Cup. theScore app provides sports
fans with deep personalization options, allowing them to follow and receive push notifications on news, scores and stats from their
favourite teams and fantasy players in real-time with customizable feeds and seamless social sharing. We deliver comprehensive
original news content across all major leagues and competitions, presenting stories in a way to make them easily consumable on
mobile devices, including rich visuals and multimedia such as videos and embedded tweets. theScore app also includes innovative
public chat and messaging features, enabling our community of fans to connect around the games and content they love. News stories
are produced by our industry-leading mobile-first newsroom, where a team of news editors creates content via our in-house content
management system that allows them to deliver mobile news to the user. During F2019, we also introduced additional sports betting
data and content into theScore app. Coinciding with the launch of theScore Bet, in September 2019 we unveiled ‘Bet Mode’
in our sports media app. When Bet Mode is activated, sports app users unlock access to even faster scoring updates and data, with
no need to pull-to-refresh, real-time odds, and additional betting content.
Users of theScore app are primarily located
in North America. In the year ended August 31, 2020, the location of the audience for theScore app on iOS and Android was
approximately 62% in the United States, 27% in Canada and 11% in other international markets.
theScore.com is our principal web property.
It provides sports news, scores, video and editorial content written by a roster of original, engaging sports voices, while curating
the best and most relevant sports content from around the web. theScore.com is fully responsive and provides a great viewing experience
for sports fans across a wide range of devices and screens, combined with all the news and data fans have come to expect from our
flagship mobile app.
We continue to support our marketing efforts
through a dedicated team of social media editors, content creators and curators, who are responsible for sharing and syndicating
our editorial content and other multimedia through social platforms including Facebook, Twitter, Instagram, TikTok, and other
third-party platforms. This syndication increases the exposure of our brand and editorial content and drives users back to theScore.com.
theScore esports
We also provide comprehensive coverage
of the growing competitive video gaming scene through theScore esports. Via a dedicated newsroom of specialist content creators,
theScore esports produces and shares original video content pieces across its web and social platforms, including features and
documentaries on high-profile teams, games and players from across the world of esports, as well as highlights and interviews.
theScore esports’ video content is distributed across YouTube, Facebook, Twitter, Instagram, and TikTok.
theScore Bet
Launched
in New Jersey in September 2019, theScore Bet is a comprehensive mobile sports betting platform natively built for iOS and
Android devices that delivers an immersive and holistic sports betting experience. theScore Bet delivers a wide variety of pre-game
and in-game markets and betting options, scores and in-game data, features like early cash-out, and easy and secure deposit and
withdrawal options. Fans are able to place bets on sports including NFL and NCAA football, NBA and NCAA basketball, MLB baseball,
NHL hockey, PGA golf, ATP and WTA tennis, MMA, and boxing as well as soccer from the UEFA Champions League and Europa League,
English Premier League, La Liga, Bundesliga, Ligue 1 and MLS. theScore Bet also delivers a seamless cross-state experience for
sports fans as it expands across the U.S. via a single mobile app and cutting-edge multi-state wallet functionality.
In November 2019, we introduced FUSE,
a new suite of innovative integrations linking theScore app with theScore Bet. Currently available on iOS devices, FUSE allows
users to create bet slips from within theScore app, including markets for money lines, spreads and totals. These native integrations
have been embedded into theScore app’s box scores, where users can leverage deep data, scores, and stats to inform, support
and now build their bet slip. A single tap then takes registered users directly into theScore Bet to complete the wager.
theScore Bet is authorized to provide sports
betting services in New Jersey (by the New Jersey Division of Gaming Enforcement, via our market access agreement with Darby Development
LLC, the operator of Monmouth Park Racetrack), in Colorado (by the Colorado Division of Gaming, via our market access agreement
with a subsidiary of Jacobs Entertainment Inc.), and in Indiana (by the Indiana Gaming Commission, via a multi-state market access
framework agreement with Penn National Gaming). We also have market access for up to 10 additional states via our multi-state market
access agreements with Penn National Gaming, subject to the enactment of enabling state gaming laws and regulations, and the receipt
of relevant licenses and approvals. theScore Bet also has market access to operate an online casino in New Jersey via a multi-year
agreement with Twin River Worldwide Holdings, Inc. and anticipates launching its online casino product in the state in the
second half of calendar 2021, subject to securing applicable licensing and regulatory approvals from the New Jersey Division of
Gaming Enforcement and the completion of Twin River’s pending acquisition of Bally’s Atlantic City Hotel &
Casino in Atlantic City, New Jersey.
We are a Platinum member of the National
Council on Problem Gambling, whose mission is to lead state and national stakeholders in the development of comprehensive policy
and programs for all those affected by problem gambling. theScore Bet is committed to promoting safe, responsible gaming, and we
provide our users with access to responsible gaming resources and a suite of tools within theScore Bet app in order to help keep
betting safe and fun.
COVID-19 – Operational Update
In March 2020, the COVID-19 pandemic
led to the unprecedented postponement, suspension or cancellation of sporting events on a global scale. We actively responded by
taking measures to ensure the health and safety of our team members, and to mitigate the business impact on theScore. We successfully
adopted a mandatory work-from-home program and, as substantially all of our day-to-day activities can be fully performed by personnel
working remotely, have been able to remain fully operational during this period. We also took measures to manage costs, including
the reduction of operating expenses and availing ourselves of all applicable government programs. As part of these cost management
efforts, every member of theScore’s management team agreed to forego 25% of their salary from May 1 to August 31,
2020 in exchange for an equivalent grant of Restricted Stock Units (“RSU”) in theScore, and a variation of this
program was also made available on an optional basis to all full-time staff.
The extent to which the COVID-19 pandemic
may impact our business and activities will depend on future developments which remain highly uncertain and cannot be predicted
with confidence, such as the spread and severity of the disease, the duration of the outbreak including any possible resurgence,
and actions taken by the Canadian and U.S. authorities to control the spread of the virus, as well as the postponement, suspension,
cancellation, rescheduling and resumption of sporting events, the impact of the pandemic on consumer and advertiser spending, and
the ability or willingness of suppliers and vendors to provide products and services.
Despite the unprecedented disruption to
the sports calendar, we achieved 2.9 million and 3.0 million average monthly active users of theScore app on iOS and Android in
Q3 and Q4 F2020 respectively, representing nearly 75% and 83% of our average monthly active users achieved in the same periods
the previous year. Live sports drive significant engagement in theScore app, and the disruption to the sports calendar led to an
expected decline in engagement in Q3 and Q4 F2020. However, our focus on delivering innovative and interactive content during these
periods resulted in users continuing to engage with theScore app, with 35 average monthly sessions-per-user during Q3 F2020 and
70 average monthly sessions-per-user during Q4 F2020, with the increase in engagement in Q4 coinciding with the gradual resumption
of major sports leagues and events.
Employees
As of August 31, 2020, we had 239
full-time employees and 12 part-time employees based in Toronto and 19 full time employees and one part-time employee in the United
States. Of our 271 employees, 111 are involved in software and product development, 90 are involved in content development, 49
are involved in sales and marketing and 21 are involved in executive management, finance, and administration. In addition, as of
this same date we had two contractors in executive management, finance and administration.
We believe that our success will be dependent
on the performance of our management and key employees, many of whom have specialized knowledge and skills related to the digital
sports media and gaming businesses. We believe we have the personnel with the specialized skills required to successfully carry
out our operations and business objectives.
Properties
We maintain our operations at leased premises
in Toronto, Ontario. This facility, totalling approximately 30,881 square feet, contains corporate, administration, sales and production
functions. Total annual base rent is currently $972,752 per calendar year. The lease for this facility expires in 2022, and we
have the option to extend this lease for an additional five years. We also maintain offices at leased premises in Hamilton, Ontario,
which is partially owned by John Levy, our Chairman and Chief Executive Officer. This facility, totalling approximately 1,500 square
feet, contains an executive office. We also maintain offices in New York City, New York, in a shared workspace for our New York-based
employees who are engaged in sales, marketing and business development functions.
User Demographics and User Metrics
As shown in the table below, users of theScore
app are primarily young, male, educated and affluent, which is a highly sought-after demographic in a number of key advertising
categories including automotive, consumer electronics, quick service restaurants, beer and beverage products.
theScore App Users – Selected Demographic
Profile
|
|
United States Audience
|
Canadian Audience
|
|
Between the ages of 18-44
|
53%
|
63%
|
|
Male
|
84%
|
84%
|
|
Household Income >$100,000
|
47%
|
56%
|
|
College Education
|
63%
|
50%
|
(Source: Comscore Mobile Metrix and
Comscore MobilLens, September 2020)
According to YouTube Analytics, audience
for our esports’ video content on YouTube for F2020 was primarily male (97%), with most aged between 18-34 (79%). Video views
were predominantly generated from the United States (31%), with the rest spread relatively evenly across rest-of-world, with the
Philippines and United Kingdom ranked second and third respectively. (Source: YouTube Analytics, September 2020)
The following chart highlights average
monthly active users of theScore app on iOS and Android on a quarterly basis for our last three fiscal years. A monthly active
user is a unique user that uses theScore app at least once a month:
|
|
F2018
|
F2019
|
F2020
|
|
Q1
|
4.3M
|
4.2M
|
4.3M
|
|
Q2
|
4.1M
|
4.0M
|
4.1M
|
|
Q3
|
3.9M
|
3.9M
|
2.9M*
|
|
Q4
|
3.7M
|
3.6M
|
3.0M*
|
(Source: Internal company data)
* MAUs impacted by disruption to sports calendar caused by
the COVID-19 pandemic.
The following chart highlights the average session per user
of theScore app on iOS and Android on a quarterly basis for our last three fiscal years. Monthly user sessions are the number of
times our mobile applications are opened in the month:
|
|
F2018
|
F2019
|
F2020
|
|
Q1
|
102.7
|
111.4
|
122.9
|
|
Q2
|
84.7
|
97.0
|
109.9
|
|
Q3
|
92.6
|
102.3
|
35.0*
|
|
Q4
|
70.0
|
75.1
|
70.1*
|
(Source: Internal company data)
* Sessions impacted by disruption to sports calendar caused
by the COVID-19 pandemic.
The following chart highlights the average
monthly reach of our content across Facebook, Instagram and Twitter collectively on a quarterly basis since we started tracking
such data in F2018. Social reach does not necessarily represent unique monthly users, as there may be duplication in audience across
social media platforms:
|
|
F2018
|
F2019
|
F2020
|
|
Q1
|
n/a
|
67.0M
|
96.7M
|
|
Q2
|
30.0M
|
95.0M
|
90.8M
|
|
Q3
|
50.0M
|
100.0M
|
104.5M
|
|
Q4
|
55.0M
|
142.0M
|
103.0M
|
(Source: Facebook Insights, Instagram,
Twitter Analytics, and TikTok)
The following chart highlights the number
of subscribers to theScore esports YouTube channel at the end of each fiscal quarter for our last three fiscal years:
|
|
F2018
|
F2019
|
F2020
|
|
Q1
|
165,276
|
531,404
|
1,033,297
|
|
Q2
|
214,305
|
637,410
|
1,159,844
|
|
Q3
|
278,172
|
762,553
|
1,349,074
|
|
Q4
|
396,468
|
908,244
|
1,460,918
|
(Source: YouTube Analytics)
The following chart highlights total video
views of theScore esports content across YouTube, Facebook, Twitter, Instagram, and TikTok* on a quarterly basis for our last
three fiscal years:
|
|
F2018
|
F2019
|
F2020
|
|
Q1
|
17.2M
|
41.2M
|
78.4M
|
|
Q2
|
20.3M
|
40.6M
|
77.8M
|
|
Q3
|
22.3M
|
68.0M
|
144.5M
|
|
Q4
|
33.1M
|
85.0M
|
291.8M
|
(Sources: YouTube Analytics, Facebook Insights, Twitter Analytics, Instagram,
TikTok Analytics)
*theScore esports launched on TikTok in late Q2 F2020
Revenues
The revenue model for theScore app and
website and theScore esports is advertising based. Advertising revenue is generated by selling impressions and integrations within
the app to advertisers. Impressions appear within ad units, which are embedded in various locations throughout our apps, website,
and video content. Impressions are refreshed when a user opens an app or website or navigates to a different page or section
within one of the apps or websites or, in the case of theScore esports, when someone watches our video content.
For theScore app and website, we derive
advertising revenue via a combination of programmatic advertising and direct sales. Programmatic advertising allows for automated
bidding by advertisers on available inventory within theScore app in real-time via automated exchanges. Advertisers pay on a cost-per-thousand
(“CPM”), also called cost-per-mille, basis. CPM rates can range depending on a number of variables at any given
time, including the type and placement of the advertising unit, any applicable audience demographics, segmentation and targeting,
the nature of the sales channel (e.g. direct sold vs. programmatic) and market forces including advertiser demand and seasonality.
The majority of theScore’s media advertising revenue in the U.S. is driven by programmatic advertising, complemented by direct
sales. In Canada, our revenue model is almost exclusively driven by direct sales.
For theScore esports, revenue
is generated by selling impressions and integrations within our video content to advertisers. The primary distribution channel
for our esports video content is YouTube, where advertisers are able to target by audience demographic and bid programmatically
for advertising inventory across YouTube’s network. YouTube offers a variety of advertising units, including pre-roll, mid-roll
and overlay with the publisher earning a share of the advertising revenue sold by YouTube. The amount of revenue derived from YouTube
advertising varies depending on a number of factors, including the type and placement of the advertising unit, any applicable audience
demographics, segmentation and targeting, market forces including advertiser demand and seasonality, the number of impressions
generated and the amount of time a viewer watches the video. theScore esports also generates advertising revenue via direct sales
to brands looking to engage with fans of competitive gaming through direct integration into existing franchises, custom content
creation on theScore esports’ platforms and white label content production to power a brand's marketing channels.
Sports betting gross gaming revenue (otherwise
known as the ‘hold’ or ‘gross win percentage’) is the total of all sums wagered (also known as the ‘handle’)
less the sums paid out in respect of sums wagered (also known as the ‘winnings’). Sports betting gross gaming revenues
are thus dependent on a number of factors, including the number and type of bets placed, the quantum of the sums wagered, the quoted
odds and the outcome of the applicable events.
In order to place a bet, users of theScore
Bet must (i) download theScore Bet app; (ii) complete the account registration process, including all applicable know-your-customer
(KYC) procedures; (iii) successfully deposit funds into their theScore Bet account; and (iv) be physically located in
one of the states where wagering is currently permitted on theScore Bet and for which the user has successfully completed the account
registration process (i.e. New Jersey, Colorado, and Indiana).
Competitive Conditions
theScore app operates in a highly competitive
mobile sports media market. In this space, we directly compete with many companies that offer mobile sports products. These include
major media companies such as CBS Sports, ESPN, Fox Sports, SB Nation, Sportsnet, TSN, Turner Sports, and Yahoo Sports, and the
digital media divisions of major North American sports leagues, independent fantasy sports companies, other digital media companies
that cover esports, as well as start-up companies.
For theScore esports, direct competitors
include companies that provide dedicated esports news and feature content on their platforms, including Dexerto, Dot Esports, and
ESPN as well as the content arms of some professional esports leagues and teams.
Our theScore Bet mobile sports betting
platform operates in a highly competitive and regulated U.S. sports betting market. We compete directly with many online gaming
and fantasy sports companies, casino operators, and other media companies that offer online and mobile sports betting products.
These include companies such as Barstool Sports, Bet 365, Caesars, DraftKings, FanDuel, FOX Bet, MGM/GVC, PointsBet, and William
Hill. Competition may also include unlicensed offshore online gaming operators that may make their products accessible to users
in the U.S. market.
Market Trends
Growth of revenues associated with theScore
app will be driven in part by overall market trends, including the continued growth of the smartphone market, of mobile web usage
and of mobile advertising in Canada and the United States. Alongside this, our ability to compete in an increasingly competitive
mobile app market will determine our future growth.
In April 2020, Statista estimated
that the number of U.S. consumers with a smartphone is expected to grow from 269 million in 2019 to 290 million in 2024. According
to eMarketer, adults in the U.S. are expected to spend 3 hours, 6 minutes per day on a smartphone in 2020, a 14% increase from
2019. In 2019, for the first time, adults spent more time engaging with their mobile devices than watching television. eMarketer
forecasts that mobile ad spend in the U.S. would account for US$91.5 billion of U.S. media ad spending in 2020. By the end of 2024,
eMarketer forecasts that mobile ad spending will account for US$161.5 billion. (Sources: Statista, April 2020 - Number
of Smartphone Users in the United States from 2018 to 2024; eMarketer, June 2020 – US Mobile Time Spent 2020; eMarketer,
May 2019, US Time Spent with Mobile 2019; eMarketer, April 2020 – Prior Assumptions About 2020 TV Ad Spend Growth
May Shift in Light of Pandemic)
In April 2020, Statista reported that
the number of smartphone users in Canada had reached 31.4 million which represents approximately 83% of the population. Statista
forecasts this will grow to 33 million by 2024. Adoption of mobile advertising continues to increase as marketers become more comfortable
with mobile advertising formats. Digital ad spending in Canada has now had the largest share of Canadian ad spend for six years,
passing television in 2014. According to a July 2020 eMarketer report, mobile ad spending will grow 8% in 2020. In 2020, digital
advertisers in Canada were forecast to spend a total of $8.5 billion. (Sources: Statista, April 2020 – Number of
smartphone users in Canada from 2018 to 2024; eMarketer, July 2020 – Canada Digital Ad Spending Update Q2 2020)
According to data from research firm Statista
published September 2020, there are approximately 4.5 million apps and games currently available in the App Store and Google
Play worldwide. Growth in app downloads in the U.S. was 10% over the past three years, from 11.3 billion in 2017 to 12.5 billion
in 2019. (Sources: Statista, September 2020 – Number of apps available in leading app stores as of 2nd
quarter 2020; Sensor Tower Store Intelligence, September 2020)
However, the emergence of new and more
restrictive privacy laws, and the change in practice by smartphone manufacturers on data processing by application developers,
may impact some of the forecasted mobile advertising industry growth in both the United States and Canada.
Growth of revenues associated with theScore
esports will be driven in part by overall market trends, including the continued growth in audience of the esports industry and
the ability for us to continue to grow and effectively monetize the audience consuming our video content via advertising.
Growth of our esports audience and revenues
will be driven by the continued expansion of the market for competitive gaming. According to the 2020 Newzoo Global Esports Market
Report, global esports’ audience is expected to reach 495 million in 2020, made up of 223 million esports enthusiasts and
a further 272 million occasional viewers. The number of esports enthusiasts is expected to grow another 32% by 2023, totaling 295
million. (Source: Newzoo, July 2020 – Newzoo Global Esports Market Report)
Growth of revenues associated with our
sports betting platform will be driven in part by overall market trends, including the growth of the U.S. sports betting industry,
the continued state-by-state roll-out of regulated online and mobile sports betting, our ability to secure additional market access
to offer online and mobile sports betting services, and our ability to secure the relevant licenses and approvals from state gaming
regulators in those states where we have secured market access. Alongside this, our ability to compete in a highly competitive
online and mobile sports betting market will also determine our future growth.
In February 2020, Eilers and Krejcik
Gaming LLC (“Eilers and Krejcik”) forecast that the U.S. sports betting industry could generate US$17.3 billion
in revenue annually if all 50 states regulated sports betting to allow a “robust online sports betting product as well as
retail sports betting.” In 2018, the year the Professional and Amateur Sports Protection Act 1992 was ruled unconstitutional
by the U.S. Supreme Court, US$497 million in revenue was generated by regulated sports betting in the U.S. In 2019, revenue generated
by regulated sports betting in the U.S. grew to US$908 million.
Mobile sports betting accounts for the
majority of revenue in states where mobile gaming is permitted. According to Eilers and Krejcik, the overall amount wagered in
the New Jersey sports betting market in 2019 was US$4.5 billion, with online and mobile accounting for US$3.8 billion, or 84% of
total handle. In Colorado, where retail and online sports betting was launched in May 2020, the amount wagered in August 2020
more than doubled month-over-month to US$128.6 million, with online and mobile accounting for US$126.6 million, or 98% of total
handle. In Indiana, where retail and online sports betting was launched in September 2019, the amount wagered in August 2020
more than doubled month-over-month to US$169 million, with online and mobile accounting for US$143 million, or 85% of total handle.
(Sources: PlayNJ.com – January 2020 – New Jersey Sportsbooks’ Hot December Pushes Annual Handle
to More than $4.5 Billion in 2019; iGB North America – September 2020, CO sports betting handle more than doubles in
August; Gambling.com – September 2020, Indiana August Sports Betting Handle Reaches $169 million).
U.S. Gaming Regulatory Landscape
In May 2018, the Supreme Court of
the United States ruled that the Professional and Amateur Sports Protection Act of 1992 (PASPA), an act that largely outlawed sports
betting in the U.S. outside of Nevada, was unconstitutional. With PASPA’s repeal, individual states gained almost complete
legislative authority over sports betting within their respective borders. The regulatory landscape for sports betting in the U.S.
is nascent and fluid. As at October 28, 2020, 18 states and the District of Columbia offer fully legalized and regulated sports
betting, with four other states passing sports betting-related bills, and an additional five states with legislation pending.
|
|
Jurisdictions
|
|
Jurisdictions offering fully legalized and regulated sports betting (retail and online)
|
Colorado; District of Columbia; Illinois; Indiana; Iowa; Nevada; New Hampshire; New Jersey; Oregon; Pennsylvania; Rhode Island; and West Virginia
|
|
Jurisdictions offering fully legalized and regulated sports betting (retail only)
|
Arkansas; Delaware; Michigan; Mississippi; Montana; New Mexico; and New York
|
|
Jurisdictions that passed legislation but launch date pending
|
North Carolina; Tennessee; Virginia; and Washington
|
|
Jurisdictions with legislation pending
|
Louisiana; Maryland; Massachusetts; Ohio; and South Dakota
|
U.S. Jurisdictions where theScore Bet Currently Operates
New Jersey
In New Jersey, the provision of online
gaming, sports betting and other aspects of casino gaming are subject to the requirements of the New Jersey Casino Control Act
(the “NJ Act”) and the regulations promulgated thereunder. Under the sports wagering laws in New Jersey, third-party
companies, such as theScore Bet, may provide services to casino and racetrack licensees to facilitate online/mobile sports wagering,
including website hosting. Such service providers must obtain a casino service industry enterprise (a “CSIE”)
license. The New Jersey Division of Gaming Enforcement (the “NJ DGE”) is responsible for investigating all license
applications, issuing such required licenses and approvals, and prosecuting violations of the NJ Act.
theScore Bet is authorized to provide sports
wagering services in New Jersey by the NJ DGE, via a market access agreement with Darby Development LLC, the operator of Monmouth
Park Racetrack, (“Monmouth Park”), a licensed racetrack in the State of New Jersey. The New Jersey Racing Commission
(“Racing Commission”) issued a sports wagering license to Monmouth Park on June 13, 2018. Due to the length
of investigative time prior to issuing of a plenary CSIE license, the New Jersey regulations allow a CSIE applicant to petition
the NJ DGE for authorization to conduct business, including sports wagering operations, prior to the issuance of a license at the
discretion of the NJ DGE and subject to certain conditions, including the filing of a complete application. On May 14, 2019,
theScore Bet submitted its application to the NJ DGE for a CSIE license. In addition to the application for theScore Bet, separate
application forms were submitted to the NJ DGE for various entities holding ownership interests in theScore Bet, including theScore
as well as for individuals affiliated with and those entities holding a beneficial ownership interest of 5% or more in theScore.
The NJ DGE deemed these applications complete
on June 24, 2019 and thereafter the NJ DGE conducted a preliminary review of theScore Bet’s suitability and that of
its qualifiers. On August 24, 2019, the NJ DGE issued an order authorizing theScore Bet to commence permanent sports wagering
operations, while the NJ DGE completes its investigation of theScore Bet and its qualifiers. Those qualifiers include theScore’s
directors, officers, key employees and certain investors of 5% or more, unless otherwise waived from such qualification requirements.
If the NJ DGE were to find such a person or investor unsuitable, theScore would be required to sever its relationship with that
person or the investor and may be required to dispose of his, her or its interest in theScore. The NJ DGE may conduct investigations
into the conduct or associations of our directors, officers, key employees or investors to ensure compliance with applicable standards
set for in the NJ Act.
The NJ DGE has input into our operations,
including the types of sports wagers and promotions we can offer to New Jersey patrons. The NJ DGE may also levy substantial fines
against or seize our assets or the people involved in violating gaming laws or regulations. To date we have demonstrated suitability
to obtain and have obtained all NJ DGE licenses, registrations, permits and approvals necessary for us to operate our existing
sports wagering operations within the state of New Jersey.
Indiana
theScore Bet is classified by the Indiana
Gaming Commission (“IGC”) as a “sports wagering vendor” (“Vendor”) and has received
its “temporary vendor license” (the “Temporary License”). As part of the Temporary License application
process, theScore Bet submitted all level-one individual/occupational license applications required by the IGC. Those applications,
along with theScore Bet’s corporate Vendor application, were deemed complete and preliminarily acceptable to the IGC, pending
completion of a full investigation (which will conclude in due course). In addition, theScore Bet has also (i) secured the
requisite occupational licensing approvals for applicable “lower-level” employees; (ii) received IGC approval
of all internal controls and house rules associated with theScore Bet’s Indiana mobile application; and (iii) demonstrated
the product to the satisfaction of IGC staff, including functionality of geolocation technology. Certain third-party providers
of services to theScore Bet were also required to complete various licensing and/or registration requirements with the IGC. theScore
Bet received authorization from the IGC to commence its mobile sports betting services in Indiana on September 17, 2020. Full
investigations related to theScore Bet’s corporate Vendor application and level-one occupational applications are continuing,
individual interviews will be conducted, and permanent licenses may be awarded by the IGC at a future date.
theScore Bet is obligated to report to
the IGC any transfers of 5% or greater beneficial ownership in theScore Bet. In order to determine the necessary licensing requirements
for a new investor, the IGC must receive and review information related to the transaction and provide to such new investor a determination
as to which of its corporate entities / individuals will be required to file a license application and which satisfy the definition
of “institutional investor” at 68 IAC 1-1-52 and may therefore be eligible to complete an institutional investor waiver
application rather than engage in the full licensing process. This determination is subject to the discretion of the IGC staff.
theScore Bet’s Temporary and/or permanent
Vendor license, as well as any occupational licenses held by key individuals, may be subject to disciplinary action up to and including
revocation (or theScore Bet may not receive its permanent Vendor license) if theScore Bet violates any of the Indiana Emergency
Sports Wagering Rules (the “Emergency Rules”) or related statutes or IGC directives. Either the Vendor
license or individual occupational licenses may be subject to disciplinary action or revocation at the discretion of the IGC for
reasons including, but not limited to, failure to update the IGC with information initially disclosed as part of the application
process; failure to comply with reporting requirements; and/or failure to comply with any other ongoing requirements related to
license fee payments, renewals, and all other requirements detailed in the Emergency Rules.
theScore Bet’s Vendor license, individual
level-one occupational licenses, and all level-two occupational licenses are to be renewed on an annual basis, including payment
of annual renewal fees. The Vendor license is also contingent on theScore Bet maintaining its market access agreement with Ameristar
East Chicago, LLC (a subsidiary of Penn National Gaming Inc.), as Indiana law requires Vendors to remain in contract with a casino
partner to maintain a Vendor license through the IGC.
Colorado
theScore Bet holds an “internet sports
betting operator” license which was approved by the Colorado Limited Gaming Control Commission (“Commission”)
and issued by the Colorado Division of Gaming (“Division”). The internet sports betting operator license allows
theScore Bet to offer sports wagering on theScore Bet app in Colorado. Once the Division completes its full investigation and the
Commission approves the Division’s findings, this temporary sports betting license will be converted to a permanent license.
Colorado allows sports betting to be conducted
by a licensed internet sports betting operator on behalf of a Colorado casino holding a sports betting “master license.”
theScore Bet has an agreement with a master licensee – The Gilpin Casino, located in Black Hawk, Colorado (“The
Gilpin”) – to conduct online sports wagering on behalf of The Gilpin.
Further, Colorado requires operational
approval of an internet sports betting operator’s “sports betting system,” which includes the interactive components,
software, and associated equipment that comprise the operator’s sports betting platform. Colorado also requires approval
of the “internal control standards” that govern the internet sports betting operator’s sports betting system
and that demonstrate how the internet sports betting operator will abide by, among other requirements, ensuring geofencing restrictions,
prohibiting excluded participants, managing participant wagering accounts, and establishing house rules. theScore Bet has received
operational approval of both its sports betting system and internal control standards from the Division.
In Colorado, all sports betting licenses
expire two years after issuance but may be renewed upon the filing and approval of a renewal application by the Commission. Renewal
applications for internet sports betting operators and vendor majors must be received by the Division no later than 120 days before
the expiration of the current license. Colorado sports betting licensees have an ongoing obligation to disclose any changes in
board directors or corporate officers, as well as other key individuals who oversee the licensee’s sports betting operations.
Licensees must also disclose any person who acquires “any voting or controlling interest of ten percent or more,” and
any person who acquires “any nonvoting or passive ownership interest of twenty-five percent or more.” In addition,
licensees must disclose changes in their corporate structure, including all parent, holding, intermediary, and subsidiary companies
of the licensee.
The Commission has broad powers to suspend,
revoke, or not renew sports betting licenses. Licenses shall be revoked if a licensee has: provided misleading information to the
Division or to the Commission; been convicted of a felony or any gambling-related offense; become a person whose character is no
longer consistent with the protection of the public interest and trust in sports betting; or intentionally refused to pay a prize
to a person entitled to receive the price. Licenses may be suspended, revoked, or not renewed if a licensee: is delinquent in remitting
money rightfully owed to players, contractors, or others involved in sports betting; fails to ensure the trustworthy operation
of sports betting; or commits any intentional violation of any sports betting law, regulation, or other rule or guidance.
Canadian Gaming Regulatory Landscape
Canada’s federal Criminal Code (the
“Code”) makes it an offence for any entity other than a provincial government to offer sports-betting services
to residents of Canada. The Code contains an exception that allows each provincial government to ‘conduct and manage’
gambling operations, including sports betting, within its jurisdiction. The provinces responded to this exception by establishing
purpose-specific corporations (typically lottery corporations) to conduct and manage gaming on behalf of the applicable provincial
government. Lottery corporations are, for all intents and purposes, the monopoly providers of legal gaming, including sports-betting,
in their respective provinces.
Notwithstanding that broad exception for
provincial operations, the Code maintains a blanket prohibition on certain betting activities, the most important of which is the
taking of bets on a single sporting event. As this prohibition extends to provincial governments, there is currently no legal
avenue for betting on single sports events.
In April 2019, Ontario’s provincial
government commenced consultations with key industry stakeholders to establish a more competitive market for online legal gambling,
including sports betting. It is now anticipated that within the next two fiscal quarters, the Ontario government will introduce
a new legal structure for online gaming that will be based on a license, tax and regulate model. This will permit companies like
ours to provide sports betting and other gaming services directly to Ontario residents. Further, the general consensus of Canadian
regulatory and industry groups is that once Ontario introduces this new model for online gaming, all of the other provinces and
territories will follow suit. Assuming this does occur, there is the prospect of an open online gaming market throughout Canada
within the next two to three years.
A related development is the possibility
that the Safe and Regulated Sports Betting Act (Bill C-218), a Private Members Bill which called for the legalization of taking
bets on a single sporting event, will be introduced in Parliament this quarter, and then, because of the bill’s all-party
approval, move through the House of Commons, into and through committee and into the Senate within the next six months. If the
bill does proceed through the House of Commons and the Senate without significant objections, it will dovetail with the “privatizing”
of online gaming by the provinces, permitting our company to offer betting on single sports events to residents of Canada.
risk
factors
An investment in our securities involves
risks and uncertainties. In addition to the other information contained in this AIF, investors should carefully consider the risks
and uncertainties described below before investing in our securities. Additional risks and uncertainties not presently known to
us or that we currently consider immaterial also may impair business operations and cause the price of our securities to decline.
If any of the following risks actually occur, our business and prospects may be harmed, and our financial condition and results
of operations may suffer significantly. Some of the following statements are forward-looking and actual results may differ materially
from the results anticipated in these forward-looking statements. See “FORWARD-LOOKING INFORMATION AND FORWARD-LOOKING
STATEMENTS” herein.
Risks Related to Our Business and Industry
Regulation of Gaming Industry
While gaming, iGaming and sports betting
regulations are a creature of state law and vary from state to state, in general there are a number of common principles that underline
the concept of gaming regulation. Participation in the gaming industry is considered to be a privilege, not a right, and thus those
who seek to participate must submit themselves to licensure as required by the state regulatory body. In this regard, gaming licenses
do not create or entail a property right and such licenses cannot be sold or transferred (although ownership interests in license
holders may be transferred subject to regulatory approval). A good example of this is the preliminary provisions to New Jersey’s
Casino Control Act, which provides that a key element of regulation of gaming is “public confidence and trust in the credibility
and integrity of the regulatory process and of casino operations,” and therefore the model is to extend “strict State
regulation to all persons, locations, practices, and associations related to the operation of licensed casino enterprises and all
related service industries.” Gaming legislation in virtually all jurisdictions contain substantively similar provisions.
Our company and our officers, directors,
major shareholders, key employees, and business partners are generally subject to the sports betting and gaming laws and regulations
of the jurisdictions in which we conduct or will conduct business. In addition, we are subject to the general laws and regulations
that apply to all online, digital and e-commerce businesses, such as those related to privacy and personal information, data security,
tax, and consumer protection. The laws and regulations vary in each jurisdiction and future legislative and regulatory action,
court decisions, and/or other governmental action, which could be affected by, among other things, political pressures, attitudes
and climates, may have a material impact on our operations and financial outcomes.
The jurisdictions where we operate (as
described above under “THE BUSINESS OF THESCORE – U.S. Gaming Regulatory Landscape”), or will operate,
each have their own regulatory framework. More often than not these frameworks will require us to receive a license. Each jurisdiction
will normally require us to make detailed and extensive disclosures as to our beneficial ownership, our source of funds, the probity
and integrity of certain persons associated with our business, our management competence, structure, and business plans, our proposed
geographical territories of operation, and our ability to operate a gaming business in a socially responsible manner in compliance
with regulation. Such jurisdictions will also impose ongoing reporting and disclosure obligations, both on a periodic and ad hoc
basis in response to material issues affecting the business. Our current and future gaming licenses or approvals in each jurisdiction
in which we operate or intend to operate are subject to our ongoing compliance with applicable laws, rules and regulations
in each such jurisdiction. There can be no assurance that we will be able to retain existing licenses or approvals or demonstrate
suitability to obtain new licenses or approvals. In addition, the loss of a license or approval in one jurisdiction could trigger
the loss of a license or approval or affect our eligibility for a license or approval in another jurisdiction. As we expand our
sports wagering operations, we may also have to meet additional suitability requirements and obtain additional licenses or approvals
from gaming authorities in such jurisdictions and we cannot be sure that we will be successful in this regard.
Our gaming-related technology will also
be subject to testing and certification by the regulators in the jurisdictions in which we operate or will operate. Such testing
and certification are generally designed to confirm matters such as the fairness of the gaming products offered by the business,
our ability to accurately generate settlement instructions, and recover from outages.
Any gaming license may be revoked, suspended,
or conditioned at any time. The loss of a gaming license in one jurisdiction could prompt the loss of a gaming license, or affect
our eligibility for such a license, in another jurisdiction. These potential losses of licenses would cause us to cease offering
some or all of our product offerings in the impacted jurisdiction(s). We may be unable to obtain or maintain all necessary registrations,
licenses, permits or approvals, and could incur fines or experience delays related to the licensing process, which could adversely
affect our operations. The process of determining suitability may be expensive and time-consuming. Delay or failure to obtain gaming
licenses in any jurisdiction may prevent us from offering our products in such jurisdiction, increasing our customer base and/or
generating revenues. A gaming regulatory body may refuse to issue or renew a gaming license if our company, or one of our directors,
officers, employees, major shareholders or business partners: (i) is considered to be a detriment to the integrity or lawful
conduct or management of gaming, (ii) no longer meets a licensing or registration requirement, (iii) has breached or
is in breach of a condition of licensure or registration or an operational agreement with a regulatory authority, (iv) has
made a material misrepresentation, omission or misstatement in an application for licensure or registration or in reply to an inquiry
by a person conducting an audit, investigation or inspection for a gaming regulatory authority, (v) has been refused a similar
gaming license in another jurisdiction, (vi) has held a similar gaming license in that province, state or other jurisdiction
which has been suspended, revoked or cancelled, or (vii) has been convicted of an offence, inside or outside of Canada or
the United States that calls into question the honesty or integrity of our company or any of our directors, officers, employees
or associates.
Furthermore, our product offerings must
be approved in most regulated jurisdictions in which they are offered; this process is not assured or guaranteed. It is a prolonged,
potentially extremely costly process to obtain these approvals. A developer and provider of online or mobile sports betting and
iGaming products may pursue corporate regulatory approval with regulators of a particular jurisdiction while it pursues technical
regulatory approval for its product offerings by that same jurisdiction. It is also possible that, after incurring significant
expenses and dedicating substantial time and effort towards such regulatory approvals, we may not obtain such approvals. In the
event we fail to obtain the necessary gaming license in a given jurisdiction, we would likely be prohibited from operating in that
particular jurisdiction altogether. If we fail to seek, do not receive, or receive a suspension or revocation of a license in a
particular jurisdiction for our product offerings (including any related technology and software), then we cannot operate in that
jurisdiction and our gaming licenses in other jurisdictions may be impacted. We may not be able to obtain all necessary gaming
licenses in a timely manner, or at all. These delays in regulatory approvals or failure to obtain such approvals may also serve
as a barrier to entry to the market for our product offerings. Our operations and future prospects will be affected if we are unable
to overcome these barriers to entry.
To the extent new sports betting and/or
iGaming jurisdictions are established or expanded, we cannot guarantee we will be successful in penetrating such new jurisdictions
or expanding our business or customer base in line with the growth of existing jurisdictions. As we directly or indirectly enter
into new markets, we may encounter legal, regulatory, and political challenges that are difficult or impossible to foresee and
which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. In
the event we are unable to effectively develop and operate directly or indirectly within these new markets or if our competitors
are able to successfully penetrate geographic markets that we cannot access or where we face other restrictions, then our business,
operating results, and financial condition could be impaired. Our failure to obtain or maintain the necessary regulatory approvals
in jurisdictions, whether individually or collectively, would have a material adverse effect on our business, results of operations,
financial condition and prospects. We may need to be licensed, obtain approvals of our products and/or seek licensure of our officers,
directors, major shareholders, key employees or business partners to expand into new jurisdictions. This is a costly and time-consuming
process. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing markets
or into new jurisdictions can negatively affect our opportunities for growth. This includes the growth of our customer base, or
delay in our ability to recognize revenue from our product offerings in any such jurisdictions.
Future legislative and regulatory action,
and court decisions or other governmental action, may have a material impact on our operations and financial results. There can
be no assurance that legally enforceable and prohibiting legislation will not be proposed and passed in jurisdictions relevant
or potentially relevant to our business to prohibit, legislate, or regulate various aspects of the Internet, e-commerce, payment
processing, or the online and mobile wagering and interactive entertainment industries (or that existing laws in those jurisdictions
will not be interpreted negatively). Moreover, legislation may require us to pay certain fees in order to operate a sports betting
and iGaming-related business. Such fees may include integrity fees paid to sports leagues and/or fees required to obtain official
sports-wagering related data. Compliance with any such legislation may have a material adverse effect on our business, results
of operations, financial condition and prospects.
The success of online and mobile sports
betting and our product offerings may be also be affected by future regulatory and marketplace developments related to mobile platforms
and application storefronts, social networks, advertising networks, payment processing and banking, data and information privacy,
cloud and other infrastructure hosting, and other regulatory and marketplace developments that we are unable to predict and are
beyond our control. As a result, our future operating results relating to our sports betting products are difficult to anticipate,
and we cannot provide assurance that our product offerings will grow as expected or with success in the long term. Adverse developments
in these areas may have a material adverse effect on our business, results of operations, financial condition and prospects.
Additionally, our ability to successfully
pursue our sports betting and iGaming strategy in the United States and Canada depends on the laws and regulations relating to
wagering through interactive channels both federally and in individual states and provinces in each of these countries, respectively.
There is considerable debate and opposition to online and interactive real-money gaming in the United States and Canada and there
can be no assurance that this opposition will not succeed in preventing the legalization of online and mobile sports betting and
iGaming in jurisdictions where it is presently prohibited, including Canada and certain states in the United States, thereby prohibiting,
or limiting the expansion of such activities where it is currently permitted or causing the repeal of legalized online or mobile
sports betting and/or iGaming in any jurisdiction. Any successful effort to limit the expansion of or prohibit legalized online
or mobile sports betting and/or iGaming could have an adverse effect on our results of operations, cash flows and financial condition.
Combatting such efforts to curtail expansion of, or limit or prohibit, legalized online and mobile sports betting and/or iGaming
can again be time-consuming and can be extremely costly.
In the United States, the Unlawful Internet
Gambling Enforcement Act of 2006 (“UIGEA”) prohibits among other things, the acceptance by a business of a wager
by means of the Internet where such wager is prohibited by any federal or state law where initiated, received or otherwise made.
Under UIGEA severe criminal and civil sanctions may be imposed on the owners and operators of such systems and on financial institutions
that process wagering transactions. The law contains a safe harbour for wagers placed within a single state (disregarding intermediate
routing of the transmission) where the method of placing the wager and receiving the wager is authorized by that state’s
law, provided the underlying regulations establish appropriate age and location verification.
The Illegal Gambling Business Act (“IGBA”),
makes it a crime to conduct, finance, manage, supervise, direct or own all or part of an “illegal gambling business”
and the Travel Act makes it a crime to use the mail or any facility in interstate commerce with the intent to “distribute
the proceeds of any unlawful activity,” or “otherwise promote, manage, establish, carry on, or facilitate the promotion,
management, establishment, or carrying on, of any unlawful activity.” For there to be a violation of either the IGBA or the
Travel Act there must be a violation of underlying state law.
Until 2011, there was uncertainty as to
whether the Federal Wire Act of 1961 (the “Wire Act”) prohibited states from conducting intrastate lottery transactions
via the Internet if such transactions crossed state lines. In late 2011, the Office of Legal Counsel (the “OLC”)
of the Department of Justice (“DOJ”) issued an opinion which concluded that the prohibitions of the Wire Act
were limited to sports gambling and thus did not apply to state lotteries at all (the “2011 DOJ opinion”). Following
the issuance of the 2011 DOJ opinion, within the past few years, state-authorized Internet casino gaming has been launched in Delaware,
New Jersey, Pennsylvania and West Virginia, and state authorized online poker has been launched in Nevada.
In 2018, at the request of the Criminal
Division, the OLC reconsidered the 2011 DOJ opinion’s conclusion that the Wire Act was limited to sports gambling. On January 14,
2019, the OLC published a legal opinion dated November 2, 2018 (the “2018 DOJ opinion”), which concluded
that the 2011 DOJ opinion had incorrectly interpreted the Wire Act. In the 2018 DOJ opinion, the OLC concluded that the restrictions
on the transmission in interstate or foreign commerce of bets and wagers in the Wire Act were not limited to sports gambling but
instead applied to all bets and wagers. The OLC also found that the enactment of the UIGEA described above did not modify the scope
of the Wire Act. The OLC acknowledged that its conclusion in the 2018 DOJ opinion, which was contrary to the 2011 DOJ opinion,
will make it more likely that the executive branch’s view of the law will be tested in the courts. The
United States District Court for the District of New Hampshire disagreed with the 2018 DOJ Opinion. In an opinion dated June 3,
2019, in New Hampshire Lottery Commission, et. al. vs. William Barr, AG, Case No. 1:19-cv-00163, Opinion
No. 2019 DNH 091P, p. 60, United States District Judge Barbadoro held that § 1084(a) of the Federal Wire Act “applies
only to transmissions related to bets or wagers on a sporting event or contest” and granted summary judgment to the Plaintiff
(who effectively challenged the position taken in the 2018 DOJ Opinion). While the court stated that the decision was limited to
the parties, the DOJ then issued an additional statement providing that it is reviewing the court’s opinion and that the
forbearance period set forth by way of memorandum issued subsequent to the issuance of the 2018 DOJ Opinion dated February 28,
2019 is extended until December 31, 2019 or 60 days after the entry of a final judgement in the New Hampshire litigation,
whichever is later. The DOJ filed a Notice of Appeal to the United States Court of Appeals for the First Circuit on August 16,
2019 appealing the court’s June 3, 2019 opinion as well as the court’s June 20, 2019 judgment in favour of
the Plaintiff. That appeal is currently pending. At this time, we are unable to determine whether the 2018 DOJ opinion
will be upheld by the courts, or what impact it will have on us or our customers.
If we fail to comply with any existing
or future laws, rules, regulations, approvals, registrations, permits, licenses or other requirements, regulators may take action
against us. Such action may include fines, the conditioning, suspension or revocation of approvals, registrations, permits or licenses,
and other disciplinary action. If we fail to adequately adjust to any such potential changes, our business, results of operations
or financial condition could also be harmed.
Continued Support of Banks and Payment Processors
We rely on payment processing and banking
providers to facilitate the movement of funds between us and our customer base for our sports betting platform. Anything that could
interfere with or otherwise harm our relationships with payment and banking service providers could have a material adverse effect
on our business, results of operations, financial condition and prospects. Our ability to accept payment from our customers or
facilitate withdrawals by them may be restricted by any introduction of legislation or regulations restricting financial transactions
with online or mobile sports betting operators or prohibiting the use of credit cards and other banking instruments for online
or mobile sports betting transactions, or any other increase in the stringency of regulation of financial transactions, whether
in general or in relation to the gambling industry in particular.
Stricter anti-money laundering regulations
may also affect the quickness and accessibility of payment processing systems, resulting in added inconvenience to our customers.
Card issuers and acquirers may dictate how transactions and products need to be coded and treated which could also make an impact
on acceptance rates. Card issuers, acquirers, payment processors and banks may also cease to process transactions relating to the
online or mobile sports betting industry as a whole or certain operators, such as ourselves. This could be due to reputational
and/or regulatory reasons or in light of increased compliance standards of such third parties that seek to limit their business
relationships with certain industry sectors considered as “high risk”. It may also result in customers being dissuaded
from accessing our product offerings if they cannot use a preferred payment option, or the quality or the speed of the supply is
not suitable or accessible to the customers. Any such developments may have a material adverse effect on our business, results
of operations, financial condition and prospects.
Losses with Respect to Individual Events or Betting Outcomes
Sports betting involves betting where winnings
are paid on the basis of the stake placed and the odds quoted. Odds are determined with the objective of providing an average return
to the bookmaker over a large number of events and therefore, over the long term. In contrast, there can be significant variation
in gross win percentage event-by-event and day-by-day. We have systems and controls intended to reduce the risk of daily losses
occurring on a gross-win basis, but there can be no assurance that these will be effective in reducing our exposure. As a result,
in the short term, there is less certainty of generating a positive gross win, and we may experience significant losses with regard
to individual events or betting outcomes, specifically if large, individual bets are placed on an event or betting outcome or series
of events or betting outcomes. Odds compilers and risk managers are capable of human error, thus, even noting that a number of
betting products are subject to capped pay-outs, significant volatility can occur. Any significant losses on a gross-win basis
could have a material adverse effect on our business, results of operations, financial condition and prospects.
Sports betting can also fluctuate due to
seasonal trends and other factors. Our operations, and thus our financial performance, are also dependent on the seasonal variations
dictated by various sports calendars, which will have an effect on our financial performance.
Competition in the Online and Mobile Sports Betting and
Media Industry
Our current and potential competitors in
mobile sports betting include Barstool Sports, BetMGM, Bet 365, Caesars, DraftKings, FanDuel, FOX Bet, PointsBet, and William Hill,
and other online and mobile gaming operators. Certain competitors have more established relationships and greater financial resources
and they can use their resources against us in a variety of competitive ways, including by making acquisitions, investing aggressively
in research and development, and competing aggressively for strategic partners, advertisers, employees, technologies, digital media
rights, websites and applications. These competitors also may spend more money and time on developing and testing products and
services, undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies, or otherwise develop
more commercially successful products or services than our own, which could negatively impact our business by affecting our ability
to attract and retain existing and new sports betting customers.
Our current and potential competitors in
digital sports media include large and established companies, such as CBS Sports, ESPN, Fox Sports, SB Nation, Sportsnet, TSN,
Turner Sports, and Yahoo Sports, the digital media divisions of major sports leagues, independent fantasy sports companies, other
digital media companies that cover esports, as well as start-up companies. The digital media divisions of major sports leagues
have more access to proprietary content that may not be made available to us. Emerging start-ups may be able to innovate and provide
products and services faster than we can. If competitors are more successful than us in developing compelling products and engaging
content or in attracting and retaining users, advertisers and digital media rights, our revenues and growth rates and the value
of the capitalized digital assets could be negatively affected. There is no assurance that we will be able to maintain our position
in the marketplace.
We must continually introduce and successfully
market new and innovative technologies, product offerings and product enhancements to remain competitive and effectively procure
customer demand, acceptance, and engagement as a result of the intense industry competition, along with other factors. The process
of developing new product offerings and systems is unclear and complexed, and new product offerings may not be well received by
customers. Although we intend to continue investing in research and development, there can be no assurance that such investments
will lead to successful new technologies or timely new product offerings or enhanced existing product offerings with product life
cycles long enough to be successful. We may not recover the substantial up-front costs of developing and marketing new technologies
and product offerings or recover the opportunity cost of diverting management and financial resources away from other technologies
and product offerings.
Regulatory Investigations
We have, and may in future, receive formal
and informal inquiries from government authorities and regulators from time to time, including securities authorities, tax authorities,
privacy commissions and gaming regulators, regarding our compliance with laws and other matters. We expect to continue to be the
subject of investigations and audits in the future as we continue to grow and expand our gaming operations. Violation of existing
or future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties providing a negative
effect on our financial condition and results of operations. In addition, there is a possibility that future orders issued by,
or inquiries or enforcement actions initiated by, government or regulatory authorities may cause us to incur substantial costs,
expose us to unanticipated civil and criminal liability or penalties, or require us to change our business practices that may have
materially adverse effects on our business.
Market Access Limitations
The prevailing trend in the United States
is for states to require sports betting to be conducted by or through an existing licensed casino or racetrack. In such states
where mobile or internet-based sports betting is legal, each casino or racetrack often is permitted to offer sports betting through
a limited number of branded websites, known as skins. The number of skins each casino or racetrack is permitted to offer varies
by state and is dictated by law, regulation or policy. Casinos and racetracks have, accordingly, begun to enter into agreements
to allow third-party sports betting operators to operate skins through the casino’s or racetrack’s license. Further,
certain of these agreements provide for a sports betting operator to obtain “second skin” or “third skin”
access, meaning that another operator has the right to operate the first, and potentially the second, skin of a casino or racetrack,
to the extent permitted by law, regulation or policy. Consequently, if a state does not permit casinos or racetracks to have more
than one skin (or more than two skins as the case may be), an operator’s right to utilize a second (or third skin as the
case may be) is rendered meaningless in such state. We have entered into multiple agreements allowing us market access via the
right to operate specific skins. Certain of these agreements contemplate us receiving second or third skins. Accordingly, should
states not permit our casino or racetrack partners to offer sports betting through an adequate number of skins, we would not have
access to such markets (unless we enter into additional agreements for market access in such states). Our inability to gain access
to offer mobile and internet sports betting in states as such states legalize sports betting could have a material adverse effect
on our business, results of operations, financial condition and prospects.
Further, a state may change its law, regulation
or policy framework to alter the number of skins a casino or racetrack is permitted to offer. An increase to the number of skins
could result in increased competition within such state, while a decrease to the number of skins a casino or racetrack may offer
could reduce or eliminate the ability for us to gain access to operate in such state. Such changes could have a material adverse
effect on our business, results of operations, financial condition and prospects.
Shareholders Subject to Extensive Governmental Regulation
A number of jurisdictions’ gaming
laws may require any of our shareholders to file an application, be investigated, and qualify or have their suitability determined
by gaming authorities. Gaming authorities have very broad discretion when ruling on whether an applicant should be deemed suitable
or not. Subject to certain administrative proceeding requirements, the gaming regulators have the authority to deny any application
or limit, condition, revoke or suspend any gaming license, or fine any person licensed, registered or found suitable or approved,
for any cause deemed reasonable by the gaming authorities.
Any person found unsuitable by a gaming
authority may not hold directly or indirectly ownership of any voting security or the beneficial or record ownership of any non-voting
security or any debt security of any company that is licensed with the relevant gaming authority beyond the time prescribed by
the relevant gaming authority. A finding of unsuitability by a particular gaming authority impacts that person’s ability
to associate or affiliate with gaming licensees in that specific jurisdiction and could impact the person’s ability to associate
or affiliate with gaming license holders in other jurisdictions.
Many jurisdictions also require any person
who obtains a beneficial ownership of more than a certain percentage, typically 5%, of voting securities of a publicly traded gaming
company or parent company thereof and, in some jurisdictions, non-voting securities to report the acquisition to gaming authorities.
Gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions
in certain jurisdictions for “institutional investors” that hold a company’s voting securities for investment
purposes only. Other jurisdictions may also limit the number of gaming licenses with which a person may be associated.
Our corporate articles and bylaws include
certain provisions to ensure that we comply with applicable gaming regulations. These provisions provide, among other things, that
we shall have the right, subject to the conditions set out in our articles and bylaws, to repurchase securities shares held by
an unsuitable person. Such repurchase rights may negatively affect the trading price and/or liquidity of our securities.
Industry Social Responsibility Concerns
Public opinion can meaningfully affect
sports betting regulation. A negative shift in the perception of sports betting by the public, by politicians, or by others could
impact future legislation or regulation in different jurisdictions. Moreover, such a shift could cause jurisdictions to abandon
proposals to legalize sports betting, thereby limiting the number of new jurisdictions into which we could expand. Negative public
perception can also lead to new, harsher restrictions on sports betting, including restrictions on marketing, betting product offerings,
other restrictions on our gaming operations and increased compliance costs. Such changes could have a material adverse effect on
our business, results of operations, financial condition and prospects.
Digital Sports Media Industry Reliant on Mobile Advertising
We have historically derived all of the
revenues in digital sports media from sales of advertising and sponsorship. The digital sports media industry is a relatively new
and rapidly evolving industry and as such it is difficult to predict the prospects for growth. There is no assurance that advertisers
will continue to increase their purchases of online and mobile advertising, that the supply of advertising inventory will not exceed
demand or that smartphone penetration in the United States and Canada will continue to grow. If the industry grows more slowly
than anticipated or our existing products and services lose, or our new products and services fail to achieve, market acceptance,
we may be unable to achieve our strategic objectives, which could have a material adverse effect on our prospects, business, financial
condition or results of operations.
Recent Expansion of Sports Betting Operations
Our sports betting operations compete in
a rapidly evolving and highly competitive market against an increasing number of competitors. In order to support our revenue-generation,
we have entered into certain market access agreements with certain other licensed gaming operators and we may not be able to do
so on terms that are favourable to us. The success of our proposed sports betting operations is dependent on a number of additional
factors that are beyond our control, including the ultimate tax rates and license fees charged by jurisdictions across the United
States; our ability to gain market share in a newly developing market; the timeliness and the technological and popular viability
of our products, our ability to compete with new entrants in the market; changes in consumer demographics and public tastes and
preferences; and the availability and popularity of other forms of entertainment. There can be no assurance that we will be able
to compete effectively or that our expansion will be successful and generate sufficient returns on our investment.
Historical Losses and Negative Operating Cash Flows
We have a history of operating losses and
we can be expected to generate continued operating losses and negative cash flows in the future while we carry out our current
business plan to further develop and expand our businesses in digital sports media and mobile sports betting. We have made significant
up-front investments in research and development, sales and marketing, market access for mobile sports betting and general and
administrative expenses in order to rapidly develop and expand our business. We are currently incurring expenditures related to
our operations that have generated negative operating cash flows from operations. The successful development and commercialization
of these operations will depend on a number of significant financial, logistical, technical, marketing, legal, regulatory, competitive,
economic and other factors, the outcome of which cannot be predicted. In addition, we have a limited operating history with respect
to our newer product offerings such as our sports betting products, which makes it difficult to forecast future results. There
is no guarantee that such operations will become profitable or produce positive cash flow or that we will be successful in generating
significant revenues in the future or at all. While we can utilize cash and cash equivalents to fund our operating and development
expenditures, we do not have access to material amounts under committed credit facilities or other committed sources of funding.
Our inability to ultimately generate sufficient revenues to become profitable and have positive cash flows could have a material
adverse effect on our prospects, business, financial condition, results of operations or overall viability as an operating business.
Liquidity Risk
Liquidity risk is the risk that we will
not be able to meet our financial obligations as they fall due. Our objective in managing liquidity is to ensure we will always
have sufficient liquidity to meet our liabilities when due, under both normal and distressed conditions, without incurring unacceptable
losses or risking damage to our reputation. There is no assurance that our approach to managing liquidity will prove successful
and should we be unable to meet our liabilities when due it could have a material adverse effect on our prospects, business, financial
condition and results of operations.
COVID-19
The current COVID-19 pandemic crisis is
evolving rapidly and could have a material adverse impact on our business, affairs, operations, results of operations, financial
condition, liquidity, availability of credit and foreign exchange exposure. COVID-19 is altering business and consumer activity
in affected areas and beyond. The global response to the COVID-19 outbreak has resulted in, among other things, border closures,
severe travel restrictions, the temporary shut-down of non-essential services and extreme fluctuations in financial and commodity
markets. Additional measures may be implemented by one or more governments in jurisdictions where we operate. Labour shortages
due to illness, company or government-imposed isolation programs, or restrictions on the movement of personnel could result in
a reduction or cessation of all or a portion of our operations.
The extent to which the COVID-19 pandemic
may impact our business and activities will depend on future developments, which are highly uncertain and cannot be predicted with
confidence, such as the spread of the disease, the duration of the outbreak, new information which may emerge concerning the spread
and severity of the coronavirus, actions taken by Canadian and U.S. authorities to manage this pandemic, the postponement, suspension,
cancellation or rescheduling of sports leagues and sporting events, the impact of the pandemic on consumer and advertiser spending,
and the ability or willingness of suppliers and vendors to provide products and services. If the coronavirus continues to spread
at the current pace, disruption to consumer spending and trade could trigger a global recession.
The actual and threatened spread of COVID-19
globally could also have a material adverse effect on the regional economies in which we operate, could continue to negatively
impact stock markets, including the trading price of our securities, could cause continued interest rate volatility and movements
and could adversely impact our ability to raise capital.
Any of these developments, and others,
could have a material adverse effect on our business, affairs, operations, results of operations, financial condition, liquidity,
availability of credit and foreign exchange exposure. In addition, because of the severity and global nature of the COVID-19 pandemic,
it is possible that estimates in our financial statements could change in the near term and the effect of any such changes could
be material, which could result in, among other things, an impairment of non-current assets and a change in the expected credit
losses on accounts receivable.
Cancellation, Postponement or Curtailing of Sporting and
Other Events
We and our suppliers have operations in,
and our customers reside in, locations subject to natural occurrences such as natural crises, severe weather and other geological
events, including, without limitation, pandemics, epidemics, outbreaks of infectious disease, hurricanes, earthquakes, floods,
blizzards, wild fires or tsunamis that could disrupt operations and gameplay. Our betting business is affected by the scheduling
and live broadcasting of significant sporting and other events. Disruptions to the scheduling and broadcasting of those events,
including disruptions resulting from any of the aforementioned natural occurrences, may have a material impact on our business,
results of operations or financial condition for the relevant period. In some instances, the scheduling of major sporting and other
events occurs seasonally, or at regular but infrequent intervals.
The cancellation, postponement or curtailment
of significant sporting or other events, for example due to adverse weather conditions, terrorist acts or other acts of war or
hostility or the outbreak of infectious diseases, pandemics, or cancellation of, disruption to, postponement of such sporting events,
for example due to contractual disputes, technological or communication problems, could materially adversely affect our business,
results of operations, financial condition and prospects.
Reductions in Discretionary Consumer Spending
Our net revenues are dependent, in part,
upon the volume and spending levels of customers through our product and/or service offerings, and as such, our business has been
adversely impacted by economic downturns in the past. Decreases in discretionary consumer spending brought about by weakened general
economic conditions such as, but not limited to, lackluster recoveries from recessions, high unemployment levels, higher income
taxes, low levels of consumer confidence, weakness in the housing market, cultural and demographic changes, high fuel or other
transportation costs and increased stock market volatility may negatively impact our revenues and operating cash flow.
Dependence on Key Suppliers
In the operation of our business we depend
on a number of key suppliers, including (i) third-party web hosting and other technology service providers to enable us to
operate our products and services; (ii) sports data, content and odds providers who provide a significant portion of the content
for our mobile applications and websites, (iii) our exclusive sportsbook platform provider who provides certain backend platform
technology and operational services which are integral to the operation of our sports betting offering in the United States; and
(iv) our market access partners, who provide us with the right to operate our sports betting solution in applicable jurisdictions.
If any of these suppliers elect not to
renew their contracts at the expiration of their current terms, cease operations or do not meet their contractual obligations or
cease to provide their services for any reason, and if we cannot find suitable alternate suppliers in a timely manner (should such
suitable alternate suppliers exist), we may be unable to operate our sports betting platform. Our inability to retain such third-party
suppliers or find suitable alternate suppliers in a timely manner could lead to significant costs and disruptions that could reduce
our revenue, harm our business reputation and have a material adverse effect on our prospects, business, financial condition and
results of operations.
We also rely on application storefronts
operated by the applicable operating system manufacturers, along with selected third-party application storefronts to distribute
our mobile sports applications and mobile sports betting applications to consumers. If these operating system manufacturers cease
to make our mobile sports or mobile sports betting applications available in their application storefronts, will only make such
mobile applications available on terms unacceptable to us, or otherwise prohibit or restrict the distribution of our mobile applications
on their application storefronts, this could prevent the broad distribution of our products and services and could have a material
adverse effect on our prospects, business, financial condition and results of operations. Google currently prohibits the distribution
of mobile sports betting applications through their Google Play storefront outside of the United Kingdom, Ireland and France,
and imposes certain restrictions on gambling-related app integrations and advertising, which could limit the promotion and/or distribution
of our mobile sports betting applications on Android devices.
We share and syndicate our editorial content
through third party platforms including Facebook, Twitter, Instagram, YouTube and others. This syndication increases the exposure
of our editorial content and generates user traffic for our websites. If these third-party platforms modify or alter their policies
with respect to the sharing and/or syndication of content, traffic to our websites could be negatively affected and could have
a material adverse effect on our prospects, business, financial condition and results of operations.
We also curate and aggregate content from
selected third-party sources, including news articles, social media content and other multimedia content, and present it to our
audience through our mobile sports applications and website. If these third parties modify or alter their policies, or otherwise
preclude other publishers from curating and aggregating such content, our ability to present this content to our audience could
be negatively affected and could have a material adverse effect on our prospects, business, financial condition and results of
operations.
Mobile Device Users May Limit Data Tracking and Targeting
The success of our digital sports media
platforms depends on our ability to deliver targeted, highly relevant ads to users of our mobile sports applications and website.
Targeted advertising is done primarily through analysis of data, much of which is collected on the basis of user-provided permissions.
This data might include a mobile device’s location or data collected when users view an advertisement or when they click
on or otherwise engage with an advertisement. Users may elect not to allow data sharing for targeted advertising for a number of
reasons, such as privacy concerns, or pricing mechanisms that may charge the user based upon the amount or types of data consumed.
In addition, the designers of mobile device operating systems are increasingly promoting features and tools that allow device users
to disable some of the functionality, which may impair or disable the delivery of advertisements to their devices, and device manufacturers
may include these features as part of their standard device specifications (e.g. Apple changing its practice for IDFA ad tracking
to ‘opt-in’ from ‘opt-out’). Although we are not aware of any other such products or functionalities that
are widely used in the market today, as has occurred in the online advertising industry, companies may develop products and features
that enable users to prevent advertisements from appearing on their mobile device screens. Finally, as discussed more fully below,
the delivery of targeted advertising is under increasing scrutiny by regulators in many of the jurisdictions in which we operate,
and regulatory changes could impact our business model and may have similar impact for many if not most entities that rely on targeted
advertising. If any of these developments were to occur, it could have a material adverse effect on our prospects, business,
financial condition and results of operations.
New and Evolving Industry
The iGaming and online sports betting industries
are relatively new and continue to evolve. Whether these industries grow and whether our business will ultimately succeed, will
be affected by, among other things, developments in social networks, mobile platforms, legal and regulatory developments (such
as passing new laws or regulations or extending existing laws or regulations to online sports betting, iGaming and related activities),
taxation of gaming activities, data and information privacy and payment processing laws and regulations, and other factors that
we are unable to predict and which are beyond our control. Given the dynamic evolution of these industries, it can be difficult
to plan strategically, including as it relates to product launches in new or existing jurisdictions which may be delayed or denied,
and it is possible that competitors will be more successful than us at adapting to change and pursuing business opportunities.
Additionally, as the online sports betting and iGaming industries advance, including with respect to regulation in new and existing
jurisdictions, we may become subject to additional compliance-related costs, including as it relates to licensing and taxes. Consequently,
we cannot provide assurance that our online and interactive offerings will grow at the rates expected or be successful in the long
term. If our product offerings do not obtain popularity or maintain popularity, or if they fail to grow in a manner that meets
our expectations, or if we cannot offer our product offerings in particular jurisdictions that may be material to our business,
it could have a material adverse effect on our prospects, business, financial condition and results of operations.
Limited Long-Term Agreements with Advertisers
The success of our digital sports media
platforms requires us to maintain and expand our current advertiser client relationships and to develop new relationships. Our
contracts with our advertiser clients generally do not include long-term obligations requiring them to purchase our services and
may be cancelled upon short or no notice and without penalty. As a result, we may have limited visibility as to our future advertising
revenue streams. We cannot ensure our advertiser clients will continue to use our services or that we will be able to replace,
in a timely or effective manner, departing clients with new clients that generate comparable revenue. Any non-renewal, renegotiation,
cancellation or deferral of significant advertising contracts that in the aggregate account for a significant amount of revenue,
could have a material adverse effect on our prospects, business, financial condition and results of operations.
Substantial Capital Requirements
We may require substantial additional equity
or debt financing in order to carry out our business objectives, including the continued development of new and upgraded functionality
of our products and services. There can be no assurance that debt or equity financing or cash generated by operations would be
available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available,
that it would be on terms acceptable to us. Failure to obtain sufficient financing may result in the delay or indefinite postponement
of development or production on any or all of our products and services which could have a material adverse effect on our business,
financial condition and results of operations.
Protection of Intellectual Property
Our commercial success depends upon our
ability to develop new or improved technologies and products, and to successfully obtain or acquire patent or other proprietary
or statutory protection for these technologies and products in Canada, the United States and other countries.
