Baystreet.ca - September 26, 2019 Versus Systems Inc. STOCK PRICE CSE: VS · 2019. 9. 26. · Versus Systems Inc. (CSE:VS).6 Douglas Ibbitson, CFA, 416-507-2790, [email protected]

Douglas Ibbitson, CFA, 416-507-2790, [email protected]

Neal Gilmer, MBA, 416-507-2759, [email protected]

For Important Disclosures and Analyst Certification See Page 27

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INITIATION REPORT | September 26, 2019

INITIATING COVERAGE

Winfinite Possibilities

INVESTMENT BRIEF: We are initiating coverage on Versus Systems Inc. (VS-CSE) with a Buy Rating and a 12-month target price of $0.55 per share. Versus Systems is currently developing B2B software platforms that allow content creators to offer prize-based rewards. The Company’s proprietary Winfinite platform allows video game developers and publishers to offer users real-world prizes in-game. There are opportunities for the platform across multiple new verticals, where advertising brands and content providers aspire to increase engagement.

KEY HIGHLIGHTS People Hate Ads, Versus has a Solution. In partnership with the MEMES Center at UCLA, Versus

conducted a comprehensive study of over 88k respondents that highlighted the need for new methods of advertising. It’s no surprise that 45% of people surveyed frequently or always actively avoid ads, with only 3.6% watching the full ad. While gamers might not self-identify as such, they are approaching the majority with 41% having played a game in the past 24 hours. With traditional programming lacking engagement from younger audiences, advertisers need to leverage digital and interactive media in new ways. The Winfinite platform empowers the audience with the opportunity, not the requirement, to engage with the advertising brand and win real prizes.

HP Partnership Drives Growth. The Company’s Winfinite platform now powers HP’s OMEN Rewards, a prize platform that is built into the OMEN Command Center. We view the recently announced HP partnership as a transformative announcement from Versus that has the potential to significantly augment the current user base and drive revenue growth. We expect HP to expand the OMEN Command Center into Europe later this year and into Asia in the second half of 2020. For fiscal 2020, we assume that Versus’ user base increases from 2 million to 4.5 million users for an average of 3.9 million users, driving revenue of $14.6M.

Platform Validation Propels Inbound Sales. We believe that the HP partnership validates the Winfinite platform for other content companies and as such should lead to additional partnership announcements in the coming year. As the Company partners with more platforms, the user base and number of sessions will grow, attracting more advertisers and brands to the Winfinite platform, driving inbound requests to advertise. The Company announcing additional platform partners also further validates Winfinite to the industry, which should influence more content providers to onboard Winfinite. We expect the Company to continuously announce new partnerships both on the platform side, and with advertisers and brands, as Winfinite expands. As we currently only model announced partnerships, this would represent upside to our estimates.

RECOMMENDED ACTION We recommend buying shares in this catalyst-rich software platform

We are initiating coverage on Versus Systems Inc. with a Buy Rating and a 12-month target price of $0.55/share. With the development cost of Winfinite behind the Company and HP’s validation of the platform, we believe now is an attractive entry point ahead of our estimated increase in current user base and significant revenue growth. Furthermore, we expect the Company to announce new brands, partnerships and verticals that could represent additional positive re-ratings.

Price Target

$3.25

VALUATION Versus currently trades at a 4.8x multiple on our F2020 Adjusted EBITDA estimate compared to the blended average of large capitalized advertising, marketing and application software companies which currently trade at an average of 25.7x 2020 consensus EBITDA estimates.

Versus Systems Inc. CSE: VS SECTOR: Gaming & Esports

CATALYSTS

1. Geographic Expansion HP Europe – Q4/19 2. Geographic Expansion HP Asia – H2/20 3. New Partnerships – Ongoing 4. New Verticals – OTT & Health and Wellness – Ongoing 5. IP – Patent Filing Announcements – Ongoing

STOCK PRICE $0.35 RATING BUY TARGET PRICE $0.55

SCENARIO ANALYSIS

Downside Scenario

Current Price

Price Target

$0.20 $0.35 $0.55

42% 59%

KEY STATISTICS AND METRICS (Q3/19E)

52-Week High/Low $0.50 / $0.18

YTD Performance 43.8%

Dividend Yield -

Shares O/S 132.8M

Market Capitalization $45.8M

Cash $2.8M

Debt $5.9M

Enterprise Value $40.1M

Daily Volume (3 mos.) 277,990

Currency C$ unless noted

HAYWOOD ESTIMATES (CAD)

2018A 2019E 2020E

Sales, $M 1.4 14.6 25.3

Adjusted EBITDA, $M (3.5) 8.3 17.8

EPS, $ (0.04) 0.01 0.03

EV / Revenue 29.6 2.7 1.6

EV / Adj. EBITDA - 4.8 2.2

59% PROJECTED RETURN

Very High RISK FACTOR

Versus Systems Inc. (CSE:VS)



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SCENARIO ANALYSIS

Source: Capital IQ, and Haywood Securities Inc.

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Versus Systems Inc. (VS-V)Price History (C$) Volume (M)

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KEY RISKS

• Limited Operating History: As a new business, risks involving under-capitalization, cash shortages, or lack of revenue may prevent the Company from achieving their growth objectives.

• Changes in Laws, Regulations and Guidelines: Operations are subject to a variety of laws, regulations and guidelines relating to the Company offering prizes based tournaments including esports, online gaming and gambling laws and regulations.

• Regulatory Risk: The Company’s operations are contingent upon compliance with regulatory requirements and as such require obtaining all regulatory approvals for the sale and use of its products and services.

• Competition: The Company could face intense competition from Companies that have longer operating histories, that have more financial resources and more marketing experience than Versus.

TARGET PRICE Our target price of $0.55/sh is derived from a 12.0x multiple on our

F2020 Adjusted EBITDA estimate. In our view, this valuation could

prove conservative given that the blended average of large capitalized

advertising, marketing and application software companies are

currently trading at an average of 25.7x EV/EBITDA on 2020 consensus

estimates.

DOWNSIDE CASE Our downside scenario on Versus Systems is predicated on HP gradually

ramping up marketing of OMEN Rewards, resulting in half of the paid

sessions in 2020 than we are currently modeling from the partnership.

As such, we conservatively assume that the Company can generate

$4M in Adjusted EBITDA in 2020, to which we apply a 6.0x multiple to

arrive at our $0.20 per share downside valuation.

Our downside scenario price is a theoretical case based on notional valuation metrics and market assumptions. The downside price is solely intended for demonstrative purposes and is not to be regarded as a reflection of all market possibilities. It is not a guarantee that this company’s share price will not drop below this price level and hence should not be taken as such.

Company Profile Versus Systems is a development stage company focused on the

technology sector and is currently developing business-to-business

software platforms that allow content creators to offer prize-based

rewards. Its Winfinite platform is a proprietary platform for winning

real-world prizes in-game for video game publishers and developers.

The Company has an office in Vancouver, Canada and operations in Los

Angeles, California.

Company Website

www.versussystems.com

Key Management Matthew Pierce (Chief Executive Officer and Director)

Craig Finster (President and Chief Financial Officer)

Alex Peachey (Chief Technology Officer)

Keyvan Peymani (Executive Chairman)

INVESTMENT THESIS

Our investment drivers are as follows:

HP Partnership Validates Winfinite: We view the HP partnership as a transformative announcement from Versus that has the potential to significantly increase the current user base and drive revenue growth. The Company’s Winfinite platform now powers HP’s OMEN Rewards, a prize platform that is built into the OMEN Command Center. The platform is expected to expand its user base into Europe later this year and into Asia in the second half of 2020, which could significantly increase sessions for the Company. We believe that the HP partnership validates the Winfinite platform for other content companies and as such should lead to additional partnership announcements in the coming year.

New Vertical Opportunities: While management’s priority for the Winfinite platform remains the high growth gaming sector, there are opportunities for the platform across multiple new verticals. OTT services have largely moved to a subscription-based model, leaving advertisers and brands looking for new ways to reach this audience. Versus plans to work with multiple distribution channels, including YouTube, Twitch, and traditional television. Another interesting vertical for Winfinite is health and wellness applications where users are physically competing against their community, friends and personal bests. This is a highly engaging opportunity for health and wellness brands to specifically target users.

IP Portfolio of Prizing, Promotion & FinTech: The Company currently has patents protecting numerous proprietary systems and methods for awarding real money, physical goods, digital currencies, and downloadable content to players inside video games and interactive media. With over 40 patents filed, we expect ongoing announcements with regard to the Company’s portfolio of patent and trademark filings.

http://www.versussystems.com/




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Source: Bloomberg, Capital IQ, Company Reports, and Haywood Securities Inc.

