Item 1. Business
ITEM 1. Business
Our Mission
Our mission is to reinvent
the way our customers interact with consumers through live events, games, apps and streaming content by delivering a great brand experience.
Our Company
We offer a suite of proprietary
business-to-business software tools that are meant to drive user engagement through gamification and rewards. These tools allow our partners
to offer in-game prizing and rewards, including merchandise, coupons, digital goods, and sweepstakes entries — inside
their websites, their venues, or their streaming media content.
Our customers are mostly sports
teams, venues, and advertising agencies, which typically use our products as part of their live events or as part of an advertising campaign
with the goal of engaging fans, increasing consented first-party data, and increasing sales.
Our products and games are
designed so that end users of our products can earn prizes by registering on our system and completing in-content challenges like trivia,
polls, or casual mobile games. Players can use our system to play a variety of games and earn a wide range of prize types, provided by
advertisers and sponsors. Our products, include our in-venue XEO and Filter Fan Cam products for live events, and our new stand-alone
“Winfinite” product that can be used by brands, advertising agencies, and content partners to reach potential customers outside
of sports venues, on mobile devices. We also have an IP portfolio that can create future licensing and product development opportunities
including our recently allowed Artificial Intelligence (“AI”) and Machine Learning (“ML”) series of patent claims.
With the acquisition of Xcite
Interactive in June 2021, we acquired a number of key pieces of technology and relationships that have helped to drive our engagement
and rewards business, including a live events fan engagement business that has partnered with professional sports franchises in the National
Football League (“NFL”), the National Basketball Association (“NBA”), the National Hockey League (“NHL”)
and others to increase audience engagement using interactive gaming functions like trivia, polling, and casual games that can be played
alongside live experiences whether a player is at-home, in a restaurant, or in-venue at the event itself. Our three largest customers
in 2023 were the San Jose Sharks, the Sacramento Kings, and ENT Marketing, a marketing agency that used our platform to promote Coca-Cola
products.
We now have three principal
software products. Our eXtreme Engagement Online or “XEO” platform is designed primarily for in-venue main-board work in stadiums
and arenas. While functional throughout 2024, the "XEO" Platform is currently in a development-only state and is not being used
by clients as of 2025. Our Filter Fan Cam (“FFC”) platform is an Augmented Reality filtering tool that can be used for mobile
and in-venue applications. In addition, we have a stand-alone gaming and prizing product that we call “Winfinite,” which allows
brands, media companies, and advertising agencies to reach out to customers directly on their mobile devices. We license these three software
products to teams, ad agencies, and other content creators.
In September 2024 the Company
closed down its operations within the United Kingdom,
In October 2024, the Company
entered into a $2,500,000 funding agreement with ASPIS Cyber Technologies (“ASPIS”). At that time, ASPIS delivered to the
Company $500,000 and agreed to, on or before November 15, 2024, deliver to the Company an additional $2,000,000. However, the Company
has informally agreed to defer the $2,000,000 until Nasdaq has progressed further with its review of the Company’s plan. Pursuant
to that agreement, the Company issued to ASPIS a senior convertible promissory note in the principal amount of the total amount funded.
The note provides that upon approval by the Company’s shareholders and the Company’s redomiciling to Delaware the amount funded
to date plus, at ASPIS’s option, any accrued and unpaid interest thereon, will be converted into units of the Company, each equal
to (a) one common share of the Company and (b) a warrant to purchase one-half of one Common Share at a purchase price of $4.00 per one
whole share, exercisable for five years.
On December 24, 2024 a special
resolution authorizing and approving the continuance of the Company from the Province of British Columbia in accordance with the Business
Corporations Act (British Columbia) into the State of Delaware in accordance with the Delaware General Corporation Law. As a result of
the Company becoming a Delaware corporation, a special resolution authorizing and approving the issuance of 2,155,172 common shares, warrants
to purchase an additional 1,077,586 shares, and such 1,077,586 shares upon the exercise of such warrants, upon conversion of a $2.5 million
promissory note held by ASPIS Cyber Technologies, Inc., which is an affiliate of the Company’s largest shareholder, Cronus Equity
Capital Group, LLC.
