Notes
to Condensed Consolidated Financial Statements
For
the Three and Nine Months Ended September 30, 2022 and 2021
(in
thousands, except share and per share data)
(unaudited)
1.
DESCRIPTION OF BUSINESS
Our
Business
References
in this Quarterly Report to the “Company,” “Verb,” “we,” “us,” or “our” are
to Verb Technology Company, Inc., together with its consolidated subsidiaries unless the context otherwise requires. Throughout this
Quarterly Report, the terms “client” and “customer” are used interchangeably.
The
Company is a SaaS applications platform developer. Our platform is comprised of a suite of interactive video-based sales enablement business
software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are offered as a
fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer Relationship Management (“CRM”)
application, verbLEARN, our Learning Management System application, verbLIVE, our Live Stream eCommerce application, verbPULSE, our business/augmented
intelligence notification and sales coach application, and verbTEAMS, our self-onboarding video-based CRM and content management application
for professional sports teams, small business and solopreneurs, with seamless synchronization with Salesforce, that also comes bundled
with verbLIVE, and verbMAIL, our interactive video-based sales communication tool integrated into Microsoft
Outlook. MARKET.live is our multi-vendor, multi-presenter, livestream social shopping platform that combines ecommerce and entertainment.
The
Company also provides certain non-digital services to some of its enterprise clients such as printing and fulfillment services.
Economic
Disruption
Our
business is dependent in part on general economic conditions. Many jurisdictions in which our customers are located and our products
are sold have experienced and could continue to experience unfavorable general economic conditions, such as inflation, increased interest
rates and recessionary concerns, which could negatively affect demand for our products. Under difficult economic conditions, customers
may seek to cease spending on our current products or fail to adopt our new products, which could negatively affect our financial performance.
We cannot predict the timing or magnitude of an economic slowdown or the timing or strength of any economic recovery. These and other
economic factors could have a material adverse effect on our business, financial condition, and results of operations.
COVID-19
As
of the date of this filing, there continues to be concern regarding the ongoing impacts and disruptions caused by the COVID-19 pandemic
in the regions in which the Company operates. Although the impacts of the pandemic on our business have not been material to date, a
prolonged downturn in economic conditions as a result of the pandemic could have a material adverse effect on our customers and demand
for our products. At this time, it is not possible for the Company to predict the duration or magnitude of the impacts of the pandemic,
or other outbreaks of communicable diseases, on the Company’s business, financial condition and results of operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and
applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.
Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the SEC on March 31, 2022 (the “2021 Annual Report”). The consolidated
balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to
fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all
adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not
necessarily indicative of fiscal year-end results.
Principles
of Consolidation
The
condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of Verb, Verb Direct,
LLC, Verb Acquisition Co., LLC, and verbMarketplace, LLC. All intercompany accounts have been eliminated in the consolidation.
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed
consolidated financial statements, during the nine months ended September 30, 2022, the Company incurred a net loss of $21,391 and used
cash in operations of $15,975. These factors raise substantial doubt about the Company’s ability to continue as a going concern
within one year after the date these financial statements were issued. The Company’s independent registered public accounting firm,
in its report on the Company’s consolidated financial statements for the year ended December 31, 2021, has also expressed substantial
doubt about the Company’s ability to continue as a going concern.
On
January 12, 2022, the Company entered into a common stock purchase agreement (the “January Purchase Agreement”) with
Tumim Stone Capital LLC (the “Investor”). Pursuant to the agreement, the Company has the right, but not the obligation,
to sell to the Investor, and the Investor is obligated to purchase, up to $50,000
of newly issued shares (the “Total Commitment”) of the Company’s common stock, par value $0.0001
per share (the “Common Stock”) from time to time during the term of the agreement, subject to certain limitations and
conditions. The Total Commitment is inclusive of 607,287
shares of Common Stock issued to the Investor as consideration for its commitment to purchase shares of Common Stock under the
January Purchase Agreement. In connection with the January Purchase Agreement, the Company is
restricted from entering into an agreement to effect any issuance of Common Stock involving a Variable Rate Transaction (as defined therein)
during the term of the agreement, subject to certain exceptions set forth therein.
On
January 12, 2022, the Company also entered into a securities purchase agreement (the “January Note Purchase Agreement”)
with three institutional investors (collectively, the “January Note Holders”) providing for the sale and issuance of an
aggregate original principal amount of $6,300
in convertible notes due January 2023 (each, a “Note,” and, collectively, the “Notes,” and such financing,
the “January Note Offering”). The Company and the January Note Holders also entered into a security agreement, dated
January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the
January Note Holders in substantially all of its assets. The January Note Purchase Agreement prohibits the Company from entering into an agreement to effect any issuance
of Common Stock involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions
set forth therein. The January Note Purchase
Agreement also gives the January Note Holders the right to require the Company to use up to 15% of the gross proceeds raised from future
debt or equity financings to redeem the Notes, which redemptions have been elected by the January Note Holders as described below.
On
April 20, 2022, the Company entered into a securities purchase agreement, which provides for the sale and issuance by the Company of
an aggregate of (i) 14,666,667
shares of Common Stock, and (ii) warrants to purchase 14,666,667
shares of the Common Stock at an exercise price of $0.75
per share, for aggregate gross proceeds of $11,000
before deducting placement agent commissions and other offering expenses (the “April Registered Direct Offering”). As a
result of this transaction, certain of the Company’s Series A warrants which previously had exercise prices ranging from
$1.10
to $2.10
per share had the exercise prices reduced to $0.75
per share. The Company used a portion of the proceeds from the April Registered Direct Offering to repay $1,650
in principal amount of the Notes issued pursuant to the January Note Offering.