We rely on, among other things, copyrights,
trademarks, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. While we enter
into confidentiality and non-disclosure agreements with our employees, consultants, users, potential users and others to attempt
to limit access to and distribution of proprietary and confidential information, it is possible that:
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some or all of our confidentiality and non-disclosure agreements will not be honoured;
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third parties will independently develop equivalent technology or misappropriate our technology or designs;
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disputes will arise with our strategic partners, users or others concerning the ownership of intellectual property;
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unauthorized disclosure or use of our intellectual property, including source code, know-how or trade secrets will occur; or
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contractual provisions may not be enforceable.
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There can be no assurance that we will
be successful in protecting our intellectual property rights or that we will become aware of third-party infringements that might
be occurring. Inability to protect our intellectual property rights could have a material adverse effect on our prospects, business,
financial condition or results of operations.
Infringement on Intellectual Property
Our commercial success depends upon us
avoiding the infringement of intellectual property rights owned by others. The industries in which we compete have many participants
that own, or claim to own, intellectual property, including participants that have been issued patents and may have filed patent
applications or may obtain additional patents and proprietary rights for technologies similar to those used by us in our products.
Some of these patents may grant very broad protection to the third-party owners thereof. Patents can be issued very rapidly and
there is often a great deal of secrecy surrounding pending patent applications. We cannot determine with certainty whether any
existing third-party patents or the issuance of any new third-party patents would require us to alter our technologies, pay for
licenses, challenge the validity or enforceability of the patents, or cease certain activities. Third parties may assert intellectual
property infringement claims against us and against our partners and/or suppliers. We may be subject to these types of claims either
directly or indirectly through indemnities assuming liability for these claims that we may provide to certain partners. There can
be no assurance that our attempts to negotiate favourable intellectual property indemnities in favour of us with our suppliers
for infringement of third-party intellectual property rights will be successful or that a supplier’s indemnity will cover
all damages and losses suffered by us and our partners and other suppliers due to infringing products, or that we can secure a
license, modification or replacement of a supplier’s products with non-infringing products that may otherwise mitigate such
damages and losses.
Some of our competitors have, or are affiliated
with companies that have, substantially greater resources than us, and these competitors may be able to sustain the costs of complex
intellectual property infringement litigation to a greater degree and for longer periods of time than us. Regardless of whether
third-party claims of infringement against us have any merit, these claims could:
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adversely affect our relationships with our customers and users;
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be time-consuming to evaluate and defend;
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result in costly litigation;
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result in negative publicity for us;
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divert our management’s attention and resources;
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cause product and software delivery delays or stoppages;
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subject us to significant liabilities;
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require us to enter into costly royalty or licensing agreements;
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require us to develop possible workaround solutions that may be costly and disruptive to implement; or
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require us to cease certain activities or to cease distributing our products and delivering our services in certain markets.
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In addition to being liable for potentially
substantial damages relating to a patent or other intellectual property following an infringement action against us, we may be
prohibited from developing or commercializing certain technologies or products unless we obtain a license from the holder of the
patent or other applicable intellectual property rights, or purchase the patent. There can be no assurance that we will be able
to obtain any such license or purchase the patent on commercially reasonable terms, or at all. If we do not obtain such a license,
our prospects, business, operating results and financial condition could be materially adversely affected, and we could be required
to cease related business operations in some markets and restructure our business to focus on continuing operations in other markets.
In addition, we include and promote certain third-party applications and content with our products. Our support and promotion of
third-party applications and content increases the risk of intellectual property claims being asserted against us if such applications
and content infringe on the patents or other intellectual property rights of others.
Brand Development
The brand identity that we have developed
has significantly contributed to the success of our business. Maintaining and enhancing ‘theScore’ brand is critical
to expanding our base of users, advertisers and partners. ‘theScore’ brand may be negatively impacted by a number of
factors, including product malfunctions, delivery of incorrect information or data, data privacy and security issues. If we fail
to maintain and enhance ‘theScore’ brand, or if we incur excessive expenses in this effort, it could have a material
adverse effect on our prospects, business, financial condition and results of operations. Maintaining and enhancing ‘theScore’
brand will depend largely on our ability to be a technology leader and to continue to provide high-quality products and services,
which we may not do successfully.
Corporate Social Responsibility, Responsible Gaming, Reputation
and Ethical Conduct
Many factors influence our reputation and
the value of our brands, including the perception held by our customers, business partners, investors, other key stakeholders and
the communities in which we operate regarding theScore and our business and governance practices, such as our social responsibility,
corporate governance and responsible gaming practices. We may face increased scrutiny related to responsible gaming, social and
governance activities, and our reputation, and the value of our brands can be materially adversely harmed if we fail to act responsibly
in a number of areas, such as supply chain management, diversity and inclusion, workplace conduct and labour relations, responsible
gaming, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement
and retention, the willingness of customers and our partners to do business with us, and current and potential investors to invest
in us, which could have a materially adverse effect on the our business, results of operations, cash flows and stock price.
We believe that our reputation is critical
to our role as a leader in the online sports betting, iGaming and interactive entertainment industries and as a publicly traded
company. Our management is heavily focused on the integrity of our directors, officers, senior management, employees, other personnel
and third-party suppliers and partners. Illegal, unethical or fraudulent activities perpetrated by any of such individuals, suppliers
or partners for personal gain could expose us to potential reputational damage and financial loss.
Dependence on Key Personnel and Employees
Our success is dependent on the services
and performance of key executives, including our directors and a small number of highly skilled and experienced executives and
personnel. We strongly depend on the business and technical expertise of our management and key personnel. Due to our relatively
small size, the loss of any of these individuals or our inability to attract and retain additional highly skilled employees may
adversely affect our business and future operations. The competition for highly skilled technical, research and development, management
and other employees is high and there can be no assurance that we will be able to engage the services of such personnel or retain
our current personnel.
Rapid Technology Developments
The digital sports media, mobile sports
betting and iGaming industries are characterized by rapid technological change, evolving industry standards, frequent new product
introductions and short product life cycles. To keep pace with the technological developments, achieve product acceptance and remain
relevant to users and therefore attractive to advertisers, we will need to continue developing new and upgraded functionality of
our products and services and adapt to new business environments and competing technologies and products developed by our competitors.
The process of developing new technology is complex and uncertain. To the extent we are not able to adapt to new technologies and/or
standards, experiences delays in implementing adaptive measures or fails to accurately predict emerging technological trends and
the changing needs of users, we may lose users and advertisers and/or fail to secure new sports data and content licences or renew
existing licences as they expire.
We have developed, and are continuing to
develop, a number of products and services incorporating advanced technologies and we will pursue those products and services that
we expect to have the best chance for success based on our expectations of future market demand. The development and application
of new technologies involve time, substantial costs and risks. There can be no certainty that we will be able to develop new products,
services and technologies to keep up to date with developments in the digital sports media and mobile sports betting industries
and, in particular, to launch such products, services or technologies in a timely manner or at all. There can be no certainty that
such products will be popular with users or that such products or new technologies will be reliable, robust and not susceptible
to failure. Any of these factors could have a material adverse effect on our prospects, business, financial condition or results
of operations.
Defects in Products
Our products are highly complex and sophisticated
and may contain design defects or errors that are difficult to detect and correct. Defects, errors or bugs found in our new products
could delay regulatory review and approval and commercial release for an extended period of time. Errors or defects may be found
in new products after launch and, even if discovered, we may not be able to successfully correct such errors or defects in a timely
manner or at all. The occurrence of errors and failures in our products could result in loss of or delay in end user acceptance
of our products, may harm our reputation and brand, could result in regulatory action being taken against us, could subject us
to fines, and could result in the suspension and/or loss of our gaming license(s). Correcting such errors and failures in our products
could require significant expenditures by us, involving cost or time and effort of personnel. The consequences of such errors,
failures and claims could have a material adverse effect on our prospects, business, financial condition or results of operations.
Real or Perceived Inaccuracies in Key Performance Metrics
Our user metrics are based on internal
company data that are not independently verified, data from third-party analytics providers that measure the performance of our
mobile applications and websites, and/or data from third-party platforms where our content is distributed, like Facebook, Instagram
and YouTube. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement,
there are inherent challenges in measuring usage and user engagement across multiple platforms and across our large user base around
the world. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly
titled metrics of our competitors due to differences in methodology.
If advertisers, partners or investors do
not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies
in our user metrics, our reputation may be harmed and advertisers and partners may be less willing to allocate their budgets or
resources to our products and services, which could have a material adverse effect on our prospects, business, financial condition
or results of operations. Further, as our business develops, we may revise or cease reporting metrics if we determine that such
metrics are no longer accurate or appropriate measures of our performance.
User Data
We may require the registration of our
users prior to accessing our products or services or certain features of our products or services and we may be subject to increased
legislation and regulations on the collection, storage, retention, transmission and use of user-data that is collected. Our efforts
to protect the personal information of our users may be unsuccessful due to the actions of third parties, software bugs or technical
malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attempt to fraudulently induce employees
or users to disclose information in order to gain access to our data or our users’ data. If any of these events occur, users’
information could be accessed or disclosed improperly. Any incidents involving the unauthorized access to or improper use of the
information of users or incidents involving violation of our terms of service or policies could damage our reputation and our brand
and diminish our competitive position. In addition, the affected users or governmental authorities could initiate legal or regulatory
action against us in connection with such incidents, including in respect of new mandatory breach reporting and record-keeping
obligations in Canada and certain states in the United States which will soon become effective, which could cause us to incur significant
expense and liability or result in orders or consent decrees forcing us to modify our business practices and remediate the effects
of any such incidents of unauthorized access or use. Any of these events could have a material adverse effect on our prospects,
business, financial condition or results of operations.
We transmit and store a large volume of
data in the course of supporting our website and mobile sports applications. The interpretation of privacy and data protection
laws and their application to the Internet is unclear and subject to rapid change in numerous jurisdictions. There is a risk that
these laws may be interpreted and applied in a manner that is not consistent with our data protection practices and results in
additional compliance or changes in our business practices, or both, and liability or sanction under these laws. In addition, because
our website and mobile sports applications are accessible in many jurisdictions, certain foreign jurisdictions may claim that we
are required to comply with local laws, even where we have no local operating entity, employees, infrastructure or other physical
presence in those jurisdictions. In particular, in the spring of 2018, the General Data Protection Regulation (“GDPR”),
which provides for extraterritorial enforcement in some cases and includes the possibility of substantial monetary penalties for
non-compliance, came into effect in the European Union. In addition, with the possibility of the United Kingdom leaving the European
Union in the fall of 2019, the UK may adapt an amended version of the GDPR into UK law. The impact of the GDPR and the UK adopted
version of the GDPR on our business is uncertain. Likewise, California enacted the California Consumer Privacy Act (“CCPA”),
effective on January 1, 2020, that creates additional rights for consumers with respect to the collection and use of their
data, and depending on how it is interpreted by the California Attorney General in the promulgation of regulations and enforcement,
it could negatively impact our business model. Furthermore, we may face conflicting obligations arising from the potential concurrent
application of laws of multiple jurisdictions. In the event that we are not able to reconcile such obligations, we may be required
to change business practices or face liability or sanction.
In addition, a Parliamentary Committee
has recently recommended certain changes to Personal Information Protection and Electronic Documents Act (Canada), the federal
privacy and data protection statute in Canada, including new administrative enforcement powers and new financial penalties for
non-compliance. There is a risk that the Government may implement changes to this statute that may result in additional compliance
or changes in our business practices, or create additional risk of liability or sanction, or all of the foregoing.
Reliance on Collaborative Partners
We may rely on collaborative arrangements
to provide services and to develop and commercialize some of our products or services in the future. There can be no assurance
that we will be able to negotiate acceptable collaborative arrangements, that such collaborative arrangements will be successful
or that we would not be required to relinquish certain material rights to our products or services. In addition, there can be no
assurance that our collaborative partners will not pursue alternative technologies or develop alternative products or services
either on their own or in collaboration with others, including our competitors. To the extent that we succeed in entering into
collaborative arrangements, we will be dependent on the efforts of third parties for the continued development of certain services
or products.
Additionally, we employ agents and subcontractors
as part of the development, commercialization and operation of our products and services. The ultimate liability for the performance
of such agents or subcontractors lies with us. Further, our business model is based on the distribution of our products and services
by third parties, including communication network providers, web hosting providers and operating system manufacturers. The failure
of such third parties in the performance of their duties and obligations with regards to the development, commercialization, operational
support or distribution our products and services could lead to significant costs and disruptions that could reduce our revenue,
harm our business reputation and have a material adverse effect on our prospects, business, financial condition or results of operations.
New Business Areas and Geographic Markets
Our growth strategy is dependent upon expanding
our products into new business areas or new geographic markets. There can be no assurance that these new business areas and geographic
markets will generate the anticipated volume of users or revenue. In addition, any expansion into new business areas or geographic
markets could expose us to new risks, including compliance with applicable laws and regulations, changes in the regulatory or legal
environment; different user preferences or habits; adverse exchange rate fluctuations; adverse tax consequences; differing technology
standards or user requirements and capabilities; difficulties staffing and managing foreign operations; infringement of third-party
intellectual property rights; the cost of localising software (including translations) or otherwise adapting our products and services
for new markets; difficulties collecting accounts receivable; or difficulties associated with repatriating cash generated or held
abroad in a tax-efficient manner. These factors could cause our expansion into new business areas or geographic markets to be unsuccessful
or less profitable than our existing markets, or could cause our operating costs to increase unexpectedly or our sales to decrease,
any of which could have a material adverse effect on our prospects, business, financial condition or results of operations.
We expect that a substantial portion of
our future revenue will be derived from outside of Canada. Execution of this business strategy is subject to a variety of risks,
including operating and technical problems, regulatory uncertainties and possible delays. If we do proceed to operate in different
international regions, revenues earned from users may decrease in the future for a variety of reasons, including increased competition
and new entrants into geographic markets in which we operate or intend to operate. Depending on the countries involved, any or
all of the foregoing factors could have a material adverse effect on our prospects, business, financial condition and results of
operations. In addition, there can be no assurance that laws or administrative practices relating to taxation, foreign exchange
or other matters in countries within which we intend to operate will not change. Any such change could have a material adverse
effect on our prospects, business, financial condition and results of operations.
Operational and Financial Infrastructure
We are subject to growth-related risks,
capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us
to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. This
expansion may require us to commit financial, operational and technical resources in advance of an increase in the size of our
business, with no assurance that the volume of business will increase or that such initiatives to improve and upgrade our systems
and infrastructure will be successful. The inability to deal with this growth or any failure in these initiatives could have a
material adverse effect on our prospects, business, financial condition or results of operations.
Information Technology Defects
The integrity, reliability and operational
performance of our operational information technology (“IT”) systems are critical to our ability to operate
our digital sports media applications, websites and mobile sports betting platform. Our IT systems may be damaged or interrupted
by increases in usage, human error, unauthorised access, natural hazards or disasters or similarly disruptive events. Any failure
of these IT systems or the telecommunications and/or other third-party infrastructure on which such systems rely, as described
in “Risk Factors – Risks Related to Our Business and Industry
– Reliance on Third-Party Owned Communication Networks” could lead to significant costs and disruptions
that could reduce our revenue, harm our business reputation, subject us to regulatory actions and have a material adverse effect
on our prospects, business, financial condition or results of operations.
We have procedures and measures in place
to protect against network or IT system failure or disruption. However, those procedures and measures may not be effective to ensure
that we are able to carry on our business in the ordinary course if they fail or are disrupted. In addition, our IT systems may
not be effective in detecting any intrusion or other security breaches, or safeguarding against sabotage, hackers, denial of service
attacks, viruses or cybercrime. Any failure in these protections could harm our business reputation, subject us to regulatory actions
and have a material adverse effect on our prospects, business, financial condition or results of operations.
Reliance on Third-Party Owned Communication Networks
The delivery of our products and services
and a significant portion of our revenues are dependent on the continued use and expansion of third party-owned communication networks,
including wireless networks and the Internet. No assurance can be given of the continued use and expansion of these networks as
a medium of communications for us. Ongoing regulatory initiatives make it impossible to predict how this segment of the market
might respond to such initiatives, which could have a downstream impact on our delivery of products and services.
Effective delivery of our products and
services through the Internet is dependent on Internet service providers continuing to expand high-speed Internet access, maintaining
reliable networks with the necessary speeds, data capacity and security, and developing complementary products and services for
providing reliable and timely access and services. Changes in access fees (for example, revising the application of bandwidth caps
or other metered usage schemes) to users may adversely affect the ability or willingness of users to access our content. Changes
in access fees to distributors, such as us or our service providers, or a departure from “net neutrality” (the principle
that all forms of Internet traffic (including video, voice, and text) are subject to equal treatment in transmission speed and
quality) or its governing regulations, as described in “RISK FACTORS – Risks Related to Our Business and Industry
– Governmental Regulation of the Internet” could result in increased costs to us. All of these factors are out
of our control and the manifestation of any of them could ultimately have a material adverse effect on our prospects, business,
financial condition or results of operations.
In addition, increasing traffic, user numbers
or bandwidth requirements may result in a decline in Internet (or a subset thereof, including in particular mobile Internet) performance
and/or Internet reliability. Internet outages or delays or loss of network connectivity may result in partial or total failure
of our services, additional and unexpected expenses to fund further product development or to add programming personnel to complete
a development project, loss of revenue because of the inability of users or subscribers to use our services, or the cancellation
by users or subscribers of their service with us, any of which could have a material adverse effect on our prospects, business,
financial condition or results of operations.
Uncertain Economic Health of the Wider Economy
Our revenue streams are dependent on the
overall macro-economic environment (in particular for sales of online advertising and sponsorship, and consumer discretionary spending
habits). Advertisers are directly affected by current economic conditions affecting the broader market. Consumer discretionary
spending or consumer preferences are driven by socioeconomic factors beyond our control. Current and future conditions in the domestic
and global economies remain uncertain and volatile. Accordingly, adverse developments in the macro-economic environment could substantially
reduce the funds spent on advertising by advertisers; and decreased consumer confidence in the overall economic environment could
cause a decline in consumer discretionary spending on non-essential or leisure products and services; resulting in a material adverse
effect on our prospects, business, financial condition or results of operations.
Governmental Regulation of the Internet
Governments and regulatory authorities
in some jurisdictions in which our content originates or our users reside, including Canada, impose rules and regulations
affecting the third-party-owned communications networks over which our services are accessed, including Internet and mobile connectivity
(“network services”), and affecting the audiovisual content distributed to the public as part of our services
(“audiovisual media”). In certain circumstances this governmental regulation of the Internet, which is frequently
controversial, protects our activities from certain tactics by competitors or potential competitors. Should efforts to overturn
this governmental regulation prove successful, network services providers could impose restrictions that adversely impact our ability
to deliver content on an equal footing with other audiovisual media providers, which could have a material adverse effect on our
prospects, business, financial condition and results of operations.
Canada
In Canada, the country in which we are
established, network services fall under the Telecommunications Act (Canada); audiovisual media fall under the Broadcasting
Act (Canada); and spectrum regulation falls under the Radiocommunication Act (Canada). In June 2018, the Federal
Government established an expert panel to review and recommend amendments to the Telecommunications Act, the Broadcasting
Act and (if necessary) the Radiocommunication Act (Canada) (the “Legislative Review”). The Expert
Panel tabled its report with 97 recommendations in January 2020, however, to date, no legislative proposals have been tabled.
Both the Telecommunications Act
(Canada) and Broadcasting Act (Canada) grant broad discretion to the Canadian Radio-television and Telecommunications Commission
(“CRTC”) to pursue the objectives set out in those Acts by regulating and supervising the Canadian broadcasting
and telecommunications systems. In addition, the Radiocommunication Act (Canada) grants the Department of Innovation, Science
and Economic Development Canada (“ISED”) discretion to pursue the objectives set out in the Telecommunications
Act (Canada) by fixing the terms and conditions of the spectrum licences and exemptions which authorize the provision of mobile
services in Canada. Both ISED and the CRTC have taken actions to increase competition between network providers, which could lower
access costs. The CRTC has also established and clarified its network neutrality rules through several decisions. In recent
years, the wholesale regimes for both wireless and wireline services have been changed by the CRTC, and various other decisions
have been made with a view to facilitating sustainable competition that provides reasonable prices, innovative services and continued
innovation and investment in high-quality wireless and wireline networks. Furthermore, the CRTC has rejected proposals to establish
an administrative site-blocking regime to police intellectual property piracy on the Internet.
With respect to the Broadcasting Act
(Canada), our activities which involve the transmission of audiovisual content, and fall under that Act, are subject to the Exemption
Order for Digital Media Broadcasting Undertakings (“DMBU Order”). The DMBU Order generally exempts audiovisual
content transmitted to the public only over the Internet, or through point-to-point mobile applications (including sports applications),
from licensing. In September 2014, the CRTC completed a major public proceeding with respect to the manner in which it regulates
video services and which proceeding included, among many other topics, a discussion of the DMBU Order. In a series of decisions
in the first four months of 2015, the CRTC refrained from amending or revoking the DMBU Order. However, potential changes to the
regulatory obligations applicable to digital media services, which could include new financial contributions and/or content-related
obligations, are within the scope of the current Legislative Review.
If the CRTC’s and/or ISED’s
approaches to the issues discussed above, or the legislative basis under which they operate, should change, it could negatively
impact our business.
In addition, the Canadian Anti-Spam
Legislation (“CASL”) came into force on July 1, 2014. CASL prohibits the transmission of commercial
electronic messages without an addressee’s consent and includes additional requirements relating to form and content of commercial
electronic messages. Failure to comply with CASL can result in financial penalties which could affect our operating profit and
financial position. On July 1, 2017, the private right of action provisions of CASL were to have come into effect, allowing
any person to bring claims for contraventions of CASL. However, on June 7, 2017, the Government suspended that provision and
indicated that a Parliamentary Committee would be asked to study it. That Committee recommended further consideration, which the
Government has agreed to undertake. There is currently no clear expectation as to whether the private right of action will be brought
into force or, if so, when. Should it not be amended or cancelled, we could be negatively impacted by plaintiffs claiming that
we violated the provisions of CASL.
United States
In the United States, where much of our
content is distributed, telecommunications services are subject to regulation by the Federal Communications Commission (“FCC”)
under the Communications Act of 1934 (“Communications Act”). While the FCC regulates use of radio spectrum,
certain aspects of telephony service, some fiber optic cable services, and some cable infrastructure and programming, content distributed
by Internet is generally not considered to be a telecommunications service and thus free of FCC regulation. The extent to which
the Federal Trade Commission (“FTC”) intends to fill this void remains uncertain.
Even without direct regulation of Internet
content, FCC regulation of infrastructure providers can have an effect on our business. The Open Internet Order, FCC 15-24, 30
FCC Rcd. 5601 (2015) (“Open Internet Order”) declared internet service to be protected as a regulated utility
under Title II of the Communications Act. The Open Internet Order was part of a series of regulatory and judicial interpretations
of net neutrality, establishing the degree to which Internet content providers will be protected from blocking, paid prioritization
and other service restrictions or interference by wireline and mobile infrastructure owners. Even though the FCC declined to impose
a full regulatory regime on the Internet, opponents of the Open Internet Order sued to block the new rules. While the lawsuits
were pending, the 2016 election brought a change in administration in the United States and a change in control of the FCC. As
a result of the changes, the FCC reversed the Open Internet Order. The result is that we will not be regulated in our content distribution
or insulated from business practices of infrastructure providers that support distribution of our content.
The State of California passed a comprehensive
net neutrality law on September 30, 2018. The California Internet Consumer Protection and Net Neutrality Act of 2018
targets “fixed Internet service providers,” defined to include providers of broadband Internet access service that
serves end users primarily at fixed endpoints, including fixed wireless providers. The providers will be prohibited from actions
like blocking lawful content, impairing or degrading lawful Internet traffic, and engaging in paid prioritization, among other
prohibitions. While the law would insulate our content distribution from business practices of infrastructure providers, the FCC
and the U.S. Department of Justice have already challenged the law, calling for injunctive relief. The injunction action is pending
as of October 4, 2018.
Some video distributed over the Internet
and previously carried on television is subject to closed captioning rules. 47 C.F.R. §79.4. Application of those rules to
our video content could add expense and regulatory risk for us.
Before the 2016 election, the FCC had under
consideration a proposed rulemaking to treat certain “over-the-top” on-line video programming providers like multi-channel
video programming distributors, or cable companies. Notice of Proposed Rulemaking, 29 FCC Rcd 15995 (2014). With the change of
administrations, the proposed regulatory changes are in suspense. If implemented in a way that included the content distributed
by us, the proposed regulations could add cost and impose traditional cable company obligations on us.
Other Jurisdictions
In other jurisdictions, both network services
and media distribution are frequently subject to particular rules or regulations. Guidelines or rules are in place in
a number of jurisdictions, with varying degrees of enforcement, with respect to both network services, including network neutrality
and audiovisual media, including content exclusivity and standards. However, although regulatory schemes can vary significantly
from jurisdiction to jurisdiction, we are not aware of regulations in any material jurisdiction that would require us to be licensed
to carry on our activities over the public Internet in those jurisdictions.
Currency Fluctuations
Our reporting and functional currency is
Canadian dollars, but an increasing proportion of our revenue may be earned, and expenses may be incurred, in other currencies,
including the US dollar, pound sterling and the euro. See “RISK FACTORS – Risks Related to Our Business and Industry
– New Business Areas and Geographic Markets” above. A significant movement of any of these currencies against
the Canadian dollar could have a material adverse effect on our prospects, business, financial condition and results of operations.
Changes in Taxation
Changes in taxation rates or law, or misinterpretation
of the law or any failure to manage tax risks adequately could result in increased charges, financial loss, including penalties
and reputational damage, and which could have a material adverse effect on our prospects, business, financial condition and results
of operations.
Exposure to Taxable Presences
Our policy will be to manage and operate
our business in a way that is intended to ensure that we are resident for tax purposes solely in the jurisdiction in which we are
incorporated or domiciled and that we have no taxable permanent establishments or other taxable presence in any other jurisdiction.
However, if we are found to be tax resident elsewhere or to have a taxable permanent establishment or other taxable presence elsewhere,
whether on the basis of existing law or the current practice of any tax authority or by reason of a change in law or practice,
this may have a material adverse effect on the overall amount of tax payable by us.
Risk of Litigation
We may become involved in disputes with
other parties in the future which may result in litigation. The results of litigation cannot be predicted with certainty. If we
are unable to resolve these disputes favourably, it could have a material adverse effect on our prospects, business, financial
condition and results of operations.
Internal Controls
Internal controls over financial reporting
are procedures designed to provide reasonable assurance that transactions are properly authorized, recorded and reported and assets
are safeguarded against unauthorized or improper use. A control system, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation.
Credit Risk
Credit risk is the risk of financial loss
to us if a counterparty to a financial instrument fails to meet its contractual obligations. The carrying amount of financial assets
represents the maximum credit exposure. Although we establish an allowance for doubtful accounts that represents our estimate of
potential credit losses in respect of accounts receivables and historically has not experienced any significant losses, there is
no assurance that the allowance for doubtful accounts will be sufficient to cover credit losses in the future and future credit
losses could have a material adverse effect on our prospects, business, financial condition and results of operations.
Free and Open Source Software Utilization
We, together with our third-party suppliers
and collaborative partners, make use of Free and Open Source Software (“FOSS”) in the development of our mobile
sports applications, web properties and related operational IT systems. The law surrounding the use of FOSS is in a state
of evolution and the legal ramifications of such use remain uncertain in Canada and in other countries. The use of FOSS may
therefore lead to unintended legal consequences that may have a material adverse effect on our proprietary technology and intellectual
property, or those of our third-party suppliers and collaborative partners, including potential tainting and a loss of our or our
suppliers’ or partners’ proprietary positions in relation to the said applications, properties and systems, and the
possibility of intellectual property infringement claims or breach of contract claims from FOSS licensors or from our third-party
suppliers or collaborative partners.
Risk Relating to Ownership of theScore Shares
Major Shareholder with 100% of the Special Voting Shares
Mr. John Levy controls or directs
100% of the issued and outstanding Special Voting Shares and approximately 19.4% of the outstanding Class A Shares. As a result,
Mr. Levy is entitled to nominate a majority of the members of our board of directors (the “Board”) and
he has the ability to influence the outcome of matters submitted to the our shareholders for approval, which include amendments
to our corporate governing documents and business combinations. Our interests and the interests of other shareholders may at times
conflict with those of Mr. Levy, and this conflict might be resolved against our interests and the interests of other shareholders.
Due to these shareholdings and contractual rights of Mr. Levy and John Levy Family Holdings Ltd. (“Levy Holdings”)
in the Respective Rights Agreement, Mr. Levy will be in a position to determine whether we or our operations are acquired
by a third-party, to significantly influence the election of the members of the Board and the board of directors of our subsidiaries
and to generally direct our affairs.
Market Price and Trading Volume of Class A Shares
During the period in which this AIF relates,
our Class A Shares traded on the TSXV. After receiving final approval to graduate to the TSX from the TSXV, our Class A
Shares commenced trading on the TSX at market open on September 15, 2020 under the existing ticker “SCR”. Our
Class A Shares were voluntarily delisted from the TSXV concurrently with the commencement of trading on the TSX. The price
of the Class A Shares is likely to be significantly affected by a variety of factors and events including short-term changes
to our financial condition or results of operations as reflected in our quarterly earnings reports. Other factors unrelated to
our performance that may have an effect on the price of our Class A Shares include the following: (i) the extent of analytical
coverage available to investors concerning our business may be limited if investment banks with research capabilities do not follow
our securities; (ii) lessening in trading volume and general market interest in our securities or technology companies more
generally may affect an investor’s ability to trade significant numbers of the Class A Shares; (iii) the size of
our public float may limit the ability of some institutions to invest in our securities; and (iv) a substantial decline in
the price of the Class A Shares that persists for a significant period of time could cause our securities, if listed on an
exchange, to be delisted from such exchange, further reducing market liquidity.
As a result of any of these factors, the
market price of the Class A Shares is subject to fluctuations and may not accurately reflect our long-term value at any given
point in time. Securities class action litigation has often been brought against companies following periods of volatility in the
market price of their securities. We may be the target of similar litigation in the future. Securities litigation could result
in substantial costs and damages and divert management’s attention and resources.
In addition, our Class A Shares may
not qualify as a permitted investment under the investment policies or guidelines of certain institutional investors which could
result in a lessening in trading volume and our securities.
Debt Obligations Will Have Priority Over Class A
Shares in the Event of a Liquidation, Dissolution or Winding Up
In the event of
our liquidation, dissolution or winding up, the Class A Shares would rank below all debt claims against us. In addition, any
convertible or exchangeable securities or other equity securities that we may issue in the future (such as the Preferred Shares,
of which there are none outstanding as of the date hereof) may have rights, preferences and privileges more favourable than those
of the Class A Shares. As a result, holders of Class A Shares will not be entitled to receive any payment or other distribution
of assets upon the liquidation or dissolution until after our obligations to our debt holders and holders of equity securities
that rank senior to the Class A Shares, if any, have been satisfied.
Dividend Policy
We have not paid any dividends on either
the Class A Shares or the Special Voting Shares. Our current policy is to retain earnings for our future growth. Any future
declaration of dividends is, subject to certain statutory restrictions and certain restriction set out in our amended and restated
credit facility dated July 14, 2020, with Scotia Capital Inc., as lender (the “Credit Facility”), within
the discretion of the Board based on their assessment of, among other factors, our overall financial condition, results of operations,
capital and operating expenditure requirements and other relevant factors. At this time, we have negative operating cash flow and
anticipate using all available cash resources towards our stated business objectives and retaining all earnings, if any, to finance
our business operations and accordingly, have no plans to pay any dividend.
Future Sales of Class A Shares by Existing Shareholders
Sales of a large number of Class A
Shares in the public markets, or the potential for such sales, could decrease the trading price of our Class A Shares and
could impair our ability to raise capital through future sales of Class A Shares. In particular, Mr. John Levy controls
or directs approximately 19.4% of the issued and outstanding Class A Shares. If either Mr. Levy or any other significant
shareholder decides to liquidate all or a significant portion of their position, it could adversely affect the price of our Class A
Shares.
In addition, if our Class A Shares
failed to qualify as permitted investments under the investment policies or guidelines of certain institutional investors and such
institutions were forced to liquidate their position, it could adversely affect the price of our Class A Shares.
Potential Dilution
We are authorized to issue an unlimited
number of Class A Shares for consideration and terms as established by our board, in many cases without any requirement for
explicit shareholder approval. We may issue additional Class A Shares in subsequent offerings (including through the sale
of securities convertible into or exchangeable for Class A Shares) and in connection with stock options, restricted stock
units, convertible debentures or other securities exchangeable or exercisable for Class A Shares. We cannot predict the size
of future issuances of Class A Shares or the effect that future issuances and sales of Class A Shares will have on the
market price of the Class A Shares. Issuances of a substantial number of additional Class A Shares, or the perception
that such issuances could occur, may adversely affect prevailing market prices for the Class A Shares. With any additional
issuance of Class A Shares, investors will suffer dilution to their voting power and we may experience dilution in our earnings
per share. Under certain circumstances, the Convertible Debenture we issued to a fund managed and controlled by Fengate Asset Management
may be convertible into Class A Shares (for further information on the Convertible Debenture, please reference “MATERIAL
CONTRACTS - Investment Agreement and Convertible Debenture”.
Dividends
We have not paid or declared any dividends
on either our Class A Shares or our Special Voting Shares. Our current policy is to retain earnings, if any, for its future
growth. Any future declaration of dividends is, subject to certain statutory restrictions and certain restrictions set out in the
Credit Facility, within the discretion of the Board based on their assessment of, among other factors, our overall financial condition,
results of operations, capital and operating expenditure requirements and other relevant factors.
Description
of Capital Structure
Our authorized capital consists of 5,566
Special Voting Shares (the “Special Voting Shares”), an unlimited number of Class A Subordinate Voting
Shares (the “Class A Shares”) and an unlimited number of Preference Shares (the “Preference Shares”),
issuable in series.
We also have outstanding a $40,000,000
8.00% convertible unsecured subordinated debenture due August 31, 2023 that was issued to a fund managed and controlled by
Fengate Asset Management (see “MATERIAL CONTRACTS – Investment Agreement and Convertible Debenture”).
Class A Shares
The holders of Class A Shares are
entitled to receive notice of and to attend, and to cast one vote for each Class A Share held by them at all meetings of our
shareholders, other than meetings at which only the holders of another class or series of shares (if any) are entitled to vote
separately as a class or series and other than with respect to certain matters which are exclusively reserved for the holders of
Special Voting Shares.
The holders of Class A Shares, voting
separately as a class, have the right to elect that number of members of the Board that is not elected by the holders of the Special
Voting Shares (other than the director, if any, that holders of the Preference Shares are collectively entitled to elect), provided
that at no time will the number of directors to be elected by the holders of the Class A Shares be less than two directors.
The holders of Class A Shares are
entitled to receive, subject to the prior rights of the holders of the Preference Shares and to the pari passu rights of
the holders of the Special Voting Shares, any dividend declared by the Board on the Class A Shares. Subject to the rights
of holders of shares ranking prior to or on a parity with the Class A Shares, the holders of Class A Shares shall be
entitled to receive pari passu with the holders of Special Voting Shares, the remaining property of theScore in the event
of any liquidation, dissolution or winding-up of theScore, whether voluntary or involuntary, or other distribution of the assets
of theScore among its shareholders for the purpose of winding-up its affairs.
Special Voting Shares
The holders of Special Voting Shares are
entitled to receive notice of and to attend, and vote at all meetings of our shareholders, other than any meeting of holders of
another class of shares who are entitled to vote separately as a class at such meeting and other than with respect to certain matters
which are exclusively reserved for the holders of Class A Shares. The holders of Special Voting Shares are entitled to one
vote for each share held.
The holders of Special Voting Shares, voting
separately as a class, have the right to elect that number of members of the Board that is equal to the sum of: (i) the number
of members of the Board that would constitute a majority of the authorized number of our directors (after deducting one from such
authorized number if the holders of the Preference Shares are collectively entitled to elect one director), plus (ii) two,
subject to the rights of the holders of the Class A Shares to elect at least two members of the Board.
The holders of Special Voting Shares are
entitled to receive, subject to the prior rights of the holders of Preference Shares and pari passu with the holders of
Class A Shares, any dividend declared by the Board on the Class A Shares.
Subject to the rights of holders of shares
ranking prior to or on a parity with Special Voting Shares, the holders of Special Voting Shares shall be entitled to receive pari
passu with the holders of Class A Shares, the remaining property of theScore in the event of any liquidation, dissolution
or winding-up of theScore, whether voluntary or involuntary, or other distribution of the assets of theScore among its shareholders
for the purpose of winding-up its affairs.
Each outstanding Special Voting Share is
convertible into one Class A Share at the option of the holder at any time and from time to time.
Pursuant to a trust agreement dated October 19,
2012, between theScore, Levy Holdings (as assignee of Levfam Holdings Ltd. (“Levfam”)) and Computershare Trust
Company of Canada (as assignee of Valiant Trust Company) (as supplemented by a supplemental trust agreement dated May 6, 2019,
the “Coat Tail Agreement”) Levy Holdings, the holder of Special Voting Shares, agreed not to sell any Special
Voting Shares pursuant to a take–over bid under circumstances in which securities legislation would have required the same
offer be made to holders of Class A Shares if the sale had been of Class A Shares rather than Special Voting Shares unless,
either (i) an identical offer is made for the Class A Shares, which identical offer has no condition other than the right
not to take up and pay for shares tendered if no shares are purchased pursuant to the offer for Special Voting Shares, or (ii) there
is a concurrent unconditional offer to purchase all of the Class A Shares at a price per share at least as high as the highest
price per share paid pursuant to the take–over bid for the Special Voting Shares.
Preference Shares
Preference Shares may at any time and from
time to time be issued in one or more series, each series to consist of such number of shares as may, before the issue thereof,
be determined by resolution of the Board, provided that any such resolution shall have been approved by all directors elected by
the holders of Special Voting Shares.
The Board shall by resolution fix from
time to time before the issue thereof the designation of, and the rights, privileges, restrictions and conditions attaching to,
the Preference Shares of each series including, without limiting the generality of the foregoing, the rate or amount of dividends
or the method of calculating dividends, the dates of payment thereof, the redemption and/or purchase prices and terms and conditions
of redemption and/or purchase, the rights of holders on liquidation, dissolution or winding-up, any voting rights, any conversion
rights and any sinking fund or other provisions, the whole to be subject to the issue of a certificate and articles of amendment
or such other document as may be prescribed by law setting forth the designation of, and the rights, privileges, restrictions and
conditions attaching to, the Preference Shares of such series.
The Preference Shares of each series shall,
with respect to the payment of dividends and the distribution of assets in the event of liquidation, dissolution or winding-up
of theScore, whether voluntary or involuntary, or any other distribution of the assets of theScore among its shareholders for the
purpose of winding-up its affairs, rank on a parity with the Preference Shares of every other series and be entitled to preference
over the Special Voting Shares, the Class A Shares and any other shares of theScore ranking junior to the Preference Shares.
The holders of the Preference Shares as
such shall not be entitled to receive notice of or to attend or to vote at any meeting of our shareholders, provided that the provisions
attaching to one or more series of Preference Shares may provide that in the event that we have has failed to pay dividends prescribed
in such series provisions for the period of time fixed by the directors in such series provisions and until such time as all arrears
of such dividends on such shares have been paid, the holders of such shares will be entitled to receive notice of and to attend
any meeting of our shareholders called for the purpose of electing directors and will be entitled, voting separately thereat as
a class together with holders of any other series of Preference Shares who have similar voting rights upon a failure to pay dividends,
to collectively, elect one director of theScore in addition to the directors which the holders of Special Voting Shares and of
Class A Shares are entitled to elect.
There are currently no Preference Shares
issued or outstanding.
Share Constraints
Our notice of articles and articles (collectively,
our “Articles”) contain restrictions on the issue, transfer and ownership of our securities, including introducing
certain requirements triggered by the acquisition of 5% or more of our outstanding securities (or such other greater or lower threshold
or additional threshold or thresholds as may be established by applicable gaming authorities from time to time) (the “Gaming
Regulatory Ownership Requirements”). The Articles also set out the remedies available to us in the event that a person
(a “Subject Securityholder”) (i) fails to comply with the Gaming Regulatory Ownership Requirements, (ii) owns
our securities in a way that is inconsistent with gaming laws, (iii) owns our securities in a way that jeopardizes our ability
to maintain or obtain a gaming license, or places us under undue hardships to maintain or obtain said gaming license, (iv) refuses
or fails to comply, within a reasonable time, with a request or requirement by a gaming authority to appear before, or submit to
the jurisdiction of, or file an application with, or provide information to, any gaming authority, pursuant to any gaming law,
or (v) is determined by a gaming authority not to be suitable or qualified with respect to owning or controlling our securities
or securities of one of our affiliates (such events are considered the “Triggering Events”), including:
(a) not
issuing any of our securities to the Subject Securityholder;
(b) placing
a stop transfer on any and all of our securities owned by the Subject Securityholder;
(c) suspending
all voting, interest, convertible, dividend and other distribution rights on all or any of our securities owned by the Subject
Securityholder;
(d) applying
to a court of competent jurisdiction (the “Court”) seeking an injunction to prevent a breach or continuing breach
of the Gaming Regulatory Ownership Requirements or applicable gaming laws or for an order directing that the number of securities
giving rise to the breach of the Gaming Regulatory Ownership Requirements or applicable gaming laws be sold or otherwise disposed
of in a manner that the Court may deem appropriate;
(e) applying
to the Ontario Securities Commission, or such other governmental authority having jurisdiction over our affairs, to effect a cease
trading order or such similar restriction against the Subject Securityholder until such time as the Subject Securityholder complies
with applicable gaming laws; and
(f) taking
any further actions as are necessary to comply with gaming laws.
Our Articles provide that the Gaming Regulatory
Ownership Requirements do not apply to (i) underwriters or portfolio managers who own our securities for the purposes of distribution
to the public or for the benefit of third parties who are compliant with the Gaming Regulatory Ownership Requirements, and (ii) persons
providing centralized facilities for the clearing of trades who are acting solely as an intermediary of the payment of funds or
the delivery of securities, however, such person may still be subject to applicable gaming laws and subject to a Triggering Event.
Our Articles require us to provide a Subject
Securityholder with notice in writing upon the discovery of a Triggering Event. Our Articles require the Subject Securityholder
who is the recipient of such notice, to forthwith rectify such Triggering Event, or within 30 days, to dispose of or otherwise
transfer the number of our securities giving rise to the Triggering Event so long as such transfer or disposition is permissible
under the applicable gaming laws, or else deposit such shares in escrow with us until such time as the Subject Securityholder’s
ownership of the securities no longer constitutes a Triggering Event.
According to our Articles, if we are holding
securities in escrow for a Subject Securityholder that is not a holder of the Special Voting Shares (the “Special Voting
Shareholder”) and the Triggering Event has not been rectified or otherwise continues to exist, we may, subject to gaming
laws, (i) sell all or a portion of the securities and distribute the proceeds to the Subject Securityholder, or (ii) repurchase
said shares, for cancellation, at a price (the “Repurchase Price”) as determined in a written valuation and
fairness opinion (“Valuation Opinion”) prepared by a disinterested investment banking firm.
If we do not receive the securities in
escrow and the Subject Securityholder has not disposed of or otherwise transferred the number of our securities giving rise to
the Triggering Event, and the Triggering Event has not been rectified or otherwise continues to exist, our Articles provide that
we may repurchase, for cancellation, the securities, at the Repurchase Price.
If the Special Voting Shareholder is subject
to a Triggering Event that continues to exist after the expiry of the 30 day period following delivery of the Notice, we will be
entitled to exercise control and direction over the Special Voting Shareholder’s Special Voting Shares and any other securities
in question as trustee for the benefit of the Special Voting Shareholder until the Triggering Event has been rectified; provided
that we will not be granted the power and authority to dispose of or otherwise transfer the Special Voting Shareholder Securities
or to convert the Special Voting Shares. If a gaming authority orders that the Special Voting Shareholder’s securities be
sold or otherwise disposed of, a special trustee may be appointed who would have the authority to dispose of or transfer all but
not less than all of the Special Voting Shareholder’s securities, provided that the special trustee may only do so (i) at
a price that is not less than the value of the Special Voting Shareholder’s securities determined pursuant to a Valuation
Opinion, (ii) for cash proceeds, and (iii) in compliance with gaming laws.
Our Articles also require all Subject Securityholders,
at our request, to provide a certificate of compliance in a form prescribed by us (a “Certificate of Compliance”)
certifying that no Triggering Event has or may occur by the acquisition of our securities by the Subject Securityholder. Failure
by a Subject Securityholder to provide the Certificate of Compliance shall result in a deemed Triggering Event and shall trigger
the same remedies as though that Subject Securityholder had caused a Triggering Event.
MARKET
FOR SECURITIES
During the period in which this AIF relates,
our Class A Shares traded on the TSXV. After receiving final approval to graduate to the TSX from the TSXV, our Class A
Shares commenced trading on the TSX at market open on September 15, 2020 under the existing ticker “SCR”. Our
Class A Shares were voluntarily delisted from the TSXV concurrently with the commencement of trading on the TSX. The following
sets forth the high and low market prices and the volume of the Class A Shares traded on the TSX Venture Exchange and TSX
during the periods indicated:
|
Month
|
|
High
($)
|
|
|
Low
($)
|
|
|
Trading Volume
(shares)
|
|
|
September 2019
|
|
|
0.92
|
|
|
|
0.57
|
|
|
|
9,382,616.00
|
|
|
October 2019
|
|
|
0.70
|
|
|
|
0.51
|
|
|
|
4,713,561.00
|
|
|
November 2019
|
|
|
0.77
|
|
|
|
0.56
|
|
|
|
4,006,222.00
|
|
|
December 2019
|
|
|
0.76
|
|
|
|
0.65
|
|
|
|
3,739,780.00
|
|
|
January 2020
|
|
|
0.87
|
|
|
|
0.63
|
|
|
|
9,216,697.00
|
|
|
February 2020
|
|
|
0.78
|
|
|
|
0.55
|
|
|
|
4,475,920.00
|
|
|
March 2020
|
|
|
0.66
|
|
|
|
0.28
|
|
|
|
8,094,321.00
|
|
|
April 2020
|
|
|
0.47
|
|
|
|
0.34
|
|
|
|
7,617,264.00
|
|
|
May 2020
|
|
|
0.62
|
|
|
|
0.42
|
|
|
|
6,613,298.00
|
|
|
June 2020
|
|
|
1.06
|
|
|
|
0.57
|
|
|
|
29,643,751.00
|
|
|
July 2020
|
|
|
0.84
|
|
|
|
0.66
|
|
|
|
9,800,324.00
|
|
|
August 2020
|
|
|
0.72
|
|
|
|
0.60
|
|
|
|
12,959,360.00
|
|
|
September 2020
|
|
|
0.87
|
|
|
|
0.55
|
|
|
|
20,075,839.00
|
|
The closing price for the Class A Shares listed on the
TSX on October 28, 2020 was $0.79.
DIRECTORS
AND OFFICERS
Name and Occupation
The following table sets out the names,
provinces and country of residence, positions with theScore, principal occupations in the past five years of each of our directors
and executive officers. The table also sets out the number of Special Voting Shares, Class A Shares and options beneficially
owned directly or indirectly or over which control or direction is exercised as of October 28, 2020 by each of our directors
and executive officers.
Information as to Class A Shares,
Special Voting Shares and options beneficially owned or over which control or direction is exercised, not being within our knowledge,
has been supplied by the respective individuals.
Name and Municipality
of Residence
|
|
Principal Occupation
During Past Five Years
|
|
Position with theScore
|
|
Securities of theScore
|
|
|
|
|
|
|
|
|
John Levy
Ontario, Canada
|
|
Chairman of the Board and Chief Executive Officer of theScore
|
|
Chairman of the Board and Chief Executive Officer
(Director since August 30, 2012)
|
|
5,566 Special Voting Shares, 77,745,750 Class A Shares and options to acquire 7,600,000 Class A Shares (4)
|
|
|
|
|
|
|
|
|
Ralph Lean, Q.C. (1)(2)(3)
Ontario, Canada
|
|
Counsel, Gowling WLG (law firm - retired)
|
|
Director
(Director since October 18, 2012)
|
|
216,115 Class A Shares and options to acquire 580,000 Class A Shares
|
|
|
|
|
|
|
|
|
John Albright
Ontario, Canada
|
|
Managing Partner, Relay Ventures (venture capital company)
|
|
Director
(Director since May 3, 2013)
|
|
64,082,236 Class A Shares and options to acquire 540,000 Class A Shares(6)
|
|
|
|
|
|
|
|
|
Angela Ruggiero Weston,
Massachusetts
|
|
CEO, Co-Founder, Sports Innovation Lab, Inc. (communication platform) (Dec. 2016 ndash; Present)
Founder, Ruggiero Sports Ventures (consulting services) (Jan. 1998 –
Present)
Bridgewater Associates (investment management firm) (2014 – 2015)
Los Angeles 2028 Bidding Committee
(Olympic bid committee) (2016 – 2017)
|
|
Director
(Director since October 14, 2020)
|
|
NIL Class A Shares and options to acquire NIL Class A Shares
|
|
|
|
|
|
|
|
|
Mark Scholes (1)(2)(3)
Ontario, Canada
|
|
Partner, Weisz, Rocchi & Scholes (law firm)
|
|
Director
(Director since October 18, 2012)
|
|
227,847 Class A Shares and options to acquire 580,000 Class A Shares
|
|
|
|
|
|
|
|
|
William Thomson
(1)(2) (3) Ontario, Canada
|
|
Managing Partner, Mercana Growth Partners (merchant banking company)
|
|
Director
(Director since October 18, 2012)
|
|
233,054 Class A Shares and options to acquire 580,000 Class A Shares
|
|
|
|
|
|
|
|
|
Brian Cooper
Ontario, Canada
|
|
Chairman, MKTG Canada (marketing agency)
|
|
Director
(Director since April 22, 2020)
|
|
33,756 Class A Shares and options to acquire Nil Class A Shares
|
Name and Municipality
of Residence
|
|
Principal Occupation
During Past Five Years
|
|
Position with theScore
|
|
Securities of theScore
|
|
|
|
|
|
|
|
|
|
Benjamin Levy
Ontario, Canada
|
|
President and Chief Operating Officer of theScore
|
|
Director, President and Chief Operating Officer
(Director since August 31, 2012)
|
|
6,185,087 Class A Shares and options to acquire 4,000,000 Class A Shares(5)
|
|
|
|
|
|
|
|
|
Alvin Lobo
Ontario, Canada
|
|
SVP, Finance of Score Digital Sports Ventures Inc.
(June 2019 – Sept. 2019)
VP, Corporate Finance of Boyd Gaming Corporation (gaming and
hospitality company) (Sept. 2016 – June 2019)
Director, Corporate Finance and Investor Relations of Wynn Resorts,
Limited (hotel and casino developer and operator) (May 2014 – Sept. 2016)
|
|
Chief Financial Officer
(CFO since September 2019)
|
|
83,305 Class A Shares and options to acquire 1,200,000 Class A Shares
|
|
|
|
|
|
|
|
|
Hecham Ghazal
Ontario, Canada
|
|
SVP, Engineering of theScore (Sept. 2018 – Sept.
2019)
VP, Engineering of theScore (May 2016 – Sept. 2018)
Founder of Roller Inc. (start-up marketplace for service professionals)
(Jan. 2016 – May 2016)
Director of Growth of WaveApps (financial services and
software company) (April 2012 – Dec. 2015)
|
|
Chief Technology Officer
(CTO since September 2019)
|
|
123,292 Class A Shares and options to acquire 2,900,000 Class A Shares
|
Name and Municipality
of Residence
|
|
Principal Occupation
During Past Five Years
|
|
Position with theScore
|
|
Securities of theScore
|
|
|
|
|
|
|
|
|
|
Joshua Sidsworth
Ontario, Canada
|
|
EVP, Corporate Development and General Counsel of NRT Group
of Companies (cash management service-provider) (Sept. 2017 – Dec. 2019)
VP Corporate Development of NRT Technology Corp. (cash
management service-provider) (Aug. 2010 – Sept. 2017)
|
|
General Counsel, Chief Compliance Officer and Corporate Secretary
(GC & CCO since December 2019)
|
|
92,427 Class A Shares and options to acquire 1,000,000 Class A Shares
|
|
|
(1)
|
Member of the Human Resources and Compensation Committee (“HRC Committee”).
|
|
|
(2)
|
Member of the Audit Committee.
|
|
|
(3)
|
Member of the Nominating
and Corporate Governance Committee.
|
|
|
(4)
|
5,566 Special Voting Shares and 70,972,802 Class A Shares are held by Levy Holdings; 5,662,088
Class A Shares are held by Norwest Video Inc. (“Norwest”); 1,110,860 Class A Shares are held by Mr. John
Levy directly. Norwest holds options to acquire 7,600,000 Class A Shares. Levy Holdings and Norwest are corporations controlled
by John Levy.
|
|
|
(5)
|
4,250,000 Class A Shares are held by Benjie Levy Family Holdings Inc., a corporation controlled
by Mr. Benjamin Levy. Mr. Benjamin Levy also holds 1,935,087 Class A Shares directly and/or in trust for his children.
Mr. Benjamin Levy is a beneficiary of certain family trusts which hold an indirect interest in the shares controlled and directed
by Mr. John Levy (see note 4). He holds options to acquire 4,000,000 Class A Shares.
|
|
|
(6)
|
43,258 Class A Shares and 540,000 options to acquire Class A Shares are held by John
Albright directly and 64,038,978 Class A Shares are held by Relay Ventures. John Albright co-directs Relay Ventures.
|
Each director will hold office until the
next annual meeting or until his successor is elected or appointed.
As of October 28, 2020, our directors
and executive officers as a group, beneficially own, directly or indirectly, or exercise control or direction over, an aggregate
of 149,023,243 Class A Shares, representing 37.2% of the issued and outstanding Class A Shares. Mr. John Levy, one
of our directors and officers, beneficially owns or controls 5,566 Special Voting Shares, representing 100% of the issued and outstanding
Special Voting Shares.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
John Albright was a director of Axios Mobile
Assets Corp. (“Axios”) until he resigned on January 10, 2017. On February 24, 2017, the Ontario Superior
Court of Justice granted an application of Axios’ senior lender to appoint a receiver and manager over the assets, undertakings
and property of Axios and its subsidiaries.
Conflicts of Interest
Mr. John Levy controls or directs
100% of the issued and outstanding Special Voting Shares, controls or directs approximately 19.4% of the outstanding Class A
Shares. As a result of the Special Voting Shares, Mr. Levy controls us and is entitled to nominate a majority of the members
of the Board and he has the ability to influence the outcome of matters submitted to our shareholders for approval, which include
amendments to our corporate governing documents and business combinations. Our interests and the interests of other shareholders
may at times conflict with those of Mr. Levy, and this conflict might be resolved against our interests and the interests
of other shareholders. Due to the shareholdings and contractual rights of Mr. Levy and Levy Holdings in the Respective Rights
Agreement, Mr. Levy will be in a position to determine whether we or our operations are acquired by a third-party, to significantly
influence the election of the Board and the board of directors of our subsidiaries and to generally direct our affairs.
Audit
Committee
Audit Committee
Our Audit Committee is responsible for
monitoring our accounting and financial reporting practices and procedures, the adequacy of internal accounting controls and procedures,
the quality and integrity of financial statements and for overseeing the external audit.
The Audit Committee is composed of three
directors, Ralph Lean, Q.C., Mark Scholes and William Thomson, each of whom is considered to be “independent” as defined
in National Instrument 52-110 — Audit Committees (“NI 52-110”). Each member of the Audit Committee
is considered to be “financially literate” within the meaning of NI 52-110 which includes the ability to read and understand
a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable
to the breadth and complexity of our financial statements.
The Audit Committee Charter and Terms of
Reference are attached as Schedule A to this AIF.
Relevant Education and Experience
The relevant education and experience of each of the members
of the Audit Committee is as follows:
|
Member
|
|
|
Relevant Education and Experience
|
|
William Thomson
|
|
·
|
Chairman of Score Media Audit Committee.
|
|
|
|
|
|
|
|
|
·
|
Currently the Managing Partner of Mercana Growth Partners, a merchant banking company specializing in the areas of finance, leadership, strategic alliances and corporate development.
|
|
|
|
|
|
|
|
|
·
|
Chartered Accountant.
|
|
|
|
|
|
|
|
|
·
|
Experience preparing, analyzing and evaluating financial statements having a breadth and level of complexity similar to or more complex than those of theScore.
|
|
|
|
|
|
|
|
|
·
|
Practical knowledge of internal controls and procedures for financial reporting.
|
|
|
|
|
|
|
Mark Scholes
|
|
·
|
Member of Score Media Audit Committee.
|
|
|
|
|
|
|
|
|
·
|
Partner with the law firm of Weisz, Rocchi & Scholes with a practice consisting primarily of Commercial Real Estate transactions, where the guidance he provided to clients includes advice relating to the financial aspects of real estate.
|
|
|
|
|
|
|
|
|
·
|
Bachelor of Laws Degree obtained from the University of Toronto, and a Bachelor of Arts Degree in Business from McMaster University, with major emphasis in accounting.
|
|
|
|
|
|
|
|
|
·
|
Past Treasurer for a medium sized charitable institution in Hamilton, Ontario.
|
|
|
|
|
|
|
Ralph Lean, Q.C.
|
|
·
|
Member of Score Media Audit Committee.
|
|
|
|
|
|
|
|
|
·
|
Counsel at GowlingWLG, Counsel at Heenan Blaikie LLP, and Partner at Cassels, Brock and Blackwell LLP for over 20 years, specializing in corporate law
|
|
|
|
|
|
|
|
|
·
|
Bachelor
of Laws degree from Osgoode Hall Law School and a Bachelor's degree in Business Administration from the University of Western Ontario.
|
Pre-Approval Policies and Procedures
In accordance with the relevant independence
rules and related interpretations prescribed by the relevant professional bodies in Canada, we are restricted from engaging
auditors to provide certain non-audit services to us and our subsidiaries, including bookkeeping or other services related to the
accounting records or financial statements, information technology services, valuation services, actuarial services, internal audit
services, corporate finance services, management functions, resource functions, legal services and expert services unrelated to
the audit.
The Audit Committee has established a process
to pre-approve audit, audit-related and non-audit services of our external auditor. Annually, our management provides the Audit
Committee with a list of the audit-related and non-audit services that are anticipated to be provided during the year for pre-approval.
The Audit Committee reviews the services with the auditor and our management and considers whether the provision of the service
is compatible with maintaining the auditor’s independence. Our management may engage the auditor for specific engagements
that are included in the list of preapproved services. The Audit Committee delegates authority to the Chair of the Audit Committee
to approve requests for services not included in the pre-approved list of services or for services not previously pre-approved
by the Audit Committee. Any services approved by the Chair will be reported to the full Audit and Risk Committee at the next meeting.
A review of all audit and non-audit services and fees rendered to us by KPMG LLP is reviewed by the Audit Committee.
External Auditor Service Fees
Our consolidated financial statements for
the year ended August 31, 2020 and 2019 have been audited by KPMG LLP. The amounts paid by us to our external auditors in
the last two fiscal years are set out below. The Audit Committee considered and agreed that the services covered by these fees
are compatible with maintaining the independence of our auditors. Audit fees consist of fees related to the audit of the consolidated
financial statements and interim reviews. Audit related fees includes fees for procedures related to prospectus and related assistance
to underwriters. Tax fees relate principally to fees associated with assistance related to tax compliance requirements and certain
tax credit filings.
|
Category
|
|
Fiscal Year Ended August 31, 2020^
|
|
|
Fiscal Year Ended August 31, 2019
|
|
|
Audit Fees
|
|
$
|
357,360
|
|
|
$
|
253,800
|
|
|
Audit Related Fees
|
|
$
|
91,800
|
|
|
|
NIL
|
|
|
Tax Fees
|
|
$
|
65,880
|
|
|
$
|
61,345
|
|
|
All Other Fees
|
|
|
NIL
|
|
|
|
NIL
|
|
|
Total
|
|
$
|
515,060
|
|
|
$
|
315,145
|
|
^Amounts for fiscal
year ended August 31, 2020 include reimbursed costs and support charges incurred in connection with the services.
LEGAL
PROCEEDINGS
We are not aware of any material legal
proceedings that we are a party to, or that any of our properties is or was the subject of, during the fiscal year ended August 31,
2020.
INTEREST
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
None of our directors or executive officers
or any person that beneficially owns or controls, directly or indirectly, 10% or more of the issued and outstanding Class A
Shares or Special Voting Shares or associate or affiliate of any such director or executive officer or 10% shareholder has any
material interest, direct or indirect, in any transaction within our most recently completed financial year or within the current
financial year that has materially affected or would materially affect us.
Registrar
and Transfer Agent
Our registrar and transfer agent is Computershare
Trust Company of Canada, at its principal office located at 100 University Avenue, North Tower, 8th floor, Toronto,
Ontario.
MATERIAL
CONTRACTS
The only material contracts we or any of
our predecessors entered into during the year ended August 31, 2020 (or prior thereto and which are still in effect) are as
follows:
Respective Rights Agreement
On August 30, 2019, we entered into
a third amended and restated respective rights agreement (the “Respective Rights Agreement”) with John Levy
Family Holdings Ltd. (“Levy Holdings”) and Mr. John Levy. Levy Holdings is controlled by Mr. John
Levy.
Pursuant to the Respective Rights Agreement,
Levy Holdings has a contractual pre-emptive right which entitles it to subscribe for a pro rata share of any Class A
Shares or Special Voting Shares issued by us. In addition, the Special Voting Shares owned by Levy Holdings will be deemed to have
been converted to Class A Shares if at any time the number of Class A Shares owned by Levy Holdings and its affiliates,
in the aggregate, is less than the Threshold Amount except (a) on a sale of all of the Special Voting Shares and at least
50% of the Class A Shares owned by Levy Holdings in a transaction or series of related transactions, and (b) where Levy
Holdings is subject to a Triggering Event.
“Threshold Amount” is
defined in the Respective Rights Agreement to mean 12,000,000 Class A Shares adjusted for: (i) all Class A Subordinate
Voting Share Reorganizations (as hereinafter defined) if, at the close of the principal stock market on which the Class A
Shares are traded on the date of declaration of any such Class A Subordinate Voting Share Reorganization, we have a market
capitalization of less than $500 million; and (ii) for all reductions, combinations, consolidations or changes of the Class A
Shares into a lesser number of Class A Shares if at the close of the principal stock market on which the Class A Shares
are traded on the date of declaration of any such reduction, combination, consolidation or change we have a market capitalization
of $500 million or more.
“Class A Subordinate Voting
Share Reorganization” is defined in the Respective Rights Agreement to mean any: (i) subdivision, redivision or
change of the outstanding Class A Shares into a greater number of Class A Shares; (ii) reduction, combination, consolidation
or change of the outstanding Class A Shares into a lesser number of Class A Shares; or (iii) issuance of Class A
Shares (or securities, including debt, convertible into or exchangeable for Class A Shares or rights, options or warrants
to acquire Class A Shares) to the holders of all or substantially all of the then outstanding Class A Shares by way of
stock dividend or other distribution.
Pursuant to the Respective Rights Agreement,
each of Levy Holdings and its affiliates has the right to request that we file, at the expense of the requesting party, a prospectus
for the sale in any provinces of Canada of all or any Class A Shares owned by them provided that such request must be in respect
of Class A Shares with a fair market value of at least $5 million. Any such request may be pre-empted by us if we identify
a specific business need and use for the proceeds of the sale of such securities and we use commercially reasonable efforts to
effect a treasury offering within 60 days of the exercise of this pre-emptive right. In addition, in any public offering (whether
a treasury offering or a secondary offering) made by us, Levy Holdings and its affiliates are entitled to an unlimited right to
sell Class A Shares owned by them as part of that public offering, provided that we and the underwriters can reduce the number
of shares proposed to be sold by Levy Holdings and its affiliates in view of market conditions.
Pursuant to the Respective Rights Agreement,
Mr. John Levy agreed that, so long as he controls us and is actively involved in its management, he will not: (i) carry
on any business activities that are competitive with the business of us and our subsidiaries; and/or (ii) own any interest
in or provide financial or managerial assistance to any entity that is primarily engaged in the business of, or whose assets or
properties are significantly comprised of, digital sports media, except as follows: (i) passive investment in shares of a
public company of not more than 5% of the outstanding equity; (ii) entities in which the HRC Committee has asked him to take
an interest as director, officer or similar capacity on behalf of us or for our benefit; (iii) any business in which he had
an ownership interest as of May 9, 2014; and (iv) any investment that he has recommended to the Board as an investment
for us which the Board and the HRC Committee has decided not to make; provided that the making of any such investment does not
impede the performance by him of his duties and responsibilities as our officer and he does not become actively involved in the
management of any such investment.
Management Services Agreement
Mr. John Levy, Chairman and Chief
Executive Officer, and his services are made available to us by Norwest Video Inc. (“Norwest”) (a corporation
controlled by Mr. John Levy). We entered into a management services agreement with Norwest and Mr. John Levy effective
April 11, 2018. It had a term of approximately two years and provided that Norwest was entitled to a basic management services
fee of $640,000 per year between September 1, 2018 and August 31, 2020, the date upon which it expired. We entered into
a new management services agreement (“Management Services Agreement”) with Norwest and Mr. John Levy effective
September 1, 2020. It has a term of one year and provides that Norwest is entitled to a basic management services fee of $640,000
between September 1, 2020 and August 31, 2021.
In addition, Norwest is entitled to participate
in an annual bonus pool in an amount to be determined annually by the HRC Committee and to participate in any long-term incentive
plan, our stock option and restricted share unit plan, our employee share purchase plan, our RRSP contribution program and any
similar plan created by us in the manner and to the extent authorized by the Board. Norwest is also entitled to reimbursement for
certain expenses incurred on our behalf by Mr. John Levy, including reasonable travel and other out-of-pocket expenses provided
such expenses were actually and properly incurred by Mr. John Levy in connection with management of our business.
We are able to terminate the Management
Services Agreement at any time upon payment to Norwest of two times the sum of (i) the highest annual basic management fee
earned in any one of the three most recently completed fiscal years and the highest bonus fees earned in any one of the three most
recently completed fiscal years, and (ii) accelerated vesting of all options which will vest within twelve months of the termination
date.
The Management Services Agreement provides
that Mr. John Levy will not, during the term of the Management Services Agreement, (i) carry on any business activities
that are competitive with our business; and/or (ii) own any interest in or provide financial or managerial assistance to any
entity that is primarily engaged in the business of, or whose assets or properties are significantly comprised of, digital sports
media, except as follows: (i) passive investment in shares of a public company of not more than 5% of the outstanding equity;
(ii) entities in which the HRC Committee has asked him to take an interest as director, officer or similar capacity on our
behalf or for our benefit; (iii) any business in which he had a prior ownership interest; and (iv) any investment that
he has recommended to the Board as an investment for us which the Board and the HRC Committee has decided not to make.
