Filing summary: Verb Technology Company, Inc. — Q2 2022 Form 10-Q
Entity check: The filing identifies the registrant as Verb Technology Company, Inc. (Nasdaq: VERB, VERBW), not TON Strategy Co. Confirm that this is the intended filing before relying on this summary. Financial figures below are in thousands of dollars unless stated otherwise.
Business context and reporting period
This unaudited quarterly report covers the three and six months ended June 30, 2022, with comparisons to the corresponding 2021 periods. Verb develops subscription-based interactive video sales-enablement software, including CRM, learning, livestream commerce and related applications. It also operates the developing MARKET livestream social-shopping platform and provides limited non-digital services.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2,399 | $2,392 | $5,090 | $4,918 |
| Gross profit | $1,564 | $1,273 | $3,282 | $2,584 |
| Operating loss | $(6,775) | $(8,882) | $(14,082) | $(18,212) |
| Net loss | $(6,374) | $(11,812) | $(13,363) | $(20,157) |
| Loss per share, basic and diluted | $(0.07) | $(0.19) | $(0.15) | $(0.35) |
- Gross margin, calculated as gross profit divided by revenue, was approximately 65% in Q2 2022 versus 53% in Q2 2021; for the six-month periods it was approximately 64% versus 53%.
- Q2 SaaS subscription revenue rose 23% to $1,975; six-month SaaS revenue rose 30% to $3,978. Non-digital revenue declined 59% in Q2 and 40% for the six-month period, reflecting the stated shift away from lower-margin printing and fulfillment.
- Operating expenses fell 18% in Q2 to $8,339 and 17% for the six-month period to $17,364. Six-month R&D expense declined 51% to $2,962; G&A declined 2% to $13,598.
- Six-month Modified EBITDA, a non-GAAP measure, was a loss of $10,534 versus a loss of $13,732. The company cautions that this measure is not a substitute for GAAP results or operating cash flow.
- Cash was $5,547 at June 30, 2022, up from $937 at year-end 2021. Current assets were $8,257 and current liabilities were $14,160. Cash alone therefore did not cover current liabilities.
- For the six months, operating cash outflow was $11,002, investing cash outflow was $4,211 (primarily capitalized MARKET development), and financing cash inflow was $19,823. Financing included $20,150 net proceeds from common-stock sales and $6,000 gross proceeds from notes, offset in part by debt and future-receipts repayments.
- At June 30, notes payable were $4,995 net of discounts and issuance costs, including $4,120 current and $875 non-current. The company also reported $554 net current advances on future receipts and $2,312 of operating lease liabilities. A $589 future-receipts balance was paid after quarter-end.
Material changes versus the prior comparable period
- Total revenue was nearly flat in Q2, increasing $7, but rose $172, or approximately 3%, for the six months. The mix shifted toward digital and recurring subscriptions.
- Gross profit increased $291 in Q2 and $698 for the six-month period, while operating losses narrowed by $2,107 and $4,130, respectively. Net losses also narrowed, although Q2 and six-month results include material non-cash derivative fair-value effects.
- The six-month derivative-liability remeasurement generated a $2,162 gain, compared with a $1,945 expense in 2021. This substantially affected reported net loss and is not a measure of operating cash generation.
- Common shares issued and outstanding rose from 72,942,948 at December 31, 2021 to 101,958,787 at June 30, 2022, principally reflecting equity financing. The company reported 102,425,699 shares outstanding as of August 10, 2022.
Outlook, risks, contingencies and unusual items
- Going concern: Management states that recurring losses and operating cash use raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. It expects operating expenses may continue to exceed revenue over the next 12 months and says additional financing may be needed; availability and terms are uncertain.
- Funding and dilution: A January 2022 agreement provides a potential equity purchase commitment of up to $50 million, subject to conditions and limitations. The April registered direct offering raised $11 million gross through stock and warrants; it restricted use of the equity purchase agreement and a prior at-the-market facility. Further equity funding could dilute existing holders.
- Debt: The 6% convertible notes mature in January 2023, are secured by substantially all company assets, and had $4,404 outstanding at June 30. The company had scheduled monthly principal payments and obtained a deferral of one payment, with increased payments beginning July 12, 2022. It also disclosed related-party notes bearing 12% interest.
- Product investment and transaction: Capitalized software-development costs, mainly associated with MARKET, were $6,461; the software was not yet in use and no related depreciation had been recorded. A contemplated acquisition of the MARKET development contractor had a stated term-sheet price of $12 million, subject to a definitive agreement and satisfactory audit; the filing says the agreement had not been executed and the audit was ongoing. The term sheet described a possible $1 million break-up fee under specified conditions.
- Legal matters: Disclosed disputes include a former employee claim of approximately $300, a law firm cross-claim for approximately $915 in fees, and Iroquois counterclaims alleging $1,500 in damages. The company disputes the claims and says it does not expect the matters to have a material adverse effect.
- Other risks and commentary: Management cites economic weakness, inflation, interest rates, recession concerns, COVID-19 effects, competition, customer adoption, security, reliance on third parties and the ability to raise capital. It expects R&D costs to continue declining as products move from development to operation. No specific revenue or earnings guidance is provided.
- Management reported disclosure controls were effective as of June 30, 2022 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the registrant identity: this is Verb Technology Company, Inc., not TON Strategy Co.
- Review the going-concern disclosure, near-term cash needs, subsequent repayment of future-receipts financing, and availability and restrictions on remaining financing sources.
- Check the convertible-note payment schedule, maturity and security terms, and whether payments were made as scheduled after June 30.
- Track share-count changes, warrant issuance and repricing, and potential dilution from additional equity or conversions.
- Assess MARKET launch progress, commercial adoption and revenue generation against the $6,461 of capitalized software costs and the proposed contractor acquisition.
- Monitor the disclosed litigation and any change in management’s assessment, and distinguish derivative fair-value gains from operating performance and cash flow.