Target Price, C$ $ 0.55 Shares O/S, million

Current Price, C$ $ 0.35 Shares F/D, millionRating: BUY Risk: Very High Return, % 59% Market Capitalization, C$MTarget Price: C$0.55 52-Week High / Low, C$ $0.50 / $0.18 Company CEO

Metric: 12.0x EV/2020E Adjusted EBITDA Daily Volume (100-day avg) 277,990 Company Web Site

Balance Sheet and Capitalization As of: Q3/19E Share Capital Dilution

US$M US$ / Share C$M C$ / Share As of Number Avg. Price (C$) Proceeds (C$M) ITM (C$M) Expiry (years)

Market Capitalization $ 34.5 $ 0.26 $ 45.8 $ 0.35 Basic OS 08-Aug-19 132.8

Current Cash $ 2.1 $ 0.02 $ 2.8 $ 0.02 Options 30-Jun-19 10.4 $ 0.29 $ 3.0 $ 1.4 2.89

Working Capital $ 1.2 $ 0.01 $ 1.6 $ 0.01 Warrants 08-Aug-19 65.3 $ 0.31 $ 20.4 $ 6.4 1.81

Debt $ 4.4 $ 0.03 $ 5.9 $ 0.04 Class “A” shares, Series 1 30-Jun-19 33.7 $ - $ - $ - -

Non-Controlling Interest $ (6.6) $ (0.05) $ (8.8) $ (0.07) Total Dilutive 109.4 $ 23.4 $ 7.8

Book Value $ 0.1 $ 0.00 $ 0.1 $ 0.00 Fully Diluted OS 242.1

Enterprise Value (EV) $ 30.2 $ 0.23 $ 40.1 $ 0.30

Spot C$/US$ FX Rate: $ 1.33 Valuation Downside

C$ Million C$/Share C$ Million C$/Share

Financial Forecast Year-end Dec 31st 2020E Adjusted EBITDA $8 $0.03 $4 $0.02

Income Statement 2018A 2019E 2020E 2021E Target Multiple 12.0x 6.0x

Sales, C$M $ 0.0 $ 1.4 $ 14.6 $ 25.3 Implied Enterprise Value $99 $0.42 $25 $0.15

Operating Profit, C$M $ (9.2) $ (7.6) $ 4.1 $ 13.6 Cash & Equivalents (2020E) $4 $0.02 $4 $0.02

Adjusted EBITDA, C$M $ (5.5) $ (3.5) $ 8.3 $ 17.8 Debt (2020E) ($5) ($0.02) ($5) ($0.03)

Loss and comprehensive loss, C$M $ (9.4) $ (7.9) $ 2.0 $ 8.1 Non-Controlling Interest (2020E) $9 $0.04 $9 $0.05

Balance Sheet 2018A 2019E 2020E 2021E Options & Warrants $22 $0.09 $0 $0.00

Cash, C$M $ 0.0 $ 1.2 $ 3.8 $ 10.5 Implied Market Capitalization $129 $0.55 $33 $0.20

Total Debt, C$M $ 3.5 $ 5.8 $ 4.5 $ 1.2 12-Month Target $0.55 Downside $0.20

Net Debt , C$M $ 3.4 $ 4.6 $ 0.7 $ (9.3) Implied Return 59% Implied Return (42%)

Cash Flow 2018A 2019E 2020E 2021E

Operating CF (before W/C), C$M $ (5.5) $ (3.8) $ 6.0 $ 12.2 Peer-Group Comparables

Cash used in investing activities, C$M $ (1.8) $ (2.0) $ (2.1) $ (2.1) Company Ticker Share Price 2019E 2020E 2019E 2020E

Cash provided by financing activities, C$M $ 6.7 $ 7.2 $ (1.3) $ (3.3) (US$) EV / Sales EV / Sales EV / EBITDA EV / EBITDA

Free Cash Flow, C$M $ (7.6) $ (6.6) $ 3.6 $ 9.3 Cardlytics, Inc. NasdaqGM:CDLX $ 33.26 4.3x 3.2x - 72.8x

Net change in cash, C$M $ (0.2) $ 1.2 $ 2.6 $ 6.7 ChannelAdvisor Corporation NYSE:ECOM $ 9.25 1.7x 1.7x 12.8x 10.4x

Per Share 2018A 2019E 2020E 2021E Criteo S.A. NasdaqGS:CRTO $ 19.44 1.1x 1.1x 3.7x 3.5x

EPS, C$ $ (0.05) $ (0.04) $ 0.01 $ 0.03 Inuvo, Inc. AMEX:INUV $ 0.28 0.3x 0.2x - 79.4x

CFPS, C$ $ (0.06) $ (0.03) $ 0.04 $ 0.09 QuinStreet, Inc. NasdaqGS:QNST $ 12.70 1.2x 1.1x 14.4x 11.0x

FCFPS, C$ $ (0.09) $ (0.06) $ 0.03 $ 0.07 Telaria, Inc. NYSE:TLRA $ 7.38 4.3x 3.6x 97.7x 29.5x

Book Value Per Share, C$ $ (0.01) $ (0.01) $ 0.01 $ 0.08 The Interpublic Group of Companies, Inc. NYSE:IPG $ 21.00 1.5x 1.5x 9.4x 8.8x

Tangible BVPS, C$ $ (0.05) $ (0.03) $ (0.00) $ 0.07 The Rubicon Project, Inc. NYSE:RUBI $ 9.23 2.5x 2.2x 20.5x 15.2x

The Trade Desk, Inc. NasdaqGM:TTD $ 194.58 13.0x 10.0x 41.5x 32.0x

Valuation Ratios Selected Company Average 3.3x 2.7x 22.2x 29.2x

2018A 2019E 2020E 2021E Selected Company Average Excl. Hi / Low 2.4x 2.0x 17.0x 25.7x

EV / Revenue 24735.6x 29.6x 2.7x 1.6x Versus Systems Inc.(Haywood) CNSX:VS C$ 0.35 29.6x 2.7x - 4.8x

EV / Adj. EBITDA - - 4.8x 2.2x Spot C$/US$ FX Rate: $ 1.33

EV / Operating Cash Flow - - 6.7x 3.3x

EV / Free Cash Flow - - 11.0x 4.3x Quarterly Revenue, Adjusted EBITDA, and Adjusted EBITDA Margin, %

P / Adjusted Earnings - - 45.8x 11.1x

P / Operating Cash Flow - - 7.7x 3.8x

Growth Analysis

2020E 2021E

Revenue Growth (y-y), % 978% 73%

Adj. EBITDA Growth (y-y), % (337%) 115%

EPS Growth (y-y), % (121%) 313%

Margin Analysis

2020E 2021E

EBIT Margin, % 29% 54%

Adjusted EBITDA Margin, % 57% 70%

Earnings Margin, % 13% 32%

Major Shareholders

Position Date Shares Held % of O/S C$M

Tingle, Brian J. 22-Jul-19 9.0 6.8% $ 3.1 Annual Revenue, Adjusted EBITDA, and Adjusted EBITDA Margin, %

Vlasic, Paul 22-Jul-19 7.9 5.9% $ 2.8

Pierce, Matthew 22-Jul-19 2.7 2.1% $ 1.0

Chin, Kelsey 6-Nov-18 2.0 1.5% $ 0.7

Peymani, Keyvan 29-Jul-19 1.3 0.9% $ 0.4

Total 22.9 17.2% $ 8.0

Recent Financings / M&A Activity

Aug 9, 2019 - C$1.0M Non-Brokered Private Placement at C$0.22/share

Jul 26, 2019 - C$3.5M Non-Brokered Private Placement at C$0.20/share

Feb 14, 2019 - C$1.8M Brokered Private Placement at C$0.18/share (Haywood co-led)

www.versussystems.com

Versus Systems Inc. (VS-CSE)132.8

242.1$ 45.8

Pierce, Matthew

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Table of Contents

WINFINITE™ ........................................................................................................................................................................................................... 5

How WINFINITE™ Works .................................................................................................................................................................................... 5

Winfinite is a Better Way to Reach and Engage Viewers ..................................................................................................................................... 6

Winfinite Targeting Gaming but Applicable for All Content ................................................................................................................................. 6

WINFINITE SDK for Game Developers using the Unity Game Engine .................................................................................................................... 7

Brands and Partners .......................................................................................................................................................................................... 7

HP Inc................................................................................................................................................................................................................ 8

Animoca Brands Corporation Limited ................................................................................................................................................................. 8

Ludare Games ................................................................................................................................................................................................... 8

Han Cholo ......................................................................................................................................................................................................... 9

White Castle – Introduction of Location Targeted Rewards (Geo Fencing) ........................................................................................................... 9

Fanatics ............................................................................................................................................................................................................. 9

GameCake ......................................................................................................................................................................................................... 9

Moovly Media Inc. ........................................................................................................................................................................................... 10

704Games ....................................................................................................................................................................................................... 10

Intellectual Property and Patent Filings ................................................................................................................................................................. 11

Developing a Platform Beyond Games.............................................................................................................................................................. 11

The Next Evolution of Advertising ......................................................................................................................................................................... 12

Outlook................................................................................................................................................................................................................ 13

Winfinite Revenue Generation ......................................................................................................................................................................... 13

Haywood Revenue Drivers ............................................................................................................................................................................... 13

Balance Sheet, Share Capital & Ownership ....................................................................................................................................................... 14

Company Catalysts ............................................................................................................................................................................................... 15

Geographic Expansion ..................................................................................................................................................................................... 15

New Verticals Beyond Gaming ......................................................................................................................................................................... 15

Inbound Prizing from Brands and Advertisers ................................................................................................................................................... 16

Additional Intellectual Property Filings and Announcements............................................................................................................................. 16

Valuation, Downside & Recommended Action ...................................................................................................................................................... 17

Comparable Companies ....................................................................................................................................................................................... 18

Significant Investment Risks ................................................................................................................................................................................. 19

Appendix A – Management .................................................................................................................................................................................. 20

Appendix B – Board of Directors ........................................................................................................................................................................... 21

Appendix C – Company Profile .............................................................................................................................................................................. 22

Appendix D – Gaming ........................................................................................................................................................................................... 24

Appendix E – Mobile ............................................................................................................................................................................................ 26

Important Information and Legal Disclosures ........................................................................................................................................................ 27




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WINFINITE™

The Company first launched its consumer facing platform, WINFINITE™, in April of 2018 in-game in NASCAR® HEAT Mobile. Winfinite is a proprietary platform for winning real-world prizes in-game for video game publishers and developers. Winfinite was created to register and manage individual player accounts, which allows the Company to offer prizes that are specific to each player based on a variety of characteristics, including age, location, and game and challenge played. These prize offerings are considered achievement rewards and include coupons, sweepstake prizes, consumer packaged goods and downloadable content. Versus offers advertisers the opportunity to place in-game prizes on the Winfinite platform and then shares a certain portion the gross receipts with the content and game owners. Overall, the platform empowers the audience with the opportunity, not the requirement, to engage with the advertising brand and win real prizes.

How WINFINITE™ Works

The Winfinite platform allows game developers and publishers to offer players the opportunity to compete for an achievement reward that is offered by a prize provider. Below we highlight the flowchart of Winfinite.

Figure 1: Winfinite: A Proprietary Platform for Winning Prizes

Source: Company Reports and Haywood Securities Inc.

