Versus Systems Inc. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020, compared primarily with FY2019. This is an annual report, not a standalone Q4 report. Audited financial statements are prepared under IFRS and presented in Canadian dollars (C$), unless otherwise noted. The filing reflects a one-for-16 reverse share split effective December 15, 2020.
Business context and key financial metrics
Versus develops a business-to-business platform for in-game and interactive-media prizes and rewards, and also provides software integration and development services. FY2020 revenue was overwhelmingly tied to HP, principally for custom software development and maintenance.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | C$1.865 million | C$0.665 million |
| Operating loss | C$(8.373) million | C$(9.370) million |
| Net loss | C$(9.271) million | C$(9.628) million |
| Basic and diluted loss per share | C$(0.84) | C$(0.98) |
| Cash used in operating activities | C$(5.094) million | C$(5.468) million |
| Cash used in investing activities | C$(1.221) million | C$(1.940) million |
| Cash provided by financing activities | C$9.182 million | C$7.473 million |
| Cash at year-end | C$2.966 million | C$0.099 million |
The filing does not provide a clear gross-margin figure; reported cost of sales was nil in 2020 and 2019, while the business incurred substantial operating costs. At December 31, 2020, total assets were C$7.133 million, total liabilities C$8.610 million, and equity was negative C$1.477 million. Current assets were C$4.111 million and current liabilities C$5.142 million. Notes payable totaled C$5.883 million, including C$2.976 million current; lease liabilities totaled C$0.833 million.
Material changes versus FY2019
- Revenue rose 180% to C$1.865 million, primarily from increased services provided to HP.
- Operating loss narrowed 11%, and net loss narrowed about 4%. Lower intangible-asset amortization contributed to the improvement.
- Professional fees increased 135% to C$1.047 million, attributed to business expansion and share-offering costs. Share-based compensation rose 68% to C$1.407 million.
- Cash used in operations decreased by about C$0.374 million, but remained substantial. Financing cash inflows included equity issuances, warrant exercises, notes, and a PPP loan.
- HP accounted for 99.9% of revenue in both 2020 and 2019. The company reported one U.S.-based customer for 2020.
Outlook, risks and unusual items
- Going concern and funding: The auditor reported a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern, citing operating cash outflows, inability to fund day-to-day operations from operating cash flow, and expected further losses. Management said the January 2021 public offering proceeds and forecast billings were expected to fund planned operations for the next 12 months, while also anticipating possible future financing needs.
- Subsequent financing: The January 2021 offering raised approximately US$11.04 million gross and US$9.616 million net. Subsequent events also included conversion of director-related notes into units, exercise of warrants, and repayment of notes.
- Customer concentration: The HP agreement is terminable by HP without cause on 90 days’ notice and does not require minimum business commitments. Losing or reducing HP business could materially affect results.
- Business plans: Management described plans to expand into more games, devices, geographies and prize-provider relationships. The filing cited a broader China launch expected in the first half of 2021 and planned expansion into Europe; these are forward-looking plans, not reported results.
- COVID-19: Management said the company had not been significantly adversely affected to date, but warned of potential delays, lower customer marketing budgets, collection risks, and impaired access to financing. Employees worked remotely for most of 2020.
- Unusual item: The company sold its Animoca Brands shares during 2020 to obtain liquidity and recorded a C$508,050 loss. The filing also reports a C$829,937 PPP loan and a C$601,668 government-loan forgiveness adjustment in the cash-flow statement; the ultimate forgiveness and accounting treatment warrant confirmation.
- Other risks: Risks include early-stage operations and continuing losses, competition, user and partner adoption, technology and cybersecurity, privacy and contest regulation, foreign exchange, potential dilution, and Nasdaq listing compliance. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the PPP loan balance, eligible expenditures, reported forgiveness, and any amount still payable.
- Review the audited statements and notes for debt maturities, related-party loans, subsequent conversions, and the impact of the January 2021 offering on dilution and liquidity.
- Track revenue diversification and the status, economics, and termination terms of HP and newer partner relationships.
- Confirm whether planned China, Europe, console, and other product expansions launched and generated material revenue.
- Assess the company’s cash runway against ongoing operating cash outflows and the auditor’s going-concern warning.
- Note that management’s disclosure-controls evaluation was effective, but the report did not include management’s assessment or auditor attestation of internal control over financial reporting due to a transition period.