Filing summary
Issuer and period: The supplied filing is Verb Technology Company, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2019, filed November 14, 2019. This does not match the request metadata identifying TON Strategy Co.
Business context
Verb provides subscription-based cloud software, including its interactive-video CRM platform, and—following its April 2019 acquisition of Sound Concepts, now Verb Direct—welcome kits, fulfillment and shipping services. Management reported approximately 100 direct-sales clients and 825,000 users across more than 60 countries.
Financial performance and position
| Metric | Q3 2019 | Nine months 2019 | Comparison |
|---|---|---|---|
| Revenue | $2.873 million | $6.615 million | $10,000 and $26,000, respectively, in 2018; growth principally reflects the Verb Direct acquisition |
| Gross profit / margin | $1.382 million / approximately 48% | $3.052 million / approximately 46% | 2018 gross profit was $(3,000) for Q3 and $5,000 for nine months |
| Operating loss | $(3.642) million | $(9.889) million | 2018: $(676,000) and $(5.684) million |
| Net loss | $(3.115) million | $(8.466) million | 2018: $(1.469) million and $(8.193) million |
| Operating cash used | Not provided for the quarter | $(6.506) million | $(2.801) million in the 2018 nine-month period |
At September 30, cash was $1.885 million and current assets were $3.532 million, against current liabilities of $7.055 million, a working-capital deficit of approximately $3.523 million. Total liabilities were $11.416 million, including $1.177 million of related-party notes, a $3.591 million derivative liability and $3.607 million of operating lease liabilities. Convertible notes were reported as fully repaid. Stockholders’ equity was $17.599 million.
Nine-month financing cash flow was $22.334 million, primarily from common- and preferred-stock offerings; investing cash use was $14.577 million, principally for the acquisition. Common shares outstanding rose to 23.410 million from 12.055 million at year-end 2018. The reported basic and diluted loss per share was $(0.13) for Q3 and $(0.44) for nine months.
Changes, outlook and risks
- April’s acquisition was funded with $15 million cash and 3,327,791 shares; the provisional purchase-price allocation included $12.347 million goodwill and $10.330 million intangible assets. The valuation remained subject to adjustment.
- Operating expenses increased substantially, including research and development, amortization and general and administrative costs. Management cited acquisition-related costs, product development, integration, Nasdaq listing expenses, professional services and increased staffing.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. It reported a nine-month loss and operating cash outflow, expects near-term operating expenses may exceed revenue, and said continued operations depend on obtaining financing. It gave no assurance financing will be available or that the company will become profitable.
- Management said 14 enterprise clients signed during Q3, compared with four in Q2, and anticipated revenue from those clients beginning in Q4 2019. No numerical revenue or earnings guidance was provided.
- Q3 other income included a $2.802 million gain from changes in derivative fair value, partly offset by $1.486 million financing costs and a $691,000 debt-extinguishment loss. These items make reported net loss sensitive to valuation and financing events.
- The Series A preferred financing generated $5.030 million gross proceeds and included warrants for up to 3,245,162 shares; conversion and exercise prices have adjustment provisions. The filing also reports 11.133 million warrants and 2.915 million options outstanding at quarter-end.
- Disclosure controls and procedures were concluded to be ineffective as of September 30, 2019. The filing describes pending litigation, including a securities class action and a derivative action related to the company’s 2018 Oracle announcement; management disputes the claims.
Key facts for investors to verify
- Confirm the issuer: the filing is Verb Technology Company, Inc. (Nasdaq: VERB/VERBW), not TON Strategy Co.
- Review the going-concern disclosure, cash needs, and subsequent financing and liquidity developments.
- Assess the acquisition’s final purchase-price allocation, integration, and contribution to recurring SaaS revenue and margins.
- Review potential dilution and restrictions associated with preferred shares, warrants, options, and their price-adjustment provisions.
- Monitor remediation of ineffective disclosure controls, the status and potential exposure of litigation, and the provisional goodwill and intangible-asset valuations.