Versus Systems Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion and analysis of our financial condition and results of operations should be read together with and is qualified in its entirety by reference to the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed under “Risk Factors,” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, and any updates thereto set forth in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including future SEC filings.

Overview

We offer a suite of proprietary business-to-business software tools that are meant to drive user engagement through gamification and rewards. These tools allow our partners to offer in-game prizing and rewards, including merchandise, coupons, digital goods, and sweepstakes entries — inside their websites, their venues, or their streaming media content.

Our customers are mostly sports teams, venues (Arenas, Football Stadiums, Baseball Stadiums), fan engagement and sponsor activation platforms, digital out-of-home media companies, and advertising agencies, which typically use our products as part of their live events or as part of an advertising campaign with the goal of engaging fans, increasing consented first-party data, and increasing sales. At June 30, 2026 and December 31, 2025, we had four active customers.

Our products and games are designed so that end users could earn prizes by registering on our system and completing in-content challenges like trivia, polls, or casual mobile games. Players could use our system to play a variety of games and earn a wide range of prize types, provided by advertisers and sponsors. Our products include our in-venue Filter Fan Cam (“FFC”) products for live events, our stand-alone “Winfinite” product line that can be used by brands, advertising agencies, and content partners to reach potential customers outside of sports venues, on mobile devices, as well as the “Winfinite” Games, which are customizable web-based casual games. We also have an IP portfolio that could create future licensing and product development opportunities including our recently allowed Artificial Intelligence (“AI”) and Machine Learning (“ML”) series of patent claims.

With the acquisition of Xcite Interactive in June 2021, we acquired a number of key pieces of technology and relationships that have helped to drive our engagement and rewards business, including a live events fan engagement business that has partnered with professional sports franchises in the National Football League (“NFL”), the National Basketball Association (“NBA”), the National Hockey League (“NHL”) and others to increase audience engagement using interactive gaming functions like trivia, polling, and casual games that can be played alongside live experiences whether a player is at-home, in a restaurant, or in-venue at the event itself. Our largest customers in 2024 were the Texas Rangers and San Jose Sharks. For the year ended December 31, 2025, the Company’s largest customer was ASPIS, a significant shareholder and we continue to do business with the Texas Rangers.

We offer a suite of products centered on “Winfinite” and FFC. Our FFC platform is an Augmented Reality filtering tool that can be used for mobile and in-venue applications. In addition, we have a stand-alone gaming and prizing product that we call “Winfinite,” which allows brands, media companies, and advertising agencies to reach out to customers directly on their mobile devices. We license these software products to teams, ad agencies, and other content creators.

Significant Components of Our Results of Operations

Operating Results

Comparison of Results of Operations for the Three-Month periods ended June 30, 2026 and June 30, 2025

The following table summarizes our results of operations for the three-month periods ended June 30, 2026 and 2025:

Revenue

Third party Revenue

Revenue was $6,821 for the three-month period ended June 30, 2026, representing an increase of $6,821, or 100%, from $0 for the three-month period ended June 30, 2025. The increase was the result of revenue earned from the Xcite business.

Related party Revenue

Related party revenue was $1,485,000 for the three-month period ended June 30, 2026, representing a decrease of $495,000, or 25%, from $1,980,000 for the three-month period ended June 30, 2025. The decrease was primarily due to a decrease in license revenue earned.

Cost of revenues

Cost of revenues was $0 for the three-month period ended June 30, 2026, representing a decrease of $8,222 or 100%, from $8,222 for the three month period ended June 30, 2025. The decrease was primarily due to the Company cancelling contracts associated with its cost of revenues for fiscal 2026.

Research and development

Research and development was $0 for the three month period ended June 30, 2026, representing a decrease of $6,219, or 100%, from $6,219 for the three month period ended June 30, 2025. The decrease was primarily due to a reduction in software costs.

Selling, general and administrative

Selling, general and administrative was $897,548 for the three-month period ended June 30, 2026, representing a decrease of $129,210, or 13%, from $1,026,758 for the three month period ended June 30, 2025. The decrease was primarily due to a decrease in administrative employees and stock compensation.

Income from Operations

Income from operations was $594,273 for the three month period ended June 30, 2026, representing a decrease of $344,528, or 37%, from $938,801 for the three month period ended June 30, 2025. The decrease was primarily the result of decrease in gross profit of $480,000 offset by a decrease in operating expenses of $135,000.

