Versus Systems Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of December 31, 2024, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment using the criteria in the updated Internal Control-Integrated Framework, issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Based on our evaluation under the framework in Internal Control-Integrated Framework, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2024. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate. This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report on internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report. Changes in Internal Control Over Financial Reporting None. ITEM 9B. OTHER INFORMATION None . ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS Not applicable. 34 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Senior Management The following table sets forth the names and ages of the members of our board of directors and our executive officers and the positions held by each. Our board of directors elects our executive officers annually by majority vote. Each director’s term continues until his or her successor is elected or qualified at the next annual meeting, unless such director earlier resigns or is removed. Name Age Positions and Offices Luis Goldner 56 Director and Chief Executive Officer Geoff Deller 43 Chief Financial Officer Alex Peachey 50 Chief Technology Officer Aric Spitulink 54 Independent Director David Catzel 71 Independent Director Juan Carlos Barrera 61 Independent Director The following is information about the experience and attributes of the members of our board of directors and senior executive officers as of the date of this Annual Report. The experience and attributes of our directors discussed below provide the reasons that these individuals were selected for board membership, as well as why they continue to serve in such positions. Luis Goldner , 56, joined our company as a director in December 2023 and became our Chief Executive Office in August 2024. Mr. Goldner is a senior corporate executive, having managed and operated fortune 500 companies in LATAM and North America. Mr. Goldner has served as Chief Operating Officer of Icaro Media Group Inc. since 2019, and is responsible for global partnerships, consumer trends and operational best practices. From 2018 to 2019, Mr. Goldner was the VP of Business at Skyy Digital Media Group. Previously, Mr. Goldner served as Chief Executive Officer of Intralot do Brazil and Chief Executive Officer for Trust Impressores, a subsidiary of Oberthur Group and has also served as head of business development and Managing director of Estrategia Investimentos SA / Citibank in asset management. Mr. Goldner holds a degree in Economics from Universidade Gama Filho RJ–Brazil. Geoff Deller , 43, joined our company as a Chief Financial Officer in July 2024. Prior to joining the Company, Mr. Deller was the President and Chief Investment Officer of Orinoco Capital LLC, a private investment company, in Boca Raton, Florida and prior to that, he was a member of the advisory board and Chief Operating Officer of Stardom Chance Productions & Companies, an entertainment and content production company in Hialeah, Florida. Prior to that, he was the Chief Financial Officer and Co-COO, of a consumer products company in the oral healthcare industry in Ft. Lauderdale, Florida. Alex Peachey , 50, joined our company as Chief Technology Officer in May 2016. Mr. Peachey leads the architecture efforts for our Elixir-based Winfinite challenge platform. Prior to joining us, Mr. Peachey founded Threadbias LLC in January 2011, an online community for people who love to sew and wish to exchange ideas, share projects and join or create groups. He continues to serve as their CEO. From February 2012 to May 2016, Mr. Peachey served the Director of Engineering at Originate, Inc., where he managed a team of software engineers. He holds a BS in Computer Science from Western Washington University and an MBA from the University of Washington. David Catzel , 71, joined our company as a director in December 2023. Mr. Catzel is an accomplished business and technology executive with an extensive history of strategic alliances in media content, licensing, marketing and technology. Since 2020, Mr. Catzel has served as a consultant to the Holistyx Group and a Senior 5G Connectivity Solutions Specialist at T-Mobile. From 2017 to 2020, he was the VP Digital Transformation at FuseConnections. From 2020 to 2023 he was also a Senior Industry Digital Strategist: Automotive, Mobility, and Transportation at Microsoft. 35 Aric Spitulnik , 54, joined our company as a director in November 2024. Mr, Spitulnik is a distinguished business leader with over 32 years of professional experience. A veteran C-suite executive, Mr. Spitulnik has collaborated with multiple Boards of Directors frequently assuming Chairmanship roles and has provided governance and strategic leadership across various entities. As CEO of a privately-owned company for 9 years, he consistently delivered positive revenue growth. His leadership roles also include serving as Senior Vice President, overseeing the budget for $1.2 billion in revenue and 7,000 employees, and as President, managing $100 million in revenue and 1,200 employees. Mr. Spitulnik holds an MBA and a BS in Business from York College of Pennsylvania. Juan Carlos Barrera , 61, joined our company as a director in December 2023. Mr. Barrera is a senior corporate executive with extensive experience in finance, international investments, acquisitions and global partnerships. Since 2020, Mr. Barrera has served as Chief Commercial Officer of Icaro Media Group Inc., responsible for strategic partnerships and global strategy. From 2015 to 2019, Mr. Barrera served as President of SKYY Digital Media. He was also previously the CEO of Global Select Wealth Management, and for over twenty years Mr. Barrera worked at Prudential Financial where he served both as Director of Institutional Wealth Management at Prudential International Investments and Director of Institutional Investments at Dryden Wealth Management. Mr. Barrera holds degrees in Economics and Business Administration from Coe College. Board Practices Board Composition and Structure; Director Independence Our business and affairs are managed under the direction of our board of directors. Our board of directors currently consists of seven members. The term of office for each director will be until his or her successor is elected at our annual meeting or his or her death, resignation or removal, whichever is earliest to occur. While we do not have a stand-alone diversity policy, in considering whether to recommend any director nominee, including candidates recommended by shareholders, we believe that the backgrounds and qualifications of the directors, considered as a group, should provide a significant mix of experience, knowledge and abilities that will allow our board of directors to fulfill its responsibilities. As set forth in our corporate governance guidelines, when considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our board of directors to satisfy its oversight responsibilities effectively in light of our business and structure, the board of directors focuses primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above. We believe that our directors and director nominees will provide an appropriate mix of experience and skills relevant to the size and nature of our business. Our board of directors expects a culture of ethical business conduct. Our board of directors encourages each member to conduct a self-review to determine if he or she is providing effective service with respect to both our company and our shareholders. Should it be determined that a member of our board of directors is unable to effectively act in the best interests of our shareholders, such a member would be encouraged to resign. Board Leadership Structure Our articles and our corporate governance guidelines provide our board of directors with flexibility to combine or separate the positions of Chairman of the Board and Chief Executive Officer in accordance with its determination that utilizing one or the other structure is in the best interests of our company. Luis Goldner currently serves as our Chief Executive Officer and Juan Carlos Barrera serves as Chairman of the Board. As Chairman of the Board, Mr. Barrera’s key responsibilities will include facilitating communication between our board of directors and management, assessing management’s performance, managing board members, preparation of the agenda for each board meeting, acting as chair of board meetings and meetings of our company’s shareholders and managing relations with shareholders, other stakeholders and the public. We will take steps to ensure that adequate structures and processes are in place to permit our board of directors to function independently of management. The directors will be able to request at any time a meeting restricted to independent directors for the purpose of discussing matters independently of management and are encouraged to do so should they feel that such a meeting is required. 36 Committees of our Board of Directors The standing committees of our board of directors consist of an audit committee, a compensation committee and a nominating and corporate governance committee. Each of the committees reports to our board of directors as they deem appropriate and as our board may request. Each committee of our board of directors has a committee charter that will set out the mandate of such committee, including the responsibilities of the chair of such committee. The composition, duties and responsibilities of these committees are set forth below. Audit Committee The audit committee is responsible for, among other matters: ● appointing, retaining and evaluating our independent registered public accounting firm and approving all services to be performed by them; ● overseeing our independent registered public accounting firm’s qualifications, independence and performance; ● overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; ● reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; ● establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters; and ● reviewing and approving related person transactions. Our audit committee consists of three of our directors, Aric Spitulnik, David Catzel and Juan Carlos Barrera, each of whom meets the definition of “independent director” for purposes of serving on an audit committee under Rule 10A-3 under the Exchange Act and Nasdaq listing rules. Mr. Spitulnik serves as chairman of our audit committee. Our board of directors has determined that Mr. Spitulnik qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K under the Securities Act. The written charter for our audit committee is available on our corporate website at www.versussystems.com . The information on our website is not part of this Annual Report. Compensation Committee The compensation committee is responsible for, among other matters: ● reviewing key employee compensation goals, policies, plans and programs; ● reviewing and approving the compensation of our directors, chief executive officer and other executive officers; ● producing an annual report on executive compensation in accordance with the rules and regulations promulgated by the SEC; ● reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and ● administering our stock plans and other incentive compensation plans. 