Filing identity and period
The supplied filing is Verb Technology Company, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020, signed August 14, 2020. This does not match the request metadata naming TON Strategy Co.; verify the issuer before relying on this summary.
Verb develops SaaS sales-enablement applications, including verbCRM, verbLEARN and verbLIVE, and also reported printing, fulfillment and shipping revenue. The filing describes one operating segment.
Financial performance and liquidity
| Metric | Three months ended June 30, 2020 | Prior-year quarter | Six months ended June 30, 2020 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $2.652 million | $3.733 million | $5.006 million | $3.742 million |
| Gross profit | $1.517 million | $1.691 million | $2.808 million | $1.670 million |
| Gross margin | 57% | 45% | 56% reported in MD&A | 45% reported in MD&A |
| Operating loss | $(4.485) million | $(3.473) million | $(8.345) million | $(6.247) million |
| Net loss | $(3.424) million | $(2.343) million | $(5.370) million | $(5.351) million |
| Net loss per common share | $(0.11) | $(0.11) | $(0.33) | $(0.32) |
Q2 SaaS subscription revenue increased to $1.274 million from $858,000; management attributed the increase to 24 net additional enterprise clients year over year and wider use by existing clients. Q2 welcome-kit/fulfillment revenue fell to $713,000 from $1.784 million. For the first half, subscription revenue was $2.331 million versus $867,000; the comparison is affected by Verb Direct’s April 2019 acquisition.
Operating expenses were $6.002 million in Q2, up from $5.164 million, including higher R&D and general and administrative costs. First-half operating expenses were $11.153 million versus $7.917 million. Q2 other income of $1.061 million included a $1.228 million gain from remeasurement of derivative liabilities; first-half other income of $2.975 million included a $3.320 million such gain. These non-cash fair-value changes materially affected reported results.
At June 30, cash was $1.378 million, current assets $3.132 million, current liabilities $13.770 million, total assets $28.375 million and total liabilities $18.928 million. Stockholders’ equity was $9.447 million. Six-month operating cash use was $4.673 million, investing cash use $316,000 and financing cash inflow $5.384 million; ending cash was $1.378 million.
Debt and financing obligations included $1.368 million of notes payable, $1.177 million of related-party notes, $728,000 net advances against future receipts, and $3.828 million of operating lease liabilities. The $1.218 million PPP loan was potentially forgivable subject to program conditions; the $150,000 SBA disaster loan carried 3.75% interest and a 30-year repayment term. A $112,000 related-party note was past due, and the company said it was negotiating settlement.
Material changes and significant events
- Q2 revenue declined 29% year over year as non-digital revenue fell, partly offset by digital revenue growth. Gross margin improved to 57% from 45% as the revenue mix shifted toward SaaS.
- First-half revenue rose 34%, but operating loss widened. Net loss was nearly unchanged year over year, with comparisons affected by acquisition timing and differing financing and derivative-related items.
- Common shares outstanding increased from 24.5 million at December 31, 2019 to 30.3 million at June 30, 2020. A July public offering issued 12.545 million shares and generated $12.3 million net proceeds. Pro forma cash was $13.712 million and pro forma shares outstanding were 42.813 million.
- Management disclosed ineffective disclosure controls at June 30, 2020 and described material weaknesses in segregation of duties/risk assessment and financial-close staffing. It said remediation was underway.
Outlook, risks and contingencies
The filing states that recurring losses and six-month operating cash use raised substantial doubt about the company’s ability to continue as a going concern. Management said the July offering proceeds led it to believe cash would support operations through December 2021, but continued operations depend on financing and improved operating cash generation; no assurance was given. Management also estimated operating expenses might continue to exceed revenue in the next three months. No formal revenue or earnings guidance was provided.
Management expected a summer 2020 commercial launch of verbLIVE and discussed pre-sales from 17 existing clients. Its penetration, user-count and revenue illustrations were explicitly hypothetical, not guarantees. It was transitioning printing and fulfillment to Range Printing to reduce labor and overhead. A potential acquisition was under diligence and negotiation, with no binding commitment.
Key risks include COVID-19 disruption and uncertain demand, ongoing cash burn and reliance on financing, dilution, competition, customer retention, technology development and service capacity, cybersecurity and third-party infrastructure, and ineffective controls. Litigation included a proposed confidential settlement of a securities class action subject to court approval, a derivative action, a former employee claim of approximately $300,000, and the EMA warrant dispute; the company said it had reserved for litigation. The PPP loan’s forgiveness remained conditional.
Most important facts to verify
- Confirm the issuer: the filing is for Verb Technology Company, Inc., not TON Strategy Co.
- Verify the July 2020 offering’s final proceeds, share issuance and resulting dilution, and subsequent warrant or equity issuances.
- Assess cash runway against the reported cash burn, obligations and management’s December 2021 estimate.
- Check PPP forgiveness status, repayment terms for other financing, and resolution of the past-due related-party note.
- Monitor SaaS subscription growth, non-digital revenue transition, verbLIVE adoption and any acquisition announcement.
- Review remediation and testing of internal-control material weaknesses, and developments in litigation and the derivative liability valuation.