Our Products and Services
We provide the following products
and services to our partners and customers:
●
Analytics and
support for in-venue products XEO and FFC. Our in-venue fan engagement products are used at a variety of live-event and
other entertainment focused properties like stadiums and arenas, but they can also be used at conferences, theme parks, and
restaurants to increase audience and customer engagement. Content partners, including professional sports teams, can use XEO and FFC
in conjunction with their existing video screens, “jumbotrons”, “halo boards”, “main boards”, as
well as other branded experiences to reach potential customers with games and interactive experiences that enhance the live
event.
●
Support and Analytics for Winfinite. Winfinite is an interactive advertising tool that increases awareness, affinity, data, and incremental sales. It allows content creators, marketers, agencies, and other advertisers to increase customer acquisition and loyalty through a combination of games and rewards. The product is compatible with a number of digital platforms and can be integrated into customers’ existing advertising campaigns.
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Research and Development
Our research and development
team, including in-house and as-needed contract resources, consists of technical engineering, product management, and user experience,
and is responsible for the design, architecture, creation, and quality of our platform. We have invested substantial resources in research
and development to enhance our platform features and functionalities and expand the services we offer. We believe the timely development
of new, and the enhancement of our existing, services and platform features would enhance our competitive position. We utilize an agile
development process to deliver software releases, fixes and updates.
Competition
Interactive media, live-events,
in-venue advertising, and rewarded advertising are all highly competitive businesses, characterized by increasing product introductions
and rapidly emerging new platforms and technologies. With respect to competing for customers for our platform, we will compete primarily
on the basis of functionality, quality, brand and customer reviews. We will compete for platform placement based on these factors, as
well as our relationship with the content owner, historical performance, perception of sales potential and relationships with owners and
licensors of brands, properties and other content.
We believe that our small size
will provide us some amount of a competitive edge in the near term as we are able to make quick decisions to take advantage of customer
preferences and emerging technologies like AI.
With respect to our prizing
and rewards platform, we compete with a continually increasing number of companies, including industry leaders such as TapJoy, Honey,
Rakuten, and Otello who make their money largely on the free-to-play or free-to-use distribution of coupons and rewards. Beyond these
direct competitors, we face a certain amount of competition from pay-to-play “rewards” companies like Skillz, FanDuel, or
DraftKings that also use games and monetary rewards to drive user growth – although in their case, they derive the majority of their
revenues directly from users rather than brands and sponsors.
We also face increased competition
from large media and technology companies with significant online presences, such as Apple, Alphabet/Google, Amazon, Meta, Microsoft,
Netflix Shopify, or Yahoo, as those companies move to expand their interactive offerings. This competition could increase if these larger
industry players begin to add prizing or rewards into their offerings.
We are also aware of the increasing
role of Artificial Intelligence (AI) in the personalized content space, including personalized advertising. We have been researching the
space for a number of years and have been filing patents with the United States Patent and Trademark Office (USPTO) to protect our uses
of AI and Machine Learning (ML) in trying to optimize both the player and partner experience, but we are aware that the AI space is filled
with larger, and better-funded teams, including those from Microsoft, Google, and others.
In addition, given the open
nature of the development and distribution for smartphones and tablets, we also compete or will compete with a vast number of small companies
and individuals in all of our segments who are able to create and launch software programs and platforms for these devices using relatively
limited resources and with relatively limited start-up time or expertise.
Most of our competitors and
our potential competitors have one or more advantages over us, including:
●
significantly greater financial and personnel resources;
●
stronger brand and consumer recognition;
●
longer and larger customer histories, including much more consented first-party data;
●
larger datasets from which to derive customer behavior patterns and AI training data;
●
the capacity to leverage their marketing expenditures across a broader portfolio of mobile and non-mobile products;
●
more substantial intellectual property of their own;
●
lower labor and development costs and better overall economies of scale; and
●
broader distribution and presence.
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Government Regulation
We are involved in a variety
of areas that are subject to governmental oversight. While we have developed a flexible platform designed to adjust to a changing legal
and regulatory landscape, there are a number of areas where federal, state and international law could force us to make significant adjustments
to our strategies and deployment efforts. As such, as with many companies in both the software and advertising spaces, there are risks
associated with the potential impacts of government regulation.