37 Our compensation committee consists of three of our directors, Aric Spitulnik, David Catzel, and Juan Carlos Barrera, each of whom meets the definition of “independent director” under the Nasdaq rules and the definition of non-employee director under Rule 16b-3 promulgated under the Exchange Act. Mr. Barrera serves as chairman of our compensation committee. Our board of directors has adopted a written charter for the compensation committee, which is available on our corporate website at www.versussystems.com . The information on our website is not part of this Annual Report. Nominating and Corporate Governance Committee Our nominating and corporate governance committee will be responsible for, among other matters: ● determining the qualifications, qualities, skills and other expertise required to be a director and developing and recommending to the board for its approval criteria to be considered in selecting nominees for director; ● identifying and screening individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors; ● overseeing the organization of our board of directors to discharge our board’s duties and responsibilities properly and efficiently; ● reviewing the committee structure of the board of directors and the composition of such committees and recommending directors to be appointed to each committee and committee chairmen; ● identifying best practices and recommending corporate governance principles; and ● developing and recommending to our board of directors a set of corporate governance guidelines and principles applicable to us. Our nominating and corporate governance committee consists of three of our directors, Aric Spitulnik, David Catzel, and Juan Carlos Barrera, each of whom meets the definition of “independent director” under the Nasdaq rules. Mr. Catzel serves as chairman of our nominating and corporate governance committee. Our board of directors has adopted a written charter for the nominating and corporate governance committee, which is available on our corporate website at www.versussystems.com . The information on our website is not part of this Annual Report. Compensation Committee Interlocks and Insider Participation None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee of another entity that had one or more of its executive officers serving as a member of our board of directors or compensation committee. None of the members of our compensation committee, when appointed, will have at any time been one of our officers or employees. Other Committees Our board of directors may establish other committees as it deems necessary or appropriate from time to time. Director Term Limits Our board of directors has not adopted policies imposing an arbitrary term or retirement age limit in connection with individuals serving as directors as it does not believe that such a limit is in the best interests of our company. Our nominating and corporate governance committee will annually review the composition of our board of directors, including the age and tenure of individual directors. Our board of directors will strive to achieve a balance between the desirability of its members having a depth of relevant experience, on the one hand, and the need for renewal and new perspectives, on the other hand. 38 Risk Oversight Our board of directors oversees the risk management activities designed and implemented by our management. Our board of directors executes its oversight responsibility for risk management both directly and through its committees. The full board of directors also considers specific risk topics, including risks associated with our strategic plan, business operations and capital structure. In addition, our board of directors regularly receives detailed reports from members of our senior management and other personnel that include assessments and potential mitigation of the risks and exposures involved with their respective areas of responsibility. Our board of directors has delegated to the audit committee oversight of our risk management process. Our other board committees also consider and address risk as they perform their respective committee responsibilities. All committees report to the full board of directors as appropriate, including when a matter rises to the level of a material or enterprise level risk. Code of Ethics Our board of directors has adopted a Code of Ethics that applies to all of our employees, including our chief executive officer, chief financial officer and principal accounting officer. Our Code of Ethics is available on our website at www.versussystems.com by clicking on “Investors.” If we amend or grant a waiver of one or more of the provisions of our Code of Ethics, we intend to satisfy the requirements under Item 5.05 of Form 8-K regarding the disclosure of amendments to or waivers from provisions of our Code of Ethics that apply to our principal executive officer, financial and accounting officers by posting the required information on our website at the above address within four business days of such amendment or waiver. The information on our website is not part of this Annual Report. Our board of directors, management and all employees of our company are committed to implementing and adhering to the Code of Ethics. Therefore, it is up to each individual to comply with the Code of Ethics and to be in compliance of the Code of Ethics. If an individual is concerned that there has been a violation of the Code of Ethics, he or she will be able to report in good faith to his or her superior. While a record of such reports will be kept confidential by our company for the purposes of investigation, the report may be made anonymously and no individual making such a report will be subject to any form of retribution. ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table provides certain summary information concerning compensation awarded to, earned by or paid to the individuals who served as our principal executive officer at any time during fiscal 2024 and 2023, and our two other most highly compensated officers in fiscal 2024 and 2023. These individuals are referred to in this Annual Report as the “named executive officers.” Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) (1) All Other Compensation ($) (2) Total ($) Luis Goldner 2024 $ 41,667 $ — $ — $ — $ 83,333 $ 125,000 Chief Executive Officer Matthew Pierce 2024 $ 166,298 $ — $ — $ — $ 112,500 $ 278,798 Former Chief Executive Officer 2023 $ 225,000 $ 56,250 $ — $ 61,025 $ — $ 342,275 Curtis Wolfe Former Chief Executive Officer 2024 $ 40,462 $ — $ — $ — $ — $ 40,462 Craig Finster 2024 $ 165,433 $ — $ — — $ 112,500 $ 277,933 Former President and Chief Financial Officer 2023 $ 225,000 $ 56,250 $ — $ 73,745 $ — $ 354,995 Geoff Deller Chief Financial Officer 2024 $ 60,000 $ — $ — $ — $ — $ 60,000 Keyvan Peymani Former Executive Chairman of the Board 2024 $ 117,641 $ — $ — $ — $ 80,000 $ 197,641 Alex Peachey 2024 $ 168,750 $ — $ — $ — $ — $ 168,750 Former Chief Technology Officer 2023 $ 176,090 $ 60,000 $ — $ 70,305 $ — $ 306,395 (1) The amounts reported in the “Option Awards” column reflect the aggregate fair value of stock-based compensation awarded during the year computed in accordance with the provisions of the Financial Accounting Standard Board Accounting Standards Codification Topic 718, or ASC 718. See Note 3 to our consolidated financial statements for the year ended December 31, 2024 including elsewhere in this annual report regarding assumptions underlying the valuation of equity awards. These amounts reflect the accounting cost for these stock options and do not reflect the actual economic value that may be realized by the executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. (2) The amounts reported in the “All other Compensation” column reflect $91,666 in board compensation for Luis Goldner and Severance payments for Mathew Pierce, Craig Finster and Keyvan Peymani of $112,500, $112,500 and $80,000. 39 Equity Incentive Plans On May 17, 2017, our board of directors adopted our 2017 Stock Option Plan, or the 2017 Plan, to provide an additional means to attract, motivate, retain and reward selected employees and other eligible persons. Our stockholders approved the 2017 Plan on or about June 29, 2017. Employees, officers, directors, advisors and consultants that provided services to us or one of our subsidiaries are eligible to receive awards under the 2017 Plan. The total number of common shares that are at any time reserved for issuance under the 2017 Plan and under all other management option plans and employee stock purchase plans, if any, cannot exceed in the aggregate a number of common shares equal to 15% of the number of common shares issued and outstanding at that time. Options have a maximum term of ten years and vesting is determined by our board of directors. On May 15, 2021, our board of directors adopted a US sub plan as part of our 2017 Stock Option Plan. The US sub plan allows for the explicit grant of incentive stock options (“ISOs”) to US resident non-officer employees. The provision for the sub plan was subject to a confirming shareholder vote within 12 months of its adoption, which vote was taken on November 17, 2021. As of December 31, 2024, stock option grants for the purchase of an aggregate of 2,555 common shares had been made under the 2017 Plan, and none of those stock options had been cancelled or exercised. As of that date, there remained 373,347 common shares authorized under the 2017 Plan remained available for award purposes. Our board of directors may amend or terminate the 2017 Plan at any time, but no such action will affect any outstanding award in any manner materially adverse to a participant without the consent of the participant. The following information is a brief description of the 2017 Plan, which is filed as an exhibit to this Annual Report: a) Number of Shares : At no time shall the number of common shares reserved for issuance to any one person pursuant to stock options granted under the 2017 Plan or otherwise, unless permitted by regulatory authorities and by a vote of shareholders, exceed five (5%) percent of the outstanding common shares in any 12-month period. 