Prize Provider Adds Prizes into The Game. Advertisers are drawn to Winfinite due to its ability to increase user engagement and impressions when compared to traditional advertising platforms. On the platform, each player chooses to interact with the brand and are then driven to activate online and in-store. Furthermore, players spend multiple minutes interacting with the brand, increasing the overall impression. When the audience has a natural affinity for the product, the player is more likely to engage in the achievement reward. Versus also offers prize providers data analytics on the audience’s prize choices, engagement frequency and purchase intent.

Versus Proprietary Platform. Through the Winfinite platform, Versus provides advertisers and prize providers with the tools required to offer real-world prizes in-game for video game publishers and developers.

Win Condition – Depending on the Winfinite-enabled game, streaming media, or mobile application a win condition can be created to engage the audience. The condition can be a simple as watching a preview or completing a level and as advanced as completing a game or watching an entire series.

Targeted Demographics – Winfinite registers and manages individual player accounts, which allows the Company to offer prizes that are specific to each player based on a variety of characteristics, including age, location, game played, and challenge played.

Geo Fencing – In addition to targeting demographics, Winfinite uses geo fencing to target audiences within a specific region based on the advertisers/ prize providers desired target area.

Scheduling Tools – The platform also offers scheduling to meet the requirements of the advertisers/ prize providers. A specific Winfinite achievement award could be scheduled to coincide with a particular event that a brand is targeting.

Regulatory Compliance – With their patents, the Company’s business-to-business partners have access to the same protected claims as Versus, that address laws and regulatory compliance across federal, state, and local levels.




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Achievement Reward

Game Sessions – The game session remains unchanged, with players enjoying their favourite game, however Winfinite offers the user the ability to win a prize for completing a challenge during game play. The session can be offered on a Winfinite-enabled game, streaming media, or mobile application.

Retention Loop – When users choose to compete for the achievement reward during an activity they were already enjoying, such as playing a game, they are more likely to play more sessions for longer leading to better engagement with the brand. Furthermore, if a user enjoys Winfinite, they are more likely to share this positive experience and attract new players on social media.

Winfinite is a Better Way to Reach and Engage Viewers

Versus launched a study related to streaming and interactive media with the UCLA Anderson Center for Management of Enterprise in Media, Entertainment & Sports (UCLA MEMES). In August 2018, UCLA MEMES released the results of a survey on the advertising industry. The survey highlighted current issues with the advertising industry that Winfinite hopes to change. In the report, 45% of those surveyed frequently or always avoid advertisements entirely, with only 3.6% of respondents watching advertisements all the way through. On a scale of 0 to 10 (0 being hate and 10 love), advertising scored an average of 2.8 from those surveyed.

In order to better understand advertising across different mediums, the survey targeted respondents’ views on gaming and streaming services. Of those surveyed, 60% either “agree” or “strongly agree” that adding prizes makes games more fun. When asked “What would make you more interested in playing games?", the top response was “Winning real prizes for in-game achievements”. If those surveyed had the ability to win prizes, 77% would be more likely to watch TV or other media live (with advertisements) rather than recorded.

Versus then surveyed users of the Winfinite platform. Of those that played and won, 97% either “agree” or “strongly agree” that adding prizes through Versus’ Winfinite platform makes games more fun. Of those that responded, "A lot more" (the highest-value answer) to "How much more would you play games if any of the following were possible", “Winning real prizes for in-game achievements” was the top response. Lastly, of the women in the survey, 42% would play games more if they could win real-world prizes for in-game achievements.

Supporting the results of the survey, Versus announced statistics from over 500,000 sessions on Winfinite-enabled games. When compared to standard game play, players on Winfinite mode played 44% more sessions. Players also spent an average of 14.8 minutes interacting directly with the brand and/or prize per campaign. Users on Winfinite-enabled games had 54% email open rates which is 400% better than the industry average. Transaction rates were also 3,500% above the industry average. As of writing, the platform has awarded over 250,000 prizes including both downloadable content and physical goods.

Winfinite Targeting Gaming but Applicable for All Content

Given the high growth of the sector, management made it a priority to first launch the Winfinite platform in gaming. According to a Newzoo report published earlier this year, the global gaming market is expected to grow at a rate of 9.6% YoY, reaching a total of US$152.1 billion in 2019. Furthermore, Newzoo is projecting a 9.0% CAGR from 2018 to 2022 for a total of US$196 billion in revenue generated by 2022. Within the next five years, the gaming advertising market is expected to surpass US$10 billion. Additionally, endemic and non-endemic advertisers alike are discovering the value of advertising in video gaming. Lastly, a “win condition” already exists in gaming, which pairs well with the Winfinite platform.

According to research conducted by Activision Blizzard Media and Newzoo in the U.S, U.K, Germany, and France, gaming is the 3rd most popular app category with 50% of users surveyed having opened a gaming app in the past week. Similar to music apps, gaming apps are equally balanced between male and female. However, there are unique opportunities within gaming for advertisers and brands to target and take advantage of. The gaming industry consists of a diverse mixture of content each with their own unique user demographics. A puzzle game may appeal to an older female audience, while a shooter game may consist of young males. This allows advertisers and brands to target specific user demographics based on the type of game.

The study also found not only that gamers have 23% more purchase influence on their friends, family and colleagues than non-gamers but that there were interesting differences between men and women regarding the types of purchases. Male gamers were more likely to influence peoples purchases regarding technology, entertainment subscriptions and mobile phone service providers, while female gamers influenced dining out, grocery and clothing purchases. Games that appealed to an older demographic also showed purchasing influence on household purchase decisions. Gamers, when compared to non-gamers, are more amenable to brands and advertising. Gamers are more likely to make purchases from brands that they have seen ads from and liked. They associate ads with high quality brands and use advertising as a means to keep up to date with products and services.




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WINFINITE SDK for Game Developers using the Unity Game Engine

In June of this year, the Company announced the official launch of its patented Winfinite platform’s software development kit (SDK or devkit) for Unity, in an effort to allow developers to easily integrate Versus’ Winfinite platform onto their games. The SDK allows developers and publishers of games built on the Unity engine to integrate the Winfinite platform to offer players in-game contests and sweepstakes. With over half of the world’s games developed on Unity, it is one of the world’s most popular game engines. The SDK is a turnkey solution for developers and publishers on Unity to offer Winfinite.

Brands and Partners

Over the last few years, the Company has made several brand and partnership announcements. Partnerships are typically with game developers and publishers and involve including the Company’s Winfinite platform in-game. Some of the Company’s current partnerships include 704Games Company, NASCAR Heat Mobile, IDW Publishing, Animoca Brands Corporation Limited (ASX:AB1, Not Rated) and most recently HP Inc. (NYSE:HPQ, Not Rated) OMEN Rewards on the OMEN Command Center. Versus has also announced several prize provider relationships with brand and advertising partners. Some of the brand and advertisers include Speedway Motorsports, Inc. (NYSE:TRK, Not Rated), White Castle, Rockstar Energy Drink, Fanatics, and Han Cholo.

Figure 2: Winfinite: Brands and Partners


Figure 3: Recent Brand and Partnership Announcements





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HP Inc.

In early August of this year, Versus announced an agreement with HP Inc. (NYSE:HPQ, Not Rated) to licence Versus’ Winfinite technology for use in HP products and services. Later in the month, the Company announced that Winfinite would power OMEN Rewards, a prize platform that is built into HP’s OMEN Command Center which is available on the Windows Store on any Win10 PC. Management estimates that there are currently over 1 million North American users on the OMEN Command Center. The agreement with HP allows for the non-exclusive use of Versus’ technology and software, including access to the WINFINITE platform. Users on the OMEN Command Center will now be able to win real-world prizes, gift cards, trips and experiences while playing games. The Beta for OMEN Rewards is now available in the United States and the Company is currently working on expanding the platform to other regions. The two companies have been working in collaboration for multiple years to develop OMEN Rewards. We view the HP partnership as a transformative announcement from the Company that has the potential to more than double the current user base and represents a significant revenue generation opportunity.

Figure 4: OMEN Command Center - Rewards

Source: HP Inc. and Haywood Securities Inc.

Animoca Brands Corporation Limited

The Company announced it had entered into a mutual investment agreement with Animoca Brands Corporation Limited (ASX:AB1, Not Rated) on August 15, 2019 to drive in-game revenue and player engagement. Under the agreement, each company will exchange each other common shares of their companies’ shares valued at US$500,000, all of which shares are subject to an escrow period of 24 months. The two companies plan on working together to develop a framework for a strategic cooperative agreement, whereby Animoca Brands will utilize Winfinite for advertising through their current partnerships with iClick, Talenthouse, and Silveregg. The Company may also implement a rewards program on their existing portfolio of mobile games to include non-fungible tokens. In an effort to enhance their portfolio of games and content, Animoca games leverages gamification, blockchain and artificial intelligence technologies. The Company has operations in Hong Kong, Canada, Finland and Argentina. Animoca Brands develops and publishes mobile products with a portfolio that includes Crazy Defense Heroes, Crazy Kings, F1 Delta Time, The Sandbox, Mattel Games, Garfield Games, Astro Boy Games, Doraemon Games, Chibi Maruko Chan Dream Stage and Norm of the North Digit Dodge. In addition to their gaming portfolio, the Company has blockchain investments and partnerships including Lucid Sight, Dapper Labs (creators of CryptoKitties), WAX, Harmony, and Decentraland.

Ludare Games

Earlier this year, the Company announced a partnership with a premium publisher of mobile entertainment content, Ludare Games Group, to integrate the Winfinite platform into upcoming games. Ludare is actively looking to collaborate with development studios and globally recognizable intellectual property. The Company has had experience in film, television and gaming properties with its portfolio currently consisting of ‘Men In Black: Global Invasion’, ‘Omega Wars’ and ‘Beast Brawlers’.




9

Han Cholo

In September of last year, Versus announced a partnership with lifestyle brand Han Cholo as a prize provider on the Company’s Winfinite gaming platform. Starting on 704Games’ NASCAR Heat Mobile game with the Winfinite platform, users will be offered the chance to win licensed pins from Voltron: Defender of the Universe, Masters of the Universe, Dungeons & Dragons, and Universal Studios Monsters. Han Cholo expects to offer additional products as the partnership develops.

