10-Q: VERSES AI: Losses Widen, Cash Dips; Genius Platform Launched

VERSES AI Inc. reported widening net losses and a significant decrease in cash, despite the commercial launch of its flagship Genius AI platform and ongoing capital raising efforts.

Summary

• Net loss for the three months ended September 30, 2025, increased to $9,867,058 from $8,568,722 in the prior year.
• Net loss for the six months ended September 30, 2025, increased to $19,505,901 from $19,129,427 in the prior year.
• Revenue for the six months ended September 30, 2025, increased by 159% to $400,700, driven by Genius Platform customers, compared to $155,000 in the prior year.
• Cash and restricted cash decreased to $1,209,908 as of September 30, 2025, from $4,816,906 as of March 31, 2025.
• Working capital deficit increased to $9,205,281 as of September 30, 2025, from $8,923,210 as of March 31, 2025.
• The company raised $13.17 million in net proceeds from the issuance of Units and $1.57 million from equity instruments during the six months ended September 30, 2025.
• A new financing agreement with Sorbie Bornholm LP for CAD$14,000,000 was closed on November 10, 2025, with an initial tranche of CAD$700,000 received.
• A provision for a legal claim related to the David Thomson arbitration award stands at $9,402,338 as of September 30, 2025.
• Material weaknesses in internal control over financial reporting were identified, including insufficient written policies for GAAP/SEC compliance, potential lack of segregation of duties, and limited procedures for related-party transactions.

Sentiment

Score: 3

Explanation: The company faces substantial financial headwinds, evidenced by widening losses, rapidly declining cash reserves, and an explicit 'going concern' warning. Significant legal liabilities and material weaknesses in internal controls further compound these issues. While the commercial launch of the Genius platform and successful capital raises provide some positive momentum, they are currently insufficient to offset the severe financial distress.

Positives

• Revenue for the six months ended September 30, 2025, increased by 159% to $400,700, primarily from Genius Platform customers.
• Net revenue as a percentage of revenue improved significantly to 36% for the six months ended September 30, 2025, compared to 6% in the prior year, reflecting improved economics of the Genius Platform.
• Commercial launch of the flagship Genius software platform on April 30, 2025, designed for agentic intelligence in enterprises.
• Successful capital raises, including $13.17 million net from Units and $1.57 million from equity instruments in the six months ended September 30, 2025.
• Secured a new financing agreement for CAD$14,000,000 with Sorbie Bornholm LP post-period end, with an initial tranche of CAD$700,000 received.
• Grant income increased by 46% to $81,909 for the six months ended September 30, 2025.
• Other income increased by 903% to $501,261 for the six months ended September 30, 2025, primarily due to $416,208 in R&D tax credits.