40 b) Option Price: The option price of a stock option granted under the 2017 Plan shall be fixed by our board of directors but shall be not less than the Market Price of our common shares at the time the stock option is granted, or such lesser price as may be permitted pursuant to the rules of any regulatory authority having jurisdiction over our common shares issued, which rules may include provisions for certain discounts in respect to the option price. For the purpose of the 2017 Plan, the “Market Price” at any date in respect of our common shares shall mean, subject to a minimum exercise price of $0.10 per option, the greater of: a. the closing price of our common shares on a stock exchange on which our common shares are listed and posted for trading or a quotation system for a published market upon which the price of our common shares is quoted, as may be selected for such purpose by our board of directors (the “Market”), on the last trading day prior to the date the stock option is granted; and b. the closing price of our common shares on the Market on the date on which the stock option is granted. In the event that such shares did not trade on such trading day, the Market Price shall be the average of the bid and ask prices in respect of such shares at the close of trading on such trading day as reported thereof. In the event that our common shares are not listed and posted for trading or quoted on any Market, the Market Price shall be the fair market value of such shares as determined by our board of directors in its sole discretion. c) Reduction in Option Price : The option price of a stock option granted under the 2017 Plan to an insider of our company (as that term is defined in the Securities Act (British Columbia)) shall not be reduced without prior approval from the disinterested shareholders of our company. d) Payment : The full purchase price payable for shares under a stock option shall be paid in cash or certified funds upon the exercise thereof. A holder of a stock option shall have none of the rights of a shareholder until the shares are paid for and issued. e) Term of Option : Stock options may be granted under the 2017 Plan for a period not exceeding ten years. f) Vesting : Unless our board of directors determines otherwise at its discretion, a stock option shall vest immediately upon being granted. g) Exercise of Option : Except as specifically provided for in the 2017 Plan, no stock option may be exercised unless the optionee is at the time of exercise an Eligible Person (as defined by the 2017 Plan). If the optionee is an employee or consultant, the optionee shall represent to us that he or she is a bona fide employee or consultant of our company. The 2017 Plan shall not confer upon the optionee any right with respect to continuation of employment by our company. Leave of absence approved by an officer of our company authorized to give such approval shall not be considered an interruption of employment for any purpose of the 2017 Plan. Subject to the provisions of the 2017 Plan, a stock option may be exercised from time to time by delivery to us of written notice of exercise specifying the number of shares with respect to which the stock option is being exercised and accompanied by payment in full, by cash or certified check, of the purchase price of the shares then being purchased. h) Non-transferability of Stock Option : No stock option shall be assignable or transferable by the optionee, except to a personal holding corporation of the optionee, other than by will or the laws of descent and distribution. i) Applicable Laws or Regulations : Our obligation to sell and deliver shares under each stock option is subject to our compliance with any laws, rules and regulations of Canada and any provinces and/or territories thereof applying to the authorization, issuance, listing or sale of securities and is also subject to the acceptance for listing of the shares which may be issued upon the exercise thereof by each stock exchange upon which our common shares are then listed for trading. j) Termination of Options . Unless the option agreement provides otherwise, all stock options will terminate: a. in the case of stock options granted to an employee or consultant employed or retained to provide investment relations services, 30 days after the optionee ceases to be employed or retained to provide investment relations services; 41 b. in the case of stock options granted to other employees, consultants, directors, officers or advisors, 90 days following i. our termination, with or without cause, of the optionee’s employment or other relationship with our company or an affiliate of our company, or ii. the termination by the optionee of any such relationship with our company or an affiliate of our company; iii. or in the case of death or permanent and total disability of the optionee, all stock options will terminate 12 months following the death or permanent and total disability of the optionee, and the deceased optionee’s heirs or administrators may exercise all or a portion of the stock option during that period. Any stock options granted under the 2017 Plan that are cancelled, terminated or expire will remain available for granting under the 2017 Plan at the current Market Price k) Amendments . Subject to the approval of regulatory authorities having jurisdiction, our board of directors may from time to time amend or revise the terms of the 2017 Plan, or may terminate the 2017 Plan at any time; provided, however, that no such action shall adversely affect the rights of any optionee under any outstanding stock option without such optionee’s prior consent. Upon the mutual consent of the optionee and our board of directors, the terms of an option agreement may be amended, subject to regulatory approval and shareholder approval as may be required from time to time. Outstanding Equity Awards at Fiscal Year-End None 42 Director Compensation All directors hold office until the next annual meeting of shareholders at which their respective class of directors is re-elected and until their successors have been duly elected and qualified. There are no family relationships among our directors or executive officers. Officers are elected by and serve at the discretion of the Board of Directors. The following table sets forth the information concerning all compensation we paid during the year ended December 31, 2024 to our non-employee directors. Name Fees earned or paid in cash ($) Stock awards ($) Option awards ($) (5) Total ($) Juan Carlos Barrera (1) $ 91,666 — — $ 91,666 David Catzel (2) $ 91,666 — — $ 91,666 Aric Spitulink (3) $ — — — $ — Luis Goldner (4) $ 83,333 — — $ 83,333 (1) Mr. Barrera was elected as a director of our company at the shareholder meeting held on December 29, 2023, and was appointed as a director of our company on the same date. (2) Mr. Catzel was elected as a director of our company at the shareholder meeting held on December 29, 2023, and was appointed as a director of our company on the same date. (3) Mr. Spitulink was elected as a director of our company at the shareholder meeting held on December 23, 2024, and was appointed as a director of our company on the same date. Mr. Spitulink received no compensation in the year ended December 31, 2024. (4) Mr. Goldner was elected as a director of our company at the shareholder meeting held on December 29, 2023, and was appointed as a director of our company on the same date. (5) The amounts reported in the “Option Awards” column reflect the aggregate fair value of stock-based compensation awarded during the year computed in accordance with the provisions of the Financial Accounting Standard Board Accounting Standards Codification Topic 718, or ASC 718. See Note 3 to our consolidated financial statements for the year ended December 31, 2024 included elsewhere in this annual report regarding assumptions underlying the valuation of equity awards. These amounts reflect the accounting cost for these stock options and do not reflect the actual economic value that may be realized by the executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. 43 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERSHIP AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information relating to the beneficial ownership of our common shares as of March 25, 2025 by: ● each person, or group of affiliated persons, known by us to beneficially own 5% or more of our outstanding common shares; ● each of our named executive officers and members of our board of directors; and ● all executive officers and members of our board of directors as a group. The amounts and percentages of common shares beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days after March 15, 2024. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest. Except as indicated by footnote, to our knowledge, the persons named in the table below have sole voting and investment power with respect to all common shares shown as beneficially owned by them. None of our major shareholders have different voting rights than our common shareholders. In the table below, the percentage of beneficial ownership of our common shares is based on 4,901,677 shares of our common shares outstanding as of March 15, 2025. Unless otherwise noted below, the address of the persons listed on the table is c/o Versus Systems Inc., 3500 South DuPont Hwy. Dover, DE 19901 Amount and Nature of Percentage of Shares Name of Beneficial Owner Beneficial Ownership Beneficially Owned Named Executive Officers and Directors Executive Officers and Directors as a Group (7 persons) 11,827 * 5% of Great Beneficial Owners ASPIS Cyber Technologies, Inc. 2,155,172 43.97 % Cronus Equity Capital Group, LLC (1) 989,903 20.20 % * Indicates beneficial ownership of less than 1% of the total outstanding common shares. (1) The address of Cronus Equity Capital Group, LLC is 590 Madison Ave, 21 st Floor, New York, NY 10022. The percentage of our common shares held by Canadian residents, based on securityholder addresses of record, is 2% as of March 25, 2025. 44 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE A “related party transaction” is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of (i) $120,000 or (ii) one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any related party had or will have a direct or indirect material interest. A “related party” includes: ● any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors; ● any person who beneficially owns more than 5% of our common share; ● any immediate family member of any of the foregoing; or ● any entity in which any of the foregoing is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest. Other than the transactions described below and the compensation arrangements for our named executive officers, which we describe above, there were no related party transactions to which we were a party since the beginning of our last fiscal year, or any currently proposed related party transaction. 45 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table summarizes the fees charged by Ramirez Jimenez International CPAs and Davidson & Company LLP for certain services rendered to our company during fiscal 2024 and fiscal 2023, respectively. For the year ended For the year ended Ramirez Jimenez International CPAs USD $ December 31, 2024 December 31, 2023 Audit fees (1) $ 220,456 $ 233,105 Audit-related fees (2) - - Tax fees (3) 20,000 20,000 All other fees (4) - - Total $ 240,456 $ 253,105 (1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered for the audit of our annual financial statements and review of our interim financial statements. (2) “Audit-related fees” are the assurance and related services reasonably related to the financial statement audit and not included in audit services. (3) “Tax fees” means the aggregate fees billed in each of the fiscal years for professional services rendered for tax compliance and tax advice. (4) “All other fees” total the aggregate fees billed in each of the fiscal years for non-audit services rendered which were not listed above, which are primarily related to professional services rendered with our registration filings. 46 ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES. 1. The financial statements and supplementary data required by this item begin on page F-1. 