Board Nomination Agreement
We entered into a board nomination agreement
(the “Board Nomination Agreement”) with certain Relay Ventures’ funds on May 3, 2013 that was amended
on July 15, 2019. The Board Nomination Agreement provides Relay Ventures with the right to designate one of certain specified
individuals to be included among the Board’s nominees as directors at each meeting of our shareholders at which directors
are to be elected by the holders of the Class A Shares for so long as Relay Ventures holds at least 7.5% of the outstanding
Class A Shares. Relay Ventures’ co-founder and managing partner, John Albright, was appointed to the Board on May 3,
2013 pursuant to the Board Nomination Agreement.
The Board Nomination Agreement requires
Relay Ventures to vote the Class A Shares controlled or beneficially held by Relay Ventures or its affiliates in favour of
the Board’s slate of nominees for election as directors at each meeting of our shareholders at which directors are to be
elected provided that the Relay Nominee has been nominated in accordance with the Board Nomination Agreement. In addition, Mr. John
Levy agreed to vote or cause to be voted all Class A Shares controlled or beneficially owned by him or his affiliates in favour
of the Relay Nominee for election as a director at each meeting of our shareholders at which directors are to be elected provided
the Relay Nominee has been nominated in accordance with the Board Nomination Agreement.
Relay Ventures Pre-emptive Rights Agreement
We also entered into a pre-emptive rights
agreement (the “Pre-emptive Rights Agreement”) with certain Relay Ventures funds on May 3, 2013. The Pre-emptive
Rights Agreement provides Relay Ventures, so long as it holds a minimum of a 5% equity interest in us (on a non-diluted basis),
with pre-emptive rights to co-subscribe on any future equity issuance by us subject to customary exclusions for the issuance of
shares under stock incentive plans or in connection with arm’s length acquisitions and similar transactions, to maintain
its proportional equity interest at the relevant time.
Coat Tail Agreement
For a summary of the terms of the Coat
Tail Agreement, see “DESCRIPTION OF CAPITAL STRUCTURE – Special Voting Shares”.
Investment Agreement and Convertible Debenture
We entered into an investment agreement
on August 31, 2019 (the “Investment Agreement”) with a fund managed and controlled by Fengate Asset Management
(the “Fund”) pursuant to which the Fund agreed to purchase a $40,000,000 8.00% convertible unsecured subordinated
debenture due August 31, 2024 (the “Convertible Debenture”) on a private placement basis. We issued the
Convertible Debenture to the Fund on September 5, 2019.
The Convertible Debenture matures on August 31,
2024 and accrues interest at the rate of 8.00% per annum payable semi-annually on the last day of February and August of
each year commencing on February 29, 2020. At the holder’s option, the Convertible Debenture may be converted into our
Class A Shares at any time prior to the close of business on the earlier of the business day immediately preceding the maturity
date and the business day immediately preceding the date fixed for redemption of the Convertible Debenture. The conversion price
will be $0.75 for each Class A Share, being a conversion rate of 1,333.3333 Class A Shares issuable for each $1,000 principal
amount of the Convertible Debenture, subject to adjustment in certain circumstances.
Subject to specified conditions, we may
force the conversion of the Convertible Debenture into Class A Shares if the volume weighted average trading price of our
Class A Shares during the 20 trading days ending on the fifth trading day preceding the date on which notice of the forced
conversion is given is not less than 125% of the conversion price at any time (i) after August 31, 2021, or (ii) if
the principal sum of the Convertible Debenture outstanding is $4,000,000 or less.
Subject to specified conditions, the Convertible
Debenture may be redeemed at our option at par plus accrued and unpaid interest at any time (i) after August 31, 2023
if the volume weighted average trading price of our Class A Shares during the 20 trading days ending on the fifth trading
day preceding the date on which notice of the redemption is given is not less than 125% of the conversion price, or (ii) if
the principal sum of the Convertible Debenture outstanding is $4,000,000 or less.
Subject to specified conditions and subject
to any required regulatory and/or stock exchange or marketplace approvals, we are entitled to repay all or a portion of the outstanding
principal amount of the Convertible Debenture on maturity by issuing that number of our Class A Shares equal to the quotient
obtained by dividing the applicable portion of the principal amount to be repaid in Class A Shares by 85% of the volume weighted
average trading price of our Class A Shares during the 20 trading days ending on the fifth trading day preceding the maturity
date.
Until August 31, 2021, we are also
entitled to satisfy our obligation to pay interest by adding the amount of the applicable interest payment to the principal amount
of the Convertible Debenture. The interest added to the principal amount of the Convertible Debenture will be convertible into
Class A Shares in accordance with the conversion features of the Convertible Debenture, subject to the requirements of any
regulatory and/or stock exchange or marketplace at the time of conversion.
Upon the occurrence of a change of control
of theScore or the sale by us of our core assets, we will be required to make an offer to purchase the Convertible Debenture at
a price equal to 105% of the principal amount plus accrued and unpaid interest.
The Convertible Debenture includes certain
provisions to ensure we comply with applicable gaming regulations. Upon the occurrence of certain Triggering Events, we can require
the holder of the Convertible Debenture to deposit the Convertible Debenture into escrow with us until the Triggering Event is
cured or rectified (and we are prohibited from exercising our rights under our Articles to force a sale or repurchase of the Convertible
Debenture). If certain adverse regulatory events occur while we are holding the Convertible Debenture in escrow, the Convertible
Debenture will cease to be convertible into Class A Shares, and we will redeem the Convertible Debenture for 100% of the principal
amount plus accrued and unpaid interest (to the date of the adverse regulatory event).
The Investment Agreement provides the Fund
with certain rights including (i) a right to participate in future equity offerings to maintain its pro rata equity interest
for so long as the Convertible Debenture is outstanding (or, following conversion, for so long as the Fund and its affiliates hold
at least 5% of the outstanding Class A Shares), (ii) a right of first refusal over certain future debt financings for
so long as the Convertible Debenture is outstanding, (iii) a right to nominate one individual to serve on our board of directors
(or, if such right is not exercised, the right to designate a board observer) for so long as the Convertible Debenture is outstanding
(or, following conversion, for so long as the Fund and its affiliates hold at least 7.5% of the outstanding Class A Shares)
and (iv) a demand registration right to sell all of its Class A Shares. The Fund is also restricted from selling any
Class A Shares acquired upon conversion of the Convertible Debenture to certain of our competitors without first complying
with a right of first refusal in our favour.
INTEREST
OF EXPERTS
KPMG LLP are our auditors and have confirmed
that they are independent of theScore in accordance with the ethical requirements that are relevant to the audit of the financial
statements in Canada.
ADDITIONAL
INFORMATION
Additional information relating to us may
be found on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.
Additional information, including directors'
and officers' remuneration and indebtedness, principal holders of our securities, and securities authorized for issuance under
equity compensation plans is contained in our management information circular for our most recent annual meeting of shareholders
that involved the election of directors, which may be found on SEDAR at www.sedar.com.
Additional financial information is contained
in our consolidated financial statements as at and for the years ended August 31, 2020 and 2019 and our MD&A for the year
ended August 31, 2020 and may be found on SEDAR at www.sedar.com.
SCHEDULE
A
SCORE MEDIA AND GAMING INC.
AUDIT COMMITTEE CHARTER
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A.
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Audit Committee Purpose
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The Audit Committee (the “Committee”)
is a committee of the board of directors (the “Board”) of Score Media and Gaming Inc. (the “Corporation”)
whose primary function is to assist the Board in assessing the effectiveness of the accounting and financial reporting principles
and policies and internal controls and procedures that provide for compliance with accounting standards and applicable laws and
regulations.
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B.
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Committee Composition, Appointment and Procedures
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Structure
and Composition of Committee
The Committee shall be comprised
of not less than three directors, all of whom must be independent directors in accordance with applicable regulatory and stock
exchange requirements.
Financial
Literacy
All members of the Committee
shall have the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting
issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by
the financial statements of the Corporation.
Appointment
of Committee Members
Members of the Committee shall
be appointed from time to time and shall hold office at the pleasure of the Board, upon the recommendation of the Nominating and
Corporate Governance Committee.
Vacancies
Where a vacancy
occurs at any time in the membership of the Committee, it may be filled by the Board; and
The Board
shall fill any vacancy if the membership of the Committee is less than three Directors.
Committee
Chairman
The Board shall appoint a Chairman
for the Committee.
Absence
of Committee Chairman
If the Chairman of the Committee
is not present at any meeting of the Committee, one of the other members of the Committee who is present at the meeting shall be
chosen by the Committee to preside at the meeting.
Secretary
of Committee
The Committee shall appoint its
own secretary, who shall serve as the secretary of the Committee.
Meetings
The Chairman
of the Committee or the Chairman of the Board, or any two members of the Committee may call a meeting of the Committee;
The Committee
shall meet at such times during each year as it deems appropriate;
The Committee
will ordinarily meet in camera at the end of each of its formal meetings and may meet in camera at any other time as required;
There shall
be four senior management personnel available for meetings of the Committee at the invitation of the Chairman of the Committee.
These four persons will be those holding the positions of Chief Executive Officer, Chief Financial Officer, Chief Operating Officer,
and Corporate Secretary; and
Representatives
of the external auditors shall be available for Committee meetings at the invitation of the Chairman of the Committee.
Quorum
A majority of the members of the Committee shall constitute
a quorum.
Notice of
Meetings
Notice of
the time and place of every meeting shall be given in writing (including by way of written facsimile or electronic communication)
to each member of the Committee at least 24 hours prior to the time fixed for such meeting; provided, however, that a member may
in any manner waive a notice of a meeting; and
Attendance
of a member at a meeting constitutes a waiver of notice of the meeting except where a member attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
Review of
Charter
The Committee shall review its performance and this
Charter annually or otherwise as it deems appropriate and propose recommended changes to the Board.
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C.
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Responsibilities of the Committee
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Review all
quarterly unaudited and annual audited financial statements and accompanying reports to the shareholders, MD&A, related annual
and interim earnings press releases, earnings guidance disclosure or any other disclosure based on the Corporation’s financial
statements prior to the release of those statements;
Make recommendations
to the Board for approval with respect to the annual audited financial statements and, in each case, review:
The appropriateness
of the Corporation's significant accounting principles and practices, including acceptable alternatives, and the appropriateness
of any significant changes in accounting principles and practices;
The existence
and substance of significant accruals, estimates, or accounting judgements, and the level of conservatism;
Unusual
or extraordinary items, transactions with related parties, and adequacy of disclosures;
Asset and
liability carrying values;
Income tax
status and related reserves;
Qualifications
contained in letters of representation;
Assurances
of compliance with covenants in trust deeds or loan agreements;
Business
risks, uncertainties, commitments, litigation and contingent liabilities;
The adequacy
of explanations for significant financial variances between years;
The adequacy
of control systems utilized by the Corporation; and
Material
valuation issues.
Review the
Corporation's Annual Information Form (if any), management proxy circular and annual report and make a recommendation for
approval thereof to the Board.
Oversee the
external audit process, including:
The selection
and appointment of an auditing firm to conduct the annual audit of the Corporation’s annual financial statements and review
of the Corporation’s quarterly financial statements (and related notes and management’s discussion and analysis in
each case);
Assess the
independence of the appointed auditing firm;
Review of
the external audit plan comprising a fee estimate, objectives, scope, materiality, timing and areas of audit risk;
Review of
audit reports and reviews and findings, including corresponding management responses;
Approve
the audit fee;
Establish,
from time to time, pre-approval arrangements for specific categories of permitted audit related services; and
Private
discussions regarding the quality of financial personnel, the level of co-operation received and unresolved material differences
of opinion or disputes.
Oversee the
external non-audit process, including:
Approving
the nature of any non-audit services provided and any material mandates by the auditing firm to the Corporation or its subsidiary
entities, the fees charged by the firm for such services and the impact on the independence of the auditor provided that the auditing
firm is prohibited from providing appraisal or valuation services, fairness opinions, actuarial services, internal audit outsourcing
services, management functions or human resources, bookkeeping or other services relating to the accounting records or financial
statements of the Corporation or financial information systems designed in implementation; and
Information
as to the non-audit services provided by the auditing firm, the fees charged by the firm for such services and the impact on the
independence of the auditor.
Review incidents
of fraud, illegal acts and conflicts of interest;
Review cases
where management has sought accounting advice on a specific issue from an accounting firm other than the one appointed as auditor;
Establish
financial whistle blowing procedures for:
receipt,
retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing
matters; and
confidential,
anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters; and
Review and
approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present
and former external auditor of the Corporation.
The Committee
may, at the request of the Board, investigate such other matters as the Board considers appropriate in the circumstances.
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D.
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Resources, Meetings and Reports
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14.
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The Committee shall have adequate resources to discharge its responsibilities. The Committee may,
for and on behalf of the Corporation and at the Corporation’s sole expense, engage such consultants as it considers in its
sole discretion necessary to assist it in fulfilling its duties and responsibilities.
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The Committee
shall meet not less than four times per year.
The meetings
of the Committee shall ordinarily include the auditors and the Chairman of the Board shall be an ex officio member of the Committee
if not otherwise appointed as a member of the Committee. The Committee may request the attendance of other officers at its meetings
from time to time.
The Board
shall be kept informed of the Committee's activities by a report presented at the Board meeting following each Committee meeting.
The Committee
shall keep minutes of its meetings in which shall be recorded all actions taken by the Committee which minutes shall be made available
to the Board.
The members
of the Committee shall have the right, for the purposes of discharging the powers and responsibilities of the Committee, to inspect
any relevant records of the Corporation and its subsidiaries.
SCORE MEDIA AND GAMING INC.
(the “Corporation”)
TERMS OF REFERENCE FOR THE CHAIRMAN OF
THE AUDIT COMMITTEE
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Title:
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Chairman (the “Chair”) of the Audit Committee (the “Committee”)
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Appointment:
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The Chair is a financially literate Director of the Corporation who is elected as a Director by the Corporation’s shareholders and is appointed by the other directors annually as a member of the Committee. The Chair is an independent Director in accordance with applicable regulatory and stock exchange requirements. The Chair is appointed by the members of the Board of Directors (the “Board”) and serves in this role at the pleasure of the Board
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Reports:
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The Chair maintains open communication with the Chairman of the Board. The Chair has unfettered two-way communication with all senior officers and the Corporation’s auditor.
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Function:
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The Chair’s primary role includes ensuring that the Committee functions properly, that it meets its obligations and responsibilities, and that its organization and mechanisms are in place and are working effectively.
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Provides
leadership to the Committee with respect to its functions as described in the Committee’s written mandate and as otherwise
may be appropriate, including overseeing the logistics of the operations of the Committee.
Calls and
chairs meetings of the Committee. Meetings of the Committee may also be called by the Chairman of the Board or any two members
of the Committee.
Ensures
that the Committee meets on a regular basis and at least quarterly.
In consultation
with the Chairman of the Board, the Chief Financial Officer and the Committee members, establishes a calendar for holding meetings
of and sets the agendas for the meetings of the Committee.
In collaboration
with the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer and the Secretary ensures that agenda
items for all Committee meetings are ready for presentation and that adequate information is distributed to Committee members in
advance of such meetings in order that Committee members may properly inform themselves on matters to be acted upon.
Assigns
work to Committee members.
Acts as
liaison and maintains communication with the Chairman of the Board and the Board to optimize and co-ordinate input from Directors,
and to optimize effectiveness of the Committee. This includes reporting regularly to the full Board on all proceedings and deliberations
of the Committee. Such reports shall be made not less frequently than quarterly.
Ensures
that the Committee receives adequate and regular updates from the management on all issues relating to audits, financial statements,
MD&A, annual and interim earnings, press releases, procedures for disclosure of financial information and disclosure controls.
Meets separately
as required with management to optimize his liaison function and to ensure efficient communication between management and the Committee.
Meets separately
as required with the Corporation’s auditor to ensure that the Committee has the information required to perform its role
of oversight in line with its mandate.
Pre-approves
non-audit services not prohibited by law to be performed by the Corporation’s auditor in conformity with the terms of any
authorization delegated to him by the Committee.
Reports
annually to the Committee on the role of the Chair and the effectiveness of the Chair role in contributing to the objectives and
responsibilities of the Committee as a whole.
Reports
annually to the Board on the role of the Committee and the effectiveness of the Committee role in contributing to the objectives
and responsibilities of the Board as a whole.
Exhibit 4.2
Consolidated Financial Statements
(In Canadian dollars)
SCORE MEDIA AND
GAMING INC.
And Independent Auditors' Report thereon
Years ended August 31, 2020 and 2019
kpmg LLP
Vaughan Metropolitan Centre
100 New Park Place, Suite 1400
Vaughan ON
L4K 0J3
Canada
Tel 905-265-5900
Fax 905-265-6390
independent
AUDITORS' REPORT
To the Shareholders of Score Media
and Gaming Inc.
Opinion
We have audited the consolidated
financial statements of Score Media and Gaming Inc. (the Entity), which comprise:
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the consolidated statements of financial
position as at August 31, 2020 and 2019
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·
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the consolidated statements of comprehensive
loss for the years then ended
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the consolidated statements of changes
in shareholders' equity for the years then ended
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the consolidated statements of cash flows
for the years then ended
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and notes to the consolidated financial
statements, including a summary of significant accounting policies
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(Hereinafter referred to as the
"financial statements").
In our opinion, the accompanying
financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at August 31,
2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance
with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance
with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors'
Responsibilities for the Audit of the Financial Statements" section of our auditors' report.
We are independent of the Entity
in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and 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.
© 2020 KPMG
LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Page 2
Other Information
Management is responsible for the
other information. Other information comprises:
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the information included in Management's
Discussion and Analysis filed with the relevant Canadian Securities Commissions.
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the Glossy Annual Report.
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Our opinion on the financial statements
does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of
the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain
alert for indications that the other information appears to be materially misstated.
We obtained the information included
in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors'
report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of
this other information, we are required to report that fact in the auditors' report.
We have nothing to report in this
regard.
The information, other than the
financial statements and auditors' report thereon, included in the Glossy Annual Report is expected to be made available to us
after the date of this auditors' report. If, based on the work we will perform on this other information, we conclude that there
is a material misstatement of this other information, we are required to report that fact to those charged with governance.
Responsibilities of Management
and Those Charged with Governance for the Financial Statements
Management is responsible for the
preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS),
and for such internal control as management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements,
management is responsible for assessing the Entity'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 Entity
or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are
responsible for overseeing the Entity's financial reporting process.
Page 3
Auditors' Responsibilities
for the Audit of the Financial Statements
Our objectives are to obtain reasonable
assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditors' 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 the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
As part of an audit in accordance
with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout
the audit.
We also:
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Identify and assess the risks of material
misstatement of the 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.
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The risk 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.
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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 Entity's internal control.
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Evaluate the appropriateness of accounting
policies used and the reasonableness of accounting estimates and related disclosures made by management.
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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 Entity's ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the
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 auditors' report. However, future events or conditions may cause the Entity to cease to continue
as a going concern.
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Evaluate the overall presentation, structure
and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
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Page 4
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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.
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Provide those charged with governance
with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards
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/s/ KPMG LLP
Chartered Professional Accountants,
Licensed Public Accountants
The engagement partner on the audit
resulting in this auditors' report is Derek Peters.
Vaughan, Canada
October 28, 2020
SCORE
MEDIA AND GAMING INC.
Consolidated Statements of Financial
Position
(In thousands of Canadian dollars)
August 31, 2020 and 2019
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2020
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2019
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Assets
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|
|
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Current
assets:
|
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|
|
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Cash
and cash equivalents
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$
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40,116
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$
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4,035
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Restricted
cash related to customer deposits
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1,859
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11
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Accounts
receivable
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5,455
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7,956
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Tax
credits recoverable (note 6)
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1,616
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–
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Prepaid
expenses, deposits and other assets
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2,048
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1,261
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51,094
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13,263
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|
Non-current
assets:
|
|
|
|
|
|
|
|
|
|
Restricted
cash related to customer deposits
|
|
|
–
|
|
|
|
668
|
|
|
Property
and equipment (note 3)
|
|
|
4,136
|
|
|
|
1,373
|
|
|
Intangible
and other assets (note 4)
|
|
|
23,477
|
|
|
|
21,760
|
|
|
Tax
credits recoverable (note 6)
|
|
|
–
|
|
|
|
1,616
|
|
|
|
|
|
27,613
|
|
|
|
25,417
|
|
|
Total
assets
|
|
$
|
78,707
|
|
|
$
|
38,680
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
10,353
|
|
|
$
|
7,147
|
|
|
Current
portion of loans and other borrowings (note 8)
|
|
|
6,645
|
|
|
|
–
|
|
|
Current
portion of deferred lease obligation
|
|
|
–
|
|
|
|
184
|
|
|
Current
portion of lease liabilities
|
|
|
908
|
|
|
|
–
|
|
|
Other
current financial liabilities (note 16)
|
|
|
231
|
|
|
|
–
|
|
|
|
|
|
18,137
|
|
|
|
7,331
|
|
|
Non-current
liabilities:
|
|
|
|
|
|
|
|
|
|
Loans
and other borrowings (note 8)
|
|
|
740
|
|
|
|
–
|
|
|
Deferred
lease obligation
|
|
|
–
|
|
|
|
112
|
|
|
Lease
liabilities
|
|
|
1,042
|
|
|
|
–
|
|
|
Convertible
debenture (note 13)
|
|
|
29,584
|
|
|
|
–
|
|
|
|
|
|
31,366
|
|
|
|
112
|
|
|
|
|
|
49,503
|
|
|
|
7,443
|
|
|
Shareholders'
equity
|
|
|
29,204
|
|
|
|
31,237
|
|
|
Commitments
(note 9)
|
|
|
|
|
|
|
|
|
|
Subsequent
event (note 19)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
78,707
|
|
|
$
|
38,680
|
|
See accompanying notes to consolidated
financial statements.
On behalf of the Board:
|
John Levy
|
|
Director
|
|
|
|
|
|
Bill Thomson
|
|
Director
|
SCORE MEDIA AND GAMING INC.
Consolidated Statements of
Comprehensive Loss
(In thousands of Canadian dollars,
except per share amounts)
Years ended August 31,
2020 and 2019
|
|
|
2020
|
|
|
2019
|
|
|
Revenue (note 11)
|
|
$
|
20,719
|
|
|
$
|
31,121
|
|
|
Operating expenses (note 15):
|
|
|
|
|
|
|
|
|
|
Product development and content
|
|
|
8,149
|
|
|
|
9,160
|
|
|
Sales and marketing
|
|
|
13,036
|
|
|
|
10,331
|
|
|
Technology and operations
|
|
|
16,241
|
|
|
|
7,717
|
|
|
General and administration
|
|
|
13,756
|
|
|
|
10,407
|
|
|
Depreciation and amortization (notes 3 and 4)
|
|
|
5,397
|
|
|
|
3,117
|
|
|
|
|
|
56,579
|
|
|
|
40,732
|
|
|
Operating loss
|
|
|
(35,860
|
)
|
|
|
(9,611
|
)
|
|
Finance income (expense) (note 17)
|
|
|
(5,177
|
)
|
|
|
198
|
|
|
Loss before income taxes
|
|
|
(41,037
|
)
|
|
|
(9,413
|
)
|
|
Deferred income tax recovery (note 18)
|
|
|
(3,107
|
)
|
|
|
–
|
|
|
Net loss
|
|
|
(37,930
|
)
|
|
|
(9,413
|
)
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences from foreign operations
|
|
|
|
|
|
|
|
|
|
|
|
|
508
|
|
|
|
4
|
|
|
Comprehensive loss
|
|
$
|
(37,422
|
)
|
|
$
|
(9,409
|
)
|
|
Loss per share - basic and diluted (note 12)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.03
|
)
|
See accompanying notes to consolidated
financial statements.
SCORE MEDIA AND GAMING INC.
Consolidated Statements of
Changes in Shareholders' Equity
(In thousands of Canadian dollars,
except per share amounts)
Years ended August 31,
2020 and 2019
|
|
|
|
Special
voting shares
|
|
|
|
Class
A subordinate
voting shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Number
of
shares
|
|
|
|
Amount
|
|
|
|
Number
of
shares
|
|
|
|
Contributed
surplus
|
|
|
|
Accumulated
other
comprehensive
income
|
|
|
|
Equity
component
of convertible
debenture
|
|
|
|
Deficit
|
|
|
|
Total
shareholders'
equity
|
|
|
Balance, August 31, 2018
|
|
$
|
15
|
|
|
|
5,566
|
|
|
$
|
68,923
|
|
|
|
297,055,284
|
|
|
$
|
4,777
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
(55,433
|
)
|
|
$
|
18,282
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(9,413
|
)
|
|
|
(9,413
|
)
|
|
Stock-based compensation
expense (note 10)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
561
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
561
|
|
|
Shares
issued on exercise of stock options (note 10)
|
|
|
–
|
|
|
|
–
|
|
|
|
176
|
|
|
|
595,419
|
|
|
|
(58
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
118
|
|
|
Shares issued on completion
of private placement November 2018
|
|
|
–
|
|
|
|
–
|
|
|
|
8,500
|
|
|
|
36,956,522
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,500
|
|
|
Shares issued on completion
of private placement August 2019
|
|
|
–
|
|
|
|
–
|
|
|
|
13,185
|
|
|
|
22,222,223
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,185
|
|
|
Foreign
currency translation differences from foreign operations
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4
|
|
|
Balance, August 31, 2019
|
|
|
15
|
|
|
|
5,566
|
|
|
|
90,784
|
|
|
|
356,829,448
|
|
|
|
5,280
|
|
|
|
4
|
|
|
|
–
|
|
|
|
(64,846
|
)
|
|
|
31,237
|
|
|
Transition
adjustments upon adoption of IFRS 16 (note 2)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(225
|
)
|
|
|
(225
|
)
|
|
Nel loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(37,930
|
)
|
|
|
(37,930
|
)
|
|
Stock-based compensation
expense (note 10)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,305
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,305
|
|
|
Shares
issued on exercise of stock options (note 10)
|
|
|
–
|
|
|
|
–
|
|
|
|
776
|
|
|
|
1,669,416
|
|
|
|
(345
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
431
|
|
|
Restricted stock unit issued (note 10)
|
|
|
–
|
|
|
|
–
|
|
|
|
917
|
|
|
|
2,320,749
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
917
|
|
|
Convertible debenture, net of tax (note 13)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,891
|
|
|
|
–
|
|
|
|
8,891
|
|
|
Foreign
currency translation differences from foreign operations
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
508
|
|
|
|
–
|
|
|
|
–
|
|
|
|
508
|
|
|
Shares issued on completion
of public offering August 2020 (note 14)
|
|
|
–
|
|
|
|
–
|
|
|
|
23,070
|
|
|
|
38,500,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
23,070
|
|
|
Balance, August 31, 2020
|
|
$
|
15
|
|
|
|
5,566
|
|
|
$
|
115,547
|
|
|
|
399,319,613
|
|
|
$
|
7,240
|
|
|
$
|
512
|
|
|
$
|
8,891
|
|
|
$
|
(103,001
|
)
|
|
$
|
29,204
|
|
See accompanying notes to consolidated
financial statements.
SCORE MEDIA AND GAMING INC.
Consolidated Statements of
Cash Flows
(In thousands of Canadian
dollars, except per share amounts)
Years ended August 31,
2020 and 2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Cash flows used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(37,930
|
)
|
|
$
|
(9,413
|
)
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,397
|
|
|
|
3,117
|
|
|
Stock-based compensation (note 10)
|
|
|
3,222
|
|
|
|
561
|
|
|
Interest accretion on lease liabilities
|
|
|
133
|
|
|
|
–
|
|
|
Interest accretion on loans and borrowings
|
|
|
46
|
|
|
|
–
|
|
|
Interest accretion on convertible debenture (note 13)
|
|
|
4,613
|
|
|
|
–
|
|
|
Unrealized foreign exchange loss
|
|
|
718
|
|
|
|
–
|
|
|
Deferred income tax recovery (note 18)
|
|
|
(3,107
|
)
|
|
|
–
|
|
|
|
|
|
(26,908
|
)
|
|
|
(5,735
|
)
|
|
Change in non-cash operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,500
|
|
|
|
(2,117
|
)
|
|
Restricted cash related to customer deposits
|
|
|
(1,231
|
)
|
|
|
(679
|
)
|
|
Prepaid expenses, deposits and other assets
|
|
|
(795
|
)
|
|
|
(183
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
3,359
|
|
|
|
3,437
|
|
|
Deferred lease obligation
|
|
|
–
|
|
|
|
(119
|
)
|
|
Other financial liabilities (note 16)
|
|
|
238
|
|
|
|
–
|
|
|
|
|
|
(22,837
|
)
|
|
|
(5,396
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
431
|
|
|
|
118
|
|
|
Payment of lease liabilities (note 2)
|
|
|
(993
|
)
|
|
|
–
|
|
|
Payment of loans and other borrowings
|
|
|
(119
|
)
|
|
|
–
|
|
|
Loans and other borrowings (note 8)
|
|
|
7,487
|
|
|
|
–
|
|
|
Issuance
of convertible debenture, net of transactions costs (note 13)
|
|
|
37,272
|
|
|
|
–
|
|
|
Issuance of shares, net of transaction costs (note 14)
|
|
|
23,070
|
|
|
|
21,685
|
|
|
|
|
|
67,148
|
|
|
|
21,803
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment (note 3)
|
|
|
(1,858
|
)
|
|
|
(316
|
)
|
|
Additions to intangible and other assets (note 4)
|
|
|
(6,359
|
)
|
|
|
(18,407
|
)
|
|
|
|
|
(8,217
|
)
|
|
|
(18,723
|
)
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
36,094
|
|
|
|
(2,316
|
)
|
|
Effect of exchange rate fluctuations on cash held
|
|
|
(13
|
)
|
|
|
4
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
4,035
|
|
|
|
6,347
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
40,116
|
|
|
$
|
4,035
|
|
See accompanying notes to consolidated
financial statements.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31,
2020 and 2019
|
|
(a)
|
Business:
|
|
|
|
|
|
|
|
Score Media and Gaming Inc. ("theScore"
or the "Company") empowers millions of sports fans through its digital media and sports betting products. Its media
app 'theScore' is one of the most popular in North America, delivering fans highly-personalized live scores, news, stats, and
betting information from their favorite teams, leagues, and players. The Company's sports betting app 'theScore Bet' delivers
an immersive and holistic mobile sports betting experience and is currently available to place wagers in New Jersey, Colorado,
and Indiana. Publicly traded on the Toronto Stock Exchange (SCR), theScore also creates and distributes innovative digital content
through its web, social and esports platforms. The Company is organized and operates as one operating segment for the purpose
of making operating decisions and assessing performance.
|
|
|
(b)
|
Basis of presentation and statement
of compliance:
|
|
|
|
|
|
|
|
These consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB").
|
|
|
|
|
|
|
|
These consolidated financial
statements are presented in Canadian dollars, which is the Company's functional currency. Note that the functional currency of
certain wholly owned subsidiaries is in U.S. dollars (note 2(e)) and have been translated using principles as defined under IFRS.
|
|
|
|
|
|
|
|
These consolidated financial
statements were approved by the Board of Directors of the Company on October 28, 2020.
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31,
2020 and 2019
|
|
2.
|
Significant accounting policies:
|
|
|
(a)
|
Basis of measurement:
|
|
|
|
|
|
|
|
The consolidated financial statements
have been primarily prepared using the historical cost basis, except certain financial instruments as disclosed in note 16, which
are measured at fair value.
|
|
|
(b)
|
Principles of consolidation:
|
|
|
|
(i)
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
|
Subsidiaries
are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity.
|
|
|
|
|
|
|
|
|
|
The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control commences until the date that control ceases.
The Company has six wholly-owned subsidiaries through which the Company owns its assets and operates its business, being Score
Media Ventures Inc., ScoreMobile Inc., SDSV Inc., 2733692 Ontario Inc., SDSV (Delaware) Inc., and Score Digital Sports Ventures
Inc.
|
|
|
|
(ii)
|
Intercompany transactions:
|
|
|
|
|
|
|
|
|
|
All intercompany balances and
transactions with subsidiaries, and any unrealized revenue and expenses arising from intercompany transactions are eliminated
in preparing these consolidated financial statements.
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31,
2020 and 2019
|
|
2.
|
Significant accounting policies
(continued):
|
|
|
(c)
|
New accounting policies adopted
in the current year:
|
|
|
|
|
|
|
|
The Company adopted new amendments
to the following accounting standards commencing September 1, 2019.
|
|
|
|
(i)
|
IFRS 16, Leases ("IFRS 16"):
|
|
|
|
|
|
|
|
|
|
Effective September 1, 2019,
the Company adopted IFRS 16 which specifies the methodology to recognize, measure, present and disclose leases. The standard introduces
a single, on-balance sheet lessee accounting model, requiring lessees to recognize right-of-use assets and lease liabilities representing
its obligation to make lease payments, unless the underlying leased asset has a low value or is considered short term.
|
|
|
|
|
|
|
|
|
|
The Company leases office premises
and equipment. Under IFRS 16, the Company recognizes right-of-use assets and lease liabilities for most leases - i.e. these leases
are on-balance sheet.
|
|
|
|
|
|
|
|
|
|
The Company presents right-of-use
assets in "property and equipment", whereas lease liabilities are separately presented in the consolidated statements
of financial position.
|
|
|
|
|
|
|
|
|
|
The Company recognizes a right-of-use
asset and a lease liability at lease commencement date. The right-of-use asset is initially measured at cost, and subsequently
at cost less any accumulated depreciation and impairment losses, and adjusted for certain re-measurements of the lease liability.
|
|
|
|
|
|
|
|
|
|
The Company adopted IFRS 16 using
a modified retrospective approach. Accordingly, comparative information presented for the year ended August 31, 2019 has
not been restated. On transition to IFRS 16, the Company elected to apply the practical expedient approach to grandfather the
assessment of which transactions are leases. The Company applied IFRS 16 only to contracts that were previously identified as
leases. Contracts that were not identified as leases under IAS 17, Leases ("IAS 17"), and International Financial Reporting
Interpretations Committee 4, Determining whether an Arrangement Contains a Lease, were not reassessed. The Company's leases primarily
consist of leases for office premises with terms ranging from two to four years. The lease term includes periods covered by an
option to extend if the Company is reasonably certain to exercise that option.
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31,
2020 and 2019
|
|
2.
|
Significant accounting policies
(continued):
|
|
|
|
|
At transition on September 1,
2019, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of lease
payments at inception, discounted at the Company's incremental borrowing rate. Right-of-use assets are measured at an amount equal
to the lease liabilities, adjusted for any prepaid or accrued lease payments relating to that lease.
|
|
|
|
|
|
|
|
|
|
The Company has elected to use
the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
|
|
|
|
l
|
applied
a single discount rate to a portfolio of leases with reasonably similar characteristics;
|
|
|
|
l
|
excluded
initial direct costs from the measurement of the right-of-use assets at the date of initial
application; and
|
|
|
|
l
|
relied
upon the Company's assessment of whether leases are onerous under the requirements of
IAS 37, Provisions, contingent liabilities and contingent assets as at August 31,
2019 as an alternative to reviewing our right-of-use assets for impairment.
|
|
|
|
|
|
|
The Company has elected not to separate non-lease components and will instead account for the lease and non-lease component as a single lease component. In addition, the Company has elected not to recognize right-of-use assets and lease liabilities for some leases of low value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.
|
|
|
|
|
|
|
The impact on transition to IFRS 16 as at September 1, 2019 is summarized below:
|
|
Right-of-use assets
|
|
$
|
2,288
|
|
|
Current portion of lease liabilities
|
|
|
860
|
|
|
Lease liabilities
|
|
|
1,950
|
|
|
|
|
When measuring lease liabilities
for leases that were classified as operating leases under IAS 17, the Company discounted lease payments using its incremental
borrowing rate at September 1, 2019. The weighted average rate applied is 5.44%.
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31,
2020 and 2019
|
|
2.
|
Significant accounting policies
(continued):
|
|
Operating
lease commitment at August 31, 2019, as disclosed in the Company's 2019 consolidated financial statements
|
|
$
|
2,999
|
|
|
|
|
|
|
|
|
Discounted using the incremental borrowing rate at September 1,
2019
|
|
$
|
2,756
|
|
|
Adjustment for discounted amount of additional lease recorded
|
|
|
54
|
|
|
Lease liabilities recognized at September 1, 2019
|
|
$
|
2,810
|
|
|
|
|
|
IFRS 16 replaces the straight-line
operating lease expense recorded under IAS 17 with a depreciation charge for right-of-use assets and interest expense on lease
liabilities, which resulted in a decrease in operating expenses, an increase in depreciation expense and an increase in finance
costs.
|
|
|
|
|
|
|
|
|
|
The Company has applied judgment
to determine the lease term for some lease contracts that include renewal options. The assessment of whether the Company is reasonably
certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use
assets recognized.
|
|
|
|
|
|
|
|
|
|
As a result of initially applying
IFRS 16, in relation to the leases that were previously classified as operating leases, the Company recognized $2,288 of right-of-use
assets and $2,810 of lease liabilities as at September 1, 2019. During the year ended August 31, 2020, the Company recognized
depreciation of right-of-use assets of $742 (2019 - nil), and finance cost of $133 (2019 - nil).
|
|
Operating lease commitment as at September 1, 2019
|
|
$
|
2,810
|
|
|
Interest accretion on lease liabilities
|
|
|
133
|
|
|
Payment of lease liabilities
|
|
|
(993
|
)
|
|
Operating lease commitment as at August 31, 2020
|
|
$
|
1,950
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities
|
|
$
|
908
|
|
|
Non-current portion of lease liabilities
|
|
|
1,042
|
|
|
|
|
$
|
1,950
|
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31,
2020 and 2019
|
|
2.
|
Significant accounting policies
(continued):
|
|
|
|
|
The Company also made judgements
in determining the incremental borrowing rate used in measuring the lease liabilities, reflecting the rate that the Company would
have to pay for a loan of similar term, with similar security, to obtain asset of similar value.
|
|
|
|
|
|
|
|
|
|
Right-of-use assets and lease
liabilities:
|
|
|
|
|
|
|
|
|
|
At inception of a contract, the
Company assesses whether a contract is or contains a lease based on whether the contract conveys a right to control the use of
an identified asset for a period of time in exchange for consideration.
|
|
|
|
|
|
|
|
|
|
The Company recognizes right-of-use
assets and lease liabilities at the lease commencement date. After the initial adoption date, the right-of-use asset is initially
measured at cost, which comprises:
|
|
|
|
l
|
the
amount of the initial measurement of the lease liability;
|
|
|
|
l
|
any
lease payments made at or before the commencement date, less any lease incentives received;
|
|
|
|
l
|
any
initial direct costs incurred; and
|
|
|
|
l
|
an
estimate of costs to dismantle or remove the underlying asset, or restore the asset to
the condition required by the terms and conditions of the lease.
|
|
|
|
|
|
|
|
|
Subsequent to initial measurement,
right-of-use assets are measured at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements
of the lease liability. The right-of-use assets are depreciated on a straight-line basis over the term of the lease, or the estimated
useful life of the right-of-use assets if the Company expects to obtain the ownership of the leased asset at the end of the lease.
The lease term includes the non-cancellable period of the lease and optional renewable periods that the Company is reasonably
certain to extend.
|
|
|
|
|
|
|
|
The lease liability is initially
measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Generally,
the Company uses its incremental borrowing rate as the discount rate.
|
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
After initial recognition, the
lease liability is measured at amortized cost using the effective interest method. The lease liability is remeasured when there
is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected
to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase
option, extension option or termination option. When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset.
The lease liability is also remeasured
when the underlying lease contract is amended. When there is a decrease in contract scope, the lease liability and right-of-use
asset will decrease relative to this change with the difference recorded in net income prior to the remeasurement of lease liability.
Short-term leases:
The aggregate cost of operating
leases are recognized in profit or loss on a straight-line basis over the term of the lease, if less than 12 months. Lease incentives
received are recognized as an integral part of the total lease expense over the term of the lease.
|
|
(ii)
|
Gaming revenue recognition:
|
As a result of the launch of theScore
Bet, the Company has adopted the following policy for gaming revenue recognition:
In sports-betting related transactions
where the Company generates a net gain or loss on a bet which is determined by an uncertain future event, the transaction is within
the scope of IFRS 9 ("Financial Instruments"). Revenue is recorded as the gain or loss on betting transactions settled
during the period less, free bets, promotional costs, bonuses and fair value adjustments on open bets (unsettled bets). The Company
recognizes the gain or loss on a betting transaction as revenue when a bet is settled. The gain or loss is calculated as the total
of sums bet less amounts paid out in respect of such bets when such bets are settled with the customer. Any open bets are accounted
for as a derivative financial instrument carried at fair value through profit and loss ("FVTPL") instrument, with gains
and losses on the open bets recognized in revenue.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
|
|
(d)
|
Property and equipment:
|
|
|
(i)
|
Recognition and measurement:
|
Property and equipment are measured
at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenses that are directly attributable
to the acquisition of the asset. When parts of an item of property and equipment have different useful lives, they are accounted
for as separate components of property and equipment and depreciated accordingly. The carrying amount of any replaced component
or a component no longer in use is derecognized.
Subsequent costs are included in
the asset's carrying amount or recognized as a separate asset only when it is probable that future economic benefits associated
with the item of property and equipment will flow to the Company and the costs of the item can be reliably measured. All other
expenses are charged to operating expenses as incurred.
Depreciation is based on the cost
of an asset less its estimated residual value. Depreciation is charged to income or loss over the estimated useful life of an asset.
Depreciation is provided on a declining-balance basis using the following annual rates:
|
Computer equipment
|
|
|
30
|
%
|
|
Office equipment
|
|
|
20
|
%
|
|
Leasehold improvements
|
|
|
Shorter
of asset's useful life and the term of lease
|
|
|
Right-of-use assets
|
|
|
Term of the lease
|
|
Depreciation methods, rates and
residual values are reviewed annually and revised if the current method, estimated useful life or residual value is different from
that estimated previously. The effect of such changes is recognized on a prospective basis in the consolidated financial statements.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
|
|
(e)
|
Foreign currency translation:
|
|
|
(i)
|
Foreign currency transactions:
|
Foreign currency transactions are
translated to the Company's functional currency using exchange rates at the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated
in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are deferred in equity if they
are attributable to part of the net investment in a foreign operation.
The assets and liabilities of foreign
operations are translated to Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign operations
are translated to Canadian dollars using average exchange rates for the month during which the transactions occurred. Foreign currency
differences are recognized in other comprehensive income in the cumulative translation account.
Product development costs and
other outlays are only capitalized if the general recognition requirements in IAS 38, Intangible Assets ("IAS 38")
are met, which include whether the item meets the definition of an intangible asset and that it is probable that expected future
economic benefits will flow to the Company and that the cost of the asset can be measured reliably. To meet the definition criteria,
one of the factors the Company assesses is whether the item is capable of being separated or divided from the Company. Expenditures
that are considered to relate to development of the business as a whole are not capitalized as intangible assets and are expensed
when incurred. Costs such as enhancements and routine maintenance are expensed when incurred.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
Product development costs are
also only capitalized if the Company can demonstrate all of the following:
|
|
·
|
the technological feasibility of the project;
|
|
|
·
|
the intention to complete the project
and use or sell it;
|
|
|
·
|
the availability of adequate resources
to complete the project;
|
|
|
·
|
the ability to sell or use the intangible
asset created;
|
|
|
·
|
the ability to reliably measure the expenditure
attributable to the asset during the development phase; and
|
|
|
·
|
how the intangible asset will generate
probable future economic benefits.
|
If the projects being reviewed
do not meet the criteria for capitalization, the related costs are expensed when incurred. See note 2(r) for a discussion
of estimates and judgments.
Product development costs are
amortized on a 30% declining-balance basis commencing when they are available for use and form part of the revenue-producing activities
of the Company. Research, maintenance, improvements, promotional and advertising expenses associated with the Company's products
are expensed as incurred.
Intangible assets with finite
useful lives are amortized over their expected useful lives and are tested for impairment, as described in note 2(g). Useful lives,
residual values and amortization methods for intangible assets with finite useful lives are reviewed at least annually and revised
if the current method, estimated useful life, or residual value is different from that estimated previously. The effects of such
changes are recognized on a prospective basis in the consolidated financial statements.
Trademarks are amortized on a
straight-line basis over an expected useful life of 10 years.
Computer software is amortized
over the useful life.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
Product development costs primarily
consist of internal labour costs incurred by the Company in developing its products, and also include, from time to time, external
contractor costs incurred. Development costs, which by definition represent costs for the production of new or substantially improved
products, are capitalized from the time the project first meets both the general recognition requirements for an intangible asset
in IAS 38 and the more specific criteria in IAS 38 for the recognition of an internally developed intangible asset arising from
development. Capitalization ceases when the product is available for use, or when the project no longer meets the recognition criteria.
Market access licenses which
are included in licenses and other assets are amortized on a straight-line basis over their respective license period which ranges
from five years to 20 years.
Impairment of non-financial assets:
The carrying values of non-financial
assets with finite useful lives, such as property and equipment and intangible assets, are assessed for impairment at the end of
each reporting date for indication of impairment or whenever events or changes in circumstances indicate that their carrying amounts
may not be recoverable. If any such indication exists, the recoverable amount of the asset must be determined. Such assets are
impaired if their recoverable amount is lower than their carrying amount. If it is not possible to estimate the recoverable amount
of an individual asset, the recoverable amount of the cash generating unit ("CGU") to which the asset belongs is tested
for impairment. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets. The recoverable amount is the greater of an asset's fair value less costs
to sell or its value in use. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the
carrying amount of the asset or CGU is reduced to its recoverable amount. The resulting impairment loss is recognized in income
or loss.
An impairment loss is reversed
if there has been a change in the estimates used to determine the recoverable amount. When an impairment loss is subsequently reversed,
the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount. The increased carrying
amount does not exceed the carrying amount that would have been recorded had no impairment losses been recognized for the asset
or CGU in prior years.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
|
|
(h)
|
Short-term employee benefits:
|
Short-term employee benefit obligations
are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount
expected to be paid under employee short-term incentive compensation plans if there is legal or constructive obligation to pay
this amount at the time and the obligation can be estimated reliably.
|
|
(i)
|
Stock-based payment transactions:
|
Certain members of the Company's
personnel participate in stock-based compensation plans (note 10). The stock-based compensation costs are expensed by the
Company under operating expenses in profit or loss. The grant date fair value of stock-based payment awards granted to the Company's
employees is recognized as a compensation cost, with a corresponding increase in contributed surplus within shareholders' equity,
over the period that the employees unconditionally become entitled to the awards. The amount recognized as compensation cost is
adjusted to reflect the number of awards for which the related service vesting conditions are expected to be met, such that the
amount ultimately recognized as compensation cost is based on the number of awards that vest.
Provisions are recognized when
a present obligation as a result of a past event will lead to a probable outflow of economic resources from the Company and the
amount of that outflow can be estimated reliably. The timing or amount of the outflow may still be uncertain. A present obligation
arises from the presence of a legal or constructive obligation that has resulted from past events, for example, legal disputes
or onerous contracts.
Provisions are measured at the
estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting
date, including the risks and uncertainties associated with the present obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks
specific to the liability. The Company has no material provisions as at August 31, 2020 and 2019.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
The aggregate cost of operating
leases are recognized in profit or loss on a straight-line basis over the term of the lease, if less than 12 months. Lease incentives
received are recognized as an integral part of the total lease expense over the term of the lease.
Deferred tax assets are recognized
for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and their respective tax bases. A deferred tax asset is recognized for unused tax losses, tax credits, and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized. Deferred tax assets and liabilities are not recognized for the following temporary differences: the
initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable income or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they
will not reverse in the foreseeable future. Deferred tax assets and liabilities are measured using enacted or substantively enacted
tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be recovered
or settled.
|
|
(m)
|
Refundable tax credits and government assistance:
|
Refundable tax credits related
to digital media development products are recognized in profit or loss when there is reasonable assurance that they will be received
and the Company has and will comply with the conditions associated with the relevant government program. These investment tax credits
are recorded and presented as either a deduction to the carrying amount of the asset and subsequently recognized over the useful
life of the related asset or recognized directly to profit or loss based on the accounting of the initial costs incurred to which
the tax credits were applied. When collection of the tax credits is not expected within 12 months of the end of the reporting years,
then such amounts are classified as non-current assets.
Government assistance related
to expenses are presented as part of comprehensive loss, as a deduction to the related expense in the reporting period.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
During the year ended August 31,
2020, the Company determined it was eligible for the Canadian Emergency Wage Subsidy ("CEWS"). The Company recognized
a reduction in salary costs of $4,418 based on the estimated funding available during the eligibility period from March 15,
2020. The amount receivable at year ended August 31, 2020 is $1,519.
|
|
(i)
|
Revenue from contracts with customers:
|
The Company records revenue in
accordance with the five steps in IFRS 15, Revenue from Contracts with Customers, as follows:
|
|
(1)
|
Identify the contract with a customer;
|
|
|
(2)
|
Identify the performance obligations in the contract;
|
|
|
(3)
|
Determine the transaction price, which is the amount the Company expects to be entitled to;
|
|
|
(4)
|
Allocate the transaction price among the performance obligations in the contract based on their
relative stand-alone selling prices; and
|
|
|
(5)
|
Recognize revenue when or as the goods or services are transferred to the customer.
|
The Company's principal sources
of revenue are from advertising on its digital media properties. Advertising revenue is recorded at the time advertisements are
displayed on the Company's digital media properties. Funds received from advertising customers before advertisements are displayed
are recorded as deferred revenue.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
|
|
(ii)
|
Gaming revenue recognition:
|
In sports-betting related transactions
where the Company generates a net gain or loss on a bet which is determined by an uncertain future event, the transaction is within
the scope of IFRS 9 ("Financial Instruments"). Revenue is recorded as the gain or loss on betting transactions settled
during the period less, free bets, promotional costs, bonuses and fair value adjustments on open bets (unsettled bets). The Company
recognizes the gain or loss on a betting transaction as revenue when a bet is settled. The gain or loss is calculated as the total
of sums bet less amounts paid out in respect of such bets when such bets are settled with the customer. Any open bets are accounted
for as a derivative financial instrument carried at fair value through profit and loss ("FVTPL") instrument, with gains
and losses on the open bets recognized in revenue.
Interest income on funds invested
is recognized as it accrues in profit or loss, using the effective interest method.
|
|
(p)
|
Convertible debenture:
|
Compound financial instruments
issued by the Company comprise convertible debentures that can be converted to share capital at the option of the holder, and the
number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument
is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component
is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value
of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in
proportion to their initial carrying amounts.
Subsequent to initial recognition,
the liability component of a compound financial instrument is measured at amortized cost using the effective interest rate method.
The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Interest, losses and
gains relating to the financial liability are recognized as period costs.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
The Company is organized and
operates as one operating segment for purposes of making operating decisions and assessing performance. The chief operating decision
makers, being the Chairman and Chief Executive Officer, the President and Chief Operating Officer and the Chief Financial Officer,
evaluate performance and make decisions about resources to be allocated based on financial data consistent with the presentation
in these consolidated financial statements.
Virtually all of the Company's
assets are located in Canada and U.S. and most of the Company's expenses are incurred in Canada and U.S.
|
|
(r)
|
Use of estimates and judgments:
|
The preparation of these consolidated
financial statements requires management to make estimates, judgments and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates.
Key areas of estimation and judgment are as follows:
|
|
(i)
|
Measurement uncertainty:
|
The preparation of the consolidated
financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ
from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical
experience and other assumptions that are considered reasonable in the circumstances. The actual amount or values may vary in certain
instances from the assumptions and estimates made. Changes will be recorded, with corresponding effect in profit or loss, when,
and if, better information is obtained.
Management's judgment is applied,
and estimates are used, in determining whether costs qualify for recognition as internally developed intangible assets.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
To be able to recognize an intangible
asset, management must demonstrate the item meets the definition of an intangible asset in IAS 38. Management exercises significant
judgment in determining whether an item meets the identifiability criteria in the definition of an intangible asset which, in part,
requires that the item is capable of being separated or divided from the Company and sold, transferred or licensed either individually
or together with a related contract or asset, whether or not the Company intends to do so. Judgment is required to distinguish
those expenditures that develop the business as a whole, which cannot be capitalized as intangible assets and are expensed in the
years incurred.
Also, to recognize an intangible
asset, management, in its judgment, must demonstrate that it is probable that expected future economic benefits will flow to the
Company and that the cost of the asset can be measured reliably. Estimates are used to determine the probability of expected future
economic benefits that will flow to the Company. Future economic benefits include net cash flows from the sports betting app as
well as net cash flows from future advertising sales, which are dependent upon the ability of the Company to attract users to its
products and increase user engagement with its products, and may also include anticipated cost savings, depending upon the nature
of the development project.
The Company capitalized internal
product development costs during the years ended August 31, 2020 and 2019 for both new development projects and projects that,
in management's judgment, represent substantial improvements to existing products. In assessing whether costs can be capitalized
for improvements, management exercises significant judgment when considering the extent of the improvement and whether it is substantial,
whether it is sufficiently separable and whether expected future economic benefits are derived from the improvement itself. Factors
considered in assessing the extent of the improvement include, but are not limited to, the degree of change in functionality and
the impact of the project on the ability of the Company to attract users to its products and increase user engagement with its
products. Costs which do not meet these criteria, such as enhancements and routine maintenance, are expensed when incurred.
In addition, the Company uses estimation
in determining the measurement of internal labour costs capitalized to intangible assets. The capitalization estimates are based
upon the nature of the activities the developer performs.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
Management's judgment is also used
in determining appropriate amortization methods for intangible assets, and estimates are used in determining the expected useful
lives of amortizable intangible assets.
Refundable tax credits related
to expenditures to develop digital media products are recognized when there is reasonable assurance that they will be received
and the Company has and will comply with the conditions associated with the relevant government program. Management's judgment
is required in determining which expenditures and projects are reasonably assured of compliance with the relevant conditions and
criteria and have, accordingly, met the recognition criteria.
|
|
(iv)
|
Impairment of non-financial assets:
|
An impairment test is carried out
whenever events or changes in circumstances indicate that carrying amounts may not be recoverable and is performed by comparing
the carrying amount of an asset or CGU and its recoverable amount. Management's judgment is required in determining whether an
impairment indicator exists. The recoverable amount is the higher of fair value, less costs to sell, and its value in use over
its remaining useful life.
This valuation process involves
the use of methods which use assumptions to estimate future cash flows. The recoverable amount depends significantly on the discount
rate used, as well as the expected future cash flows and the terminal growth rate used for extrapolation.
|
|
(v)
|
Programmatic receivables:
|
The Company estimates receivables
pertaining to programmatic advertising revenues, based on the best information available at the recognition date. These estimates
are trued up at the time of payment.
Amongst other factors, management
considers the historic experience with the programmatic partner and the age of the outstanding balance.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
2.
|
Significant accounting policies (continued):
|
|
|
(vi)
|
Allowance for doubtful accounts:
|
The valuation of accounts receivable
requires valuation estimates to be made by management. These accounts receivable comprise a large and diverse base of advertisers
dispersed across varying industries and locations that purchase advertising on the Company's digital media platforms.
The Company determines an allowance
for doubtful accounts based on knowledge of the financial conditions of its customers, the aging of the receivables, customer and
industry concentrations, the current business environment and historical experience. A change in any of the factors impacting the
estimate of the allowance for doubtful accounts will directly impact the amount of bad debt expense recorded in facilities, administrative
and other expenses.
The loss allowance for trade receivables
must be calculated using the expected lifetime credit loss and recorded at the time of initial recognition.
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
3.
|
Property and equipment:
|
|
|
|
Computer
equipment
|
|
|
Office
equipment
|
|
|
Leasehold
improvements
|
|
|
Right-of-use
assets
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2018
|
|
$
|
1,840
|
|
|
$
|
935
|
|
|
$
|
1,982
|
|
|
$
|
–
|
|
|
$
|
4,757
|
|
|
Additions
|
|
|
268
|
|
|
|
34
|
|
|
|
14
|
|
|
|
–
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2019
|
|
|
2,108
|
|
|
|
969
|
|
|
|
1,996
|
|
|
|
–
|
|
|
|
5,073
|
|
|
Adjustment pertaining to IFRS 16 adoption
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,288
|
|
|
|
2,288
|
|
|
Additions
|
|
|
1,491
|
|
|
|
39
|
|
|
|
328
|
|
|
|
–
|
|
|
|
1,858
|
|
|
Revaluations of foreign currency balances
|
|
|
(2
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
3,597
|
|
|
$
|
1,008
|
|
|
$
|
2,324
|
|
|
$
|
2,288
|
|
|
$
|
9,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2018
|
|
$
|
1,431
|
|
|
$
|
595
|
|
|
$
|
1,278
|
|
|
$
|
–
|
|
|
$
|
3,304
|
|
|
Depreciation
|
|
|
145
|
|
|
|
73
|
|
|
|
178
|
|
|
|
–
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2019
|
|
|
1,576
|
|
|
|
668
|
|
|
|
1,456
|
|
|
|
–
|
|
|
|
3,700
|
|
|
Depreciation
|
|
|
318
|
|
|
|
65
|
|
|
|
256
|
|
|
|
742
|
|
|
|
1,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
1,894
|
|
|
$
|
733
|
|
|
$
|
1,712
|
|
|
$
|
742
|
|
|
$
|
5,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2018
|
|
$
|
409
|
|
|
$
|
340
|
|
|
$
|
704
|
|
|
$
|
–
|
|
|
$
|
1,453
|
|
|
August 31, 2019
|
|
|
532
|
|
|
|
301
|
|
|
|
540
|
|
|
|
–
|
|
|
|
1,373
|
|
|
August 31, 2020
|
|
|
1,703
|
|
|
|
275
|
|
|
|
612
|
|
|
|
1,546
|
|
|
|
4,136
|
|
|
SCORE MEDIA AND GAMING INC.
|
|
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31, 2020 and 2019
|
|
|
4.
|
Intangible and other assets:
|
|
|
|
Product
development
and software
|
|
|
Trademarks
and domain
names
|
|
|
Licenses
and other
assets
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2018
|
|
$
|
23,488
|
|
|
$
|
358
|
|
|
$
|
–
|
|
|
$
|
23,846
|
|
|
Additions
|
|
|
3,758
|
|
|
|
–
|
|
|
|
14,649
|
|
|
|
18,407
|
|
|
Disposals
|
|
|
(1,580
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2019
|
|
|
25,666
|
|
|
|
358
|
|
|
|
14,649
|
|
|
|
40,673
|
|
|
Additions
|
|
|
5,097
|
|
|
|
–
|
|
|
|
1,262
|
|
|
|
6,359
|
|
|
Revaluations of foreign currency balances
|
|
|
–
|
|
|
|
–
|
|
|
|
(353
|
)
|
|
|
(353
|
)
|
|
Disposals and reclassifications
|
|
|
(3,713
|
)
|
|
|
–
|
|
|
|
(303
|
)
|
|
|
(4,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
27,050
|
|
|
$
|
358
|
|
|
$
|
15,255
|
|
|
$
|
42,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2018
|
|
$
|
17,584
|
|
|
$
|
188
|
|
|
$
|
–
|
|
|
$
|
17,772
|
|
|
Amortization
|
|
|
2,674
|
|
|
|
36
|
|
|
|
11
|
|
|
|
2,721
|
|
|
Disposals
|
|
|
(1,580
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2019
|
|
|
18,678
|
|
|
|
224
|
|
|
|
11
|
|
|
|
18,913
|
|
|
Amortization
|
|
|
3,102
|
|
|
|
30
|
|
|
|
880
|
|
|
|
4,012
|
|
|
Revaluation of foreign currency balances
|
|
|
–
|
|
|
|
–
|
|
|
|
(26
|
)
|
|
|
(26
|
)
|
|
Disposals
|
|
|
(3,713
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(3,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
18,067
|
|
|
$
|
254
|
|
|
$
|
865
|
|
|
$
|
19,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2018
|
|
$
|
5,904
|
|
|
$
|
170
|
|
|
$
|
–
|
|
|
$
|
6,074
|
|
|
August 31, 2019
|
|
|
6,988
|
|
|
|
134
|
|
|
|
14,638
|
|
|
|
21,760
|
|
|
August 31, 2020
|
|
|
8,983
|
|
|
|
104
|
|
|
|
14,390
|
|
|
|
23,477
|
|
During the year ended August
31, 2020, within the additions to product development and software, the Company capitalized internal and subcontractor costs of
approximately $4,029 (2019 - $3,758).
Licenses and other assets include
payments in respect of sports betting related market access licenses and associated costs, as well as payments related to sports
betting related rights and licenses.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
4.
|
Intangible and other assets (continued):
|
The significant development projects
for the year ended August 31, 2020 consisted of new features in theScore's betting app, including significant enhancements
to live betting and sports data, and significant new enhancements to its core technology infrastructure.
The significant development projects
for the year ended August 31, 2019 consisted of new social features in the Company's media app including public and private
chat, Follow Together, as well as new features including a betting data section and a new website widget. The Company has also
continued developing significant new enhancements to its core technology infrastructure as well as development of its sports betting
app and related systems and services.
|
5.
|
Related party transactions:
|
In fiscal 2013, the Company entered
into a lease for a property partially owned by the Chairman and Chief Executive Officer of the Company. The aggregate rent paid
during the years ended August 31, 2020 and 2019 amounted to $40 and $40, respectively. The payable balances as at August 31,
2020 and 2019 were $2 and nil, respectively. These transactions are recorded at the exchange amount, being the amount agreed upon
between the parties.
|
|
(b)
|
Transactions with key management personnel:
|
Key management personnel of the
Company include directors and named executive officers. Total compensation costs for these key management personnel are as follows:
|
|
|
2020
|
|
|
2019
|
|
Salaries and non-equity incentive compensation
|
|
$
|
2,037
|
|
|
$
|
1,614
|
|
Stock-based and other compensation
|
|
|
2,918
|
|
|
|
320
|
|
Total
|
|
$
|
4,955
|
|
|
$
|
1,934
|
|
|
(c)
|
Entities controlled and directed by the Company's Chairman and Chief Executive Officer and a director
of the Company participated in financing transactions during the fiscal year. Refer to note 14 for details.
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial Statements
(continued)
(In thousands of Canadian dollars,
unless otherwise stated)
Years ended August 31,
2020 and 2019
As at August 31, 2020, tax
credits recoverable of $1,616 are included in tax credits recoverable, current, in the consolidated statements of financial position
(2019 - non-current, $1,616). Tax credits recoverable reflect management's best estimate of credits for which realization is reasonably
assured based on consideration of both certificates of eligibility received from the Ontario Media Development Corporation ("OMDC")
for specific claims and the OMDC's historical acceptance of expenditures of a similar nature for refundable credit, and the classification
is based on the expected completion of the assessment by the relevant authorities. No tax credits were accrued during the
years ended August 31, 2020 and 2019.
|
7.
|
Capital risk management:
|
The Company's objectives in managing
capital are to maintain its liquidity to fund future development and growth of the business. The capital structure consists of
shareholders' equity, debt and cash.
The Company manages and adjusts
its capital structure in consideration of changes in economic conditions and the risk characteristics of the underlying assets.
|
8.
|
Financial risk management:
|
The Company's loans and borrowings
include:
|
|
|
2020
|
|
|
2019
|
|
Current:
|
|
|
|
|
|
|
Revolving term credit facility
|
|
$
|
6,250
|
|
|
$
|
–
|
|
Computer equipment financing
|
|
|
395
|
|
|
|
–
|
|
|
|
|
6,645
|
|
|
|
–
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Computer equipment financing
|
|
|
740
|
|
|
|
–
|
At August 31, 2020, the
Company has fully drawn on a 364-day revolving facility the terms of which are described in note 8(b).
The computer equipment financing
relates to the financing arrangement for servers and other equipment and has been calculated using discounted cash flows for future
payments over the three-year term of the borrowing using the effective interest rate of 5.62%.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian
dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
|
8.
|
Financial risk management (continued):
|
The Company has exposure to credit
risk, liquidity risk and market risk from its use of financial instruments. This note presents information about the Company's
exposure to each of these risks and the Company's objectives, policies and processes for measuring and managing these risks.
Credit risk is the risk of financial
loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises
principally from the Company's receivables from customers. The carrying amount of financial assets represents the maximum credit
exposure. The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer.
As at August 31, 2020 and
2019, the Company had a loss allowance for trade receivables of $10 and $54, respectively.
At August 31, 2020 and 2019,
$655 and $1,093, respectively, of accounts receivable were considered past due, which is defined as amounts outstanding beyond
normal credit terms and conditions for respective customers that can extend up to 150 days from the date of initial date of invoicing.
The Company believes that its allowance for doubtful accounts sufficiently reflected the related credit risk based on the nature
of the Company's customers and consideration of past performance.
The Company has customer concentration
risk as one customer, a programmatic network, represented 14% of revenue, for the year ended August 31, 2020 (2019 - one customer,
a programmatic network, represented 10% of revenue, respectively). As at August 31, 2020, two customers, a media agency and
programmatic network, represented 13% and 13%, respectively, of the trade accounts receivable balance of $3,909, not including
CEWS receivable (2019 - one customer, a media agency, represented 19%, respectively).
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian
dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
|
8.
|
Financial risk management (continued):
|
Liquidity risk is the risk that
the Company will not be able to meet its financial obligations as they fall due. As at August 31, 2020, the Company had cash
and cash equivalents of $40,116 (2019 - $4,035), restricted cash related to customer deposits on the betting platform of $1,859
(2019 - $679), accounts receivable of $5,455 (2019 - $7,956), tax credits recoverable of $1,616 (2019 - $1,616), accounts payable
and accrued liabilities to third parties of $10,353 (2019 - $7,147), and current portion of loans and other borrowings of
$6,645 (2019 - nil). Accounts payable and accrued liabilities have contracted maturities of less than 12 months.
Management prepares budgets and
cash flow forecasts to assist in managing liquidity risk. The Company has a history of operating losses, and can be expected to
generate continued operating losses and negative cash flows in the future while it carries out its current business plan to further
develop and expand its digital media and gaming business.
The Company also has access to
a $5,000 revolving demand credit facility with a Canadian chartered bank. The credit facility is available for working capital
purposes and the amount available is based on a percentage of the Company's accounts receivable and those of certain of its subsidiaries.
The facility is secured by substantially all of the assets of the Company and certain of its subsidiaries. At August 31, 2020,
the Company could draw $2,289 on this facility.
The credit facility bears an
interest rate at the lenders prime rate plus 1.00% per annum. The credit facility is repayable on demand and is subject to certain
financial covenants.
