Versus Systems Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited consolidated financial statements are presented in U.S. dollars. Versus develops software for gamified engagement and rewards, including products used at live events and on mobile platforms. The company reported five active customers at March 31, 2024, down from 16 a year earlier.
Key financial results
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $26,503 | $157,950 |
| Gross profit (gross margin) | $2,457 (9.3%) | $125,593 (79.5%) |
| Research and development | $39,412 | $67,140 |
| Selling, general and administrative | $1,464,481 | $1,385,342 |
| Operating loss | $1,501,436 | $1,326,889 |
| Consolidated net loss | $1,501,683 | $1,326,889 |
| Net cash used in operating activities | $1,796,651 | $2,257,959 |
| Cash at period end | $2,892,356 | $4,689,007 at Dec. 31, 2023 |
| Working capital | $3,166,672 | $4,546,227 at Dec. 31, 2023 |
| Total liabilities | $179,026 | $321,476 at Dec. 31, 2023 |
Revenue fell 83% year over year, which management attributed primarily to the reduction in active clients. Gross margin contracted sharply as revenue fell while cost of revenue declined only 26%. SG&A rose 6%, attributed mainly to higher professional fees; R&D fell 41% and management cited lower staffing and software costs. No interest-bearing notes payable were outstanding at March 31, 2024. The company reported no financing cash flows in Q1 2024, compared with $6.37 million of financing inflows in Q1 2023.
Financial position and material changes
- Cash declined by $1.80 million in the quarter, principally reflecting operating cash use. Prepaids increased to $440,688 from $160,474.
- Operating cash use improved year over year, but remained substantial. The filing attributes the comparison partly to lower share-based compensation in Q1 2024 than in Q1 2023.
- Intangible assets had a carrying value of zero at March 31, 2024, following a $3.97 million impairment charge recorded in 2023.
- Common shares outstanding are reported as 2,506,015 at March 31, 2024 and May 15, 2024. The balance sheet’s comparative share-count figure for December 31, 2023 is 260,761, while the equity statement reports 2,506,015 at that date.
Outlook, risks and other notable items
- Going concern: Management states that current resources and expected operating revenue are insufficient to fund planned operations for the next 12 months and that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depend on achieving profitable operations and/or obtaining additional financing.
- Strategic alternatives: The company is evaluating alternatives intended to maximize shareholder value, including a potential acquisition, merger, reverse merger, asset sale, strategic partnership, capital raise or other transaction. No transaction or outcome is assured.
- Capital needs and dilution: Management says external financing remains necessary. Financing may be unavailable or unfavorable; equity or equity-linked financing could dilute shareholders, while debt could bring restrictive covenants and interest costs. The company warns that failure to raise capital, improve cash flow or complete a strategic transaction could lead the board to consider dissolution and liquidation, with no assurance of shareholder recovery.
- Foreign exchange: The filing estimates that a 10% change in the U.S. dollar/Canadian dollar exchange rate could affect net loss by approximately $64,300, all else equal.
- No formal revenue or earnings guidance is provided. The company reported no legal proceedings and no material subsequent events through May 15, 2024. Management concluded disclosure controls were effective and reported no changes in internal control over financial reporting.
Important facts for investors to verify
- Cash runway and the timing, likelihood and terms of any financing or strategic transaction, given the stated 12-month funding shortfall and going-concern uncertainty.
- Whether customer losses are continuing and whether the remaining customer base can support a recovery in revenue and gross margin.
- The share-count discrepancy between the balance sheet and statement of equity for December 31, 2023, and the effect of the company’s reverse stock splits and prior financings on comparable share data.
- Operating-loss figures in MD&A do not consistently match the financial statements: the statements report operating losses of $1.501 million and $1.327 million for Q1 2024 and Q1 2023, while portions of MD&A present different figures. Investors should refer to the financial statements and seek clarification.
- The condition and carrying value of the business’s remaining technology and other assets after the 2023 intangible-asset impairment.