2. The financial statement schedules are omitted because they are either not applicable or the information required is presented in the financial statements and notes thereto under “Item 8. Financial Statements and Supplementary Data.” 3. Exhibit Index: Incorporation by Reference Exhibit Number Exhibit Description Form Filing Date Exhibit Number 3.1 Certificate of Corporate Domestication and Certificate of Incorporation 8-K 12/26/2024 3.1 3.2 Bylaws S-4 11/14/2024 3.2 4.1 Specimen Stock Certificate evidencing common shares. F-1/A 1/11/2021 4.1 4.2 Warrant Agent Agreement dated January 20, 2021 between Versus System Inc. and Computershare, including forms of Unit A Warrants and Unit B Warrants. 6-K 1/21/2021 99.2 4.3 Representative Warrant Agreement dated January 20, 2021. F-1/A 12/14/2020 4.3 10.1 Subscription Agreement and form of Warrant with ASPIS Cyber Technologies, Inc., dated as of October 16, 2024. S-4 11/8/24 10.3 10.2 Technology License and Software Development Agreement with ASPIS Cyber Technologies, Inc., dated as of October 7, 2024. S-4 11/8/2024 10.4 10.3 Business Funding Agreement with ASPIS Cyber Technologies, Inc. with ASPIS Cyber Technologies, Inc., dated as of October 7, 2024. S-4 11/8/2024 10.5 10.6 Form of Warrant of Versus Systems Inc. F-1 11/20/2020 10.6 47 Incorporation by Reference Exhibit Number Exhibit Description Form Filing Date Exhibit Number 10.7 Versus Systems Inc. 2017 Stock Option Plan. F-1 11/20/2020 10.7 10.8 US Sub Plan of 2017 Stock Option Plan * 10.9 Software License, Marketing and Linking Agreement dated as of March 6, 2019 between HP Inc. and Versus LLC. F-1 11/20/2020 10.9 10.10 Amendment of 2017 Stock Option Plan * 14.1 Code of Conduct and Ethics. F-1/A 1/11/2021 14.1 15.1 Consent of Ramirez Jimenez International CPAs * 19.1 Insider Trading Policies and Procedures 10-K 4/1/2024 21.1 List of Subsidiaries of Versus Systems Inc. F-1 11/20/2020 21.1 31.1 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 31.2 CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 32.1 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * 32.2 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * 97.1 Clawback Policy (Recovery of Erroneously Awarded Compensation) 10-K 4/1/2024 97.1 99.1 Charter of the Audit Committee. F-1/A 1/11/2021 99.1 99.2 Charter of the Compensation Committee. F-1/A 1/11/2021 99.2 99.3 Charter of the Nominating and Corporate Governance Committee. F-1/A 1/11/2021 99.3 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith. ITEM 16. FORM 10-K SUMMARY None. 48 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on annual report on Form 10-K and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. Versus Systems Inc. By: /s/ Luis Goldner Name: Luis Goldner Date: March 31, 2025 Title: Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Position Date /s/ Luis Goldner Director and Chief Executive Officer March 31, 2025 Luis Goldner (Principal Executive Officer) /s/ Geoff Deller Chief Financial Officer March 31, 2025 Geoff Deller (Principal Financial and Accounting Officer) /s/ Juan Carlos Barrera Chairman of the Board March 31, 2025 Juan Carlos Barrera /s/ David Catzel Director March 31, 2025 David Catzel /s/ Luis Goldner Director March 31, 2025 Luis Goldner /s/ Aric Spitulimk Director March 31, 2025 Aric Spitulimk 49 Versus Systems Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 820) F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Operations and Comprehensive Loss F-5 Consolidated Statements of Changes in Stockholder’s Equity F-6 Consolidated Statements of Cash Flow F-7 Notes to the Consolidated Financial Statements F-8 - F-24 F- 1 CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 F- 2 Report of Independent Registered Public Accounting Firm To the Versus Systems Inc. Board of Directors and Shareholders: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Versus Systems Inc. and its subsidiaries (collectively, the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cashflows for the years then ended and the related notes to the consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Versus Systems Inc. as of December 31, 2024 and 2023, and the results of their operations and their cash flows for the years ended December 31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations. In addition, the Company has not achieved positive cash flows from operations and is not able to finance day to day activities through operations. These events raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Versus Systems Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Versus Systems Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ramirez Jimenez International CPAs We have served as Versus Systems Inc. and its subsidiaries auditors since 2021. Irvine, California March 31, 2025 PCAOB ID 820 F- 3 Versus Systems Inc. Consolidated Balance Sheets December 31, December 31, 2024 2023 ($) ($) ASSETS Current assets Cash and cash equivalents $ 3,065,914 $ 4,689,007 Receivables, net of allowance for credit losses - 18,222 Prepaid expenses 469,646 160,474 Total current assets 3,535,560 4,867,703 Restricted deposit - 8,679 Property and equipment - 1,935 Total assets $ 3,535,560 $ 4,878,317 LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued liabilities $ 26,288 $ 286,427 Deferred revenue - 35,049 Total current liabilities 26,288 321,476 Non-current liabilities Total liabilities 26,288 321,476 Stockholders’ equity Share capital Class A shares, no par value. Unlimited authorized shares; no shares issued or outstanding, respectively - - Common stock and additional paid in capital, no par value. Unlimited authorized shares; 4,901,677 and 2,506,015 shares issued and outstanding as of December 31, 2024 and 2023, respectively 150,587,018 147,130,123 Accumulated other comprehensive income 318,659 248,287 Deficit ( 139,476,353 ) ( 135,434,022 ) Total Versus Systems, Inc. stockholders’ equity 11,429,324 11,944,388 Non-controlling interest ( 7,920,052 ) ( 7,387,547 ) Total stockholders’ equity 3,509,272 4,556,841 Total liabilities, noncontrolling interest and stockholders’ equity $ 3,535,560 $ 4,878,317 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Versus Systems Inc. Consolidated Statements of Operations and Comprehensive Loss Year Ended Year Ended December 31, 2024 December 31, 2023 ($) ($) REVENUES Revenues $ 57,288 $ 271,169 Cost of revenues 40,277 103,067 Gross margin 17,011 168,102 EXPENSES Research and development 246,019 1,107,235 Selling, general and administrative 4,310,218 5,944,909 Impairment of goodwill and other intangibles - 3,968,332 Total operating expenses 4,556,237 11,020,476 Operating loss ( 4,539,226 ) ( 10,852,374 ) Employee retention credit - 354,105 Other income/(expense), net ( 11,384 ) ( 13,888 ) Loss before provision for income taxes ( 4,550,610 ) ( 10,512,157 ) Provision for income taxes ( 24,226 ) - Net loss ( 4,574,836 ) ( 10,512,157 ) Less: Net loss attributable to non-controlling interest 532,505 985,160 Net loss attributable to Versus Systems, Inc. Shareholders ( 4,042,331 ) ( 9,526,997 ) Per share Data: Basic and diluted loss per share to shareholders ( 1.54 ) ( 10.44 ) Weighted average shares – basic and diluted 2,628,226 912,717 Comprehensive income (loss) Net loss ( 4,574,836 ) ( 10,512,157 ) Other comprehensive income (loss), net of tax Change in foreign currency translation, net of tax 70,372 93,317 Total other comprehensive income 70,372 93,317 Total comprehensive loss $ ( 4,504,463 ) $ ( 10,418,840 ) Less: comprehensive loss attributable to non-controlling interest 532,505 985,160 Comprehensive loss attributable to shareholders $ ( 3,971,958 ) $ ( 9,433,680 ) The accompanying notes are an integral part of these consolidated financial statements. F- 5 Versus Systems Inc. Consolidated Statements of Changes in Stockholder’s Equity Number of Common Number of Class “A” Common Class “A” Additional Paid in Currency translation Accumulated Versus Systems, Inc. Non-controlling Total Stockholders’ Shares Shares Shares Shares Capital adjustment Deficit Equity Interest Equity ($) ($) ($) ($) ($) ($) ($) ($) Balance at December 31, 2022 260,761 21 122,353,525 28,247 14,506,758 154,970 ( 125,907,025 ) 11,136,475 ( 6,402,387 ) 4,734,088 Exercise of warrants 283,875 - 4,561,200 - - - - 4,561,200 - 4,561,200 Shares issued in connection with private placement 989,903 - 2,562,660 - - - - 2,562,660 - 2,562,660 Shares issued in public offering 971,455 - 5,250,003 - - - - 5,250,003 - 5,250,003 Class A shares converted 21 ( 21 ) 28,247 ( 28,247 ) - - - - - - Share issuance costs - - ( 679,890 ) - - - - ( 679,890 ) - ( 679,890 ) Stock-based compensation - - - - ( 1,452,380 ) - - ( 1,452,380 ) - ( 1,452,380 ) Cumulative translation adjustment - - - - - 93,317 - 93,317 - 93,317 Net loss - - - - - - ( 9,526,997 ) ( 9,526,997 ) ( 985,160 ) ( 10,512,157 ) Balance at December 31, 2023 2,506,015 - 134,075,745 - 13,054,378 248,287 ( 135,434,022 ) 11,944,388 ( 7,387,547 ) 4,556,841 Exercise of warrants 240,490 - - - 885,003 - - 885,003 - 885,003 Conversion of debt into common stock 2,155,172 - - - 2,411,027 - - 2,411,027 - 2,411,027 Stock-based compensation - - - - 160,865 - - 160,865 - 160,865 Cumulative translation adjustment - - - - - 70,372 - 70,372 - 70,372 Net loss - - - - - - ( 4,042,331 ) ( 4,042,331 ) ( 532,505 ) ( 4,574,836 ) Balance at December 31, 2024 4,901,677 - 134,075,745 - 16,511,273 318,659 ( 139,476,353 ) 11,429,324 ( 7,920,052 ) 3,509,272 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Versus Systems Inc. Consolidated Statements of Cash Flows Year Ended Year Ended December 31, 2024 December 31, 2023 ($) ($) OPERATING ACTIVITIES Net Loss $ ( 4,574,836 ) $ ( 10,512,157 ) Adjustments to reconcile net loss to net cash: Amortization of property and equipment 1,688 23,754 Amortization of intangible assets - 2,444,445 Impairment of goodwill and other intangibles - 3,968,332 Accretion of interest expense 17,795 - Loss on sale of equipment - 63,385 Gain from debt settlement - ( 49,498 ) Share-based compensation 160,865 ( 1,452,380 ) Receivables 18,222 42,527 Prepaid expenses and other current assets ( 300,493 ) 62,752 Deposits - 100,000 Deferred revenue ( 35,049 ) ( 34,226 ) Accounts payable and accrued liabilities ( 260,140 ) ( 239,073 ) Cash flows used in operating activities ( 4,971,948 ) ( 5,582,139 ) INVESTING ACTIVITIES Proceeds from sale of equipment - 4,899 Development of intangible assets - ( 19,413 ) Cash flows used in investing activities - ( 14,514 ) FINANCING ACTIVITIES Repayment of notes payable – related party - ( 2,519,835 ) Proceeds from convertible debt – related party 2,500,000 - Proceeds from warrant exercises 885,003 4,561,200 Proceeds from share issuances - 7,812,663 Payments for lease liabilities - ( 128,560 ) Payments of share and debt issuance costs ( 106,768 ) ( 679,890 ) Cash flows from financing activities 3,278,235 9,045,578 Effect of foreign exchange 70,620 61,235 Change in cash and cash equivalents during the period ( 1,623,093 ) 3,510,160 Cash and cash equivalents - Beginning of period 4,689,007 1,178,847 Cash and cash equivalents - End of period $ 3,065,914 $ 4,689,007 Supplemental disclosures of cash flow Interest paid $ - $ - Income taxes paid $ - $ - Noncash investing and financing activities Debt converted into common stock and warrants $ 2,411,027 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 7 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 1. NATURE OF OPERATIONS Versus Systems Inc. (the Company) was continued under the Business Corporations Act (British Columbia) effective January 2, 2007. The Company’s head office and registered and records office is located at 3500 South DuPont Highway Dover, DE 19901. The Company’s common stock is traded on the NASDAQ under the symbol “VS”. The Company’s Unit A warrants are traded on NASDAQ under “VSSYW”. On December 28, 2023, the Company completed a one-for-16 reverse stock split of the Company’s common shares. All share and per share data are presented to reflect the reverse share splits on a retroactive basis. The Company is engaged in the technology sector and has developed a proprietary prizing and promotions tool allowing game developers and creators of streaming media, live events, broadcast TV, games, apps, and other content to offer real world prizes inside their content. The ability to win prizes drives increased levels of consumer engagement creating an attractive platform for advertisers. In June 2021, the Company completed its acquisition of multimedia, production, and interactive gaming company Xcite Interactive, a provider of online audience engagement through its owned and operated XEO technology platform. The Company partners with professional sports franchises across Major League Baseball (“MLB”), National Hockey League (“NHL”), National Basketball Association (“NBA”) and the National Football League (“NFL”) to drive audience engagement. In September 2024 the Company closed down its operations within the United Kingdom, Versus Systems UK, Ltd. 