Filing identity and period
The supplied filing is Verb Technology Company, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2023—not a filing identified as TON Strategy Co. The company describes itself as a SaaS applications platform developer, including MARKET.live, and also provides some non-digital services.
Unless noted otherwise, figures below are in U.S. dollars; financial statement amounts are in thousands. Per-share amounts and share counts reflect the filing’s retrospective adjustment for its subsequent 1-for-40 reverse stock split.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $2.215 million | $2.691 million | Down $476 thousand, about 18% |
| Gross profit | $1.516 million | $1.718 million | Down $202 thousand |
| Gross margin | 68% | 64% | Up 4 percentage points |
| Operating loss | $4.589 million | $7.307 million | Improved $2.718 million |
| Net loss | $5.514 million | $6.989 million | Improved $1.475 million |
| Net loss per share, basic and diluted | $1.59 | $3.66 | Improved |
| Cash used in operations | $2.918 million | $5.899 million | Use decreased $2.981 million |
Digital revenue was $2.045 million, down about 5%; SaaS subscription revenue was $1.895 million, down about 5%. Non-digital revenue fell 69% to $170 thousand. Management attributed the non-digital decline to its planned exit from lower-margin printing, fulfillment, and shipping activities. Digital revenue represented 92% of total revenue, compared with 80% a year earlier; recurring SaaS revenue represented 86%, compared with 74%.
Operating expenses declined to $6.105 million from $9.025 million. Research and development fell to $648 thousand from $1.580 million, while general and administrative expense declined to $4.802 million from $7.036 million. Depreciation and amortization increased to $655 thousand from $409 thousand. Interest expense was $829 thousand. Other items included $144 thousand of net debt-extinguishment expense and a $164 thousand deemed dividend associated with a warrant exercise-price reset.
Modified EBITDA, a company-defined non-GAAP measure, was a loss of $2.778 million versus a loss of $5.471 million. The company cautions that this measure is not a substitute for GAAP results or operating cash flow.
Cash was $3.790 million at March 31, 2023, versus $2.429 million at year-end 2022. Current assets were $5.566 million and current liabilities were $16.503 million. Total liabilities were $18.134 million. Balance-sheet debt included $5.672 million of notes payable, net, and $1.321 million of advances on future receipts, net; operating lease liabilities totaled $1.928 million. Cash increased by $1.361 million during the quarter, primarily because of $4.410 million in net financing cash flow, including $6.578 million of net proceeds from a stock offering.
Material changes and financing
- On January 24, 2023, the company sold 901,275 shares for net proceeds of $6.578 million. The offering also triggered a reduction in the exercise price of certain warrants from $13.60 to $8.00 per share.
- The company repaid the remaining $1.350 million principal and accrued interest on its January 2022 convertible notes in January 2023.
- In February 2023, it combined prior future-receipt advances with a new advance. The resulting obligation had a stated $1.811 million balance at quarter-end and was being repaid through daily payments; the filing states a 35% rate and scheduled maturity of December 14, 2023.
- The November 2022 note had $5.470 million outstanding principal at quarter-end, bears 9% interest, and matures in May 2024. Its terms include monthly cash redemptions and a requirement to use a portion of future financing proceeds for prepayment, subject to stated limits. A $300 thousand redemption notice was received on May 16, 2023.
- The company’s $1.528 million Employee Retention Credit receivable remained outstanding; timing of receipt was uncertain and it was classified as a long-term asset.
Outlook, risks, and contingencies
The filing 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. Management said expenses may continue to exceed revenue over the next 12 months and that additional debt or equity financing may be needed. The company warns financing may not be available on acceptable terms; equity financing could dilute shareholders, while debt could add repayment obligations and restrictions. No quantified revenue or earnings guidance is provided.
A cost-savings plan included workforce reductions, vendor cost cuts, and a temporary 25% reduction in senior-management cash compensation in exchange for shares; the plan was extended through April 30, 2023. Management said it expected research and development cost reductions to continue as products move from development into operation. Risks cited include competition, customer adoption and retention, capital availability, platform development and adoption, reliance on third-party internet providers, security disruptions, and economic conditions.
Subsequent to quarter-end, the company implemented a 1-for-40 reverse split on April 18, 2023, and increased authorized common shares from 200 million to 400 million. It also reported that its independent accounting firm was dismissed and a new firm engaged effective April 18. The company reported disclosure controls were effective as of March 31, 2023.
Contingencies include a former employee’s disputed claim for approximately $300 thousand, with trial set for August 28, 2023; a disputed warrant-holder matter in which the counterclaim alleges $1.5 million in damages; and a legal-malpractice dispute settled for $100 thousand, accrued at quarter-end. Management stated it believed the other disputes would not have a material adverse effect.
Most important facts for investors to verify
- Confirm the issuer identity: the provided filing names Verb Technology Company, Inc., while the request metadata names TON Strategy Co.
- Assess the going-concern warning against available cash, continued operating cash burn, upcoming debt payments, and the company’s ability to secure financing.
- Review the November note’s redemption terms and the May 2023 $300 thousand redemption notice, along with the future-receipt advance repayment schedule.
- Track SaaS subscription revenue and customer adoption separately from total revenue, which is affected by the planned contraction of non-digital services.
- Confirm receipt and timing of the $1.528 million ERC claim and monitor the identified legal matters.
- Evaluate dilution and share authorization changes following the stock offering, warrant repricing, reverse split, and increase in authorized shares.