As
of September 30, 2022, the Company had cash of $921.
The Company,
through its Professional Employer Organization, filed for federal government assistance for the second and third quarters of 2021 in
the aggregate amount of approximately $1,500
through Employee Retention Credit (“ERC”) provisions of the Consolidated Appropriations Act of 2021. The purpose of the
ERC is to encourage employers to keep employees on the payroll, even if they are not working during the covered period due to the
effects of the COVID-19 pandemic. As of September 30, 2022, the Company has yet to receive the funds and accordingly, the condensed
consolidated financial statements do not reflect the effect of this credit.
Prior to September
30, 2022, the U.S. Small Business Administration (“SBA”) approved an additional loan of $350 which the Company expects to receive before
the end of 2022.
On
October 25, 2022, the Company entered into a securities purchase agreement (the “October Purchase Agreement”), which
provides for the sale and issuance by the Company of an aggregate of (i) 12,500,000 shares
of Common Stock, at a purchase price of $0.32 per
share, and (ii) warrants to purchase 12,500,000 shares
of the common stock at an exercise price of $0.34 per
share, for aggregate gross proceeds of $4,000 before
deducting placement agent commissions and other offering expenses (the “October Registered Direct Offering”). As a
result of this transaction, certain warrants which previously had an exercise price of $0.75 per
share, had the exercise price reduced to $0.34 per
share. Further, in connection with the October Purchase Agreement, the Company is restricted from (i) issuing or filing any
registration statement to offer the sale of any Common Stock or securities convertible into or exercisable for shares of Common
Stock until 75 days after the date thereof; and (ii) entering into an agreement to effect any issuance of Common Stock involving a
Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions set forth therein. As
a result of this transaction, the Company paid $1,172 towards
principal and accrued interest on the Notes. The Company and the January Note Holders also agreed to interest
only payments with a final principal payment of $2,545 due
on the maturity date.
On
November 7, 2022, the Company entered into a note purchase agreement (the “November Note Purchase Agreement”) and promissory
note with an institutional investor (the “November Note Holder”) providing for the sale and issuance of an unsecured, non-convertible
promissory in the original principal amount of $5,470, which has an original issue discount of $470, resulting in gross proceeds to the
Company of approximately $5,000 (the “November Note,” and such financing, the “November Note Offering”). The November Note matures eighteen months following the date of issuance. Commencing six months from the date of issuance, the Company is required to make monthly cash redemption payments in an amount not to exceed $600. The November Note may be repaid in whole or in part prior to the maturity date for a 10% premium. The November Note requires the Company to use 20% of the gross proceeds raised from future equity or debt financings, or the sale of any subsidiary or material asset, to prepay the November Note, subject to a cap on the aggregate prepayment amount. Until all obligations under the November Note have been paid in full, the Company is not permitted to grant a security
interest in any of its assets, or to issue securities convertible into shares of Common Stock, subject in each case to certain exceptions.
verbMarketplace, LLC entered into a guaranty, dated November 7, 2022, in connection with the November Note Offering, pursuant to which
it guaranteed the obligations of the Company under the November Note in exchange for receiving a portion of the loan proceeds.
If
the Company is unable to generate sufficient cash flow from operations to operate its business and pay its debt obligations as they
become due, it will need to seek to raise additional capital, borrow additional funds, dispose of subsidiaries or assets, reduce or
delay capital expenditures, or change its business strategy. However, in light of the restrictive covenants imposed by certain of
the Company’s prior financing arrangements, in combination with the recent decline in the trading price of the Common Stock,
the Company may be unable to raise additional capital in sufficient amounts when needed to operate its business, service its debt or
execute on its strategic plans. Further, notwithstanding such restrictions, there can be no assurance that debt or equity financing
will be available in the amounts, on terms, or at times deemed acceptable by the Company. The issuance of additional equity
securities would result in significant dilution in the equity interests of the Company’s current stockholders and could
include rights or preferences senior to those of the current stockholders. Borrowing additional funds would increase the
Company’s liabilities and future cash commitments and potentially impose significant operational or financial restrictions and
require the Company to further encumber its assets. If the Company is unable to obtain financing in the amounts and on terms deemed
acceptable, the Company may be unable to continue to operate its business or pay its obligations as they become due, and as a result
may be required to curtail or cease operations, which may result in stockholders or noteholders losing some or all of their
investment.
For
additional information, refer to Note 1 to the condensed consolidated financial statements, and the section titled “Risk Factors,”
within the 2021 Annual Report.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the
reported periods. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, and
other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic,
as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business and
operations.
Significant
estimates include assumptions made in analysis of reserves for allowance of doubtful accounts, inventory, assumptions made in purchase
price allocations, impairment testing of long-term assets, realization of deferred tax assets, determining fair value of derivative liabilities,
and valuation of equity instruments issued for services. Some of those assumptions can be subjective and complex, and therefore, actual
results could differ materially from those estimates under different assumptions or conditions.
Revenue
Recognition
The
Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) ASC 606, Revenue from
Contracts with Customers (“ASC 606”). The Company derives its revenue primarily from providing application services through
the SaaS application, digital marketing and sales support services.