White Castle – Introduction of Location Targeted Rewards (Geo Fencing)

In partnership with White Castle, America's first fast-food hamburger chain, the Company announced the introduction of location targeted rewards in August of 2018. Versus announced it will use the Winfinite platform to offer gamers a chance to win White Castle products as prizes if the player is in close proximity to certain White Castle locations. The first test of this partnership was with select White Castle locations in the Louisville, Kentucky metropolitan area. The prizes were first offered on 704Games’ NASCAR Heat Mobile with a free 3 piece cheese stick reward.

Fanatics

In August of 2018, the Company announced it had introduced offers and prizing from Fanatics, a licensed sports merchandise supplier and official partner of NASCAR. With the partnership, users on NASCAR Heat Mobile can compete on Winfinite for official NASCAR merchandise. The Company first featured New Era official NASCAR hats and expanded the offering to reward players with 10% off discounts for Fanatic products.

GameCake

The Company announced its second partnership in July 2018 with a Los Angeles-based game developer and Comcast portfolio company, GameCake. The game developer creates games that target audiences who already own streaming media players, Smart TVs, and smart cable boxes. The studio’s first title, Emoji Charades, has already received multiple “Game of the Day” placements on the App Store.

Emoji Charades. The game is a rendition of the classic charades game but is played on multiple smart devices. The game is currently available on Computers, Apple TV, Airplay, Chromecast, Smart TVs, Xfinity X1, iPhones and iPads. Once the game is set-up with multiple devices, players can choose between over 25 different trivia packs to compete on. In March of this year, Versus announced that it had launched prizing on the game through the Winfinite platform with multiple in-game promotions currently available for players to win. As shown below, players can “Get Loyalty Rewards!”, “Accept Challenge” and see their progress to a free reward.

Figure 5: Emoji Charades – Loyalty Rewards with Winfinite New Challenges & In Progress

Source: GameCake and Haywood Securities Inc.




10

Moovly Media Inc.

The Company announced a partnership with a cloud-based multimedia platform, Moovly Media Inc. (TSXV:MVY, Not Rated), to offer Moovly Pro memberships on games on the Winfinite platform in July of 2018. The achievement reward, which is valued at US$299 per year, is featured inside NASCAR Heat Mobile. The cloud-based multimedia platform enables users to create content by making video creation affordable, intuitive and simple. Targeting small-medium size businesses and education, users can create explainer videos, promo videos, tutorials, and training videos with Moovly’s online video editor and video templates. Users can choose from various styles in the Moovly content libraries or add their own images, movies, and sounds to create videos and presentations. The partnership targets gaming streamers who between Twitch and YouTube have millions of hours of gaming content.

704Games

The Company’s first partnership was announced in August 2017 with 704Games to provide players with the opportunity for in-game prizes and real-world rewards using Versus’ Winfinite platform in upcoming 704Games titles on mobile and console. 704Games released the first NASCAR racing game on mobile, NASCAR® Heat Mobile, in the spring of 2017. In the fall of 2017, 704Games published NASCAR Heat 2 which is available on Xbox One, PlayStation4 and PC. In October of 2018, 704Games, NASCAR's exclusive esports partner for simulation-style video games on console platforms, announced the launch of NASCAR 3 on Xbox One and PlayStation®4.

NASCAR® Heat Mobile. In early April 2018, Versus announced it had launched its Winfinite platform on NASCAR Heat Mobile on both iOS and Android devices. NASCAR Heat Mobile is the first mobile NASCAR racing game and features 40 stock cars racing simultaneously. The Winfinite interface was integrated directly into the game and provided players with the ability to register and play for prizes. The platform was made available to players eligible to compete for prizes in the United States and Canada (excluding Quebec). Winfinite first offered downloadable content as prizes to players but, by June of 2018, the Company was offering real world prizes. 704Games offers “Daily Heats” on the game which are Versus-enabled matches (races) for individual players to complete objectives for prizes. Versus and 704Games offer multiple “Daily Heats” each day. Since then, the platform has offered over $100,000 of NASCAR race tickets. In total, the Company has offered over 500,000 prized sessions with prize categories including apparel, jewellery, food, beverages, and other consumer goods. To promote the launch of NASCAR Heat 3 in October of 2018, Winifinite offered copies of the flagship console game and its downloadable content as prizes in NASCAR Heat Mobile.

Figure 6: NASCAR® Heat Mobile Game Play with Winfinite





11

Intellectual Property and Patent Filings

The Company has filed multiple patent claims, both in the United States and internationally, to protect the Company’s portfolio of prizing, promotion and financial technologies. Since filing its initial intellectual property (IP) and developing proof-of-concept in 2014, Versus Systems has expanded on these claims that describe a system that seeks to match brands with players and spectators with a unique conditional prize matching system. In March of this year, the Company announced that pursuant to a 2015 filing, the U.S. Patent and Trademark Office (USPTO) had issued U.S. Patent No. 10,242,538 to Versus, titled “Systems and Methods for Creating and Maintaining Real Money Tournaments for Video Games.” The patent protects a number of the Company’s proprietary systems and methods for awarding real money, physical goods, digital currencies, and downloadable content to players inside video games and interactive media. Highlights of the granted patent include:

Protects the subject systems and methods until 2035;

Covers claims around player identification and verification;

Covers technologies to determine prize eligibility for matches, tournaments, and sweepstakes based on a players age, location, and other characteristics; and

Describes how the system can award multiple prize types to players that meet a variety of win conditions or achievements in-game.

With this patent, the Company’s partners will have access to the same protected claims as Versus, which address laws and regulatory compliance across federal, state, and local levels. The Company continues to develop new technologies inside video games and interactive media for prizing and rewards. In addition to the recently announced patent, Versus has filed numerous other claims relating to their platform that are currently pending in the United States and in other Patent Cooperation Treaty countries. Versus is also pursuing a number of patents in and around the potential gaming space that could potentially make the Company’s patent portfolio easier to license or more valuable to licenses in the entertainment vertical. As of writing, Versus has filed over 40 United States Patent and Trademark Office and Patent Cooperation Treaty claims around player identification, dynamic regulatory compliance, and conditional prizing in-games, TV and streaming media.

Proprietary Technology that Works on Any System

Determine and verify participants, viewers, and players using location, age, and other factors

Establish and verify prize eligibility across multiple jurisdictions

Assess and distribute conditional prizes to individual participants based on their eligibility

Remove elements of chance from video game tournaments or matches at the tournament level

Offer skill-based matches, sweepstakes, and tournaments that work with changing federal, state, local, and international laws

Create campaigns and promotions of physical goods inside of games and other content types: prize intake systems and display dashboards that allow campaign control

Figure 7: Broad Compatibility with Various Operating Systems (Android, Apple, Unity, Xbox, PlayStation & Xfinity X1)


Developing a Platform Beyond Games

With the rapid growth in over the top services both in gaming and other media, management sees opportunities for their platform beyond global PC and console games. The Company continues to develop additional intellectual property and software that target this large and growing spectator market. Versus plans to work with multiple distribution channels, including YouTube, Twitch and traditional television. Within gaming, the Company plans to expand its reach beyond the United States and Canada. Management expects to launch Winfinite in Europe later this year followed by Asia in mid-2020. The Company’s geographical expansion coincides with the release schedules of current and prospective Versus developer and publisher partnerships. With Winfinite fully integrated into the developer’s software, the majority of the marketing cost related to geographical expansion will be borne by the publisher and developer as they release their game.




12

The Next Evolution of Advertising

Late last year, in partnership with the Center for Management of Enterprise in Media, Entertainment & Sports (MEMES) at the University of California, Los Angeles’ Anderson School of Management, Versus announced the results of a statistically significant comprehensive study that included more than 88,000 respondents from a diverse sample across all age, race, gender, and socioeconomic status. The study was commissioned to analyze media consumption patterns and brand engagement across different media types and demographics with a focus on people’s reactions to advertising and interactive media. Highlights of the study include:

Daily active gaming is nearing the majority: 41% played a game in the past 24 hours, even if only 13% of respondents self-identify as “gamers.”

New methods of advertising are necessary for interactive media: 45% frequently or always actively avoid ads with only 3.6% watching through.

“Winning prizes” outranked “playing with my friends” and “if games were less expensive” as the number one answer to “what would make you play/watch more?”

Millennials, and those born 1997 onward, were even more likely than others to prefer prizes to other engagement strategies.

Gaming is Massively Popular with Consumers. The study found that even if individuals frequently played games, they rarely self-identified as “gamers”. Furthermore, a significant proportion of the individuals of the study played games often, regardless of demographics. Approximately 50% of all respondents had played a form of videogame (mobile, PC, console, etc.) within the last week, with 41% having played in the last 24 hours. Every demographic in the study showed growth in gameplay. However, there is a meaningful disconnect between action and self-identification with only 13% of respondents describing themselves as “gamers”. Interestingly, only 11% of the female demographic self-identified as “gamers”, while 56% of women played a game in the last week and 47% played in the last 24 hours.

Millennials Love to Game and Identify as Such. The gap between action and self-identification narrows among younger generations. Millennials, born between 1981 and 1996, and younger demographics (Generation Z) were more likely to self-identify as “gamers”. 47% of Millennials self-identified as “gamers”, with 65% playing a game in the last week and 49% playing in the last 24 hours. Of Generation Z’s surveyed, 65% had played a game in the last week, 50% played in the last 24 hours, and 43% self-identified as “gamers”. The two age groups that reported the highest gameplay frequency were Millennial males, followed by Generation Z females. Of the Millennial males surveyed, the highest frequency gameplayers, 72% responded that they had played a game in the last week, 54% in the last 24 hours, and 65% self-identified as “gamers”. This was followed by Generation Z women, of whom 67% reported playing a game within the last week, 51% in the last 24 hours, and 40% self-identifying as gamers. The study highlighted that advertisers may not be recognizing the value of advertising in-game. Gaming represents a large and diverse demographic with daily frequency of play growing in each category. Growth in gaming is approaching a point where most of all Americans play games regardless of whether individuals self-identify as gamers or not.