In July 2020, the Company
entered into a $6,250 revolving term credit facility with the same Canadian chartered bank that maintains the Company's $5,000
revolving demand operating credit facility, supported by Export Development Corporation's Business Credit Availability Program
("EDC BCAP"). The term credit facility is available to provide additional liquidity to the Company and to mitigate the
impact of COVID-19 on the Company's operations. The term credit facility is secured by substantially all of the assets of the Company
and certain of its subsidiaries. The term credit facility bears interest rate at the lender's prime rate plus 2.00% per annum and
is subject to a facility fee in respect of the EDC BCAP program of 1.80%. The term credit facility is repayable by July 15,
2021, is extendable for a further period of 364 days in certain circumstances and is subject to certain financial covenants. On
July 24, 2020, the Company completed a drawdown of the revolving credit facility in the amount of $6,250.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian
dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
|
8.
|
Financial risk management (continued):
|
While the Company can utilize
its cash, cash equivalents, revolving demand credit facility and revolving term credit facility to fund its operating and development
expenditures, it does not have access to other committed sources of funding, and depending upon the level of expenditures and whether
profitable operations can be achieved, may be required to seek additional funding in the future.
Market risk is the risk that
changes in market prices, such as interest rates, foreign exchange rates and equity prices, will affect the Company's income or
the value of its holdings of financial instruments. As at August 31, 2020, the Company does not have any financial instruments
exposing it to market or interest rate risk, other than as disclosed in note 16.
The Company does not engage in
risk management practices, such as hedging or use of derivative instruments.
The Company's head office is
located in Canada. Some of the Company's customers and suppliers are based in Canada and, therefore, transact in Canadian dollars.
Certain customers and suppliers are based outside of Canada and the associated financial assets and liabilities originate in U.S. dollars,
Euros or Pounds Sterling, thereby exposing the Company to foreign exchange risk. Total U.S. dollar-denominated cash held with banks
as at August 31, 2020 and 2019 were $2,553 and $2,700, respectively. Total U.S. dollar-denominated receivables as at August 31,
2020 and 2019 were $844 and $3,219, respectively. The Company's foreign exchange gain (loss) is included in finance income (expense)
in the consolidated statements of comprehensive loss, and for the year ended August 31, 2020 was ($551) (2019 - $163).
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian
dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
|
8.
|
Financial risk management (continued):
|
The Company has determined the
estimated fair values of its financial instruments based on appropriate valuation methodologies, as disclosed below. However, considerable
judgment is required to develop certain of these estimates. Accordingly, these estimated values are not necessarily indicative
of the amounts the Company could realize in a current market exchange. The estimated fair value amounts can be materially affected
by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of each class
of financial instruments are discussed below.
The different levels have been
defined as follows:
|
|
•
|
Level 1: quoted prices (unadjusted) in
active markets for identical assets or liabilities;
|
|
|
•
|
Level 2: inputs other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
|
|
|
•
|
Level 3: inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
|
Quoted market prices for an identical
asset or liability represent a Level 1 valuation. When quoted market prices are not available, the Company maximizes the use of
observable inputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2.
Valuations that require the use of significant unobservable inputs are considered Level 3.
There were no material financial
instruments categorized in Level 1 or Level 3 as at August 31, 2020 and 2019 and there were no transfers of fair value measurement
between Levels 1, 2 and 3 of the fair value hierarchy in the respective years.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian
dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
The Company has no off-balance
sheet arrangements or long-term obligations other than the agreements noted below.
The Company has the following
firm commitments under agreements:
|
|
|
|
|
|
Later than
|
|
|
|
|
|
|
|
|
|
one year and
|
|
|
|
|
|
|
Not later than
|
|
|
not later than
|
|
|
Later than
|
|
|
|
one year
|
|
|
five years
|
|
|
five years
|
|
Contractual commitments
|
|
$
|
9,154
|
|
|
$
|
18,989
|
|
|
$
|
83,958
|
The Company has entered into
several new agreements relating to its sports betting business which has increased future contractual commitments.
Office lease:
The Company's current lease agreement
is for a 30,881 square foot space at its head office in Toronto, Ontario, and runs until September 30, 2022.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian
dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
|
10.
|
Stock-based compensation:
|
The Company has a stock option
and restricted stock unit plan (the "Plan") under which the Board of Directors, or a committee appointed for such purpose,
may, from time to time, grant to directors, officers and full-time employees of, or consultants to, theScore options to acquire
Class A subordinate voting shares and restricted stock units ("RSUs"). Under the Plan, the exercise price of an
option is based on the closing trading price on the day prior to the grant. An option's maximum term is 10 years and options generally
vest in six month tranches over a period of three to five years. RSUs entitle a holder, subject to the holder's satisfaction of
any conditions, restrictions, performance objectives, vesting period or limitations imposed under the Plan or set out in a grant
letter, and subject to the Company's clawback policy, to receive a payment in Class A subordinate voting shares issued from
treasury on the date when the RSU is vested. The maximum term of an RSU is 10 years. Certain of theScore's employees and consultants
participate in the Plan in exchange for services provided to theScore.
The following table summarizes
the status of options granted to employees of the Company under the Plan:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
Exercise
|
|
|
exercise
|
|
|
|
Number
|
|
|
price
|
|
|
price
|
|
Outstanding options, August 31, 2018
|
|
|
25,916,250
|
|
|
$
|
0.13 - 0.385
|
|
|
$
|
0.21
|
|
Granted
|
|
|
5,930,000
|
|
|
|
0.30 - 0.345
|
|
|
|
0.30
|
|
Cancelled
|
|
|
(2,949,582
|
)
|
|
|
0.145 - 0.31
|
|
|
|
0.17
|
|
Exercised
|
|
|
(595,419
|
)
|
|
|
0.145 - 0.31
|
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options, August 31, 2019
|
|
|
28,301,249
|
|
|
|
0.130 - 0.385
|
|
|
|
0.23
|
|
Granted
|
|
|
10,412,500
|
|
|
|
0.60 - 0.85
|
|
|
|
0.80
|
|
Cancelled
|
|
|
(1,305,750
|
)
|
|
|
0.145 - 0.85
|
|
|
|
0.53
|
|
Exercised
|
|
|
(1,669,416
|
)
|
|
|
0.13 - 0.385
|
|
|
|
0.26
|
|
Outstanding options, August 31, 2020
|
|
|
35,738,583
|
|
|
$
|
0.13 - 0.85
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, August 31, 2020
|
|
|
21,923,612
|
|
|
$
|
0.13
- 0.85
|
|
|
$
|
0.26
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian
dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
|
10.
|
Stock-based compensation (continued):
|
The following table summarizes
the range of exercise prices and the weighted average prices of outstanding and exercisable options as at August 31, 2020.
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
Options
|
|
|
Options
|
|
|
exercise
|
|
|
Exercise price
|
|
|
outstanding
|
|
|
exercisable
|
|
|
price
|
|
|
$
|
0.13
|
|
|
|
2,550,000
|
|
|
|
2,550,000
|
|
|
$
|
0.13
|
|
|
|
0.145
|
|
|
|
6,249,000
|
|
|
|
3,804,436
|
|
|
|
0.145
|
|
|
|
0.18
|
|
|
|
2,555,000
|
|
|
|
2,555,000
|
|
|
|
0.18
|
|
|
|
0.21
|
|
|
|
2,424,583
|
|
|
|
2,424,583
|
|
|
|
0.21
|
|
|
|
0.29
|
|
|
|
2,930,000
|
|
|
|
2,930,000
|
|
|
|
0.29
|
|
|
|
0.30
|
|
|
|
4,922,917
|
|
|
|
2,214,174
|
|
|
|
0.30
|
|
|
|
0.31
|
|
|
|
4,025,833
|
|
|
|
4,025,833
|
|
|
|
0.31
|
|
|
|
0.345
|
|
|
|
400,000
|
|
|
|
80,000
|
|
|
|
0.345
|
|
|
|
0.60
|
|
|
|
1,625,000
|
|
|
|
225,000
|
|
|
|
0.60
|
|
|
|
0.85
|
|
|
|
8,056,250
|
|
|
|
1,114,586
|
|
|
|
0.85
|
|
|
|
|
|
|
|
35,738,583
|
|
|
|
21,923,612
|
|
|
|
0.26
|
|
As at August 31, 2020, the
weighted average remaining contractual life of the options exercisable and outstanding is estimated to be 5.51 and 6.78 years,
respectively. The estimated fair value of options granted during the years ended August 31, 2020 and 2019 was determined on
the date of grant using the Black-Scholes option pricing model with the following assumptions:
|
|
|
2020
|
|
|
2019
|
|
|
Fair value of options
|
|
|
$0.28 - $0.70
|
|
|
|
$0.10 - $0.25
|
|
|
Exercise price
|
|
|
$0.60 - $0.85
|
|
|
|
$0.30 - $0.345
|
|
|
Risk-free interest rate
|
|
|
1% - 2%
|
|
|
|
1% - 2%
|
|
|
Dividend yield
|
|
|
–
|
|
|
|
–
|
|
|
Volatility factor of the future expected market
price of shares
|
|
|
83%
|
|
|
|
81%
|
|
|
Weighted average expected life of the options
|
|
|
3 - 10 years
|
|
|
|
3 - 10 years
|
|
During the year ended August 31,
2020, stock-based compensation recorded in connection with stock options issued by the Company was $2,305 (2019 - $561).
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In thousands of Canadian dollars, unless otherwise stated)
Years ended August 31,
2020 and 2019
|
|
10.
|
Stock-based compensation (continued):
|
|
|
(b)
|
Restricted stock units:
|
In April 2020, every member
of theScore's senior management team agreed to forego 25% of their salary from May 1 to August 31, 2020 in exchange for
an equivalent grant of RSUs, with a variation of this program also made available on an optional basis to all full-time staff.
An aggregate of 2,320,749 RSUs were granted on April 22, 2020 and fully vested on May 5, 2020, and the resulting number
of shares were allotted to the participants. During the year ended August 31, 2020, share-based compensation recorded in connection
with RSUs issued by theScore was $917 (2019 - nil).
The Company has a share purchase
plan (the "SPP") in order to facilitate the acquisition and the retention of Class A subordinate voting shares
by eligible participants which as of May 1, 2020 has been paused as part of an initiative to reduce costs due to the impact
of COVID-19. The SPP allows eligible participants to voluntarily join in a share purchase program. Under the terms of the SPP,
eligible participants can have up to 5% of their compensation deducted from their pay to contribute towards the purchase of Class A
subordinate voting shares of the Company. The Company makes a contribution equal to the amount of the compensation contributed
by each participant. The Class A subordinate voting shares were purchased by an independent broker through the facilities
of the TSX-V and are held by a custodian on behalf of the SPP participants. During the year ended August 31, 2020, the Company
recorded an expense of $555, as part of personnel expenses, relating to its participating employees in the SPP (2019 - $549).
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
Revenue from media activities
for the year ended August 31, 2020 was $22,156 (2019 - $31,123).
The Company generated $253 (2019
- nil) of gross gaming revenue1 for the year ended August 31, 2020. After taking into account promotional costs
and fair value adjustments of unsettled bets, the Company generated negative net gaming revenue2 of $1,437 (2019 - $2)
for the year ended August 31, 2020.
Revenue from Canadian sources
for the year ended August 31, 2020 was $9,252 (2019 - $13,075), while revenue from non-Canadian sources (predominantly USA)
for the same year was $11,467 (2019 - $18,046). Revenue from non-Canadian sources includes both media and gaming related amounts.
|
|
12.
|
Basic and diluted loss per share:
|
The following table sets forth
the computation of basic and diluted loss per share:
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to shareholders - basic and diluted
|
|
$
|
(37,930
|
)
|
|
$
|
(9,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted
|
|
|
331,054,928
|
|
|
|
328,990,434
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.03
|
)
|
During the year ended August 31,
2020, there were no outstanding stock options, convertible debentures or warrants included in the computation of diluted loss per
share as the impact would have been anti-dilutive.
|
|
1
|
Gross gaming revenue is calculated as dollar amounts
bet by customers, less the dollar amounts paid out to customers in respect of such bets which have settled in the applicable period.
|
|
|
2
|
Net gaming revenue is measured as gross gaming revenue,
less free bets, promotional costs, bonuses and fair value adjustments on unsettled bets. Refer to note 16 for more details on
unsettled bets.
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
|
13.
|
Convertible debenture:
|
On September 5, 2019, the
Company completed a non-brokered financing of $40,000 by way of issuance of convertible debentures ("convertible debenture").
The convertible debentures carry an interest rate of 8.0%, payable in arrears, in equal semi-annual payments on the last day of
February and August in each year commencing on February 29, 2020, with a maturity date of August 31, 2024,
or the earlier date of redemption, repayment or conversion.
At the holder's option, the convertible
debenture may be converted into Class A subordinate voting shares of the Company ("Class A Shares") at any
time prior to the close of business on the earlier of the business day immediately preceding the maturity date and the business
day immediately preceding the date fixed for redemption of the convertible debenture. The conversion price will be $0.75 for each
Class A Share, being a conversion rate of 1,333.3333 Class A Shares issuable for each one thousand dollars principal
amount of the convertible debenture, subject to adjustment in certain circumstances.
Subject to specified conditions,
the convertible debenture may be redeemed at the Company's option at par plus accrued and unpaid interest at any time after August 31,
2023 if the volume weighted average trading price of the Class A Shares during the 20 trading days ending on the fifth trading
day preceding the date on which notice of the redemption is given is not less than 125% of the conversion price, or if the principal
sum of the convertible debenture outstanding is $4,000 or less.
Upon the occurrence of a change
of control of the Company or the sale by the Company of its core assets, the Company will be required to make an offer to purchase
the convertible debenture at a price equal to 105% of the principal amount plus accrued and unpaid interest.
Transaction costs of $3,031,
were incurred and have been recorded pro rata against the liability and equity components.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
|
13.
|
Convertible debenture (continued):
|
On inception, the Company recorded
the following amounts related to the convertible debenture:
|
Liability component
|
|
$
|
27,018
|
|
|
Transaction costs
|
|
|
(2,047
|
)
|
|
|
|
$
|
24,971
|
|
|
|
|
|
|
|
|
Equity component - conversion feature
|
|
$
|
12,982
|
|
|
Transaction costs
|
|
|
(984
|
)
|
|
Income tax impact of convertible debenture
|
|
|
(3,107
|
)
|
|
|
|
$
|
8,891
|
|
For accounting purposes, the
convertible debentures are separated into their liability and equity components by first valuing the liability component. The fair
value of the liability component at the time of issue was calculated as the discounted cash flows for the convertible debentures
assuming a 19% discount rate, which was the estimated rate for a similar convertible debenture without a conversion feature. The
fair value of the equity component (conversion feature) was determined at the time of issue as the difference between the face
value of the convertible debentures and the fair value of the liability component, less a deferred income tax adjustment to reflect
the book to tax difference in value of the convertible debentures at the time of issuance.
Interest and accretion expense
for the year ended August 31, 2020 was $4,613. During the fiscal year, the Company elected to accrue unpaid interest of $3,228,
to the principal sum outstanding of the convertible debenture. This election results in a modification to the cash flows of the
convertible debenture, as such, the Company has recalculated the gross carrying amount of the financial liability which resulted
in a $424 gain recorded through profit and loss.
The Company is authorized to
issue the following capital stock:
5,566 special voting shares
Unlimited Class A subordinate
voting shares
Unlimited preference shares
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
|
14.
|
Share capital (continued):
|
The special voting shares, each
convertible into one Class A subordinate voting share, entitle the holders to vote separately as a class and to one vote for
each share held. In addition, these shares shall have the right to elect that number of members of the Board of Directors of the
Company that would constitute a majority of the authorized number of directors of the Company plus two, subject to the right of
the holders of Class A subordinate voting shares to elect at least two members of the Board of Directors.
The holders of Class A subordinate
voting shares are entitled to one vote for each share held at all meetings of the shareholders, other than meetings at which only
the holders of another class or series of shares are entitled to vote separately.
The preference shares are non-voting,
except in certain circumstances and shall, with respect to the payment of dividends and the dissolution of assets in the event
of liquidation or any other distribution of assets, rank on a parity with the preference shares of other series and be entitled
to preference in liquidation over the special voting shares and the Class A subordinate voting shares. As at August 31,
2020 and 2019, no preference shares have been issued.
Public offering:
On August 25, 2020, the
Company closed a short-form bought deal prospectus offering whereby it sold 38,500,000 Class A subordinate voting shares at
a price per share of $0.65 for gross proceeds of $25,025. Proceeds net of commissions, and other direct costs of the offering,
were $23,070. In addition, theScore has granted the underwriters an option, exercisable at any time, in whole or in part, until
the date that is 30 days following the closing of the financing, to purchase up to an additional 5,775,000 Class A subordinate
voting shares of the Company solely to cover over-allotments, if any, and for market stabilization purposes. Refer to subsequent
event note 19 for further details on the overallotment.
On November 6, 2018, the
Company closed a non-brokered private placement offering of 36,956,522 Class A subordinate voting shares at a price per share
of $0.23 for net proceeds of $8,500. Entities controlled and directed by the Company's Chairman and Chief Executive Officer and
a director of the Company participated in the private placement, purchasing 13,043,481 and 13,043,478 shares, respectively.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
|
14.
|
Share capital (continued):
|
On August 9, 2019, the Company
closed a non-brokered private placement offering of 22,222,223 Class A subordinate voting shares at a price of $0.59 per share
for net proceeds of $13,185. An entity controlled and directed by the Company's Chairman and Chief Executive Officer participated
in the private placement, purchasing 2,222,222 shares.
|
|
15.
|
Reclassification of expense groupings:
|
Effective September 1, 2019,
the Company has updated expense groupings to reflect a modified internal structure and areas of expenditure. The prior year comparatives
have been reclassified to conform to the current year presentation and total expenses have not changed.
The following are expense groupings
for the years ended August 31, 2020 and 2019 shown both with prior and updated expense groupings:
|
Previous groupings
|
|
2020
|
|
|
2019
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
$
|
17,698
|
|
|
$
|
18,818
|
|
|
Content
|
|
|
2,622
|
|
|
|
2,109
|
|
|
Technology
|
|
|
4,490
|
|
|
|
3,014
|
|
|
Facilities, administrative and other
|
|
|
17,672
|
|
|
|
10,641
|
|
|
Marketing
|
|
|
5,478
|
|
|
|
2,472
|
|
|
Depreciation of property and equipment
|
|
|
1,382
|
|
|
|
396
|
|
|
Amortization of intangible assets
|
|
|
4,015
|
|
|
|
2,721
|
|
|
Stock-based compensation
|
|
|
3,222
|
|
|
|
561
|
|
|
|
|
$
|
56,579
|
|
|
$
|
40,732
|
|
|
Updated groupings
|
|
2020
|
|
|
2019
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Product development and content
|
|
$
|
8,149
|
|
|
$
|
9,160
|
|
|
Sales and marketing
|
|
|
13,036
|
|
|
|
10,331
|
|
|
Technology and administration
|
|
|
16,241
|
|
|
|
7,717
|
|
|
General and administration
|
|
|
13,756
|
|
|
|
10,407
|
|
|
Depreciation and amortization
|
|
|
5,397
|
|
|
|
3,117
|
|
|
|
|
$
|
56,579
|
|
|
$
|
40,732
|
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
|
16.
|
Other financial liabilities:
|
|
|
|
2020
|
|
|
2019
|
|
|
Unsettled bets - at fair value
|
|
$
|
231
|
|
|
$
|
–
|
|
Other financial liabilities consist
of open betting positions (unsettled bets) at year end. Unsettled bets are accounted for as derivative financial instruments and
are carried at fair value. Gains and losses from these unsettled positions are recognized in revenue. User deposits are grouped
in accounts payable.
|
|
17.
|
Finance income (expense):
|
|
|
|
2020
|
|
|
2019
|
|
|
Interest expense
|
|
$
|
(4,791
|
)
|
|
$
|
–
|
|
|
Interest income
|
|
|
165
|
|
|
|
38
|
|
|
Revaluation of foreign currency balances
|
|
|
(551
|
)
|
|
|
160
|
|
|
Finance income (expense)
|
|
$
|
(5,177
|
)
|
|
$
|
198
|
|
Recognized deferred tax assets
and liabilities are attributable to the following:
|
Deferred income tax
|
|
|
Non-capital
|
|
|
|
|
|
Financing
|
|
|
Convertible
|
|
|
|
|
|
asset (liability)
|
|
|
losses
|
|
|
Tax credits
|
|
|
fees
|
|
|
debt
|
|
|
Net
|
|
|
2020
|
|
|
$
|
2,583
|
|
|
$
|
(428
|
)
|
|
$
|
63
|
|
|
$
|
(2,218
|
)
|
|
$
|
–
|
|
|
2019
|
|
|
|
446
|
|
|
|
(428
|
)
|
|
|
(18
|
)
|
|
|
–
|
|
|
|
–
|
|
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
|
18.
|
Income taxes (continued):
|
Unrecognized deferred tax assets:
Deferred tax assets have not
been recognized for the following items as management estimated that it would not be probable that future years' taxable income
will be available against which the Company could utilize the benefits therefrom:
|
|
|
2020
|
|
|
2019
|
|
|
Non-capital income tax loss carryforwards
|
|
$
|
25,605
|
|
|
$
|
19,838
|
|
|
Capital losses carryforwards
|
|
|
127
|
|
|
|
127
|
|
|
Equipment and other deductible differences
|
|
|
5,588
|
|
|
|
4,591
|
|
|
Total
|
|
$
|
31,320
|
|
|
$
|
24,556
|
|
As at August 31, 2020, the
Company has the following unrecognized non-capital losses available to reduce future years' taxable income for income tax purposes:
Income tax losses expiring
in the year ending August 31:
|
2035 and earlier
|
|
|
$
|
44,837
|
|
|
2036
|
|
|
|
9,202
|
|
|
2037
|
|
|
|
2,220
|
|
|
2038
|
|
|
|
2,540
|
|
|
2039
|
|
|
|
6,656
|
|
|
2040
|
|
|
|
30,203
|
|
|
|
|
|
$
|
95,658
|
|
The property and equipment and
other deductible temporary differences of $21,085 (2019 - $17,324) do not expire under current legislation.
SCORE MEDIA AND GAMING INC.
Notes to Consolidated Financial
Statements (continued)
(In
thousands of Canadian dollars, unless otherwise stated)
Years
ended August 31, 2020 and 2019
|
|
18.
|
Income taxes (continued):
|
During the years ended August 31,
2020 and 2019, the Company recorded income tax recovery of $3,107 and nil, respectively. A reconciliation of the income tax expense
(recovery) based on the statutory income tax rate to that recorded is as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Income tax recovery based on the combined statutory income tax rate of 26.5% (2019 - 26.5%)
|
|
$
|
(10,875
|
)
|
|
$
|
(2,494
|
)
|
|
Tax effect of non-deductible and non-taxable items
|
|
|
992
|
|
|
|
307
|
|
|
Current year tax losses and
deductible temporary differences for which no deferred tax is recognized
|
|
|
9,767
|
|
|
|
2,303
|
|
|
Recognition of previously unrecognized deferred tax assets
|
|
|
(3,107
|
)
|
|
|
(138
|
)
|
|
Tax rate difference on foreign profit or loss
|
|
|
116
|
|
|
|
22
|
|
|
Income tax expense (recovery)
|
|
$
|
(3,107
|
)
|
|
$
|
–
|
|
As a result of the income tax
impact related to the convertible debenture and the recording of the deferred tax liability of $3,107 during the year ended August 31,
2020, the Company recorded a deferred tax recovery of $3,107 related to operating loss carryforwards through the consolidated statements
of comprehensive loss, resulting in a net deferred tax asset/liability of nil at August 31, 2020.
On September 18, 2020, the
Company announced that the underwriters of the public offering partially exercised their over-allotment option, resulting in the
issuance of an additional 960,600 Class A Shares of the Company at a price of $0.65 per Class A Share in exchange for
$624 of gross proceeds. Proceeds net of commissions, and other direct costs of the offering, were $587.
Exhibit
4.3
Score Media and Gaming, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Year ended August 31, 2020
and August 31, 2019
The following is Management's Discussion
and Analysis ("MD&A") of the financial condition of Score Media and Gaming Inc. (“theScore” or the “Company”)
and our financial performance for the year ended August 31, 2020. The MD&A should be read in conjunction with theScore’s
consolidated Financial Statements for the years ended August 31, 2020 and 2019 and notes thereto. The financial information
presented herein has been prepared in accordance International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”). All amounts are in Canadian dollars unless otherwise stated.
As a result of the rounding of dollar differences, certain total dollar amounts in this MD&A may not add exactly to their constituent
amounts. Throughout this MD&A, percentage changes are calculated using numbers rounded as they appear. This MD&A reflects
information as of October 28, 2020.
Certain statements in this MD&A constitute
“forward-looking” statements that involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, objectives or achievements of theScore, or industry results, to be materially different from any
future results, performance, objectives or achievements expressed or implied by such forward-looking statements. Forward looking
information typically contains statements with words such as ‘‘anticipate’’, ‘‘believe’’,
‘‘expect’’, ‘‘plan’’, ‘‘estimate’’, “intend’’,
‘‘will’’, ‘‘may’’, ‘‘should”, “would”, “could”
or similar words suggesting future outcomes. These statements reflect current assumptions and expectations regarding future events
and operating performance as of the date of this MD&A. These statements reflect theScore’s current views regarding future
events and operating performance, are based on information currently available to theScore, and speak only as of the date of this
MD&A. These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees
of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results
will be achieved. Many factors could cause the actual results, performance, objectives or achievements of theScore to be materially
different from any future results, performance, objectives or achievements that may be expressed or implied by such forward-looking
statements.
The principal factors, assumptions and
risks that theScore made or took into account in the preparation of these forward-looking statements include: risks associated
with regulation of gaming industry, continued support of banks and payment processors, losses with respect to individual events
or betting outcomes, competition in the online and mobile sports betting and media industry, digital sports media industry reliant
on mobile advertising, recent expansion of sports betting operations, historical losses and negative operating cash flows, liquidity
risk, COVID-19 (impact on business affairs, operations, financial conditions), cancellation, postponement or curtailing of sporting
and other events, reductions in discretionary consumer spending, dependence on key suppliers, mobile device users may limit data
tracking and targeting, new and evolving industry, limited long-term agreements with advertisers, substantial capital requirements,
protection of intellectual property, infringement on intellectual property, brand development, corporate social responsibility,
responsible gaming and ethical conduct, dependence on key personnel and employees, defects in products, real or perceived inaccuracies
in key performance metrics, user data, reliance on collaborative partners, new business areas and geographic markets, operational
and financial infrastructure, information technology defects, reliance on third-party owned communication networks, uncertain economic
health of the wider economy (including as a result of the recent COVID-19 pandemic as discussed below), governmental regulation
of the internet, currency fluctuations, changes in taxation, exposure to taxable presences, risk of litigation, internal controls,
free and open source software utilization, risk relating to ownership of theScore shares, major shareholder with 100% of the special
voting shares, market price and trading volume of Class A shares, debt obligations will have priority over Class A shares
in the event of a liquidation, dissolution or winding up, dividend policy, future sales of Class A shares by existing shareholders,
potential dilution.
The current COVID-19 pandemic crisis continues
to evolve rapidly and could have a material adverse impact on the Company’s business, affairs, operations, results of operations,
financial condition, liquidity, availability of credit and foreign exchange exposure. COVID-19 is altering business and consumer
activity in affected areas and beyond. The global response to the COVID-19 outbreak has resulted in, among other things, border
closures, severe travel restrictions, the temporary shut-down of non-essential services and extreme fluctuations in financial and
commodity markets. Additional measures may be implemented by one or more governments in jurisdictions where the Company operates.
Labour shortages due to illness, Company or government-imposed isolation programs, or restrictions on the movement of personnel
could result in a reduction or cessation of all or a portion of the Company’s operations.
The extent to which the COVID-19 pandemic
may impact the Company’s business and activities will depend on future developments which remain highly uncertain and cannot
be predicted with confidence, such as the spread of the disease, the duration of the outbreak, severity of the coronavirus and
actions taken by the Canadian and US authorities, the postponement, suspension, cancellation, rescheduling and resumption of sporting
events, the impact of the pandemic on consumer and advertiser spending,
and the ability or willingness of suppliers and vendors to provide products and services. If the coronavirus continues to spread
at the current pace, disruption to consumer spending and trade could trigger a global recession.
The actual and threatened spread of COVID-19
globally could also have a material adverse effect on the regional economies in which the Company operates, could continue to negatively
impact stock markets, including the trading price of the Company’s Class A shares, could cause continued interest rate
volatility and movements and could adversely impact the Company’s ability to raise capital.
Any of these developments, and others,
could have a material adverse effect on the Company’s business, affairs, operations, results of operations, financial condition,
liquidity, availability of credit and foreign exchange exposure. In addition, because of the severity and global nature of the
COVID-19 pandemic, it is possible that estimates in the Company’s financial statements could change in the near term and
the effect of any such changes could be material, which could result in, among other things, an impairment of non-current assets
and a change in the expected credit losses on accounts receivable. The Company is constantly evaluating the situation and monitoring
any impacts or potential impacts on its business.
Additional factors are discussed under
the heading "Risk Factors" in theScore’s Annual Information Form as filed with securities regulatory authorities
in Canada and available on SEDAR at www.sedar.com and elsewhere in documents that theScore files from time to time with securities
regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking
statements prove incorrect, actual results could differ materially from the expectations expressed in these forward-looking statements.
theScore does not intend, and does not assume any obligation, to update these forward-looking statements except as required by
applicable law or regulatory requirements.
The Company
Score Media and Gaming Inc. empowers
millions of sports fans through its digital media and sports betting products. Its media app ‘theScore’ is one of the
most popular in North America, delivering fans highly-personalized live scores, news, stats, and betting information from their
favorite teams, leagues, and players. The Company’s sports betting app ‘theScore Bet’ delivers an immersive and
holistic mobile sports betting experience and is currently available to place wagers in New Jersey, Colorado and Indiana. Publicly
traded on the Toronto Stock Exchange (SCR), theScore also creates and distributes innovative digital content through its web, social
and esports platforms. The Company is organized and operates as one operating segment for the purpose of making operating decisions
and assessing performance. At August 31, 2020 theScore had 5,566 special voting shares, 399,319,613 Class A shares and
35,738,583 options outstanding.
Selected Annual Financial Data
The following is selected financial
data of theScore for each of the years in the three year period ended August 31, 2020. theScore utilizes the non-IFRS
measure of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to measure operating
performance (see “EBITDA loss” below).
|
|
|
Year ended August 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
Statements of comprehensive loss data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
20,719
|
|
|
$
|
31,121
|
|
|
$
|
27,743
|
|
|
EBITDA loss
|
|
|
(30,463
|
)
|
|
|
(6,494
|
)
|
|
|
(2,382
|
)
|
|
Net loss
|
|
|
(37,930
|
)
|
|
|
(9,413
|
)
|
|
|
(5,914
|
)
|
|
Loss per share - basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
Statements of financial position data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
78,707
|
|
|
$
|
38,680
|
|
|
$
|
22,407
|
|
|
Dividends Paid
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
Revenue
Revenues for the three months ended August 31,
2020 and 2019 were $2.5 million and $6.4 million, respectively. Revenues for the year ended August 31, 2020 and 2019 were
$20.7 million and $31.1 million, respectively. This decline in revenue for the period reflects the direct impact of the disruption
to the sports calendar caused by the COVID-19 pandemic.
Revenues from media activities for the
three months ended August 31, 2020 and 2019 were $3.7 million and $6.4 million, respectively. Revenues from media activities
for the year ended August 31, 2020 and 2019 were $22.2 million and $31.1 million, respectively.
The Company generated $14.8 million and
$41.5 million of handle1 and $(0.5) million and $0.3 million (2019 – nil and nil) of gross gaming revenue2
for the three months and year ended August 31, 2020. After taking into account promotional costs and fair value adjustments
of unsettled bets, the Company generated negative net gaming revenue3 of $1.2 million and $1.4 million (2019 –
$2,000 and $2,000) for the three months and year ended August 31, 2020.
For the three months ended August 31,
2020 and 2019, revenue from Canadian sources were $1.9 million and $2.7 million, respectively, while revenue from non-Canadian
sources (predominately the U.S.) for the same period was $0.6 million and $3.7 million, respectively. For the year ended August 31,
2020 and 2019, revenue from Canadian sources was $9.2 million and $13.1 million, respectively, while revenue from non-Canadian
sources (predominantly the U.S) for the same period was $11.5 million and $18.0 million, respectively.
1
Handle is calculated as the total amount of money bet by customers in respect of bets
that have settled in the applicable period. Handle does not include free bets or other promotional incentives, nor money bet by
customers in respect of bets that are open at period end.
2 Gross
gaming revenue is calculated as dollar amounts bet by customers, less the dollar amounts paid out to customers in respect of such
bets which have settled in the applicable period.
3
Net gaming revenue is measured as gross gaming revenue, less free bets, promotional costs, bonuses and fair value adjustments
on open bets.
With major sports leagues beginning to
return to play in the latter half of Q4 after the unprecedented disruption to the sports calendar caused by the COVID-19 pandemic,
the Company achieved 3.5 million average monthly active users4 of theScore app on iOS and Android in August 2020,
representing 96% of its average monthly active users achieved in the same period in the previous year.
August 2020 monthly user sessions
of theScore sports app on iOS and Android was 434 million which was 55% higher than the same period in the previous year, sessions-per-user
per-month for August 2020 was 124 which was 62% higher than the same period in the previous year.
Operating Expenses
(in thousands of Canadian dollars)
|
|
|
Three months ended
|
|
|
Year ended
|
|
|
|
|
August 31, 2020
|
|
|
August 31, 2019
|
|
|
August 31, 2020
|
|
|
August 31, 2019
|
|
|
Product development and content
|
|
|
1,260
|
|
|
|
2,448
|
|
|
|
8,149
|
|
|
|
9,160
|
|
|
Sales and marketing
|
|
|
1,609
|
|
|
|
2,679
|
|
|
|
13,036
|
|
|
|
10,331
|
|
|
Technology and operations
|
|
|
4,794
|
|
|
|
2,785
|
|
|
|
16,241
|
|
|
|
7,717
|
|
|
General and administration
|
|
|
3,073
|
|
|
|
2,644
|
|
|
|
13,756
|
|
|
|
10,407
|
|
|
Depreciation and amortization
|
|
|
1,370
|
|
|
|
725
|
|
|
|
5,397
|
|
|
|
3,117
|
|
|
|
|
$
|
12,106
|
|
|
$
|
11,281
|
|
|
$
|
56,579
|
|
|
$
|
40,732
|
|
Total operating expenses for the three
month period ended August 31, 2020 were $12.1 million compared to $11.3 million in the same period of the prior year, an increase
of $0.8 million. Operating expenses for the year ended August 31, 2020 were $56.6 million compared to $40.7 million in the
same period of the prior year, an increase of $15.9 million.
During the year ended August 31,
2020, the Company took significant measures to manage costs, including the reduction of discretionary expenses and availing itself
of applicable government programs, including the Canadian Emergency Wage Subsidy (“CEWS”). For the year ended August 31,
2020, the Company recognized $4.4 million of applicable government subsidies. Additionally, in April 2020, every member of
the Company’s senior management team agreed to forego 25% of their salary from May 1 to August 31, 2020 in exchange
for an equivalent grant of restricted stock units in the Company, with a variation of this program also made available on an optional
basis to all full-time staff.
Product Development and Content expenses
for the three month period ended August 31, 2020 were $1.3 million compared to $2.4 million in the same period of the prior
year, a decrease of $1.1 million. Product Development and Content expenses for the year August 31, 2020 were $8.1 million
compared to $9.2 million in the same period of the prior year, a decrease of $1.1 million. The decrease was due to government funding
received through the CEWS program.
4 User
metrics refer to audience and engagement numbers for theScore app on iOS and Android.
Sales and Marketing expenses for the three
month period ended August 31, 2020 were $1.6 million compared to $2.7 million in the same period of the prior year, a decrease
of $1.1 million. Sales and Marketing expenses for the year ended August 31, 2020 were $13.0 million compared to $10.3 million
in the same period of the prior year, an increase of $2.7 million. The decrease for the three month period ended August 31,
2020, was due to reduced discretionary marketing spend along with government funding received through the CEWS program. The increase
for year ended August 31, 2020 was due to increased discretionary marketing related to the launch of theScore Bet in the
first and second quarters of the fiscal year.
Technology and Operations expenses for
the three month period ended August 31, 2020 were $4.8 million compared to $2.8 million in the same period of the prior year,
an increase of $2.0 million. Technology and Operations expenses for the year ended August 31, 2020 were $16.2 million compared
to $7.7 million in the same period of the prior year, an increase of $8.5 million. The increase was a result of new operational
expenses incurred in connection with the launch of the theScore Bet.
General and Administration expenses for
the three month period ended August 31, 2020 were $3.1 million compared to $2.6 million in the same period of the prior year,
an increase of $0.5 million. General and Administration expenses for the year ended August 31, 2020 were $13.8 million compared
to $10.4 million in the same period of the prior year, an increase of $3.4 million. The increase was due to higher professional
fees, personnel expenses and share based compensation expense related restricted stock units vested during the year, offset by
lower facility expenses related to the adoption of IFRS 16.
Depreciation and amortization for the three
month period ended August 31, 2020 was $1.4 million compared to $0.7 million in the same period of the prior year, an increase
of $0.7 million. Depreciation and amortization for the year ended August 31, 2020 were $5.4 million compared to $3.1 million
in the same period of the prior year, an increase of $2.3 million. The increase was due to the adoption of IFRS 16 and the recognition
and depreciation of the right of use asset, as well as accelerated amortization of certain intangibles in the period.
Impact of Ontario Interactive Digital Media Tax Credits
(“OIDMTC”)
As at August 31, 2020, tax credits
recoverable of $1.6 million are included in current tax credits recoverable, in the consolidated statements of financial position
(August 31, 2019 - $1.6 million non-current). Tax credits recoverable reflect management's best estimate of credits that are
reasonably assured of realization considering both certificates of eligibility received from the Ontario Media Development Corporation
(“OMDC”) for specific claims and the OMDC's historical acceptance of expenditures of a similar nature for refundable
credit, and the classification is based on the expected completion of the assessment by the relevant authorities.
No tax credits were accrued during the
three months ended August 31, 2020 and 2019.
EBITDA and Net and Comprehensive losses
theScore utilizes earnings before interest,
taxes, depreciation and amortization (“EBITDA”) to measure operating performance. theScore’s definition of EBITDA
excludes depreciation and amortization, finance (income) expense and income taxes which in theScore's view do not adequately reflect
its core operating results. EBITDA is used in the determination of short-term incentive compensation for all senior management
personnel.
EBITDA is not a measure of performance
under IFRS and should not be considered in isolation or as a substitute for net and comprehensive income or loss prepared in accordance
with IFRS or as a measure of operating performance or profitability. EBITDA does not have a standardized meaning prescribed by
IFRS and is not necessarily comparable to similar measures presented by other companies.
The following table reconciles net and
comprehensive loss to EBITDA:
(in thousands of Canadian dollars)
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
|
August 31, 2020
|
|
|
August 31, 2019
|
|
|
August 31, 2020
|
|
|
August 31, 2019
|
|
|
Net loss for the period
|
|
$
|
(12,691
|
)
|
|
$
|
(4,845
|
)
|
|
$
|
(37,930
|
)
|
|
$
|
(9,413
|
)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,370
|
|
|
|
725
|
|
|
|
5,397
|
|
|
|
3,117
|
|
|
Finance (income) expense, net
|
|
|
3,051
|
|
|
|
(29
|
)
|
|
|
5,177
|
|
|
|
(198
|
)
|
|
Deferred income tax (recovery)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,107
|
)
|
|
|
-
|
|
|
EBITDA
|
|
$
|
(8,270
|
)
|
|
$
|
(4,149
|
)
|
|
$
|
(30,463
|
)
|
|
$
|
(6,494
|
)
|
EBITDA loss for the three month period
ended August 31, 2020 was $8.3 million compared to an EBITDA loss of $4.1 million in the same period in the prior year, an
increase of $4.2 million. EBITDA loss for the year ended August 31, 2020 was $30.5 million compared to EBITDA loss of $6.5
million in the same period in the prior year, an increase of $24.0 million, largely attributable to the revenue decline caused
by the COVID-19 pandemic.
Net loss for the three month period ended
August 31, 2020 was $12.7 million compared to a loss of $4.8 million in the same period in the prior year, an increase of
$7.9 million. Net loss for the year ended August 31, 2020 was $37.9 million compared to a loss of $9.4 million in the same
period in the prior year, an increase of $28.5 million.
Loss per share for the three month period
ended August 31, 2020 was $(0.04) compared to loss per share of $(0.01) in the same period in the prior year. Loss per share
for the year ended August 31, 2020 was $(0.11) compared to loss per share of $(0.03) in the same period in the prior year.
Additions to Intangible Assets
During the year ended August 31, 2020,
the Company capitalized internal and subcontractor product development costs of $4.0 million, respectively (August 31, 2019
- $3.8 million), as well as additional capitalized software costs. The significant development projects for the year ended August 31,
2020 consisted of new features in theScore’s betting app, including significant enhancements to live betting and sports data,
and significant new enhancements to its core technology infrastructure.
The Company capitalized internal product
development costs during the year ended August 31, 2020 and August 31, 2019 for both new development projects and projects
that, in management’s judgement, represent substantial improvements to existing products. In assessing whether costs can
be capitalized for improvements, management exercises significant judgement when considering the extent of the improvement and
whether it is substantial, whether it is sufficiently separable and whether expected future economic benefits are derived from
the improvement itself. Factors considered in assessing the extent of the improvement include, but are not limited to, the degree
of change in functionality and the impact of the project on the ability of the Company to attract users to its products and increase
user engagement with its products. Costs, which do not meet these criteria, such as enhancements and routine maintenance, are expensed
when incurred. Future economic benefits from these capitalized projects include net cash flows from future sports betting revenue
and future advertising sales, which are dependent upon the ability of the Company to attract users to its products and increase
user engagement with its products, and may also include anticipated cost savings, depending upon the nature of the development
project.
Consolidated Quarterly Results
The following selected consolidated quarterly
financial data of the Company relates to the preceding eight quarters, inclusive of the quarter ended August 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
share – basic and
|
|
|
|
|
Revenue
|
|
|
EBITDA
|
|
|
(loss)
|
|
|
diluted
|
|
|
Quarterly Results
|
|
($000’s)
|
|
|
($000’s)
|
|
|
($000’s)
|
|
|
($)
|
|
|
August 31, 2020
|
|
|
2,466
|
|
|
|
(8,270
|
)
|
|
|
(12,691
|
)
|
|
|
(0.04
|
)
|
|
May 31, 2020
|
|
|
2,381
|
|
|
|
(8,736
|
)
|
|
|
(10,677
|
)
|
|
|
(0.03
|
)
|
|
February 29, 2020
|
|
|
6,653
|
|
|
|
(8,625
|
)
|
|
|
(10,454
|
)
|
|
|
(0.03
|
)
|
|
November 30, 2019
|
|
|
9,219
|
|
|
|
(4,832
|
)
|
|
|
(4,110
|
)
|
|
|
(0.01
|
)
|
|
August 31, 2019
|
|
|
6,407
|
|
|
|
(4,149
|
)
|
|
|
(4,845
|
)
|
|
|
(0.01
|
)
|
|
May 31, 2019
|
|
|
8,463
|
|
|
|
(1,120
|
)
|
|
|
(1,727
|
)
|
|
|
(0.01
|
)
|
|
February 28, 2019
|
|
|
6,776
|
|
|
|
(2,189
|
)
|
|
|
(3,004
|
)
|
|
|
(0.01
|
)
|
|
November 30, 2018
|
|
|
9,475
|
|
|
|
964
|
|
|
|
163
|
|
|
|
0.00
|
|
Use of the Company’s applications
has historically reflected the general trends for sports schedules of the major North American sports leagues. As a result, the
Company’s first fiscal quarter ending November 30 is typically the strongest from a revenue perspective.
Quarterly revenue fluctuations are a combination
of the seasonality trend of usage described above and the market for digital media advertising in Canada and the United States.
EBITDA income (loss) and net income (loss)
fluctuations are due to revenue fluctuations (as above) as well as changes in discretionary marketing costs, infrastructure costs,
personnel costs, and in recent quarters, costs related to the Company’s sports betting operations and infrastructure costs,
and seasonal revenue fluctuations.
For the quarters ended May 31 and
August 31, 2020, revenue and EBITDA are also affected by the unprecedented impact of COVID-19 on the sports calendar.
Liquidity Risk and Capital Resources
Cash and cash equivalents as of August 31,
2020 were $40.1 million compared to $4.0 million as of fiscal year ended August 31, 2019. The company also holds restricted
cash related to customer deposits on the betting platform of $1.9 million compared to $0.7 million in the prior year.
Liquidity
Liquidity risk is the risk that theScore
will not be able to meet its financial obligations as they fall due. As at August 31, 2020 theScore had cash and cash equivalents
of $40.1 million (August 31, 2019 - $4.0 million), restricted cash related to customer deposits on the betting platform
of $1.9 million (August 31, 2019 - $0.7 million), accounts receivable of $5.5 million (August 31, 2019 - $7.9 million),
tax credits recoverable of $1.6 million (August 31, 2019 - $1.6 million), accounts payable and accrued liabilities to
third parties of $10.4 million (August 31, 2019 - $7.1 million) and current portion of loans and other borrowings of
$6.6 million (August 31, 2020 – nil). Accounts payable and accrued liabilities have contracted maturities of less than
twelve months.
Management prepares budgets and cash flow
forecasts to assist in managing liquidity risk. theScore has a history of operating losses and can be expected to generate continued
operating losses and negative cash flows in the future while it carries out its current business plan to further develop and expand
its business. theScore can utilize its cash and cash equivalents to fund its operating and development expenditures.
The Company has a $5.0 million revolving
demand operating credit facility with a Canadian chartered bank. The credit facility is available for working capital purposes.
The amount available on the operating facility is based on a percentage of the Company’s accounts receivable and those of
certain of its subsidiaries. The operating facility is secured by substantially all of the assets of the Company and certain of
its subsidiaries. At August 31, 2020, the Company could draw up to $2.9 million on this facility. The operating facility bears
interest at the lenders prime rate plus 1.00% per annum. The operating facility is repayable on demand and is subject to certain
financial covenants. As of August 31, 2020 the amount drawn on the facility is nil (August 31, 2019 – nil).
In July 2020, the Company entered
into a $6.25 million revolving term credit facility with the same Canadian chartered bank that maintains the Company’s $5.0
million revolving demand operating credit facility, supported by Export Development Corporation’s Business Credit Availability
Program. The term credit facility is available to provide additional liquidity to the Company and to mitigate the impact of COVID-19
on the Company’s operations. The term credit facility is secured by substantially all of the assets of the Company and certain
of its subsidiaries. The term credit facility bears interest rate at the lenders prime rate plus 2.00% per annum and is subject
to a facility fee in respect of the EDC BCAP program of 1.80%. The term credit facility is repayable by July 15, 2021, is
extendable for a further period of 364 days in certain circumstances and is subject to certain financial covenants. On July 24,
2020, the Company completed a drawdown of the revolving credit facility in the amount of $6.25 million.
While theScore can utilize its cash, cash
equivalents and demand credit facility to fund its operating and development expenditures, it does not have access to other committed
sources of funding, and depending upon the level of expenditures and whether profitable operations can be achieved, may be required
to seek additional funding in the future.
Operations
Cash flows used in operating activities
for the year ended August 31, 2020 were $22.8 million compared to $5.4 million in the same period of the prior year. The increase
in cash flows used in operations was a result of increases in costs related to the Company’s sports betting operations, as
well as the impact of COVID-19.
Financing
Cash flows provided by financing activities
for the year ended August 31, 2020 was $67.1 million compared to $21.8 million in the same period in the prior year. On September 2,
2019 theScore closed a convertible debenture financing for gross proceeds of $40 million. On August 25, 2020, the Company
closed a short-form bought deal prospectus offering of 38,500,000 Class A shares at a price per share of $0.65 for gross proceeds
of $25.0 million.
Investing
Cash used in investing activities for the
year ended August 31, 2020 was $8.2 million compared to $18.7 million in the same period in the prior year. The decrease in
cash used in investing activities was due to investments in property and equipment, as well as intangible and other assets.
Commitments
The Company has no debt guarantees, off-balance
sheet arrangements or long-term obligations other than the agreements noted below.
theScore has the following firm commitments under agreements:
(in thousands of Canadian dollars)
|
|
|
Not later than
|
|
Later than one year and
|
|
Later than five
|
|
|
|
|
one year
|
|
not later than five years
|
|
years
|
|
|
Contractual commitments
|
|
9,154
|
|
18,989
|
|
|
83,958
|
|
The Company has entered into several new
agreements relating to its sports betting operations which has increased future contractual commitments.
Convertible Debenture
On September 5, 2019, the Company
completed a non-brokered financing of $40.0 million by way of issuance of convertible debentures (“convertible debenture”).
The debentures carry an interest rate of 8.0%, payable in arrears, in equal semi-annual payments on the last day of February and
August in each year commencing on February 29, 2020, with a maturity date of August 31, 2024, or the earlier date
of redemption, repayment or conversion.
At the holder’s option, the debenture
may be converted into Class A shares at any time prior to the close of business on the earlier of the business day immediately
preceding the maturity date and the business day immediately preceding the date fixed for redemption of the debenture. The conversion
price will be $0.75 for each Class A Share, being a conversion rate of 1,333.3333 Class A Shares issuable for each one
thousand dollars principal amount of the debenture, subject to adjustment in certain circumstances.
Subject to specified conditions, the debenture
may be redeemed at the Company’s option at par plus accrued and unpaid interest at any time after August 31, 2023 if
the volume weighted average trading price of the Class A Shares during the 20 trading days ending on the fifth trading day
preceding the date on which notice of the redemption is given is not less than 125% of the conversion price, or if the principal
sum of the debenture outstanding is $4.0 million or less.
Upon the occurrence of a change of control
of the Company or the sale by the Company of its core assets, the Company will be required to make an offer to purchase the debenture
at a price equal to 105% of the principal amount plus accrued and unpaid interest.
As a result of the income tax impact related
to the convertible debenture and the recording of the deferred tax liability of $3,107, during the year ended August 31, 2020,
the Company recorded a deferred tax recovery of nil and $3,107, respectively, related to operating loss carryforwards through the
statement of operations, resulting in a net deferred tax asset/liability of nil at August 31, 2020.
Interest and accretion expense for the
year ended August 31, 2020 was $4.6 million. As of August 31, 2020 the Company has elected to accrue unpaid interest
of $3.2 million, to the principal sum outstanding of the debenture. This election results in a modification to the cash flows of
the debenture, as such, the Company has recalculated the gross carrying amount of the financial liability which resulted in a $424
gain recorded through profit and loss.
Related Party Transactions
In Fiscal 2013, theScore entered into a
lease for a property partially owned by John Levy, the Chairman and Chief Executive Officer of the Company. The aggregate rent
paid during the year ended August 31, 2020 amounted to $40,000 (2019 - $40,000). The corresponding payable balances as at
August 31, 2020 and August 31, 2019 was $2,000 and nil, respectively. These transactions are recorded at the exchange
amount, being the amount agreed upon between the parties.
Financial Instruments and other instruments:
theScore has the following financial instruments:
cash and cash-equivalents, accounts receivable, accounts payable and a convertible debenture. The Company’s financial instruments
were comprised of the following as at August 31, 2020; cash and cash equivalents of $40.1 million; accounts receivable of
$5.5 million; restricted cash related to customer deposits of $1.9 million; and accounts payable and accrued liabilities $10.4
million and convertible debenture of $29.6 million. Accounts receivable are carried at amortized cost. Accounts payable and accrued
liabilities are carried at amortized cost and are primarily comprised of short-term obligations owing to suppliers related to the
Company’s operations.
Fair Value
Fair value is the estimated amount that
the Company would pay or receive to dispose of financial instruments in an arm’s length transaction between knowledgeable,
willing parties who are under no compulsion to act. The fair value of financial instruments that are traded in active markets at
each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial
instruments not traded in an active market, the fair value is determined using appropriate valuation techniques that are recognized
by market participants. Such techniques may include using recent arm’s length market transactions, reference to the current
fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.
The fair values of theScore's financial
assets and liabilities, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued
liabilities were deemed to approximate their carrying amounts due to the relative short-term nature of these financial instruments.
The fair value of the convertible debenture was deemed to approximate the carrying amount due to the short passage of time between
issuance date and the date of these interim financial statements and the risk factors for the Company remaining consistent
within this period.
Customer concentration
As at August 31, 2020, two customers,
a media agency and programmatic network, each had an accounts receivable balance exceeding 10% of the total accounts receivable
balance (August 31, 2019 – one media agency). Concentration of these two customers, a media agency and a programmatic
network, represented 13% and 13% of the accounts receivable balance, respectively (August 31, 2019 –19%).
For the year ended
August 31, 2020, sales to one customer, a programmatic network, exceeded 10% of total revenue (year ended August 31,
2019 – a programmatic network). For the year ended August 31, 2020, concentration of this customer comprised 14% of
total revenue (year ended August 31, 2019 –10%).
Use of Proceeds – 2019 Convertible
Debenture Financing
On August 31, 2019, the Company entered
into an investment agreement (the “Investment Agreement”) with a fund managed and controlled by Fengate Asset Management
(“Fengate”), pursuant to which the Company issued a convertible debenture to Fengate on September 5, 2019 for
gross proceeds of $40.0 million and net proceeds of $37.0 million (the “2019 Convertible Debenture Financing”). The
following is a tabular comparison of the use of proceeds disclosed in the Company’s MD&A for the fiscal year ended August 31,
2019 (the “2019 Annual MD&A”) and the actual use of the net proceeds by the Company subsequent to the 2019 Convertible
Debenture Financing.
|
Use of Proceeds
|
|
Disclosed in
the
2019 Annual
MD&A
|
|
|
Net
Proceeds and
estimated use of
2019 Convertible
Debenture
Financing
|
|
|
Variance
|
|
|
|
|
|
(Cdn$)
|
|
|
|
|
|
|
|
|
|
|
Sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds of the 2019 Convertible Debenture Financing
|
|
$
|
40,000,000
|
|
|
$
|
36,969,204
|
|
|
$
|
3,030,796
|
|
|
Total:
|
|
$
|
40,000,000
|
|
|
$
|
36,969,204
|
|
|
$
|
3,030,796
|
|
|
Uses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Use of cash for the growth and development of the Company’s media and sports betting businesses
|
|
$
|
40,000,000
|
|
|
$
|
25,878,443
|
|
|
$
|
14,121,557
|
|
|
Balance for working capital and general corporate purposes(1)
|
|
|
N/A
|
|
|
$
|
11,090,761
|
|
|
|
N/A
|
|
|
Total:
|
|
$
|
40,000,000
|
|
|
$
|
36,969,204
|
|
|
$
|
3,030,796
|
|
1
Funds used for working capital and general corporate purposes indirectly support the growth and development of the Company’s
media and sports betting businesses. In addition, the variability of various aspects of the growth and expansion of the Company’s
sports betting business (including the enactment of enabling gaming legislation and regulations, negotiation of market access,
applications for direct licensure and the receipt of required licenses and other regulatory approvals), and the impact this variability
has on the Company’s ability to accurately predict the specific timing and need for funds, funds may be reallocated from
time to time as permitted.
Use of Proceeds – 2020 Bought
Deal Offering
The following is a tabular comparison of
the use of proceeds disclosed in the Company’s short form prospectus dated August 19, 2020 (the “2020 Bought Deal
Offering Prospectus”) qualifying the distribution of 38.5 million Class A shares (the “2020 Bought Deal Offering”)
and the estimated use of the net proceeds by the Company subsequent to the 2020 Offering. The $23.6 million of actual net proceeds
shown below includes the net proceeds from the partial exercise of the over-allotment option by the underwriters of the 2020 Offering.
|
Use of Proceeds
|
|
Disclosed in
the 2020 Bought
Deal Offering
Prospectus
|
|
|
Net
Proceeds and
estimated use
of 2020
Bought Deal
Offering
|
|
|
Variance
|
|
|
|
|
|
(Cdn$)
|
|
|
|
|
|
|
|
|
|
|
Sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds of the 2020 Bought Deal Offering
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
|
Total:
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
|
Uses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital and general corporate purposes(1)
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
|
Total:
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
Consistent with the disclosures made in
the 2020 Offering Prospectus, the increase in net proceeds resulting from the exercise of the over-allotment option, as a subsequent
event on September 18, 2020, that was allocated to working capital and general corporate purposes.
Other than the increased funds for working
capital and general corporate purposes disclosed above, to date, there have been no material variances in the estimated use of
proceeds from the disclosures made in the 2020 Offering Prospectus.
1
General corporate purposes includes the continued growth and expansion of theScore Bet’s operations in the United States
and Canada by supporting the multi-jurisdiction deployment and operation of the Score Bet and user acquisition and retention in
jurisdictions where the Company is or will be operating.
Recent standards and amendments effective
September 1, 2019:
(a) IFRS 16, Leases ("IFRS 16"):
Effective September 1, 2019, the Company
adopted IFRS 16 which specifies the methodology to recognize, measure, present and disclose leases. The standard introduces a single,
on-balance sheet lessee accounting model, requiring lessees to recognize right-of-use assets and lease liabilities representing
its obligation to make lease payments, unless the underlying leased asset has a low value or is considered short term.
The Company leases office premises and
equipment. Under IFRS 16, the Company recognizes right-of-use assets and lease liabilities for most leases – i.e. these leases
are on-balance sheet.
The Company presents right-of-use assets
in “property and equipment,” whereas lease liabilities are separately presented in the statement of financial position.
The Company recognizes a right-of-use asset
and a lease liability at lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost
less any accumulated depreciation and impairment losses, and adjusted for certain re-measurements of the lease liability.
The Company adopted IFRS 16 using a modified
retrospective approach. Accordingly, comparative information presented for the year ended August 31, 2019 has not been restated.
On transition to IFRS 16, the Company elected to apply the practical expedient approach to grandfather the assessment of which
transactions are leases. The Company applied IFRS 16 only to contracts that were previously identified as leases. Contracts that
were not identified as leases under IAS 17, Leases and IFRIC 4, Determining whether an Arrangement contains a Lease were not reassessed.
The Company’s leases primarily consist of leases for office premises with terms ranging from 2 to 4 years. The lease term
includes periods covered by an option to extend if the Company is reasonably certain to exercise that option.
At transition on September 1, 2019,
for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of lease payments
at inception, discounted at the Company’s incremental borrowing rate. Right-of-use assets are measured at an amount equal
to the lease liabilities, adjusted for any prepaid or accrued lease payments relating to that lease.
The Company has elected to use the following
practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
|
|
·
|
applied a single discount rate to a portfolio of leases with reasonably similar characteristics;
|
|
|
·
|
excluded initial direct costs from the measurement of the right-of-use assets at the date of initial
application; and
|
|
|
·
|
relied upon the Company’s assessment of whether leases are onerous under the requirements
of IAS 37, Provisions, contingent liabilities and contingent assets as at August 31, 2019 as an alternative to reviewing our
right-of-use assets for impairment.
|
The Company has elected not to separate
non-lease components and will instead account for the lease and non-lease component as a single lease component. In addition, the
Company has elected not to recognize right-of-use assets and lease liabilities for some leases of low value assets. The lease payments
associated with these leases are recognized as an expense on a straight-line basis over the lease term.
The impact on transition to IFRS 16 is
summarized below (in thousands of Canadian dollars):
|
|
|
September 1, 2019
|
|
|
Right-of-use assets
|
|
$
|
2,288
|
|
|
Current portion of lease liabilities
|
|
$
|
860
|
|
|
Lease liabilities
|
|
$
|
1,950
|
|
When measuring lease liabilities for leases
that were classified as operating leases under IAS 17, the Company discounted lease payments using its incremental borrowing rate
at September 1, 2019. The weighted average rate applied is 5.44%.
|
(in thousands of Canadian dollars)
|
|
September 1, 2019
|
|
|
Operating lease commitment at August 31, 2019 as disclosed in the Company’s 2019 consolidated financial statements
|
|
$
|
2,999
|
|
|
Discounted using the incremental borrowing rate at September 1, 2019
|
|
$
|
2,756
|
|
|
Adjustment for discounted amount of additional lease recorded
|
|
|
54
|
|
|
Lease liabilities recognized at September 1, 2019
|
|
$
|
2,810
|
|
IFRS 16 replaces the straight-line operating
lease expense recorded under IAS 17 with a depreciation charge for right-of-use assets and interest expense on lease liabilities,
which resulted in a decrease in operating expenses, an increase in depreciation expense and an increase in finance costs.
The Company has applied judgment to determine
the lease term for some lease contracts that include renewal options. The assessment of whether the Company is reasonably certain
to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets
recognized.
As a result of initially applying IFRS
16, in relation to the leases that were previously classified as operating leases, the Company recognized $2.3 million of right-of-use
assets and $2.8 million of lease liabilities as at September 1, 2019. During the year ended August 31, 2020, the Company
recognized depreciation of right-of-use assets of $0.7 million (2019 – nil), and finance cost of $0.1 million (2019 –
nil).
The Company also made judgements in determining
the incremental borrowing rate used in measuring the lease liabilities, reflecting the rate that the Company would have to pay
for a loan of similar term, with similar security, to obtain asset of similar value.
Right-of-use assets and Lease liabilities
At inception of a contract, the Company
assesses whether a contract is or contains a lease based on whether the contract conveys a right to control the use of an identified
asset for a period of time in exchange for consideration.
The Company recognizes right-of-use assets
and lease liabilities at the lease commencement date. After the initial adoption date, the right-of-use asset is initially measured
at cost, which comprises:
|
|
·
|
The amount of the initial measurement of the lease liability;
|
|
|
·
|
Any lease payments made at or before the commencement date, less any lease incentives received;
|
|
|
·
|
Any initial direct costs incurred; and
|
|
|
·
|
An estimate of costs to dismantle or remove the underlying asset or restore the asset to the condition
required by the terms and conditions of the lease.
|
Subsequent to initial measurement, right-of-use
assets are measured at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of
the lease liability. The right-of-use assets are depreciated on a straight-line basis over the term of the lease, or the estimated
useful life of the right-of-use assets if the Company expects to obtain the ownership of the leased asset at the end of the lease.
The lease term includes the non-cancellable period of the lease and optional renewable periods that the Company is reasonably certain
to extend.
The lease liability is initially measured
at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit
in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company
uses its incremental borrowing rate as the discount rate.
After initial recognition, the lease liability
is measured at amortized cost using the effective interest method. The lease liability is remeasured when there is a change in
future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable
under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase option, extension
option or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying
amount of the right-of-use asset.
The lease liability is also remeasured
when the underlying lease contract is amended. When there is a decrease in contract scope, the lease liability and right-of-use
asset will decrease relative to this change with the difference recorded in net income prior to the remeasurement of lease liability.
As a result of the launch of theScore Bet,
the Company has adopted the following policy for gaming revenue recognition:
(b) Gaming Revenue Recognition
In sports-betting related transactions
where the Company generates a net gain or loss on a bet which is determined by an uncertain future event, the transaction is within
the scope of IFRS 9 (“Financial Instruments”). Revenue is recorded as the gain or loss on betting transactions settled
during the period less, free bets, promotional costs, bonuses and fair value adjustments on open bets. The Company recognizes the
gain or loss on a betting transaction as revenue when a bet is settled. The gain or loss is calculated as the total of sums bet
less amounts paid out in respect of such bets when such bets are settled with the customer. Any open bets are accounted for as
a derivative financial instrument carried at fair value through profit & loss (“FVTPL” instrument, with gains
and losses on the open bets recognized in revenue.
Critical accounting estimates and
judgements:
The preparation of these consolidated financial
statements requires management to make estimates, judgments and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates. Key areas
of estimation and judgment are as follows:
(i) Measurement
Uncertainty
The preparation of the consolidated financial
statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application
of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other assumptions
that are considered reasonable in the circumstances. The actual amount or values may vary in certain instances from the assumptions
and estimates made. Changes will be recorded, with corresponding effect in profit or loss, when, and if, better information is
obtained.
(ii) Intangible
assets:
Management's judgment is applied, and estimates
are used, in determining whether costs qualify for recognition as internally developed intangible assets.
To be able to recognize an intangible asset,
management must demonstrate the item meets the definition of an intangible asset in IAS 38. Management exercises significant judgment
in determining whether an item meets the identifiability criteria in the definition of an intangible asset which, in part, requires
that the item is capable of being separated or divided from the Company and sold, transferred or licensed either individually or
together with a related contract or asset, whether or not the Company intends to do so. Judgment is required to distinguish those
expenditures that develop the business as a whole, which cannot be capitalized as intangible assets and are expensed in the years
incurred.
Also, to recognize an intangible asset,
management, in its judgment, must demonstrate that it is probable that expected future economic benefits will flow to the Company
and that the cost of the asset can be measured reliably. Estimates are used to determine the probability of expected future economic
benefits that will flow to the Company. Future economic benefits include net cash flows from the sports betting app as well as
net cash flows from future advertising sales, which are dependent upon the ability of the Company to attract users to its products
and increase user engagement with its products, and may also include anticipated cost savings, depending upon the nature of the
development project.
The Company capitalized internal product
development costs during the years ended August 31, 2020 and 2019 for both new development projects and projects that, in
management's judgment, represent substantial improvements to existing products. In assessing whether costs can be capitalized for
improvements, management exercises significant judgment when considering the extent of the improvement and whether it is substantial,
whether it is sufficiently separable and whether expected future economic benefits are derived from the improvement itself. Factors
considered in assessing the extent of the improvement include, but are not limited to, the degree of change in functionality and
the impact of the project on the ability of the Company to attract users to its products and increase user engagement with its
products. Costs which do not meet these criteria, such as enhancements and routine maintenance, are expensed when incurred.
In addition, the Company uses estimation
in determining the measurement of internal labour costs capitalized to intangible assets. The capitalization estimates are based
upon the nature of the activities the developer performs.
Management's judgment is also used in determining
appropriate amortization methods for intangible assets, and estimates are used in determining the expected useful lives of amortizable
intangible assets.
(iii) Tax
credits:
Refundable tax credits related to expenditures
to develop digital media products are recognized when there is reasonable assurance that they will be received and the Company
has and will comply with the conditions associated with the relevant government program. Management's judgment is required in determining
which expenditures and projects are reasonably assured of compliance with the relevant conditions and criteria and have, accordingly,
met the recognition criteria.
(iv) Impairment
of non-financial assets:
An impairment test is carried out whenever
events or changes in circumstances indicate that carrying amounts may not be recoverable and is performed by comparing the carrying
amount of an asset or CGU and its recoverable amount. Management's judgment is required in determining whether an impairment indicator
exists. The recoverable amount is the higher of fair value, less costs to sell, and its value in use over its remaining useful
life.
This valuation process involves the use
of methods which use assumptions to estimate future cash flows. The recoverable amount depends significantly on the discount rate
used, as well as the expected future cash flows and the terminal growth rate used for extrapolation.
(v) Programmatic
Receivables
The Company estimates receivables pertaining
to programmatic advertising revenues, based on the best information available at the recognition date. These estimates are trued
up at the time of payment.
Amongst other factors, management considers
the historic experience with the programmatic partner and the age of the outstanding balance.