Negatives

• Net loss increased by 15% to $9,867,058 for the three months ended September 30, 2025, and by 2% to $19,505,901 for the six months ended September 30, 2025.
• Cash and restricted cash significantly decreased by 75% to $1,209,908 as of September 30, 2025, from $4,816,906 as of March 31, 2025.
• Working capital deficit worsened to $9,205,281 as of September 30, 2025, from $8,923,210 as of March 31, 2025.
• Operating cash flow remains negative, with $18,323,019 used in operating activities for the six months ended September 30, 2025.
• A substantial provision for legal claim of $9,402,338 exists as of September 30, 2025, related to the David Thomson arbitration award.
• New legal claim filed by Philip Plough against XYZ Global Technologies Inc., also naming VAI, VTU, and two directors/officers, seeking $1,856,000 in compensatory damages.
• Material weaknesses in internal control over financial reporting were identified, indicating deficiencies in accounting policies, segregation of duties, and related-party transaction reporting.
• The company's ability to continue as a going concern is in substantial doubt, dependent on additional financing and revenue generation.
• Revenue for the three months ended September 30, 2025, decreased by 35% to $100,700 compared to $155,000 in the prior year.
• Legal fees increased significantly by 71% to $1.48 million for the six months ended September 30, 2025, due to U.S. SEC reporting requirements and ongoing legal matters.
• Office and general expenses increased by 17% to $1.10 million for the six months ended September 30, 2025, primarily due to higher Directors and Officers (D&O) insurance premiums.
• Share-based payments increased by 7% to $2.09 million for the six months ended September 30, 2025, due to higher equity grants.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to recurring losses and dependence on additional financing.
• Inability to raise additional financing on acceptable terms or at all, which would adversely affect business objectives.
• Dilution to shareholders from future equity sales.
• Debt service obligations and restrictive covenants from debt financing.
• Dependence on key management personnel, advisors, and consultants.
• Risks associated with proprietary AI algorithms and the development/roll-out of Genius.
• Security breaches, software errors or defects.
• Insufficient insurance coverage.
• Failure to maintain, promote, and enhance its brand.
• Dependence on customer Internet access and use of the Internet for commerce.
• Risks associated with privacy and security of sensitive information.
• Changes in technology affecting the company's business and products.
• Competitive environment of the industry.
• Uncertainty of market opportunity estimates and growth forecasts.
• Reputational damage.
• Inability to protect intellectual property.
• Volatility of the global economy.
• Government regulation affecting the company.
• Being subject to civil or other legal proceedings, including the David Thomson arbitration award and the new Philip Plough claim.
• Risks related to reporting requirements arising from SEC reporting issuer status.
• Risks associated with future acquisitions.
• Risks related to the maintenance of effective internal controls, including identified material weaknesses.
• Potential that no active or liquid market for the Class A Subordinate Voting Shares may develop or be sustained.
• Speculative nature of an investment in the Class A Subordinate Voting Shares.
• Risk that the market price of the Class A Subordinate Voting Shares may not represent the company's performance or intrinsic value.
• Influence of reports published by securities or industry analysts on the trading market.
• Price volatility of publicly traded securities.
• Risks associated with future dilution of the company's securities.
• Risks associated with the payment of dividends (company does not expect to pay dividends).

Future Outlook

The company plans to expand its 'Lighthouse go to market strategy' from initial sectors like financial services, robotics, and smart cities into others such as logistics and infrastructure management in the coming quarters. It anticipates that research and development will continue to be its largest expense and expects negative operating cash flow for the foreseeable future as it invests in product development, commercialization, marketing, and sales. The company aims for revenue from product sales to eventually offset increased costs and generate positive operating cash flow, but cannot accurately project when this will occur. The Horizon Europe grant project is expected to end in August 2026.

Management Comments

• Our business is based on the vision of the Spatial Web an open, hyper-connected, context-aware, governance-based network of humans, machines and intelligent agents.
• We also intend to build tools that enable the Spatial Web and to become a leader in the transition from the information age to the intelligence age.
• We are implementing a Lighthouse go to market strategy that will focus on working with a small number of high-value, high-impact clients in sectors where success will have broad applicability, such as financial services, robotics, and smart cities.
• Each client will allow us to continue to develop and validate our Genius model that can then be applied to other clients in the same sector.
• During the coming quarters, we plan to expand from these initial sectors into others, such as logistics and infrastructure management.
• Management plans to fund operations of the Company with its current working capital and through additional equity and/or debt financings.
• The material uncertainty associated with these events and conditions may cast substantial doubt about the Companys ability to continue as a going concern.

Industry Context

VERSES AI operates in the rapidly evolving cognitive computing and artificial intelligence sector, aiming to transition from the 'information age to the intelligence age' with its Spatial Web vision and Genius platform. The focus on agentic intelligence for enterprises, particularly in high-value sectors like financial services, robotics, and smart cities, aligns with broader industry trends of AI adoption for decision-making and automation. The 'Lighthouse go to market strategy' suggests a focus on proving value in specific niches before broader expansion, a common approach for innovative B2B AI solutions. The company's significant R&D investment reflects the competitive and capital-intensive nature of developing cutting-edge AI technologies.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• **David Thomson Lawsuit**: A former independent contractor filed a lawsuit on July 13, 2022, alleging breach of contract, trade secret misappropriation, etc. An arbitration award on May 17, 2024, imposed liability of $6,307,258 (inclusive of interest) against VTU and Cyberlab LLC, and $1,900,000 (plus interest, costs, and fees) against Cyberlab, VTU, Gabriel Rene, and Daniel Mapes. The petition to confirm the award was confirmed on May 8, 2025, for approximately $9,900,000. A provision for legal claim of $9,402,338 is recorded as of September 30, 2025. Mr. Thomson filed a motion on August 11, 2025, seeking $495,543 for attorneys' fees and costs incurred after May 17, 2024, with a hearing set for April 21, 2026.
• **Former Employee Complaint**: Filed on June 21, 2024, against Verses Inc. (VINC) and an employee, alleging gender harassment, discrimination, retaliation, and wrongful termination, seeking up to $3,500,000 in general and special compensatory damages. VINC's motion to compel arbitration was denied on April 1, 2025, due to the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA). A trial date of July 10, 2026, has been assigned, and parties are instructed to engage in informal mediation.
• **Philip Plough Claim (Subsequent Event)**: On October 20, 2025, the company learned of a claim against XYZ Global Technologies Inc., also naming VAI, VTU, and two directors/officers, alleging breach of a promissory note related to a $35,000 loan from 2018. The plaintiff seeks $1,856,000 in compensatory damages, plus punitive damages and attorneys' fees. The company disputes liability and intends to vigorously contest the claims.