Traditional Advertising Models May Struggle Moving Forward. The results of the survey highlight people’s hatred of traditional advertising. Of the 88,000 respondents, only 3.6% reported that they always watch ads all the way through. A significant number of respondents eschew advertisements, with 45% stating that they frequently or always actively avoid ads by “hitting the X”, changing channels, closing out of the app, or leaving the room. When sorting the results by advertising method, banner ads were rated the worst, followed by product placement within content and 30 second ad inserts within content.

Best Ways to Increase Engagement? Real World Rewards and More Personalized Content. In addition to surveying respondents on traditional advertising models, the study also attempted to discover what motivated respondents to increase engagement with games and interactive media. The survey asked “what would make you play games more?”, 30% of respondents selected “winning real things that I want when I achieve things in-game”, which was the top response, followed 18% selecting “if the games were less expensive” and 11% selecting “my friends playing the same game(s)”. When asked to qualify their likely level of increased engagement regarding “winning real-world prizes” 42% of respondents answered that prizes would make them watch/play either “more” or “a lot more”. The second most popular response, with 24% selecting it as their top response, was “if more games/more shows were made for people like me”.

Our Take

While gamers might not self-identify as “gamers”, they are verging in on becoming the majority of the population. According to the recent 2019 Global Game Market Report by Newzoo, there are currently 2.5 billion gamers representing 32.7% of the globe. In North America, 53.9% of the population are gamers with every demographic well represented. People don’t like traditional forms of advertising, however there are ways to increase engagement with brands. In addition to offering real-world prizes, games or shows that were more relatable scored well with user engagement. In order to reach larger markets, content creators need new narratives that better represent a wider audience. With traditional programming lacking engagement from younger audiences, advertisers need to leverage digital and interactive media in new ways.




13

Outlook

Winfinite Revenue Generation

Similar to traditional online advertising, brands pay on a per-session basis. The cost to the brand or advertiser is a function of cost per session, daily active users, and sessions per day per daily active users. Not all achievement rewards are revenue generating. Management estimates 10% of total sessions are paid Versus-enabled or revenue generating. Revenue generated is then split between Versus (40-50%) and the Publisher/Developer of the game (50%-60%). The Company estimates the average cost per engagement (CPE) is approximately US$0.50, which management suggests is less than Facebook’s average Cost Per Click (CPC) and has much higher engagement and purchase intent. Depending on the value of content or level of engagement, this CPE number could increase to between US$3.00 to US$4.00, which could drive additional revenue to the Versus.

Figure 8: Brands Pay on a Per-Session Basis to Reach Targeted, Engaged Audiences


Haywood Revenue Drivers

Sessions are a function of users on the platform and the average number of sessions per user. Given managements’ assumptions, we can derive revenue generated by Versus. Long-term, we assume that 10% of total sessions are paid Versus-enabled or revenue generating and split 50/50 between Versus and developers/publishers. While we currently assume an average long-term cost per engagement (CPE) of US$0.50, this CPE number could increase to between US$3.00 to US$4.00 which could drive additional revenue to Versus. As the value of content and/or level of engagement increases, we expect an upward revision to our baseline CPE assumption.

The key revenue growth driver for the Company is the number of sessions or challenges, which is a function of user base and daily active users. We assume there are currently 2 million users on HP’s OMEN Command Center globally, which we expect to expand into Europe later this year and into Asia in the second half of 2020. For fiscal 2020, we assume that the user base increases from 2 million to 4.5 million users for an average of 3.9 million users. We assume an average of 106 sessions per user annually for a total of 254 million session in 2020. Below, we present our key revenue driver financial assumptions for 2020. It is important to note that our model assumptions are based only on the announced partnerships. Any new partnerships or revenue sources would potentially provide upside to our estimates. Since our view is that Versus will be successful in expanding its platform, our estimates could prove conservative.

Figure 9: 2020 Advertising Revenue Assumptions for Versus Systems


Total revenue for the Company is comprised of advertising revenue, which we highlighted above, and revenue from integration fees. The company generates integration fee revenues each time a brand onboards the Winfinite platform. We assume Versus can generate $800k in integration revenue in 2020 as the Company continues to onboard brands.

As the Winfinite platform is scalable and most of the cost to develop has been realized, we assume only modest increases in operating costs year over year. We do however assume a cost of sales commissions of 10% of sales, driving a 17% increase in expenses in 2020. We also assume that the Company spends an average of $2 million annually on the development of intangibles. Below we present our financial estimates for Versus Systems.

Daily Active Users

Sessions/Day/DAU

$/SessionCost to Brand

3.9 Million Users

106 Sessions per Year

US$0.50 per CPE

50/50 Revenue

Split

10% of Total

Sessions Paid

$13.8M in Revenue




14

Figure 10: Financial Forecasts


Balance Sheet, Share Capital & Ownership

As of the end of Q2 2019, ending June 30th, 2019, the Company had minimal cash and $6 million in debt on its balance sheet. Since the end of the quarter, the Company has raised $4.5 million. On July 26th, the Versus announced it had closed at $3.5 million non-brokered private placement at $0.20/sh. This was followed by a $1.0 million non-brokered private placement at $0.22/sh that closed August 9th, 2019. We assume the Company will exit Q3 2019 with $2.8 million in cash and $5.9 million in debt. We believe the Company has sufficient cash to carry them until revenues scale upward.

Figure 11: Balance Sheet

Source: Capital IQ, Company Reports and Haywood Securities Inc.

Financial Forecast Year-end Dec 31st

Income Statement 2018A 2019E 2020E 2021E

Sales, C$M $ 0.0 $ 1.4 $ 14.6 $ 25.3

Operating Profit, C$M $ (9.2) $ (7.6) $ 4.1 $ 13.6

Adjusted EBITDA, C$M $ (5.5) $ (3.5) $ 8.3 $ 17.8

Loss and comprehensive loss, C$M $ (9.4) $ (7.9) $ 2.0 $ 8.1

Balance Sheet 2018A 2019E 2020E 2021E

Cash, C$M $ 0.0 $ 1.2 $ 3.8 $ 10.5

Total Debt, C$M $ 3.5 $ 5.8 $ 4.5 $ 1.2

Net Debt , C$M $ 3.4 $ 4.6 $ 0.7 $ (9.3)

Cash Flow 2018A 2019E 2020E 2021E

Operating CF (before W/C), C$M $ (5.5) $ (3.8) $ 6.0 $ 12.2

Cash used in investing activities, C$M $ (1.8) $ (2.0) $ (2.1) $ (2.1)

Cash provided by financing activities, C$M $ 6.7 $ 7.2 $ (1.3) $ (3.3)

Free Cash Flow, C$M $ (7.6) $ (6.6) $ 3.6 $ 9.3

Net change in cash, C$M $ (0.2) $ 1.2 $ 2.6 $ 6.7

Balance Sheet and Capitalization As of: Q3/19E

US$M US$ / Share C$M C$ / Share

Market Capitalization $ 34.5 $ 0.26 $ 45.8 $ 0.35

Current Cash $ 2.1 $ 0.02 $ 2.8 $ 0.02

Working Capital $ 1.2 $ 0.01 $ 1.6 $ 0.01

Debt $ 4.4 $ 0.03 $ 5.9 $ 0.04

Non-Controlling Interest $ (6.6) $ (0.05) $ (8.8) $ (0.07)

Book Value $ 0.1 $ 0.00 $ 0.1 $ 0.00

Enterprise Value (EV) $ 30.2 $ 0.23 $ 40.1 $ 0.30

Spot C$/US$ FX Rate: $ 1.33




15

As of June 30th, 2019, the Company had 110.7 million shares outstanding with 33.7 million Class “A” Series 1 shares, 10.4 million options and 43.2 million warrants. Following the closing of recent financings, we assume the Company’s outstanding shares and warrants increase to 132.8 million and 65.3 million, respectively.

Figure 12: Share Capital


As shown below, the top holders of Versus Systems consist of management and insiders, including the Executive Chairman, Chief Executive Officer, Board members and the Corporate Secretary. Combined, the group owns over 17% of the shares outstanding not including their ownership in Class “A” Series 1 shares.

Figure 13: Major Shareholders


Company Catalysts

Geographic Expansion

In partnership with HP Inc. and the Winfinite powered OMEN Rewards, the Company plans to make additional geographic expansion announcements. Management estimates that the HP’s OMEN Command Center, which the OMEN Rewards prize platform is built into, currently has over 1 million users in North America. The platform is expected to expand its user base into Europe later this year and into Asia in the second half of 2020, which could significantly increase sessions for the Company. The Company is currently negotiating additional partnerships for games outside of North America. We believe that the HP partnership validates the Winfinite platform for other gaming companies and as such should lead to additional partnership announcements in the coming year.

New Verticals Beyond Gaming

While management’s priority for the Winfinite platform remains the high growth gaming sector, there are opportunities for the platform across multiple new verticals. Win conditions are applicable to a variety of verticals where providing users with the opportunity to win real-world prizes has the potential to increase engagement with the advertising brand and content partner.

Over The Top (OTT) Media Services. With the rapid growth in over the top services both in gaming and other media, management sees opportunities for their platform beyond global PC and console games. The Company continues to develop additional intellectual property and software that target this large and growing spectator market. Versus plans to work with multiple distribution channels, including YouTube, Twitch and traditional television. Traditional programming has historically been financed with the support of advertising. OTT services have largely moved to subscription-based model, leaving advertisers and brands looking for new ways to reach this audience. Management is working with content partners to include the Winfinite platform on their application and offer users the option to engage with brands and potentially win prizes. The win condition could be as simple as watching a new show or completing an entire series.