As a company that facilitates
the distribution of real-world prizes for in-game and online activities, we are, in some cases and for some campaigns, subject to laws
that surround sweepstakes, contests, and games of skill. While we use best efforts to ensure that all contests are compliant with federal,
state, and local laws pertaining to the game type, contest type, prize type, and the eligibility of individual players, among other concerns,
we are subject to those regulations and those regulations may change. We have filed patents, and have been granted certain patent claims,
protecting our ability to use player characteristics like player location, player age, and contest type to adjust eligibility in specific
contests with the intent of providing dynamic regulatory compliance. We also have also designed the platform to make it possible to expeditiously
cease providing prizes in certain jurisdictions, or cease offering certain types of contests, such as sweepstakes or other contest types,
if that becomes necessary. If necessary, we can make these changes without interruption to our campaigns and contests in other jurisdictions.
Certain of our campaigns and
contests may be subject to laws and regulations applicable to companies engaged in skill-based contests. As we partner with our brand
and content partners to offer prizes that players may earn as a result of their in-game activities, we may be subject in some cases to
the federal Deceptive Mail Prevention and Enforcement Act as well as certain state prize, gift, or sweepstakes statutes that may apply
to certain experiences that we or our customers and partners may run from time to time. Our system does allow us to adjust terms of service
to account for this and other acts. We may also choose not to offer certain campaigns, contests or prizes in certain areas because of
these regulations.
In addition, certain states
prohibit, restrict, or regulate contests in several ways, particularly with respect to payment of entry fees, and the size, value, and/or
source of prizes to participants in such contests. Certain other states require companies to register and/or insure certain types of contests.
While we do not typically require entry fees or consideration of any type from our players, and thus based on legal research conducted,
are not subject to these regulations in most cases, we do remain conscious of these regulations. We may choose to not offer certain prizes
or certain contests in certain areas due to these regulations. We can do so without interruption to other services and other jurisdictions.
While at this time, our operations are not subject to certain regulations, for example the pay-to-play regulations, given that our platform
is free-to-play, we are conscious that because the nature of our services is relatively new and is rapidly evolving, we may not be able
to accurately predict which regulations will be applied to our business. We may also at some point become subject to new or amended regulations.
Further, our online in-game
prizing and rewards platform, which may be integrated into games whose player bases include individuals ranging from elementary school
age children to adults, is subject to laws and regulations relating to privacy and child protection. Through our applications and online
platform, we, and the content creators, owners and platform owners that incorporate our proprietary platform into their media or hardware,
may monitor and collect certain information about child users of these games and forums. A variety of laws and regulations have been adopted
in recent years aimed at protecting children using the internet, such as the Federal Children’s Online Privacy Protection Rule (COPPA).
COPPA sets forth, among other things, a number of restrictions related to what information may be collected with respect to children under
the age of 13, as well as the kinds of content that website operators may present to children under such age. There are also a variety
of laws and regulations governing individual privacy and the protection and use of information collected from individuals, particularly
in relation to an individual’s personally identifiable information (e.g., credit card numbers). We currently employ multiple measures
to ensure that we are COPPA-compliant. We screen for age at registration, we address the issue in our terms of service, and we employ
a kick-out procedure during member registration whereby anyone identifying themselves as being under the age of 13 during the process
may not register for a player account on our website or participate in any of our online experiences or tournaments without linking their
account to that of a parent or guardian.
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Such regulation would have
a material adverse effect on our business and operations. In the area of information security and data protection, many states have passed
laws requiring notification to users when there is a security breach for personal data, such as the 2002 amendment to California’s
Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult
to implement. And while we believe that we are currently in compliance with these and other data protection regulations, including the
privacy regulations set out below, the costs of compliance with these laws may increase in the future as a result of changes in interpretation.
Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities.
We are also subject to federal,
state and foreign laws regarding privacy and protection of our users’ personal information and related data, including the California
Consumer Privacy Act (CCPA), which took effect in January 2020, providing California residents increased privacy rights and protections,
including the ability to opt out of sales of their personal information; and we are subject to the European Union’s (EU) General
Data Protection Regulation (GDPR) which took effect in May 2018 and established requirements applicable to the handling of personal information
of EU residents. The CCPA may increase our compliance costs and exposure to liability. Other U.S. states are considering adopting similar
laws.