(vi) Allowance
for doubtful accounts:
The valuation of accounts receivable requires
valuation estimates to be made by management. These accounts receivable comprise a large and diverse base of advertisers dispersed
across varying industries and locations that purchase advertising on the Company's digital media platforms.
The Company determines an allowance for
doubtful accounts based on knowledge of the financial conditions of its customers, the aging of the receivables, customer and industry
concentrations, the current business environment and historical experience. A change in any of the factors impacting the estimate
of the allowance for doubtful accounts will directly impact the amount of bad debt expense recorded in facilities, administrative
and other expenses.
The loss allowance for trade receivables
must be calculated using the expected lifetime credit loss and recorded at the time of initial recognition.
Subsequent Event
On September 18, 2020, the Company
announced that the underwriters of the public offering partially exercised their over-allotment option, resulting in the issue
of an additional 960,600 Class A shares of the Company at a price of $0.65 per Class A Share in exchange for $0.6 million
of gross proceeds. Proceeds net of commissions, and other direct costs of the offering, were $0.6 million.
Exhibit 4.4
|
|
|
Score Media and Gaming Inc.
|
|
Q1 –2021
|
|
Condensed Consolidated Interim Financial Statements
|
|
For the Three Months Ended
|
|
November 30, 2020 and 2019
|
|
(Unaudited)
|
|
|
Score Media and Gaming Inc.
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(unaudited)
As at November 30, 2020 and August 31, 2020
|
|
|
November 30, 2020
|
|
|
August 31, 2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
19,216
|
|
|
$
|
40,116
|
|
|
Restricted cash related to customer deposits
|
|
|
5,575
|
|
|
|
1,859
|
|
|
Accounts receivable
|
|
|
10,150
|
|
|
|
5,455
|
|
|
Tax credits recoverable (note 6)
|
|
|
1,616
|
|
|
|
1,616
|
|
|
Prepaid expenses, deposits, and other assets
|
|
|
1,637
|
|
|
|
2,048
|
|
|
|
|
|
38,194
|
|
|
|
51,094
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
Property and equipment (note 3)
|
|
|
3,785
|
|
|
|
4,136
|
|
|
Intangible and other assets (note 4)
|
|
|
26,055
|
|
|
|
23,477
|
|
|
|
|
|
29,840
|
|
|
|
27,613
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
68,034
|
|
|
$
|
78,707
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
16,191
|
|
|
$
|
10,353
|
|
|
Current portion of loans and other borrowings (note 8)
|
|
|
401
|
|
|
|
6,645
|
|
|
Current portion of lease liability
|
|
|
921
|
|
|
|
908
|
|
|
Other current financial liabilities (note 15)
|
|
|
84
|
|
|
|
231
|
|
|
|
|
|
17,597
|
|
|
|
18,137
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
Loans and other borrowings (note 8)
|
|
|
638
|
|
|
|
740
|
|
|
Lease liability
|
|
|
807
|
|
|
|
1,042
|
|
|
Convertible debenture (note 14)
|
|
|
30,948
|
|
|
|
29,584
|
|
|
|
|
|
32,393
|
|
|
|
31,366
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
18,044
|
|
|
|
29,204
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments (note 9)
|
|
|
|
|
|
|
|
|
|
Subsequent event (note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
68,034
|
|
|
$
|
78,707
|
|
See accompanying notes to condensed consolidated interim financial statements.
Score Media and Gaming Inc.
Condensed Consolidated Interim Statements of Comprehensive Loss
(in thousands of Canadian dollars, except per share amounts)
(unaudited)
|
|
|
Three months ended November 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenue (note 11)
|
|
|
8,539
|
|
|
|
9,219
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Product development and content
|
|
|
2,800
|
|
|
|
2,582
|
|
|
Sales and marketing
|
|
|
4,867
|
|
|
|
5,491
|
|
|
Technology and operations
|
|
|
5,328
|
|
|
|
3,158
|
|
|
General and administration
|
|
|
4,818
|
|
|
|
2,820
|
|
|
Depreciation and amortization (note 3 and 4)
|
|
|
1,384
|
|
|
|
1,213
|
|
|
|
|
|
19,197
|
|
|
|
15,264
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(10,658
|
)
|
|
|
(6,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Finance expense, net (note 16)
|
|
|
(2,015
|
)
|
|
|
(1,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense (recovery)
|
|
|
(12,673
|
)
|
|
|
(7,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (recovery) (note 17)
|
|
|
-
|
|
|
|
(3,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,673
|
)
|
|
$
|
(4,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences from foreign operations
|
|
|
319
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the period
|
|
$
|
(12,354
|
)
|
|
$
|
(4,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted (note 12)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
See
accompanying notes to condensed consolidated interim financial statements.
Score Media and Gaming Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
(in thousands of Canadian dollars, except share amounts)
Three months ended November 30, 2020 and 2019
(unaudited)
|
|
|
Special
Voting Shares
|
|
|
Class A
Subordinate Voting Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Contributed
Surplus
|
|
|
Accumulated
OCI
|
|
|
Equity
component of convertible debenture
|
|
|
Deficit
|
|
|
Total
Shareholders' Equity
|
|
|
Balance August 31, 2019
|
|
$
|
15
|
|
|
|
5,566
|
|
|
$
|
90,784
|
|
|
|
356,829,447
|
|
|
$
|
5,280
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
(64,846
|
)
|
|
$
|
31,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transitional adjustments
upon adoption of IFRS 16 Leases
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(225
|
)
|
|
|
(225
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,110
|
)
|
|
|
(4,110
|
)
|
|
Stock based compensation
expense (note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
153
|
|
|
Shares issued on exercise
of stock options (note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
74
|
|
|
|
227,333
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49
|
|
|
Convertible debenture,
net of tax (note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,891
|
|
|
|
-
|
|
|
|
8,891
|
|
|
Foreign currency translation
differences from foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30,
2019
|
|
$
|
15
|
|
|
|
5,566
|
|
|
$
|
90,858
|
|
|
|
357,056,780
|
|
|
$
|
5,408
|
|
|
$
|
20
|
|
|
$
|
8,891
|
|
|
$
|
(69,181
|
)
|
|
$
|
36,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2020
|
|
$
|
15
|
|
|
|
5,566
|
|
|
$
|
115,547
|
|
|
|
399,319,612
|
|
|
$
|
7,240
|
|
|
$
|
512
|
|
|
$
|
8,891
|
|
|
$
|
(103,001
|
)
|
|
$
|
29,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,673
|
)
|
|
|
(12,673
|
)
|
|
Stock based compensation
expense (note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
472
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
472
|
|
|
Shares issued on exercise
of stock options (note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
|
|
452,349
|
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151
|
|
|
Foreign currency translation
differences from foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
319
|
|
|
|
-
|
|
|
|
-
|
|
|
|
319
|
|
|
Shares issued on exercise
of over-allotment via August bought offering (note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
571
|
|
|
|
960,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30,
2020
|
|
$
|
15
|
|
|
|
5,566
|
|
|
$
|
116,378
|
|
|
|
400,732,561
|
|
|
$
|
7,603
|
|
|
$
|
831
|
|
|
$
|
8,891
|
|
|
$
|
(115,674
|
)
|
|
$
|
18,044
|
|
See
accompanying notes to condensed consolidated interim financial statements
Score Media and Gaming Inc.
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
|
|
|
Three months ended
|
|
|
|
|
November 30, 2020
|
|
|
November 30, 2019
|
|
|
Cash flows from (used) in operating activities
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
$
|
(12,673
|
)
|
|
$
|
(4,110
|
)
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,384
|
|
|
|
1,213
|
|
|
Stock based compensation (note 10)
|
|
|
472
|
|
|
|
153
|
|
|
Interest accretion on lease liabilities
|
|
|
26
|
|
|
|
37
|
|
|
Interest accretion on loans and other borrowings
|
|
|
22
|
|
|
|
-
|
|
|
Interest accretion on convertible debenture (note 14)
|
|
|
1,364
|
|
|
|
1,167
|
|
|
Unrealized foreign exchange (gain) loss
|
|
|
564
|
|
|
|
84
|
|
|
Income tax recovery (note 17)
|
|
|
-
|
|
|
|
(3,107
|
)
|
|
|
|
|
(8,841
|
)
|
|
|
(4,563
|
)
|
|
Change in non-cash operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,694
|
)
|
|
|
(1,845
|
)
|
|
Restricted cash related to customer deposits
|
|
|
(3,815
|
)
|
|
|
(832
|
)
|
|
Prepaid expenses, deposits, and other assets
|
|
|
408
|
|
|
|
(719
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
5,919
|
|
|
|
70
|
|
|
Other financial liabilities (note 15)
|
|
|
(147
|
)
|
|
|
27
|
|
|
|
|
|
(2,329
|
)
|
|
|
(3,299
|
)
|
|
Net cash used in operating activities
|
|
|
(11,170
|
)
|
|
|
(7,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
75
|
|
|
|
49
|
|
|
Payment of lease liabilities
|
|
|
(248
|
)
|
|
|
(249
|
)
|
|
Payment of loans and other borrowings
|
|
|
(6,362
|
)
|
|
|
-
|
|
|
Issuance of convertible debenture, net of transaction costs (note 14)
|
|
|
-
|
|
|
|
37,274
|
|
|
Issuance of shares, net of transaction costs (note 13)
|
|
|
571
|
|
|
|
-
|
|
|
Net cash from (used) in financing activities
|
|
|
(5,964
|
)
|
|
|
37,074
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment (note 3)
|
|
|
(73
|
)
|
|
|
(166
|
)
|
|
Additions to intangible and other assets, net (note 4)
|
|
|
(3,674
|
)
|
|
|
(1,010
|
)
|
|
Net cash used in investing activities
|
|
|
(3,747
|
)
|
|
|
(1,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(20,881
|
)
|
|
|
28,036
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of exchange rate fluctuations on cash
|
|
|
(19
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
40,116
|
|
|
|
4,035
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
19,216
|
|
|
$
|
32,087
|
|
See accompanying notes to condensed consolidated interim financial statements
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
Score Media and Gaming Inc. ("theScore"
or the "Company") empowers millions of sports fans through its digital media and sports betting products. Its media app
'theScore' is one of the most popular in North America, delivering fans highly-personalized live scores, news, stats, and betting
information from their favorite teams, leagues, and players. The Company's sports betting app 'theScore Bet' delivers an immersive
and holistic mobile sports betting experience and is currently available to place wagers in New Jersey, Colorado, and Indiana.
Publicly traded on the Toronto Stock Exchange (SCR), theScore also creates and distributes innovative digital content through its
web, social and esports platforms. The Company is organized and operates as one operating segment for the purpose of making operating
decisions and assessing performance.
|
|
2.
|
Significant accounting policies:
|
Basis
of presentation and statement of compliance:
These interim financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) using International Accounting Standard 34, Interim Financial Reporting and
using the same accounting policies and methods of computation theScore applied in its consolidated financial statements as at and
for the year ended August 31, 2020.
The notes presented in these
interim financial statements include only significant changes and transactions occurring since August 31, 2020, and do not
include all disclosures required by IFRS for annual financial statements. These interim financial statements should be read in
conjunction with the consolidated financial statements of the Company for the year ended August 31, 2020.
These interim financial statements
are presented in Canadian dollars, which is theScore's functional currency, and have been prepared primarily using the historical
cost basis.
These interim financial statements
were approved by the Board of Directors of theScore on January 13, 2020.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
2.
|
Significant accounting policies (continued):
|
(a) Measurement Uncertainty
The preparation of the condensed
consolidated interim financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses, consistent
with those disclosed in the 2020 annual consolidated financial statements and described in these condensed consolidated interim
financial statements. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing
basis. Estimates are based on historical experience and other assumptions that are considered reasonable in the circumstances.
The actual amount or values may vary in certain instances from the assumptions and estimates made. Changes will be recorded, with
corresponding effect in profit or loss, when, and if, better information is obtained.
The extent to which the COVID-19
pandemic may impact the Company’s business and activities will depend on future developments which remain highly uncertain
and cannot be predicted with confidence, such as the spread of the disease, the duration of the outbreak, severity of the coronavirus
and actions taken by the Canadian and US authorities, the postponement, suspension, cancellation, rescheduling and resumption of
sporting events, the impact of the pandemic on consumer and advertiser spending, and the ability or willingness of suppliers and
vendors to provide products and services.
The actual and threatened spread
of COVID-19 globally could also have a material adverse effect on the regional economies in which the Company operates, could continue
to negatively impact stock markets, including the trading price of the Company’s Class A shares, could cause continued
interest rate volatility and movements and could adversely impact the Company’s ability to raise capital.
Any of these developments, and
others, could have a material adverse effect on the Company’s business, affairs, operations, results of operations, financial
condition, liquidity, availability of credit and foreign exchange exposure. In addition, because of the severity and global nature
of the COVID-19 pandemic, it is possible that estimates in the Company’s financial statements could change in the near term
and the effect of any such changes could be material, which could result in, among other things, an impairment of non-current assets
and a change in the expected credit losses on accounts receivable. The Company monitors the situation and its impacts or potential
impacts on its business on an ongoing basis.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
3.
|
Property and equipment
|
|
|
|
Computer
equipment
|
|
|
Office
equipment
|
|
|
Leasehold
improvements
|
|
|
Right
of use
lease
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
3,597
|
|
|
$
|
1,008
|
|
|
$
|
2,324
|
|
|
$
|
2,288
|
|
|
$
|
9,217
|
|
|
Additions
|
|
|
70
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
73
|
|
|
Revaluations
of foreign currency balances
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
Balance, November 30,
2020
|
|
$
|
3,666
|
|
|
$
|
1,008
|
|
|
$
|
2,327
|
|
|
$
|
2,288
|
|
|
$
|
9,289
|
|
|
Accumulated
depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
1,894
|
|
|
$
|
733
|
|
|
$
|
1,712
|
|
|
$
|
742
|
|
|
$
|
5,081
|
|
|
Depreciation
|
|
|
148
|
|
|
|
13
|
|
|
|
76
|
|
|
|
186
|
|
|
|
423
|
|
|
Balance, November 30,
2020
|
|
$
|
2,042
|
|
|
$
|
746
|
|
|
$
|
1,788
|
|
|
$
|
928
|
|
|
$
|
5,504
|
|
|
Carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
1,703
|
|
|
$
|
275
|
|
|
$
|
612
|
|
|
$
|
1,546
|
|
|
$
|
4,136
|
|
|
Balance, November 30,
2020
|
|
$
|
1,624
|
|
|
$
|
262
|
|
|
$
|
539
|
|
|
$
|
1,360
|
|
|
$
|
3,785
|
|
Right-of-Use lease:
theScore’s current lease
agreement is for a 30,881 square foot space at its head office in Toronto, Ontario, and runs until September 30, 2022.
|
|
4.
|
Intangible and other assets:
|
|
|
|
Product
development &
software
|
|
|
Trademarks &
domain names
|
|
|
Licenses &
Other Assets
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
27,050
|
|
|
$
|
358
|
|
|
$
|
15,255
|
|
|
$
|
42,663
|
|
|
Additions
|
|
|
1,152
|
|
|
|
-
|
|
|
|
2,522
|
|
|
|
3,674
|
|
|
Revaluations
of foreign currency balances
|
|
|
-
|
|
|
|
-
|
|
|
|
(147
|
)
|
|
|
(147
|
)
|
|
Balance, November 30,
2020
|
|
$
|
28,202
|
|
|
$
|
358
|
|
|
$
|
17,630
|
|
|
$
|
46,190
|
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
18,067
|
|
|
$
|
254
|
|
|
$
|
865
|
|
|
$
|
19,186
|
|
|
Amortization
|
|
|
672
|
|
|
|
9
|
|
|
|
280
|
|
|
|
961
|
|
|
Revaluations of foreign
currency balances
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance, November 30,
2020
|
|
$
|
18,739
|
|
|
$
|
263
|
|
|
$
|
1,133
|
|
|
$
|
20,135
|
|
|
Carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2020
|
|
$
|
8,983
|
|
|
$
|
104
|
|
|
$
|
14,390
|
|
|
$
|
23,477
|
|
|
Balance, November 30,
2020
|
|
$
|
9,463
|
|
|
$
|
95
|
|
|
$
|
16,497
|
|
|
$
|
26,055
|
|
During the three months ended
November 30, 2020, the Company capitalized product development costs of approximately $1,152 (2019 - $977). The significant
development projects for the three month period ended November 30, 2020 consisted of new features in theScore’s betting
app, significant enhancements to live betting and sports data, and significant new enhancements to its core technology infrastructure.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
4.
|
Intangible and other assets (continued):
|
Licenses and Other Assets include
payments in respect of sports betting and online gaming related market access licenses and associated costs, as well as deposits
on sports betting and online casino related rights and licenses.
|
|
5.
|
Related party transactions:
|
In fiscal 2013, theScore entered
into a lease for a property partially owned by the Chairman and Chief Executive Officer of the Company. The aggregate rent paid
during the three months ended November 30, 2020 amounted to $10 (2019 - $10). In addition, the payable balances as at November 30,
2020 were $1 (2019 - $281) owing to Norwest Video Inc. for amounts to be reimbursed pursuant to its management services agreement
with the Company. These transactions are recorded at the exchange amount, being the amount agreed upon between the parties, and
shall be repayable within 12 months.
As at November 30, 2020,
tax credits recoverable of $1,616 are classified as current, in the consolidated statements of financial position (August 31,
2020 – $1,616). Tax credits recoverable reflect management's best estimate of credits for which realization is reasonably
assured based on consideration of both certificates of eligibility received from Ontario Creates (formerly, the Ontario Media Development
Corporation) for specific claims and Ontario Creates’ historical acceptance of expenditures of a similar nature for refundable
credit. No tax credits were accrued during the three month periods ended November 30, 2020 and 2019.
|
|
7.
|
Capital risk management:
|
theScore's objectives in managing
capital are to maintain its liquidity to fund current and future development and growth of the business. The capital structure
consists of shareholders’ equity and cash.
theScore manages and adjusts
its capital structure in consideration of changes in economic conditions and the risk characteristics of the underlying assets.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
8.
|
Financial risk management:
|
The Company’s loans and
borrowings include:
|
|
|
November 30,
2020
|
|
|
August 31,
2020
|
|
|
Revolving term credit facility
|
|
$
|
-
|
|
|
$
|
6,250
|
|
|
Current computer equipment financing
|
|
|
401
|
|
|
|
395
|
|
|
|
|
$
|
401
|
|
|
$
|
6,645
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current computer equipment
financing
|
|
$
|
638
|
|
|
$
|
740
|
|
The computer equipment financing
relates to the financing arrangement for servers and other equipment and has been calculated using discounted cash flows for future
payments over the three-year term of the borrowing using the effective interest rate of 5.62%.
theScore has exposure to credit
risk, liquidity risk and market risk from its use of financial instruments. This note presents information about theScore's exposure
to each of these risks and theScore's objectives, policies and processes for measuring and managing these risks.
Credit risk is the risk of financial
loss to theScore if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises
principally from theScore's receivables from customers. The carrying amount of financial assets represents the maximum credit
exposure. theScore's exposure to credit risk is influenced mainly by the individual characteristics of each customer.
As at November 30, 2020
and August 31, 2020, theScore had a loss allowance for trade receivables of $44 and $10, respectively.
At November 30, 2020 and
August 31, 2020, $389 and $655, respectively, of accounts receivable were considered past due, which is defined as amounts
outstanding beyond normal credit terms and conditions for respective customers that can extend up to 150 days from the date of
initial invoicing. theScore believes that its allowance for doubtful accounts sufficiently reflects the related credit risk based
on the nature of theScore's customers and consideration of past performance.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
8.
|
Financial risk management
(continued):
|
theScore has customer concentration
risk as one customer, a programmatic network, represented 19% of revenue, for the three months ended November 30, 2020 (November 30,
2019 – one customer, a programmatic network, represented 13% of revenue).
As at November 30, 2020
one customer, a media agency, represented 9% of the accounts receivable balance (August 31, 2020 – two customers, a
media agency and programmatic network, represented 13% and 13% of accounts receivable balance, respectively).
Liquidity risk is the risk that
theScore will not be able to meet its financial obligations as they fall due. As at November 30, 2020 theScore had cash and
cash equivalents of $19,216 (August 31, 2020 - $40,116), restricted cash related to customer deposits on the betting
platform of $5,575 (August 31, 2020 - $1,859), accounts receivable of $10,150 (August 31, 2020 - $5,455), tax credits
recoverable of $1,616 (August 31, 2020 - $1,616) and accounts payable and accrued liabilities to third parties of $16,191
(August 31, 2020 - $10,353). Accounts payable and accrued liabilities have contracted maturities of less than twelve
months.
Management prepares budgets
and cash flow forecasts to assist in managing liquidity risk. theScore has a history of operating losses, and can be expected
to generate continued operating losses and negative cash flows in the future while it carries out its current business plan to
further develop and expand its digital media business.
The Company also has access
to an uncommitted variable demand credit facility (the “Demand Credit Facility”) of up to $5,000 with a Canadian chartered
bank, of which $5,000 was available as at November 30, 2020. The amount available under the Demand Credit Facility is based
on a percentage of the Company’s accounts receivable and those of certain of its subsidiaries. The Demand Credit Facility
is available for working capital purposes and is secured by substantially all of the assets of the Company and certain of its
subsidiaries.
The Demand Credit Facility bears
an interest rate at the lenders Prime rate plus 1.00% per annum. The Demand Credit Facility is repayable on demand and is subject
to certain financial covenants.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
8.
|
Financial risk management
(continued):
|
In July 2020, the Company
entered into a $6,250 revolving term credit facility with the same Canadian chartered bank that maintains the Demand Credit Facility,
supported by Export Development Corporation's Business Credit Availability Program ("EDC BCAP"). The revolving term
credit facility is available to provide additional liquidity to the Company and to mitigate the impact of COVID-19 on the Company's
operations. The revolving term credit facility is secured by substantially all of the assets of the Company and certain of its
subsidiaries. The revolving term credit facility bears an interest rate at the lender's prime rate plus 2.00% per annum and is
subject to a facility fee in respect of the EDC BCAP program of 1.80%. The revolving term credit facility is repayable by July 15,
2021, is extendable for a further period of 364 days in certain circumstances and is subject to certain financial covenants. On
November 27, 2020, the Company repaid the full balance owing on the revolving term credit facility in the amount of $6,250.
While theScore can utilize its
cash, cash equivalents and credit facilities to fund its operating and development expenditures, it does not have access to other
committed sources of funding, and depending upon the level of expenditures and whether profitable operations can be achieved,
may be required to seek additional funding in the future.
Market risk is the risk that
changes in market prices, such as interest rates, foreign exchange rates and equity prices, will affect theScore's income or the
value of its holdings of financial instruments.
The Company does not engage
in hedging or use of derivative instruments.
The Company's head office is
located in Toronto, Canada. Certain of theScore's customers and suppliers are based in Canada and, therefore, transact in Canadian
dollars. Other customers and suppliers are based outside of Canada and the associated financial assets and liabilities originate
in U.S. dollars, Euros or Pounds Sterling, thereby exposing theScore to foreign exchange risk. Total U.S. dollar denominated
receivables as at November 30, 2020 and August 31, 2020 were $3,569 and $2,553, respectively. The Company’s foreign
exchange revaluation is included in finance income in the condensed consolidated interim statement of comprehensive loss, and
primarily relates to advances to subsidiaries, and for the three months ended November 30, 2020 was ($533) (2019 –
($84)).
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
8.
|
Financial risk management
(continued):
|
The Company provides disclosure
of the three-level hierarchy that reflects the significance of the inputs used in making the fair value measurement. The three
levels of fair value hierarchy based on the reliability of inputs are as follows:
|
|
•
|
Level
1 - inputs are quoted prices in active markets for identical assets and liabilities;
|
|
|
•
|
Level
2 - inputs are based on observable market data, either directly or indirectly other than
quoted prices; and
|
|
|
•
|
Level
3 - inputs are not based on observable market data.
|
The fair values of theScore's
financial assets and liabilities, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable
and accrued liabilities were deemed to approximate their carrying amounts due to the relative short-term nature of these financial
instruments. The fair value of the convertible debenture was deemed to approximate the carrying amount due to the short passage
of time between issuance date and the date of these interim financial statements and the risk factors for the Company remaining
consistent within this period.
The Company has no off-balance
sheet arrangements or long-term obligations other than the agreements noted below.
theScore has the following undiscounted
contractual obligations (in thousands of Canadian dollars) at November 30, 2020:
|
|
|
Payments Due by Period
|
|
|
Contractual Obligation
|
|
Total
|
|
|
Within
1 year
|
|
|
2-3 years
|
|
|
4-5 years
|
|
|
More than
5 years
|
|
|
Total
Debt 1
|
|
|
46,755
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,755
|
|
|
|
-
|
|
|
Lease
Liabilities 2
|
|
|
1,783
|
|
|
|
973
|
|
|
|
810
|
|
|
|
-
|
|
|
|
-
|
|
|
Purchase
Obligations 3
|
|
|
46,282
|
|
|
|
9,591
|
|
|
|
12,774
|
|
|
|
6,077
|
|
|
|
17,840
|
|
|
Total Contractual Obligations
|
|
|
94,820
|
|
|
|
10,564
|
|
|
|
13,584
|
|
|
|
52,832
|
|
|
|
17,840
|
|
1 Principal repayments related to convertible debenture.
2 Lease liabilities relate to right-of-use assets
which include head office space.
3 Purchase obligations are minimum payments under
contracts for periods ranging from one to twenty years.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
9.
|
Commitments (continued):
|
The Company has entered into
several new agreements relating to its sports betting and online casino business which has increased future contractual commitments.
|
|
10.
|
Stock based compensation:
|
(a) Stock Option Plan:
theScore has a stock option
and restricted stock unit plan (the "Plan") under which the Board of Directors, or a committee appointed for such purpose,
may, from time to time, grant to directors, officers and full-time employees of, or consultants to, theScore options to acquire
Class A Subordinate Voting shares and restricted stock units (“RSUs”). Under the Plan, the exercise price of
an option is based on the closing trading price on the day prior to the grant. An option's maximum term is 10 years and options
generally vest in six month tranches over a period of three to five years. RSUs entitle a holder, subject to the holder’s
satisfaction of any conditions, restrictions, performance objectives, vesting period or limitations imposed under the Plan or
set out in a grant letter, and subject to the Company’s clawback policy, to receive a payment in Class A Subordinate
Voting shares issued from treasury on the date when the RSU is vested. The maximum term of an RSU is 10 years. Certain of theScore’s
employees and consultants participate in the Plan in exchange for services provided to theScore.
The
following table summarizes the status of options granted to employees of theScore under the Plan:
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
Number
|
|
|
Exercise price
|
|
|
exercise price
|
|
|
Outstanding options, August 31, 2020
|
|
|
35,738,583
|
|
|
$
|
0.13-0.85
|
|
|
$
|
0.38
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
(449,586
|
)
|
|
|
0.145-0.85
|
|
|
|
0.61
|
|
|
Exercised
|
|
|
(452,349
|
)
|
|
|
0.13-0.85
|
|
|
|
0.33
|
|
|
Outstanding options, November 30, 2020
|
|
|
34,836,648
|
|
|
$
|
0.13-0.85
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable. November 30, 2020
|
|
|
21,658,763
|
|
|
$
|
0.13-0.85
|
|
|
$
|
0.26
|
|
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
10.
|
Stock based compensation
(continued):
|
The following table summarizes the
range of exercise prices and the weighted average prices of outstanding and exercisable options as at November 30, 2020.
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
exercise price for
|
|
|
Exercise price
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
options exercisable
|
|
|
$
|
0.13
|
|
|
|
2,515,000
|
|
|
|
2,515,000
|
|
|
$
|
0.13
|
|
|
|
0.145
|
|
|
|
6,159,083
|
|
|
|
3,725,352
|
|
|
|
0.145
|
|
|
|
0.18
|
|
|
|
2,520,000
|
|
|
|
2,520,000
|
|
|
|
0.18
|
|
|
|
0.21
|
|
|
|
2,415,000
|
|
|
|
2,415,000
|
|
|
|
0.21
|
|
|
|
029
|
|
|
|
2,895,000
|
|
|
|
2,895,000
|
|
|
|
0.29
|
|
|
|
0.30
|
|
|
|
4,816,249
|
|
|
|
2,152,509
|
|
|
|
0.30
|
|
|
|
0.31
|
|
|
|
3,945,833
|
|
|
|
3,945,833
|
|
|
|
0.31
|
|
|
|
0.345
|
|
|
|
400,000
|
|
|
|
80,000
|
|
|
|
0.345
|
|
|
|
0.60
|
|
|
|
1,220,000
|
|
|
|
320,000
|
|
|
|
0.60
|
|
|
|
0.85
|
|
|
|
7,950,483
|
|
|
|
1,090,069
|
|
|
|
0.85
|
|
|
|
|
|
|
|
34,836,648
|
|
|
|
21,658,763
|
|
|
$
|
0.26
|
|
As at November 30, 2020,
the weighted average remaining contractual life of the options exercisable and outstanding is estimated to be 5.27 and 6.51 years,
respectively.
During the three months ended
November 30, 2020, share-based compensation recorded in connection with stock options issued by theScore was $472 (2019 -
$153).
(b) Share Purchase
Plan:
The Company has a share purchase
plan (the "SPP") in order to facilitate the acquisition and the retention of Class A Subordinate Voting shares
by eligible participants which as of May 1, 2020 has been paused as part of an initiative to reduce costs due to the impact
of COVID-19. The SPP allows eligible participants to voluntarily join in a share purchase program. Under the terms of the SPP,
eligible participants can have up to 5% of their compensation deducted from their pay to contribute towards the purchase of Class A
Subordinate Voting shares of the Company. The Company makes a contribution equal to the amount of the compensation contributed
by each participant. The Class A Subordinate Voting shares are purchased by an independent broker through the facilities
of the Toronto Stock Exchange and are held by a custodian on behalf of the SPP participants. During the three months ended November 30,
2020, theScore recorded an expense of ($2), as part of operating expenses, relating to its participating employees in the SPP
(2019 - $209).
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
Revenue from media activities
for the three months ended November 30, 2020 was $10,579 (2019 - $9,219).
The Company generated ($270)
(2019 – $242) of gross gaming revenue1 for the three months ended November 30, 2020. After taking into account
promotional costs and fair value adjustments of unsettled bets, the Company generated negative net gaming revenue2
of $2,040 (2019 – $26) for the period.
Revenue from Canadian sources
for the three months ended November 30, 2020 was $4,793 (2019 - $3,542), while revenue from non-Canadian sources (predominantly
USA) for the same period was $3,746 (2019 - $5,677). Revenue from non-Canadian sources includes both media and gaming related
amounts.
|
|
12.
|
Basic and diluted income
(loss) per share:
|
The following table
sets forth the computation of basic and diluted income (loss) per share:
|
|
|
Three months ended,
|
|
|
|
|
|
November 30, 2020
|
|
|
|
November 30, 2019
|
|
|
Net loss attributable to shareholders - basic and diluted
|
|
$
|
(12,673)
|
|
|
$
|
(4,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
363,300,812
|
|
|
|
357,005,888
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
During the three months ended
November 30, 2020 and November 30, 2019 there were no outstanding stock options, warrants or shares resulting from the
convertible debenture included in the computation of diluted loss per share as the impact would have been anti-dilutive.
1 Gross gaming revenue is calculated
as dollar amounts wagered by customers, less the dollar amounts paid out to customers in respect of such wagers which have settled
in the applicable period.
2 Net gaming revenue is measured as gross gaming
revenue, less free bets, promotional costs, bonuses and fair value adjustments on unsettled bets. Refer to Note 15 for more details
on unsettled bets.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
Exercise of over-allotment of
the public offering:
On September 18, 2020,
the Company issued an additional 960,600 Class A Shares at a price of $0.65 per Class A Share in exchange for $624 of
gross proceeds under the over allotment option of the August 25, 2020. Proceeds net of commissions, and other direct costs
of the offering, were $571.
|
|
14.
|
Convertible Debenture:
|
On September 5, 2019, the
Company completed a non-brokered financing of $40,000 by way of issuance of convertible debentures (“convertible debenture”).
The debentures carry an interest rate of 8.0%, payable in arrears, in equal semi-annual payments on the last day of February and
August in each year commencing on February 29, 2020, with a maturity date of August 31, 2024, or the earlier date
of redemption, repayment or conversion.
At the holder’s option,
the debenture may be converted into Class A subordinate voting shares of the Company (“Class A Shares”)
at any time prior to the close of business on the earlier of the business day immediately preceding the maturity date and the
business day immediately preceding the date fixed for redemption of the debenture. The conversion price will be $0.75 for each
Class A Share, being a conversion rate of 1,333.3333 Class A Shares issuable for each one thousand dollars principal
amount of the debenture, subject to adjustment in certain circumstances.
Subject to specified conditions,
the debenture may be redeemed at the Company’s option at par plus accrued and unpaid interest at any time after August 31,
2023 if the volume weighted average trading price of the Class A Shares during the 20 trading days ending on the fifth trading
day preceding the date on which notice of the redemption is given is not less than 125% of the conversion price, or if the principal
sum of the debenture outstanding is $4,000 or less.
Upon the occurrence of a change
of control of the Company or the sale by the Company of its core assets, the Company will be required to make an offer to purchase
the debenture at a price equal to 105% of the principal amount plus accrued and unpaid interest.
Transaction costs of $3,031,
were incurred and have been recorded pro rata against the liability and equity components.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
14.
|
Convertible Debenture (continued):
|
Interest and accretion expense
for the three months ended November 30, 2020 was $1,364 (2019 - $1,167). As of November 30, 2020 the Company has elected
to accrue unpaid interest of $3,228, to the principal sum outstanding of the debenture.
On inception, the Company recorded the following amounts
related to the convertible debenture:
|
Liability component
|
|
$
|
27,018
|
|
|
Transaction costs
|
|
|
(2,047
|
)
|
|
|
|
$
|
24,971
|
|
|
|
|
|
|
|
|
Equity component (conversion feature)
|
|
$
|
12,982
|
|
|
Transaction costs
|
|
|
(984
|
)
|
|
Income tax impact of convertible debenture
|
|
|
(3,107
|
)
|
|
|
|
$
|
8,891
|
|
For accounting purposes, the
debentures are separated into their liability and equity components by first valuing the liability component. The fair value of
the liability component at the time of issue was calculated as the discounted cash flows for the debentures assuming a 19% discount
rate, which was the estimated rate for a similar debenture without a conversion feature. The fair value of the equity component
(conversion feature) was determined at the time of issue as the difference between the face value of the debentures and the fair
value of the liability component, less a deferred income tax adjustment to reflect the book to tax difference in value of the
debentures at the time of issuance.
|
|
15.
|
Other financial liabilities
|
|
|
|
Three months ended November 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Unsettled bets - at fair value
|
|
$
|
84
|
|
|
$
|
27
|
|
Other financial liabilities
consist of open betting positions (unsettled bets) at period end. Unsettled bets are accounted for as derivative financial instruments
and are carried at fair value. Gains and losses from these positions are recognised in revenue.
Score Media and Gaming Inc.
Notes to Condensed Consolidated
Interim Financial Statements
(In thousands of Canadian
dollars, unless otherwise stated)
Three months ended November 30,
2020 and November 30, 2019 (unaudited)
|
|
|
Three months ended November 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Interest expense
|
|
$
|
1,482
|
|
|
$
|
1,205
|
|
|
Interest income
|
|
|
-
|
|
|
|
(117
|
)
|
|
Revaluation of foreign currency balances
|
|
|
533
|
|
|
|
84
|
|
|
Net finance expense (income)
|
|
$
|
2,015
|
|
|
$
|
1,172
|
|
As a result of the income tax
impact related to the convertible debenture issue a deferred tax liability of $3.1 million was recorded in 2019, in the same period
the Company recorded a deferred tax recovery of $3.1 million, related to operating loss carry forwards through the statement of
operations, resulting in a net deferred taxes of nil at November 30, 2019. At November 30, 2020 net deferred
tax remains nil. As the liability portion of the convertible debt accretes the deferred tax liability and corresponding deferred
tax asset are reduced accordingly through the statement of operations resulting in a deferred tax expense (recovery) of nil as
at November 30, 2020.
On December 17, 2020, the
Company completed a short-form bought deal prospectus offering where 28,572,000 Class A subordinate voting shares were issued
at a price per share of $1.40. On December 31, 2020, the underwriters exercised their overallotment option in full, purchasing
an additional 4,285,800 Class A subordinate voting shares for at a price per share of $1.40, resulting in total gross proceeds
of the offering of $46,001.
Exhibit 4.5
Score
Media and Gaming, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Three months ended November 30,
2020 and November 30, 2019
The following is Management's Discussion
and Analysis (“MD&A”) of the financial condition of Score Media and Gaming Inc. (“theScore”, “we”,
“us” or “our”) and our financial performance for the three months ended November 30, 2020. The MD&A
should be read in conjunction with our unaudited Condensed Consolidated Interim Financial Statements for the three months ended
November 30, 2020 (“Interim Financial Statements”) and Notes thereto. The financial information presented herein
has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”)
as issued by the International Accounting Standards Board (“IASB”). The interim MD&A should be read in conjunction
with our MD&A for the year ended August 31, 2020. All amounts are in Canadian dollars unless otherwise stated. As a result
of the rounding of dollar differences, certain total dollar amounts in this MD&A may not add exactly to their constituent amounts.
Throughout this MD&A, percentage changes are calculated using numbers rounded as they appear. This MD&A reflects information
as of January 13, 2021.
Cautionary Note Regarding Forward-Looking
Statements
Certain statements contained in this MD&A
constitute “forward-looking information” within the meaning of applicable Canadian securities legislation (“forward-looking
statements”). All statements other than statements of historical fact contained in this MD&A, including, without limitation,
those regarding our future financial position and results of operations, strategy, plans, objectives, goals and targets, including
in light of the ongoing and evolving COVID-19 pandemic, regulatory approvals, future developments in the markets where we participate
or are seeking to participate, and any statements preceded by, followed by or that include the words “believe”, “expect”,
“aim”, “intend”, “plan”, “continue”, “will”, “may”, “would”,
“anticipate”, “estimate”, “forecast”, “predict”, “project”, “seek”,
“should” or similar expressions or the negative thereof, are forward-looking statements. These statements are not historical
facts but instead represent only our expectations, estimates and projections regarding future events. These statements are not
guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual
results may differ materially from what is expressed, implied or forecasted in such forward-looking statements.
Additional known and unknown risks, uncertainties,
and other factors that could cause actual results, performance or achievements to differ materially include, but are not limited
to: the impact of the ongoing and evolving COVID-19 pandemic on our future financial position and results of operations, strategy,
plans, objectives, goals and targets; the enactment of enabling legislation and regulations in the jurisdictions in which we operate,
or intend to operate, to facilitate internet gaming, including (without limitation) the enactment of federal legislation in Canada
to permit single event sports wagering (including the timing of such legislation and regulations being passed and proclaimed in
force (if at all) and the terms and conditions imposed in such legislation and regulations on applicable industry participants);
receipt of all relevant licences and approvals under the applicable legislation and regulations (as applicable) of the jurisdictions
in which we operate, or intend to operate; and the rate of adoption of online gaming in Canada and other jurisdictions, as permitted
by applicable legislation and/or regulations.
Additional factors are discussed under
the heading "Risk Factors" in our Annual Information Form as filed with securities regulatory authorities in Canada
and available on SEDAR at www.sedar.com and elsewhere in documents that we file from time to time with securities regulatory authorities.
These risk factors include: risks associated with regulation of the gaming industry, reliance on the continued support of banks
and payment processors, potential losses with respect to individual events or betting outcomes, competition in the online and mobile
sports betting and media industry, becoming the subject of regulatory investigations, market access limitations, our shareholders
are subject to extensive governmental regulations, industry social responsibility concerns, digital sports media industry reliance
on mobile advertising, the recent expansion of our sports betting operations, our historical losses and negative operating cash
flows, liquidity risk, the impact of COVID-19, the cancellation, postponement or curtailing of sporting and other events, reductions
in discretionary consumer spending, our dependence on key suppliers, mobile device users limiting data tracking and targeting,
new and evolving industry, limited long-term agreements with our advertisers, our need for substantial capital requirements, protection
of intellectual property, infringement on intellectual property, maintaining and enhancing our brand, corporate social responsibility,
responsible gaming and ethical conduct, dependence on our key personnel and employees, rapid technology developments, defects in
our products, real or perceived inaccuracies in our key performance metrics, risks related to the use and collection of user data,
reliance on our collaborative partners, new business areas and geographic markets, our operational and financial infrastructure,
information technology defects, our reliance on third-party owned communication networks, uncertain economic health of the wider
economy (including as a result of the recent COVID-19 pandemic as discussed below), governmental regulation of the internet, currency
fluctuations, changes in taxation, our exposure to taxable presences, risk of litigation, internal controls, credit risk, free
and open source software utilization, our major shareholder controls or directs 100% of the special voting shares, market price
and trading volume of our Class A Shares (as defined herein), our debt obligations will have priority over the Class A
Shares in the event of a liquidation, dissolution or winding up, our dividend policy, future sales of Class A Shares by existing
shareholders and potential dilution.
In addition to these factors, other factors
not currently viewed as material could cause actual results to differ materially from those described in the forward-looking statements.
Although we have attempted to identify important risks and factors that could cause actual actions, events or results to differ
materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events
or results not to be anticipated, estimated or intended. Accordingly, readers should not place any undue reliance on forward-looking
statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking
statements prove incorrect, actual results could differ materially from the expectations expressed in these forward-looking statements.
We do not intend, and do not assume any obligation, to update these forward-looking statements except as required by applicable
law or regulatory requirements.
We provide forward-looking statements because
we believe they provide useful information to readers when considering their investment objectives and cautions readers that the
information may not be appropriate for other purposes. Consequently, all of the forward-looking statements made in this MD&A
are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance
that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences
to, or effects on, us.
COVID-19 Matters
The current COVID-19 pandemic crisis continues
to evolve rapidly and could have a material adverse impact on our business, affairs, operations, results of operations, financial
condition, liquidity, availability of credit and foreign exchange exposure. COVID-19 is altering business and consumer activity
in affected areas and beyond. The global response to the COVID-19 outbreak has resulted in, among other things, border closures,
severe travel restrictions, the temporary shut-down of non-essential services and extreme fluctuations in financial and commodity
markets. Additional measures may be implemented by one or more governments in jurisdictions where we operate. Labour shortages
due to illness, isolation programs imposed by us or the government, or restrictions on the movement of personnel could result in
a reduction or cessation of all or a portion of our operations.
The extent to which the COVID-19 pandemic
may impact our business and activities will depend on future developments which remain highly uncertain and cannot be predicted
with confidence, such as the spread of the disease, the duration of the outbreak, severity of the coronavirus and actions taken
by the Canadian and US authorities, the postponement, suspension, cancellation, rescheduling and resumption of sporting events,
the impact of the pandemic on consumer and advertiser spending, and the ability or willingness of suppliers and vendors to provide
products and services. If the coronavirus continues to spread at the current pace, disruption to consumer spending and trade could
trigger a global recession.
The actual and threatened spread of COVID-19
globally could also have a material adverse effect on the regional economies in which we operate, could continue to negatively
impact stock markets, including the trading price of our Class A Shares, could cause continued interest rate volatility and
movements and could adversely impact our ability to raise capital.
Any of these developments, and others,
could have a material adverse effect on our business, affairs, operations, results of operations, financial condition, liquidity,
availability of credit and foreign exchange exposure. In addition, because of the severity and global nature of the COVID-19 pandemic,
it is possible that estimates in our financial statements could change in the near term and the effect of any such changes could
be material, which could result in, among other things, an impairment of non-current assets and a change in the expected credit
losses on accounts receivable. We monitor the situation and any impacts or potential impacts on our business on an ongoing basis.
theScore
Score Media and Gaming Inc. empowers
millions of sports fans through our digital media and sports betting products. Our media app ‘theScore’ is one of the
most popular in North America, delivering fans highly-personalized live scores, news, stats, and betting information from their
favorite teams, leagues, and players. Our sports betting app ‘theScore Bet’ delivers an immersive and holistic mobile
sports betting experience and is currently available to place wagers in New Jersey, Colorado and Indiana. Publicly traded on the
Toronto Stock Exchange (SCR), we also create and distribute innovative digital content through our web, social and esports platforms.
We are organized and operate as one operating segment for the purpose of making operating decisions and assessing performance.
At November 30, 2020 we had 5,566 special voting shares, 400,732,561 Class A subordinate voting shares (“Class A
Shares” and each is a “Class A Share”) and 34,836,648 options to acquire Class A Shares outstanding.
Revenue
Total revenues for the three months ended
November 30, 2020 and 2019 were $8.5 million and $9.2 million, respectively.
Revenues from media activities for the
three months ended November 30, 2020 and 2019 were $10.6 million and $9.2 million, respectively – a new all-time record
for us in a single quarter, primarily driven by strong growth in direct advertising compared to the prior period.
We generated $55.8 million of handle1
and ($0.3) million of gross gaming revenue2 for the three months ended November 30, 2020 (2019 – $8.8 million
and $0.2 million, respectively). After taking into account promotional costs and fair value adjustments of unsettled bets, we generated
negative net gaming revenue3 of $2.0 million (2019 – $26,000) for the three months ended November 30, 2020.
For the three months ended November 30,
2020 and 2019, revenue from Canadian sources was $4.8 million and $3.5 million, respectively, while revenue from non-Canadian sources
(predominately the U.S.) for the same period was $3.7 million and $5.7 million, respectively.
1
Handle is calculated as the total amount of money wagered by customers in respect of bets that have settled in the applicable period.
Handle does not include free bets or other promotional incentives, nor money bet by customers in respect of bets that are open
at period end.
2 Gross gaming revenue is calculated as dollar amounts
wagered by customers, less the dollar amounts paid out to customers in respect of such bets which have settled in the applicable
period.
3 Net gaming revenue is measured
as gross gaming revenue, less free bets, promotional costs, bonuses and fair value adjustments on unsettled bets.
We achieved 3.94 million average
monthly active users and 458 million average monthly user sessions on theScore app on iOS and Android during the period, equaling
116 average monthly-sessions-per-user4.
Operating Expenses
(in thousands of Canadian dollars)
|
|
|
Three months ended
|
|
|
|
|
November 30, 2020
|
|
|
November 30, 2019
|
|
|
Product development and content
|
|
|
2,800
|
|
|
|
2,582
|
|
|
Sales and marketing
|
|
|
4,867
|
|
|
|
5,491
|
|
|
Technology and operations
|
|
|
5,328
|
|
|
|
3,158
|
|
|
General and administration
|
|
|
4,818
|
|
|
|
2,820
|
|
|
Depreciation and amortization
|
|
|
1,384
|
|
|
|
1,213
|
|
|
|
|
$
|
19,197
|
|
|
$
|
15,264
|
|
Total operating expenses for the three
month period ended November 30, 2020 were $19.2 million compared to $15.3 million in the same period of the prior year, an
increase of $3.9 million as a result of higher expenses related to theScore Bet, along with higher personnel expenses relating
to an increase in employee headcount as we continue to expand our operations.
Product development and content expenses
for the three month period ended November 30, 2020 were $2.8 million compared to $2.6 million in the same period of the prior
year, an increase of $0.2 million attributable principally to an increase in headcount.
Sales and marketing expenses for the three
month period ended November 30, 2020 were $4.9 million compared to $5.5 million in the same period of the prior year, a decrease
of $0.6 million resulting primarily from higher product marketing costs incurred in connection with the launch of theScore Bet
in the prior year.
Technology and operations expenses for
the three month period ended November 30, 2020 were $5.3 million compared to $3.2 million in the same period of the prior
year, an increase of $2.1 million as a result of the multi-state rollout of theScore Bet which is now operational in three states
as compared to one state in the prior year.
General and administration expenses for
the three month period ended November 30, 2020 were $4.8 million compared to $2.8 million in the same period of the prior
year, an increase of $2.0 million. The increase was related to higher personnel costs and stock based compensation as we added
43 new full-time employees when compared to the same period in the prior year.
4 User metrics refer to audience and engagement
numbers for theScore app on iOS and Android.
Depreciation and amortization for the three
month period ended November 30, 2020 was $1.4 million compared to $1.2 million in the same period of the prior year, an increase
of $0.2 million. The increase is a result of the continued investment in fixed and intangibles assets.
Impact of Ontario Interactive Digital Media Tax Credits
(“OIDMTC”)
As at November 30, 2020, tax credits
recoverable of $1.6 million are included as current assets in the condensed consolidated Statement of Financial Position (August 31,
2020 - $1.6 million current). Tax credits recoverable reflect our best estimate of credits that are reasonably assured of realization
considering both certificates of eligibility received from Ontario Creates (formerly, the Ontario Media Development Corporation)
for specific claims and Ontario Creates’ historical acceptance of expenditures of a similar nature for refundable credit.
In November 2020 we received a certificate of eligibility from Ontario Creates.
No tax credits were accrued during the
three months ended November 30, 2020 and November 30, 2019.
EBITDA and Net and Comprehensive losses
We utilize earnings before interest, taxes,
depreciation and amortization (“EBITDA”) to measure operating performance. Our definition of EBITDA excludes depreciation
and amortization, finance (income) expense and income taxes which in our view does not adequately reflect our core operating results.
EBITDA is used in the determination of short-term incentive compensation for all senior management personnel.
EBITDA is not a measure of performance
under IFRS and should not be considered in isolation or as a substitute for net and comprehensive income or loss prepared in accordance
with IFRS or as a measure of operating performance or profitability. EBITDA does not have a standardized meaning prescribed by
IFRS and is not necessarily comparable to similar measures presented by other companies.
The following table reconciles net and
comprehensive loss to EBITDA:
(in thousands of Canadian dollars)
|
|
|
Three Months Ended
|
|
|
|
|
November 30, 2020
|
|
|
November 30, 2019
|
|
|
Net loss for the period
|
|
$
|
(12,673
|
)
|
|
$
|
(4,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,384
|
|
|
|
1,213
|
|
|
Finance (income) expense, net
|
|
|
2,015
|
|
|
|
1,172
|
|
|
Deferred income tax (recovery)
|
|
|
-
|
|
|
|
(3,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
(9,274
|
)
|
|
$
|
(4,832
|
)
|
EBITDA loss for the three month period
ended November 30, 2020 was $9.3 million compared to an EBITDA loss of $4.8 million in the same period in the prior year,
an increase of $4.5 million.
Net loss for the three month period ended
November 30, 2020 was $12.7 million compared to a loss of $4.1 million in the same period in the prior year, an increase of
$8.6 million.
Loss per share for the three month period
ended November 30, 2020 was $(0.03) compared to loss per share of $(0.01) in the same period in the prior year.
Additions to Intangible Assets
During the three months ended November 30,
2020, we capitalized product development costs of $1.2 million (November 30, 2019 - $1.0 million). The significant development
projects for the three month period ended November 30, 2020 consisted of new features in theScore Bet app, significant enhancements
to live betting and sports data, and significant new enhancements to our core technology infrastructure.
We capitalized internal product development
costs during the three months ended November 30, 2020 and November 30, 2019 for both new development projects and projects
that, in our judgement, represent substantial improvements to existing products. In assessing whether costs can be capitalized
for improvements, we exercise significant judgement when considering the extent of the improvement and whether it is substantial,
whether it is sufficiently separable and whether expected future economic benefits are derived from the improvement itself. Factors
considered in assessing the extent of the improvement include, but are not limited to, the degree of change in functionality and
the impact of the project on the ability that we will be able to attract users to our products and increase user engagement with
our products. Costs, which do not meet these criteria, such as enhancements and routine maintenance, are expensed when incurred.
Future economic benefits from these capitalized projects include net cash flows from future sports betting revenue and future advertising
sales, which are dependent upon our ability to attract users to our products and increase user engagement with our products, and
may also include anticipated cost savings, depending upon the nature of the development project.
Consolidated Quarterly Results
The following is selected consolidated
quarterly financial data which relates to our preceding eight quarters, inclusive of the quarter ended November 30, 2020.
|
Quarterly Results
|
|
Revenue
|
|
|
EBITDA
|
|
|
Net income (loss)
|
|
|
Income (loss) per
share – basic and
diluted
|
|
|
|
|
|
($000’s)
|
|
|
|
($000’s)
|
|
|
|
($000’s)
|
|
|
|
($)
|
|
|
November 30, 2020
|
|
|
8,539
|
|
|
|
(9,274
|
)
|
|
|
(12,673
|
)
|
|
|
(0.03
|
)
|
|
August 31, 2020
|
|
|
2,466
|
|
|
|
(8,270
|
)
|
|
|
(12,691
|
)
|
|
|
(0.04
|
)
|
|
May 31, 2020
|
|
|
2,381
|
|
|
|
(8,736
|
)
|
|
|
(10,677
|
)
|
|
|
(0.03
|
)
|
|
February 29, 2020
|
|
|
6,653
|
|
|
|
(8,625
|
)
|
|
|
(10,454
|
)
|
|
|
(0.03
|
)
|
|
November 30, 2019
|
|
|
9,219
|
|
|
|
(4,832
|
)
|
|
|
(4,110
|
)
|
|
|
(0.01
|
)
|
|
August 31, 2019
|
|
|
6,407
|
|
|
|
(4,149
|
)
|
|
|
(4,845
|
)
|
|
|
(0.01
|
)
|
|
May 31, 2019
|
|
|
8,463
|
|
|
|
(1,120
|
)
|
|
|
(1,727
|
)
|
|
|
(0.01
|
)
|
|
February 28, 2019
|
|
|
6,776
|
|
|
|
(2,189
|
)
|
|
|
(3,004
|
)
|
|
|
(0.01
|
)
|
Use of our applications has historically
reflected the general trends for sports schedules of the major North American sports leagues. As a result, our first fiscal quarter
ending November 30 is typically the strongest from a revenue perspective.
Quarterly revenue fluctuations are a combination
of the seasonality trend of usage described above and the market for digital media advertising in Canada and the United States.
EBITDA income (loss) and net income (loss)
fluctuations are due to revenue fluctuations (as above) as well as changes in discretionary marketing costs, infrastructure costs,
personnel costs, and in recent quarters, costs related to our sports betting operations and infrastructure costs, and seasonal
revenue fluctuations.
Liquidity Risk and Capital Resources
Cash and cash equivalents as of November 30,
2020 were $19.2 million compared to $40.1 million as of fiscal year ended August 31, 2020.
Liquidity
Liquidity risk is the risk that we will
not be able to meet our financial obligations as they fall due. As at November 30, 2020 we had cash and cash equivalents of
$19.2 million (August 31, 2020 - $40.1 million), restricted cash related to customer deposits on the betting platform
of $5.6 million (August 31, 2020 - $1.9 million), accounts receivable of $10.2 million (August 31, 2020 - $5.5 million),
current tax credits recoverable of $1.6 million (August 31, 2020 - $1.6 million) and accounts payable and accrued liabilities
to third parties of $16.2 million (August 31, 2020 - $10.4 million). Accounts payable and accrued liabilities have contracted
maturities of less than twelve months.
We prepare budgets and cash flow forecasts
to assist in managing liquidity risk. We have a history of operating losses and can be expected to generate continued operating
losses and negative cash flows in the future while we carry out our current business plan to further develop and expand our business.
We can utilize our cash and cash equivalents to fund our operating and development expenditures.
We have access to an uncommitted variable
demand credit facility (the “Demand Credit Facility”) of up to $5.0 million with a Canadian chartered bank, of which
$5.0 million was available at November 30, 2020. The operating facility is available for working capital purposes. The amount
available under the Demand Credit Facility is based on a percentage of our accounts receivable and those of certain of our subsidiaries.
The Demand Credit Facility is available for working capital purposes and is secured by substantially all of our assets and all
of the assets of certain of our subsidiaries. The Demand Credit Facility bears interest at the lenders prime rate plus 1.00% per
annum. The Demand Credit Facility is repayable on demand and is subject to certain financial covenants. As of November 30,
2020 the amount drawn on the Demand Credit Facility is nil (August 31, 2020 – nil).
In July 2020, we entered into a $6.25
million revolving term credit facility with the same Canadian chartered bank that maintains the Demand Credit Facility, supported
by Export Development Corporation’s Business Credit Availability Program (“EDC BCAP”). The revolving term credit
facility is available to provide us additional liquidity and to mitigate the impact of COVID-19 on our operations. The revolving
term credit facility is secured by substantially all of our assets and all of the assets of certain of our subsidiaries. The revolving
term credit facility bears interest at the lenders prime rate plus 2.00% per annum and is subject to a facility fee in respect
of the EDC BCAP program of 1.80%. The revolving term credit facility is repayable by July 15, 2021, is extendable for a further
period of 364 days in certain circumstances and is subject to certain financial covenants. On November 27, 2020, we repaid
the full balance owing on the revolving term credit facility in the amount of $6.25 million.
While we can utilize our cash, cash equivalents
and credit facilities to fund our operating and development expenditures, we do not have access to other committed sources of funding,
and depending upon the level of expenditures and whether profitable operations can be achieved, we may be required to seek additional
funding in the future.
Operations
Cash flows used in operating activities
for the three months ended November 30, 2020 were $11.2 million compared to $7.9 million in the same period of the prior year.
The increase in cash flows used in operations was a result of increases in costs related to our sports betting operations.
Financing
Cash flows used for financing activities
for the three months ended November 30, 2020 were $6.0 million compared to cash flows provided of $37.1 million in the same
period in the prior year. On November 27, 2020 we repaid $6.25 million owing on the revolving term credit facility and on
September 2, 2019 we closed a convertible debenture financing for $40.0 million less financing and other costs related to
closing of the financing.
Investing
Cash used in investing activities for the
three months ended November 30, 2020 was $3.7 million compared to $1.2 million in the same period in the prior year. The increase
in cash used in investing activities was due to increased investments in intangible assets.
Commitments
We have no debt guarantees, off-balance
sheet arrangements or long-term obligations other than the agreements noted below.
We have the following undiscounted contractual obligations at
November 30, 2020:
(in thousands of Canadian dollars)
|
|
|
Payments Due by Period
|
|
Contractual
Obligation
|
|
Total
|
|
|
Within 1
year
|
|
|
2-3 years
|
|
|
4-5 years
|
|
|
More than 5
years
|
|
|
Total Debt 1
|
|
|
46,755
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,755
|
|
|
|
-
|
|
|
Lease Liabilities 2
|
|
|
1,783
|
|
|
|
973
|
|
|
|
810
|
|
|
|
-
|
|
|
|
-
|
|
|
Purchase Obligations 3
|
|
|
46,282
|
|
|
|
9,591
|
|
|
|
12,774
|
|
|
|
6,077
|
|
|
|
17,840
|
|
|
Total Contractual Obligations
|
|
|
94,820
|
|
|
|
10,564
|
|
|
|
13,584
|
|
|
|
52,832
|
|
|
|
17,840
|
|
1 Principal repayments related to convertible debenture.
2 Lease liabilities relate to right-of-use assets
which include head office space.
3 Purchase obligations are minimum payments under
contracts for periods ranging from one to twenty years.
Convertible Debenture
On September 5, 2019, we completed
a non-brokered financing of $40.0 million by way of issuance of convertible debentures (“convertible debenture”). The
debentures carry an interest rate of 8.0%, payable in arrears, in equal semi-annual payments on the last day of February and
August in each year commencing on February 29, 2020, with a maturity date of August 31, 2024, or the earlier date
of redemption, repayment or conversion.
At the holder’s option, the debenture
may be converted into Class A Shares at any time prior to the close of business on the earlier of the business day immediately
preceding the maturity date and the business day immediately preceding the date fixed for redemption of the debenture. The conversion
price will be $0.75 for each Class A Share, being a conversion rate of 1,333.3333 Class A Shares issuable for each one
thousand dollars principal amount of the debenture, subject to adjustment in certain circumstances.
Subject to specified conditions, the debenture
may be redeemed at our option at par plus accrued and unpaid interest at any time after August 31, 2023 if the volume weighted
average trading price of the Class A Shares during the 20 trading days ending on the fifth trading day preceding the date
on which notice of the redemption is given is not less than 125% of the conversion price, or if the principal sum of the debenture
outstanding is $4.0 million or less.
Upon the occurrence of a change of control
of theScore or the sale of our core assets, we will be required to make an offer to purchase the debenture at a price equal to
105% of the principal amount plus accrued and unpaid interest.
The convertible debenture issuance resulted
in the recognition of a deferred tax liability of $3.1 million in the three months ended November 30, 2019.
Interest and accretion expense for the three months ended November 30,
2020 was $1.4 million (2019 - $1.2 million). As of November 30, 2020 we have elected to accrue unpaid interest of $3.2 million
(2019 – nil) to the principal sum outstanding of the debenture.
Related Party Transactions
In Fiscal 2013, we entered into a lease
for a property partially owned by John Levy, our Chairman and Chief Executive Officer. The aggregate rent paid during the three
months ended November 30, 2020 amounted to $10,000, respectively (2019 - $10,000).
The corresponding payable balance as at
November 30, 2020 was $808 (2019 - $0.3 million), which includes transactions whereby Norwest Video Inc. is to be reimbursed
for operational costs pursuant to its management services agreement with us.
These transactions are recorded at the
exchange amount, being the amount agreed upon between the parties.
Financial Instruments and other instruments:
We have the following financial instruments:
cash and cash-equivalents, accounts receivable, accounts payable and a convertible debenture. Our financial instruments were comprised
of the following as at November 30, 2020; cash and cash equivalents of $19.2 million; accounts receivable of $10.2 million;
restricted cash related to customer deposits of $5.6 million; accounts payable and accrued liabilities $16.2 million and convertible
debenture of $30.9 million. Accounts receivable are carried at amortized cost. Accounts payable and accrued liabilities are carried
at amortized cost and are primarily comprised of short-term obligations owing to suppliers related to our operations.
Fair Value
Fair value is the estimated amount that
we would pay or receive to dispose of financial instruments in an arm’s length transaction between knowledgeable, willing
parties who are under no compulsion to act. The fair value of financial instruments that are traded in active markets at each reporting
date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments
not traded in an active market, the fair value is determined using appropriate valuation techniques that are recognized by market
participants. Such techniques may include using recent arm’s length market transactions, reference to the current fair value
of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.
The fair values of our financial assets
and liabilities, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities
were deemed to approximate their carrying amounts due to the relative short-term nature of these financial instruments. The fair
value of the convertible debenture was deemed to approximate the carrying amount due to the short passage of time between issuance
date and the date of these interim financial statements and the risk factors for us remaining consistent within this period.
Customer concentration
As at November 30, 2020, no customer
had an accounts receivable balance exceeding 10% of the total accounts receivable balance (August 31, 2020 – two customers,
a media agency and programmatic network, represented 13% and 13% of the accounts receivable balance).
For the three
months ended November 30, 2020, sales to one customer, a programmatic network, exceeded 10% of total revenue, with this customer
representing 19% of total revenue for the period (three months ended November 30, 2019 – one customer, a media programmatic
network, represented 13% of total revenue for the period).
Use of Proceeds – 2019 Convertible
Debenture Financing
On August 31, 2019, we entered into
an investment agreement (the “Investment Agreement”) with a fund managed and controlled by Fengate Asset Management
(“Fengate”), pursuant to which we issued a convertible debenture to Fengate on September 5, 2019 for gross proceeds
of $40.0 million and net proceeds of $37.0 million (the “2019 Convertible Debenture Financing”). The following is a
tabular comparison of the use of proceeds disclosed in our MD&A for the fiscal year ended August 31, 2020 (the “2020
Annual MD&A”) and the actual use of the net proceeds subsequent to the 2019 Convertible Debenture Financing. Net proceeds
from the convertible debenture were exhausted during the quarter ended November 30, 2020.
|
Use of Proceeds
|
|
Disclosed in
the
2020 Annual
MD&A
|
|
|
Net
Proceeds and
estimated use
of 2019
Convertible
Debenture
Financing
|
|
|
Variance
|
|
|
|
|
(Cdn$)
|
|
|
|
|
|
|
|
|
Sources:
|
|
|
|
|
|
|
|
|
|
|
Net proceeds of the 2019 Convertible Debenture Financing
|
|
$
|
40,000,000
|
|
|
$
|
36,969,204
|
|
|
$
|
3,030,796
|
|
|
Total:
|
|
$
|
40,000,000
|
|
|
$
|
36,969,204
|
|
|
$
|
3,030,796
|
|
|
Uses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Use of cash for the growth and development of our media and sports betting businesses
|
|
$
|
40,000,000
|
|
|
$
|
25,878,443
|
|
|
$
|
14,121,557
|
|
|
Balance for working capital and general corporate purposes(1)
|
|
|
N/A
|
|
|
$
|
11,090,761
|
|
|
|
N/A
|
|
|
Total:
|
|
$
|
40,000,000
|
|
|
$
|
36,969,204
|
|
|
$
|
3,030,796
|
|
1 Funds used for working capital and general corporate
purposes indirectly support the growth and development of our media and sports betting businesses. In addition, the variability
of various aspects of the growth and expansion of our sports betting business (including the enactment of enabling gaming legislation
and regulations, negotiation of market access, applications for direct licensure and the receipt of required licenses and other
regulatory approvals), and the impact this variability has on our ability to accurately predict the specific timing and need for
funds, funds may be reallocated from time to time as permitted.
Use of Proceeds – 2020 August Bought
Deal Offering
In August 2020, we completed a bought
deal offering of Class A shares, including over-allotment option, of 39.5 million Class A shares (the “2020 August Bought
Deal Offering”) that resulted in gross proceeds of $25.6 million and net proceeds of $23.6 million. The following is a tabular
comparison of the use of proceeds disclosed in our short form prospectus and our estimated use of the net proceeds subsequent to
the 2020 August Bought Deal Offering. The $23.6 million of actual net proceeds shown below includes the net proceeds from
the partial exercise of the over-allotment option by the underwriters of the 2020 Offering.
|
Use of Proceeds
|
|
Disclosed in
the 2020 August
Bought Deal
Offering
Prospectus
|
|
|
Net
Proceeds and
estimated use
of 2020
August
Bought Deal
Offering
|
|
|
Variance
|
|
|
|
|
(Cdn$)
|
|
|
|
|
|
|
|
|
Sources:
|
|
|
|
|
|
|
|
|
|
|
Net proceeds of the 2020 August Bought Deal Offering
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
|
Total:
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
|
Uses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital and general corporate purposes(1)
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
|
Total:
|
|
$
|
23,023,500
|
|
|
$
|
23,610,426
|
|
|
$
|
586,926
|
|
Consistent with the disclosures made in
the 2020 August Bought Deal Offering Prospectus, the increase in net proceeds resulting from the exercise of the over-allotment
option on September 18, 2020, that were allocated to working capital and general corporate purposes.
Other than the increased funds for working
capital and general corporate purposes disclosed above, to date, there have been no material variances in the estimated use of
proceeds from the disclosures made in the 2020 August Bought Deal Offering Prospectus.