A
description of our principal revenue generating activities is as follows:
|
1. |
Digital
Revenue which is divided into two main categories: |
|
a. |
SaaS
recurring digital revenue based on contract-based subscriptions to Verb app products and platform services which include verbCRM,
verbLEARN, verbLIVE, verbTEAMS, and verbPULSE. The revenue is recognized straight-line over the subscription period. |
|
|
|
|
b. |
Non-SaaS,
non-recurring digital revenue, which is revenue generated by the use of app products and in-app purchases, such as sampling and other
services obtained through the app. The revenue for samples is recognized upon completion and shipment, while the design fees are
recognized when the service has been rendered, collectability is reasonably assured, and the app is delivered to the customer. |
Subscription
revenue from the application services is recognized over the life of the estimated subscription period. The Company also charges certain
customers setup or installation fees for the creation and development of websites and mobile applications. These fees are accounted for
as part of contract liabilities and amortized over the estimated life of the agreement. Revenue is measured as the amount of consideration
expected to be received in exchange for transferring the products or services to a customer.
|
2. |
Non-digital
revenue, which is revenue generated from non-app, non-digital sources through ancillary services provided as an accommodation to
clients and customers. These services include design, printing services, fulfillment and shipping services. The revenue is recognized
upon completion and shipment of products or fulfillment to the customer. Effective April 1, 2022, the Company entered into a customer
referral agreement with a third party for its cart site and printing business. Under the agreement, the Company earns a certain
percentage for customer referrals and merchandise sales as well as cart site design fees, all of which will be recognized as non-digital
revenue on a net basis. |
The
non-digital products sold by us are distinctly individual. The products are offered for sale solely as finished goods, and there are
no performance obligations required post-shipment for customers to derive the expected value from them. Amounts related to shipping and
handling that are billed to customers are reflected as part of revenue, and the related costs are reflected in cost of revenue in the
accompanying condensed consolidated statements of operations. Historically, we have not experienced any significant payment delays from
customers. The Company allows returns within 30 days of purchase from end-users. Customers may return purchased products under certain
circumstances. Returns from customers during the three and nine months ended September 30, 2022 and 2021 were immaterial.
Revenue
during the three and nine months ended September 30, 2022 and 2021 were substantially all generated from clients and customers located
within the United States of America, though some utilize the Company’s applications outside the United States of America.
Cost
of revenue primarily consists of the salaries of certain employees and contractors, digital content costs, purchase price of consumer
products, packaging supplies, and customer shipping and handling expenses. Shipping costs to receive products from our suppliers are
included in our inventory and recognized as cost of revenue upon sale of products to our customers.
Contract
Liabilities
Contract
liabilities represent consideration received from customers under revenue contracts for which the Company has not yet delivered or completed
its performance obligation to the customer. Contract liabilities are recognized over the contract period.
Capitalized
Software Development Costs
The
Company capitalizes internal and external costs directly associated with developing internal-use software, and hosting arrangements that
include an internal-use software license, during the application development stage of its projects. The Company’s internal-use
software is reported at cost less accumulated amortization. Amortization begins once the project has been completed and is ready for
its intended use. The Company will amortize the asset on a straight-line basis over a period of three years, which is the estimated useful
life. Software maintenance activities or minor upgrades are expensed in the period performed.
Amortization
expense related to capitalized software development costs are recorded in depreciation and amortization in the condensed consolidated
statements of operations.
Goodwill and Intangible Assets
Management reviews
goodwill and indefinite lived intangible assets for impairment at least annually or whenever events or circumstances indicate a potential
impairment. Management reviews all finite lived intangible assets for impairment when circumstances indicate that their carrying values
may not be recoverable.
As of September
30, 2022, management concluded that there were no impairment indicators. If economic uncertainty increases and/or the global economy
worsens, the Company’s business, financial condition and results of operations may be sufficiently impacted to result in future
impairment charges in the short-term. Management will continue to monitor the effects that macroeconomic conditions have on its business
and operations and will review impairment indicators to the extent necessary in the upcoming months.
Fair
Value of Financial Instruments
The
Company follows the guidance of FASB ASC 820 and ASC 825 for disclosure and measurement of the fair value of its financial instruments.
FASB ASC 820 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The
three levels of fair value hierarchy defined by ASC 820 are described below:
|
Level
1: |
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
Level
2: |
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the
reporting date. |
|
Level
3: |
Pricing
inputs that are generally observable inputs and not corroborated by market data. |
The
carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalents, prepaid expenses, accounts
payable and accrued expenses approximate their fair value due to their short-term nature. The carrying values of financing obligations
approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
The Company uses Level 2 inputs for its valuation methodology for derivative financial instruments.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated
statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the condensed consolidated
balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within
12 months of the balance sheet date.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using
a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any
increase or decrease in the fair value being recorded in results of operations as adjusted to fair value of derivatives.
Share-Based
Compensation
The
Company issues stock options, warrants, shares of common stock and restricted stock units as share-based compensation to employees and
non-employees. The Company accounts for its share-based compensation in accordance with FASB ASC 718, Compensation – Stock Compensation.
Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense
over the requisite service period. The fair value of restricted stock units is determined based on the number of shares granted and the
quoted price of our common stock and is recognized as expense over the service period. Recognition of compensation expense for non-employees
is in the same period and manner as if the Company had paid cash for services.
Net
Loss Per Share
Basic
net loss per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted net loss
per share is computed giving effect to all dilutive potential shares of common stock that were outstanding during the period. Dilutive
potential shares of common stock consist of incremental shares of common stock issuable upon exercise or conversion.
As
of September 30, 2022, and 2021, the Company had total outstanding options of 5,252,119 and 5,528,405, respectively, outstanding warrants
of 25,651,407 and 11,008,302, respectively, outstanding restricted stock units of 2,071,849 and 2,109,999, respectively, the
Notes that are convertible into 1,209,610 and 0 shares at $3.00 per share, respectively, and convertible notes issued to a related
party that are convertible into 808,900 and 742,278 shares at $1.03 per share, respectively, which were all excluded from the computation
of net loss per share because they are anti-dilutive due to the Company’s net loss position during the reported periods.