We post our Terms of Service
and Privacy Policy on our website where we set forth our practices concerning the use, transmission and disclosure of player data. We
also require players to agree to these terms when they register for our service. Our failure to comply with our posted privacy policy
or privacy related laws and regulations could result in proceedings against us by governmental authorities or others, which could damage
our reputation and business. In addition, the interpretation of data protection laws, and their application to the Internet is evolving
and not settled. There is a risk that these laws may be interpreted and applied in an inconsistent manner by various states, countries
and areas of the world where our users are located, and in a manner that is not consistent with our current data protection practices.
Complying with these varying national and international requirements could cause us to incur additional costs and change our business
practices. Further, any failure by us to adequately protect our users’ privacy and data could result in a loss of player confidence
in our services and ultimately in a loss of players, which could adversely impact our business.
Based on legal research conducted,
we believe we are currently in compliance with all applicable state and federal laws and regulations related to our business. We continually
monitor our activity and changes in such laws to ensure, to the best extent possible, that we remain in compliance with such laws. State
and federal regulation of internet-based activity, including online prizing and rewards, is evolving and there can be no assurance that
future legislation, regulation, judicial decisions, US Attorney, or state attorney general actions will not restrict or prohibit activities
such as those made possible by our platform.
Patents and Licenses
Our success and ability to
compete depend substantially upon our core technology and intellectual property rights. We generally rely on patent, trademark and copyright
laws, trade secret protection and confidentiality agreements to protect our intellectual property rights. In addition, we generally require
employees and consultants to execute appropriate nondisclosure and proprietary rights agreements. These agreements acknowledge our exclusive
ownership of intellectual property developed for us and require that all proprietary information remain confidential.
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We maintain a program designed
to identify technology that is appropriate for patent and trade secret protection, and we file patent applications in the United States
and, when appropriate, certain other countries for inventions that we consider significant. Our patent claims, extending and expanding
on claims filed in the United States in 2014 and internationally through the patent co-operation treaty in 2015, describe a system that
seeks to match competitive game players and spectators with prizing from their favorite brands through a unique conditional prize matching
system.
As of December 31, 2024, we had numerous pending patent claims
with the U.S. Patent and Trademark Office to expand upon our existing portfolio of prizing, promotion and financial technologies
that enable brands to reach the rapidly growing competitive gaming audience of players, spectators and broadcasters. As of December 31,
2024, we had been granted seven patents.
We also continue to engage
in licensing transactions to secure the right to use third parties’ patents. Although our business is not materially dependent upon
any one patent, our patent rights and the products made and sold under our patents, taken as a whole, are a significant element of our
business.
In addition to patents, we
also possess other intellectual property, including trademarks, know-how, trade secrets, design rights and copyrights. We control access
to and use of our software, technology and other proprietary information through internal and external controls, including contractual
protections with employees, contractors, customers and partners. Our software is protected by U.S. and international copyright, patent
and trade secret laws. Despite our efforts to protect our software, technology and other proprietary information, unauthorized parties
may still copy or otherwise obtain and use our software, technology and other proprietary information. In addition, we have expanded our
international operations, and effective patent, copyright, trademark and trade secret protection may not be available or may be limited
in foreign countries.
Companies in the industry in
which we operate frequently are sued or receive informal claims of patent infringement or infringement of other intellectual property
rights. We may receive such claims from companies, including from competitors and customers, some of which have substantially more resources
and have been developing relevant technology similar to ours. If we become more successful, we believe that competitors will be more likely
to try to develop products that are similar to ours and that may infringe on our proprietary rights. It may also be more likely that competitors
or other third parties will claim that our products infringe their proprietary rights. Successful claims of infringement by a third party,
if any, could result in significant penalties or injunctions that could prevent us from selling some of our products in certain markets,
result in settlements or judgments that require payment of significant royalties or damages or require us to expend time and money to
develop non-infringing products. We cannot assure you that we do not currently infringe, or that we will not in the future infringe, upon
any third-party patents or other proprietary rights, but will not and have never done so intentionally.