Share Capital Dilution

As of Number Avg. Price (C$) Proceeds (C$M) ITM (C$M) Expiry (years)

Basic OS 08-Aug-19 132.8

Options 30-Jun-19 10.4 $ 0.29 $ 3.0 $ 1.4 2.89

Warrants 08-Aug-19 65.3 $ 0.31 $ 20.4 $ 6.4 1.81

Class “A” shares, Series 1 30-Jun-19 33.7 $ - $ - $ - -

Total Dilutive 109.4 $ 23.4 $ 7.8

Fully Diluted OS 242.1

Major Shareholders

Position Date Shares Held % of O/S C$M

Tingle, Brian J. 22-Jul-19 9.0 6.8% $ 3.1

Vlasic, Paul 22-Jul-19 7.9 5.9% $ 2.8

Pierce, Matthew 22-Jul-19 2.7 2.1% $ 1.0

Chin, Kelsey 6-Nov-18 2.0 1.5% $ 0.7

Peymani, Keyvan 29-Jul-19 1.3 0.9% $ 0.4

Total 22.9 17.2% $ 8.0




16

Health and Wellness. Another interesting vertical for Winfinite is health and wellness applications where users are physically competing against their community, friends and personal bests. Applications such as Strava and Peloton Digital encourage users to engage with their community to stay motivated. Strava offers “Strava Segments” which are portions of a road or trail selected by users to compare times. With a win condition in place, “who is fastest in this Strava Segment?”, the Winfinite platform can offer winners prizes from health and wellness brands such as running shoes, athletic clothing, cycling shops, bicycle brands or discounts on the app. This is a highly engaging opportunity for health and wellness brands to specifically target users.

Figure 14: Peloton Digital and Strava

Source: Peloton Digital, Apple, Strava and Haywood Securities Inc.

Inbound Prizing from Brands and Advertisers

As a development stage company, Versus has been required to engage both partners on the platform side, and advertisers and brands to grow the Company. As the Company partners with more platforms the user base and number of sessions is expected to grow, which will attract more advertisers and brands to the Winfinite platform bringing more inbound requests to advertise. The Company announcing additional platform partners also further validates Winfinite to the industry, which should influence more content providers to onboard Winfinite. We expect the Company to continuously announce new partnerships both on the platform side, and with advertisers and brands as Winfinite expands. As we currently only model announced partnerships, this would represent upside to our estimates.

Additional Intellectual Property Filings and Announcements

In March of this year, the Company announced that pursuant to a 2015 filing, the U.S. Patent and Trademark Office (USPTO) had issued U.S. Patent No. 10,242,538 to Versus, titled “Systems and Methods for Creating and Maintaining Real Money Tournaments for Video Games.” The patent protects a number of the Company’s proprietary systems and methods for awarding real money, physical goods, digital currencies, and downloadable content to players inside video games and interactive media.

In addition to the recently announced patent, Versus has filed numerous other claims relating to their platform that are currently pending in the United States and in other Patent Cooperation Treaty countries. Versus is also pursuing a number of patents in and around the potential gaming space that could potentially make the Company’s patent portfolio easier to license or more valuable to licenses in the entertainment vertical. As of writing, Versus has filed over 40 United States Patent and Trademark Office and Patent Cooperation Treaty claims around player identification, dynamic regulatory compliance, and conditional prizing in-games, TV and streaming media. We expect ongoing announcements with regard to the Company’s portfolio of patent and trademark filings.




17

Valuation, Downside & Recommended Action

We recommend accumulating shares of Versus Systems with a conservative 59% upside

We are initiating coverage on Versus Systems with a BUY recommendation and target price of $0.55 per share. As we have outlined in our report, we believe that the Company’s partnership with HP has the potential to significantly increase the current user base and number of sessions, driving revenue growth in 2020. Furthermore, we believe the partnership validates the Winfinite platform which could lead to new partnership announcements. As we currently only model announced partnerships, this would represent upside to our estimates. We believe that fiscal year 2020 is the best representation of the Company’s near-term earnings potential and basis for our valuation. We use a 12.0x multiple on our F2020 Adjusted EBITDA estimate (or 5.3x on our F2021) to arrive at our $0.55 target price as shown in Figure 15. In our view this valuation could prove conservative given that the blended average of large capitalized advertising, marketing and application software companies are currently trading at an average of 25.7x EV/EBITDA on 2020 consensus estimates.

Figure 15: Target Price Valuation Summary base on Fiscal Years 2020 and 2021


Our downside scenario on Versus Systems is predicated on HP gradually ramping up marketing of OMEN Rewards, resulting in half of the paid sessions in 2020 than we are currently modeling from the partnership. As such, we conservatively assume that the Company can generate $4M in Adjusted EBITDA in 2020, to which we apply a 6.0x multiple to arrive at our $0.20 per share downside valuation as shown in Figure 16.

Figure 16: Downside Scenario Valuation Summary


C$ Million C$/Share

2020E Adjusted EBITDA $8 $0.03

Target Multiple 12.0x

Implied Enterprise Value $99 $0.42

Cash & Equivalents (2020E) $4 $0.02

Debt (2020E) ($5) ($0.02)

Non-Controlling Interest (2020E) $9 $0.04

Options & Warrants $22 $0.09

Implied Market Capitalization $129 $0.55

Current Share Price $0.35 12-Month Target $0.55

P/Adjusted Valuation 0.63x Implied Return 59.4%

Basic Shares Outstanding 132.78

Fully Diluted Shares, Including ITM at Target Options & Warrants 236.80

C$ Million C$/Share





Debt (2021E) ($1) ($0.00)





P/Adjusted Valuation 0.63x Implied Return 59.4%


Fully Diluted Shares, Including ITM at Target Options & Warrants 236.80

C$ Million C$/Share





Debt (2020E) ($5) ($0.03)





P/Adjusted Valuation 1.74x Implied Return (42.0%)


Fully Diluted Shares, Including ITM Options & Warrants 166.49




18

Comparable Companies

Source: Bloomberg, Capital IQ and Haywood Securities Inc.

25-Sep-2019

Shares Market Working Enterprise 2019E 2020E 2019E 2020E

Company Symbol Price O/S Capitalization Cash Capital Debt Value Sales Sales EBITDA EBITDA Debt/

(millions) (US$M) (US$M) (US$M) (US$M) (US$M) (US$) (US$) (US$M) (US$M) Equity 2019E 2020E 2019E 2020E

Cardlytics, Inc. NasdaqGM:CDLX C$ 44.15 24 $ 812 $ 32 $ 58 $ 37 $ 817 $ 190 $ 254 $ (4) $ 11 0.8x 4.3x 3.2x - 72.8x

ChannelAdvisor Corporation NYSE:ECOM C$ 12.28 28 $ 257 $ 49 $ 37 $ - $ 226 $ 130 $ 136 $ 18 $ 22 - 1.7x 1.7x 12.8x 10.4x

Criteo S.A. NasdaqGS:CRTO C$ 25.81 65 $ 1,244 $ 422 $ 336 $ 2 $ 1,051 $ 958 $ 997 $ 287 $ 300 0.0x 1.1x 1.1x 3.7x 3.5x

Inuvo, Inc. AMEX:INUV C$ 0.37 49 $ 13 $ 1 $ (9) $ 2 $ 16 $ 59 $ 70 $ (2) $ 0 0.3x 0.3x 0.2x - 79.4x

QuinStreet, Inc. NasdaqGS:QNST C$ 16.86 51 $ 632 $ 63 $ 60 $ - $ 569 $ 475 $ 529 $ 40 $ 52 - 1.2x 1.1x 14.4x 11.0x

Telaria, Inc. NYSE:TLRA C$ 9.80 46 $ 328 $ 58 $ 39 $ - $ 301 $ 70 $ 83 $ 3 $ 10 - 4.3x 3.6x 97.7x 29.5x

The Interpublic Group of Companies, Inc.NYSE:IPG C$ 27.88 387 $ 8,248 $ 614 $ (256) $ 3,564 $ 13,352 $ 8,701 $ 8,960 $ 1,422 $ 1,525 1.5x 1.5x 1.5x 9.4x 8.8x

The Rubicon Project, Inc. NYSE:RUBI C$ 12.25 53 $ 471 $ 86 $ 50 $ - $ 400 $ 157 $ 180 $ 20 $ 26 - 2.5x 2.2x 20.5x 15.2x

The Trade Desk, Inc. NasdaqGM:TTD C$ 258.31 45 $ 8,664 $ 231 $ 414 $ - $ 8,522 $ 656 $ 851 $ 206 $ 266 - 13.0x 10.0x 41.5x 32.0x

Group Average 0.6x 3.3x 2.7x 28.6x 29.2x

Group Average (excluding high/low) 0.4x 2.4x 2.0x 17.0x 25.7x

Versus Systems Inc. (Consensus) CNSX:VS C$ 0.35 133 $ 35 $ 2 $ 1 $ 4 $ 30 $ - $ - $ - $ - 1.1x - - - -

Versus Systems Inc. (Haywood) CNSX:VS C$ 0.35 133 $ 35 $ 2 $ 1 $ 4 $ 30 $ 1 $ 11 $ (3) $ 6 1.1x 29.6x 2.7x - 4.8x

$ 1.33




19

Significant Investment Risks

Limited Operating History. Versus Systems is considered as a development stage Company and as such has had a limited operating history. As a new business, risks involving under-capitalization, cash shortages, limited personnel or lack of revenue may prevent the Company from achieving their growth objectives. An extended period of sustained losses may limit the Company’s ability to continue the business.

Changes in Laws, Regulations and Guidelines. Operations are subject to a variety of laws, regulations and guidelines relating to the Company offering prize based tournaments including esports, online gaming and gambling laws and regulations. Any changes to these laws and/or regulations may be beyond the control of the Company and have an adverse impact on operations. Due to the accessibility of websites outside of jurisdictions where the actives are considered legal, the Company may face legal action from a jurisdiction where the activity is illegal.

Regulatory Risk. The Company’s operations are contingent upon compliance with regulatory requirements and as such require obtaining all regulatory approvals for the sale and use of its products and services. The timing required to secure all the appropriate regulatory approvals for its products is uncertain. Delays or failure to obtain regulatory approvals would significantly impact the development of the Company’s products and could negatively impact the business. The Company is subject to rapid regulatory changes and failure to keep up with such changes may adversely affect the business. Changes in legislation cannot be predicted and could irreparably harm the business. The Company is required to maintain licenses and approvals to provide its services. Should the Company be unable to update or renew its various licenses it could impact the Company’s ability to operate.

