VERSES AI ($VERS.N) from the archives

2024 Annuals - originally published July 11, 2024 (0.5 / 5 stars)

Jan 07, 2025

Wasn't sure I was going to review this one, but I certainly wouldn't want to disappoint the bulls and let them think I've forgotten about them.

Last review for Verses was back in February for their Q3 and I gave them yet another poor .5 star rating. The stock is down 34% from then, and is now off of it's $3.72 ATH by 73%. It's been about a week since they dropped their annuals and the share price has pretty much treaded water since. Will their changed valuation change my mind? Will we see any improvements from last quarter? Let's dive in.

Balance Sheet:

We begin with a dreadful looking current ratio of .38, and when you are looking for anything above 1 being acceptable, this is a bad looking start. They ended March with just $892k in cash, $100k in receivables, unbilled revenue of $1.25M, $800k in prepaids and nearly $1M of current amounts due from related parties (yellow flag). These current assets of under $5M are up against $11.75M worth of liabilities due within the next twelve months. More than half of these liabilities, $6.3M is a provision for a legal claim which Verses lost their arbitration decision on post financials. That amount does not include another $3.6M that the CEO, President and one of their subsidiaries owe as part of this judgement as well. Clearly not a good look. It's also never a good look for a company with a historical cash burn rate like Verses to be giving out unsecured, interest free loans to insiders but we have $1.87M of those here, which is $1M higher than it was a year ago. The company raised nearly $45M in the previous two years, so I find it truly distasteful to utilize some of those funds to provide interest free loans to top management. Will they issue more loans to settle the personal legal claims against them too? How would this make you feel if you bought Verses over three bucks?

Of course this heap of dogshit disguised as a balance sheet was from three months ago and lots of events have occurred since. They raised $10M through a special warrant raise in May, and then in June, raised another $10M through G42 in a complex convertible debenture raise. They also received $1.6M (CAD) via options and warrants post financials and all of these transactions certainly improves their cash position. To determine how long this may be the case, let's review their cash flow statement.

Cash Flow:

Through their 2024 fiscal year, Verses burned $29.4M via operations which was 76% more cash than they burned in 2023, a staggering $2.45M per month. Their Q4 was just as bad as the first nine months as well so there is certainly no sign yet of this burn rate slowing down. Their investing activities involved $185k worth of equipment purchases and $1.07M in loans to insiders. Yes you read that correctly, this AI tech company issued 6x more in insider loans than it did buying equipment. During their fiscal year they raised $29.2M through various financing activities and paid out $1.7M in PP related costs. Overall their cash position depleted by 80% from where they began the year.

If you figure they had somewhere in the neighbourhood of $22M after all of that post financials activity, that would give them a cash runway of approximately nine months but that wouldn't include current payables which may include the legal judgements against them. Assuming that is paid out then you're likely looking at a cash runway of six to seven months. Since these financials were from the end of March, one could expect them to be at the financing trough again by the end of summer. Their Q1 financials due shortly should provide more clarity. It should also be noted that the current $2M promissory note was settled via special warrants which may actually mean they only received $8M back in that May raise if I'm reading things correctly.

Share Capital:

With the conversion of class B shares post financials, current float sits at approximately 149M shares, 55% dilution in the past year and 114% over two
23.7M warrants at the time of these financials, with only about 3.4M currently ITM
6.9M warrants to G42 and 10M special warrants from the May financing.
14.6M options, about 4.6M ITM along with 650k RSU's
Approx 42% insider ownership with insiders appearing allergic to participating in the open market

Income Statement:

Revenues increased by 22% to $1.96M but sadly those revenues only came with a 13.5% gross profit compared to 29.2% GP last year so overall they brought 43% less dollars to the gross profit line than they did in 2023. Expenses more than doubled in 2024 to over $40.4M. Tack on the legal claim and interest expenses and it resulted in an overall net loss of $46.6M, 139% greater than the loss they experienced last year.

Their gross profit rate and level of expenses results in a break even point of over $343M. They did under $2M so safe to say they have a ways to go.

Overall:

I don't think anyone who is bullish on Verses would try to argue that these are absolutely brutal financials. Bulls are locked in on hopium and it's tough to debate anyone breathing in the noxious fumes of their own bullshit. Their beta preview seemed to go over like a lead balloon but luckily they had they G42 investment to keep their stream of bullishitness moving which was announced on the same day. Do they have the goods to compete with the US behemoths in this space? It's hard to imagine they can keep up but time will tell. Is G42 the LIV golf of AI? One thing is for certain, Verses is an organization with an incredibly high burn rate which has blown through $100M in raised capital over three or so years with less than $6M in assets to show for it. One that spent $7M in IR and marketing, awarded themselves over $10.5M in SBC over two years, has a 20% SBC plan, provides themselves with interest free loans and loses legal claims with former contractors is not someone I'm about to hitch my wagon to. You do you, but another .5 stars and the only reason it isn't a zero yet is their continued ability to raise capital.

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My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.