Corporate History and Structure
Versus Systems Inc., a corporation
formed under the laws of British Columbia, was formed by way of an amalgamation under the name McAdam Resources, Inc. in the Province
of Ontario on December 1, 1988 and subsequently extra-provincially registered in British Columbia on February 2, 1989. We changed
our name to Boulder Mining Corporation on May 9, 1995 in Ontario and on September 25, 1996 in British Columbia. We continued
into British Columbia on January 2, 2007 and concurrently changed our name to Opal Energy Corp. We changed our name to Versus Systems
Inc. on June 30, 2016, and concurrently ceased or divested our mining related business and began operating our current software platform
business.
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In June 2021, we completed
the acquisition of multimedia, production, and interactive gaming company Xcite Interactive, a provider of online audience engagement
through its owned and operated XEO technology platform. We now provide products and services to multiple professional sports organizations
across Major League Baseball, the NHL, and the NBA to drive audience engagement.
In September 2024 the Company
closed down its operations within the United Kingdom, Versus Systems UK, Ltd.
On December 24, 2024 a special
resolution authorizing and approving the continuance of the Company from the Province of British Columbia in accordance with the Business
Corporations Act (British Columbia) into the State of Delaware in accordance with the Delaware General Corporation Law.
We operate through our majority-owned
subsidiary, Versus LLC, a Nevada limited liability company that was organized on August 21, 2013, and through our wholly owned subsidiary,
Xcite Interactive Inc, a Delaware corporation that was reorganized as such on April 1, 2019.
We are in the process of considering
several strategic alternatives for our company to expand our business portfolio focused on maximizing shareholder value, including,
but not limited to, an acquisition, merger, reverse merger, sale of assets, strategic partnership, capital raise or other transaction.
We are hopeful that our change in jurisdiction from British Columbia to Delaware, which we expect to effect in the second quarter of
2024, will more appropriately reflect our shift in strategy and will (i) improve our access to capital markets, increase funding
and strategic flexibility and reduce the cost of capital, (ii) improve our ability to execute an acquisitive growth strategy using
our capital stock as consideration, and (iii) better focus management efforts on each U.S. and international operation and
better attract and retain key employees.
Our common shares are presently
quoted on the Nasdaq Capital Market under the symbol “VS”. In April 2024, the bid price of our common shares closed below
the Nasdaq minimum $1.00 per share requirement and on August 22, 2024 we received notifications of noncompliance from Nasdaq. In accordance
with Nasdaq Listing Rule 5810(c)(3)(A), we were afforded until February 18, 2025 to regain compliance with the bid price requirement,
which required that our common shares close at a price of at least $1.00 per share for a minimum of 10 consecutive trading days.
On December 23, 2024, Nasdaq notified us that we had regained compliance with the minimum bid price requirement.
Our principal executive
offices are located at 3500 South DuPont Hwy. Dover, DE 19901, and our telephone number is (604) 639-4457. We are a distributed
organization and do not maintain business offices in the United States, which is the country where all our employees reside. Our
website address is www.versussystems.com . The information on or accessed through our website is not incorporated in this
annual report. The SEC maintains an Internet site ( www.sec.gov ) that contains reports, proxy and information statements, and
other information regarding issues that file electronically with the SEC.
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The following chart reflects
our organizational structure (including the jurisdiction of formation or incorporation of the various entities):
Name of Subsidiary
Country of
Incorporation
Proportion of
Ownership
Interest
Versus Systems (Holdco), Inc.
United States
98.59
%
Versus, LLC
United States
98.59
%
Xcite Interactive, Inc.
United States
100 %
Employees
The following table summarizes our staff by main
category of activity at December 31, 2024 and 2023:
Main Activity
2024
2023
Sales, marketing, and business development
1
1
Accounts and operations
2
1
Engineering, product, and design
1
2
General and administrative
1
4
Total
5
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All of our employees are located
in the United States and are predominantly full-time employees. We have never had a work stoppage, and none of our employees is represented
by a labor organization or under any collective bargaining arrangements. We consider our employee relations to be good. All employees
are subject to contractual agreements that specify requirements on confidentiality and restrictions on working for competitors, as well
as other standard matters.