Comparison of Results of Operations for the six month period ended June 30, 2026 and June 30, 2025

The following table summarizes our results of operations for the six months ended June 30, 2026 and 2025:

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Revenue

Third party Revenue

Revenue was $24,121 for the six-month period ended June 30, 2026, representing an increase of $773, or 3%, from $23,348 for the six-month period ended June 30, 2025. The increase was the result of revenue earned from the Xcite business.

Related party Revenue

Related party revenue was $1,485,000 for the six-month period ended June 30, 2026, representing a decrease of $671,000, or 31%, from $2,156,000 for the six-month period ended June 30, 2025.The decrease was primarily due to one-time consulting services attributed to the ASPIS arrangement which accounted for approximately $176,000 during the three months ended June 30, 2025 in addition to a decline in license revenue earned of $495,000.

Cost of revenues

Cost of revenues was $0 for the six month period ended June 30, 2026, representing a decrease of $16,446, or 100%, from $16,446 for the six month period ended June 30, 2025. The decrease was due to the decrease in infrastructure needed for Xcite Interactive.

Research and development

Research and development was $0 for the six month period ended June 30, 2026, representing a decrease of $12,368, or 100%, from $12,368 for the six month period ended June 30, 2025. The decrease was primarily due to significant reductions in staff related to our company restructuring in the prior year.

Selling, general and administrative

Selling, general and administrative was $1,733,543 for the six month period ended June 30, 2026, representing a decrease of $650,951, or 27%, from $2,384,494 for the six month period ended June 30, 2025. The decrease was primarily due to a decrease in payroll as the Company reduced head count and a decrease in professional fees and stock compensation.

Loss from Operations

Loss from operations was $224,422 for the six-month period ended June 30, 2026, representing a decrease of $9,538, or 4%, from $233,960 for the six-month period ended June 30, 2025. The decrease was primarily the result of decreased expenses and headcount offset by the decrease in revenue.

Inflation

The effect of inflation on our revenue and operating results was not significant.

Liquidity and Capital Resources

Since inception, the Company has incurred operating losses as it continues to invest in developing and commercializing its technology platform. The Company incurred a net loss of $0.2 million for the six months ended June 30, 2026. For the years ended December 31, 2025 and 2024, we incurred net losses of approximately $2.1 million and $4.6 million, respectively. During these periods, operations were primarily financed through residual proceeds from the Company’s initial public offering of common shares in January 2021 and subsequent equity and debt transactions, including warrant exercises and private placements. In October 2024, warrant holders exercised approximately $0.9 million of warrants, and in November and December 2024 the Company raised $2.5 million through convertible notes and another $1.7 million in June 2026 as a result of a common stock issuance. Our cash and cash equivalents as of June 30, 2026 was $1.4 million. Our primary cash needs are for working capital requirements, headcount, capital expenditures and to fund our operations.

We are subject to the risks and uncertainties common to emerging growth businesses. Management believes that current resources and expected operating revenues may not be sufficient to fund planned activities for the next twelve months. The report of our independent registered public accounting firm on the Company’s consolidated financial statements for the year ended December 31, 2025 and 2024 included an explanatory paragraph noting that recurring operating losses, accumulated deficit, and negative operating cash flows raise substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance of those financial statements.

We are pursuing initiatives intended to improve cash flows from operations and continue to evaluate strategic and financing alternatives to strengthen liquidity. To execute the business plan and support growth initiatives, the Company may seek additional financing through equity or debt offerings, credit facilities, or other arrangements. There can be no assurance that such financing will be available on terms acceptable to the Company, or at all. Any future equity or equity-linked financing could dilute existing stockholders and may affect the market price of the Company’s common shares, while debt financing, if obtained, could impose covenants or interest obligations. If sufficient funding is not secured when required, the Company may need to further align its operating expenditures with available resources, which could impact certain development programs or staffing levels. Management believes that disciplined cost control, continued customer engagement, and expansion into new markets may provide a foundation for improved liquidity over time; however, material uncertainties remain until additional financing or sustained positive cash flows are achieved.

The Company and ASPIS entered into a Stock Purchase Agreement (the “SPA”). Pursuant to the SPA, the Company sold to ASPIS, and ASPIS purchased for cash, a number of shares of Company common stock, at a price, equal to $1,700,000 divided by 105% of the closing price of a share of Company common stock on the day preceding consummation. The purchase price per share was 105% of such closing price. Based on the Company’s historic and projected expenses and revenues, the Company expects the proceeds from the SPA to result in the Company maintaining at least $2,500,000 in stockholders’ equity through at least December 31, 2026. On June 26, 2026, the Company consummated the transaction contemplated by its Stock Purchase Agreement with ASPIS dated April 15, 2026. Specifically, the Company issued 1,310,969 shares of Company common stock for total consideration of $1,700,000.