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 $ 2,500,000 . 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. In December 2024, under the terms of the agreement, upon the Company’s shareholders’ approval and the Company’s redomiciling to Delaware, $ 2,500,000 converted into 2,155,172 Common Shares and warrants to purchase an additional 1,077,586 shares. Additionally, the Company entered into a Technology License and Software Development Agreement (the “License Agreement”) in October 2024 which provides for the Company to license its gamification, engagement and QR code technology to ASPIS for use in ASPIS’s website business and for development of additional functionality for Versus’ technology. F- 8 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 1. NATURE OF OPERATIONS (CONTINUED) Pursuant to the License Agreement, the Company granted ASPIS a license to use Versus’ technology in ASPIS’s website business that provides cybersecurity technology. ASPIS will pay for any required technology modifications, improvements and developments to Versus’ technology in addition to a license fee of $ 165,000 per month beginning in January 2025. The Company will retain ownership of Versus’ technology and ASPIS will hold an exclusive license to use Versus’ technology in the cybersecurity industry so long as ASPIS continues to pay the monthly license fee. The License Agreement has an initial term of one year with successive renewal terms of one year each upon ASPIS’s written approval, subject to earlier termination by the Company or ASPIS. As of December 31, 2024 the Company had not granted ASPIS access to its technology for use in ASPIS’s cybersecurity technology. The Company expects to begin the License Agreement in during the second quarter of 2025. Going Concern These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company is not expected to continue operations for the foreseeable future. As of December 31, 2024, the Company has not achieved positive cash flow from operations and is not able to finance day to day activities through operations and as such, there is substantial doubt as to the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to attain profitable operations and generate funds therefrom and/or raise equity capital or borrowings sufficient to meet current and future obligations. These consolidated financial statements do not include any adjustments as to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These adjustments could be material. Management’s plans include attempting to secure additional required funding through equity or debt financing, if available, seeking to enter into a partnership or other strategic agreement regarding, or sales or out-licensing of, its technology. There can be no assurance that we will be able to obtain required funding in the future. If the Company does not obtain required funding, the Company’s cash resources will be depleted in the near term and the Company would be required to materially reduce or suspend operations, which would likely have a material adverse effect on the Company’s business, stock price and our relationships with third parties with whom the Company have business relationships. If the Company does not have sufficient funds to continue operations, the Company could be required to seek bankruptcy protection, dissolution or liquidation, or other alternatives that could result in the Company’s stockholders losing some or all of their investment in us. The Company has implemented expense reduction measures including, without limitation, employee headcount reductions and the reduction or discontinuation of certain product development programs. Additionally, the Company is not in compliance with certain listing standards of the Nasdaq National Market and there can be no assurance that the Company will be successful in curing the deficiencies and regaining compliance by the applicable cure dates. F- 9 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Functional and presentation currency These consolidated financial statements are presented in United States dollars, unless otherwise noted, which is the functional currency of the Company and its subsidiaries. Basis of consolidation These consolidated financial statements include the accounts of Versus Systems Inc. and its subsidiaries, from the date control was acquired. Control exists when the Company possesses power over an investee, has exposure to variable returns from the investee and has the ability to use its power over the investee to affect its returns. All inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation. Concentration of Credit Risk The Company maintains its cash and cash equivalents at insured financial institutions, the balances of which may, at times, exceed federally insured limits. Generally, these deposits may be redeemed upon demand, and the Company believes there is minimal risk of losses on such balances. Non-controlling interest Non-controlling interest in the Company’s less than wholly owned subsidiaries are classified as a separate component of equity. On initial recognition, non-controlling interest is measured at the fair value of the non-controlling entity’s contribution into the related subsidiary. Subsequent to the original transaction date, adjustments are made to the carrying amount of non-controlling interest for the non-controlling interest’s share of changes to the subsidiary’s equity. Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are recorded as equity transactions. The carrying amount of non-controlling interest is adjusted to reflect the change in the non-controlling interest’s relative interest in the subsidiary, and the difference between the adjustment to the carrying amount of non-controlling interests and the Company’s share of proceeds received and/or consideration paid is recognized directly in equity and attributed to owners of the Company. F- 10 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of estimates The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements. Estimates and assumptions are continually evaluated and are based on historical experience and management’s assessment of current events and other facts and circumstances that are considered to be relevant. Actual results could differ from these estimates. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made. These estimates and assumptions include valuing equity securities in share-based payments and warrants; and the impairment of goodwill and intangible assets. Cash The Company considers all highly liquid marketable securities with an original maturity of three months or less to be cash equivalents. Accounts Receivables, Net Trade accounts receivable are recorded net of reserves for expected credit losses. Estimates for allowances for credit losses are determined based on existing contractual obligations, historical payment patterns and individual customer circumstances. The allowance for credit losses was immaterial at both December 31, 2024 and 2023, respectively. For the years ended December 31, 2024 and 2023, bad debt expense recorded in the consolidated statements of operations and comprehensive loss was immaterial. The Company’s evaluation of credit losses for the current period included an assessment of our aged trade receivables balances and their underlying credit risk characteristics. Our evaluation of past events, current conditions, and reasonable and supportable forecasts about the future resulted in an expectation of immaterial credit losses. Basic and diluted loss per share Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares outstanding during the reporting periods. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share, except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods. Potentially dilutive options which totaled 2,555 ( December 31, 2023 - 28,990 ) and warrants excluded from diluted loss per share as of December 31, 2024 totaled 1,733,741 (December 31, 2023 – 923,645 ). F- 11 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and equipment Property and equipment is recorded at cost less accumulated amortization and any impairments. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Depreciation is calculated based on the estimated residual value and estimated economic life of the specific assets using the straight-line method over the period indicated below: Asset Rate Computers Straight line, 3 years Right of use assets Shorter of useful life or lease term Fair Value Measurements and Financial instruments The Company applies Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided for fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: - Level 1-Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. - Level 2-Includes other inputs that are directly or indirectly observable in the marketplace. - Level 3-Unobservable inputs which are supported by little or no market activity. ASC 820 recommends three main approaches for measuring the fair value of assets and liabilities: the market approach, the income approach, and the cost approach. The Company uses the appropriate approach based on the nature of the asset or liability being measured. Financial instruments include cash, receivables, restricted deposit, accounts payable and accrued liabilities. The carrying values of the financial instruments included in current assets and liabilities approximate their fair values due to their short-term maturities. Impairment of Long-Lived Assets The Company’s long-lived assets are primarily comprised of intangible assets and property and equipment. The Company evaluates its finite-lived intangible assets and property and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the use and eventual disposition of the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company impaired the Company’s finite-lived intangible assets in the year ended December 31, 2023. See Note 5 for more information. n addition, indefinite-lived intangible assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired by comparing the fair value to