Competition. The Company could face intense competition from Companies that have longer operating histories, that have more financial resources and more marketing experience than Versus. Increased competition could materially and adversely affect the operations of the business.

Reliance on Management and Key Personnel. Operations of the Company are dependent on the ability, expertise, and judgement of senior management. While these individuals are subject to employment agreements, there are no assurances of the continued services of such employees. Additionally, the Company’s inability to retain key employees and attract additional employees could have an adverse impact on operations.

Lack of Demand. A lack of demand for the Company’s products as a result of increased competition, technological changes or other factors could have a materially adverse effect on the business, which could negatively impact operations and the financial condition of the Company.

Failure to Retain Existing Users or Add New Users. The Company’s operations are dependent on the level of users and their engagement. The financial performance of the company will be determined by the addition, retention and engagement of its users. A decrease in user retention, growth or engagement could be viewed as less attractive to video game and content publishers and developers. The Company will need to introduce and improve products to maintain and grow user engagement. The Company will also need to provide adequate customer service to users, developers and advertisers to ensure content and engagement. If the Company is unable to build and/or maintain relationships with publishers and developers, the Company’s revenue, financial results, and future growth potential may be adversely affected.

Rapid Technological Change. The Company’s success depends on its ability to adapt to rapidly changing technologies, to adapt its services to evolving industry standards and to continually improve the performance, features and reliability of its service in response to competitive service and product offerings and evolving demands of the marketplace. The failure of the Company to adapt to these changes could adverse effect on the Company’s business.

Online Commerce Security Risks. The Company must secure the transmission of confidential information over public networks. However, there can be no assurances that new developments will not compromise or breach the technology used to protect customer transaction data. If the Company’s online security is breached, it could have an adverse effect on the Company’s operations. Furthermore, if a breach occurred the Company’s proprietary information could be stolen. There could be a significant cost associated with protecting against such security breaches or to alleviate problems caused by such breaches.




20

Appendix A – Management

Matthew Pierce – Founder, Chief Executive Officer and Director

Mr. Pierce has over 15 years of experience working in entertainment and technology. He is currently the founder and chief executive officer of OLabs, a joint venture between Manatt and Originate that creates, funds, and develops technology companies. Versus is a portfolio company of OLabs. Prior to founding OLabs, Mr. Pierce was Vice President of Strategy at Originate, working with early-stage technology companies. He has also worked at Warner Bros and the Boston Consulting Group. Mr. Pierce is a Lecturer at the University of Southern California, Los Angeles (“UCLA”) Anderson School of Management and in the Economics department at UCLA, where he teaches entrepreneurship. Mr. Pierce is a graduate of Stanford University and he earned his MBA from UCLA.

Craig Finster – President & Chief Financial Officer

Mr. Finster has over 15 years of experience in finance, accounting, and corporate development for technology companies. He previously served as the Managing Director of Originate’s Strategic Advisory Group, working with venture stage companies on strategic and financial issues. He previously spent four years leading the investment team at Originate, focusing on seed and early stage companies. Mr. Finster is the former CEO of a venture capital backed technology start-up, which was sold to strategic buyer. He holds bachelor’s degrees in economics and finance from the University of Arizona and an MBA from the UCLA Anderson School of Management.

Alex Peachey – Chief Technology Officer

As CTO of Versus Systems, Alex Peachey leads the architecture efforts for their Elixir-based platform. Leveraging over two decades of experience building data driven software systems, Alex leads a group of highly talented software engineers in developing the Versus Systems Winfinite challenge platform. Alex believes that their Elixir applications running on the Erlang/BEAM virtual machine allow Versus to create a highly robust and scalable system. The opportunity to build systems enabling video game developers to make their games more fun is exciting as Alex spends much of his free time playing a variety of video games with his son. He holds a BS in Computer Science from Western Washington University and an MBA from the University of Washington.

Javon Frazier – Advisor

Mr. Frazier currently serves as the Executive Vice President of Business Development and Strategy at Studio 71, a leading digital media company owned by the ProSiebenSat.1 Group, where he oversees strategic business development for influencer brands. Frazier is an accomplished executive with a proven track record in the global media landscape with experience in all areas of media and entertainment, including film, television, digital media, publishing and gaming. Mr. Frazier has built several multi-million-dollar brands over the past few years, including a card game called Joking Hazard, the Guava Juice toy subscription box, and most recently The Binding of Isaac: Four Souls table top game. His core competence lies in driving transactional revenue with new product launches, especially mobile games. Prior to joining Studio71, he worked at Marvel for close to a decade, starting in business development with the studio's publishing and theatrical divisions. Here he helped launch Iron Man and The Incredible Hulk, before rapidly moving on to the Marvel's television arm as its Marketing Director, overseeing popular animated television series including Avengers: Earth’s Mightiest Heroes, Iron Man: Armored Adventures and Super Hero Squad. Frazier last served as the VP of Games Marketing for Marvel, where he launched over 40 games on global platforms, including properties like The Avengers, Iron Man, The Incredible Hulk, Lego Marvel Super Heroes, and Disney Infinity.

Avril Millar – Advisor

Avril Millar is a non-executive director of FxPro, PassFort and The Security Circle, and advises Kepler Partners and many others. A civil engineer by training, having then built her own Wealth Management business from the mid-80s over 20 years, she has spent the last decade since its sale entirely sector neutral, leveraging her extensive business knowledge, personal contacts and strategic vision to support her client companies and their Executive teams through step changes to sustainable success. She is also the author of The Kama Sutra of Work and the mother of an Olympian.




21

Appendix B – Board of Directors

Keyvan Peymani – Executive Chairman

Keyvan Peymani is a veteran senior executive and thought leader working at the intersection of technology, media, and venture capital. Mr. Peymani serves as the Head of Startup Marketing for Amazon Web Services and is responsible for the global marketing strategy. Prior, he served as a Venture Partner and Senior Advisor to Touchdown Ventures, a VC firm pairing with several leading corporations to establish and manage their platforms. He served as the Managing Director, Digital Strategy Division at ICM Partners, one of the world’s largest talent and literary agencies, and was the firm's chief digital executive, reporting to the Executive Board. He also served as the Vice President of Direct to Consumer Business Planning and Operations at Warner Bros., where he led strategy, operations, planning and development for the division. In addition, he oversaw three business areas, including mobile apps, and worked on industry-leading forays into OTT, the first fully digital movie apps, the first screenings of movies in Facebook, and the acquisition of Flixster. Prior, he was the head of content acquisitions for catalog content and led the wholesales efforts at Netflix; he led alternative business development for Disney’s music group; and he was the Chief Operating Officer of Nettwerk Music Group. Mr. Peymani has a BA in Religious Studies and a BA in Neurobiology with concentrations in Neuroscience from Northwestern University. He holds an MBA from the Anderson School of Business at UCLA.

Matthew Pierce – Founder, Chief Executive Officer and Director

See above.

Brian Tingle – Board Member

Mr. Tingle began his career in the Canadian banking sector, and has been involved in the capital markets for the past 20 years as an advisor, and also as a director, for both private and public companies. Brian is experienced in a range of corporate transactions including acquisitions, mergers, takeovers and financings; his specialty being the effective delivery of the due diligence process.

Paul Vlasic – Board Member

Mr. Vlasic serves as a Vice-President and Manager at Vlasic Investments, L.L.C. Mr. Vlasic is a Founding Partner at RSVP Capital. He founded Amplifinity, LLC. He co-founded RSVP Capital in 2007. In addition to his activities at RSVP, Mr. Vlasic serves as the Chief Executive Officer and Chairman of uRefer and as a Manager at Vlasic Investments (VILLCo). He also actively invests in new startups. He is a veteran entrepreneur who has led several companies in the technology space. He served as the Chief Executive Officer of Amplifinity, LLC, and has been its Member of the Board of Directors since 2009. Mr. Vlasic served as the Chairman of O/E Automation and Head of Operations at O/E Systems. He began his career at Reynolds Metals Company, working in their sales organization. Mr. Vlasic serves on multiple boards within the Henry Ford Health System, The Henry Ford Foundation, and the University of Michigan College of Engineering's Center for Entrepreneurship. He is a graduate of Rollins College and earned his M.B.A. with Distinction from the University of Michigan Ross School of Business.

Michelle Gahagan – Board Member

Ms. Gahagan is currently a principal of a privately held merchant bank based in Vancouver, British Columbia and London, England. Prior to the commencement of her involvement in merchant banking seven years ago, Ms. Gahagan graduated from Queens University Law School and practiced corporate law for 20 years. Ms. Gahagan has extensive experience advising companies with respect to international tax-driven structures, mergers and acquisitions.




22

Appendix C – Company Profile

Versus Systems is a development stage company focused on the technology sector and is currently developing business-to-business software platforms that allow content creators to offer prize-based rewards. Its Winfinite platform is a proprietary platform for winning real-world prizes in-game for video game publishers and developers. The Company has an office in Vancouver, Canada and operations in Los Angeles, California. While the Versus platform is currently only available on NASCAR® Heat Mobile and Emoji Charades in Canada and the United States, management is in negotiations with numerous video game publisher/developers and content creators. Additionally, Versus has launched a study related to streaming and interactive media with the UCLA Anderson Center for Management of Enterprise in Media, Entertainment & Sports. The Company is traded on the Canadian Securities Exchange (CSE) under the symbol “VS” and on the OTCQB market under the trading symbol “VRSSF”.

History

Versus LLC was founded in Los Angeles, California in early 2014 as a conceptual technology company. Over the course of the next year, the Company filed initial IP and developed proof-of-concept. Management then filed PCT international IP and filed additional IP prior to being acquired and listed on the CSE. In November 2015, the listed Company first announced plans to fundamentally change (formerly Opal Energy Corp. – CSE:OPA) and acquire 37.5% of California-based Versus LLC. Versus Systems announced the closing of the transaction and a concurrent $5 million financing in June of 2016. Additionally, the Company changed its name to Versus Systems Inc., announced a new board and management team (Matthew Pierce, Keyvan Peymani, Brian Tingle, Michelle Gahagan and Paul Vlasic) and its shares began trading on the CSE on July 13th, 2016 under the ticker “CSE:VS”.

