TON Strategy Co annual report, FY2020

Business context and reporting period

The supplied filing is Verb Technology Company, Inc.’s Form 10-K for the fiscal year ended December 31, 2020, filed March 31, 2021. It is not identified in the filing as a TON Strategy Co. filing; the company and period in the request metadata do not match the source document. The filing reports full-year results, with selected fourth-quarter revenue data.

Verb develops subscription-based, interactive video sales and CRM software, including verbCRM, verbLEARN, verbTEAMS and verbLIVE, and also reported printing, fulfillment and shipping revenue. It acquired SoloFire, a sales-enablement software provider focused on medical device and life-sciences companies, in September 2020.

Financial performance and liquidity

Revenue rose about 9.5%, led by subscription growth; digital revenue was $6.5 million versus $4.2 million. Non-digital revenue fell to about $3.5 million from $4.9 million. Fourth-quarter 2020 revenue was $2.099 million, including $1.305 million of SaaS subscriptions, compared with fourth-quarter 2019 revenue of $2.485 million and SaaS subscriptions of $995,000. Management attributed the fourth-quarter digital revenue decline to COVID-related customer impacts, holiday-season slowdown and the loss of several customers.

Research and development increased to $7.933 million from $4.312 million, primarily for verbLIVE and platform integrations. General and administrative expense rose to $20.458 million from $14.710 million, including higher stock compensation, SoloFire costs and growth-related expenses. The 2020 common-stockholder loss includes a $3.951 million deemed dividend related to warrants issued to Series A preferred holders.

Cash used in operating activities was $16.294 million, versus $8.118 million in 2019; cash used in investing was $88,000, and cash provided by financing was $17.214 million. Cash at year-end was $1.815 million. Current assets were $3.668 million against current liabilities of $16.875 million; total liabilities were $21.797 million. The balance sheet included $8.266 million of derivative liabilities, $1.458 million of notes payable, $1.077 million of related-party notes payable and $3.539 million of operating lease liabilities. These figures are not a single measure of funded debt.

The auditor and management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and operating cash outflows. Subsequent to year-end, the company reported approximately $14 million net proceeds from a registered direct offering, additional cash from warrant and option exercises, and $4.4 million from advances against future receipts. Those advances require repayment of $5.423 million, with automatic withdrawals and additional scheduled payments.

Material changes, outlook and risks

• Subscription revenue grew strongly, but the company remained substantially loss-making as operating expenses increased faster than gross profit. Modified EBITDA loss widened by about $6.5 million.
• In 2020, the company raised equity through a private placement and public offering and received warrant-exercise proceeds. These financings increased outstanding shares; further capital raising may dilute shareholders.
• Management reported 62 new clients signed in 2020, representing approximately $3.0 million of minimum contract value, and 14 additional clients under contract expected to launch in 2021. The filing provides no formal company-wide revenue or profit guidance.
• Management presented a verbLIVE adoption and recurring-revenue scenario based on assumed customer penetration and pricing, expressly describing it as illustrative and not a guarantee. verbLIVE launched commercially in 2021; its 2020 revenue was zero.
• Key risks include going-concern financing needs, continued losses, customer retention and adoption, intense competition, reliance on strategic partners and third-party technology, cybersecurity and privacy exposure, and uncertainty from COVID-19. Management noted higher sales interest during 2020 but warned a prolonged downturn could reduce demand.
• SoloFire’s purchase-price allocation remained provisional at year-end, including $3.723 million of provisional goodwill and $1.042 million of provisional intangible assets. Goodwill impairment testing involved significant estimates; the auditor identified both goodwill impairment and the SoloFire acquisition valuation as critical audit matters. Management reported no goodwill impairment.
• Legal matters included a $463,572 judgment in the EMA dispute, which the company appealed; a securities class-action settlement approved for $640,000 payable over 12 months, with a $75,000 reserve reported; and a derivative-action settlement preliminarily approved, involving governance changes and $75,000 in plaintiff legal fees. A former employee also claimed approximately $300,000 in unpaid bonuses; the company disputed the claim.
• The filing states that disclosure controls were effective and that previously reported material weaknesses in internal control over financial reporting were remediated during 2020. The auditor was not engaged to audit internal control effectiveness.

Most important facts for investors to verify

• Confirm the issuer and reporting period: this source is Verb Technology Company, Inc.’s FY 2020 10-K, not a TON Strategy Co. filing or a standalone Q4 report.
• Review the going-concern disclosure against subsequent equity proceeds and the terms and repayment burden of future-receipts advances.
• Track quarterly SaaS revenue, customer losses and launches, and actual paid adoption and retention for verbLIVE and SoloFire against management’s illustrative scenarios.
• Assess dilution from shares, preferred stock, warrants, options, restricted awards and the SoloFire exchangeable units; the filing reported 62,451,830 common shares outstanding as of March 26, 2021.
• Check the final SoloFire purchase-price allocation, goodwill valuation assumptions, and resolution or payment status of the disclosed legal matters.