1 General corporate
purposes includes the continued growth and expansion of theScore Bet’s operations in the United States and Canada by
supporting the multi-jurisdiction deployment and operation of the Score Bet and user acquisition and retention in
jurisdictions where we are or will be operating.
Critical Accounting Estimates and Judgements
Our significant accounting policies are
described in note 2 to the fiscal 2020 audited consolidated financial statements and notes thereto, which have been prepared in
accordance with IFRS. The preparation of these fiscal 2020 consolidated financial statements requires us to make estimates, assumptions
and judgments that affect the reported amounts of assets and liabilities, and related disclosures at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods.
We use estimates when accounting for certain
items such as revenues, capitalization of product development costs, allowance for doubtful accounts, amortization of intangible
assets, useful lives of property and equipment, asset impairments, share-based compensation plans, deferred income taxes and impairment
of intangible assets.
Estimates are also made by us when recording
the fair value of assets capitalized and receivables recognized. Estimates are based on numerous factors, including historical
experience, current events and other assumptions that we believe are reasonable under the circumstances. By their nature, these
estimates are subject to measurement uncertainty and actual results could differ. Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
Actual results could differ from those
estimates. Critical accounting estimates and significant judgments are generally discussed with the Audit Committee each quarter.
The most significant estimates and judgments made by us are described below.
Intangible assets
Our judgment is applied, and estimates
are used, in determining whether costs qualify for recognition as internally developed intangible assets. To be able to recognize
an intangible asset, we must demonstrate the item meets the definition of an intangible asset in IAS 38. We exercise significant
judgment in determining whether an item meets the identifiability criteria in the definition of an intangible asset which, in part,
requires that the item is capable of being separated or divided from us and sold, transferred or licensed either individually or
together with a related contract or asset, whether or not we intend to do so. Judgment is required to distinguish those expenditures
that develop the business as a whole, which cannot be capitalized as intangible assets and are expensed in the years incurred.
Also, to recognize an intangible asset,
we, in our judgment, must demonstrate that it is probable that expected future economic benefits will flow to us and that the cost
of the asset can be measured reliably. Estimates are used to determine the probability of expected future economic benefits that
will flow to us. Future economic benefits include net cash flows from the sports betting app as well as net cash flows from future
advertising sales, which are dependent upon our ability to attract users to our products and increase user engagement with our
products, and may also include anticipated cost savings, depending upon the nature of the development project.
We capitalized internal product development
costs during quarter ended November 30, 2020 and 2019 for both new development projects and projects that, in our judgment,
represent substantial improvements to existing products. In assessing whether costs can be capitalized for improvements, we exercise
significant judgment when considering the extent of the improvement and whether it is substantial, whether it is sufficiently separable
and whether expected future economic benefits are derived from the improvement itself. Factors considered in assessing the extent
of the improvement include, but are not limited to, the degree of change in functionality and the impact of the project on our
ability to attract users to our products and increase user engagement with our products. Costs which do not meet these criteria,
such as enhancements and routine maintenance, are expensed when incurred.
In addition, we use estimation in determining
the measurement of internal labour costs capitalized to intangible assets. The capitalization estimates are based upon the nature
of the activities the developer performs.
Our judgment is also used in determining
appropriate amortization methods for intangible assets, and estimates are used in determining the expected useful lives of amortizable
intangible assets.
Tax credits
Refundable tax credits related to expenditures
to develop digital media products are recognized when there is reasonable assurance that they will be received and we have and
will comply with the conditions associated with the relevant government program. Our judgment is required in determining which
expenditures and projects are reasonably assured of compliance with the relevant conditions and criteria and have, accordingly,
met the recognition criteria.
Impairment of non-financial assets
An impairment test is carried out whenever
events or changes in circumstances indicate that carrying amounts may not be recoverable and is performed by comparing the carrying
amount of an asset or CGU and its recoverable amount. Our judgment is required in determining whether an impairment indicator exists.
The recoverable amount is the higher of fair value, less costs to sell, and its value in use over its remaining useful life.
This valuation process involves the use
of methods which use assumptions to estimate future cash flows. The recoverable amount depends significantly on the discount rate
used, as well as the expected future cash flows and the terminal growth rate used for extrapolation.
Programmatic receivables
We estimate receivables pertaining to programmatic
advertising revenues, based on the best information available at the recognition date. These estimates are trued up at the time
of payment.
Amongst other factors, we consider the
historic experience with the programmatic partner and the age of the outstanding balance.
Allowance for doubtful accounts
The valuation of accounts receivable requires
valuation estimates to be made by us. These accounts receivable comprise a large and diverse base of advertisers dispersed across
varying industries and locations that purchase advertising on our digital media platforms.
We determine an allowance for doubtful
accounts based on knowledge of the financial conditions of our customers, the aging of our receivables, customer and industry concentrations,
our current business environment and our historical experience. A change in any of the factors impacting the estimate of the allowance
for doubtful accounts will directly impact the amount of bad debt expense recorded in facilities, administrative and other expenses.
The loss allowance for trade receivables
must be calculated using the expected lifetime credit loss and recorded at the time of initial recognition.
Subsequent Event
On December 17, 2020, we completed
a short-form bought deal prospectus offering where 28,572,000 Class A subordinate voting shares were issued at a price per
share of $1.40. On December 31, 2020, the underwriters exercised their overallotment option in full, purchasing an additional
4,285,800 Class A subordinate voting shares for at a price per share of $1.40, resulting in total gross proceeds of the offering
of $46.0 million.
We stated in our short form prospectus
dated December 11, 2020 (the “December Prospectus”) that we intend to use the net proceeds from the December 2020
Offering to fund working capital and other general corporate purposes, including the continued growth and expansion of theScore
Bet's operations in the United States and Canada by supporting the multi-jurisdiction deployment and operation of theScore Bet
and user acquisition and retention in jurisdictions where we currently operate, or will be operating in the future. To date, there
have been no material variances in the use of proceeds from the December 2020 Offering from the disclosures made in the December Prospectus.
Exhibit 4.6
NOTICE OF ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS
and
MANAGEMENT INFORMATION CIRCULAR
11:00 a.m.
Wednesday, February 10, 2021
Score Media and Gaming Inc.
Virtual Meeting
SCORE MEDIA AND GAMING INC.
NOTICE
OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TAKE NOTICE THAT an annual and special
meeting (the “Meeting”) of shareholders of Score Media and Gaming Inc. (“theScore”, “us”,
“we” or “our”) will be held on Wednesday, February 10, 2021 by way of a virtual meeting
conducted via a live audio webcast online at https://web.lumiagm.com/477682817 at the hour of 11 o’clock in the morning
(Toronto time) for the following purposes:
|
|
(1)
|
to receive our consolidated financial statements for the year ended August 31, 2020 together
with the report of the auditors thereon;
|
|
|
(2)
|
to elect our eight directors for the ensuing year;
|
|
|
(3)
|
to re-appoint auditors and authorize the directors to fix their remuneration;
|
|
|
(4)
|
to approve a special resolution to authorize our board of directors (the “Board”)
to determine, in its sole discretion, a consolidation ratio within the range of one of our post-consolidation shares for every
two to twenty of our pre-consolidation shares of the same class (the “Consolidation Ratio”), and to effect,
at such time as the Board deems appropriate, but in any event no later than one year after the Meeting, a share consolidation (or
reverse stock split) of all of our issued and outstanding Class A Subordinate Voting Shares (“Class A Shares”)
on the basis of such Consolidation Ratio as well as a share consolidation (or reverse stock split) of all of our issued and outstanding
Special Voting Shares on the basis of such Consolidation Ratio (collectively, the “Share Consolidation”), subject
to the Board’s authority to decide not to proceed with the Share Consolidation;
|
|
|
(5)
|
to approve the amendment and restatement of our amended and restated stock option and restricted
stock unit plan (the “Option & RSU Plan”) to: (a) increase the number of Class A Shares that may be issued,
at any time, pursuant to the Option & RSU Plan from 55,000,000 Class A Shares to 65,000,000 Class A Shares; and (b) effect
certain other amendments to the Option & RSU Plan in connection with our voluntary delisting of the Class A Shares from the
TSX Venture Exchange and concurrent listing of the Class A Shares on the Toronto Stock Exchange; and
|
|
|
(6)
|
to transact such further and other business as may properly come before the Meeting or any adjournment(s)
or postponement(s) thereof.
|
|
To mitigate risks related to the rapidly evolving coronavirus disease (COVID-19) and based on government recommendations and requirements to avoid large gatherings, the Meeting will be conducted in a virtual-only format via live audio webcast. The live audio webcast will permit all participants to communicate adequately with each other during the Meeting. Shareholders will not be able to attend the Meeting in person. A summary of the information shareholders will need to attend the Meeting online is provided in the enclosed management information circular.
|
A copy of our form of proxy and management
information circular accompany this notice. If you are not able to be present personally at the Meeting via the live audio webcast,
kindly sign the form of proxy accompanying this notice and return it in the envelope provided for such purpose. Alternatively,
proxies can be returned to the offices of Computershare Trust Company of Canada (“Computershare”), Attention:
Proxy Department, 100 University Avenue, 8th floor, North Tower, Toronto, Ontario, M5J 2Y1, or faxed to 1 (866) 249-7775.
Proxies should be returned no later than 48 hours (excluding Saturdays and holidays) before the starting time of the Meeting
or any adjournment(s) or postponement(s) thereof. The time limit for deposit of proxies may be waived or extended by the Chair
at the Meeting at his discretion without notice.
Our board of directors has fixed the close
of business on December 18, 2020 as the record date for the determination of the shareholders entitled to receive notice of, and
to vote at, the Meeting.
A shareholder who is unable to attend
the Meeting online via the live audio webcast and who wishes to ensure that such shareholder’s shares will be voted at the
Meeting, is requested to complete, date and execute the enclosed form of proxy and deliver it by facsimile, by email, by hand or
by mail in accordance with the instructions set out in the form of proxy and in the management information circular.
Registered shareholders, or the persons
they appoint as their proxies, will be able to attend the Meeting, ask questions and vote, all in real time, provided they are
connected to the Internet and comply with all of the requirements set out in the enclosed management information circular. Shareholders
who beneficially own shares that are registered in the name of an intermediary or clearing agency (“Non-Registered Holders”)
who have not duly appointed themselves as proxyholders may still attend the Meeting as guests provided they are connected to the
Internet. Guests will be able to listen to the Meeting and ask questions following conclusion of the formal business of the Meeting
but will not be able to vote at the Meeting.
Shareholders who wish to appoint a person
other than the management nominees identified on the form of proxy or voting instruction form (including Non-Registered Holders
who wish to appoint themselves to attend) must carefully follow the instructions in the enclosed management information circular
and on their form of proxy or voting instruction form. These instructions include the additional step of registering such proxyholder
with our transfer agent, Computershare, after submitting their form of proxy or voting instruction form. Failure to register the
proxyholder with our transfer agent will result in the proxyholder not receiving a control number as a username to vote at the
Meeting and only being able to attend as a guest.
DATED at Toronto, Ontario
this 8th day of January, 2021.
|
|
By Order of the Board of Directors,
|
|
|
|
|
|
|
|
“John Levy”
|
|
|
|
Chairman and Chief Executive Officer
|
|
SCORE MEDIA AND GAMING INC.
MANAGEMENT INFORMATION CIRCULAR
RELATING TO THE ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 10, 2021
INFORMATION
REGARDING SOLICITATION OF PROXIES
Solicitation
of Proxies
THIS MANAGEMENT INFORMATION CIRCULAR
(“CIRCULAR”) IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY MANAGEMENT OF SCORE MEDIA AND GAMING INC. (“THESCORE”,
“US”, “WE” OR “OUR”) OF PROXIES TO BE USED AT THE ANNUAL AND SPECIAL MEETING (THE “MEETING”)
OF SHAREHOLDERS OF THESCORE TO BE HELD ON THE 10TH DAY OF FEBRUARY, 2021 AT THE TIME, PLACE AND FOR THE PURPOSES SET
FORTH IN THE NOTICE OF MEETING ACCOMPANYING THIS CIRCULAR AND AT ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF. UNLESS OTHERWISE
INDICATED, THE INFORMATION CONTAINED HEREIN IS MADE AS OF JANUARY 8, 2021 AND ALL DOLLAR AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS.
Holders of our shares (the “shareholders”)
who are unable to attend the Meeting online via the live video webcast are requested to complete, sign, date and return the enclosed
form of proxy in the envelope provided to Computershare, Attention: Proxy Department, 100 University Avenue, 8th floor,
North Tower, Toronto, Ontario, M5J 2Y1, no later than 48 hours (excluding Saturdays and holidays) before the starting time
of the Meeting or any adjournment(s) or postponement(s) thereof. The time limit for deposit of proxies may be waived or extended
by the Chair at the Meeting at his discretion without notice.
It is expected that the solicitation of
proxies will be made by our employees, on behalf of our board of directors (the “Board”), primarily by mail.
We will bear the cost of solicitation.
Virtual
Meeting Information
|
To mitigate risks related to the rapidly evolving coronavirus disease (COVID-19) and based on government recommendations and requirements to avoid large gatherings, the Meeting will be conducted in a virtual-only format via live audio webcast. The live audio webcast will permit all participants to communicate adequately with each other during the Meeting. Shareholders will not be able to attend the Meeting in person. A summary of the information shareholders will need to attend the Meeting online is provided below. See “Voting at the Meeting” below.
|
Registered shareholders, or the persons
they appoint as their proxies, who participate in the Meeting online will be able to listen to the Meeting, ask questions and vote,
all in real time, provided they are connected to the Internet and comply with all of the requirements set out below under “Voting
at the Meeting”. Non-registered shareholders who have not duly appointed themselves as proxyholders may still attend the
Meeting as guests provided they are connected to the Internet. Guests will be able to listen to the Meeting and ask questions following
conclusion of the formal business of the Meeting but will not be able to vote at the Meeting. See “Voting at the Meeting”
below.
Exercise
of Discretion by Proxy Holders
The shares represented by any proxy received
by management will be voted or withheld from voting by the persons named in the enclosed form of proxy in accordance with the direction
of the shareholder appointing them. IN THE ABSENCE OF ANY DIRECTION, IT IS INTENDED THAT THE SHARES REPRESENTED BY PROXIES RECEIVED
BY MANAGEMENT WILL ON ANY BALLOT BE:
|
|
(A)
|
VOTED “FOR” THE ELECTION OF THE DIRECTORS REFERRED TO IN THIS CIRCULAR;
|
|
|
(B)
|
VOTED “FOR” THE RE-APPOINTMENT OF THE AUDITORS REFERRED TO IN THIS CIRCULAR AND
THE AUTHORIZATION OF THE DIRECTORS TO FIX THE REMUNERATION OF THE AUDITORS;
|
|
|
(C)
|
VOTED “FOR” THE SHARE CONSOLIDATION REFERRED TO IN THIS CIRCULAR; AND
|
|
|
(D)
|
VOTED “FOR” THE AMENDMENT AND RESTATEMENT OF THE OPTION & RSU PLAN REFERRED
TO IN THIS CIRCULAR.
|
The enclosed form of proxy confers discretionary
authority upon the persons named therein with respect to matters not specifically mentioned in the Notice of Meeting, but which
may properly come before the Meeting and with respect to amendments to or variations of matters identified in the Notice of Meeting.
As at the date of this Circular, management
does not know of any amendment, variation or matter to come before the Meeting other than the matters referred to in the Notice
of Meeting and routine matters incidental to the conduct of the Meeting. If any other matter is properly brought before the Meeting,
it is the intention of the persons designated in the enclosed form of proxy to vote in accordance with their best judgment on the
matter or business.
Appointment
and Revocation of Proxies
The persons specified in the enclosed form
of proxy are our directors and/or senior officers. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OR COMPANY (WHO NEED NOT
BE A SHAREHOLDER) TO ATTEND AND ACT FOR HIM OR HER ON HIS OR HER BEHALF AT THE MEETING. SUCH RIGHT MAY BE EXERCISED BY STRIKING
OUT THE NAMES OF THE SPECIFIED PERSONS AND INSERTING THE NAME(S) OF THE SHAREHOLDER’S APPOINTEE(S) IN THE SPACE PROVIDED
OR BY COMPLETING ANOTHER APPROPRIATE FORM OF PROXY AND, IN EITHER CASE, DEPOSITING THE PROXY WITH US OR COMPUTERSHARE, IN EITHER
CASE NO LATER THAN 48 HOURS (EXCLUDING SATURDAYS AND HOLIDAYS) BEFORE THE STARTING TIME OF THE MEETING. THE TIME LIMIT FOR DEPOSIT
OF PROXIES MAY BE WAIVED OR EXTENDED BY THE CHAIR AT THE MEETING AT HIS DISCRETION WITHOUT NOTICE. THE ADDITIONAL REGISTRATION
STEPS OUTLINED BELOW UNDER “VOTING AT THE MEETING” MUST ALSO BE FOLLOWED. PROXIES CAN BE RETURNED TO THE OFFICES OF
COMPUTERSHARE, ATTENTION: PROXY DEPARTMENT, 100 UNIVERSITY AVENUE, 8TH FLOOR, NORTH TOWER TORONTO, ONTARIO, M5J 2Y1,
OR FAXED TO 1 (866) 249-7775.
A registered shareholder who has deposited
a proxy may revoke it by depositing an instrument in writing executed by such registered shareholder (or by an attorney duly authorized
in writing) or, if such registered shareholder is a corporation, by any officer or attorney thereof duly authorized, either at
our registered office at any time up to and including the close of business on the last business day preceding the Meeting or any
adjournment thereof, or as described below.
If a registered shareholder uses a
control number to log into the Meeting and such registered shareholder accepts the terms and conditions, such registered shareholder
will be revoking any and all previously submitted proxies. However, in such a case, the registered shareholder in question will
be provided the opportunity to vote online by ballot on the matters put forth at the Meeting. If a registered shareholder DOES
NOT wish to revoke all previously submitted proxies, such registered shareholder must not accept the terms and conditions, in
which case the registered shareholder may only enter the Meeting as a guest.
Voting
Only registered shareholders, or the persons
they appoint as their proxies, are permitted to attend and vote at the Meeting. Each Special Voting Share (“Special Voting
Share”) and each Class A Subordinate Voting Share (“Class A Share”) is entitled to one vote at the
Meeting. See “VOTING SHARES AND PRINCIPAL HOLDERS OF VOTING SHARES” for details of these voting rights, including certain
differences in the entitlement to elect members of the Board.
The Board has fixed December 18, 2020
as the record date for the purpose of determining shareholders entitled to receive the Notice of Meeting and to vote at the Meeting.
Each shareholder is entitled to one vote for each Special Voting Share and each Class A Share held and shown as registered in such
holder’s name on the list of shareholders prepared as of the close of business on the record date. The list of shareholders
will be available for inspection during usual business hours at the principal office of our transfer agent, Computershare, in Toronto,
Ontario and will also be available for inspection at the Meeting.
Voting
By Non-Registered Shareholders
While only registered shareholders, or
the persons they appoint as their proxies, are permitted to attend and vote at the Meeting, in many cases our shares beneficially
owned by a holder (a “Non–Registered Holder”) are registered either:
|
|
(A)
|
in the name of an intermediary (an “Intermediary”) that the Non–Registered
Holder deals with in respect of the shares, such as, among others, banks, trust companies, securities dealers or brokers and trustees
or administrators of self–administered registered retirement savings plans, registered retirement income funds and registered
educational savings plans and similar plans; or
|
|
|
(B)
|
in the name of a clearing agency (such as CDS Clearing and Depository Services Inc. (“CDS”))
of which the Intermediary is a participant.
|
In accordance with Canadian securities
law, we have distributed copies of the Notice of Meeting, this Circular, and the form of proxy (collectively, the “Meeting
Materials”) to CDS and Intermediaries for onward distribution to Non–Registered Holders.
Intermediaries are required to forward
Meeting Materials to Non–Registered Holders unless a Non–Registered Holder has waived the right to receive them. Very
often, Intermediaries will use service companies (such as Broadridge Financial Solutions Inc. (“Broadridge”))
to forward the Meeting Materials to Non–Registered Holders. Generally, Non–Registered Holders who have not waived the
right to receive Meeting Materials will receive either a voting instruction form or, less frequently, a form of proxy. The purpose
of these forms is to permit Non–Registered Holders to direct the voting of the shares they beneficially own. Non–Registered
Holders should follow the procedures set out below, depending on which type of form they receive.
|
|
(1)
|
Voting Instruction Form.
In most cases, a Non–Registered Holder will receive, as part of the Meeting
Materials, a voting instruction form. If the Non–Registered Holder does not wish
to attend and vote at the Meeting online via the live audio webcast (or have another
person attend and vote on the holder’s behalf), the voting instruction form must
be completed, signed and returned in accordance with the directions on the form. Voting
instruction forms sent by Broadridge permit the completion of the voting instruction
form by telephone or through the internet at www.proxyvote.com. If a Non–Registered
Holder wishes to attend and vote at the Meeting online via the live audio webcast (or
have another person attend and vote on the holder’s behalf), the Non–Registered
Holder must complete, sign and return the voting instruction form in accordance with the directions
provided by Broadridge and a form of proxy giving the right to attend and vote will be forwarded to the Non–Registered Holder;
or
|
|
|
(2)
|
Form of Proxy. Less frequently, a Non–Registered Holder will receive, as part
of the Meeting Materials, a form of proxy that has already been signed by the Intermediary (typically by a facsimile, stamped signature)
which is restricted as to the number of shares beneficially owned by the Non–Registered Holder but which is otherwise incomplete.
If the Non–Registered Holder does not wish to attend and vote at the Meeting online via the live audio webcast (or have another
person attend and vote on the holder’s behalf), the Non–Registered Holder must complete the form of proxy and deposit
it with Computershare as described above. If a Non–Registered Holder wishes to attend and vote at the Meeting online via
the live audio webcast (or have another person attend and vote on the holder’s behalf), the Non–Registered Holder must
strike out the names of the persons named in the proxy and insert the Non–Registered Holder’s (or such other person’s)
name in the blank space provided.
|
Voting
at the Meeting
General
Registered shareholders, or the persons
they appoint as their proxies, may vote at the Meeting by completing a ballot online during the Meeting, as further described below
under “How do I Attend and Participate at the Meeting?”
Non-Registered Holders who have not duly
appointed themselves as proxyholder will not be able to vote at the Meeting but will be able to participate as a guest and ask
questions following conclusion of the formal business of the Meeting. This is because we and Computershare do not have a record
of the Non-Registered Holders, and, as a result, will have no knowledge of Non-Registered Holder’s shareholdings or entitlement
to vote unless such Non-Registered Holders appoint themselves as proxyholders.
Non-Registered Holders who wish to vote
at the Meeting online must appoint themselves as proxyholder by inserting the applicable Non-Registered Holder’s name in
the space provided on the voting instruction form sent to them and they must follow all of the applicable instructions, including
the deadline, provided by their respective Intermediaries. See “Appointment of a Third Party as Proxy” and “How
do I Attend and Participate at the Meeting?” below.
U.S. beneficial shareholders who wish
to attend and vote at the Meeting online must first obtain a valid legal proxy from their broker, bank or other agent and then
register in advance to attend the Meeting online. Such U.S. beneficial shareholders is encouraged to follow the instructions
from their broker or bank included with these proxy materials, or contact their broker or bank to request a legal proxy form.
After first obtaining a valid legal proxy from a broker, bank or other agent, to then register to attend the Meeting, U.S. beneficial
shareholders who wish to attend and vote at the Meeting online must submit a copy of their legal proxies to Computershare. Requests
for registration should be directed by mail to the attention of the Proxy Department of Computershare at 100 University Avenue,
8th Floor, North Tower, Toronto, Ontario, M5J 2Y1 or by email at uslegalproxy@computershare.com. Requests for registration must
be labeled as “Legal Proxy” and be received no later than 11:00 a.m. (Toronto time) on February 8, 2021. Such U.S.
beneficial shareholders will receive a confirmation of their registrations by email after Computershare receives the submitted
registration materials. Please note that U.S. beneficial shareholders who wish to attend and vote at the Meeting online are required
to register their appointments at www.computershare.com/Score.
Appointment of a Third Party as Proxy
The following applies to shareholders who
wish to appoint someone as their proxyholder other than the management nominees named in the form of proxy or voting instruction
form. This includes Non-Registered Holders who wish to appoint themselves as proxyholder to attend, participate or vote at the
Meeting.
Shareholders who wish to appoint someone
other than the management nominees as their proxyholder to attend and participate at the Meeting as their proxy and vote their
shares must submit their form of proxy or voting instruction form, as applicable, appointing that person as proxyholder
and register that proxyholder online, as described below. Registering a proxyholder is an additional step to be completed
after a shareholder has submitted such shareholder’s form of proxy or voting instruction form. Failure to register
the proxyholder will result in the proxyholder not receiving a control number for a username to vote in the Meeting and only being
able to attend as a guest.
Step 1 - Submit a form of
proxy or voting instruction form: To appoint someone other than the management nominees as proxyholder, insert that person’s
name in the blank space provided in the form of proxy or voting instruction form (if permitted) and follow the instructions for
submitting such form of proxy or voting instruction form. This must be completed before registering such proxyholder, which is
an additional step to be completed once the form of proxy or voting instruction form (as applicable) has been submitted.
Non-Registered Holders who
wish to vote at the Meeting must insert their own name in the space provided on the voting instruction form sent to them by their
respective Intermediaries, follow all of the applicable instructions provided by their respective Intermediaries and register
themselves as their respective proxyholders, as described below. By doing so, Non-Registered Holders are instructing their
respective Intermediaries to appoint them as proxyholder. It is important that Non-Registered Holders comply with the signature
and return instructions provided by their respective Intermediaries. Please also see further instructions below under the heading
“How do I Attend and Participate at the Meeting?”
Step 2 - Register the chosen
proxyholder: To register a third party proxyholder, shareholders must visit www.computershare.com/Score by no later
than 11:00 a.m. (Toronto time) on February 8, 2021 and provide Computershare with the required proxyholder contact information
so that Computershare may provide the proxyholder with a control number for a username via email to participate in the Meeting.
Without a control number for a username, proxyholders will not be able to vote at the Meeting but will be able to participate
as a guest.
How do I Attend and Participate at the
Meeting?
We are holding the Meeting in a virtual-only
format, which will be conducted via live audio webcast. Registered shareholders, or the persons they appoint as their proxies,
will not be able to attend the Meeting in person.
Attending the Meeting online enables registered
shareholders, or the persons they appoint as their proxies, to vote at the Meeting and ask questions at the appropriate times during
the Meeting, all in real time.
Guests, including Non-Registered Holders
who have not duly appointed themselves as proxyholder, can login to the Meeting as set out below. Guests can listen to the Meeting
and ask questions following conclusion of the formal business of the Meeting but are not able to vote.
Log in online at https://web.lumiagm.com/477682817
on your smartphone, tablet or computer. You will need the latest version of Chrome, Safari, Internet Explorer 11, Edge or
Firefox. We recommend that you log in at least 15 minutes before the Meeting starts.
If you are a Registered Holder
click “I have a login” and then enter your 15-digit control number as the username, which is the control number located
on your form of proxy or in the email notification you received from Computershare and “score2021” (case sensitive)
as the password.
OR
If you are a duly
appointed proxyholder click “I have a login” and then enter your four digit username that was provided to you by
Computershare after the voting deadline passed as the username and “score2021” (case sensitive) as the password. In
order to be a duly appointed proxyholder the proxyholder must be registered as described in “Appointment of a Third
Party as Proxy” above.
OR
If you are a Non-Registered
Holder that has not appointed yourself as a proxyholder click “Guest” and then complete the online form.
It is important that registered shareholders,
or the persons they appoint as their proxies, who attend the Meeting online are connected to the Internet at all times during the
Meeting in order to vote online when balloting commences. It is the responsibility of registered shareholders, or the persons they
appoint as their proxies, to ensure connectivity for the duration of the Meeting. Registered shareholders, or the persons they
appoint as their proxies, are encouraged to allow ample time to check into the Meeting online and complete the related procedures
outlined above.
If a registered shareholder, or the
person appointed as their proxy, is using a control number as a username to login into the Meeting and such person accepts the
terms and conditions, the registered shareholder, or the person appointed as their proxy, will be revoking any and all previously
submitted proxies. However, in such a case, the registered shareholder, or the person appointed as their proxy, will be provided
the opportunity to vote online by ballot on the matters put forth at the Meeting. If a registered shareholder, or the person appointed
as their proxy, does not wish to revoke all previously submitted proxies, do not accept the terms and conditions, in which case
such registered shareholder, or the person appointed as their proxy, may only enter the Meeting as a guest.
VOTING
SHARES AND PRINCIPAL HOLDERS OF VOTING SHARES
Our authorized capital consists of an unlimited
number of Special Voting Shares, an unlimited number of Class A Shares and an unlimited number of Preference Shares (‘‘Preference
Shares’’), issuable in series. As of the date of this Circular 433,622,195 Class A Shares and 5,566 Special Voting
Shares are issued and outstanding as fully paid and non–assessable.
The holders of Class A Shares are entitled
to receive notice of and to attend, and to cast one vote for each Class A Share held by them at all meetings of our shareholders,
other than meetings at which only the holders of another class or series of shares (if any) are entitled to vote separately as
a class or series and other than with respect to certain matters which are exclusively reserved for the holders of Special Voting
Shares. The holders of Class A Shares, voting separately as a class, have the right to elect that number of members of the Board
that is not elected by the holders of the Special Voting Shares (other than the director, if any, that holders of the Preference
Shares are collectively entitled to elect), provided that at no time will the number of directors to be elected by the holders
of the Class A Shares be less than two directors.
The holders of Special Voting Shares are
entitled to receive notice of and to attend, and vote at all meetings of our shareholders, other than any meeting of holders of
another class of shares who are entitled to vote separately as a class at such meeting and other than with respect to certain matters
which are exclusively reserved for the holders of Class A Shares. The holders of Special Voting Shares are entitled to one vote
for each share held.
The holders of Special Voting Shares, voting
separately as a class, have the right to elect that number of members of the Board that is equal to the sum of: (a) the number
of members of the Board that would constitute a majority of our authorized number of directors (after deducting one from such authorized
number if the holders of the Preference Shares are collectively entitled to elect one director), plus (b) two, subject to the rights
of the holders of the Class A Shares to elect at least two members of the Board. John Levy Family Holdings Ltd. (“JLFHL”),
holder of the Special Voting Shares, has provided a waiver to us of certain of its nomination rights in respect of the Board for
fiscal 2021. This waiver provides that JLFHL will nominate only six directors on behalf of the holders of the Special Voting Shares
at the Meeting out of a proposed total of eight directors, and waives its right to nominate a seventh director.
Pursuant to a trust agreement dated October
19, 2012, as amended, between us, JLFHL (as assignee of Levfam Holdings Ltd.) and Computershare (as assignee of Valiant Trust Company),
JLFHL, the holder of the Special Voting Shares, agreed not to sell any Special Voting Shares pursuant to a take–over bid
under circumstances in which securities legislation would have required the same offer be made to holders of Class A Shares if
the sale had been of Class A Shares rather than Special Voting Shares unless, either: (a) an identical offer is made for the Class
A Shares, which identical offer has no condition other than the right not to take up and pay for shares tendered if no shares are
purchased pursuant to the offer for the Special Voting Shares; or (b) there is a concurrent unconditional offer to purchase all
of the Class A Shares at a price per share at least as high as the highest price per share paid pursuant to the take–over
bid for the Special Voting Shares.
As of the date of this Circular, the only
persons or companies who are known to our directors and executive officers to beneficially own, or control or direct, directly
or indirectly, voting securities carrying ten percent (10%) or more of the voting rights attached to any class of our voting securities
are:
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(a)
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John Levy, who beneficially owns or controls (i) 77,745,750 Class A Shares, representing approximately
17.9% of the total number of Class A Shares outstanding and (ii) 5,566 Special Voting Shares, representing 100% of the total number
of Special Voting Shares outstanding as of the date of this Circular; and
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(b)
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Relay Ventures Fund II LP and Relay Ventures Parallel Fund II LP (together, “Relay Ventures”)
collectively beneficially own or control 64,038,978 Class A Shares, representing approximately 14.8% of the total number of Class
A Shares outstanding as of the date of this Circular. John Albright, one of our directors, co-directs Relay Ventures.
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In addition, LPF Sports Holdings GP Inc.,
in its capacity as the general partner of LPF Sports Holdings LP (“LPF Sports Holdings”), holds a $40,000,000
8.00% convertible unsecured subordinated debenture of theScore due August 31, 2024 (the “Debenture”). At LPF
Sports Holdings’ option, the Debenture may be converted into Class A Shares at any time prior to the close of business on
the earlier of the business day immediately preceding the maturity date and the business day immediately preceding the date fixed
for redemption of the Debenture. The conversion price is $0.75 for each Class A Share, being a conversion rate of 1,333.3333 Class
A Shares issuable for each $1,000 principal amount of the Debenture, subject to adjustment in certain circumstances. As of the
date of this Circular, LPF Sports Holdings owned no Class A Shares. Assuming conversion of the Debenture as at the date of this
Circular, LPF Sports Holdings would own 57,553,242 Class A Shares representing an aggregate of approximately 11.7% of the total
issued and outstanding Class A Shares.
ELECTION
OF DIRECTORS
Directors are elected annually by our shareholders.
Our Articles provide that the number of directors shall be a minimum of two and a maximum of ten. The number of directors proposed
to be elected at the Meeting is eight.
The persons named in the enclosed form
of proxy intend to vote FOR the election of the director nominees set forth below. All of the nominees are current members
of the Board. Management does not contemplate that any of the nominees will be unable to serve as a director but, if that should
occur for any reason prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote for another
nominee in their discretion.
Mr. Brian Cooper, Mr. Ralph Lean, Q. C.,
Ms. Angela Ruggiero, Mr. Mark Scholes, Mr. Benjamin Levy and Mr. John Levy have been nominated by JLFHL for election as directors
by the holders of the Special Voting Shares.
Mr. John Albright has been nominated by
Relay Ventures, in accordance with the terms of the board nomination agreement entered into between us and Relay Ventures dated
May 3, 2013, as amended on July 15, 2019, (the “Board Nomination Agreement”). Mr. William Thomson, has been
nominated by the Nominating and Corporate Governance Committee of the Board for election as a director by the holders of the Class
A Shares.
Each director will hold office until the
next annual meeting or until his or her successor is elected or appointed.
In connection with the Debenture, we entered
into an investment agreement with LPF Sports Holdings on August 31, 2019 (the “Investment Agreement”), whereby
LPF Sports Holdings was provided with certain rights including, but not limited to, the right to nominate one individual to serve
on our board of directors (or, if such right is not exercised, the right to designate a board observer) for so long as the Debenture
is outstanding (or, following conversion, for so long as LPF Sports Holdings and its affiliates hold at least 7.5% of the outstanding
Class A Shares. To date, LPF Sports Holdings has not elected to exercise its board nomination right granted to it under the Investment
Agreement.
The following table sets out the names,
province or state and country of residence, positions with theScore and principal occupations in the past five years of each of
the nominees. The table also sets out the number of Special Voting Shares, Class A Shares and options and warrants to acquire Class
A Shares beneficially owned, directly or indirectly, or over which control or direction is exercised as of the date of this Circular,
by each of our directors. Information as to Class A Shares, warrants to acquire Class A Shares, or Special Voting Shares beneficially
owned or over which control or direction is exercised, not being within our knowledge, has been supplied by the respective individuals.
NOMINEES
TO BE ELECTED BY HOLDERS OF THE SPECIAL VOTING SHARES
Name and Province of
Residence
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Principal Occupation
During Past Five Years
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Director Since
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Securities of theScore
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Brian Cooper
Ontario, Canada
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Chairman,
MKTG Canada (marketing agency)
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April 22, 2020
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50,763 Class A Shares
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Ralph Lean, Q.C.(1)(2)(3)
Ontario, Canada
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Counsel, Gowling WLG (law firm – retired)
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October 18, 2012
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216,115 Class A Shares and options to acquire 580,000 Class A Shares
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Benjamin Levy
Ontario, Canada
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President and Chief Operating Officer of theScore
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August 30, 2012
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6,185,087 Class A Shares and options to acquire 4,000,000 Class A Shares(4)
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John Levy
Ontario, Canada
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Chairman of the Board and Chief Executive Officer of theScore
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August 30, 2012
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5,566 Special Voting Shares, 77,745,750 Class A Shares and options to acquire 7,600,000 Class A Shares(5)
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Name and Province of
Residence
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Principal Occupation
During Past Five Years
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Director Since
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Securities of theScore
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Angela Ruggiero
Massachusetts, United States
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CEO, Co-Founder, Sports Innovation Lab, Inc. (communications
platform) (Dec. 2016 – Present)
Founder, Ruggiero Sports Ventures (consulting services) (Jan.
1998 – Present)
Bridgewater Associates (investment management firm) (2014 –
2015)
Los Angeles 2028 Bidding Committee (Olympic bid committee)
(2016 – 2017)
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October 14, 2020
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nil Class A Shares and options to acquire nil Class A Shares
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Mark Scholes(1)(2)(3)
Ontario, Canada
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Partner, Weisz, Rocchi & Scholes (law firm)
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October 18, 2012
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227,847 Class A Shares and options to acquire 580,000 Class A Shares
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Notes:
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(1)
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Member of the Human Resources and Compensation Committee. This committee establishes and administers
the compensation policies and remuneration levels for certain of our senior officers and our material subsidiaries. Mr. Mark Scholes
acts as the Chair.
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(2)
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Member of the Audit Committee. The Audit Committee normally meets at least quarterly and its responsibilities
include, among others, the review of our annual audit plan of the external auditors, internal controls, accounting systems, financial
risk management, adequacy of insurance coverage, financial reporting and financial statements and related continuous disclosure
filings. The committee meets with and has direct access to representatives of our auditors. Mr. William Thomson acts as the Chair.
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(3)
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Member of the Nominating and Corporate Governance Committee. This committee is responsible for
recommending annually certain member(s) of the Board proposed for election to the Board, recommending new candidates for Board
membership, monitoring the composition of the Board and suggesting appropriate changes, and the selection and compensation plans
of the Chair and CEO. It also monitors the relationship between management and the Board. Mr. Ralph Lean acts as the Chair.
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(4)
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4,250,000 Class A Shares are held by Benjie Levy Family Holdings Inc., a corporation controlled
by Mr. Benjamin Levy. Mr. Benjamin Levy also holds 1,935,087 Class A Shares directly and/or in trust for his children. Mr. Benjamin
Levy also holds options to acquire 4,000,000 Class A Shares directly. Mr. Benjamin Levy is a beneficiary of certain family trusts
which hold an indirect interest in the shares controlled and directed by Mr. John Levy (see note 7).
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(5)
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5,566 Special Voting Shares and 70,972,802 Class A Shares are held by JLFHL; 5,662,088 Class A
Shares are held by Norwest Video Inc. (“Norwest”); 1,110,860 Class A Shares are held by Mr. John Levy directly.
Norwest holds options to acquire 7,600,000 Class A Shares. JLFHL and Norwest are corporations controlled by Mr. John Levy.
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NOMINEES
TO BE ELECTED BY HOLDERS OF THE CLASS A SHARES
Name and Province of
Residence
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Principal Occupation
During Past Five Years
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Director Since
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Securities of theScore
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John Albright(1)
Ontario, Canada
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Managing
Partner, Relay Ventures (venture capital company)
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May 3, 2013
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64,082,236 Class A Shares and options to acquire 540,000 Class A Shares(2)
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William Thomson(3)(4)(5)
Ontario, Canada
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Managing Partner, Mercana Growth Partners (merchant banking company)
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October 18, 2012
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233,054 Class A Shares, and options to acquire 580,000 Class A Shares
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Notes:
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(1)
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The Board Nomination Agreement provides Relay Ventures with the right to nominate one eligible
Relay Ventures nominee (the “Relay Nominee”) to the Board. So long as Relay Ventures holds an equity and voting
interest in theScore that is greater than or equal to 7.5% (such quotient to be obtained by dividing the number of Class A Shares
beneficially owned by Relay Ventures at the relevant time by the number of issued and outstanding Class A Shares on a non-diluted
basis), the Relay Nominee will be included among the Board’s nominees as our directors at each meeting of our shareholders
at which directors are to be elected by the holders of the Class A Shares. The Board Nomination Agreement provides that Relay Ventures
will vote the Class A Shares controlled or beneficially held by Relay Ventures or its affiliates in favour of the Board’s
slate of nominees for election as directors at each meeting of our shareholders at which directors are to be elected provided that
the Relay Nominee has been nominated in accordance with the Board Nomination Agreement. In addition, Mr. John Levy agreed to vote
or cause to be voted all Class A Shares controlled or beneficially owned by him or his affiliates in favour of the Relay Nominee
for election as a director at each meeting of shareholders at which directors are to be elected provided the Relay Nominee has
been nominated in accordance with the Board Nomination Agreement.
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(2)
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43,258 Class A Shares are held by Mr. John Albright directly and 64,038,978 Class A Shares are
held by Relay Ventures. Mr. John Albright co-directs Relay Ventures. Mr. John Albright also holds options to acquire 540,000 Class
A Shares directly.
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(3)
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Member of the Human Resources and Compensation Committee. This committee establishes and administers
the compensation policies and remuneration levels for certain of our senior officers and our material subsidiaries. Mr. Mark Scholes
acts as the Chair.
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(4)
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Member of the Audit Committee. The Audit Committee normally meets at least quarterly and its responsibilities
include, among others, the review of our annual audit plan of the external auditors, internal controls, accounting systems, financial
risk management, adequacy of insurance coverage, financial reporting and financial statements and related continuous disclosure
filings. The committee meets with and has direct access to representatives of our auditors. Mr. William Thomson acts as the Chair.
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(5)
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Member of the Nominating and Corporate Governance Committee. This committee is responsible for
recommending annually certain member(s) of the Board proposed for election to the Board, recommending new candidates for Board
membership, monitoring the composition of the Board and suggesting appropriate changes, and the selection and compensation plans
of the Chair and CEO. It also monitors the relationship between management and the Board. Mr. Ralph Lean acts as the Chair.
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The enclosed form of proxy permits holders
of Class A Shares to vote for (or withhold their vote for) each nominee on an individual basis.
REAPPOINTMENT
OF AUDITORS
Management proposes that KPMG LLP, Toronto,
Ontario, be re–appointed as our auditors and that the directors be authorized to fix the remuneration of the auditors. Fees
billed by KPMG LLP to us during fiscal 2020 were as follows: Audit fees related to the audit of the consolidated financial statements,
and quarterly reviews of condensed consolidated interim financial statements – $449,160 and tax compliance fees related principally
to fees associated with assistance related to tax compliance requirements and certain tax credit filings – $65,880.
The persons named in the enclosed form
of proxy intend to vote FOR the resolution to re-appoint KPMG LLP as our auditors until the next annual meeting of shareholders
and authorize the directors to fix the remuneration of the auditors.
APPROVAL
OF CONSOLIDATION OF CLASS A SHARES AND SPECIAL VOTING SHARES
At the Meeting, shareholders will be asked
to consider and approve a special resolution to authorize the Board to determine, in its sole discretion, a consolidation ratio
within the range of one post-consolidation share of theScore for every two to twenty pre-consolidation shares of theScore of the
same class (the “Consolidation Ratio”), and to effect, at such time as the Board deems appropriate, but in any
event no later than one year after the Meeting, a share consolidation (or reverse stock split) of all of the issued and outstanding
Class A Shares on the basis of such Consolidation Ratio as well as a share consolidation (or reverse stock split) of all of the
issued and outstanding Special Voting Shares on the basis of such Consolidation Ratio (collectively, the “Share Consolidation”),
subject to the Board’s authority to decide not to proceed with the Share Consolidation.
The full text of the special resolution
to be considered and if thought advisable, passed, by the shareholders is set forth below (the “Consolidation Resolution”).
See “Approval of Share Consolidation” below.
Background
for Share Consolidation
Our management team has been studying the
potential benefits of an additional listing on a U.S. stock exchange. Based on our stage of development, certain developments in
our industry, our observations regarding the market for our peers whose securities are listed on a U.S. stock exchanges, and also
from discussions with both U.S.-based investment banks and other advisers, we believe that there may be potential benefits of a
listing on a U.S. stock exchange, including:
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a significantly larger pool of available
capital;
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a greater average daily trading volume;
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a greater number of U.S. retail and institutional
investors; and
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a potential increase in market valuation.
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We must satisfy a variety of requirements
to be accepted for listing on certain U.S. stock exchanges, including the requirement that the listed securities maintain a minimum
per-share trading price for a specific period of time. We are contemplating the possibility of proceeding to complete the Share
Consolidation in order to satisfy this requirement.
The Board believes that a range of permitted
Share Consolidation ratios will provide it with the flexibility to implement the Share Consolidation in a manner designed to optimize
our anticipated benefits of the Share Consolidation and those of the shareholders. In determining which precise Consolidation Ratio
within the range of ratios to implement, if any, following the receipt of approval by the shareholders, the Board may consider,
among other things, factors such as:
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·
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the historical trading prices and trading
volume of the Class A Shares;
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the then prevailing trading price and
trading volume of the Class A Shares and the anticipated impact of the Share Consolidation on the trading of the Class A Shares;
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threshold prices of brokerage houses or
institutional investors that could impact their ability to invest or recommend investments in the Class A Shares;
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minimum listing requirements of certain
U.S. stock exchanges; and
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prevailing general market and economic
conditions and outlook for the trading of the Class A Shares.
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Additional Considerations
for Holders of Class A Shares and Special Voting Shares
Listing of Class A Shares
Following the completion of the Share Consolidation,
the Class A Shares will continue to be listed on the Toronto Stock Exchange (the “TSX”) under the symbol “SCR”.
Pre-consolidation voting rights and other rights of the shareholders will not be affected by the Share Consolidation, other than
as a result of the creation and disposition of fractional shares.
No Fractional Class A Shares or Special
Voting Shares
No fractional Class A Shares or Special
Voting Shares will be issued in connection with the Share Consolidation. In the event that a shareholder would otherwise be entitled
to receive a fractional Class A Share or Special Voting Share, as applicable, upon such Share Consolidation, the number of Class
A Shares or Special Voting Shares, as applicable, to be received by such holder will be rounded down to the nearest whole Class
A Share or Special Voting Share, as applicable.
Adjustment of Other Securities
The exercise or conversion price and/or
the number of Class A Shares issuable under any outstanding options to acquire Class A Shares and restricted share units will be
proportionately adjusted upon the implementation of the Share Consolidation. Additionally, upon the implementation of the Share
Consolidation, the conversion price and the number of Class A Shares issuable upon the conversion of the $40,000,000 8.00% convertible
unsecured subordinated debenture due August 31, 2023 held by a fund managed and controlled by Fengate Asset Management will be
proportionately adjusted.
Effecting the Share Consolidation
If the proposed Share Consolidation is
approved by the shareholders and all regulatory requirements are complied with, including the approval of the TSX, and implemented
by resolution of the Board, following our announcement of the effective date of the Share Consolidation and the determination by
the Board of the precise Consolidation Ratio, registered shareholders will be sent a letter of transmittal by our transfer agent,
Computershare, containing instructions on how to exchange their share certificates representing pre-consolidation Class A Shares
or Special Voting Shares, as applicable, for new share certificates representing post-consolidation Class A Shares or Special Voting
Shares, as applicable. Non-Registered Holders who hold their Class A Shares or Special Voting Shares, as applicable, through a
bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for processing
the Share Consolidation than those that we may put in place for the registered shareholders. If you are a Non-Registered Holder
and hold your Class A Shares or Special Voting Shares, as applicable, with such a bank, broker or other nominee and if you have
any questions in this regard, you are encouraged to contact your nominee.
Although approval for the Share Consolidation
is being sought at the Meeting, the Share Consolidation, if approved by the shareholders, will not become effective until the Board
determines the precise Consolidation Ratio and the effective date of the Share Consolidation, and passes a resolution approving
the Share Consolidation on that basis.
The completion of the proposed consolidation
of the Class A Shares and the proposed consolidation of the Special Voting Shares will be conditional on the other having been
completed. For clarity, in the event that either the proposed consolidation of the Class A Shares or the proposed consolidation
of the Special Voting Shares is not completed, the Share Consolidation will be not be completed.
To be effective, our Articles require that
the Consolidation Resolution be approved by a special resolution of the shareholders, being a majority of not less than two-thirds
(2/3) of the votes cast by shareholders that are present in person or represented by proxy at the Meeting. In addition to the approval
of the shareholders, the Share Consolidation requires the approval of the TSX. Subject to receipt of the requisite shareholder
approval, the TSX has conditionally approved the proposed Share Consolidation.
Certain Canadian Federal Income Tax
Considerations
The following summary describes the principal
Canadian federal income tax considerations under the Income Tax Act (Canada) and the regulations thereunder (collectively,
the “Tax Act”) generally applicable as of the date hereof to a beneficial owner of Class A Shares whose Class
A Shares are consolidated pursuant to the Share Consolidation and who, for the purposes of the Tax Act and at all relevant times:
(a) deals at arm’s length with theScore; (b) is not affiliated with theScore; and (c) holds such Class A Shares as capital
property (a “Holder”).
Generally, the Class A Shares will be considered
to be capital property to a Holder provided that the Holder does not hold such shares in the course of carrying on a business of
buying and selling securities and has not acquired them in one or more transactions considered to be an adventure or concern in
the nature of trade. Certain holders who might not otherwise be considered to hold their Class A Shares as capital property may,
in certain circumstances, be entitled to make an irrevocable election under subsection 39(4) of the Tax Act to have their Class
A Shares and any other “Canadian securities” (as defined in the Tax Act) owned by such holders in the taxation year
of the election and all subsequent taxation years treated as capital property. Such holders should consult their own tax advisors
regarding the availability and the advisability of such election in their particular circumstances.
The summary does not apply to a Holder:
(i) that is a “financial institution” for purposes of the Tax Act; (ii) that is a “specified financial institution”
for purposes of the Tax Act; (iii) that has elected to report its results in a currency other than Canadian dollars pursuant to
the “functional currency” reporting rules under the Tax Act; (iv) that is a corporation that is, or becomes as part
of a transaction or event or a series of transactions or events that includes the acquisition of the Class A Shares, controlled
by a non-resident corporation for the purpose of the foreign affiliate dumping rules in section 212.3 of the Tax Act; (v) that
has entered into or will enter into, in respect of the Class A Shares, a “synthetic disposition arrangement” or a “derivative
forward agreement” for the purposes of the Tax Act; or (vi) that is a partnership. In addition, this summary does not discuss
all of the tax considerations applicable to a Holder who acquired Class A Shares pursuant to an employment compensation plan. Such
Holders should consult their own tax advisors.
This summary is based on the current provisions
of the Tax Act in force as of the date hereof, all specific proposals to amend the Tax Act publicly announced by or on behalf of
the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and the current administrative
policies and assessing practices of the Canada Revenue Agency (“CRA”) published in writing by it prior to the
date hereof. Except for the Proposed Amendments, this summary does not take into account or anticipate any changes in law, whether
by legislative, governmental or judicial action, or changes in the CRA’s administrative policies and assessing practices,
nor does it take into account or consider any other federal tax considerations or any provincial, territorial or foreign tax considerations,
which may differ materially from those discussed herein. This summary assumes that the Proposed Amendments will be enacted as currently
proposed, although no assurance can be given that the Proposed Amendments will be enacted in their current form or at all. There
can be no assurance that the CRA will not change its administrative policies or assessing practices.
This summary is of a general nature only
and is not exhaustive of all possible Canadian federal income tax considerations. This summary is not intended to be, nor should
it be construed to be, legal or tax advice or representations to any particular Holder. Accordingly, Holders should obtain independent
advice regarding the income tax consequences of the consolidation of the Class A Shares pursuant to the Share Consolidation, with
reference to the Holder’s particular circumstances.
No disposition or acquisition of Class
A Shares should occur for purposes of the Tax Act solely as a result of the Share Consolidation. The aggregate adjusted cost base
of the Class A Shares held by a Holder immediately after the Share Consolidation should be the same as the aggregate adjusted cost
base of the Class A Shares held by that Holder before the Share Consolidation.
Certain U.S. Federal Income Tax Considerations
The following discussion is a general
summary of certain U.S. federal income tax consequences of the proposed Share Consolidation that may be relevant to holders
of Class A Shares that hold such shares as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”). This summary is based upon the provisions of the Code, U.S.
Treasury Regulations promulgated thereunder, administrative rulings and judicial decisions as of the date hereof, all of
which may change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that may differ from
those discussed below. We will not request any rulings from the Internal Revenue Service on the tax consequences described
below. The Internal Revenue Service or a U.S. court might reach a contrary conclusion with respect to the issues addressed
herein if the matter were contested. This discussion does not address all aspects of U.S. federal income taxation that may be
relevant to such holders in light of their particular circumstances or to holders that may be subject to special tax rules,
including, without limitation: (i) banks, insurance companies or other financial institutions; (ii) tax-exempt organizations;
(iii) retirement plans, individual plans, individual retirement accounts and tax-deferred accounts; (iv) dealers in
securities, currency or commodities; (v) regulated investment companies or real estate investment trusts and shareholders of
such entities; (vi) partnerships (or other flow-through entities for U.S. federal income tax purposes) and their partners or
members; (vii) traders in securities; (viii) persons whose “functional currency” is not the U.S. dollar; (ix)
persons holding Class A Shares as a position in a hedging transaction, “straddle,” “conversion
transaction,” “constructive sale,” “wash sale,” “synthetic security” or other
integrated or risk reduction transaction; (x) persons who acquired their Class A Shares in connection with employment or
other performance of services; (xi) persons subject to the alternative minimum tax; (xii) U.S. expatriates; (xiii) controlled
foreign corporations or passive foreign investment companies; and (xiv) persons that are required to recognize income for
U.S. federal income tax purposes no later than when such income is taken into account in applicable financial statements. In
addition, this summary does not address the tax consequences arising under the laws of any non-U.S. or U.S. state or local
jurisdiction or U.S. federal tax consequences other than federal income taxation.
If a partnership (including any entity
or arrangement treated as a partnership for U.S. federal income tax purposes) holds Class A Shares, the tax treatment of a partner
in such partnership generally will depend upon the status of the partner and the activities of the partnership.
EACH HOLDER OF CLASS A SHARES SHOULD
CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE SHARE CONSOLIDATION TO SUCH HOLDER.
The proposed Share Consolidation should
constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a holder of Class A Shares generally
should not recognize gain or loss for U.S. federal income tax purposes as a result of such holder’s exchange of pre-consolidation
Class A Shares for post-consolidation Class A Shares in connection with the proposed Share Consolidation. A holder’s aggregate
adjusted tax basis in post-consolidation Class A Shares received pursuant to the proposed Share Consolidation should equal the
aggregate adjusted tax basis of the pre-consolidation Class A Shares exchanged therefor. Additionally, a holder’s holding
period in post-consolidation Class A Shares received pursuant to the proposed Share Consolidation should include the holding period
in pre-consolidated Class A Shares exchanged therefor. U.S. Treasury Regulations provide detailed rules for allocating the tax
basis and holding period of shares of stock surrendered in a recapitalization to shares received in the recapitalization. Holders
of Class A Shares acquired on different dates and at different prices should consult their tax advisors regarding the allocation
of the tax basis and holding period of such Class A Shares. This discussion should not be considered as tax or investment advice,
and the tax consequences of the proposed Share Consolidation may not be the same for all holders of Class A Shares.
Risks of the Share
Consolidation
No Guarantee of an Increased Share Price
or Improved Trading Liquidity
Reducing the number of issued and outstanding
Class A Shares and Special Voting Shares through the Share Consolidation is intended, absent other factors, to increase the per-share
trading price of the post-consolidation Class A Shares. However, the trading price of the Class A Shares will also be affected
by our financial and operational results, financial position, including liquidity and capital resources, industry conditions, the
market's perception of our business and other factors, which are unrelated to the number of Class A Shares and Special Voting Shares
outstanding.
Having regard to these other factors,
there can be no assurance that the trading price of the Class A Shares will increase following the implementation of the
Share Consolidation or, if increased, that the increase will be between two and twenty times, as applicable, based on the
Consolidation Ratio determined by the Board, or that such trading price will be maintained for any period of time.
There can also be no assurance that the
implementation of the Share Consolidation will, in and of itself, guarantee our ability to list the Class A Shares on a U.S. stock
exchange.
Although we believe that establishing a
higher trading price for the Class A Shares could increase investment interest for the Class A Shares by potentially expanding
the pool of investors that may consider investing, there is no assurance that implementing the Share Consolidation will achieve
this result.
If the Share Consolidation is implemented
and the trading price of the Class A Shares (adjusted to reflect the Consolidation Ratio determined by the Board) declines, the
percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would have
occurred if the Share Consolidation had not been implemented. Both our total market capitalization and the adjusted trading price
of the Class A Shares following the Share Consolidation may be lower than they were before the Share Consolidation took effect.
The decreased number of Class A Shares and Special Voting Shares outstanding after the Share Consolidation is implemented could
adversely affect the liquidity of the Class A Shares.
Class A Shareholders May Hold Odd Lots
Following the Share Consolidation
The Share Consolidation may result in some
holders of Class A Shares owning “odd lots” of fewer than 100 Class A Shares on a post-consolidation basis. Odd lot
Class A Shares may be more difficult to sell, or may attract greater transaction costs per Class A Share to sell, and brokerage
commissions and other costs of transactions in odd lots may be higher than the costs of transactions in “round lots”
of even multiples of 100 Class A Shares. If the Share Consolidation results in a substantial number of holders of Class A Shares
holding an odd lot of Class A Shares, it could adversely affect the liquidity of the Class A Shares.
approval
of Share Consolidation
At the Meeting, shareholders will be asked
to consider and approve a special resolution, in substantially the following form, in order to approve the Share Consolidation.
“RESOLVED THAT:
1. Subject
to final approval of the Toronto Stock Exchange, the board of directors of theScore (the “Board”) is hereby
authorized to determine, in its sole discretion, a consolidation ratio within the range of one post-consolidation share of theScore
for every two to twenty pre-consolidation shares of theScore of the same class (the “Consolidation Ratio”),
and theScore is hereby authorized to change the number of the issued and outstanding Class A Subordinate Voting Shares of theScore
(“Class A Shares”) pursuant to the Business Corporations Act (British Columbia) by consolidating the
issued and outstanding Class A Shares on the basis of such Consolidation Ratio as well as to change the number of the issued and
outstanding Special Voting Shares of theScore (“Special Voting Shares”) pursuant to the Business Corporations
Act (British Columbia) by consolidating the issued and outstanding Special Voting Shares on the basis of such Consolidation
Ratio (collectively, the “Share Consolidation”), which Share Consolidation will become effective on a date in
the future to be determined by Board, but in any event not later than one year after the date on which this resolution is approved,
subject to the Board’s authority to decide not to proceed with the Share Consolidation.
2.
The consummation of the Share Consolidation will be completed in a manner such that no
fractional Class A Shares or Special Voting Shares will be issued in connection with the Share Consolidation and that the
number of post-consolidation Class A Shares and Special Voting Shares to be received by a registered shareholder will be
rounded up, in the case of a fractional interest that is 0.5 or greater, or rounded down, in the case of a fractional
interest that is less than 0.5, to the nearest whole number of Class A Shares or Special Voting Shares, as applicable, that
such holder would otherwise be entitled to receive upon the implementation of the Share Consolidation.
3. Each
director and officer of theScore, acting alone, is authorized to do all such acts and things and to execute (whether under the
corporate seal of theScore or otherwise) and deliver all such documents as in such director’s or officer’s opinion
may be necessary or desirable to give effect to this resolution.
4. Notwithstanding
that this resolution has been passed by the shareholders of theScore, the approval of the Share Consolidation is conditional upon
receipt of final approval from the Toronto Stock Exchange, and the Board be and it is hereby authorized, in its sole discretion,
to revoke this special resolution in whole or in part at any time prior to its being given effect without further notice to, or
approval of, the holders of Class A Shares or Special Voting Shares.”
Approval of the Share Consolidation requires
that the resolution be passed by a majority of not less than two-thirds (2/3) of the votes cast by shareholders that are present
in person or represented by proxy at the Meeting.
The completion of the proposed consolidation
of the Class A Shares and the proposed consolidation of the Special Voting Shares will be conditional on the other having been
completed. For clarity, in the event that either the proposed consolidation of the Class A Shares or the proposed consolidation
of the Special Voting Shares is not completed, the Share Consolidation will be not be completed.
The Board recommends that shareholders
vote in favour of the special resolution. In the absence of contrary instruction, the persons named in the accompanying form of
proxy intend to vote FOR the special resolution to approve the Share Consolidation.
APPROVAL OF AMENDMENT TO AMENDED AND
RESTATED STOCK OPTION AND RESTRICTED STOCK UNIT PLAN
On January 8, 2021, the Board, upon the
recommendation of the Human Resources and Compensation Committee (“HRC Committee”), approved an amendment and
restatement of our amended and restated stock option and restricted stock unit plan (the “Amended Option & RSU Plan”).
Subject to the approval of our shareholders at the Meeting, the Amended Option & RSU Plan will (collectively, the “Amendments”):
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(a)
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increase the maximum number of Class A Shares that may be issued, at any time, under the Option
& RSU Plan (the “Option & RSU Pool”) from 55,000,000 or approximately 12.7% of the total issued and
outstanding Class A Shares as of the date of this Circular, to 65,000,000, or approximately 15.0% of the total issued and outstanding
Class A Shares as of the date of this Circular; and
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(b)
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effect certain other amendments to our current amended and restated stock option and restricted
stock unit plan (the “Option & RSU Plan”) in connection with our voluntary delisting of the Class A Shares
from the TSX Venture Exchange and concurrent listing of the Class A Shares on the Toronto Stock Exchange (the “TSX”).
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More specifically, in addition to the proposed
increase of the Option & RSU Pool described above, the revisions proposed in the Amended Option & RSU Plan will:
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(i)
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amend the manner in which the market price of the Class A Shares is to be calculated in order to
comply with Section 613(b) of the TSX Company Manual. In particular, where no Class A Shares are traded on a particular trading
day, rather than using a market price for the Class A Shares equal to the arithmetic average of the final bid and ask prices of
the Class A Shares on that trading day, the market price of the Class A Shares used to determine (among other things) the exercise
price of a granted option will be equal to the volume-weighted average trading price of the Class A Shares for the five trading
days immediately preceding the grant date of that option;
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(ii)
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remove certain limitations on security-based awards that may be granted to “Consultants”,
to persons involved in “Investor Relations Activities” or to any other single eligible recipient under the Option &
RSU Plan (other than “Insiders” of theScore, as described further below), as well as certain limitations on the numbers
of Class A Shares that may be issued to “Insiders” of theScore (as such term is defined in the TSX Company Manual)
pursuant to restricted share units held by those “Insiders”, as the TSX Company Manual, unlike the policies of the
TSX Venture Exchange, does not include those limitations on security-based awards that may be granted or securities that may be
issued to such persons;
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(iii)
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amend the insider participation limits provided in the Option & RSU Plan to more expressly
align with the policies of the TSX Company Manual, including, but not limited to, Part I of the TSX Company Manual, whereby (A)
“Insiders” of theScore (as such term is defined in the TSX Company Manual) are and will continue to be prohibited from
being issued, within any twelve-month period, a number of Class A Shares that exceeds 10% of our issued and outstanding Class A
Shares, and (B) the maximum number of Class A Shares that may be issuable to “Insiders” of theScore, at any time under
all security-based compensation arrangements adopted by theScore (including the Option & RSU Plan), is and will continue to
be limited to 10% of our issued and outstanding Class A Shares;
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(iv)
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amend the types of amendments to the Option & RSU Plan that require shareholder approval so
as to more expressly align with Section 613(i) of the TSX Company Manual. In particular, the Amended Option & RSU Plan will
(A) narrow the current requirement to obtain shareholder approval for amendments that would extend the term of an option or restricted
share unit beyond its original expiry date and to only require shareholder approval for those amendments where the option or restricted
share unit in question is held by an “Insider” of theScore (as such term is defined in the TSX Company Manual), and
(B) remove the requirement that shareholder approval be obtained for an amendment that would result in the issuance, within any
12-month period, to any one eligible recipient under the Option & RSU Plan of a number of Class A Shares that exceeds 5% of
our issued and outstanding Class A Shares;
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(v)
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implement certain other amendments of a “housekeeping” nature, including, but not limited
to, to reflect the Class A Shares now being listed on the TSX and being subject to the terms of the TSX Company Manual rather than
the policies of the TSX Venture Exchange, including the replacement of certain terms defined in the policies of the TSX Venture
Exchange with their respective appropriate equivalents under the TSX Company Manual; and
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(vi)
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update certain tax-related provisions that apply to persons who are eligible to receive awards
under the Option & RSU Plan and who are citizens or permanent residents of the United States.
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A copy of the Amended Option & RSU
Plan is attached to this Circular as Appendix A. For a summary of our current Option & RSU Plan as it relates to options to
purchase Class A Shares and restricted share units, see “EXECUTIVE COMPENSATION – Elements of Compensation –
Long-Term Incentive Program – Option & RSU Plan”.
As of the date of this Circular, 34,708,082
options to purchase Class A Shares are outstanding.
In the event that the proposed increase
of the Option & RSU Pool described above is approved by the shareholders that are present in person or represented by proxy
at the Meeting, 22,450,477 Class A Shares will be available for future issuance under the Amended Option & RSU Plan, representing
5.2% of our issued and outstanding Class A Shares as at the date of this Circular.
In the event that the Amendments are
not approved by the shareholders that are present in person or represented by proxy at the Meeting, the applicable provisions
of the Option & RSU Plan, without giving effect to the Amendments, will remain in effect following the Meeting and we
will continue to perform our obligations under such provisions, provided that our performance complies, at all times, with
the applicable policies of the TSX Company Manual. For certainty, if the Amendments are not approved, we will continue to
grant awards to eligible recipients under the existing terms of the Option & RSU Plan. In the event that the Amendments
are not approved by the shareholders that are present in person or represented by proxy at the Meeting, 12,450,477 Class A
Shares will remain available for future issuance under the Option & RSU Plan, representing 2.9% of our issued and
outstanding Class A Shares as at the date of this Circular.
approval
of Amended Option & RSU Plan
At the Meeting, shareholders will be asked
to consider and approve an ordinary resolution, in substantially the following form, in order to approve the Amended Option &
RSU Plan.
“RESOLVED THAT:
1. Subject
to final approval of the Toronto Stock Exchange, theScore’s Second Amended and Restated Stock Option and Restricted Stock
Unit Plan, in the form set out in Appendix A of the management information circular relating to this meeting, is hereby approved.
2. Each
director and officer of theScore, acting alone, is authorized to do all such acts and things and to execute (whether under the
corporate seal of theScore or otherwise) and deliver all such documents as in such director’s or officer’s opinion
may be necessary or desirable to give effect to this resolution.
3. Notwithstanding
that this resolution has been passed by the shareholders of theScore, the adoption of the amendment to theScore’s Amended
& Restated Stock Option and Restricted Stock Unit Plan is conditional upon receipt of final approval from the Toronto Stock
Exchange and the directors of theScore are authorized to revoke this resolution, without any further approval of the shareholders
of theScore, at any time if such revocation is considered necessary.”
