Filing summary
Entity and period: The supplied filing is Verb Technology Company, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2022, filed November 14, 2022. This does not match the request metadata naming TON Strategy Co. Figures below are in U.S. dollars; financial amounts are shown in millions unless stated otherwise.
Business context and reporting period
Verb describes itself as a SaaS platform developer offering interactive video sales and business applications, including verbCRM, verbLIVE and verbTEAMS. Its MARKET.live livestream social-shopping platform launched in late July 2022. The company also earns non-digital revenue from ancillary printing, fulfillment and related services, which it says it is intentionally winding down in favor of digital products. As of September 30, 2022, it reported approximately 150 enterprise clients using its subscription services.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.19 | $2.90 | $7.28 | $7.82 |
| Gross profit | $1.45 | $1.81 | $4.73 | $4.40 |
| Operating loss | $(7.68) | $(8.23) | $(21.76) | $(26.44) |
| Net loss | $(8.03) | $(8.81) | $(21.39) | $(28.96) |
| Net loss per share, basic and diluted | $(0.08) | $(0.14) | $(0.23) | $(0.48) |
- Revenue mix: Q3 SaaS subscription revenue was $1.85 million, approximately flat year over year; total digital revenue fell 14% to $2.02 million. Non-digital revenue declined 69% to $0.17 million. For the first nine months, SaaS subscription revenue rose 19% to $5.83 million, digital revenue rose 6% to $6.33 million, and non-digital revenue fell 49% to $0.95 million.
- Margins: Gross profit was $1.45 million in Q3 and $4.73 million for the nine-month period. Management reported digital gross margins of 71% and 72%, respectively, and non-digital gross margins of 9% and 16%. The filing does not provide a clear consolidated gross-margin percentage in the cited discussion.
- Cash flow: Cash used in operations was $15.98 million for the first nine months, versus $20.51 million a year earlier. Investing used $4.40 million, principally for MARKET.live software development; financing provided $20.36 million. Cash decreased by $0.02 million from year-end to $0.92 million at September 30.
- Balance sheet and liquidity: Current assets were $3.10 million against current liabilities of $16.40 million; total liabilities were $18.25 million and stockholders’ equity was $16.53 million. Cash was $0.92 million. The filing states that expected operating expenses over the next 12 months will exceed revenue and that additional financing or other actions will be needed.
- Debt and financing obligations: Current convertible notes payable were $4.17 million, and advances on future receipts, net, were $2.20 million; the latter arose from an advance with a stated 26% rate and a $3.40 million contracted repayment amount. The January 2022 notes bore 6% interest and were due January 2023. Total interest expense was $1.95 million for the first nine months, up from $1.63 million.
Material changes versus the prior comparable period
- Q3 revenue declined 25%, primarily reflecting reduced non-digital revenue and lower other digital revenue; SaaS subscription revenue was nearly unchanged. For the nine months, total revenue declined 7% despite growth in SaaS and digital revenue, as the company reduced its legacy non-digital business.
- Gross profit rose 8% for the nine-month period as cost of revenue fell 26%, while Q3 gross profit declined 20% with lower revenue.
- Research and development expense fell 61% in Q3 and 55% for the nine months. General and administrative expense rose 14% in Q3 and 3% for the nine months, partly due to MARKET.live costs. Depreciation and amortization increased, including amortization of MARKET.live development costs.
- Net loss improved year over year, but the nine-month comparison includes a $2.36 million gain from the change in derivative liability fair value in 2022, versus a $2.09 million expense in 2021, as well as other non-cash and financing-related items.
- Common shares outstanding increased from 72.9 million at December 31, 2021 to 102.6 million at September 30, 2022. The filing reports 116.2 million shares outstanding as of November 10, 2022.
Outlook, risks and unusual items
- Going concern: Management states that recurring losses, $15.98 million of operating cash use during the first nine months, and limited cash raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. The company says continuation depends on additional financing until it can generate sufficient operating cash flow.
- Subsequent financing and dilution: After quarter-end, Verb reported an October registered direct offering of 12.5 million shares and warrants for another 12.5 million shares, for $4.0 million gross proceeds, and payments toward the January notes. It also reported ATM share issuances. On November 7, it entered into an unsecured note with $5.47 million principal and approximately $5.0 million gross proceeds, with 9% interest, redemption provisions, and restrictions on certain future financing and asset pledges. These financings provide liquidity but add repayment obligations and potential dilution.
- Financing constraints: Management warns that restrictive covenants, the declining share price, operating cash needs and debt obligations may limit its ability to obtain further capital; it gives no assurance financing will be available on acceptable terms. It identifies possible expense reductions, delayed spending, asset sales or strategic changes if cash generation and financing are insufficient.
- MARKET.live: The company capitalized $6.44 million of software development costs, net, by September 30 and reported $0.74 million of MARKET.live startup costs for the nine months. Commercial adoption and revenue contribution are uncertain. Management said it expects R&D cost reductions as products move into operating stages, but provided no numerical revenue or earnings guidance.
- Listing risk: Nasdaq granted an extension through May 8, 2023 to regain compliance with its $1.00 minimum bid-price requirement. The company said it may consider a reverse stock split; failure to regain compliance could lead to delisting, subject to appeal.
- Legal matters: Disclosed disputes include a former employee claim for approximately $0.30 million, a law firm’s counterclaim for approximately $0.92 million in fees, and Iroquois-related counterclaims alleging $1.50 million in damages. The company disputes the claims and says it does not expect these matters to have a material adverse effect.
- Other risks and controls: Management cites inflation, rising interest rates, recession concerns, customer demand, competition, technology execution, cybersecurity, and COVID-19-related uncertainty. It concluded disclosure controls were effective at the reasonable-assurance level as of September 30, 2022; no material quarterly change in internal control was reported.
Important facts for investors to verify
- Confirm the entity: the filing is for Verb Technology Company, Inc., not TON Strategy Co.
- Review near-term cash needs against available cash, operating cash burn, current liabilities, note maturities and the terms of post-quarter financing.
- Assess the actual use, adoption and monetization of MARKET.live, and whether capitalized development costs and forecast cost reductions are supportable.
- Track share-count growth, warrants, convertible securities, financing covenants and the resulting potential dilution.
- Monitor Nasdaq bid-price compliance and the status and potential exposure of the disclosed legal disputes.
- Reconcile the November note’s original issue discount: the filing describes it as $470,000 in some sections and $450,000 in another.