Related Party Transactions

• Amounts totaling $20,000 due to Michael Blum (Chairman) as of September 30, 2025.
• Unsecured loan of $69,657 (March 31, 2025 $68,080) to Michael Wadden (Chief Commercial Officer), with 5% annual interest, due May 1, 2033. No repayments were made during the six months ended September 30, 2025.
• Royalties payable to Cyberlab, LLC (a company controlled by Dan Mapes, a director and officer) based on gross revenue derived from Spatial Domain Names (5% for years 1-10, decreasing thereafter). No amounts were payable as of September 30, 2025.
• Provision for loss on related party transactions of $396,524 for the six months ended September 30, 2024, related to amounts due from Cyberlab LLC and Spatial Web Foundation (entities controlled or associated with founders Dan Mapes and Gabriel Rene). Management concluded full repayment is not probable within a reasonable timeframe.

Stakeholder Impact

• **Shareholders**: Potential for significant dilution from ongoing equity financings. Share price volatility and speculative nature of investment are noted risks. Increased net losses and going concern doubt negatively impact shareholder value.
• **Employees/Contractors**: A workforce reduction program initiated on October 31, 2025, involving targeted reductions, furloughs, and executive salary deferrals, will impact job security and compensation.
• **Customers**: The commercial launch of the Genius platform aims to improve decision-making for third-party agents, potentially benefiting enterprise clients in sectors like financial services, robotics, and smart cities.
• **Creditors**: Liquidity risk and going concern doubt raise concerns about the company's ability to meet financial obligations.
• **Management/Directors**: Subject to legal proceedings and increased Directors and Officers (D&O) insurance costs. Severance agreements provide protection in case of involuntary termination or change in control.

Next Steps

• Expand 'Lighthouse go to market strategy' from initial sectors (financial services, robotics, smart cities) into others (logistics, infrastructure management) in the coming quarters.
• Continue to develop and validate the Genius model for broader application.
• Respond to David Thomson's motion for attorneys' fees by April 21, 2026.
• Vigorously contest Philip Plough's claims, including seeking to dismiss VAI, VTU, and individual directors/officers.
• Engage in informal mediation for the former employee complaint, with a post-mediation status conference scheduled for September 15, 2025.
• Prepare for the trial date of July 10, 2026, for the former employee complaint.
• Remediate identified material weaknesses in internal control over financial reporting by reviewing and updating internal policies and human resources allocations.
• Continue to seek additional equity and/or debt financings to fund operations and meet financial requirements.
• Receive eleven additional monthly tranches from the Sorbie Bornholm LP financing agreement, subject to terms.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by widening net losses, a rapidly declining cash balance, and an increasing working capital deficit. The explicit 'substantial doubt about the ability to continue as a going concern' is a critical red flag. While the commercial launch of the Genius platform and recent capital raises offer some strategic progress and temporary liquidity, they are insufficient to overcome the fundamental financial challenges and significant legal liabilities. The identified material weaknesses in internal controls further underscore operational risks. Given the high burn rate, ongoing legal battles, and the precarious financial position, the risk-reward profile is highly unfavorable for investors.

Keywords

AI, Artificial Intelligence, Spatial Web, Genius Platform, Cognitive Computing, Software-as-a-Service, SaaS, SEC Filing, 10-Q, Financial Results, Net Loss, Cash Flow, Capital Raise, Going Concern, Legal Proceedings, Internal Controls, Technology Development, Enterprise AI, Robotics, Smart Cities, Financial Services, Logistics, Infrastructure Management