Approval of the Amended Option & RSU
Plan requires that the resolution be passed by a simple majority of the votes cast by shareholders that are present in person or
represented by proxy at the Meeting.
The Board recommends that shareholders
vote in favour of the ordinary resolution. In the absence of contrary instruction, the persons named in the accompanying form of
proxy intend to vote FOR the ordinary resolution to approve the Amended Option & RSU Plan.
STATEMENT
OF CORPORATE GOVERNANCE PRACTICES
The
Board
A total of eight persons have been nominated
for election as directors at the Meeting. The Board has determined that if all such nominees are elected, the Board will consist
of six directors who are independent within the meaning of applicable securities laws and two directors that are not.
The Board considers Mr. John Albright,
Mr. Brian Cooper, Mr. Ralph Lean, Ms. Angela Ruggiero, Mr. Mark Scholes and Mr. William Thomson to be independent directors since
they are each independent of management and free from any material relationship with us. The basis for this determination is that,
since the date of our incorporation, none of the foregoing individuals have worked for us, received remuneration from us or had
material contracts with or material interests in theScore which could interfere with their ability to act with a view to our best
interests. Neither Mr. John Levy nor Mr. Benjamin Levy are considered independent directors as they act as our Chief Executive
Officer and President and Chief Operating Officer, respectively.
Our independent directors provide the
leadership to enable the Board to effectively carry out its duties and responsibilities independently from management. Our
independent directors ensure the Board works in an open and productive manner with management and receives appropriate and
timely information, material and reports from management. Our independent directors meet without management at their
discretion when it is appropriate to discuss certain matters. All discussion, including discussion among the independent
directors, is open and candid. The Board facilitates open and candid discussion among the independent directors by asking
non-independent directors to recuse themselves from meetings in the event of any conflict or potential conflict of interest.
The committees of the Board, each comprised entirely of independent directors, meet routinely without management present.
The Chairman of the Board is Mr. John Levy.
Since we do not have a Chair who is independent of management, we have mandated the Nominating and Corporate Governance Committee
to monitor the relationship between our management and the Board to ensure that the Board can function independently of management.
It should also be noted that individual directors are permitted to retain outside advisors at our expense in appropriate circumstances
with the approval of the Audit Committee.
Directors are elected until the next annual
meeting or until their successors are elected or appointed. There are no other term limits for directors. The annual nomination
and election process, including the annual review of the composition of the Board, is regarded by the Board as a sufficient mechanism
of Board renewal.
A copy of the charter of the Board is attached
to this Circular as Appendix B.
Other
Public Board Directorships
Mr. William Thomson is also a director
of Hampton Financial Corporation (TSXV: HFC). Mr. Ralph Lean is also a director of QMX Gold Corporation (TSXV: QMX).
Mr. John Albright was a director of Axios
Mobile Assets Corp. (“Axios”) until he resigned on January 10, 2017. On February 24, 2017, the Ontario Superior
Court of Justice granted an application of Axios’ senior lender to appoint a receiver and manager over the assets, undertakings
and property of Axios and its subsidiaries. Mr. Albright was also a director of Indian Motorcycle Company (“IMC”)
until he resigned on January 1, 2003. IMC subsequently ceased operations and appointed an assignee to manage its assets in September
2003. Mr. Albright manages the venture capital firm, Relay Ventures. In the ordinary course of business, the firm invests their
capital in start-ups and businesses that are at an early stage of development that involve substantial business risk and face financial
risk.
Orientation
and Continuing Education
In orienting new members to the Board,
members receive an orientation program and specific topics of interest are presented in more detail, upon request. All new directors
receive a Board manual containing the charters of the Board and its committees, and other relevant corporate and business information.
The respective Chairs of the committees of the Board provide regular reports to the Board on activities completed by each committee.
Senior management makes regular presentations to the Board on the main areas of our business.
We also encourage continuing education
of our directors and officers where appropriate in order to ensure that they have the necessary skills and knowledge to meet their
respective obligations to theScore.
Code
of Ethics and Business Conduct
The Board has adopted a written code of
ethics and business conduct (the ‘‘Code of Conduct’’). The Code of Conduct applies to all of our
directors, officers and employees, including our Chief Executive Officer, our Chief Financial Officer and all employees of our
subsidiaries. In addition, the Board has adopted a written whistle-blower policy (the ‘‘Whistle-Blower Policy’’).
We monitor compliance with the Code of Conduct through the Whistle-Blower Policy and through regularly scheduled meetings of the
Nominating and Corporate Governance Committee. Each of the Code of Conduct and Whistle-Blower Policy are available publicly on
the System for Electronic Document Analysis and Retrieval (“SEDAR”) which can be accessed through the Internet
at www.sedar.com and on our website at https://scoremediaandgaming.com/.
In addition, the Board has determined that
the fiduciary obligations placed on directors pursuant to our governing statute and the common law restrictions, which limit the
participation of directors in Board decisions in which the director has an interest, are sufficient to ensure that the Board operates
independently of management and in our best interests.
Nomination
of Directors
The Nominating and Corporate Governance
Committee
The Nominating and Corporate
Governance Committee, which is currently composed entirely of independent directors, is responsible for recommending annually certain
member(s) of the Board proposed for election to the Board, recommending new candidates for Board membership, monitoring the composition
of the Board and suggesting appropriate changes. It also monitors the relationship between management and the Board. The Nominating
and Corporate Governance Committee must be composed of no less than three directors, the majority of which must be independent.
The process by which the
Board identifies new candidates is through recommendations of the Nominating and Corporate Governance Committee. However, the Nominating
and Corporate Governance Committee may, at our expense, engage third-party consultants to assist it in fulfilling its duties and
responsibilities, including (without limitation) a search firm to assist in identifying, selecting and evaluating any potential
candidates for election or appointment to the Board.
In analyzing the composition
of the Board, the Nominating and Corporate Governance Committee takes into consideration, among other matters, the following: (a)
the competencies and skills the Board, as a whole, should possess; (b) the current strengths, skills and experience represented
by each director; (c) our strategic direction; and (d) the diversity of the Board. Please see “STATEMENT OF CORPORATE GOVERNANCE
PRACTICES – Diversity” and “STATEMENT OF CORPORATE GOVERNANCE PRACTICES – Assessments” below for
further detail regarding the considerations that contribute to the Nominating and Corporate Governance Committee’s nomination
processes.
Nomination Rights
In addition to the directors that may be
nominated by the Nomination and Corporate Governance Committee, we have granted nomination rights to certain of our securityholders.
Under our Articles, so long as any Special
Voting Shares are outstanding, the holder(s) thereof will have the right to elect that number of directors to the Board, subject
to the right of the holders of Class A Shares to elect at least two members of the Board, that is calculated as follows: (i) the
number of directors that would constitute a majority of our authorized number of directors (after deducting one from such authorized
number if the holders of the Preference Shares are collectively entitled to elect one director under our Articles); plus (ii) two.
Mr. John Levy controls or directs 100% of the issued and outstanding Special Voting Shares.
The Board Nomination Agreement provides
Relay Ventures with the right to nominate the Relay Nominee to the Board. So long as Relay Ventures holds an equity and voting
interest in theScore that is greater than or equal to 7.5% (such quotient to be obtained by dividing the number of Class A Shares
beneficially owned by Relay Ventures at the relevant time by the number of issued and outstanding Class A Shares on a non-diluted
basis), the Relay Nominee will be included among the Board’s nominees as our directors at each meeting of our shareholders
at which directors are to be elected by the holders of the Class A Shares. The Board Nomination Agreement provides that Relay Ventures
will vote the Class A Shares controlled or beneficially held by Relay Ventures or its affiliates in favour of the Board’s
slate of nominees for election as directors at each meeting of our shareholders at which directors are to be elected provided that
the Relay Nominee has been nominated in accordance with the Board Nomination Agreement. In addition, Mr. John Levy agreed to vote
or cause to be voted all Class A Shares controlled or beneficially owned by him or his affiliates in favour of the Relay Nominee
for election as a director at each meeting of shareholders at which directors are to be elected provided the Relay Nominee has
been nominated in accordance with the Board Nomination Agreement.
Pursuant to the Investment Agreement,
LPF Sports Holdings was provided with certain rights including, but not limited to, the right to nominate one individual to
serve on our board of directors (or, if such right is not exercised, the right to designate a board observer) for so long as
the Debenture is outstanding (or, following conversion, for so long as LPF Sports Holdings and its affiliates hold at least
7.5% of the outstanding Class A Shares. To date, LPF Sports Holdings has not elected to exercise its board nomination right
granted to it under the Investment Agreement.
Diversity
The Nominating and Corporate
Governance Committee Charter mandates that the committee review, on a periodic basis, the current composition of the Board. While
the committee does not have a formal policy specifying how diversity of background and personal experience should be applied in
reviewing the current composition of the Board or in identifying or evaluating candidates for the Board, the committee is committed
to having a diverse Board in that it seeks individuals from different backgrounds with varying perspectives, professional experience,
education and skills.
We currently
have one female director on the Board, representing 12.5% of our eight directors comprising the Board, and none of our five executive
officers are female. We do not have a policy on the representation of women on the Board or
in senior management, as the Board does not believe that quotas or strict rules necessarily result in the identification or selection
of the best candidates. Rather, the committee takes into account the competencies, skills, and personal qualities described
above. However, the Board is mindful of the benefits of diversity in our leadership positions and the need to maximize the
effectiveness of the Board and its decision-making abilities. Accordingly, in searches for new directors, the Board, and
its third-party consultants hired to assist in identifying candidates, consider the level of female representation and diversity
as one of several factors used in its search process.
Board
Committees
The committees of the Board consist of
the Audit Committee, the Nominating and Corporate Governance Committee and the HRC Committee. Additional information on the Audit
Committee can be found in our annual information form for the year ended August 31, 2020 (the “AIF”) dated
October 28, 2020. The AIF is available publicly on SEDAR, which can be accessed through the Internet at www.sedar.com.
The Board has adopted a charter for each
committee.
Other
Board Committees
Other than the Audit Committee, the Nominating
and Corporate Governance Committee and the HRC Committee, we do not have any additional Board committees. Special committees of
the Board may be appointed from time to time, to consider special issues, in particular, those involving related party transactions.
Position
Descriptions
The Board has developed and approved written
descriptions of the responsibilities of the Chair of the Board and the Chief Executive Officer. The Board has also developed and
approved Terms of Reference for each committee Chair.
Director
Attendance
Directors are expected to attend all Board
meetings and meetings of committees of the Board on which they serve. The following table shows meeting attendance records for
all directors during the fiscal year ended August 31, 2020:
|
Name
of Director
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|
Board
Meetings
|
|
Audit
Committee Meetings
|
|
Nominating
and Corporate Governance Committee Meetings
|
|
HRC
Committee Meetings
|
|
John Albright
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6 of 6
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|
n/a
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|
n/a
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n/a
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|
Brian Cooper(1)
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|
2 of 2
|
|
n/a
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|
n/a
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|
n/a
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Ralph Lean
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5 of 6
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|
4 of 4
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|
1 of 1
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|
4 of 4
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|
Angela Ruggiero(2)
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|
n/a
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|
n/a
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|
n/a
|
|
n/a
|
|
Lorry Schneider(3)
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|
4 of 4
|
|
n/a
|
|
n/a
|
|
n/a
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|
Mark Scholes
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|
6 of 6
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|
4 of 4
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|
1 of 1
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|
1 of 1
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|
William Thomson
|
|
6 of 6
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|
4 of 4
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|
1 of 1
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|
4 of 4
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|
Mark Zega(3)
|
|
4 of 4
|
|
n/a
|
|
n/a
|
|
n/a
|
|
John Levy
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|
6 of 6
|
|
n/a
|
|
n/a
|
|
n/a
|
|
Benjamin Levy
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|
6 of 6
|
|
n/a
|
|
n/a
|
|
n/a
|
Notes:
|
|
(1)
|
Mr. Brian Cooper was appointed as a director on April 22, 2020.
|
|
|
(2)
|
Ms. Angela Ruggiero was appointed as a director on October 14, 2020.
|
|
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(3)
|
Mr. Lorry Schneider and Mr. Mark Zega resigned as directors, effective April 22, 2020.
|
Assessments
The Nominating and Corporate Governance
Committee and the Board as a whole regularly consider and assess the performance of the Board, its committees and its individual
directors, in particular with respect to overall effectiveness, size and composition.
EXECUTIVE
COMPENSATION
This section of the Circular discusses
our executive compensation policies and practices, and includes information regarding each of the executive officers named in the
Summary Compensation Table below (the chief executive officer, president and chief operating officer, chief financial officer,
chief technology officer, and general counsel and chief compliance officer, as applicable, in the fiscal year ended August 31,
2020 (the “Named Executive Officers”)).
Compensation
Philosophy and Objectives
The Board and our executive officers are
committed to the concept of building value for shareholders. To ensure that we are able to attract and keep highly skilled executives,
we maintain a compensation structure that is commensurate with industry standards.
Our executive compensation program has
the following objectives:
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·
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attract, retain and motivate qualified executives;
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·
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provide incentives to executives to maximize productivity
and enhance enterprise value by aligning the interests of the executives with those of the shareholders;
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·
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foster teamwork and entrepreneurial spirit;
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·
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establish a direct link between elements of compensation
and the financial and operating performance of theScore, our subsidiaries and individual performance; and
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·
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integrate compensation incentives with the development
and successful execution of strategic and operating plans.
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Our compensation structure consists
of a base salary, a short-term incentive program consisting of a bonus plan, long-term incentive programs in the form of
options to acquire Class A Shares and restricted share units granted pursuant to our Option & RSU Plan and in the form of
Class A Shares purchased as part of our amended and restated employee share purchase plan (the “ESPP”) and
personal benefits and perquisites. The total compensation package for each Named Executive Officer varies in accordance with
the level and nature of such officer’s position in theScore. We have an RRSP contribution program that matches or
multiplies contributions of employees, at varying levels in accordance with seniority. In addition, we match all
contributions made by employees towards its ESPP, up to a maximum of 5% of each employee’s gross salary. The Class A
Shares that we use for matching purposes are purchased by the trustee for the ESPP on the open market, and not issued out of
treasury. See “EXECUTIVE COMPENSATION – Elements of Compensation – Long-Term Incentive Program –
ESPP”.
As a Named Executive Officer’s total
compensation package will experience greater variability as the Named Executive Officer’s responsibility increases, this
approach attempts to recognize the degree to which a Named Executive Officer is able to influence our operational results. Base
salaries and bonus levels are determined with regard to those paid for similar roles in the industry in order to attract and retain
qualified individuals without overcompensating in any individual case. Annual compensation increases are based on individual performance
as measured by the individual’s effectiveness in executing strategic and operating plans. The bonus plan is structured to
incentivize Named Executive Officers to effectively execute strategic and operating plans as budgeted, and include a personal performance
factor which ensures that executives are only rewarded if they have made significant individual contributions to our financial
success. The long-term incentive program awards are made periodically to executives and other employees according to levels of
seniority and are intended to, among other things, align the interests of those individuals with those of our shareholders. Prior
grants of options under the Option & RSU Plan are taken into consideration when considering additional grants.
Each element of compensation is determined
with regard to the overall compensation being offered to each Named Executive Officer in order to ensure that the overall package
is comparable to industry standards. We strive to ensure that our compensation programs are reasonable and fair to both executive
officers and shareholders and competitive with industry standards. We have entered into executive employment or management services
agreements with all of our Named Executive Officers. See “EXECUTIVE COMPENSATION – Contracts With Named Executive Officers
– Management Services Agreement” and “Contracts With Named Executive Officers – Employment Agreements”.
Review
Process of Committees in Determining Compensation
The HRC Committee is appointed by the Board.
The HRC Committee’s core mandate includes assisting the Board in discharging its responsibilities with respect to compensation
of executive officers. In this regard, the HRC Committee is responsible for all matters pertaining to the recruitment, appointment,
compensation, training, retention, benefits and termination of the Named Executive Officers, other than our Chief Executive Officer.
As part of such responsibilities, the HRC Committee oversees and administers the Option & RSU Plan. Messrs. William Thomson,
Mark Scholes and Ralph Lean are members of the HRC Committee each of whom is “independent” within the meaning of National
Instrument 52-110 – Audit Committees. Mr. William Thomson and Mr. Mark Scholes were members of the HRC Committee of
Score Media Inc. Mr. Ralph Lean was a member of the Score Media Inc. board of directors and was a Partner at Cassels, Brock and
Blackwell LLP for over 20 years, specializing in corporate law.
The Nominating and Corporate Governance
Committee is responsible for establishing, monitoring and adjusting, from time to time, the compensation package of the Chief Executive
Officer, which is set out in the Management Services Agreement, see “EXECUTIVE COMPENSATION – Contracts with Named
Executive Officers – Management Services Agreement”. In addition, the HRC Committee reviews any discretionary option
grants or incentive compensation payments to the Chief Executive Officer as part of its annual review of compensation matters.
The determination of the Chief Executive Officer’s remuneration rests on factors which include, but are not limited to, leadership
in a competitive international industry, peer executive compensation arrangements in the marketplace (using data from the Comparator
Group (as defined below)), and the contractual obligations.
Recommendations regarding executive compensation
(other than in respect of the Chief Executive Officer) are made by the Chief Executive Officer to the HRC Committee, and are accompanied
by comparative industry analysis as well as the reasoning behind the recommended individual compensation levels. The Chief Executive
Officer is assisted by the President and Chief Operating Officer in the analysis required for the recommendations. Decisions regarding
executive compensation are ultimately made by the HRC Committee in its full discretion.
The HRC Committee has assessed our
compensation plans and programs for our executive officers to ensure alignment with our objectives and strategies and to
evaluate the potential risks associated with those plans and programs. The HRC Committee has concluded that the compensation
policies and practices do not create any risks that are reasonably likely to have a material adverse effect on us.
The HRC Committee considers the risks associated
with executive compensation and corporate incentive plans when designing and reviewing such plans and programs. In determining
the annual objectives relating to such annual bonus and incentive compensation, the HRC Committee considers major risks that we
face such as health, safety and environmental risks, and ensures that the objectives of the Named Executive Officers include managing
such risks.
Neither Named Executive Officers nor directors
are permitted to purchase financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps,
collars or units of exchange funds, that are designed to hedge or offset a decrease in the market value of the Class A Shares granted
as compensation or held, directly or indirectly, by such Named Executive Officer or director. The Named Executive Officers and
directors are encouraged to hold and retain significant ownership in Class A Shares.
Benchmarking
In determining the compensation of our
executive officers, and to ensure our compensation philosophy and objectives are met, the HRC Committee makes use of competitive
data to determine comparative positioning and considers internal relativity and individual skills, experience and performance when
setting and adjusting compensation levels. Reliable data with respect to compensation from a comparator group comprised of North
American digital media, online gaming, and technology companies are used by the HRC Committee in their determinations (the “Comparator
Group”). The Comparator Group consists of DraftKings Inc., PointsBet Holdings Limited, Bally's Corporation, SciPlay Corporation,
Glu Mobile Inc., and Zynga Inc. These organizations are representative of the types of organizations with which we must currently
compete for talent.Elements of Compensation
The following table summarizes each element
of compensation, each of which is described in more detail below.
|
Element
|
Performance Period
|
Description
|
|
Base Salary
|
Annual
|
Base salary is based on the Named Executive Officer’s experience, level of responsibility and competitive market environment in similar industries. Increases are based on our performance and the performance of the individual.
|
|
Short–Term Incentives (including bonus)
|
Annual
|
Annual incentive payments are based on the Named Executive Officer’s position and level of responsibility within theScore and the achievement of corporate performance objectives and, except in the case of the CEO, personal performance objectives.
|
|
Long–Term Incentives (including Option & RSU Plan and ESPP)
|
Vesting period of Options/Shares
|
Stock option awards and the ESPP matching are issued to executive officers in accordance with the position and responsibility of the Named Executive Officer and have value only to the extent that additional shareholder value is created over time.
|
|
Personal Benefits and Perquisites
|
Annual
|
Represents a minor component of compensation. Increases are determined with regard to industry standards and individual performance.
|
Base Salary
Base salary is a fixed component of
pay that compensates executive officers for fulfilling their roles and responsibilities and aids in the attraction and
retention of highly qualified executives. The HRC Committee reviews base salaries annually to ensure that they reflect the
individual’s expertise and performance in fulfilling his or her role and responsibilities, the state of the economy in
the relevant markets and remain externally competitive.
Short–Term Incentive Program
The short–term incentive program
recognizes our consolidated financial performance and individual achievements against predetermined targets set at the beginning
of each fiscal year.
The distribution of an annual performance
bonus is based on our overall performance and an assessment of the performance of the executive officer and his or her area of
responsibility (with the exception of the Chief Executive Officer whose bonus is entirely based on our overall performance (see
“EXECUTIVE COMPENSATION – Impact of Performance of Named Executive Officers”).
The annual performance bonus is calculated
as the product obtained by multiplying the executive officer’s base salary by (i) a bonus eligibility factor (ranging from
70% to 100% based on the executive officer’s position and level of responsibility within theScore), (ii) a corporate performance
factor (ranging from 0% to 150% with reference to a points-based system based on our performance against key operating metrics)
and (iii) a personal performance factor for executive officers other than the CEO (ranging from 50% to 100% based on achievement
of personal performance objectives).
The key operating metrics for the purposes
of calculating the corporate performance factor under the short–term incentive program are (i) consolidated revenue, (ii)
earnings before interest, taxes, depreciation and amortization (“EBITDA”)1,
and (iii) operational performance targets for our sports media, esports and betting platforms. These key operating metrics are
established annually by the Board.
In 2020, the consolidated revenue, EBITDA
and operational performance targets were established by the Board with consideration by the HRC Committee, in each case at levels
determined by reference to our confidential annual operating budget for fiscal 2020 approved by the Board. We believe that disclosure
of these thresholds and targets would seriously prejudice theScore because those figures are based upon our confidential business
plan, which contains competitively sensitive information concerning theScore. Accordingly, we have relied upon an exemption available
to us under applicable securities laws in our decision to maintain the confidentiality of these thresholds and targets.
Achievement of the performance goals set
by the Board as part of its confidential operating budget is intended to be challenging. On average over the two fiscal years ending
August 31, 2019 and 2020, 14% of the Chief Executive Officer’s total compensation and 12% of the President and COO’s
total compensation relates to payouts under the short-term incentive plan, which as noted above, are based on achievement of the
performance objectives. Each of the Chief Financial Officer, Chief Technology Officer and General Counsel and Chief Compliance
Officer assumed their roles in fiscal 2020. In fiscal 2020, we achieved a corporate performance factor of 25%. However, given the
impact of COVID-19, each of the Named Executive Officers agreed to waive their respective entitlements to compensation under the
short-term incentive program for the fiscal year ended August 31, 2020.
Impact of Performance of Named Executive
Officers
The Chief Executive Officer is
eligible to participate in our short–term incentive program, and the distribution of a bonus to the Chief Executive
Officer is entirely based on our overall performance. The Chief Executive Officer’s annual incentive payment is
calculated as the product obtained by multiplying his base fee under the Management Services Agreement by his bonus
eligibility factor (100%) by the corporate performance factor (ranging from 0% to 150%).
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|
1
|
EBITDA is not a measure of performance under International
Financial Reporting Standards (“IFRS”) and should not be considered in isolation or as a substitute for net
income prepared in accordance with IFRS or as a measure of operating performance or profitability. EBITDA does not have a standardized
meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other companies. Our definition
of EBITDA excludes depreciation and amortization, finance income and income taxes which in our view do not adequately reflect
our core operating results. For a reconciliation of net loss and comprehensive loss to EBITDA, please refer to our most recent
Management’s Discussion & Analysis of Financial Condition and Results of Operations for the fiscal years ended August
31, 2020 and 2019 filed on SEDAR and available publicly on the Internet at www.sedar.com.
|
The President and Chief Operating Officer
is eligible to participate in our short–term incentive program, and the distribution of a bonus to the President and Chief
Operating Officer is based partly on our overall performance, and partly on personal performance. The President and Chief Operating
Officer’s annual incentive payment is calculated as the product obtained by multiplying his base salary by (i) his bonus
eligibility factor (70%), (ii) the corporate performance factor (ranging from 0% to 150%), and (iii) his personal performance factor
(ranging from 50% to 100%). The President and Chief Operating Officer’s personal performance are subjective and are measured
by his contributions towards the execution of our strategic and operational plans.
The Chief Financial Officer is eligible
to participate in our short–term incentive program, and the distribution of a bonus to the Chief Financial Officer is based
partly on our overall performance, and partly on personal performance. The Chief Financial Officer’s annual incentive payment
is calculated as the product obtained by multiplying his base salary by (i) his bonus eligibility factor (70%), (ii) the corporate
performance factor (ranging from 0% to 150%), and (iii) his personal performance factor (ranging from 50% to 100%). The Chief Financial
Officer’s personal performance are subjective and are measured by his contributions towards the execution of our strategic
plans and leadership of our corporate finance and accounting functions.
The Chief Technology Officer is eligible
to participate in our short–term incentive program, and the distribution of a bonus to the Chief Technology Officer is based
partly on our overall performance, and partly on personal performance. The Chief Technology Officer’s annual incentive payment
is calculated as the product obtained by multiplying his base salary by (i) his bonus eligibility factor (70%), (ii) the corporate
performance factor (ranging from 0% to 150%), and (iii) his personal performance factor (ranging from 50% to 100%). The Chief Technology
Officer’s personal performance are subjective and are measured by his contributions towards the execution of our strategic
plans and technology roadmap.
The General Counsel and Chief Compliance
Officer is eligible to participate in our short–term incentive program, and the distribution of a bonus to the General Counsel
and Chief Compliance Officer is based partly on our overall performance, and partly on personal performance. The General Counsel
and Chief Compliance Officer’s annual incentive payment is calculated as the product obtained by multiplying his base salary
by (i) his bonus eligibility factor (70%), (ii) the corporate performance factor (ranging from 0% to 150%), and (iii) his personal
performance factor (ranging from 50% to 100%). The General Counsel and Chief Compliance Officer’s personal performance are
subjective and are measured by his contributions towards the execution of our strategic plans and the management of our legal affairs
and regulatory compliance.
Long–Term Incentive Program –
Option & RSU Plan
The award of long-term incentives in the
form of options to acquire Class A Shares (“options”) and restricted share units is an integral part of our
compensation program. The Option & RSU Plan is intended to advance our interests and the interests of our shareholders by providing
officers, directors, employees, consultants and management company employees, through the award of options and restricted share
units, a larger personal and financial interest in our success. The Board also believes that options and restricted share units
are very valuable in attracting and retaining highly qualified management personnel and in providing additional motivation to management
to use their best efforts on our behalf.
The Option & RSU Plan is
administered by the HRC Committee. Subject to the limitations of the Option & RSU Plan, the HRC Committee has the power
and authority to, among other things (i) adopt, amend and rescind such administrative guidelines and other rules and
regulations for carrying out the purposes, provisions and administration of the Option & RSU Plan as it, from time to
time, deems advisable; (ii) interpret the Option & RSU Plan and make all other determinations and take all other actions
in connection with the implementation and administration of the Option & RSU Plan and any award granted pursuant to the
Option & RSU Plan; (iii) determine which eligible persons (as defined below) will be granted options and restricted share
units; (iv) determine which awards are subject to cancellation, reimbursement or any other right of recovery or recoupment by
us in accordance with our policies (“Clawback Policy”); (v) determine the time or times when awards will
be granted; (vi) determine if the Class A Shares which are subject to an award will be subject to any restrictions upon the
exercise or settlement of such award; and (vii) prescribe the form of the instruments relating to the grant, exercise,
settlement and other terms of awards.
Options and restricted share units may
be awarded under the Option & RSU Plan only to our directors, officers, employees, consultants and management company employees
and those of our subsidiaries (“eligible persons”) (or wholly-owned corporations of such persons), subject to
the rules and regulations of applicable regulatory authorities and any stock exchange upon which the Class A Shares may be listed
or may trade from time to time.
The maximum number of Class A Shares that
may be issuable to any one individual in any twelve month period under the Option & RSU Plan is 5% of the Class A Shares issued
and outstanding at that time on a non-diluted basis unless otherwise approved by the shareholders. The maximum number of Class
A Shares that may be issuable to any one consultant in any twelve month period under the Option & RSU Plan is 2% of the Class
A Shares issued and outstanding at that time on a non-diluted basis. The aggregate number of Class A Shares reserved for issuance
under restricted share units and options awarded to insiders (as a group) at any point in time must not exceed 10% of the issued
Class A Shares. Awards of restricted share units and options to insiders (as a group), within a twelve month period, must not result
in the issuance of more than 10% of the issued Class A Shares, calculated as at the date of award to any insider.
The aggregate number of Class A Shares
reserved for issuance, within a twelve month period, in respect of restricted share units awarded to (i) any one insider must not
exceed 1% of the issued Class A Shares, and (ii) insiders (as a group) must not exceed 2% of the issued Class A Shares, in each
case calculated as at the date of award to any insider. The number of Class A Shares counted against the Option & RSU Plan
in respect of restricted share units is equal to the number of Class A Shares the holder would be entitled to receive under the
Option & RSU Plan if the restricted share units were settled on the applicable dates of grant.
As of the conclusion of fiscal 2020, 35,738,583
options and nil restricted share units were outstanding under the Option & RSU Plan, respectively representing 8.9% and nil%
of the issued and outstanding Class A Shares on a non-diluted basis.
The exercise price and the vesting and
exercise periods granted under the Option & RSU Plan are determined by the HRC Committee at the time of grant. The exercise
price of an option may not be less than the “market price” of the Class A Shares on the exchange, if any, on which
the Class A Shares are trading, determined at the closing time on the trading day immediately preceding the day on which the option
is granted.
All options must be exercised no later
than the termination date of the options, and in no event later than 10 years after the date of grant. If the holder of an option
ceases to be an eligible person for any reason (other than by reason of death), unless otherwise determined or provided in an agreement
between us and the holder of such options, all unvested options held by such holder will expire immediately and all vested options
held by such holder must be exercised, within the lesser of the remainder of the exercise period and 60 days after such holder
ceased to be an eligible person and, in the case of death, by such holder’s legal representative within the lesser of the
remainder of the exercise period and 180 days after such holder’s death. The exercise price of each Class A Share purchased
under an option must be paid in full at the time that the option is exercised. We will not provide financial assistance to holders
of options to facilitate the purchase of Class A Shares on the exercise of their options, but we are permitted to amend the Option
& RSU Plan to incorporate an ability to provide such financial assistance without the approval of our shareholders, as further
described below.
If the date in which an option expires
occurs during or within 10 business days after the last day of any period during which a policy of one or more of our policies
prevent an insider from trading in our securities, then the date on which such option expires will be deemed to be the last business
day of such 10 business day period.
Restricted share units entitle a holder,
subject to the holder’s satisfaction of any conditions, restrictions, performance objectives, vesting period or limitations
imposed under the Option & RSU Plan or set out in a grant letter, and subject to the Clawback Policy, to receive a payment
in Class A Shares issued from treasury on the date when the restricted share unit is vested. No restricted share unit may have
an expiry date that is more than 10 years from the date of the award.
Subject to any express resolution passed
by the HRC Committee with respect to any restricted share unit, a restricted share unit which has not yet vested will be forfeited
immediately upon the date on which (i) the holder of the restricted share unit who is a director, officer or employee ceases to
be a director, officer or employee, and (ii) the written agreement by which the holder of the restricted share unit who is a consultant
or management company employee was retained is terminated.
Options and restricted share units awarded
under the Option & RSU Plan may not be transferred or assigned other than by an eligible person to a non-individual entity
wholly-owned by such eligible person.
The HRC Committee, in its absolute discretion,
is entitled to credit holders of restricted share units with additional restricted share units upon the payout of dividends on
the Class A Shares. In such case, the number of additional restricted share units will be equal to the aggregate value of dividends
that would have been paid to the holder if the restricted share units in the holder’s account had been Class A Shares divided
by the market price of a Class A Share on the date on which dividends were paid. The additional restricted share units will vest
on the date that the particular award of restricted share units to which the additional restricted share units relate are fully
vested.
The Board may amend or terminate the Option
& RSU Plan at any time subject to any required regulatory or other approvals. The Board may make the following types of amendments
to the Option & RSU Plan without seeking shareholder approval:
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|
·
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any
amendment of a “housekeeping” or administerial nature including, without limiting the generality of the foregoing,
any amendment for the purpose of curing any ambiguity, error or omission in the Option & RSU Plan or to correct or supplement
any provision of the Option & RSU Plan that is inconsistent with any other provision of the Option & RSU Plan;
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·
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any amendment necessary
to comply with the provisions of applicable law;
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·
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any amendment respecting
administration of the Option & RSU Plan;
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·
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any amendment to
the vesting provisions of the Option & RSU Plan or any option or restricted share unit;
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·
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any amendment to
the early termination provisions of the Option & RSU Plan or any option or restricted share unit, whether or not such
option or restricted share unit is held by an insider, provided that such amendment does not entail an extension beyond the
original expiry date;
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·
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the addition of
any form of financial assistance we may provide for the acquisition by all or certain categories of Option & RSU Plan
participants of Class A Shares under the Option & RSU Plan, and the subsequent amendment of any such provision which is
more favourable to Option & RSU Plan participants;
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·
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the addition or
modification of a cashless exercise feature, payable in cash or Class A Shares, which provides for a full deduction of the
number of underlying Class A Shares from the Option & RSU Plan reserve;
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·
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any amendment necessary
to suspend or terminate the Option & RSU Plan in whole or in part; and
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·
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any other amendment,
whether fundamental or otherwise, not requiring shareholder approval under applicable law.
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The maximum number of Class A Shares issued
and issuable under the Option & RSU Plan may not be altered without the approval of our shareholders.
In addition, the approval of our
shareholders, excluding shareholders who are also our insiders, will be required: (a) to reserve for issuance to insiders
under the Option & RSU Plan a number of Class A Shares that exceeds 10% of Class A Shares issued and outstanding, on a
non-diluted basis, at that time; (b) to grant to insiders, within a twelve month period, a number of options under the Option
& RSU Plan such that the number of Class A Shares issuable upon the exercise of such options would exceed 10% of the
Class A Shares issued and outstanding, on a non-diluted basis, at the time of grant of such options; and (c)
to decrease the exercise price of options previously granted to insiders.
No options or restricted share units are
awarded in respect of any securities other than Class A Shares, and no dividend or proxy voting rights are granted prior to the
issuance of the underlying Class A Shares.
The table below outlines the Burn Rate
of the Option & RSU Plan for the fiscal years ending August 31, 2020, 2019 and 2018. With respect to each fiscal year, the
associated “Burn Rate” is calculated using the TSX-prescribed methodology, which is the total number of securities
granted under the Option & RSU Plan during the applicable fiscal year, divided by the weighted average number of securities
outstanding for such fiscal year.
|
|
2020
|
2019
|
2018
|
|
Burn Rate
|
3.8%
|
1.8%
|
3.4%
|
Also see “APPROVAL OF AMENDMENT TO
AMENDED AND RESTATED STOCK OPTION AND RESTRICTED STOCK UNIT PLAN” in this Circular for a summary of certain proposed amendments
to the Option & RSU Plan contemplated by the Amended Option & RSU Plan.
Long–Term Incentive Program –
ESPP
In January 2013, we established the ESPP
to facilitate the acquisition of Class A Shares and the retention of such Class A Shares by eligible employees. Under the terms
of the ESPP, eligible employees may volunteer to have up to 5% of their compensation deducted by us from their net pay to contribute
toward the purchase of Class A Shares. We will make a contribution equal to the amount of the compensation contributed by each
eligible employee one year from the date of the initial contribution. The Class A Shares are purchased on behalf of the trustee
of the ESPP by an independent broker, at our expense, through the facilities of the Toronto Stock Exchange. Members of the Board
are also eligible to participate in the ESPP by contributing up to 20% of their annual base retainer.
Personal Benefits and Perquisites
Perquisites are considered a minor component
of executive officer compensation and periodic reviews are conducted by the Board in respect of the Chief Executive Officer and
by the Chief Executive Officer in respect of the other Named Executive Officers and adjustments made, subject, in the case of material
changes, to the approval of the HRC Committee.
Performance
Graph
The graph below shows the cumulative total
return on a $100 investment on August 31, 2015 in Class A Shares and the cumulative total return of the S&P/TSX Composite Index
over the five year period ending August 31, 2020, assuming reinvestment of all distributions.
We voluntarily delisted the Class A Shares
from the TSX Venture Exchange and listed the Class A Shares on the Toronto Stock Exchange effective September 15, 2020, thereby
occurring after the completion of the fiscal year to which this Circular relates.
The trend shown by the performance graph
set forth above does not necessarily correspond to the compensation paid or payable to our Named Executive Officers for the period
ended August 31, 2020 or for any prior fiscal periods. Our executive compensation is reviewed annually and set by the Board upon
the recommendations of the HRC Committee and the Nominating and Corporate Governance Committee, as discussed further elsewhere
in this Circular under the section entitled “EXECUTIVE COMPENSATION”. The Board and its applicable committees consider
various factors discussed elsewhere in this Circular in connection with the determination of appropriate levels of compensation.
Many of the factors are not necessarily tied to the trading price of the Class A Shares. The trading price of the Class A Shares
is subject to fluctuation based on several factors, some of which are linked to our financial condition and performance and others
which are beyond our control. Each executive’s compensation is tied to our performance and the executive’s relative
performance in helping us meet our various objectives, which are both qualitative and quantitative.
Summary
Compensation Table
Compensation of the Named Executive Officers
for the fiscal years ended August 31, 2020, 2019, and 2018 is presented in the following table.
Name and
principal position
|
Year
|
Salary
(C$)(1)
|
Non-equity incentive plan compensation
(C$)(2)
|
Option-Based Award
(C$)(3)
|
Restricted
Share Unit Award
(C$)(1)(2)
|
All Other Compensation
(C$)(4)
|
Total Compensation
(C$)
|
|
|
|
|
Annual Incentive
Plans
|
Long-
term Incentive
Plans
|
|
|
|
|
|
John Levy,(5)
Chairman of the Board, Chief Executive Officer
|
2020 2019
2018
|
$586,667
$640,000
$640,000
|
nil
$320,000
nil
|
nil
nil
nil
|
$421,046
$150,000(6)
$66,000(6)
|
$59,410
nil
nil
|
$41,208
$51,673
$51,508
|
$1,108,331
$1,161,673
$757,508
|
|
Benjamin Levy,
President, Chief Operating Officer and Director
|
2020 2019
2018
|
$352,917
$350,000
$330,000
|
nil
$183,750
nil
|
nil
nil
nil
|
$350,872
$125,000(7)
$55,000(7)
|
$35,739
nil
nil
|
$44,707
$49,173
$48,008
|
$784,234
$707,923
$433,008
|
|
Alvin Lobo,(8)
Chief Financial Officer
|
2020 2019
2018
|
$302,500
n/a
n/a
|
nil
n/a
n/a
|
nil
n/a
n/a
|
$701,744(9)
n/a
n/a
|
$30,633
n/a
n/a
|
$14,750
n/a
n/a
|
$1,049,627
n/a
n/a
|
|
Hecham Ghazal,(10)
Chief Technology Officer
|
2020 2019
2018
|
$275,000
n/a
n/a
|
nil
n/a
n/a
|
nil
n/a
n/a
|
nil
n/a
n/a
|
$27,848
|
$31,875
n/a
n/a
|
$334,723
n/a
n/a
|
|
Joshua Sidsworth,(11)
General Counsel and Chief Compliance Officer
|
2020 2019
2018
|
$209,119
n/a
n/a
|
nil
n/a
n/a
|
n/a
n/a
n/a
|
$701,744(12)
n/a
n/a
|
$30,169
n/a
n/a
|
$35,281
n/a
n/a
|
$976,313
n/a
n/a
|
Notes:
|
|
(1)
|
As an initiative to manage cost during the COVID-19 pandemic, management agreed to forego 25% of
their salaries from May 1, 2020 to August 31, 2020 in exchange for the equivalent value of restricted share units
|
|
|
(2)
|
The annual incentive payment is determined annually by the HRC Committee.
|
|
|
(3)
|
All stock options relate to options to purchase Class A Shares. We account for all share–based
payments using the fair value–based method. The estimated grant–date fair value is amortized to expense over the period
in which the related services are rendered, which is usually the vesting period. For more information on the application of our
accounting policies in this area, and particularly the use of the Black–Scholes option pricing model and the assumptions
thereto, please refer to Note 10 in our consolidated financial statements for the fiscal years ended August 31, 2020 and 2019.
|
|
|
(4)
|
Includes a car allowance and RRSP contribution in fiscal 2020 of $19,875 (2019 - $19,673; 2018
- $19,508) as well as our contributions pursuant to the terms of the ESPP.
|
|
|
(5)
|
Compensation is paid to Norwest as a management fee pursuant to the Management Services Agreement
See “EXECUTIVE COMPENSATION – Contracts With Named Executive Officers – Management Services Agreement”.
Other annual compensation includes our contributions pursuant the terms of the ESPP and Option & RSU Plan. All non–equity
incentive plan compensation related to a period longer than one year.
|
|
|
(6)
|
Mr. John Levy was awarded (i) 600,000 options on January 22, 2020 at a price of $0.85 per share
and a grant-date fair value of $0.70 per option, (ii) 600,000 options on January 23, 2019 at a price of $0.30 per share and a grant-date
fair value of $0.25 per option, and (iii) 600,000 options on January 11, 2018 at a price of $0.145 per share and a grant-date fair
value of $0.11 per option.
|
|
|
(7)
|
Mr. Benjamin Levy was awarded (i) 500,000 options on January 22, 2020 at a price of $0.85 per share
and a grant-date fair value of $0.70 per option, (ii) 500,000 options on January 23, 2019 at a price of $0.30 per share and a grant-date
fair value of $0.25 per option, and (iii) 500,000 options on January 11, 2018 at a price of $0.145 per share and a grant-date fair
value of $0.11 per option.
|
|
|
(8)
|
Mr. Alvin Lobo was appointed Chief Financial Officer on September 3, 2019.
|
|
|
(9)
|
Mr. Alvin Lobo was awarded 1,000,000 options on January 22, 2020 at a price of $0.85 per share
and a grant-date fair value of $0.70 per option.
|
|
|
(10)
|
Mr. Hecham Ghazal was appointed Chief Technology Officer on September 1, 2019.
|
|
|
(11)
|
Mr. Joshua Sidsworth was appointed General Counsel and Chief Compliance Officer on December 9,
2019.
|
|
|
(12)
|
Mr. Josh Sidsworth was awarded 1,000,000 options on January 22, 2020 at a price of $0.85 per share
and a grant-date fair value of $0.70 per option.
|
Contracts
with Named Executive Officers
Management Services Agreement
Mr. John Levy, Chairman and Chief Executive
Officer, and his services are made available by Norwest, located at 1603 Main Street West, Hamilton, Ontario, L8S 1E6. Pursuant
to a management services agreement between Norwest, Mr. John Levy and theScore effective April 11, 2018, Norwest was entitled to
an annual basic management services fee of $640,000 between September 1, 2018 and August 31, 2019 and $640,000 between September 1,
2019 and August 31, 2020. We entered into a new management services agreement (“Management Services Agreement”)
with Norwest and Mr. John Levy effective September 1, 2020. It has a term of one year and provides that Norwest is entitled to
a basic management services fee of $640,000 between September 1, 2020 and August 31, 2021.
In addition, Norwest is entitled to participate
in an annual bonus pool in an amount to be determined annually by the HRC Committee and to participate in any long-term incentive
plan, the Option & RSU Plan, the ESPP, and any RRSP contribution program or any similar plan we may create in the manner and
to the extent authorized by the Board. Norwest is also entitled to reimbursement for certain expenses incurred on our behalf by
Mr. John Levy, including reasonable travel and other out–of–pocket expenses, provided such expenses were actually and
properly incurred by Mr. John Levy in connection with management of the business.
Employment Agreements
We entered into an employment
agreement with Mr. Benjamin Levy, President and Chief Operating Officer, effective October 19, 2012 (the “Benjamin Levy
Agreement”). Pursuant to the Benjamin Levy Agreement, Mr. Benjamin Levy’s base salary is to be reviewed annually
by the HRC Committee and was raised to $385,000 effective September 1, 2019. Mr.
Benjamin Levy is also entitled to participate in an annual bonus pool to be determined annually by the HRC Committee, as well as
in the Option & RSU Plan and ESPP, and is entitled to a benefits package. Mr. Benjamin Levy does not receive compensation in
his capacity as one of our directors.
We entered into an employment
agreement with Mr. Alvin Lobo, Chief Financial Officer, effective September 3, 2019 (the “Alvin Lobo Agreement”).
Pursuant to the Alvin Lobo Agreement, Mr. Alvin Lobo’s base salary is to be reviewed annually by the HRC Committee. Mr. Alvin
Lobo is also entitled to participate in an annual bonus pool to be determined annually by the HRC Committee, as well as in the
Option & RSU Plan and ESPP, and is entitled to a benefits package.
We entered into an employment
agreement with Mr. Hecham Ghazal, Chief Technology Officer, effective September 1, 2019 (the “Hecham Ghazal Agreement”).
Pursuant to the Hecham Ghazal Agreement, Mr. Hecham Ghazal’s base salary is to be reviewed annually by the HRC Committee.
Mr. Hecham Ghazal is also entitled to participate in an annual bonus pool to be determined annually by the HRC Committee, as well
as in the Option & RSU Plan and ESPP, and is entitled to a benefits package.
We entered into an employment
agreement with Mr. Joshua Sidsworth, General Counsel and Chief Compliance Officer, effective December 9, 2019 (the “Joshua
Sidsworth Agreement”). Pursuant to the Joshua Sidsworth Agreement, Mr. Joshua Sidsworth’s base salary is to be
reviewed annually by the HRC Committee. Mr. Joshua Sidsworth is also entitled to participate in an annual bonus pool to be determined
annually by the HRC Committee, as well as in the Option & RSU Plan and ESPP, and is entitled to a benefits package
Incentive
Plan Awards
Outstanding Option–Based Awards
The following table presents awards of
stock options granted to the Named Executive Officers under the Option & RSU Plan as of August 31, 2020.
|
|
Option-Based Awards
|
Restricted Share Unit-Based Awards
|
|
Name
|
Number of Securities Underlying Unexercised Options (#)
|
Option Exercise Price (C$)
|
Option Expiration
Date
|
Value
of
Unexercised in-
the-Money
Options
(C$)(1)
|
Number of Securities
That Have
Not Vested
(#)
|
Market or Payout
Value of Awards
That Have
Not Vested
($)
|
Market or Payout Value
of Vested
Awards Not
Paid Out or Distributed
($)(2)
|
|
John Levy
|
600,000
600,000
600,000
600,000
1,200,000
1,200,000
1,200,000
1,600,000
|
$0.85
$0.30
$0.145
$0.21
$0.31
$0.29
$0.18
$0.13
|
January 22, 2030
January 23, 2029
January 11, 2028
October 19, 2026
November 16, 2025
October 14, 2024
October 23, 2023
November 28, 2022
|
nil
$192,000
$285,000
$246,000
$372,000
$396,000
$528,000
$784,000
|
nil
|
nil
|
nil
|
|
Benjamin Levy
|
500,000
500,000
500,000
300,000
600,000
600,000
600,000
400,000
|
$0.85
$0.30
$0.145
$0.21
$0.31
$0.29
$0.18
$0.13
|
January 22, 2030
January 23, 2029
January 11, 2028
October 19, 2026
November 16, 2025
October 14, 2024
October 23, 2023
November 28, 2022
|
nil
$160,000
$237,500
$123,000
$186,000
$198,000
$264,000
$196,000
|
nil
|
nil
|
nil
|
|
Alvin Lobo
|
1,000,000
200,000
|
$0.85
$0.345
|
January 22, 2030
June 25, 2029
|
nil
$55,000
|
nil
|
nil
|
nil
|
|
Hecham Ghazal
|
2,750,000
150,000
|
0.145
0.21
|
January 11, 2028
October 19, 2026
|
$1,306,250
$61,500
|
nil
|
nil
|
nil
|
|
Joshua Sidsworth
|
1,000,000
|
$0.85
|
January 22, 2030
|
nil
|
nil
|
nil
|
nil
|
Notes:
|
|
(1)
|
The “Value of Unexercised in-the-Money Options” is calculated on the basis of the difference
between the closing price of the Class A Shares on the TSX Venture Exchange on August 31, 2020 ($0.62) and the exercise price of
the options. We voluntarily delisted the Class A Shares from the TSX Venture Exchange and listed the Class A Shares on the Toronto
Stock Exchange effective September 15, 2020; occurring after the completion of the fiscal year to which this Circular relates.
|
|
|
(2)
|
As an initiative to manage cost during the COVID-19 pandemic, management agreed to forego 25% of
their salaries from May 1, 2020 to August 31, 2020 in exchange for the equivalent value of restricted share units.
|
Value Vested or Earned During F2020
The following table presents the value
of incentive plan awards that vested or were earned for each Named Executive Officer for the fiscal year ended August 31, 2020.
All awards that vested or were earned by Named Executive Officers during the fiscal year ended August 31, 2020 were granted by
theScore.
|
Name
|
Option-Based Awards –
Value Vested During the
Year (C$)(1)
|
Restricted Share Unit-
Based Awards – Value Vested During the Year
(C$)(2)
|
Non-Equity Incentive
Plan Compensation –
Value Earned During the
Year (C$)
|
|
John Levy
|
$165,000
|
$59,410
|
nil
|
|
Benjamin Levy
|
$125,500
|
$35,739
|
nil
|
|
Alvin Lobo
|
$15,200
|
$30,633
|
nil
|
|
Hecham Ghazal
|
$348,250
|
$27,848
|
nil
|
|
Joshua Sidsworth
|
nil
|
$30,169
|
nil
|
Notes:
|
|
(1)
|
The “Option-Based Awards – Value Vested During the Year” amounts are calculated
on the basis of the difference between the closing price of the Class A Shares on the TSX Venture Exchange on the date of vesting
and the exercise price of the options. We voluntarily delisted the Class A Shares from the TSX Venture Exchange and listed the
Class A Shares on the Toronto Stock Exchange effective September 15, 2020; occurring after the completion of the fiscal year to
which this Circular relates.
|
|
|
(2)
|
As an initiative to manage cost during the COVID-19 pandemic, management agreed to forego 25% of
their salaries from May 1, 2020 to August 31, 2020 in exchange for the equivalent value of restricted share units.
|
Termination and Change
in Control Benefits
All the Named Executive Officers have contractual
arrangements with us that provide for certain rights of payment upon termination of employment and/or a change of control.
The Management Services Agreement (see
“EXECUTIVE COMPENSATION – Contracts With Named Executive Officers – Management Services Agreement) provides that
we may terminate the Management Services Agreement at any time upon: (a) payment to Norwest of two times the sum of the highest
annual basic management fee earned in any one of the three most recently completed fiscal years and the highest bonus fees earned
in any one of the three most recently completed fiscal years; and (b) accelerated vesting of all options which will vest within
twelve months of the termination date.
The Benjamin Levy Agreement (see “EXECUTIVE
COMPENSATION – Contracts With Named Executive Officers – Employment Agreements”) may be terminated by us at any
time upon payment of twelve months’ salary to Mr. Benjamin Levy.
The Benjamin Levy Agreement provides that
Mr. Benjamin Levy will not, unless terminated without cause, for a period of six months following the termination of employment
with us, work on an employment basis, contract basis or otherwise with or for an entity that is primarily engaged in the digital
sports media business or the digital sports media division of a larger firm, company or other organization in the United States
or Canada.
The Alvin Lobo Agreement (see “EXECUTIVE
COMPENSATION – Contracts With Named Executive Officers – Employment Agreements”) may be terminated by us within
the first eighteen months of its term at any time upon payment of six months’ salary to Mr. Alvin Lobo and may be terminated
by us following the first eighteen months of its term at any time upon payment of twelve months’ salary to Mr. Alvin Lobo.
The Hecham Ghazal Agreement (see “EXECUTIVE
COMPENSATION – Contracts With Named Executive Officers – Employment Agreements”) may be terminated by us at any
time upon payment of twelve months’ salary to Mr. Hecham Ghazal.
The Joshua Sidsworth Agreement (see “EXECUTIVE
COMPENSATION – Contracts With Named Executive Officers – Employment Agreements”) may be terminated by us within
the first year of its term at any time upon payment of eight months’ salary to Mr. Joshua Sidsworth and may be terminated
by us following the first year of its term at any time upon payment of twelve months’ salary to Mr. Joshua Sidsworth.
The following table describes the estimated
incremental payments, payables and other benefits that would have been received by each Named Executive Officer if we had undergone
a change of control or his or her employment with us had been terminated, as applicable, as of August 31, 2020.
Name
|
Scenario
|
Total
|
Severance
|
Stock Options
|
|
John Levy
|
Termination
|
$2,015,400
|
$1,920,000
|
$95,4002
|
|
|
Change of Control
|
nil
|
nil
|
nil
|
|
Benjamin Levy
|
Termination
|
$385,000
|
$385,000
|
nil
|
|
|
Change of Control
|
nil
|
nil
|
nil
|
|
Alvin Lobo
|
Termination
|
$165,000
|
$165,000
|
nil
|
|
|
Change of Control
|
nil
|
nil
|
nil
|
|
Hecham Ghazal
|
Termination
|
$300,000
|
$300,000
|
nil
|
|
|
Change of Control
|
nil
|
nil
|
nil
|
|
Joshua Sidsworth
|
Termination
|
$216,667
|
$216,667
|
nil
|
|
|
Change of Control
|
nil
|
nil
|
nil
|
Compensation of Directors
The following table below sets forth information
concerning compensation paid to our non-executive directors in the fiscal year ended August 31, 2020 under the compensation arrangements
described above.
Mr. John Levy, the Chairman and Chief Executive
Officer, and Mr. Benjamin Levy, President and Chief Operating Officer are currently two of our directors. The compensation received
by Mr. John Levy and Mr. Benjamin Levy in respect of the fiscal year ended August 31, 2020 is described above in “Summary
Compensation Table”.
|
|
2
|
Represents in-the-money value of stock options which
would have vested between September 1, 2019 - August 31, 2020, which vesting would be accelerated upon termination pursuant to
the terms of the Management Services Agreement. Value of in-the-money stock options is calculated on the basis of the difference
between the closing price of the Class A Shares on the TSX Venture Exchange on August 31, 2020 ($0.62) and the exercise price
of the options. We voluntarily delisted the Class A Shares from the TSX Venture Exchange and listed the Class A Shares on the
Toronto Stock Exchange effective September 15, 2020; occurring after the completion of the fiscal year to which this Circular
relates.
|
|
Name
|
Fees
Earned
(C$)(1)
|
Option Based
Awards
(C$)(2)
|
Restricted Share unit Award
(C$)(3)
|
All Other
Compensation
(C$)(4)
|
Total
(C$)
|
|
John Albright
|
$21,667
|
$70,174
|
$14,853
|
$1,667
|
$108,360
|
|
Brian Cooper(5)
|
$986
|
n/a
|
$14,853
|
$99
|
$15,938
|
|
Ralph Lean
|
$29,333
|
$70,174
|
$20,422
|
$2,667
|
$122,596
|
|
Angela Ruggiero(6)
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Lorry Schneider(7)
|
$20,808
|
$70,174
|
nil
|
$2,581
|
$93,563
|
|
Mark Scholes(7)
|
$29,333
|
$70,174
|
$20,422
|
$2,667
|
$122,596
|
|
William Thomson
|
$34,000
|
$70,174
|
$24,135
|
$2,667
|
$130,976
|
|
Mark Zega
|
$20,808
|
$70,174
|
nil
|
$2,581
|
$93,563
|
Notes:
|
|
(1)
|
The sums represented in the “Fees Earned” column of this table include all fees earned
for services as a director, including annual retainer fees, committee Chair and meetings fees.
|
|
|
(2)
|
All stock options relate to options to purchase Class A Shares. For more information on our share-based
awards and related accounting considerations, please refer to Note 10 in our consolidated financial statements for the year ended
August 31, 2020.
|
|
|
(3)
|
As an initiative to manage cost during the COVID-19 pandemic Directors agreed to forego 25% of
their fees earned from May 1, 2020 to August 31, 2020 in exchange for the equivalent value of restricted share units.
|
|
|
(4)
|
Other compensation includes our matching of directors ESPP contributions.
|
|
|
(5)
|
Mr. Brian Cooper was appointed as a director on April 22, 2020.
|
|
|
(6)
|
Ms. Angela Ruggiero was appointed as a director on October 14, 2020.
|
|
|
(7)
|
Mr. Lorry Schneider and Mr. Mark Zega resigned as directors, effective April 22, 2020.
|
Our directors who are also our officers
receive no compensation for acting as directors. From September 1, 2019 to December 31, 2019 the annual retainer fee for each eligible
director was $22,000 per annum and starting January 1, 2020 the annual retainer was increased to $40,000. From September 1, 2019
to December 31, 2019 attendance fees were $1,000 per meeting of the Board and starting January 1, 2020 these fees were eliminated.
Each director is required to purchase $8,000 of Class A Shares per annum.
In addition to the above compensation,
the Chair of the Audit Committee receives an additional $25,000 per annum while the Chairs of the HRC Committee and the Nominating
and Corporate Governance Committee receive an additional $15,000 per annum, respectively. All directors are reimbursed for miscellaneous
out–of–pocket expenses incurred in carrying out their duties as directors.
Outstanding Security–Based Awards
The following table presents awards of
stock options granted to the directors under the Option & RSU Plan as of August 31, 2020.
Mr. John Levy, the Chairman and Chief Executive
Officer, and Mr. Benjamin Levy, President and Chief Operating Officer are currently two of our directors. The compensation received
by Mr. John Levy and Mr. Benjamin Levy in respect of the fiscal year ended August 31, 2020 is described above in “Summary
Compensation Table”.
|
|
Option-Based Awards
|
Restricted Share Unit-Based Awards
|
|
Name
|
Number of Securities Underlying Unexercised Options (#)
|
Option Exercise Price (C$)
|
Option
Expiration Date
|
Value
of
Unexercised in-the-
Money
Options (C$)(1)
|
Number
of Securities That
Have Not Vested
(#)
|
Market or Payout
Value of Awards
That Have
Not Vested
($)
|
Market or
Payout Value
of Vested
Awards Not
Paid Out or Distributed
($)
|
|
John Albright
|
100,000
100,000
80,000
60,000
120,000
40,000
40,000
|
$0.850
$0.300
$0.145
$0.210
$0.310
$0.290
$0.180
|
January 22, 2030
January 23, 2029
January 11, 2028
October 19, 2026
November 16, 2025
October 14, 2024
October 23, 2023
|
nil
$32,000
$38,000
$24,600
$37,200
$13,200
$17,600
|
nil
|
nil
|
nil
|
|
Brian Cooper
|
n/a
|
n/a
|
n/a
|
n/a
|
nil
|
nil
|
nil
|
|
Ralph Lean
|
100,000
100,000
80,000
60,000
120,000
40,000
40,000
40,000
|
$0.850
$0.300
$0.145
$0.210
$0.310
$0.290
$0.180
$0.130
|
January 22, 2030
January 23, 2029
January 11, 2028
October 19, 2026
November 16, 2025
October 14, 2024
October 23, 2023
November 27, 2022
|
nil
$32,000
$38,000
$24,600
$37,200
$13,200
$17,600
$19,600
|
nil
|
nil
|
nil
|
|
Angela Ruggiero(2)
|
n/a
|
n/a
|
n/a
|
n/a
|
nil
|
nil
|
nil
|
|
Lorry Schneider(3)
|
n/a
|
n/a
|
n/a
|
n/a
|
nil
|
nil
|
nil
|
|
Mark Scholes
|
100,000
100,000
80,000
60,000
120,000
40,000
40,000
40,000
|
$0.850
$0.300
$0.145
$0.210
$0.310
$0.290
$0.180
$0.130
|
January 22, 2030
January 23, 2029
January 11, 2028
October 19, 2026
November 16, 2025
October 14, 2024
October 23, 2023
November 27, 2022
|
nil
$32,000
$38,000
$24,600
$37,200
$13,200
$17,600
$19,600
|
nil
|
nil
|
nil
|
|
William Thomson
|
100,000
100,000
80,000
60,000
120,000
40,000
40,000
40,000
|
$0.850
$0.300
$0.145
$0.210
$0.310
$0.290
$0.180
$0.130
|
January 22, 2030
January 23, 2029
January 11, 2028
October 19, 2026
November 16, 2025
October 14, 2024
October 23, 2023
November 27, 2022
|
nil
$32,000
$38,000
$24,600
$37,200
$13,200
$17,600
$19,600
|
nil
|
nil
|
nil
|
|
Mark Zega(3)
|
n/a
|
n/a
|
n/a
|
n/a
|
nil
|
nil
|
nil
|
Notes:
|
|
(1)
|
The “Value of Unexercised in-the-Money Options” is calculated on the basis of the difference
between the closing price of the Class A Shares on the TSX Venture Exchange on August 31, 2020 ($0.62) and the exercise price of
the options. We voluntarily delisted the Class A Shares from the TSX Venture Exchange and listed the Class A Shares on the Toronto
Stock Exchange effective September 15, 2020; occurring after the completion of the fiscal year to which this Circular relates.
|
|
|
(2)
|
Ms. Angela Ruggiero was appointed as a director on October 14, 2020.
|
|
|
(3)
|
Mr. Lorry Schneider and Mr. Mark Zega resigned as directors, effective April 22, 2020 and as of
August 31, 2020 have not options outstanding.
|
Value Vested or Earned During F2020
The following table presents the value
of incentive plan awards that vested or were earned for each director for the fiscal year ended August 31, 2020. All awards that
vested or were earned by directors during the fiscal year ended August 31, 2020 were granted by theScore.
Mr. John Levy, the Chairman and Chief Executive
Officer, and Mr. Benjamin Levy, President and Chief Operating Officer are currently two of our directors. The compensation received
by Mr. John Levy and Mr. Benjamin Levy in respect of the fiscal year ended August 31, 2020 is described above in “Summary
Compensation Table”.
|
Name
|
Option-Based Awards –
Value Vested During the
Year (C$)(1)
|
Restricted Share
Unit-Based Awards –
Value Vested During
the Year (C$)
|
Non-Equity Incentive
Plan Compensation –
Value Earned During the
Year (C$)
|
|
John Albright
|
$22,600
|
$14,853
|
nil
|
|
Brian Cooper
|
n/a
|
$14,853
|
n/a
|
|
Ralph Lean
|
$22,600
|
$20,422
|
nil
|
|
Angela Ruggiero(2)
|
n/a
|
nil
|
n/a
|
|
Lorry Schneider
|
$13,760
|
nil
|
nil
|
|
Mark Scholes
|
$22,600
|
$20,422
|
nil
|
|
William Thomson
|
$22,600
|
$24,135
|
nil
|
|
Mark Zega
|
$13,760
|
nil
|
nil
|
Notes:
|
|
(1)
|
The “Option-Based Awards – Value Vested During the Year” amounts are calculated
on the basis of the difference between the closing price of the Class A Shares on the TSX Venture Exchange on the date of vesting
and the exercise price of the options. We voluntarily delisted the Class A Shares from the TSX Venture Exchange and listed the
Class A Shares on the Toronto Stock Exchange effective September 15, 2020; occurring after the completion of the fiscal year to
which this Circular relates.
|
|
|
(2)
|
Ms. Angela Ruggiero was appointed as a director on October 14, 2020.
|
Securities
authorized for issuance under equity compensation plans
The following table sets out summary information
with respect to the Option & RSU Plan as at August 31, 2020.
|
Plan Category
|
Number of Class A Shares to
be Issued Upon Exercise of Outstanding Options
|
Weighted-Average Exercise
Price of Outstanding Options
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
|
|
Equity Compensation plan approved by Shareholders
|
35,738,583
|
$0.38
|
13,209,909
|
|
Equity Compensation plan not approved by Shareholders
|
nil
|
n/a
|
n/a
|
|
|
|
|
|
|
|
|
INDEBTEDNESS
OF DIRECTORS AND EXECUTIVE OFFICERS
None of our directors or executive officers,
nor any of their respective associates or affiliates, is or has been at any time indebted to us or any of our subsidiaries in our
last fiscal year.
interest
of informed persons in material transactions
No person who was an informed person (as
such term is defined in National Instrument 51-102 – Continuous Disclosure Obligations) of theScore, who was proposed
to be one of our directors, or any associate or affiliate of any informed person or proposed director, had a material interest,
direct or indirect, in any transaction since the commencement of our most recently completed financial year or in any proposed
transaction which has materially affected or would materially affect us or any of our subsidiaries, including those matters to
be acted upon at the Meeting.
ADDITIONAL
INFORMATION
Additional information, including (without
limitation) financial information, is contained in our consolidated financial statements and Management’s Discussion and
Analysis as at and for the years ended August 31, 2020 and 2019 and our AIF dated October 28, 2020. Additional information relating
to theScore is available on SEDAR at www.sedar.com. Shareholders can contact us at https://scoremediaandgaming.com/
to request copies of our consolidated financial statements and Management’s Discussion and Analysis as at and for the
years ended August 31, 2020 and 2019.
APPROVAL
BY BOARD OF DIRECTORS
The Board has approved
the contents and sending of this Management Information Circular.
DATED at Toronto, this
8th day of January, 2021.
By Order of the Board of Directors,
|
|
“John Levy”
|
|
|
|
Chairman and Chief Executive Officer
|
|
APPENDIX A
AMENDED OPTION & RSU PLAN
(See attached.)
SCORE MEDIA AND GAMING INC.