the carrying value of the asset. To determine the fair value of the asset, the Company used the multi-period excess earnings method of the income approach. The more significant assumptions inherent in the application of this method include: the amount and timing of projected future cash flows (including revenue, cost of sales, research and development costs, and sales and marketing expenses), and the discount rate selected to measure the risks inherent in the future cash flows. The Company impaired the Company’s indefinite-lived intangible assets in the year ended December 31, 2023. See Note 5 for more information. Convertible Debt The Company’s convertible debt is accounted for in accordance with ASC 470-20, Debt with conversion and Other Options (“ASC 470-20”) and ASC 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 815-40, to qualify for equity classification (or nonbifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of equity classification guidance. Based upon the Company’s analysis, it was determined that Company’s convertible debt does not contain embedded features requiring recognition as derivatives and bifurcation, and therefore are measured at amortized cost and recorded as liabilities on the Consolidated Balance Sheets. F- 12 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Warrants In connection with the funding agreement with ASPIS, we issued common stock warrants. The company evaluates the terms for each of these outstanding warrants in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC Topic 815, Derivatives and Hedging ASC (“815-40”), to determine the appropriate classification and accounting treatment. The warrants were determined to meet the criteria to be classified as equity instruments and were recorded under additional paid in capital on the Consolidate Balance Sheet. Deferred financing costs Deferred financing costs consist primarily of direct incremental costs related to the Company’s public offering of its common stock. Upon completion of the Company’s financings any deferred costs were offset against the proceeds in the condensed consolidated statement changes in shareholders’ equity. Income taxes The Company accounts for income taxes utilizing the assets and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and net operating loss and tax credit carry forwards, using enacted tax rates and laws that are expected to be in effect when the differences reverse. A valuation allowance is recorded against deferred tax assets in these cases then management does not believe that the realization is more likely than not. While management believes that its judgements and estimates regarding deferred tax assets and liabilities are appropriate, significant differences in actual results may materially affect the Company’s future financial results. The Company recognizes any uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon audit by relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2024 and 2023, the Company did not record any accruals for interest and penalties. The Company does not foresee material changes to its uncertain tax positions within its next twelve months. The Company’s tax years are subject to examination for 2022 and forward for U.S. Federal tax purposes and for 2021 and forward for state tax purposes. Loss contingencies A loss contingency is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Loss contingencies are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. F- 13 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Valuation of Equity Units Issued in Private Placements In accordance with U.S. GAAP, particularly ASC 505-10 and ASC 815, the Company has adopted the fair value method for the valuation of equity units issued in private placements, which typically comprise common shares and warrants. For each private placement, the Company separately estimates the fair value of both the common shares and the warrants at the date of issuance. The determination of fair value is based on market conditions, volatility, and other relevant factors at the time of issuance. 1. Common Shares: The fair value of the common shares issued is measured based on observable market prices, if available, or estimated using appropriate valuation techniques considering the terms of the shares and market conditions. 2. Warrants: Warrants are valued using an appropriate option-pricing model, such as the Black-Scholes or a binomial model. The model incorporates various inputs, including the share price, expected volatility, expected term, risk-free interest rate, and any dividends. The total proceeds from the issuance of equity units are allocated between the common shares and the warrants based on their relative fair values at the date of issuance. This allocation is reflected in the equity section of the consolidated balance sheet, with the fair value of the warrants recorded as a component of additional paid-in capital in the equity section. If the warrants expire unexercised, the amount remains in additional paid-in capital. This method of valuation and allocation ensures compliance with the fair value measurement and equity classification requirements of U.S. GAAP. Share-based compensation The Company grants stock options to acquire common shares of the Company to directors, officers, employees and consultants. An individual is classified as an employee when the individual is an employee for legal or tax purposes, or provides services similar to those performed by an employee. The fair value of stock options is measured on the date of grant, using the Black-Scholes option pricing model, and is recognized over the vesting period. Consideration paid for the shares on the exercise of stock options is credited to capital stock. In situations where equity instruments are issued to non-employees and some or all of the goods or services received by the Company as consideration cannot be specifically identified, they are measured at fair value of the share-based payment. Otherwise, share-based payments are measured at the fair value of goods or services received. F- 14 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue recognition The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification ASC 606, Revenue from Contracts with Customers (“ASC 606”), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue from contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company earns revenue in two primary ways: 1) the sales of software-as-a-service (SAAS) from its interactive production software platform or 2) development and maintenance of custom-built software or other professional services. The Company recognizes SAAS revenues from its interactive production sales over the life of the contract as its performance obligations are satisfied. Payment terms vary by contract and can be periodic or one-time payments. The Company determines that the customer receives and consumes the benefits of the service simultaneously as the service is provided. The transaction price is allocated to the contractual performance obligations and recognized ratably over the contract term. The Company recognizes revenues received from the development and maintenance of custom-built software and other professional services provided upon the satisfaction of its performance obligation in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services. Performance obligations can be satisfied either at a single point in time or over time. For those performance obligations that are satisfied at a single point in time, the revenue is recognized at that time. For each performance obligation satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of that performance obligation. The Company generally measures progress comparing hours incurred to total estimated hours. For revenues received from the sales of advertising, the Company is deemed the agent in its revenue agreements. The Company does not own or obtain control of the digital advertising inventory. The Company recognizes revenues upon the achievement of agreed-upon performance criteria for the advertising inventory, such as a number of views, or clicks. As the Company is acting as an agent in the transaction, the Company recognizes revenue from sales of advertising on a net basis, which excludes amounts payable to partners under the Company’s revenue sharing agreements. The Company’s contracts with customers may include promises to transfer multiple products and services. For these contracts, the Company accounts for individual performance obligations separately if they are capable of being distinct and distinct within the context of the contract. Determining whether products and services are considered distinct performance obligations may require significant judgment. Judgment is also required to determine the stand-alone selling price, for each distinct performance obligation. License Revenue We recognize revenue when or as the performance obligations in the contract are satisfied. For performance obligations that are fulfilled at a point in time, revenue is recognized at the fulfillment of the performance obligation. Since the IP is determined to be a functional license, the value of the grant of use is recognized in the first period of the contract term in which the license agreement is in force. Since the costs incurred to satisfy the ASPIS technology performance obligations are incurred evenly throughout the year, the value of the technical support and new improvements services are recognized throughout the contract period as these performance obligations are satisfied. For the year ended December 31, 2024, no revenue was recognized on our functional IP as the Technology Agreement with ASPIS as the license had not been delivered to ASPIS during the year. Deferred revenue Revenue recognition of sales is recorded on a monthly basis upon delivery or as the services are provided. Cash received in advance for services are recorded as deferred revenue based on the proportion of time remaining under the service arrangement as of the reporting date. During the year ended December 31, 2024 the Company recognized $ 35,049 of revenue attributed to the deferred revenue that existed at December 31, 2023. No additional billing occurred in 2024 that resulted in the addition of deferred revenue. F- 15 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Research and development Research and development costs are expensed as incurred. For the years ended December 31, 2024 and 2023, the Company incurred approximately $ 246,019 and $ 1,107,235 , respectively, on research and development activities Foreign exchange The functional currency is the currency of the primary economic environment in which the Company operates and has been determined for each entity within the Company. The functional currency for the Company and its subsidiaries is the United States dollar. The functional currency determinations were conducted through an analysis of the consideration factors identified in ASC 830, Foreign Currency Matters . Foreign currency transactions in currencies other than the United States dollar are recorded at exchange rates prevailing on the dates of the transactions. Foreign currency transaction gains and losses are generally recognized in profit or loss and presented within gain (loss) on foreign exchange. An aggregate loss of $ 0.1 million and $ 0.1 million arising from foreign exchange transactions