Concentration
of Credit and Other Risks
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited
with a limited number of financial institutions. The balances held at any one financial institution at times may be in excess of Federal
Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250.
The
Company evaluates the concentration of credit risk associated with key customers. During the three months ended September 30, 2022, we
had one customer that accounted for 11% of our revenues. During the three months ended September 30,
2021, we had no customers that accounted for 10% of our revenues. During the nine months ended September
30, 2022 and 2021, we had no customers that accounted for 10% of our revenues.
The
Company extends limited credit to customers based on an evaluation of their financial condition and other factors. The Company generally
does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for doubtful accounts and sales credits. The Company believes that any concentration of credit risk
in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and
credit worthiness of its customers.
As
of September 30, 2022 and December 31, 2021, we had no customers that accounted for 10% of our accounts receivable.
The
Company also evaluates the concentration of risk associated with key vendors. For the three and nine months ended September 30, 2022,
we had two vendors that accounted for 54% and 45% and 11% and 16%, respectively, of our purchases individually and 65% and 61% in the
aggregate. For the three and nine months ended September 30, 2021, we had two vendors that accounted for 17% and 31% and 16% and 20%,
respectively, of our purchases individually and 48% and 36% in the aggregate. As of September 30, 2022 and December 31, 2021, we had
one vendor that accounted for 42% and 40%, respectively, of accounts payable.
Reclassification
Adjustment
The
Company reclassified $2,288 from net cash used in investing activities to net cash used in operating activities for the nine months ended
September 30, 2021. This amount is now reported as accrued software development costs in the supplemental non-cash investing and financing
activities as part of the supplemental cash flow information.
Supplemental
Cash Flow Information
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION
| |
2022 | | |
2021 | |
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 203 | | |
$ | 112 | |
Cash paid for income taxes | |
| 1 | | |
| 1 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Fair value of derivative liability extinguished | |
| - | | |
| 4,513 | |
Fair value of common shares issued to settle accounts payable | |
| - | | |
| 19 | |
Fair value of common shares issued to settle accrued expenses | |
| 450 | | |
| 281 | |
Reclassification of Class B Units upon conversion to common stock | |
| - | | |
| 3,065 | |
Fair value of common stock issued to settle notes payable – related party | |
| - | | |
| 200 | |
Fair value of common stock received in exchange for employee’s payroll taxes | |
| 8 | | |
| 130 | |
Fair value of common stock issued for future services | |
| - | | |
| 164 | |
Discount recognized from advances on future receipts | |
| 900 | | |
| 2,484 | |
Fair value of debt forgiveness | |
| - | | |
| 1,400 | |
Fair value of warrants issued to Series A preferred stockholders – deemed dividend | |
| - | | |
| 348 | |
Fair value of common stock issued to settle lawsuit | |
| - | | |
| 678 | |
Accrued software development costs | |
| 291 | | |
| 2,288 | |
Discount recognized from convertible notes payable | |
| 300 | | |
| - | |
Derecognition of operating lease right-of-use assets | |
| 543 | | |
| - | |
Derecognition of operating lease liabilities | |
| 521 | | |
| - | |
Recognition of operating lease right-of-use asset and related lease liability | |
| 212 | | |
| - | |
Recent
Accounting Pronouncements
Recently
Adopted Accounting Pronouncements
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06
reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion
models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long
as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest
rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation
for convertible instruments will require the Company to use the if-converted method. ASU 2020-06 will be effective January 1, 2024, for
the Company and is to be adopted through a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is
permitted, but no earlier than January 1, 2021, including interim periods within that year. Effective January 1, 2022, the Company early
adopted ASU 2020-06 and that adoption did not have any material impact on the Company’s consolidated financial statements or the
related disclosures.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.
ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures
the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value
of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories
of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and
modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal
years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided
in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04
effective January 1, 2022. The adoption of ASU 2021-04 did not have any material impact on the Company’s consolidated financial
statements or the related disclosures.
In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. ASU 2021-08 will require companies to recognize and measure contract assets and contract liabilities
relating to contracts with customers that are acquired in a business combination in accordance with ASC 606. Under current GAAP, an acquirer
generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities
arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording
acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under
ASC Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted
ASU 2021-08 effective January 1, 2022 on a prospective basis and the adoption impact of the new standard will depend on the magnitude
of future acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior
to the adoption date.
In
November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)—Disclosures by Business Entities about Government
Assistance. ASU 2021-10 increases the transparency of government assistance including the disclosure of (1) the types of assistance,
(2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements.
The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU as of January 1, 2022 on a prospective
basis. The adoption of this standard did not have any material impact on the Company’s consolidated financial statements or the
related disclosures.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASC
326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts
and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss”
model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s
provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance
is effective. As a small business filer, ASU 2020-06 will be effective January 1, 2024, for the Company and the provisions of this update
can be adopted using either the modified retrospective method or a fully retrospective method. Management is currently assessing the
impact of adopting this standard on the Company’s consolidated financial statements or the related disclosures.
3.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In
2020, the Company began developing MARKET.live, a livestream ecommerce platform, and has capitalized $6,838 and $4,348 of internal and external
development costs as of September 30, 2022 and December 31, 2021, respectively. In October 2021, the Company entered into a 10-year license
and services agreement with a third party (the “Primary Contractor”) to develop certain components of MARKET.live. The Primary
Contractor’s fees for developing such components, including the license fee, is $5,750. The Primary Contractor was paid an additional
$500 bonus in April 2022 for services rendered pursuant to the license and service agreement. In addition, as of September 30, 2022 and
December 31, 2021, the Company had paid or accrued $524 and $248, respectively, of other capitalized software development costs.