SECOND AMENDED AND RESTATED STOCK
OPTION AND RESTRICTED STOCK UNIT PLAN
Effective February ●, 2021
Table of Contents
Page
|
Article I
Defined Terms
|
3
|
|
Article II
Purpose of Plan
|
5
|
|
Article III
Administration of the Plan
|
6
|
|
Article IV
Shares Subject to Plan
|
6
|
|
Article V
Eligibility, Grant and Certain Terms of Awards
|
7
|
|
Article VI
Termination; Death
|
8
|
|
Article VII
Options
|
9
|
|
Article VIII
Restricted Share Units
|
10
|
|
Article IX
Certain Adjustments
|
11
|
|
Article X
Amendment or Discontinuance of Plan
|
12
|
|
Article XI
Miscellaneous Provisions
|
14
|
|
Article XII
Shareholder and Regulatory Approval
|
15
|
Article I
Defined Terms
1.1
Where used herein, the following terms will have the following meanings, respectively:
|
|
(a)
|
“Applicable
Laws” means all securities, corporate and other laws, rules, policies and regulations
(whether Canadian or foreign, and whether established by federal, provincial or territorial
governmental bodies or securities regulatory authorities) and all stock exchange requirements
applicable to the Corporation in relation to the administration and implementation of
the Plan.
|
|
|
(b)
|
“Associate”
has the meaning set forth in Part I of the TSX Company Manual;
|
|
|
(c)
|
“Award”
means a grant under the Plan of Options or Restricted Share Units;
|
|
|
(d)
|
“Black
Out Period” means any period during which a policy of the Corporation prevents
an Insider from trading in securities of the Corporation;
|
|
|
(e)
|
“Board”
means the board of directors of the Corporation;
|
|
|
(f)
|
“Business
Day” means any day, other than a Saturday, Sunday or a statutory holiday on
which the Exchange is open for trading;
|
|
|
(g)
|
“Clawback
Policy” has the meaning attributed thereto in Section 5.6 hereof;
|
|
|
(h)
|
“Committee”
has the meaning attributed thereto in Article III hereof;
|
|
|
(i)
|
“Corporation”
means Score Media and Gaming Inc. and includes any successor corporation thereto;
|
|
|
(j)
|
“Eligible
Person” means any director, officer or Employee of the Corporation and its
Subsidiaries, or a Service Provider;
|
|
|
(k)
|
“Employee”
means: (a) an individual who is considered an employee of the Corporation or its Subsidiary
under the Income Tax Act (Canada) (and for whom income tax, employment insurance
and CPP deductions must be made at source); (b) an individual who works full-time for
the Corporation or its Subsidiary providing services normally provided by an employee
and who is subject to the same control and direction by the Corporation over the details
and methods of work as an employee of the Corporation, but for whom income tax deductions
are not made at source; or (c) an individual who works for the Corporation or its Subsidiary
on a continuing and regular basis for a minimum amount of time per week providing services
normally provided by an employee and who is subject to the same control and direction
by the Corporation over the details and methods of work as an employee of the Corporation,
but for whom income tax deductions are not made at source;
|
|
|
(l)
|
“Employee
Optionee” has the meaning attributed thereto in Section 6.1 hereof;
|
|
|
(m)
|
“Employee
Optionee Termination Date” has the meaning attributed thereto in Section 6.1
hereof;
|
|
|
(n)
|
“Employee
RSU Grantee” has the meaning attributed thereto in Section 6.7 hereof;
|
|
|
(o)
|
“Employee
RSU Grantee Termination Date” has the meaning attributed thereto in Section
6.7 hereof;
|
|
|
(p)
|
“Exchange”
means the Toronto Stock Exchange;
|
|
|
(q)
|
“Holding
Company” means a holding company wholly-owned by an Eligible Person;
|
|
|
(r)
|
“Insider”
has the meaning set forth in Part I of the TSX Company Manual;
|
|
|
(s)
|
“Market
Price” means the closing price of the Shares on the Exchange on the Business
Day immediately preceding the day on which the Options are granted or, if no Shares have
been traded on such immediately preceding Business Day, the weighted average trading
price for the five Business Days on which Shares have been traded immediately preceding
the day on which the Options are granted, or such other amount as the Committee may determine
to be the fair market value of a Share;
|
|
|
(t)
|
“Option”
means an option to purchase Shares granted under the Plan;
|
|
|
(u)
|
“Option
Price” means the price per Share at which Shares may be purchased under the
Option as the same may be adjusted from time to time in accordance with Article IX
hereof, which for greater certainty will never be less than the Market Price on the date
of the grant of the Option;
|
|
|
(v)
|
“Optionee”
means a person to whom an Option has been granted;
|
|
|
(w)
|
“Participant”
means the holder of an outstanding Award granted or awarded under the Plan;
|
|
|
(x)
|
“Plan”
means this Amended and Restated Stock Option and Restricted Stock Unit Plan of the Corporation;
|
|
|
(y)
|
“RSU
Grantee” means a person to whom a Restricted Share Unit has been awarded;
|
|
|
(z)
|
“Restricted
Share Unit” means a right to receive Shares in the settlement of an Award granted
pursuant to Article VIII of the Plan;
|
|
|
(aa)
|
“RSU
Grant Date” means the date that the Restricted Share Unit is granted to an
RSU Grantee under the Plan, as evidenced by the Restricted Share Unit grant letter, and
refers also to the date that the Restricted Share Unit is credited to the RSU Grantee
which must always be in the same calendar year;
|
|
|
(bb)
|
“Service
Provider” has the meaning set forth in Section 613(b) of the TSX Company Manual;
|
|
|
(cc)
|
“Services
Optionee” has the meaning attributed thereto in Section 6.3 hereof;
|
|
|
(dd)
|
“Services
Optionee Termination Date” has the meaning attributed thereto in Section 6.3
hereof;
|
|
|
(ee)
|
“Services
RSU Grantee” has the meaning attributed thereto in Section 6.8 hereof;
|
|
|
(ff)
|
“Services
RSU Grantee Termination Date” has the meaning attributed thereto in Section
6.8 hereof;
|
|
|
(gg)
|
“Shares”
means the Class A Subordinate Voting Shares in the capital of the Corporation, or such
other shares or securities to which a Participant may be entitled as a result of an adjustment
in accordance with Article IX;
|
|
|
(hh)
|
“Subsidiary”
means any body corporate which is a “subsidiary” (as such term is defined
in the corporate statute governing the Corporation, as the same may be amended from time
to time); and
|
|
|
(ii)
|
“TSX
Company Manual” means the TSX Company Manual of the Exchange (as the same may
be amended from time to time).
|
1.2
In this Plan, words imparting the singular number only will include the plural and vice versa and words imparting
the masculine will include the feminine.
1.3
The headings of the articles of this Plan are inserted herein solely to facilitate the reading hereof and will not
be used to interpret the Plan.
1.4
All references in the Plan text to a currency or to amounts expressed in dollars will refer to the currency having
legal tender in Canada.
1.5
This Plan will be governed by and construed in accordance with the laws of the Province of Ontario and the federal
laws of Canada applicable therein.
Article II
Purpose of Plan
2.1
The purpose of the Plan is to advance the interests of the Corporation by encouraging the directors, officers, Employees
and Service Providers of the Corporation and its Subsidiaries to acquire Shares thereby:
|
|
(i)
|
increasing
the proprietary interests of such persons in the Corporation;
|
|
|
(ii)
|
further
aligning the interests of such persons with the interests of the Corporation’s
shareholders generally;
|
|
|
(iii)
|
encouraging
such persons to remain associated with the Corporation; and
|
|
|
(iv)
|
enhancing
the Corporation’s ability to attract, retain and motivate key personnel and reward
significant performance achievements.
|
Article III
Administration of the Plan
3.1
Subject to any agreement to the contrary entered into by the Corporation: (i) the Plan will be administered by the
Human Resources and Compensation Committee (the “Committee”) appointed by the Board; and (ii) the members of
the Committee will serve at the pleasure of the Board and vacancies occurring in the Committee will be filled by the Board.
3.2
The Committee will select one of its members as its Chairman and will hold its meetings at such time and place as
it deems advisable. A majority of the members of the Committee will constitute a quorum and all actions of the Committee will
be taken by a majority of the members present at any meeting. Any action of the Committee may be taken by an instrument or instruments
in writing signed by all members of the Committee, and any action so taken will be as effective as if it had been passed by a
majority of the votes cast by the members of the Committee present at a meeting of such members duly called and held.
3.3
Subject to the limitations of the Plan, the Committee will have the power and authority to:
|
|
(i)
|
adopt,
amend and rescind such administrative guidelines and other rules and regulations for
carrying out the purposes, provisions and administration of the Plan as it, from time
to time, deems advisable;
|
|
|
(ii)
|
interpret
the Plan and make all other determinations and take all other actions in connection with
the implementation and administration of the Plan and any Award granted pursuant to the
Plan;
|
|
|
(iii)
|
determine
which Eligible Persons will be granted Options and Restricted Share Units;
|
|
|
(iv)
|
determine
the Option Price;
|
|
|
(v)
|
determine
the time or times when Awards will be granted;
|
|
|
(vi)
|
determine
if the Shares which are subject to an Award will be subject to any restrictions upon
the exercise or settlement of such Award; and
|
|
|
(vii)
|
prescribe
the form of the instruments relating to the grant, exercise, settlement and other terms
of Awards.
|
The Committee’s administration guidelines,
rules, regulations, interpretations and determinations will be final, binding and conclusive upon the Corporation and all other
persons for all purposes.
Article IV
Shares Subject to Plan
4.1
Awards may be granted in respect of authorized and unissued Shares provided that the aggregate number of Shares
that may be issued, at any time, under this Plan (subject to adjustment or increase of such number pursuant to the provisions
of Article IX hereof) will not exceed 65,000,000 Shares provided that the Board will have the right from time to time, to
increase such number subject to Applicable Laws. For the purposes of this Plan, the Corporation will reserve such number of Shares
out of its authorized and unissued Shares. Shares in respect of Awards that have expired, terminated or been cancelled for any
reason without being exercised will be available for subsequent grants of Awards under the Plan. No fractional Shares may be purchased
or issued under the Plan. For purposes of this Section 4.1, the number of Shares that will be counted against the Plan in respect
of Restricted Share Units will be equal to the number of Shares the RSU Grantees would be entitled to receive under the Plan if
the Restricted Share Units were settled on the RSU Grant Dates.
4.2
The maximum number of Shares that may be issued to any one Participant under the Plan and any other share-based
compensation arrangement adopted by the Corporation, at any time in any twelve (12) month period, will not exceed 5% of the Shares
issued and outstanding at the date on which the Award was granted.
4.3
The aggregate number of Shares that may be issuable, at any time, under Awards awarded to Insiders (as a group),
together with Shares that may be issuable under awards awarded to Insiders (as a group) under any other share-based compensation
arrangement adopted by the Corporation, may not exceed 10% of the issued and outstanding Shares. The aggregate number of Shares
that may be issued, within any twelve (12) month period, under Awards awarded to Insiders (as a group), together with Shares that
may be issued under awards awarded to Insiders (as a group) under any other share-based compensation arrangement adopted by the
Corporation, may not exceed 10% of the issued and outstanding Shares.
Article V
Eligibility, Grant and Certain Terms of Awards
5.1
Options and Restricted Share Units may be granted or awarded to Eligible Persons on terms and conditions (including
vesting) approved by the Committee.
5.2
Awards will be granted or awarded by the Corporation only pursuant to recommendations of the Committee; provided
and to the extent that such recommendations are approved by the Board.
5.3
Notwithstanding any other term of this Plan, no Award will have an expiry date that is more than ten (10) years from the date
on which the Award was granted or awarded.
5.4
If required by any Applicable Laws, upon the granting of Awards to Employees or Service Providers, the Corporation
will represent to the Exchange that said Participants are bona fide Employees or Service Providers, as the case may be.
5.5 An
Award is personal to the Participant (but upon written notice by the Participant, any Award that might otherwise be granted or
awarded to that Participant will be granted or awarded, in whole or in part, to a Holding Company established by and for the sole
benefit of the Participant) and may not be sold, assigned, pledged, transferred or encumbered in any way (except to a Holding
Company established by and for the sole benefit of the Participant).
5.6
Notwithstanding any other provisions in this Plan, the Corporation may cancel any Award, require reimbursement of
any Award by a Participant and effect any other right of recovery or recoupment of the cash value of any equity or other compensation
provided under the Plan under Applicable Laws, stock exchange listing requirements or in accordance with any policies of the Corporation
that may be adopted or modified from time to time (each, a “Clawback Policy”). By accepting an Award, the Participant
is agreeing to be bound by any Clawback Policy as in effect on the date of grant (or as may be adopted or modified from time to
time by the Corporation to comply with Applicable Laws or stock exchange listing requirements).
Article VI
Termination; Death
Optionees
6.1
Subject to Section 6.2 hereof and to any express resolution passed by the Committee with respect to an Option, an
Option, and all rights to purchase Shares pursuant thereto granted to a director, officer or Employee of the Corporation or its
Subsidiaries (an “Employee Optionee”), will expire and terminate immediately upon the date on which the Employee
Optionee ceases to be an Employee Optionee (such date being referred to herein as the “Employee Optionee Termination
Date”).
6.2
If, before the expiry of an Option in accordance with the terms thereof, the employment of an Employee Optionee
by the Corporation or its Subsidiaries will terminate for any reason whatsoever other than termination by reason of the death
of the Employee Optionee, such Option may, subject to the terms thereof and any other terms of the Plan, be exercised at any time
within sixty (60) days after the Employee Optionee Termination Date (but in any case prior to the expiry of the Option in accordance
with the terms thereof), but only to the extent that the Employee Optionee was entitled to exercise such Options at the Employee
Optionee Termination Date. In the event of the death of an Employee Optionee and, subject to Section 7.3 hereof, the legal representatives
of the Employee Optionee may exercise the Options held by the Employee Optionee on the foregoing terms provided the Options are
exercised or settled within one hundred and eighty (180) days of the Employee Optionee Termination Date.
Without limitation, and for greater certainty
only, this section will apply regardless of whether the Employee Optionee was dismissed with or without cause and regardless of
whether the Employee Optionee received compensation in respect of dismissal or was entitled to a notice period of termination
which would otherwise have permitted a greater portion of the Options to vest.
6.3
Subject to Section 6.4 hereof and to any express resolution passed by the Committee with respect to an Option, an
Option, and all rights to purchase Shares pursuant thereto granted to any Service Provider (a “Services Optionee”),
will expire and terminate immediately upon the date on which the written agreement by which such Services Optionee was retained
was terminated (such date being referred to herein as the “Services Optionee Termination Date”).
6.4
If, before the expiry of an Option in accordance with the terms thereof, the written agreement by which a Services
Optionee was retained is terminated, such Option may, subject to the terms thereof and the other terms of the Plan, be exercised
by the Services Optionee at any time within sixty (60) days of the Services Optionee Termination Date (but in any event prior
to the expiry of the Option in accordance with the terms thereof), but only to the extent that the Services Optionee was entitled
to exercise such Option at the Services Optionee Termination Date.
6.5
In the event that, prior to the exercise of any Option, the Committee is notified that the relevant Optionee is
incapable, the legal representative of the Optionee may exercise the Options held by the Optionee.
6.6
If the date on which an Option expires occurs during or within ten (10) Business Days after the last day of a Black
Out Period, then the date on which such Option expires will be deemed to be the last Business Day of such ten (10) Business Day
period.
RSU Grantees
6.7
Subject to any express resolution passed by the Committee with respect to any Restricted Share Unit, a Restricted
Share Unit which has not yet vested, and all rights to have such Restricted Share Unit settled in accordance with Section 8.1,
will be forfeited immediately upon the date on which the RSU Grantee who is a director, officer or Employee of the Corporation
or its Subsidiaries (an “Employee RSU Grantee”) ceases to be an Employee RSU Grantee (such date being referred
to herein as the “Employee RSU Grantee Termination Date”).
Without limitation, and for greater certainty
only, this section will apply regardless of whether the RSU Grantee was dismissed with or without cause and regardless of whether
the RSU Grantee received compensation in respect of dismissal or was entitled to a notice period of termination which would otherwise
have permitted a greater portion of the Restricted Share Units to vest.
6.8
Subject to any express resolution passed by the Committee with respect to any Restricted Share Unit, a Restricted
Share Unit which has not yet vested, and all rights to have such Restricted Share Unit settled in accordance with Section 8.1,
will be forfeited immediately upon the date on which the written agreement by which the RSU Grantee who is a Service Provider
was retained (a “Services RSU Grantee”) was terminated (such date being referred to herein as the “Services
RSU Grantee Termination Date”).
Article VII
Options
7.1
The Option Price on Shares which are the subject of any Option will in no circumstances be lower than the Market
Price of the Shares at the date on which the Option was granted.
7.2
Subject to the provisions of the Plan, an Option which has vested may be exercised at any time prior to the expiry
of the Option in accordance with the terms thereof by delivery to the Corporation at its registered office of (i) a written notice
of exercise in such form as from time to time prescribed by the Committee which may include representations, warranties, covenants
and other agreements and undertakings of the Optionee as the Committee may deem appropriate, signed by the Optionee or, if applicable,
the legal representatives of such Optionee, addressed to the Chief Financial Officer of the Corporation specifying the number
of Shares with respect to which the Option is being exercised, (ii) payment, in full, of the Option Price of the Shares to be
purchased in cash or by bank draft or certified cheque at the time of such exercise, and (iii) evidence to the satisfaction of
the Committee that all applicable taxes (including but not limited to withholding taxes) have been adequately provided for. Certificates
for such Shares will be issued and delivered to the Optionee within a reasonable time following the receipt of such notice and
payment.
7.3
In the event of the exercise of any Options by the legal representative of an Optionee holding such Options, the
legal representative will also deliver to the Corporation evidence satisfactory to the Corporation of the legal representative’s
authority to do so.
7.4
Notwithstanding any of the provisions contained in the Plan or in any Option, the Corporation’s obligation
to issue Shares to an Optionee pursuant to the exercise of an Option will be subject to:
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(i)
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completion
of such registration or other qualification of such Shares or obtaining approval of such
government authority as the Corporation will determine to be necessary or advisable in
connection with the authorization, issuance or sale thereof;
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(ii)
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the
admission of such Shares to listing on any stock exchange on which the Shares may then
be listed; and
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(iii)
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the
receipt from the Optionee of such representatives, agreements and undertaking, including
as to future dealings in such Shares, as the Corporation or its counsel determines to
be necessary or advisable in order to safeguard against the violation of the securities
laws of any jurisdiction.
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In this connection the Corporation will,
to the extent necessary, take all reasonable steps to obtain such approvals, registrations and qualifications as may be necessary
for the issuance of such Shares in compliance with Applicable Laws and for the listing of such Shares on any stock exchange on
which the Shares are then listed.
Article VIII
Restricted Share Units
8.1
The number of Restricted Share Units awarded to an RSU Grantee will be credited to the RSU Grantee’s account,
effective as of the RSU Grant Date. A Restricted Share Unit granted to an RSU Grantee will entitle the RSU Grantee, subject to
the RSU Grantee’s satisfaction of any conditions, restrictions, performance objectives, vesting period or limitations imposed
under the Plan or set out in the Restricted Share Unit grant letter, to receive a payment in fully paid Shares issued from treasury
of the Corporation on the date when the Restricted Share Unit is vested.
8.2
Subject to the absolute discretion of the Committee, the Committee may elect to credit each RSU Grantee holding
Restricted Share Units with additional Restricted Share Units upon the payout of dividends on the Shares. In such case, the number
of additional Restricted Share Units will be equal to the aggregate value of dividends that would have been paid to the RSU Grantee
if the Restricted Share Units in the RSU Grantee’s account had been Shares divided by the Market Price of a Share on the
date on which dividends were paid by the Corporation. The additional Restricted Share Units will vest on the date that the particular
Award of Restricted Share Units to which the additional Restricted Share Units relate are fully vested.
8.3
Each grant of a Restricted Share Unit under the Plan shall be evidenced by a Restricted Share Unit grant letter
of the Corporation, in such form as may be approved by the Committee from time to time, and signed in acknowledgement by the RSU
Grantee. Such Restricted Share Unit grant letter shall be subject to all applicable terms and conditions of the Plan and may include
performance vesting conditions or any other terms and conditions (including clawback provisions) which are not inconsistent with
the Plan and which the Committee deems appropriate for inclusion in a Restricted Share Unit grant letter. The provisions of the
various Restricted Share Unit grant letters issued under the Plan need not be identical. Any Restricted Share Unit granted hereunder
will be settled according to the terms of the Plan and at such times and under such conditions as determined by the Committee
and set forth in the Restricted Share Unit grant letter.
8.4
In the event that an Employee RSU Grantee Termination Date or a Services RSU Grantee Termination Date occurs by
reason of the RSU Grantee’s death, or in the event that the Committee is notified that an RSU Grantee to whom a settlement
of Restricted Share Units is owed is incapable, the RSU Grantee’s legal representative will deliver to the Corporation evidence
satisfactory to the Corporation of the legal representative’s authority to receive the Shares upon settlement of the Restricted
Share Units.
Article IX
Certain Adjustments
9.1 The
Board will have the power to make adjustments, as it deems appropriate, with respect to Awards previously granted or to be granted
under this Plan, in the number of Shares subject to Awards and the number of Shares which may be released under this Plan in the
event of and in order to adjust for the effect of any subdivision or consolidation of the Shares, stock dividends or similar distributions
(other than dividends or distributions in the ordinary course), reclassification or conversion of the Shares, recapitalization,
reorganization or distributions, or any other event which, in the opinion of the Board, necessitates action by way of adjustment
to the terms of the outstanding Awards. The Board will exercise the power to adjust pursuant to this Article IX in good faith
and in an equitable manner.
9.2
Subject to any Applicable Laws, the determination and judgment of the Board with respect to any adjustment made
pursuant to this Article IX will be conclusive and binding upon each Participant and each Participant will accept, at the
time of exercise or settlement of any Award held, such lesser or greater number of Shares or other securities as will result from
such adjustment.
9.3
Subject to the provisions of this Plan and unless otherwise determined by the Board, in the event of:
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(i)
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an
amalgamation, arrangement, consolidation, amendment to the terms of a class of equity
securities or any other transaction of the Corporation, as a consequence of which the
interest of a holder of an equity security of the Corporation may be terminated without
the holder’s consent, regardless of whether the equity security is replaced with
another security (a “business combination”);
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(ii)
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a
dissolution or liquidation of the Corporation;
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(iii)
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the
sale of all or substantially all of the assets of the Corporation; or
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(iv)
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any
other transaction or series of related transactions which does not result in the shareholders
of the Corporation immediately prior to such transaction or series of related transactions
holding 50% or more of the voting power of the surviving or continuing entity following
such transaction or series of related transactions;
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then, at the option of the Corporation:
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(v)
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any
or all outstanding Awards may be assumed by the successor or continuing entity (if any)
and such assumption shall be binding on all Participants or the successor or continuing
entity may provide substantially similar consideration to Participants as was provided
to shareholders of the Corporation (after taking into account the existing provisions
of the Awards);
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(vi)
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in
the case of a take-over bid, the Corporation will be entitled to accelerate the exercise
or settlement of Awards and:
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(A)
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the
Optionee may elect to exercise all or any of the Options (whether vested or not at the
time) pursuant to Section 7.2 hereof for the purpose of tendering such Shares under such
formal bid (which exercise shall be conditional upon the offeror taking up Shares under
its take-over bid); and
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(B)
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the
Restricted Share Units (whether vested or not at the time) will be settled in Shares
for the purpose of tendering such Shares under such formal bid (which settlement shall
be conditional upon the offeror taking up Shares under its take-over bid); and
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(vii)
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in
the case of a business combination, the Corporation may terminate all of the Awards granted
under this Plan at the time of and subject to the completion of such business combination
by giving at least ten (10) days prior written notice of such termination to each of
the Participants and paying to each of the Participants at the time of completion of
such business combination an amount equal to the fair market value of the Awards held
by such Participant as determined by a recognized investment dealer in Canada which has
not otherwise been retained by the Corporation or any of its Subsidiaries or any other
person in connection with such business combination. Otherwise, any outstanding Awards
will be treated as provided in the applicable agreement or plan with respect to such
transaction. In the event that the successor or continuing entity (if any) refuses to
assume or substitute any outstanding Awards as provided herein, the Corporation will
so notify the Participants in writing and unless otherwise determined by the Board, the
Participants will have ten (10) Business Days following the date such notice was given
to exercise the Awards held by them to the extent that they were entitled to exercise
them as at the date of such notice, failing which such Awards shall be deemed to expire.
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Article X
Amendment or Discontinuance of Plan
10.1
The Board may amend, suspend or terminate the Plan, or any portion thereof, at any time and without shareholder
approval, subject to those provisions of Applicable Laws, if any, that require the approval of shareholders or any governmental
or regulatory body, except that shareholder approval will be required for the following types of amendments to the Plan:
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(i)
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amendments
to the number of Shares issuable under the Plan, including an increase to a fixed maximum
number of Shares or a change from a fixed maximum number of Shares to a fixed maximum
percentage;
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(ii)
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any
amendment which reduces the Option Price of an Option that is held by an Insider;
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(iii)
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any
amendment extending the term of an Option (or a Restricted Share Unit, if applicable)
that is held by an Insider beyond its original expiry date;
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(iv)
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any
amendments that would result in any limits in this Plan on participation by Insiders,
as set forth in Article IV hereof, being removed or exceeded; and
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(v)
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amendments
required to be approved by shareholders under Applicable Law.
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Where shareholder approval is sought for
amendments under subsections (ii) - (iv) above, the votes attached to Shares held directly or indirectly by Insiders and Associates
of Insiders benefiting from the amendment will be excluded.
Without limiting the generality of the
foregoing, the Board may make the following types of amendments to the Plan without seeking shareholder approval:
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(a)
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amendments
of a “housekeeping” or ministerial nature including, without limiting the
generality of the foregoing, any amendment for the purpose of curing any ambiguity, error
or omission in the Plan or to correct or supplement any provision of the Plan that is
inconsistent with any other provision of the Plan;
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(b)
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amendments
necessary to comply with the provisions of Applicable Laws;
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(c)
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amendments
respecting administration of the Plan;
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(d)
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any
amendment to the vesting provisions of the Plan or any Award;
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(e)
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any
amendment to the early termination provisions of the Plan or any Award, whether or not
such Award is held by an Insider, provided such amendment does not entail an extension
beyond the original expiry date;
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(f)
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the
addition of any form of financial assistance by the Corporation for the acquisition by
all or certain categories of Participants of Shares under the Plan, and the subsequent
amendment of any such provision which is more favourable to Participants;
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(g)
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the
addition or modification of a cashless exercise feature, payable in cash or Shares, which
provides for a full deduction of the number of underlying Shares from the Plan reserve;
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(h)
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amendments
necessary to suspend or terminate the Plan in whole or in part; and
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(i)
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any
other amendment, whether fundamental or otherwise, not requiring shareholder approval
under Applicable Laws.
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Article XI
Miscellaneous Provisions
11.1
Each Participant shall be solely liable for any and all federal, state, provincial, local or foreign taxes of any
kind (“Taxes”), including but not limited to income taxes, withholding taxes, social security, pension or other
premiums and employment insurance premiums or taxes, arising in respect of any Awards and/or Shares issued or transferred upon
the exercise or settlement thereof. The satisfaction by the Participant (or the provision therefor to the satisfaction of the
Corporation) of all such Taxes shall be a condition precedent to the grant or award of any Award or the receipt of any payment
or Shares pursuant to the terms of the Plan. In the event that the Corporation (or a Subsidiary, in either case, the “Employer”
for purposes of this Section 11.1) is required to withhold, pay or provide for Taxes as a result of the grant, exercise or settlement
of Awards, the issuance or transfer of Shares or other transaction contemplated under the Plan, the Corporation may require that
the Participant make a payment in immediately available funds to the Employer sufficient to cover all Taxes payable in accordance
with Applicable Laws (“Required Taxes”), in an amount determined by the Corporation in its sole discretion
and at the relevant time. Alternatively, the Corporation (or the Employer) may in its sole discretion satisfy or provide for any
such Required Taxes by (i) requiring that the Participant surrender to the Corporation, or authorize and direct the Corporation
to sell, a number of Shares sufficient to generate proceeds equal to the Required Taxes, (ii) satisfying the Required Taxes from
a Participant’s salary or other compensation, or (iii) any other method acceptable to the Corporation. Each Participant
acknowledges that such Participant has satisfied himself or herself in relation to all tax matters relevant to the acquisition,
holding, exercise, disposition and/or transfer of Awards or Shares in connection with the Plan. It is the Participant’s
responsibility to complete and file any tax returns in respect of such Participant’s participation in the Plan. The Corporation
shall not be responsible for any Tax consequences to the Participant in connection with the Participant’s participation
in the Plan.
11.2
This Plan is purely voluntary on the part of the Corporation and the continuance of this Plan will not be deemed
to constitute a contract between the Corporation or its Subsidiaries and any Employee or other Eligible Person or to be consideration
for or a condition of any person acting as a director, officer, Employee or Service Provider of the Corporation or its Subsidiaries.
Neither the adoption of this Plan by the Corporation nor any action of the Board or the Committee will be deemed to give any person
any right to be granted an Award or any of the rights hereunder.
11.3
Nothing contained in this Plan will be construed to prevent the Corporation or any of its Subsidiaries from taking
any corporate action which is determined by their respective board of directors to be appropriate or in the best interests of
the Corporation or any of its Subsidiaries, whether or not such action would have an adverse effect on this Plan or any Awards
granted under this Plan and no person will have any claim against the Corporation or any of its Subsidiaries as a result of any
such action.
11.4
The holder of an Award will not have any rights as a shareholder of the Corporation with respect to any of the Shares
issuable upon the exercise or settlement of such Award until such holder will have exercised an Option or a Restricted Share Unit
will have been settled in accordance with the terms of the Plan (including, but not limited to, tendering payment in full of the
Option Price of the Shares in respect of which an Option is being exercised).
11.5
Nothing in the Plan or any Award will confer upon any Participant any right to continue in the employ of the Corporation
or its Subsidiaries or affect in any way the right of the Corporation or its Subsidiaries to terminate his or her employment at
any time or remove any person from his or her office or employment at any time; nor will anything in the Plan or any Award be
deemed or construed to constitute an agreement, or an expression of intent, on the part of the Corporation or its Subsidiaries
to extend the employment of any Participant beyond the time which he or she would normally be retired pursuant to the provisions
of any present or future retirement plan of the Corporation or any of its Subsidiaries or any present or future retirement policy
of the Corporation or any of its Subsidiaries, or beyond the time at which he or she would otherwise be retired pursuant to the
provisions of any contract of employment with the Corporation or any of its Subsidiaries.
11.6
Nothing in the Plan or any Award will confer on any Participant who is a Services Optionee or is not an Employee
Optionee any right to continue providing ongoing services to the Corporation or any entity controlled by the Corporation or affect
in any way the right of the Corporation or any such entity to terminate his, her or its contract at any time; nor will anything
in the Plan or any Award be deemed or construed as an agreement, or an expression of intent, on the part of the Corporation or
any such entity to extend the time for the performance of the ongoing services beyond the time specified in the contract with
the Corporation or any such entity.
11.7
The Corporation makes no representation or warranty as to the future market value of any Shares issued in accordance
with the provisions of the Plan.
Article XII
Shareholder and Regulatory Approval
12.1
The Plan will be subject to the requisite approval of the shareholders of the Corporation to be given by a resolution
passed at a meeting of the shareholders of the Corporation, and to acceptance by the Exchange. Any Awards granted prior to such
approval and acceptance will be conditional upon such approval and acceptance being given and no Option may be exercised or Restricted
Share Unit settled unless and until such approval and acceptance is given.
U.S. Appendix to the Score Media and
Gaming Inc.
Second Amended and Restated Stock Option and
Restricted Stock Unit Plan
This Special Appendix sets forth special
provisions of the Score Media and Gaming Second Amended and Restated Option and Restricted Stock Unit Plan (the “Plan”)
that apply to Participants that are subject to Section 409A of the United States Internal Revenue Code of 1986, as amended. Terms
defined in the Plan and used herein shall have the meanings set forth in the Plan document, as amended from time to time.
For purposes of this Special Appendix:
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|
1.1.
|
“Code” means the United
States Internal Revenue Code of 1986, as amended, and any applicable United States Treasury
Regulations and other binding regulatory guidance thereunder.
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|
1.1.
|
“Section 409A” means
Section 409A of the Code.
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1.2.
|
“US Taxpayer” means
a Participant who is a citizen or permanent resident of the United States for purposes
of the Code or a Participant for whom the compensation under this Plan would otherwise
be subject to income tax under the Code.
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|
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2.
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COMPLIANCE
WITH SECTION 409A
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|
2.1.
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In General. Notwithstanding any
provision of the Plan to the contrary, it is intended that any payments under the Plan
either be exempt from or comply with Section 409A, and all provisions of the Plan shall
be construed and interpreted in a manner consistent with the requirements for avoiding
taxes or penalties under Section 409A. Each US Taxpayer is solely responsible and liable
for the satisfaction of all taxes and penalties that may be imposed on or for the account
of such US Taxpayer in connection with the Plan or any other plan maintained by the Company
(including any taxes and penalties under Section 409A), and neither the Company nor any
Subsidiary of the Company shall have any obligation to indemnify or otherwise hold such
US Taxpayer (or any beneficiary) harmless from any or all of such taxes or penalties.
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|
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2.2.
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Exercise Price. For the avoidance
of doubt and notwithstanding anything to the contrary in Section 7.1 of the Plan or otherwise,
any Option issued to a US Taxpayer shall have per Share exercise price that is no less
than “fair market value” on the date of grant which value shall be determined
in accordance with Section 409A of the Code.
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2.3.
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Adjustments. Notwithstanding any
provision of the Plan or otherwise, any adjustment to an Option issued to a US Taxpayer
shall be made in accordance with the requirements of Section 409A.
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Amendment of Appendix
3.
Notwithstanding Section 10.1 of the Plan, the Board shall retain the power and authority to amend or modify this
Special Appendix to the extent the Board in its sole discretion deems necessary or advisable to comply with any guidance issued
under Section 409A. Such amendments may be made without the approval of any US Taxpayer.
Grant of Options to U.S. Employees
4.
The Board is authorised under this Appendix, in its sole discretion, to issue Options to U.S. residents as nonqualified
stock options.
5.
The term of an Option granted to a U.S. residents or taxpayers may not be extended except in a manner compliant
with Section 409A of the U.S. Internal Revenue Code of 1986 and the regulations issued thereunder (the “Code”).
Grant of Restricted Stock Units to
U.S. Employees
6.
Notwithstanding Section 8.3 of the Plan, all Shares to be issued pursuant to Restricted Stock Units awarded to U.S.
residents or taxpayers shall be issued no later than March 15th in the year following the year of vesting.
Options in Foreign Countries
7.
The Board will have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable
to comply with provisions of the laws of foreign countries in which the Corporation or its Subsidiaries may operate to assure
the viability of the benefits from Options grants to Participants employed in such countries and to meet the objectives of this
Appendix and the Plan.
Attachment Provisions
8.
Participants who are residents of the State of California will be subject to the additional terms and conditions
set forth in Attachment A to this Appendix.
Compliance with Applicable Laws
9.
The terms of this Appendix, the Plan (including any terms of the Plan that permit adjustments or modifications to
the terms of the Plan or any Awards), the Award, and any applicable Attachment for compliance with the laws of any state shall
be interpreted and applied in a manner consistent with all Applicable Laws, including the requirements under Sections 409A and
424 of the Code.
Attachment A
TO THE SCORE MEDIA AND GAMING INC.
SECOND AMENDED AND RESTATED STOCK OPTION AND
RESTRICTED STOCK UNIT PLAN
(FOR CALIFORNIA RESIDENTS ONLY)
This Attachment A to the U.S. Appendix
(the “Appendix”) of the Score Media and Gaming Inc. Second Amended and Restated Stock Option and Restricted
Stock Unit Plan (the “Plan”) shall have application only to Participants who are residents of the State of
California. Capitalized terms contained herein shall have the same meanings given to them in the Appendix, unless otherwise provided
in this Attachment. Notwithstanding any provision contained in the Plan to the contrary and to the extent required by Applicable
Laws, the following terms and conditions shall apply to all Awards granted to residents of the State of California, until such
time as the Shares become a “listed security” under the U.S. Securities Act of 1933, as amended, or otherwise qualify
for an exemption from the applicable provisions of the California Code:
1.
If Options are surrendered, terminated or expire without being exercised, new Options may be granted covering Shares
not purchased under such lapsed Options or issued pursuant to such forfeited Restricted Share Units.
2.
The Option Price for Options shall be at least 100% of the Market Price of the Shares on the date of grant of the
Option.
3. Awards
shall be non-transferrable other than by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee,
in its discretion, may permit distribution of an Option to an inter vivos or testamentary trust in which the Option is to be passed
to beneficiaries upon the death of the trustor (settlor), or by gift to “immediate family” as that term is defined
in Rule 16a-1(e) of the U.S. Securities Exchange Act of 1934, as amended.
4.
Unless employment is terminated for cause, the right to exercise an Option in the event of termination of employment,
to the extent that the Optionee is otherwise entitled to exercise an Option on the date employment terminates, shall be
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(a)
|
at
least six months from the date of termination of employment if termination was caused
by death or disability (as determined pursuant to Applicable Laws); and
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(b)
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at
least 30 days from the date of termination if termination of employment was caused by
other than death or disability (as determined pursuant to Applicable Laws);
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(c)
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but
in no event later than the remaining term of the Option
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5.
No Award may be granted to a resident of California more than ten years after the earlier of the date of adoption
of the Appendix by the Board and the date the Appendix is approved by the shareholders.
6.
Any Option exercised or issuance of Shares pursuant to an RSU before shareholder approval is obtained shall be rescinded
if shareholder approval is not obtained within 12 months before or after the date of the first grant to a California resident.
Such shares shall not be counted in determining whether such approval is obtained.
7.
No Option may have an exercise period longer than ten years from the date the Option is granted.
8.
Upon the occurrence of any event set forth in Section 9.1 of the Plan, the Board shall make such proportionate adjustments
to outstanding Awards and the Plan as required under Sections 260.140.41 and 260.140.42 of Title 10 of the California Code of
Regulations.
9. The
Corporation shall provide annual financial statements of the Corporation to each California resident holding an outstanding Award
under the Plan. Such financial statements need not be audited and need not be issued to key employees whose duties at the Corporation
assure them access to equivalent information. This Section 9 shall not apply if the Plan (including the Appendix) complies will
all conditions of Rule 701 of the Securities Act of 1933, as amended.
APPENDIX B
CHARTER OF THE BOARD
(See attached.)
STATEMENT OF DIRECTORS' DUTIES AND RESPONSIBILITIES
PART I – INTRODUCTION
The directors of Score Media and Gaming
Inc. (“theScore” or the “Corporation”) are charged by law with the responsibility for managing
or supervising the management of the business and affairs of theScore. Subject to certain limitations, the board may delegate some
of its responsibilities to theScore's management team and limit its own role to supervising theScore's management.
How the board should go about discharging
its supervisory function is not laid down in any one statute, judicial decision or other source. At the most general level, “supervising
the management of the business and affairs” means that the board monitors management's activities and performance and reserves
to itself the ability to intervene in management's decisions and to exercise final judgment on any matter which is material to
theScore. It must be satisfied that the authority it has delegated to management is being exercised with a view to theScore's best
interests and that management has the ability, resources and judgment to discharge the authority delegated to it in the best interests
of the corporation.
Among the specific functions the directors
must perform in order to discharge their responsibility to supervise the management of theScore's business and affairs are: selecting
management; reviewing and approving the corporate objectives developed by management; monitoring the implementation of theScore's
objectives; and satisfying themselves that the appropriate corporate policies and internal controls (including with respect to
the identification and management of risks) are in place. The directors must also be satisfied that theScore has procedures which
provide the directors with sufficient information on a timely basis to make knowledgeable decisions relating to the affairs of
the corporation.
To the extent theScore Board plays a role
in supervising the management of its subsidiaries, that responsibility should be discharged in accordance with the principles discussed
above. Without seeking to limit or restrict in any way the right of the Board to receive information pertaining to the affairs
of theScore, this Statement of Duties and Responsibilities is intended to identify those material matters which must be brought
to the Board either for information purposes or for decision, whether in relation to theScore or any of its operating divisions
or subsidiaries.
The subject matters enumerated under Part
II of this Statement, “The Role of the Board”, attempt to cover broadly the affairs of theScore. While the Chief Executive
Officer and his management team organization are by this Statement given the authority required to exercise their delegated responsibilities,
the Board must be fully informed on all material matters and take whatever additional action it considers to be in theScore's best
interests.
This Statement concludes in Part III with
a summary of the legal framework of certain specific statutory duties and responsibilities to which the directors of theScore are
subject.
PART II – THE ROLE OF THE BOARD
The role of the Board is to supervise the
management of the Corporation's business. The following are the regular functions which the Board performs in order to discharge
this mandate. The Board has the prerogative to take whatever additional action it considers to be in the Corporation’s best
interests.
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SUBJECT MATTER
|
ACTION REQUIRED
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STRATEGIC PLANS
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Approve a strategic planning process for the Corporation, approve
the Corporation's strategic plan each year and monitor the Corporation's performance against the strategic plan on an ongoing basis.
Review and approve the Annual Business Plans of the Corporation
and its major operating entities each year, as well as their respective longer term corporate goals.
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SUBJECT MATTER
|
ACTION REQUIRED
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|
PERSONNEL ADMINISTRATION
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Appoint senior officers of the Corporation (including Chief
Executive Officer, Chief Financial Officer).
Establish objectives for the Chief Executive Officer and monitor
Chief Executive Officer's performance against those objectives.
Review management recruitment and development programs and approve
plans for the succession of senior management.
Approve recommendations of the Chief Executive Officer for major
organizational changes affecting the Corporation.
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ASSET ADMINISTRATION
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Approve the annual consolidated capital budget for the Corporation
recommended by management each year.
Approve non-budgeted capital expenditures of amounts greater
than the approved threshold and receive periodic reports of performance against objectives of major capital expenditures made.
Approve the acquisition and disposition of assets having a book
Board value in excess of the approved threshold.
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RISK MANAGEMENT
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Review the information gathering and reporting system that provides
the Board and management with information respecting material acts, events and conditions within the Corporation (on a consolidated
basis).
Review the principal risks of the Corporation's business identified
by management, the systems recommended by management to manage the risks identified and receive regular reports on the results
of these systems.
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SUBJECT MATTER
|
ACTION REQUIRED
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|
FINANCIAL ADMINISTRATION
|
Approve resolutions respecting the Corporation and designate,
in accordance with the articles, those officers or employees authorized to conduct the business of the Corporation.
Review and approve the annual consolidated operating budget
of the Corporation and receive periodic reports as to actual results as compared to the budget.
Authorize the limits and terms of:
a) long-term
borrowing,
b) new short-term
lines of credit for more than the approved threshold, and
c)
increases of more than the approved threshold in existing short-term lines of credit.
Approve the issuance by the Corporation of any guarantees where
the amount guaranteed is not fixed, or if fixed exceeds the approved threshold.
Authorize the issuance of securities of the Corporation.
Approve policies governing short-term investments, foreign exchange
transactions, use of derivatives, etc., by the Corporation, including a list of qualified institutions with which the Corporation's
funds may be deposited or invested.
Approve all interim financial statements and the annual consolidated
financial statements.
Approve Annual Information Form and Management Discussion &
Analysis.
Approve the recommendation to shareholders regarding the appointment
of the external auditors of the Corporation.
Approve all material transactions, outside the normal scope
of business, involving the assets of the Corporation, its operating divisions and subsidiaries not otherwise authorized by this
Statement.
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CORPORATE
DEVELOPMENT ACTIVITIES
|
Authorize the commencement or discontinuance of a material business
activity.
Authorize the establishment of material new subsidiaries and
changes in their business or corporate structure which could materially affect the Corporation.
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POST AUDITING
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Receive post audit reports from management on (but not necessarily limited to) major capital expenditures, acquisitions, short and long range objectives and strategies, and performance criteria against longer range targets and budgets.
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LEGAL MATTERS
|
Receive advice of litigation by or against the Corporation where
the amount at issue is material or a matter of significance.
Approve amendments to the Corporation’s articles.
Authorize listing applications and agreements with any Stock
Exchange.
Approve appointment of transfer agents, registrars and disbursing
agents respecting securities issued by the Corporation.
Review reports by management with respect to corporate policies
and programs to ensure compliance with statutory and regulatory requirements affecting the operations of the Corporation.
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SUBJECT MATTER
|
ACTION REQUIRED
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SHAREHOLDER RELATIONS
|
Approve a communications policy for the Corporation.
Fix dates for Annual and Special Meetings of Shareholders.
Determine appropriateness of a dividend policy for the Corporation.
Approve the declaration of any dividends.
Approve proxy materials prepared in connection with shareholder
meetings.
Advise shareholders on a timely basis of major new developments
(Board approval is required with respect to major financial issues or developments).
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BOARD OF DIRECTORS MATTERS
|
Nominate candidates for election as Directors at the annual
meeting and appoint Directors to fill interim vacancies on the Board, taking into consideration the recommendations in stock exchange
policies on Board composition relating to unrelated Directors and outside Directors.
Review orientation and education program for new Directors.
Determine the title, composition and mandates of committees of the Board, taking into consideration the recommendations in stock
exchange policies in committee composition relating to unrelated Directors and outside Directors.
Review annually the Statement of Director's Duties and Responsibilities.
Monitor the activities and effectiveness of committees of the
Board, including receiving regular reports from those committees.
Review and approve Director's compensation arrangements.
Receive reports from management on any development in the affairs
of the Corporation which may have a material adverse effect on it.
Develop guidelines to permit an individual Director in appropriate
circumstances to engage an outside advisor at the expense of the Corporation.
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OCCUPATIONAL SAFETY & HEALTH
|
Monitor the Corporation's compliance with Occupational Health & Safety legislation by implementing an appropriate information gathering and reporting system.
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ENVIRONMENTAL ISSUES
|
Take all reasonable care to prevent the Corporation from causing or permitting unlawful pollution.
|
PART III – LEGAL DUTIES AND
RESPONSIBILITIES OF DIRECTORS
The following is a summary of certain statutory
duties and responsibilities under British Columbia law of directors of a publicly-traded corporation governed by the Business
Corporations Act (British Columbia) (the “BCBCA”) such as theScore. It is intended to provide an overview
rather than an exhaustive treatment of all duties and responsibilities applicable to theScore directors.
1. BASIC DUTIES
(a) Basic duty of directors:
In exercising his or her powers and discharging his or her duties, a director must act honestly, in good faith with a view to the
best interests of the corporation and exercise the degree of care, diligence and skill that a reasonably prudent person would exercise
in comparable circumstances.
(b) Acting in conflict
of interest: A director may not enter into commitments in which the director has or can have a personal interest conflicting
with the interest of the Corporation unless both the director and theScore satisfy the requirements in the BCBCA dealing with director
conflict.
The procedures for dealing with
a contract or transaction in which one of theScore's directors or officers is interested can be quite technical. Generally, directors
must disclose any direct or indirect interest in any contract or transaction to which the Corporation is a party and must not vote
on any Board resolution touching on the contract or transaction. Such disclosure must be made at the time the director joins the
Board or, if the director is already a Board member, when the director begins to hold the offices, right or property that creates
the conflict. Failure to disclose a material interest to the Board in compliance with the provisions of the BCBCA may make the
director liable to account to the corporation for any profits the director receives from the contract or transaction in which the
Director has an interest. Directors should speak with theScore's Chief Financial Officer to ensure that they are disclosing their
interests appropriately.
(c) Diverting a corporate opportunity:
A director may not usurp or divert to another person or corporation a maturing business opportunity which the Corporation is actively
pursuing.
(d) Cross directorships:
A director of two corporations that deal with or compete with each other must simultaneously discharge all the duties and responsibilities
of a director to both corporations.
2. ISSUANCE OF SHARES
(a) The issuance of shares
is the responsibility of the Board: Shares must not be issued until the consideration for the issuance of the shares is
fully paid in cash, or in property or past service at least equal in value to the money that the corporation would have received
if the shares had been issued for cash. Where shares are issued for consideration other than cash, the directors are required to:
(i) determine
the amount of money the Corporation would have received if the shares had been issued for money, and
(ii) satisfy
themselves that the fair value of the consideration to be received is equal to or is not less than such amount of money.
Directors of a corporation who
vote for or consent to a resolution authorizing the issue of a share for a consideration other than money are jointly and severally
liable to the corporation or any shareholder for any loss, damage and/or cost sustained and incurred as a result by the corporation
or shareholder. A director who is present at a meeting is deemed to have consented to any resolution passed or action taken at
that meeting, unless the director dissents in accordance with the BCBCA.
3. FINANCIAL ADMINISTRATION
(a) Approval of financial
statements: Directors must approve the financial statements of the Corporation after they have been reviewed by the audit
committee. The approval of the board of directors must be evidenced by the signature on the financial statements of one or more
of the directors duly authorized to sign.
(b) Declaring a dividend
where the Corporation is insolvent: Directors who vote for or consent to a resolution authorizing the declaration of a
dividend where there are reasonable grounds for believing that the Corporation is insolvent or where such dividend would render
the Corporation insolvent are jointly and severally liable to restore to the Corporation the amounts so distributed or paid and
not otherwise recovered by the corporation. A director who is present at a meeting is deemed to have consented to any resolution
passed or action taken at that meeting, unless the director dissents in accordance with the BCBCA.
(c) Purchase or redemption
of shares: Directors who vote for or consent to resolutions authorizing the purchase, acquisition or redemption of the
Corporation’s shares where there are reasonable grounds for believing either that the Corporation is insolvent or that such
purchase, acquisition or redemption would render the Corporation insolvent are jointly and severally liable to restore to the Corporation
the amount paid to purchase, acquire or redeem such shares and where such amount is not otherwise recovered by the Corporation.
A director who is present at a meeting is deemed to have consented to any resolution passed or action taken at that meeting, unless
the director dissents in accordance with the BCBCA.
4. SECURITIES ACT MATTERS
(a) Filing insider trading
reports: As an insider, a director is obliged to file electronic insider reports respecting purchases and sales of securities
of the corporation within 5 days after the date on which such purchase or sale take place.
(b) Liability for “tipping”
or trading on inside information: A director, being a person in a special relationship with the corporation who purchases
or sells securities with knowledge of a material fact or material change which has not been generally disclosed or who directly
or indirectly informs the purchaser or vendor of securities of such material fact or material change may be liable to the purchaser,
accountable to the corporation and subject to a fine under the OSA.
(c) Misrepresentations
in material filed under the Ontario Securities Act (“OSA”): breach of any section of or order made under the
OSA: Every person or company who:
(i) makes
a statement in any material filed under the OSA or in any investigation commenced under the OSA which is materially misleading
or untrue (or does not state a fact that is required to be stated or that is necessary to make the statement not misleading),
(ii)
makes a statement in certain documents (such as prospectuses, financial statements, information circulars and take-over bid circulars)
which is materially misleading or untrue (or does not state a fact that is required to be stated or that is necessary to make the
statement not misleading), or
(iii)
contravenes Ontario securities law,
is guilty of an offence and liable
to be fined and/or imprisoned unless, in the case of a person or company charged under (i) or (ii) above, such person or company
did not, on the exercise of reasonable diligence, know that such statement was a misrepresentation. Directors or officers of a
company or person who authorized, permitted or acquiesced in the commission of an offence by that company or person are also liable
and subject to the same penalties.
(d) Prospectus: Any prospectus
of a corporation filed under the OSA must contain a certificate signed by two directors to the effect that the prospectus constitutes
full, true and plain disclosure of all material facts relating to the securities offered thereby. Every director of the issuer
at the time the prospectus is filed is liable to the purchaser for a misrepresentation by the issuer. A due diligence defence is
available to directors under this provision.
5. SPECIFIC DUTIES TO SHAREHOLDERS
(a) Duty to hold annual
meeting: The BCBCA requires the Corporation to hold an annual meeting of shareholders at least once in each calendar year
and not more than 15 months after the last annual meeting, subject to certain limited exceptions where unanimous shareholder consent
is obtained.
(b) Duty to call a shareholders'
meeting: Upon the receipt of a requisition of persons holding at least 5% of voting rights attaching to all shares of the
Corporation then outstanding and prepared in accordance with the BCBCA, the directors must call a general meeting of shareholders
to be held within four months of the date of the requisition to transact the business stated in the requisition.
6. OTHER MATTERS
(a) Liability for employee
wages: Subject to the limitations noted below, directors are jointly and severally liable to employees for up to 6 months'
wages earned for services performed while directors and for up to 12 months' accrued vacation pay under the Employment Standards
Act or any collective bargaining agreement. A director is only liable under this section if he or she is sued while he or she is
a director or within two years of ceasing to be a director, and if the action is commenced within 6 months after the debts become
payable and the corporation is sued in the same action but the execution against the corporation is returned unsatisfied in whole
or in part or if the corporation goes into bankruptcy and the action for the debts is prevented.
Employment standards legislation
in the jurisdictions in which theScore carries on business will also subject directors to certain liabilities for amounts owing
to employees. There is no due diligence defence available to directors under the BCBCA or employment standards legislation for
these amounts.
(b) General liability for
breach of the BCBCA: An individual who commits an offence under the BCBCA is liable, depending on the nature of the offence,
for a fine of up to $10,000. Certain ongoing breaches of the BCBCA related to extra-provincial registration and corporate names
impose daily fines for each day that the offence continues. This general liability is in addition to any liability directors might
additionally incur for authorizing the Corporation to carry out an act contrary to the BCBCA.
(c) Income Tax Act (Canada)
– General Liability: A director who directs, authorizes, assents to or acquiesces in any offence under the Income
Tax Act may be liable to the penalties provided for the offence whether or not the corporation has been prosecuted or convicted.
Liability for Unpaid Source Deductions:
Under the Income Tax Act, corporations must deduct or withhold certain amounts from payments it makes and to remit such amounts
to the Receiver General. If the corporation fails to do so, those individuals who were directors of the corporation at the time
the obligation arose are jointly and severally liable, together with the corporation, to pay that amount and any related interest
and penalties. These obligations arise in respect of a number of different payments, including: salary or wages; pension benefits;
and fees, commissions or other amounts for services;
There are similarly framed liabilities
(and due diligence defences) of directors for amounts not withheld or remitted under the Canada Pension Plan Act and the Unemployment
Insurance Act and the Excise Tax Act (dealing with the GST).
(d) Competition Act
– Non-disclosure of information: A director may be liable to penalties where he assents to or acquiesces in the
failure of the corporation to permit representatives of the Director of Investigation and Research to inspect the
corporation's premises or the failure of the corporation to supply requested information.
(e) General Crime Liability:
There are many acts and omissions that may constitute offences of “complicity” under the Criminal Code and provincial
offences statutes. Offences of complicity include criminal conspiracy, aiding and abetting the commission of an offence and counseling
the commission of an offence. There are also numerous federal and provincial statutes which provide that, where a corporation commits
an offence under the statute, each director who authorized, permitted or acquiesced in the commission of the offence is also guilty
of an offence.
(f) Environmental Matters:
The Environmental Protection Act (Ontario) imposes on each director of a corporation that engages in an activity that may result
in the discharge of a contaminant into the natural environment contrary to the Act a duty to take all reasonable care to prevent
the corporation from causing or permitting the unlawful discharge.
Exhibit 4.7
FORM 51-102F3
MATERIAL CHANGE REPORT
|
|
1.
|
NAME AND ADDRESS OF COMPANY
|
Score Media and Gaming Inc. (“theScore”)
500 King Street West, Fourth Floor
Toronto, Ontario
M5V 1L9
|
|
2.
|
DATE OF MATERIAL CHANGE
|
November 30, 2020
The press release was issued
on November 30, 2020, and was disseminated through the facilities of recognized newswire services. A copy of the press release
was filed on the System for Electronic Document Analysis and Retrieval (SEDAR) and is attached to this report as Schedule A.
|
|
4.
|
SUMMARY OF MATERIAL CHANGE
|
On November 30, 2020, theScore
entered into an agreement (the “Bid Letter”) with a syndicate of underwriters led by Canaccord Genuity Corp.
and Eight Capital (collectively, the “Underwriters”) for the Underwriters to purchase, on a bought deal basis,
28,572,000 Class A Subordinate Voting Shares of theScore (“Class A Shares”, and each, a “Class A
Share”) at a price of $1.40 per Class A Share by way of short form prospectus to be filed in each of the Provinces
of Canada, except Québec, for gross proceeds of $40,000,800 (the “Offering”) and including an over-allotment
option (the “Over-Allotment Option”) granted to the Underwriters to purchase up to an additional 4,285,800 Class A
Shares (each, an “Over-Allotment Share”) at a price of $1.40 per Over-Allotment Share for gross proceeds of
up to $6,000,120. The aggregate gross proceeds of the Offering could be up to $46,000,920 if the Underwriters exercise the Over-Allotment
Option in full.
|
|
5.
|
FULL DESCRIPTION OF MATERIAL CHANGE
|
5.1 Full
Description of Material Change
See the press release dated November 30,
2020, attached hereto as Schedule “A” for additional information.
5.2 Disclosure
for Restructuring Transactions
Not applicable.
|
|
6.
|
RELIANCE ON SUBSECTION 7.1(2) OF NATIONAL INSTRUMENT 51-102
|
Not applicable.
No information has been intentionally
omitted from this form.
For further information contact
Alvin Lobo, Chief Financial Officer at (416) 479-8812 x2206.
December 2, 2020.
SCHEDULE A
(See attached)
NOT FOR DISTRIBUTION
TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION
IN THE UNITED
STATES
theScore
Announces $40 Million Bought Deal Financing
November 30, 2020 – TORONTO –
Score Media and Gaming Inc. (“theScore” or the “Company”) (TSX: SCR) is pleased to announce that it has
entered into an agreement with a syndicate of underwriters led by Canaccord Genuity Corp. and Eight Capital (collectively, the
“Underwriters”), pursuant to which the Underwriters have agreed to purchase, on a bought deal basis, 28,572,000 Class
A Subordinate Voting Shares of the Company (“Offered Shares”) at a price of $1.40 per Offered Share (the “Issue
Price”) for gross proceeds to the Company of $40 million (the “Offering”).
In addition, theScore has granted the Underwriters
an option, exercisable at any time, in whole or in part, until the date that is 30 days following the closing of the financing,
to purchase up to an additional 4,285,800 Class A Subordinate Voting Shares of the Company solely to cover over-allotments, if
any, and for market stabilization purposes. In the event the over-allotment option is exercised in full, the aggregate gross proceeds
of the Offering will be $46 million.
theScore intends to use the net proceeds
from the Offering for working capital and general corporate purposes, including the growth and expansion of theScore Bet’s
operations in the U.S. and Canada by supporting the deployment and operation of theScore Bet and user acquisition and retention
in jurisdictions where the Company is, or will be, operating.
The Offering will be conducted by way of
a short form prospectus to be filed in all the provinces of Canada, excluding Quebec, and elsewhere on a private placement basis
in sales exempt from applicable prospectus and/or registration requirements. The Offering is scheduled to close on or about December
17, 2020 and is subject to customary closing conditions, including listing of the Offered Shares on the Toronto Stock Exchange
and any required approvals of the exchange and applicable securities regulatory authorities.
The Offered Shares have not been and will
not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state
securities laws. Accordingly, the Offered Shares may not be offered or sold within the United States, its territories or possessions,
any state of the United States or the District of Columbia (collectively, the “United States”) except in transactions
exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws. This press release does
not constitute an offer to sell or a solicitation of an offer to buy any Offered Shares within the United States.
About Score Media and Gaming Inc.
Score Media and Gaming Inc. empowers millions
of sports fans through its digital media and sports betting products. Its media app ‘theScore’ is one of the most
popular in North America, delivering fans highly-personalized live scores, news, stats, and betting information from their favorite
teams, leagues, and players. The Company’s sports betting app ‘theScore Bet’ delivers an immersive and holistic
mobile sports betting experience and is currently available to place wagers in New Jersey, Colorado and Indiana. Publicly traded
on the Toronto Stock Exchange (SCR), theScore also creates and distributes innovative digital content through its web, social
and esports platforms.
For further information contact:
James Bigg
Sr. Manager, Communications
Score Media & Gaming Inc.
Email: james.bigg@thescore.com
Phone: 416-479-8812 ext. 2366
Alvin Lobo
Chief Financial Officer
Score Media and Gaming Inc.
Email: alvin.lobo@thescore.com
Tel: 416-479-8812 ext. 2206
Forward-Looking Statements
Statements made in this news release that
relate to future plans, events or performances are forward-looking statements. Any statement containing words such as “may”,
“would”, “could”, “will”, “believes”, “plans”, “anticipates”,
“estimates”, “expects” or “intends” and other similar statements which are not historical facts
contained in this release are forward-looking, and these statements involve risks and uncertainties and are based on current expectations.
Forward- looking statements include, without limitation, statements regarding the expected timing and completion of the Offering
and the anticipated use of proceeds of the Offering. Such statements reflect theScore’s current views with respect to future
events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the Company’s actual results,
performance or achievements to be materially different from any future results, performance or achievements that may be expressed
or implied by such forward looking statements, including among other things, those which are discussed under the heading “Risk
Factors” in the Company’s current Annual Information Form dated October 28, 2020 as filed with applicable Canadian
securities regulatory authorities and available on SEDAR under the Company’s profile at www.sedar.com and elsewhere in documents
that theScore files from time to time with such securities regulatory authorities, including its relevant Management’s Discussion
& Analysis of the financial condition and results of operations of the Company. Should one or more of these risks or uncertainties
materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results could differ materially
from the expectations expressed in these forward-looking statements. The Company does not intend, and does not assume any obligation,
to update these forward-looking statements except as required by applicable law or regulatory requirements.
Exhibit 4.8
FORM 51-102F3
MATERIAL CHANGE REPORT
|
|
1.
|
NAME AND ADDRESS OF COMPANY
|
Score Media and Gaming Inc.
(the “Company”)
500 King Street West, Fourth Floor
Toronto, Ontario
M5V 1L9
|
|
2.
|
DATE OF MATERIAL CHANGE
|
February 11, 2021.
The press release was issued
on February 11, 2021, and was disseminated through the facilities of recognized newswire services. A copy of the press release
was filed on the System for Electronic Document Analysis and Retrieval (SEDAR) with respect to the material change described below.
|
|
4.
|
SUMMARY OF MATERIAL CHANGE
|
On February 11, 2021, the Company
consolidated its issued and outstanding shares on the basis of 1 post-consolidation share of the Company for every 10 pre-consolidation
shares of the Company of the same class.
|
|
5.
|
FULL DESCRIPTION OF MATERIAL CHANGE
|
5.1 Full
Description of Material Change
In connection with a potential
additional listing of the Company’s Class A Subordinate Voting Shares (“Class A Shares”) on a U.S. stock
exchange, and as previously authorized by its shareholders, the Company implemented a consolidation (reverse stock split) of its
outstanding Class A Shares on the basis of one new Class A Share for every ten currently outstanding Class A Shares (the “Consolidation
Ratio”) as well as a consolidation (reverse stock split) of the Company’s Special Voting Shares (“Special
Voting Shares”) on the basis of such Consolidation Ratio.
The Consolidation Ratio
was determined by the Company’s board of directors in accordance with the parameters authorized by the Company’s
shareholders at the Company’s annual and special meeting of shareholders held on February 10, 2021. The consolidation
took effect on February 11, 2021 and the Class A Shares are expected to commence trading on the Toronto Stock Exchange on a
post-consolidation basis beginning at the open of markets on February 18, 2021. Immediately prior to the consolidation, there
were 434,425,695 Class A Shares and 5,566 Special Voting Shares issued and outstanding, and it is expected that there will be
43,442,568 Class A Shares and 557 Special Voting Shares issued and outstanding following the consolidation, subject to
rounding for any fractional shares. No fractional shares will be issued as a result of the share consolidation and the number
of post-consolidation shares to be received by a shareholder will be rounded up, in the case of a fractional interest that is
0.5 or greater, or rounded down, in the case of a fractional interest that is less than 0.5, to the nearest whole number of
shares that such holder would otherwise be entitled to receive upon the implementation of the share consolidation. By way of
example, if a shareholder held 999 pre-consolidation Class A Shares, the shareholder will hold 100 Class A Shares on a
post-consolidation basis.
Registered shareholders holding
share certificates will be mailed a letter of transmittal advising of the share consolidation and instructing them to surrender
their share certificates representing pre-consolidation shares for replacement certificates or a direct registration advice representing
their post-consolidation shares. Until surrendered for exchange, following the effective date of the consolidation, which was February
11, 2021, each share certificate formerly representing pre-consolidation shares will be deemed to represent the number of whole
post-consolidation shares to which the holder is entitled as a result of the consolidation.
Holders of shares of the Company
who hold uncertificated shares (that is shares held in book-entry form and not represented by a physical share certificate), either
as registered holders or beneficial owners, will have their existing book-entry account(s) electronically adjusted by the Company's
transfer agent or, for beneficial shareholders, by their brokerage firms, banks, trusts or other nominees that hold in street name
for their benefit. Such holders do not need to take any additional actions to exchange their pre-consolidation shares for post-consolidation
shares.
5.2 Disclosure
for Restructuring Transactions
Not applicable.
|
|
6.
|
RELIANCE ON SUBSECTION 7.1(2) OF NATIONAL INSTRUMENT 51-102
|
Not applicable.
No information has been intentionally
omitted from this form.
For further information contact
Alvin Lobo, Chief Financial Officer at (416) 479-8812 x2206.
February 15, 2021.
Exhibit 5.1
Vaughan Metropolitan Centre
100 New Park Place, Suite 1400
Vaughan, Ontario
L4K 0J3
Telephone (416) 777-8500
Fax (416) 777-8818
www.kpmg.ca
The Board of Directors
Score Media and Gaming Inc.
Consent of Independent Auditor
We, KPMG LLP, consent to the use of our report dated October 28, 2020, on the consolidated financial statements of Score Media and Gaming Inc., which comprise the consolidated statements of financial position as at August 31, 2020 and August 31, 2019, the related consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended August 31, 2020, and the related notes, incorporated by reference, and to the reference to our firm under the headings “Interests of Experts”, “Auditors, Registrar and Transfer Agent” and “Documents Filed as Part of the Registration Statement” in the prospectus.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
February 22, 2021
Vaughan, Canada
KPMG LLP is a Canadian limited liability partnership and a member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
Exhibit 5.2
CONSENT OF McCARTHY TÉTRAULT LLP
Re: Registration Statement on Form F-10 of Score Media and Gaming Inc.
We hereby consent to the references to us under the heading “Legal Matters and Interest of Experts” in the short form base shelf prospectus dated January 7, 2021 and on the front cover page of, and under the headings “Eligibility for Investment”, “Certain Canadian Federal Income Tax Considerations”, “Legal Matters” and “Documents Filed as Part of the Registration Statement” in the preliminary prospectus supplement dated February 22, 2021, forming a part of the registration statement on Form F-10 dated February 22, 2021 of Score Media and Gaming Inc., as such may thereafter be amended or supplemented, filed with the United States Securities and Exchange Commission. In giving this consent, we do not acknowledge that we come within the category of persons whose consent is required by the United States Securities Act of 1933, as amended, or the rules and regulations thereunder.
/s/ McCarthy Tétrault LLP
McCarthy Tétrault LLP
Toronto, Ontario
February 22, 2021
Exhibit 5.3
Score Media and Gaming Inc.
500 King Street West, Fourth Floor
Toronto, ON M5V 1L9
Re: Registration Statement on Form F-10
We refer to the registration statement on Form F-10 dated February 22, 2021 (the “Registration Statement”) of Score Media and Gaming Inc. to which this consent is exhibited. We hereby consent to the use of our firm name on the face page of the Registration Statement and in the shelf prospectus supplement included therein, under the headings “Legal Matters” and “Documents Filed as Part of the Registration Statement” and to the reference to and use of our opinion under the headings “Eligibility for Investment” and “Certain Canadian Federal Income Tax Considerations”.
In giving this consent, we do not thereby acknowledge that we come within the category of persons whose consent is required by the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder.
Yours very truly,
/s/ Blake, Cassels & Graydon LLP
Blake, Cassels & Graydon LLP
Toronto, Ontario
February 22, 2021
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