is included in other (expense) income, net for the year ended December 31, 2024 and 2023, respectively. At the end of each reporting period, the monetary assets and liabilities of the Company and its subsidiaries that are denominated in foreign currencies are translated at the rate of exchange at the date of the consolidated balance sheets. Non-monetary assets and liabilities that are denominated in foreign currencies are translated at historical rates. Revenues and expenses that are denominated in foreign currencies are translated at the exchange rates approximating those in effect on the date of the transactions. Foreign currency translation gains and losses are recognized in other comprehensive income and accumulated in equity on the consolidated statements of stockholders’ equity. Comprehensive income (loss) Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss) and represents the change in shareholders’ equity (deficit) which results from transactions and events from sources other than the Company’s shareholders. Comprehensive loss differs from net loss for the periods ended December 31, 2024 and 2023, due to the effects of foreign translation gains and losses. Recent accounting pronouncements not yet adopted New accounting pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (“Topic 740”): Improvements to Income Tax Disclosures . This ASU enhances the transparency and decision usefulness of income tax disclosures. It is designed to provide more detailed information about an entity’s income tax expenses, liabilities, and deferred tax items, potentially affecting how companies report and disclose their income tax-related information. The ASU is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those fiscal years. The Company is currently evaluating how this ASU will impact its consolidated financial statements and disclosures. In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60) : Recognition and Initial Measurement. This ASU addresses accounting for assets and liabilities contributed to a joint venture. It requires entities to recognize and measure these contributions at fair value as of the joint venture formation date. This ASU is applicable to all entities involved in forming joint ventures and is effective for joint ventures formed on or after January 1, 2025. The Company is currently evaluating how this ASU will impact its consolidated financial statements and disclosures. In November 2024, the FASB issued ASU No. 2024-04, Debt-Debt with Conversion and Other Options (“Subtopic 470-20”) (“ASU No. 2024-04”), which intends to clarify the conditions in which induced conversion applies to convertible debt by outlining three criteria that must be met for an entity to apply the induced conversion model. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2025 (and interim reporting periods within those annual reporting periods). Early adoption is permitted as of the beginning of a reporting period if the entity has also adopted ASU 2020-06 for that period. The Company is currently evaluating how this ASU will impact its consolidated financial statements and disclosures. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (“Subtopic 220-40”) . This ASU improves financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. This ASU will be effective for annual periods beginning after December 15, 2026, for interim reporting periods beginning after December 15, 2027, with early adoption is permitted. We are evaluating the potential impact of this guidance on our consolidated financial statements and related disclosures. F- 16 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recent adopted accounting pronouncements In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. The guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The adoption of the guidance in the first quarter of 2024 did not have a material impact on our consolidated financial statements and related disclosures. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (“Topic 280”): Improvements to Reportable Segment Disclosures (“ASU No. 2023-07”), which intends to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU No. 2023-07 on January 1, 2024 retrospectively and the adoption did not have a material effect on the Company’s consolidated financial statements. Refer to the Segments section in Note 14, Segment Reporting, to the consolidated financial statements for further details. Management does not believe any other recently issued but not yet effective accounting pronouncement, if adopted, would have a material effect on the Company’s present or future consolidated financial statements. 3. PROPERTY AND EQUIPMENT Computers ($) Cost At December 31, 2022 246,719 Disposals ( 222,468 ) At December 31, 2023 24,251 Disposals ( 247 ) At December 31, 2024 24,004 Accumulated amortization At December 31, 2022 152,476 Amortization for the period 23,754 Disposals ( 154,184 ) At December 31, 2023 22,316 Amortization for the period 1,688 Disposals - At December 31, 2024 24,004 Carrying amounts At December 31, 2023 1,935 At December 31, 2024 - The Company recorded depreciation expense of $ 1,688 and $ 23,574 for the twelve months ended December 31, 2024 and 2024, respectively. F- 17 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 4. NON-CONTROLLING INTEREST IN VERSUS LLC The Company holds an 81.9 % ownership interest in Versus LLC, a privately held limited liability company organized under the laws of the state of Nevada. The Company consolidates Versus LLC as a result of having full control over the voting shares. Versus LLC is a technology company that is developing a business-to-business software platform that allows video game publishers and developers to offer prize-based matches of their games to their players. The net loss for Versus, LLC for the year ended December 31, 2024 and 2023 was $ 2,942,021 and $ 5,442,876 , respectively. The net income (loss) attributable to the non-controlling interest for the year ended December 31, 2024 and 2023 was $( 532,505 ) and $( 985,160 ), respectively The following table presents summarized financial information before intragroup eliminations for the non-wholly owned subsidiary as of December 31, 2024 and December 31, 2023. 2024 2023 Non-controlling interest percentage 18.1 % 18.1 % ($) ($) Assets Current 3,310,563 1,011,636 Non-current - 2,822,122 3,310,563 3,833,758 Liabilities Current 2,062 518,701 Non-current 45,533,471 39,774,321 45,535,533 40,293,022 Net liabilities ( 42,224,970 ) ( 36,449,264 ) Non-controlling interest ( 7,920,052 ) ( 7,387,547 ) Net loss ( 2,942,021 ) ( 5,442,876 ) Net loss attributed to non-controlling interest ( 532,505 ) ( 985,160 ) 5. INTANGIBLE ASSETS Intangible assets were comprised of a business-to-business software platform that allows video game publishers and developers to offer prize-based matches of their games to their players. The Company continued to develop new apps, therefore additional costs were capitalized during the years ended December 31, 2023. During the year ended December 31, 2023, the Company completed an impairment analysis of its intangible assets and concluded the assets were impaired. As a result, the Company impaired the remaining carrying value of the intangible assets in the amount of $ 3,968,332 . Prior to the full impairment, the Company had gross carrying values of $ 14,734,942 , $ 3,170,966 , $ 420,833 , and $ 1,209,861 for the Company’s software, customer relationships, tradename and developed technology, respectively. The Company’s gross carrying values were netted against the accumulated amortization of $ 11,311,681 , $ 1,425,112 , $0 , and $ 1,064,907 for the Company’s software, customer relationships, tradename and developed technology, respectively. 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The Company’s accounts payable and accrued liabilities are comprised of the following: December 31, 2024 December 31, 2023 ($) ($) Accounts payable 26,288 82,579 Due to related parties - 177,500 Accrued liabilities - 26,348 26,288 286,427 F- 18 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 7. NOTES PAYABLE – RELATED PARTY During the year ended December 31, 2023, the Company repaid $ 64,550 of principal. As at December 31, 2023, the Company had recorded $ 23,456 in accrued interest which was included in accounts payable and accrued liabilities. During the year ended December 31, 2024, the Company recorded finance expense of $0 (December 31, 2023 - $ 60,770 ), related to bringing the notes to their present value. Amount ($) Balance, December 31, 2022 2,604,713 Foreign currency adjustment ( 35,380 ) Repayments ( 2,519,835 ) Cancellation of remaining debt ( 49,498 ) Balance, December 31, 2023 - 8. RELATED PARTY TRANSACTIONS On October 7, 2024, the Company entered into a Business Funding Agreement (the “Funding Agreement”) with ASPIS Cyber Technologies, Inc. (“ASPIS”), pursuant to which ASPIS agreed to make a $ 2,500,000 investment in the Company. ASPIS, an affiliate of the Company’s largest shareholder—Cronus Equity Capital Group, LLC (“CECG”)—is a cloud-based mobile endpoint cyber security technology company for anti-tapping and anti-hacking within the government, finance, gaming and social media sectors. CEGC holds approximately 20.20 % of the outstanding common shares of the Company based on the amount of Company common shares issued and outstanding as of December 31, 2024. See Note 9. 9. CONVERTIBLE DEBT In October 2024, we issued $ 2.5 million of a 10.0 % Convertible Senior Promissory Notes due in October 2025 (the “Senior Note”) in a private placement transaction. The Senior Note is convertible into shares of common stock and common stock warrants, or a combination of shares of common stock and common stock warrants and bear interest at 10 %. The holder of the note may convert to cash upon maturity in October 2025 or upon an event of default, unpaid principal and accrued and unpaid interest become immediately due and payable. The holder of the Note may elect to convert the Note into shares of common stock of the Company prior to maturity at $ 1.16 a share. The outstanding balance due under the Note and any accrued and unpaid interest shall automatically convert into shares of Company’s common stock at the $ 1.16 a share. The Company incurred $ 106,768 of debt issuance cost attributed to the Senior Note. On December 24, 2024, the Senior Note Holder converted the outstanding Senior Note into 2,155,172 shares of common stock and 1,077,586 common stock warrants at an exercise price of $ 4.00 per share. The warrants were deemed to be equity classified, therefore the book value of the Senior Note was converted to equity and recorded within additional paid in capital on the consolidated balance sheet. Interest expense recognized related to the Senior Note was $ 17,795 for the year ended December 31, 2024. F- 19 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 10. SHARE CAPITAL a) Authorized share capital The Company is authorized to issue an unlimited number of Class A Shares. The Class A Shares do not have any special rights or restrictions attached. As of December 31, 2024 and 2023, there were 0 and 0 Class A Shares issued and outstanding, respectively. The Class A shares were converted to common shares on December 22, 2023. b) Issued share capital During the year ended December 31, 2024, the Company: i) Issued 2,155,172 shares at a price of $ 1.16 per share