Versus Systems Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 1, 2024. This is an annual report, not a standalone fourth-quarter report. Financial amounts below are in U.S. dollars unless noted.
Business context
Versus provides business-to-business engagement software that lets sports teams, venues, brands and content partners offer interactive games and rewards. Its principal products are XEO and Filter Fan Cam for live events, and Winfinite for mobile campaigns. The company reported five active customers at year-end, down from 16 a year earlier; its largest 2023 customers included the San Jose Sharks, Sacramento Kings and ENT Marketing.
Financial results and liquidity
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Revenue | $271,169 | $1,108,840 | Down 76%; management cited the fall in active customers. |
| Cost of revenue | $103,067 | $617,049 | Down 83%. |
| Gross profit / margin | $168,102 / 62.0% | $491,791 / 44.3% | Gross profit declined; margin increased as costs fell faster than revenue. |
| Research and development | $1,107,235 | $2,406,006 | Down 54%, primarily from staffing and software cost reductions. |
| Selling, general and administrative | $5,944,909 | $11,838,128 | Down 50%; reflects lower staffing and a change in stock-compensation expense. |
| Impairment of goodwill and other intangibles | $3,968,332 | $8,919,002 | 2023 impairment related to capitalized software; intangible assets were reduced to zero at year-end. |
| Operating loss | $(10,852,374) | $(22,671,345) | Loss narrowed 52%, mainly reflecting lower expenses. |
| Net loss | $(10,512,157) | $(22,473,192) | Loss narrowed year over year. |
| Cash used in operating activities | $(5,520,904) | $(9,153,544) | Audited cash-flow statement amount. |
| Cash used in investing activities | $(14,514) | $(2,536,832) | Lower software development spending and equipment purchases. |
| Cash provided by financing activities | $9,045,578 | $11,191,067 | Included share issuances and warrant exercises; also included debt and lease repayments. |
Cash was $4.69 million at year-end, versus $1.18 million in 2022. Current assets were $4.87 million and current liabilities $321,476; the balance sheet reports no notes payable or lease liability at year-end. Total assets were $4.88 million and total liabilities $321,476. Despite the cash balance and low reported liabilities, the company says current resources and expected operating revenue are insufficient to fund planned operations for the next 12 months. The auditor and management identified substantial doubt about the company’s ability to continue as a going concern.
Versus raised capital during 2023 through registered offerings, a private placement and warrant exercises. It reported gross proceeds of $2.25 million in February, approximately $3.0 million in October and $2.6 million in a November private placement, plus approximately $4.6 million from warrant exercises. Outstanding common shares were 2,506,015 at December 31, 2023, after a 1-for-16 reverse split on December 28. The company has no credit facility and states that further financing may be needed.
Material changes versus FY2022
- Revenue and active customers contracted sharply: revenue fell 76%, and active customers declined from 16 to five.
- Headcount fell from 39 to eight, following workforce reductions beginning in January 2023. The filing says the cuts affected approximately 62% of the workforce; management cited lower cash burn and improved operating efficiency as objectives.
- Operating expenses and operating loss decreased substantially, but the company remained deeply unprofitable and generated negative operating cash flow.
- Intangible assets were fully impaired by year-end; the 2023 impairment charge was $3.97 million. The 2022 impairment included writing goodwill down to zero.
- Related-party notes payable were fully repaid in 2023; the balance had been $2.60 million at the end of 2022. The company also reported $177,500 payable to officers, directors or related entities at year-end, unsecured and non-interest-bearing.
Outlook, risks and unusual items
- Outlook and financing: No quantified revenue, earnings or cash-flow guidance is provided. Management is pursuing higher operating cash flow, evaluating strategic alternatives and expects that additional financing may be required. It warns that financing may be unavailable or dilutive, and that operations could require further reductions if funds cannot be raised.
- Strategic alternatives: The company is considering options including an acquisition, merger, reverse merger, asset sale, strategic partnership or capital raise. It also described a planned redomicile from British Columbia to Delaware, then expected in the second quarter of 2024; completion was not assured. These plans are forward-looking, not completed transactions in this report.
- Nasdaq: After receiving bid-price deficiency notices in 2023, Versus completed a 1-for-16 reverse split. Nasdaq notified the company on January 16, 2024 that it had regained compliance with the minimum bid-price requirement. Continued listing remains a risk.
- Business risks: The filing emphasizes customer and user attrition, competition, limited operating history, dependence on financing and key personnel, reduced engineering capacity, and the need to develop and commercialize products. It also cites privacy, child-protection, contest and sweepstakes regulation, cybersecurity, intellectual-property and foreign-exchange risks.
- Cybersecurity and controls: The company reported no cybersecurity incident that materially impaired operations or financial standing. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2023; the auditor did not attest to internal-control effectiveness.
- Legal matters: Versus reported no material legal or administrative proceedings as of the filing date.
- Other items: The employee retention credit is presented as a $(354,105) line item in the statement of operations and contributed to the difference between operating loss and net loss. The filing reports no income-tax provision for either year and records a full valuation allowance against deferred tax assets.
Important facts for investors to verify
- Clarify the cash-flow figures: MD&A reports FY2023 operating cash use of $5.47 million and financing cash provided of $9.00 million, while the audited cash-flow statement reports $5.52 million and $9.05 million, respectively.
- Reconcile per-share loss disclosures: the MD&A summary lists basic and diluted loss per share of $(10.66), while the audited statement reports $(10.44) attributable to shareholders. Confirm the appropriate figure and calculation.
- Assess cash runway, monthly cash burn, and the timing and terms of any additional financing, given management’s stated inability to fund the next 12 months from existing resources and expected revenue.
- Track customer retention and new sales after the decline from 16 active customers to five, as well as the commercial progress of Winfinite and the remaining products.
- Monitor proposed strategic transactions and the Delaware redomicile, including required approvals, execution risks and potential effects on existing shareholders.
- Review potential dilution from outstanding warrants and future equity financing, and the impact of the reverse split and share-count changes.