Business context and reporting period
This is Verb Technology Company, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021—not a filing for TON Strategy Co. The filing describes Verb as a developer of subscription-based, interactive video sales-enablement software, with ancillary printing and fulfillment services. Its products include verbCRM, verbLEARN, verbLIVE, verbPULSE, verbTEAMS and verbMAIL. Management reported approximately 140 enterprise clients across more than 139 countries.
Financial performance and condition
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.900 million | $2.860 million | $7.818 million | $7.866 million |
| Gross profit | $1.814 million | $1.555 million | $4.398 million | $4.363 million |
| Gross margin | 62.6% | 54.4% | 56.2% | 55.5% |
| Operating loss | $(8.229) million | $(7.895) million | $(26.444) million | $(16.240) million |
| Net loss | $(8.805) million | $(7.320) million | $(28.962) million | $(12.690) million |
| Cash from operations | Not provided for quarter | Not provided for quarter | $(18.223) million | $(9.790) million |
Q3 SaaS recurring subscription revenue rose 25% year over year to $1.846 million; total digital revenue rose 28% to $2.356 million. Nine-month SaaS revenue grew 29% to $4.908 million. Total revenue was nearly flat for both comparative periods as digital growth was offset by lower non-digital revenue.
At September 30, 2021, cash was $3.658 million, current assets $6.056 million, and current liabilities $18.140 million, a working-capital deficit of approximately $12.084 million. Total liabilities were $21.479 million. The balance sheet included $1.853 million of advances on future receipts, net of discount, and a $5.839 million derivative liability. Operating lease liabilities totaled $3.046 million. Nine-month financing cash flow of $22.410 million included $18.851 million net stock-sale proceeds, $2.784 million from warrant exercises, and $7.368 million of advances on future receipts, partly offset by $7.162 million of repayments.
Material changes versus prior comparable periods
- Digital revenue increasingly dominated the business: it was 81% of Q3 revenue, versus 64% in Q3 2020, while non-digital revenue fell from $1.022 million to $0.544 million.
- Nine-month revenue declined slightly, but operating expenses rose $10.239 million to $30.842 million, mainly reflecting higher research and development and general and administrative costs. Consequently, nine-month operating loss widened by $10.204 million.
- Derivative fair-value movements and debt-related items materially affected comparisons. Nine-month other expense was $2.518 million in 2021, versus $3.550 million of other income in 2020; 2021 included a $2.086 million derivative remeasurement loss and $1.537 million debt-discount amortization, partly offset by $1.399 million of debt-extinguishment gains.
- Common shares outstanding increased to 70,169,666 from 47,795,009 at year-end 2020, reflecting offerings, exercises, conversions and other issuances.
Outlook, risks, contingencies and unusual items
- Going concern: Management stated 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. It expects to seek additional debt or equity financing; availability and terms are uncertain, and equity financing could dilute shareholders.
- Product investment: Verb capitalized $2.329 million of software development costs for its planned MARKETPLACE platform and anticipated another $3.9 million to complete it. Management discussed planned Marketplace and verbTV launches and potential revenue from new features, but provided no formal financial guidance. Its ARR expectations—including approximately $500,000 from 16 new Q3 contracts and potential additional ARR from product launches—are forward-looking estimates, not reported results.
- Subsequent financing: After quarter-end, the company received $4.815 million in advances in exchange for $5.928 million of future receipts, with scheduled withdrawals. This adds repayment pressure and should be considered alongside the September 30 liquidity position.
- COVID-19: Management reported stronger interest in digital products but continued weakness in non-digital services. It cautioned that a prolonged downturn could adversely affect customers and demand.
- Legal matters: A former employee’s claim seeks approximately $300,000; the court partly granted and partly denied summary-adjudication requests in October 2021. In a separate dispute, former counsel claimed approximately $915,000 in fees, which the company disputes. Management said it believed neither matter would have a material effect and that litigation was adequately reserved.
- Other unusual items: The company recorded a $348,000 deemed dividend related to preferred-stock conversion and recognized gains from forgiveness of PPP loans. The Series A preferred shares and SoloFire Class B units were converted into common shares during the period.
- Management concluded disclosure controls were effective as of September 30, 2021 and reported no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Confirm the filing entity: the supplied filing is Verb Technology Company, Inc. (Nasdaq: VERB/VERBW), not TON Strategy Co.
- Assess financing needs and going-concern risk against cash, the working-capital deficit, operating cash burn, and the post-quarter future-receipts advances.
- Check whether MARKETPLACE, verbTV and other planned products launch on schedule, and whether stated contract and ARR expectations convert into recurring revenue and cash collections.
- Review the drivers and cash/non-cash character of operating-expense growth, derivative-liability remeasurements, debt discounts and extinguishment gains.
- Track dilution from share issuance and outstanding options and warrants; common shares outstanding were 70.17 million at quarter-end and 70.47 million as of November 10, 2021.
- Verify litigation developments and the ultimate amounts, if any, payable or recoverable.