For
the three and nine months ended September 30, 2022 and 2021, the Company amortized $394 and $0, respectively, and $394 and $0, respectively.
Capitalized
software development costs, net consisted of the following:
SCHEDULE OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Beginning balance | |
$ | 4,348 | | |
$ | - | |
| |
| | | |
| | |
Additions | |
| 2,490 | | |
| 4,348 | |
Amortization | |
| (394 | ) | |
| - | |
Ending balance | |
$ | 6,444 | | |
$ | 4,348 | |
Option
to Acquire Primary Contractor
In
August 2021, the Company entered into a term sheet that provided the Company the option to purchase the Primary Contractor provided certain
conditions are met. In November 2021, the Company exercised this option. The Company and the Primary Contractor subsequently reached
an agreement-in-principle on the terms for the Company’s acquisition of the Primary Contractor, the final consummation of which
is subject to the execution of a share purchase agreement (the “SPA”) and the completion of an audit of the Primary Contractor
that is satisfactory to the Company (the “Primary Contractor Audit”), as well as the fulfillment by the Primary Contractor
of certain other conditions set forth in the term sheet. The term sheet stipulates that if the Company had entered into the SPA and the
Primary Contractor had the Primary Contractor Audit successfully completed prior to May 15, 2022 (or a subsequent mutually agreed upon
date) and the Company thereafter determines not to consummate the acquisition of the Primary Contractor, the Company would have been
liable for a $1,000 break-up fee payable to the Primary Contractor. However, as of the date of the issuance of these financial statements,
the SPA has not been executed and the Primary Contractor Audit is ongoing. The parties are in discussions regarding the transaction.
Based on the term sheet, the purchase price for the Primary Contractor would be $12,000, which can be paid in cash and/or stock, although
the final terms of the acquisition will be set forth in the SPA. There can be no assurance that the acquisition will be completed on
the terms set forth in the term sheet or at all.
4.
INTANGIBLE ASSETS
Intangible
assets, net consisted of the following:
SCHEDULE OF INTANGIBLE ASSETS
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Amortizable finite-lived intangible assets | |
$ | 7,399 | | |
$ | 7,317 | |
Accumulated amortization | |
| (4,875 | ) | |
| (3,806 | ) |
Finite-lived intangible assets, net | |
| 2,524 | | |
| 3,511 | |
| |
| | | |
| | |
Indefinite-lived intangible assets | |
| 442 | | |
| 442 | |
| |
| | | |
| | |
Intangible assets, net | |
$ | 2,966 | | |
$ | 3,953 | |
Amortizable
finite-lived intangible assets are being amortized over a period of three to five years. There were no impairment charges incurred in
the periods presented. During the three and nine months ended September 30, 2022 and 2021, the Company recorded amortization expense
of $352 and $355, respectively, and $1,069 and $1,080, respectively.
The
expected future amortization expense for amortizable finite-lived intangible assets as of September 30, 2022, is as follows:
SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE
Year ending | |
Amortization | |
2022 remaining | |
$ | 354 | |
2023 | |
| 1,386 | |
2024 | |
| 573 | |
2025 | |
| 211 | |
Total amortization | |
$ | 2,524 | |
5.
OPERATING LEASES
On
January 3, 2022, the Company terminated the lease agreements relating to our office and warehouse leases in American Fork, Utah. In accordance
with ASC 842, the Company derecognized the right-of-use assets of $543 and the corresponding lease liabilities of $521, resulting in
a loss on lease termination of $22.
On
April 26, 2022, the Company entered into an office space sub-lease agreement. The agreement requires us to pay $12 per month for an initial
term of eighteen months, which increases by 3% per annum after twelve months. In accordance with ASC 842, the Company recognized a right-of-use
asset and the related lease liability of $212 on the commencement date of the lease.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
SCHEDULE OF LEASE COST
| |
2022 | | |
2021 | |
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
Lease cost | |
| | | |
| | |
Operating lease cost (included in general and administrative expenses in the Company’s condensed consolidated statements of operations) | |
$ | 373 | | |
$ | 524 | |
| |
| | | |
| | |
Other information | |
| | | |
| | |
Cash paid for amounts included in the measurement of lease liabilities | |
$ | 458 | | |
$ | 593 | |
Weighted average remaining lease term – operating leases (in years) | |
| 3.99 | | |
| 4.15 | |
Weighted average discount rate – operating leases | |
| 4.2 | % | |
| 4.0 | % |
SCHEDULE OF OPERATING LEASES
| |
September 30, 2022 | | |
December 31, 2021 | |
Operating leases | |
| | | |
| | |
Right-of-use assets | |
$ | 1,624 | | |
$ | 2,177 | |
| |
| | | |
| | |
Short-term operating lease liabilities | |
$ | 481 | | |
$ | 592 | |
Long-term operating lease liabilities | |
| 1,705 | | |
| 2,299 | |
Total operating lease liabilities | |
$ | 2,186 | | |
$ | 2,891 | |
SCHEDULE OF PRESENT VALUE OF LEASE LIABILITIES
Year ending | |
Operating Leases | |
2022 remaining | |
$ | 150 | |
2023 | |
| 583 | |
2024 | |
| 472 | |
2025 | |
| 484 | |
2026 and thereafter | |
| 705 | |
Total lease payments | |
| 2,394 | |
Less: Imputed interest/present value discount | |
| (208 | ) |
Present value of lease liabilities | |
$ | 2,186 | |
6.
