TON Strategy Co quarterly report, Q3 FY2023

Business context and reporting period

This summary covers Verb Technology Company, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. The filing is by Verb Technology Company, Inc. (ticker VERB), not a registrant identified as TON Strategy Co.

In June 2023, Verb sold the operating assets of its two SaaS businesses and shifted its focus to MARKET.live, a livestream-shopping and e-commerce platform. The SaaS results are presented as discontinued operations. Unless otherwise noted, financial amounts below are in thousands of dollars.

Financial performance and liquidity

Gross margin was approximately 83% in Q3 and 79% for the nine-month period, calculated from the reported revenue and cost of revenue. Management said MARKET.live was generating minimal revenue. Cash used in continuing operating activities was $6,619 for the nine months, versus $11,223 in 2022; total cash used in operating activities, including discontinued operations, was $8,474. Cash declined by $1,511, from $2,429 at year-end 2022 to $918 at September 30, 2023.

At September 30, total assets were $8,068 and total liabilities were $8,783, leaving a stockholders’ deficit of $715. Current assets were $1,318 against current liabilities of $8,457. The balance sheet reported current notes payable of $1,886, related-party notes payable of $725, and non-current notes payable of $142. The filing separately reports differing November Note balances in its debt disclosures; verify the applicable principal and carrying amounts.

Material changes versus the prior comparable period

• Continuing revenue increased from a very small base, but remained minimal. Q3 continuing revenue rose to $29 from $3; the SaaS business reported no Q3 2023 revenue compared with $2,184 in Q3 2022, following its sale.
• Continuing operating expenses fell 39% in Q3 and 30% over nine months, principally due to lower salaries and headcount. Depreciation and amortization increased, in part reflecting amortization of MARKET.live software.
• Continuing-operations losses improved, but total net losses remained substantial. Nine-month net loss narrowed by $2,312 year over year; reported results include discontinued operations and unusual financing and noncash items.
• The SaaS asset sale generated $4,750 cash at closing; up to a further $1,750 is contingent on targets over two years. Verb recorded a $5,441 impairment in discontinued operations related to the sale.
• Cash raised from common-stock issuance was $6,628 during the nine months. Verb also issued 3.3 million shares to reduce note balances by $4,092, contributing to significant share-count growth.

Outlook, risks, contingencies and unusual items

• Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern within one year after issuance. It cited the continuing-operations loss of $11,957, continuing operating cash use of $6,619, and cash of $918 at quarter-end. It expects operating expenses to continue to exceed revenue and says further financing may be needed; no assurance of financing or profitability is given.
• Financing and dilution: After quarter-end, ATM sales raised $2,086 net from 6,498,591 shares through the filing’s subsequent-event date. Verb also issued 2,040,922 shares to reduce November Note obligations by $655. An October 2023 note added $1,005 of principal at 9% interest, compounded daily; MARKET.live guaranteed the obligation. The company repaid a $879 related-party note in October and repaid the remaining future-receipts advances after quarter-end.
• Debt payment terms: The November Note carries 9% interest, an 18-month maturity, and provisions requiring prepayment from certain financing or asset-sale proceeds. Two missed payments triggered $1,205 of payment-failure balance increases, recorded as financing costs. These terms and subsequent share-for-debt exchanges are material to liquidity and dilution.
• Nasdaq listing: Verb disclosed a November 2, 2023 notice for failure to meet the $1.00 minimum bid-price requirement, with a deadline of April 30, 2024 to regain compliance. Nasdaq had also notified Verb of a stockholders’ equity deficiency; the company had submitted a compliance plan but had not received a decision as of the report date.
• Market and execution risks: Management described MARKET.live features and programs, including TikTok checkout, creator and dropship programs, and planned verbTV content. A national television campaign was planned, but the filing provides no quantified revenue outlook, launch targets, or profitability guidance. Adoption, customer growth, competition, capital availability, economic conditions, and reliance on third-party internet providers are identified risks.
• Legal and other items: Following an August 2023 bench trial, a court found for a former employee on a breach-of-contract claim; judgment had not been entered, and Verb said it intended to appeal. The claim concerns approximately $300 of alleged unpaid bonus compensation. Verb also settled a warrant-holder dispute by issuing shares valued at $200 and cancelling 32,140 warrants. Management reported disclosure controls were effective as of September 30, 2023.

Important facts for investors to verify

1. Confirm the registrant identity and ticker: the supplied filing is Verb Technology Company, Inc. (VERB), not TON Strategy Co.
2. Reconcile the November Note balances and debt carrying amounts across the filing’s debt disclosures, and review the note’s repayment, default, and asset-sale provisions.
3. Track post-quarter financing, shares issued for cash or debt reduction, and resulting dilution; the filing reports substantial ATM issuance after September 30.
4. Check subsequent Nasdaq compliance notices, deadlines, and any outcome on the stockholders’ equity plan.
5. Assess cash runway against the going-concern warning, minimal MARKET.live revenue, planned spending, and the contingent SaaS-sale earnout.
6. Follow the former-employee litigation through entry of judgment and any appeal, and verify the ultimate exposure.