for total proceeds of $ 2,500,000 as a result of the conversion of the Senior Note, net of issuance cost of $ 106,768 . ii) Issued 240,490 common shares pursuant to exercise of 240,490 warrants at a price of $ 3.68 per share for total proceeds of $ 885,003 . During the year ended December 31, 2023, the Company: i) Issued 156,238 shares at a price of $ 14.40 per share for total proceeds of $ 2,250,000 in a registered direct offering. In connection with the offering, the Company incurred $ 226,545 in issuance costs as part of the transaction. ii) Issued 283,875 common shares pursuant to exercise of 283,875 warrants at a price of $ 17.37 per share for total proceeds of $ 4,561,200 . iii) Issued 815,217 shares at a price of $ 3.68 per share for total proceeds of $ 3,000,000 in a registered direct offering. In connection with the offering, the Company incurred $ 453,345 in issuance costs as part of the transaction. ix) Issued 989,903 shares at a price of $ 2.59 per share for total proceeds of $ 2,562,660 in a private placement. xi) Issued 21 shares upon the conversion of Class A shares. c) Stock options The Company may grant incentive stock options to its officers, directors, employees, and consultants. The Company has implemented a rolling Stock Option Plan (the “Plan”) whereby the Company can issue up to 10 % of the issued and outstanding common shares of the Company. Options have a maximum term of ten years and vesting is determined by the Board of Directors. F- 20 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 10. SHARE CAPITAL ( continued ) A continuity schedule of outstanding stock options is as follows: Number Outstanding Weighted Average Exercise Price ($) Outstanding – December 31, 2022 14,238 594.08 Granted 25,000 14.40 Exercised - - Forfeited ( 10,247 ) 392.60 Outstanding – December 31, 2023 28,990 165.38 Forfeited ( 26,435 ) 135.62 Outstanding – December 31, 2024 2,555 64.99 During the year ended December 31, 2023, no stock options were granted by the Company, and the Company recorded share-based compensation of $ 160,865 relating to options vested during the period. As of December 31, 2024, there was approximately none of unrecognized compensation cost related to outstanding unvested stock options. During the year ended December 31, 2023, 25,000 stock options were granted by the Company, and the Company recorded share-based compensation of ($ 1,452,380 ) relating to options vested during the period. The Company used the following assumptions in calculating the fair value of stock options for the period ended: December 31, 2024 December 31, 2023 Risk-free interest rate - 3.93 % Expected life of options - 3.69 years Expected dividend yield - Nil Volatility - 132.65 % F- 21 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 10. SHARE CAPITAL ( continued ) d) Warrants outstanding During the year ended December 31, 2024, the Company: i) Issued 1,077,586 warrants in conjunction with the conversion of the Senior Note issuance, with an exercise price of $ 4.00 per share. During the year ended December 31, 2023, the Company: iv) Issued 10,938 placement agent warrants in conjunction with a registered direct offering on February 2, 2023, with an exercise price of $ 14.40 per share. v) Issued 815,217 warrants in conjunction with a public offering on October 17, 2023, with an exercise price of $ 3.68 per share. vi) Issued 24,457 placement agent warrants in conjunction with a public offering on October 17, 2023, with an exercise price of $ 4.05 per share. The Company used the following assumptions in calculating the fair value of the warrants for the period ended: December 31, 2024 December 31, 2023 Risk-free interest rate 4.43 % 4.13 % - 4.49 % Expected life of warrants 5 years 2.06 – 4.80 years Expected dividend yield Nil Nil Volatility 132.78 % 132.78 % Weighted average fair value per warrant $ 1.71 $ 4.69 At December 31, 2024, the Company had share purchase warrants outstanding as follows: Expiration Date Warrants Outstanding Exercise Price Weighted Average Remaining Life ($) (years) January 20, 2026 (1) 7,030 1,800.00 1.06 February 28, 2027 20,689 460.80 2.16 December 6, 2027 13,781 20.00 2.93 December 9, 2027 9,876 17.60 2.94 January 18, 2028 25,906 124.80 3.05 February 2, 2028 10,938 14.40 3.10 October 17, 2028 543,468 3.68 3.80 October 17, 2028 24,457 4.05 3.80 December 24, 2029 1,077,586 4.00 4.92 1,733,741 32.36 4.45 (1) Unit A warrant balance is 7,030 as of December 31, 2024 and 2023. F- 22 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 11. INCOME TAXES a) Provision for Income Taxes The components of loss before income taxes are as follows: Year Ended December 31, 2024 2023 Domestic $ ( 3,019,430 ) $ ( 8,925,899 ) Foreign ( 1,531,180 ) ( 1,586,258 ) Total $ ( 4,550,610 ) $ ( 10,512,157 ) For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s provision (benefit) for income taxes at the effective tax rate, a notional 27 % tax rate was applied as follows: 2024 2023 ($) ($) Loss before income taxes for the year ( 4,550,610 ) ( 10,512,157 ) Income tax at federal statutory rate ( 1,248,000 ) ( 2,838,000 ) Increase (decrease) in tax resulting from: Change in statutory, foreign tax, foreign exchange rates and other 185,000 536,000 Permanent differences 36,000 ( 218,000 ) Foreign exchange 732,000 - California minimum tax 800 - Late filing penalty 24,426 - Change in unrecognized deductible temporary differences 125,000 2,686,000 Other 169,000 ( 166,000 ) Income tax expense 24,226 - The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2024, and 2023 is primarily attributable to the difference between the U.S. and foreign tax rates, true up of deferred taxes, other non-deductible permanent items, and change in valuation allowance. Note that the statutory rate will be the US rate as the parent (filer) is domiciled in United States as of December 31, 2024. The net deferred tax assets (liabilities) are comprised of the following: 2024 2023 (1) ($) ($) Deferred tax assets: Non-capital losses carry-forward 18,198,000 15,769,000 Share issuance costs 733,000 733,000 Other deferred 51,000 1,000 Allowable capital losses 3,350,000 3,635,000 Property and equipment 55,000 77,000 Valuation allowance ( 22,387,000 ) ( 20,215,000 ) Total deferred income taxes - - (1) Certain adjustments have been made to the numbers reported in the Form 10-K for the year ended December 31, 2023, to reflect the revision of immaterial presentation errors in the prior period primarily due to the incorrect recognition of a deferred tax asset and offsetting valuation allowance for the Company’s exploration and evaluation assets and intangible assets. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2024. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation, at December 31, 2024 and 2023, a valuation allowance of $ 22.4 million and $ 22.3 million, respectively, has been recorded. F- 23 VERSUS SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 11. INCOME TAXES ( continued ) As of December 31, 2024, the Company has accumulated federal and Canadian net operating loss (“NOL”) carryforwards of $ 80.3 million and $ 12.4 million, respectively. Pursuant to the Internal Revenue Code of 1986, as amended (“IRC”), specifically Sections 382 and 383, the Company’s ability to use tax attribute carryforwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382 therefore the ability to offset taxable income in the future may be impacted by ownership changes occurring prior to December 31, 2024. If ownership changes within the meaning of IRC Section 382 occur in the future, the amount of remaining tax attribute carryforwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax assets associated with such tax attributes could be significantly reduced or eliminated upon realization of an ownership change within the meaning of IRC Section 382. If eliminated, the related asset would be removed from the deferred tax asset schedule, with a corresponding reduction in the valuation allowance. Additionally, limitations on the utilization of the Company’s tax attribute carryforwards can increase the amount of taxable income and current income tax expense recognized. Due to the existence of the valuation allowance, ownership change limitations that are not significant may not impact the Company’s effective tax rate. The significant components of the Company’s temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated balance sheets are as follows: Temporary Differences 2024 Expiry Date Range 2023 Expiry Date Range ($) ($) Non-capital losses available for future periods - US 48,716,000 2036 to indefinite 45,697,000 2036 to indefinite Non-capital losses available for future periods - Canada 24,393,000 2026 to 2044 22,862,000 2026 to 2043 Allowable capital losses 13,643,000 No expiry date 13,463,000 No expiry date Property and equipment 280,000 No expiry date 280,000 No expiry date Intangible assets 9,747,000 No expiry date 9,747,000 No expiry date Exploration and evaluation assets 5,446,000 No expiry date 5,446,000 No expiry date Share issuance costs 2,715,000 No expiry date 2,715,000 No expiry date The Company is subject to taxation in the United States and various states along with other foreign countries. The Company has not been notified that it is under audit by the IRS or any state, however, due to the presence of NOL carryforwards, all the income tax years remain open for examination in each of these jurisdictions. There are no audits in any foreign jurisdictions. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease in the next 12 months. Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries because of the Company’s intent to reinvest such earnings indefinitely in active foreign operations. Tax attributes are subject to review, and potential adjustment, by tax authorities. The Company files income tax returns with Canada, U.S. and state governments. With few exceptions, the Company is no longer subject to tax examinations by tax authorities for years before 2022. 12. SEGMENT REPORTING Our chief operating decision maker (“CODM”), the Chief Executive Officer, manages the Company’s business activities as a single operating and reportable segment at the consolidated level. Accordingly, our CODM uses consolidated net loss to measure segment profit or loss, allocate resources and assess performance. Further, the CODM reviews and utilizes functional expenses (cost of revenues, research and development, and general and administrative) at the consolidated level to manage the Company’s operations. Other segment items included in consolidated net loss are interest income, other expense, net and the provision for income taxes, which are reflected in the consolidated statements of operations and comprehensive loss. The measure of segment assets is reported on the consolidated balance sheet as total assets. 13. SUBSEQUENT EVENTS The Company has evaluated subsequent events after the balance sheet date of December 31, 2024 through March 31, 2025, the date the consolidated financial statements were issued. Based upon its evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying consolidated financial statements or disclosure in the notes thereto, except the below: In January 2025 the Company was notified by ASPIS that the acceptance of the Company’s technology per the License Agreement would be delayed as ASPIS would not be ready to perform any implementation services for the license. F- 24