ADVANCES ON FUTURE RECEIPTS
The
Company has the following advances on future receipts as of September 30, 2022 and December 31, 2021:
SCHEDULE OF ADVANCES ON FUTURE RECEIPTS
Note | |
Issuance Date | |
Maturity Date | |
Interest Rate | | |
Original Borrowing | | |
Balance as of September 30, 2022 | | |
Balance as of December 31, 2021 | |
| |
| |
| |
| | |
| | |
| | |
| |
Note 1 | |
October 29, 2021 | |
April 28, 2022 | |
| 5 | % | |
$ | 2,120 | | |
$ | - | | |
$ | 1,299 | |
Note 2 | |
October 29, 2021 | |
July 25, 2022 | |
| 28 | % | |
| 3,808 | | |
| - | | |
| 2,993 | |
Note 3 | |
December 23, 2021 | |
June 22, 2022 | |
| 5 | % | |
| 689 | | |
| - | | |
| 689 | |
Note 4 | |
August 25, 2022 | |
May 11, 2023 | |
| 26 | % | |
| 3,400 | | |
| 2,971 | | |
| - | |
Total | |
| |
| |
| | | |
$ | 10,017 | | |
| 2,971 | | |
| 4,981 | |
Debt discount | |
| |
| |
| | | |
| | | |
| (697 | ) | |
| (800 | ) |
Debt issuance costs | |
| |
| |
| | | |
| | | |
| (77 | ) | |
| - | |
Net | |
| |
| |
| | | |
| | | |
$ | 2,197 | | |
$ | 4,181 | |
Note
1
On
October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,015 for the purchase of future receipts/revenues
of $2,120. During the nine months ended September 30, 2022, the Company paid $1,270 and amortized $41 of the debt discount. The note
was paid in full on April 28, 2022. As of September 30, 2022, the outstanding balance of the note was $0 and the unamortized balance
of the debt discount was $0.
Note
2
On
October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,744 for the purchase of future receipts/revenues
of $3,808. During the nine months ended September 30, 2022, the Company paid $2,993 and amortized $694 of the debt discount. The note
was paid in full on August 17, 2022. As of September 30, 2022, the outstanding balance of the note was $0 and the unamortized balance
of the debt discount was $0.
Note
3
On
December 23, 2021, the Company received secured advances from an unaffiliated third party totaling $651 for the purchase of future receipts/revenues
of $689. During the nine months ended September 30, 2022, the Company paid $689 and amortized $36 of the debt discount. The note was
paid in full on June 22, 2022. As of September 30, 2022, the outstanding balance of the note was $0 and the unamortized balance of the
debt discount was $0.
Note
4
On
August 25, 2022, the Company received secured advances from an unaffiliated third party totaling $2,500 for the purchase of future receipts/revenues
of $3,400. In connection with the secured advance, the Company paid $100 of debt issuance costs which will be amortized over the term
using the effective interest rate method. During the nine months ended September 30, 2022, the Company paid $429 and amortized $203 and
$23 of the debt discount and debt issuance costs, respectively. As of September 30, 2022, the outstanding balance of the note was $2,971
and the unamortized balance of the debt discount and debt issuance costs were $697 and $77, respectively.
7.
CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
The
Company has the following outstanding notes payable as of September 30, 2022 and December 31, 2021:
SCHEDULE OF NOTES PAYABLE RELATED PARTIES
Note | |
Issuance Date | |
Maturity Date | |
Interest Rate | | |
Original Borrowing | | |
Balance as of September 30, 2022 | | |
Balance as of December 31, 2021 | |
Related party convertible note payable (A) | |
December 1, 2015 | |
April 1, 2023 | |
| 12.0 | % | |
$ | 1,249 | | |
$ | 725 | | |
$ | 725 | |
Related party convertible note payable (B) | |
April 4, 2016 | |
June 4, 2021 | |
| 12.0 | % | |
| 343 | | |
| 40 | | |
| 40 | |
Note payable (C) | |
May 15, 2020 | |
May 15, 2050 | |
| 3.75 | % | |
| 150 | | |
| 150 | | |
| 150 | |
Convertible Notes Due 2023 (D) | |
January 12, 2022 | |
January 12, 2023 | |
| 6.0 | % | |
$ | 6,300 | | |
| 3,560 | | |
| - | |
Debt discount | |
| |
| |
| | | |
| | | |
| (61 | ) | |
| - | |
Debt issuance costs | |
| |
| |
| | | |
| | | |
| (93 | ) | |
| - | |
Total notes payable | |
| |
| |
| | | |
| | | |
| 4,321 | | |
| 915 | |
Non-current | |
| |
| |
| | | |
| | | |
| (150 | ) | |
| (875 | ) |
Current | |
| |
| |
| | | |
| | | |
$ | 4,171 | | |
$ | 40 | |
|
(A) |
On
December 1, 2015, the Company issued a convertible note payable to Mr. Cutaia, the Company’s Chief Executive Officer and a
director, to consolidate all loans and advances made by Mr. Cutaia to the Company as of that date. On May 19, 2021, the Company amended
the note to allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price of $1.03, which
was the closing price of the common stock on the amendment date. On May 12, 2022, the maturity date of the note was extended to April
1, 2023. As of September 30, 2022, and December 31, 2021, the outstanding balance under the note was $725. |
|
|
|
|
(B) |
On
April 4, 2016, the Company issued a convertible note payable to Mr. Cutaia, in the amount of $343, to consolidate all advances made
by Mr. Cutaia to the Company during the period December 2015 through March 2016. On May 19, 2021, the Company amended the note to
allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price of $1.03, which was the
closing price of the common stock on the amendment date. As of September 30, 2022 and December 31, 2021, the outstanding balance
under the note was $40. |
|
(C) |
On
May 15, 2020, the Company executed an unsecured loan with the SBA under the Economic Injury Disaster Loan program in the amount of $150.
