Business context and reporting period
The supplied filing is Verb Technology Company, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2020, signed May 15, 2020. This does not match the request metadata naming TON Strategy Co; the filing itself identifies Verb Technology Company, Inc. as the registrant. Verb develops subscription-based sales enablement software, including verbCRM, verbLEARN and verbLIVE, and also reports welcome-kit, fulfillment and shipping revenue. Results include Verb Direct, acquired in April 2019.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $2.354 million | $9,000 |
| Gross profit (loss) | $1.291 million | ($21,000) |
| Gross margin | 54.8% | Not meaningful; gross loss |
| Operating expenses | $5.151 million | $2.753 million |
| Operating loss | ($3.860 million) | ($2.774 million) |
| Net loss | ($1.946 million) | ($3.008 million) |
| Net loss attributable to common stockholders | ($5.897 million), including $3.951 million deemed dividends | ($3.008 million) |
| Net cash used in operations | ($2.266 million) | ($1.089 million) |
| Modified EBITDA, non-GAAP | ($2.554 million) | ($1.919 million) |
At March 31, cash was $1.615 million, current assets $3.150 million and current liabilities $14.471 million, implying a working-capital deficit of about $11.321 million. Total liabilities were $18.664 million and stockholders’ equity was $9.921 million. Related-party notes totaled $1.177 million, including a $112,000 note that was past due; net advances on future receipts were $457,000. Operating lease liabilities were $3.937 million. The $6.907 million derivative liability is a fair-value-accounted liability, not conventional borrowings.
Cash increased by $632,000 during the quarter: $3.019 million of financing cash flow, primarily $3.430 million of net common-stock proceeds, was offset by operating and investing cash use. The filing reports $121,000 of property and equipment purchases. No clear conventional operating margin percentage is presented; operating loss was about 164% of revenue.
Material changes versus the prior comparable period
- Reported revenue rose from $9,000 to $2.354 million, principally because Verb Direct was acquired after the 2019 comparison period. The 2020 revenue mix was $1.457 million digital, $728,000 welcome kits and fulfillment, and $169,000 shipping.
- For a more comparable view, the filing’s unaudited pro forma figures show Q1 2019 revenue of $4.001 million versus $2.354 million in Q1 2020. The comparison therefore indicates lower revenue year over year after including Verb Direct in both periods.
- Operating expenses increased $2.398 million, including higher research and development, acquisition-related expenses, and general and administrative costs. Operating loss worsened by $1.086 million.
- Net loss narrowed, but results benefited from a $2.092 million gain from the change in fair value of derivative liabilities and lower debt-discount amortization. Modified EBITDA worsened by $635,000.
- Common shares outstanding increased from 24.5 million at year-end to 29.0 million at March 31, reflecting financing and other issuances. The filing reports 13.65 million warrants outstanding at quarter-end.
Outlook, risks and unusual items
Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing the quarterly loss and $2.266 million operating cash use. It said it believed cash would support operations through September 2020, but that statement depended on additional financing and cash generation; management gave no assurance of future financing or profitability.
After quarter-end, the company received $1.014 million from the private placement and a $1.218 million Paycheck Protection Program loan. PPP forgiveness depends on meeting program requirements; any unforgiven balance is payable over two years at 1% interest. The company also adopted a temporary compensation-reduction plan, with reductions paid in shares, and granted 589,099 restricted shares valued at $866,000.
Management said COVID-19 had disrupted operations and could materially harm sales, results and liquidity. It described plans to launch verbLIVE commercially in summer 2020 and resume certain CRM integrations in summer 2020; these are expectations, not financial guidance. The company also planned to use Range Printing for certain fulfillment services under a revenue-share arrangement. Other notable matters include a $3.951 million deemed dividend tied to warrants issued to Series A holders, several pending legal matters, and disclosure controls judged ineffective as of March 31, 2020. The filing identifies material weaknesses involving segregation of duties, risk assessment and staffing for financial reporting processes.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Verb Technology Company, Inc., not TON Strategy Co.
- Assess near-term liquidity and financing needs, including actual cash runway, the timing and use of post-quarter proceeds, and any additional capital raised.
- Track operating cash burn and underlying revenue trends, separating acquisition effects and fulfillment revenue from recurring SaaS revenue.
- Review dilution exposure from Series A preferred stock, warrants, options, private-placement shares and compensation awards.
- Verify PPP loan forgiveness status and monitor COVID-19 effects, product launch and integration milestones, litigation developments, and remediation of control weaknesses.