Business Overview and History
Versus Systems Inc. (VSSYW) is a technology company that has been making waves in the interactive entertainment and audience engagement space. Founded in 2013 and headquartered in Vancouver, British Columbia, Versus Systems has developed a suite of proprietary software tools designed to drive user engagement through gamification and rewards.
Versus Systems' journey began much earlier than previously mentioned, as the company was actually continued under the Business Corporations Act of British Columbia effective January 2, 2007. The company's focus has been on developing a proprietary prizing and promotions tool that allows game developers and creators of streaming media, live events, broadcast TV, games, apps, and other content to offer real-world prizes inside their content.
For many years, Versus Systems was primarily focused on developing its core technology platform. During this period, the company faced challenges in transitioning from research and development to commercialization, as well as scaling its operations to support partnerships with major sports leagues and media companies.
A significant turning point came in June 2021 when Versus Systems completed its acquisition of multimedia, production, and interactive gaming company Xcite Interactive. This acquisition brought with it the XEO technology platform, which opened doors for partnerships with professional sports franchises across Major League Baseball, National Hockey League, National Basketball Association, and the National Football League to drive audience engagement.
In 2023, Versus Systems undertook several financing initiatives to support its operations. The company completed multiple public and private financing transactions, including a registered direct offering, a public direct offering, and warrant exercises. These efforts collectively provided over $7 million in gross proceeds to fund the company's operations. However, despite these capital injections, the company continued to experience declining revenues and was unable to achieve positive cash flow from operations during this period.
Today, Versus Systems has three principal software products: the eXtreme Engagement Online (XEO) platform, the Filter Fan Cam (FFC) platform, and the standalone Winfinite product. The XEO platform is designed primarily for in-venue main-board work in stadiums and arenas, allowing sports teams and venues to engage fans through interactive games, trivia, and other experiences during live events. The FFC platform is an Augmented Reality filtering tool that can be used for mobile and in-venue applications, again focused on enhancing the fan experience at live events. Winfinite allows brands, media companies, and advertising agencies to directly engage customers on their mobile devices, offering in-content challenges like trivia, polls, and casual games where users can earn prizes from advertisers and sponsors.
Financial Performance and Ratios
Versus Systems has faced its share of challenges in recent years, as evidenced by its financial performance. For the year ended December 31, 2023, the company reported total revenue of $271,170, a decline from the $1,106,704 reported in the prior year. This decrease was primarily due to a reduction in the number of active clients, from 5 at the end of 2023 to just 1 as of September 30, 2024.
The company's net income for the year ended December 31, 2023, was a loss of $10,512,157, compared to a loss of $22,473,192 in the previous year. This improvement in net income was partially offset by a decline in operating cash flow, which decreased from a negative $9,153,544 in 2022 to a negative $5,520,904 in 2023. The company's annual free cash flow for the most recent fiscal year was negative $5.54 million.
The declining trend continued into 2024. For the nine months ended September 30, 2024, the company reported revenues of $57,290, down 76% from the $236,950 generated in the same period of 2023. This drop was primarily attributed to a large reduction in the number of active customers. The company's cost of revenues also declined, falling 49% to $40,280 for the nine-month period, in line with the revenue decrease. However, operating expenses remained elevated, with research and development costs of $118,080 and selling, general and administrative expenses of $3,430,000 for the nine months. This resulted in an operating loss of $3,530,000, an improvement from the $5,370,000 loss in the prior year period, but still a significant drag on the business.
In the most recent quarter, Versus Systems reported revenue of $3,850, a stark 83% decrease from the same quarter last year. The net income for the quarter was a loss of $528,950, representing a 65% decrease in losses compared to the same period in the previous year. These decreases in revenue and net income were primarily due to the significant reduction in the number of clients from Q3 2023 to Q3 2024.
Versus Systems' financial ratios paint a mixed picture. The company's current ratio, a measure of its ability to meet short-term obligations, stood at 15.16 as of December 31, 2023. However, as of September 30, 2024, this ratio had improved dramatically to 46.34, which is also the company's quick ratio. The debt-to-equity ratio remains at 0, indicating a lack of leverage.
Liquidity Concerns and Nasdaq Compliance
Despite the company's efforts to reduce costs and streamline operations, Versus Systems continues to face liquidity challenges. As of September 30, 2024, the company had a cash balance of $471,250 and a working capital surplus of $1,216,938. However, the company's recurring losses from operations, accumulated deficit, and inability to fund day-to-day activities through operations have raised substantial doubt about its ability to continue as a going concern.
In August 2024, Versus Systems received a notification from Nasdaq indicating that it was no longer in compliance with the minimum stockholders' equity requirement for continued listing on the Nasdaq Capital Market. The company was given until October 2024 to regain compliance.
To address this issue, in October 2024, Versus Systems entered into a $2.5 million funding agreement with ASPIS Cyber Technologies, Inc., an affiliate of the company's largest shareholder, Cronus Equity Capital Group, LLC. Additionally, the company entered into a technology license and software development agreement with ASPIS. These agreements, along with the company's ongoing efforts to streamline operations and explore strategic alternatives, are aimed at helping Versus Systems regain compliance with Nasdaq's listing requirements.
Operational Changes and Management Shifts
Versus Systems has undergone significant operational changes in recent months. In September 2024, the company closed down its operations within the United Kingdom, focusing its efforts primarily on the United States market. This move was likely part of the company's efforts to streamline operations and reduce costs in the face of declining revenues.
In July 2024, the company announced a strategic restructuring and the appointment of a new interim CEO, Curtis Wolfe. This leadership change came at a critical time for Versus Systems, as it grappled with declining revenues and mounting challenges to its business model.
Outlook and Risks
Versus Systems' future remains uncertain, as the company navigates the challenges posed by its financial performance and Nasdaq compliance issues. The company's ability to execute on its strategic initiatives, secure additional funding, and drive revenue growth will be critical to its long-term success.
Risks facing Versus Systems include the highly competitive nature of the interactive entertainment and audience engagement markets, the potential for further declines in revenue and profitability, and the ongoing uncertainty surrounding its Nasdaq listing. The company's reliance on a limited number of large customers also poses a significant risk, as the loss of any of these key clients could have a material adverse impact on its financial results.
The company's shift to a more direct-to-consumer model with Winfinite appears to have had limited success so far. Versus will need to find ways to better monetize its fan engagement technology and diversify its customer base if it hopes to achieve profitability in the future.
Despite these challenges, Versus Systems' innovative technology and partnerships with major sports leagues and brands suggest that the company has the potential to disrupt the industry and create long-term value for its shareholders, provided it can successfully address its liquidity concerns and return to a path of sustainable growth.