Installment payments, including principal and interest, began on October 26, 2022. Prior
to September 30, 2022, the SBA approved an additional loan of $350 which is expected to be
received before the end of 2022. As of September 30, 2022, and December 31, 2021, the outstanding
balance of the note amounted to $150,
respectively.
|
|
(D) |
On
January 12, 2022, the Company entered into the January Note Offering, which provided for the sale and issuance of an aggregate
original principal amount of $6,300
in Convertible Notes Due 2023. The Company and the January Note Holders also entered into a security agreement, dated January 12,
2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the January Note
Holders in substantially all of its assets. There are no financial covenants related to these notes payable.
|
|
|
The
Company received $6,000 in gross proceeds from the sale of the Notes. The Notes bear interest of 6.0% per annum, have an original
issue discount of 5.0%, mature 12 months from the closing date, and have an initial conversion price of $3.00, subject to adjustment
in certain circumstances as set forth in the Notes. |
|
|
|
|
|
In
connection with the January Note Offering, the Company paid $460
of debt issuance costs. The debt issuance costs and the debt discount of $300
are being amortized over the term of the Notes using the effective interest rate method. During the nine months ended September 30,
2022, the Company amortized $239
of debt discount and $367
of debt issuance costs. As of September 30, 2022, the amount of unamortized debt discount and debt issuance costs was $61
and $93,
respectively. |
|
|
|
|
|
As
of September 30, 2022, and December 31, 2021, the outstanding balance of the Notes amounted to $3,560, and $0, respectively. During
the nine months ended September 30, 2022, the Company repaid $2,740 in principal payments to January Note Holders pursuant to
the terms of the Notes. |
|
|
|
|
|
On
October 28, 2022, the Company paid $1,172
towards principal and accrued interest on the Notes. The Company and January Note Holders agreed to interest
only payments with a final principal payment of $2,545
due on the maturity date. |
The
following table provides a breakdown of interest expense for the periods presented:
SCHEDULE OF INTEREST EXPENSE
| |
2022 | | |
2021 | |
| |
Three Months Ended September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Interest expense – amortization of debt discount | |
$ | 306 | | |
$ | 497 | |
Interest expense – amortization of debt issuance costs | |
| 126 | | |
| - | |
Interest expense – other | |
| 118 | | |
| 28 | |
| |
| | | |
| | |
Total interest expense | |
$ | 550 | | |
$ | 525 | |
Total
interest expense for notes payable to related parties (see Notes A and B above) was $23 and $27 for the three months ended September
30, 2022 and 2021, respectively. The Company paid $0 and $78 in interest to related parties for the three months ended September 30,
2022 and 2021, respectively.
The
following table provides a breakdown of interest expense for the periods presented:
| |
2022 | | |
2021 | |
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Interest expense – amortization of debt discount | |
$ | 1,214 | | |
$ | 1,537 | |
Interest expense – amortization of debt issuance costs | |
| 390 | | |
| - | |
Interest expense – other | |
| 344 | | |
| 92 | |
| |
| | | |
| | |
Total interest expense | |
$ | 1,948 | | |
$ | 1,629 | |
Total
interest expense for notes payable to related parties (see Notes A and B above) was $69 and $88 for the nine months ended September 30,
2022 and 2021, respectively. The Company paid $0 and $112 in interest to related parties for the nine months ended September 30, 2022
and 2021, respectively.
8.
DERIVATIVE LIABILITY
In
prior years, the Company granted certain warrants that included a fundamental transaction provision that could give rise to an obligation
to pay cash to the warrant holder. As a result, the fundamental transaction clause of these warrants is accounted for as a derivative
liability in accordance with ASC 815 and are being re-measured every reporting period with the change in value reported in the Company’s
condensed consolidated statements of operations.
The
derivative liabilities were valued using a Binomial pricing model with the following assumptions:
SCHEDULE OF DERIVATIVE LIABILITY USING BINOMIAL PRICING MODEL ASSUMPTIONS
| |
September 30, 2022 | | |
December 31, 2021 | |
Stock Price | |
$ | 0.47 | | |
$ | 1.24 | |
Exercise Price | |
$ | 0.75 | | |
$ | 1.11 | |
Expected Life | |
| 2.23 | | |
| 2.97 | |
Volatility | |
| 101 | % | |
| 119 | % |
Dividend Yield | |
| 0 | % | |
| 0 | % |
Risk-Free Interest Rate | |
| 4.23 | % | |
| 0.97 | % |
Total Fair Value | |
$ | 795 | | |
$ | 3,155 | |
The
expected life of the warrants was based on the remaining contractual term of the instruments. The Company uses the historical volatility
of its common stock to estimate the future volatility for its common stock. The expected dividend yield was based on the fact that the
Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based
on rates established by the Federal Reserve Bank.
During
the nine months ended September 30, 2022, the Company recorded a gain of $2,360 to account for the changes in the fair value of these
derivative liabilities.
During
the nine months ended September 30, 2021, the Company recorded expense of $2,086
to account for the changes in the fair value of these derivative liabilities. In addition, 1,829,190
shares of the Series A warrants that were accounted for as a derivative liability were exercised and 33,334
shares were forfeited. As a result, the Company computed the fair value of the corresponding derivative liability one last time
which amounted to $4,513
and the extinguishment was accounted for as part of equity.
The
details of derivative liability transactions for the nine months ended September 30, 2022 and 2021 are as follows:
SCHEDULE OF DERIVATIVE LIABILITY TRANSACTIONS
| |
2022 | | |
2021 | |
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 3,155 | | |
$ | 8,266 | |
Change in fair value | |
| (2,360 | ) | |
| 2,086 | |
Extinguishment | |
| - | | |
| (4,513 | ) |
Ending balance | |
$ | 795 | | |
$ | 5,839 | |
9.