A wholly-owned subsidiary of Versus Systems, Versus Systems (Holdco) Inc. “Newco”, was incorporated under the laws of Nevada and acquired 100% of the membership units of Versus from the selling group. The acquisition was completed on June 30, 2016 with an initial payment of US$1.5 million being made to Selling members who exchanged Versus units for fully paid common shares of the Newco. The Versus units were then cancelled and Versus then became a wholly-owned subsidiary of Newco. Selling Members were granted the right to exchange the Newco fully paid and non-assessable common shares of the Company equal to US$2.5 million and common share purchase warrants equal to US$1.25 million exercisable at $0.20 per share for 36 months. As a result, the Company’s ownership interest in Newco decreased from 100% to 38.2%, with Newco owning 100% of Versus LLC. In conjunction with the transaction, the Company completed a non-brokered private placement for 20.16M units at a price of $0.25 for gross proceeds of $5 million. Each unit consisted of one Company share and one-half of a warrant at an exercise price of $0.40 per share for 24 months.

Figure 17: Company History





23

Structure

Since acquiring 37.5% of Versus LLC via Newco in June 2016, the Company has consistently increased its ownership. The Company has announced multiple transactions with Selling Members which typically include common shares of Versus Systems and purchase warrants exercisable at $0.20 per share. Over the course of several transactions, Versus Systems has acquired 3,876 shares in Newco in exchange for 11.2 million common shares and 5.6 million warrants exercisable at $0.20 per share. In June of 2019, the Company acquired an additional 16 shares of Newco from one of the Selling Members in exchange for 67,777 common shares of the Company and 33,888 share purchase warrants that are exercisable at $0.20 per share until June 30, 2019. As a result, the Company increased its ownership interest in Newco to 66.8%.

Figure 18: Versus Systems Inc. and its Subsidiaries

Name of Subsidiary Place of Incorporation Proportion of

Ownership Interest

Principal Activity

Versus Systems (Holdco) Inc. United States of America 66.8% Holding Company

Versus LLC United States of America 66.8% Technology Company


Versus Systems Inc. Versus Systems (Holdco) Inc. Versus LLC66.8% 100%




24

Appendix D – Gaming

According to a Newzoo report published earlier this year, the global gaming market is expected to grow at a rate of 9.6% YoY, reaching a total of US$152.1 billion in 2019. Furthermore, Newzoo is projecting a 9.0% CAGR from 2018 to 2022 for a total of US$196 billion in revenue generated by 2022. The largest geographic market in the industry is Asia-Pacific, which has become a leader with respect to adoption and engagement in the gaming sector, and is estimated to grow by 7.6% to US$72.2B in 2019. Figure 19 outlines the Newzoo projections for the gaming space across various geographic regions.

Figure 19: The Global Games Market in 2019 (USD Billions)

Source: Newzoo and Haywood Securities Inc.

With a background of industry-wide solid growth, the mobile gaming space is expected to capture more than 45% of the market in 2019, heavily weighted to smartphones at 36% of global revenues and tablets at 9%. Console games and PC games continue to have a positive YoY growth profile while browser games continue to decline. With ~50% of the market and a projected 11.5% CAGR (2018 – 2022), we highlight the importance of the mobile gaming market.

Figure 20: Segment Breakdown of Global Games Revenues 2018 – 2022 (USD Billions)


Europe, Middle East & Africa, $

34.7 , 23%

Latin America, $ 5.6 , 4%

North America, $ 39.6 , 26%

Asia-Pacific, $ 72.2 , 47%

$ 13.0 $ 13.6 $ 13.2 $ 14.3 $ 15.7

$ 42.2 $ 47.9 $ 51.0 $ 55.2 $ 60.8

$ 30.2 $ 32.2 $ 34.6 $ 35.6

$ 37.2 $ 4.1 $ 3.5 $ 3.3

$ 1.8 $ 2.0

$ 49.2 $ 54.9

$ 62.5 $ 71.3

$ 80.4

$ -

$ 50.0

$ 100.0

$ 150.0

$ 200.0

$ 250.0

2018 2019 2020 2021 2022

Tablet Games Console Games Downloaded / Boxed PC Games Browser PC Games (Smart) Phone Games




25

As evident in the previous chart, the smartphone gaming market is expected to continue its growth YoY, growing from an estimated 35% of global games revenues in 2018 to 41% in 2022. All other categories are projected to experience moderate market share declines while console games remain constant at 31% of the market.

Geographically, Asia-Pacific continues to dominate the gaming market. According to the Newzoo Global Games Market Report, 53% of the 2.5 billion global gamers are in the Asia-Pacific region. While 54% of North Americans are considered gamers, compared to 32% of the Asia-Pacific population, this only represents 7.9% of global gamers. While there is strong demand in the Asia-Pacific market, the growth in gaming and esports is truly a global phenomenon.

Figure 21: The Projected Number of Global Gamers in 2019 by Region (Millions of People)


According to the Newzoo Global Games Market Report, the global gaming market is expected to grow by 9.6% YoY from US$138.7B in 2018 to US$152.1B in 2019. The key drivers to this growth are in console games and (smart) phone games, with 13.4% and 11.6% YoY growth in 2019, respectively. Figure 22 outlines the Newzoo projections for the gaming space across various game types.

Figure 22: The Global Games Market YoY Growth in 2018 by Game Type (USD Billions)


North America, 197.6 , 7.9%

Latin America , 252.6 , 10.1%

Western Europe, 215.5 , 8.6%

Eastern Europe, 155.6 , 6.2%

Middle East and Africa, 359.5 ,

14.3%

Asia-Pacific, 1,331.2 , 53.0%

$ 42.2 $ 47.9

$ 13.0 $ 13.6

$ 49.2 $ 54.9

$ 30.2

$ 32.2 $ 4.1

$ 3.5

$ -

$ 20.0

$ 40.0

$ 60.0

$ 80.0

$ 100.0

$ 120.0

$ 140.0

$ 160.0

2018 2019

Browser PC Games

Downloaded / Boxed PCGames

(Smart) Phone Games

Tablet Games

Console Games




26

Appendix E – Mobile

As we have noted above, the mobile segment is expected to experience the highest growth rates over the next few years. The growth projected over the course of the next 3 years is in part supported by major telecommunication companies announcing plans to upgrade to 5G, with download speed ~100x faster than 4G. The wide scale deployment of 5G is expected to occur over the next two years, enabling the continued evolution of all sorts of technologies, including gaming. It will allow for further expansion of mobile gaming platforms to become more immersive and more global. It has already become the largest platform within the gaming sector and with the evolution of a mobile platform that has speeds 100x faster, it will continue to lead the growth in gaming. Further supporting the importance of the mobile market, Newzoo’s estimates for global app revenues projects gaming app revenues capturing 76% of the global market.

Figure 23: Global Applications Revenue 2016 – 2021 (USD Billions)


Figure 24: Active Smartphone Users Globally 2016 – 2021 (Millions of Users)

Source: Newzoo and Haywood Securities Inc. (*Excludes India & China)

$ 12.0 $ 17.8 $ 22.1 $ 31.3 $ 35.9 $ 33.3

$ 42.5

$ 56.2 $ 70.0

$ 76.6 $ 87.8

$ 106.4

$ -

$ 20.0

$ 40.0

$ 60.0

$ 80.0

$ 100.0

$ 120.0

$ 140.0

$ 160.0

2016 2017 2018 2019 2020 2021

Non-Games App Revenues Games App Revenues

258 268 278 288 297 305 203 230 259 288 317 347 291 298 306 313 319 325 192 202 212 220 229 237 279 310 342 376 413 451 354 397 441 486 532 580 227

300 375

456 531

601

687 735

783 830

875 918

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1

North America Latin America Western Europe Eastern Europe Middle East & Africa Asia Pacific* India China




27

Important Information and Legal Disclosures

This report is intended for institutional investors and may only be distributed to non-institutional US clients in the following states: Alaska, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Iowa, Louisiana, Maryland, Maine, Michigan, Minnesota, Mississippi, North Dakota, Nebraska, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Rhode Island, South Dakota, Washington, Wisconsin, West Virginia, and Wyoming. Otherwise, this report may only be distributed into those states with an institutional buyer state securities registration exemption.

Analyst Certification

We, Douglas Ibbitson and Neal Gilmer, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.

Important Disclosures

Of the companies included in the report the following Important Disclosures apply:

As of the end of the month immediately preceding this publication either Haywood Securities, Inc., one of its subsidiaries, its officers or directors beneficially owned 1% or more of Versus Systems Inc. (CNSX:VS).

Haywood Securities Inc. or one of its subsidiaries has managed or co-managed or participated as selling group in a public offering of securities for Versus Systems Inc. (CNSX:VS) in the last 12 months.

Haywood Securities, Inc. or one of its subsidiaries has received compensation for investment banking services from Versus Systems Inc. (CNSX:VS) in the past 12 months.

Distribution of Ratings (as of September 26, 2019)

Price Chart, Rating and Target Price History (as of September 26, 2019)

B: Buy; H: Hold; S: Sell; T: Tender; UR: Under Review Source: Capital IQ and Haywood Securities

Link to Research Policy: http://haywood.com/what-we-offer/research/research-policy Member of the Canadian Investor Protection Fund

IB Clients

% # (TTM)

Buy 76.6% 82 90.0%

Hold 8.4% 9 3.3%

Sell 1.9% 2 0.0%

Tender 1.9% 2 3.3%

UR (Buy) 0.9% 1 3.3%

UR (Hold) 0.0% 0 0.0%

UR (Sell) 0.0% 0 0.0%

Dropped (TTM) 10.3% 11 0.0%

Versus Systems Inc. (VS-V) Date Target(C$) Rating9/26/19 $0.55 Buy

Initiated Coverage: 9/26/19

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http://haywood.com/what-we-offer/research/research-policy

Documents

Baystreet.ca - September 26, 2019 Versus Systems Inc. STOCK PRICE CSE: VS · 2019. 9. 26. · Versus Systems Inc. (CSE:VS).6 Douglas Ibbitson, CFA, 416-507-2790, [email protected]