In addition, as disclosed in Note 9, in the first quarter of 2026, the Audit Committee of the Company’s Board of Directors conducted an internal investigation and determined that fraudulent activity involving the Company’s former Chief Financial Officer had occurred. A promissory note was executed in connection therewith; however, there can be no assurance that such note will be collected in part or full or at all. As of August 14, 2026, no monies have been repaid on the promissory note.

Our financial condition and liquidity is and will continue to be influenced by a variety of factors, including:

• our ability to generate cash flows from our operations;
• future indebtedness and the interest we are obligated to pay on this indebtedness;
• the availability of public and private debt and equity financing;
• changes in exchange rates which will impact our generation of cash flows from operations when measured in CAD; and
• our capital expenditure requirements.

Cash Flows

The following summarizes the key components of our cash flows for the six month periods ended June 30, 2026 and 2025:

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Operating Activities

Net cash used in operating activities for the six month period ended June 30, 2026 was $331,203 as compared to cash used in operations of $1,508,972 for the six month period ended June 30, 2025. The decrease in cash used in operating activities was primarily attributable to lower cash absorbed in accounts receivable of $1,220,000 offset by an increase in accounts payable of $610,839.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2026 was $654,000 as compared to $0 for the six months ended June 30, 2025. The change in cash flow used in investing activities was primarily attributable to monies spent on capitalized software development for technology attributed to the Company’s new product offerings.

Financing Activities

Net cash provided by financing activities was $1,700,000 for the six months ended June 30, 2026 compared to $0 for the six months ended June 30, 2025, respectively. The increase was attributed to the sale of common stock to ASPIS.

Critical Accounting Policies and Estimates

The preparation of 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.

Our critical accounting estimates reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2025. We have reviewed recently issued accounting pronouncements and are evaluating the potential impact, if any, on our condensed consolidated financial statements. Accordingly, there have been no material changes to critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal 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 principal executive and principal financial officer, has concluded that, as of June 30, 2026, our disclosure controls and procedures were not 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 principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure, due to the material weaknesses in our internal controls over financial reporting described below.

Management believes that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Material Weakness in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented or detected on a timely basis.

The Company identified the following material weaknesses in its internal control over financial reporting:

• The Company did not design and implement effective segregation of duties within the cash disbursement process, which increased the risk of misappropriation of assets. Although third-party consultants assisted with financial reporting and supporting the audit and review processes, the former CFO had the ability to initiate, record, and process transactions without sufficient independent review. The limited number of accounting and finance personnel contributed to incompatible duties being concentrated without sufficient independent oversight; and
• Certain key entity-level and financial reporting controls, including processes to identify and assess financial reporting risks (including fraud and misappropriation of assets), manage user and privileged access to systems supporting financial reporting and cash disbursements, and perform review and approval of journal entries were not adequately designed or implemented to mitigate this risk. This was primarily driven by fraudulent actions of the former CFO, which circumvented established processes, and was exacerbated by limited resources.

Remediation Plan and Activities

Our management, under the oversight of the Audit Committee, has developed a plan to remediate the material weaknesses described above. The remediation plan includes improving segregation of duties through organizational changes, implementing controls requiring independent preparation and review of key financial reporting activities, and strengthening controls over cash disbursements.

We will continue to evaluate and improve our internal control over financial reporting to address this issue and ensure the effectiveness of our financial reporting processes. Although we have taken steps to implement our remediation plan, the material weakness will not be considered remediated until the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are effective. We will continue to monitor the effectiveness of our remediation plan and refine the remediation plan as appropriate.

Changes in Internal Control Over Financial Reporting

The Company has implemented certain changes in its internal controls, including addition of qualified accounting personnel and the formalization of enhanced review and approval procedures for journal entries and cash disbursements to remediate the material weakness described above. Except as noted above, no change to the Company’s internal control over financial reporting occurred during the three months ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Other than as set forth below, there have been no material changes to the risk factors set forth in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on April 15, 2026 (our “Annual Report”) and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026, filed with the SEC on May 15, 2026 (our “Q1 2026 Report”). Our business involves significant risks. You should carefully consider the risks and uncertainties described in our Annual Report and our Q1 2026 Report, together with all of the other information in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report. The risks and uncertainties described in our Annual Report and our Q1 2026 Report are not the only ones we face, and additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our common shares could decline and you could lose part or all of your investment.