COMMON STOCK
The
Company’s common stock activity for the nine months ended September 30, 2022, was as follows:
During
the nine months ended September 30, 2022, the Company issued 14,666,667 shares of common stock as part of the April Registered Direct
Offering, which resulted in proceeds of $10,242, net of offering costs of $758.
During
the nine months ended September 30, 2022, the Company issued 11,096,683 shares of common stock pursuant to the January Purchase Agreement,
which resulted in proceeds of $9,836, net of offering costs of $197. In addition, the Company issued 607,287 shares of common stock as
a commitment fee in connection with the consummation of the transactions contemplated by the January Purchase Agreement.
During
the nine months ended September 30, 2022, the Company issued 1,813,251 shares of common stock to certain employees and vendors for services
rendered and to be rendered with an aggregate grant date fair value of $1,461. These shares of common stock were valued based on the
closing price of the Company’s common stock on the date of the issuance or the date the Company entered into the agreement related
to the issuance.
During
the nine months ended September 30, 2022, the Company issued 189,394 shares of common stock to the Company’s Chief Executive Officer
in lieu of the cash payment of a bonus accrued in a prior year, with an aggregate grant date fair value of $100 based on the closing
price of the Company’s common stock on the date of issuance.
During
the nine months ended September 30, 2022, the Company issued 227,136 shares of common stock to the Company’s former Chief Financial
Officer as part of a separation agreement, with an aggregate grant date fair value of $277 based on the closing price of the Company’s
common stock on the date of issuance.
During
the nine months ended September 30, 2022, the Company issued 587,347 shares of common stock to certain officers, employees and directors
associated with the vesting of restricted stock units.
10.
RESTRICTED STOCK UNITS
A
summary of restricted stock unit activity for the nine months ended September 30, 2022, is presented below.
SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY
| |
| | |
Weighted- | |
| |
| | |
Average | |
| |
| | |
Grant Date | |
| |
Shares | | |
Fair Value | |
| |
| | |
| |
Non-vested as of January 1, 2022 | |
| 1,821,833 | | |
$ | 1.41 | |
Granted | |
| 1,334,270 | | |
| 1.17 | |
Vested/deemed vested | |
| (587,347 | ) | |
| 1.54 | |
Forfeitures and other | |
| (496,907 | ) | |
| 1.33 | |
Non-vested as of September 30, 2022 | |
| 2,071,849 | | |
$ | 1.24 | |
During
the nine months ended September 30, 2022, the Company granted 1,334,270 restricted stock units to certain officers, employees and directors.
The restricted stock units vest on various dates from January 2023 through March 2026. These restricted stock units were valued based
on the closing price of the Company’s common stock on the respective dates of issuance and had an aggregate grant date fair value
of $1,561, which is being amortized as share-based compensation expense over the respective vesting terms.
The
total fair value of restricted stock units that vested during the three and nine months ended September 30, 2022, was $311 and $876,
respectively. As of September 30, 2022, the remaining share-based compensation expense associated with previously issued restricted stock
units was $1,741 which will be recognized in future periods as the units vest. When calculating basic net loss per share, these shares
are included in weighted average common shares outstanding from the time they vest.
11.
STOCK OPTIONS
A
summary of option activity for the nine months ended September 30, 2022, is presented below.
SCHEDULE OF STOCK OPTION ACTIVITY
| |
| | |
| | |
Weighted- | | |
| |
| |
| | |
Weighted- | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
| | |
Exercise | | |
Contractual | | |
Intrinsic | |
| |
Options | | |
Price | | |
Life (Years) | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding as of January 1, 2022 | |
| 5,404,223 | | |
$ | 1.72 | | |
| 2.24 | | |
$ | 107 | |
Granted | |
| 2,741,555 | | |
| 1.06 | | |
| - | | |
| - | |
Forfeited | |
| (2,560,929 | ) | |
| 1.70 | | |
| - | | |
| - | |
Exercised | |
| (332,730 | ) | |
| 1.13 | | |
| - | | |
| - | |
Outstanding as of September 30, 2022 | |
| 5,252,119 | | |
$ | 1.55 | | |
| 2.00 | | |
$ | 19 | |
| |
| | | |
| | | |
| | | |
| | |
Vested as of September 30, 2022 | |
| 2,707,084 | | |
$ | 1.81 | | |
| | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable as of September 30, 2022 | |
| 1,686,439 | | |
$ | 2.22 | | |
| | | |
$ | - | |
As of
September 30, 2022, the intrinsic value of the outstanding options was $19.
During
the nine months ended September 30, 2022, the Company granted stock options to certain employees and consultants to purchase a total
of 2,741,555 shares of common stock for services rendered or to be rendered. The options have an average exercise price of $1.06 per
share, terms between one and five years, and vest between zero and four years from the respective grant dates. The total grant date fair
value of these options was approximately $2,622 using the Black-Scholes option pricing model. The total share-based compensation expense
recognized relating to the vesting of stock options for the three and nine months ended September 30, 2022, was $387 and $1,292, respectively.
As of September 30, 2022, the remaining share-based compensation expense associated with previously issued stock options was $2,793,
which will be recognized in future periods as the options vest.
During
the nine months ended September 30, 2022, a total of 332,730 stock options were exercised. As a result of the exercise of the option,
the Company issued 332,730 shares of common stock and received cash of $377.
The
grant date fair value of option awards is estimated using the Black-Scholes option pricing model based on the following assumptions:
SCHEDULE OF FAIR VALUE ASSUMPTIONS USING BLACK-SCHOLES METHOD
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
Risk-free interest rate | |
| 1.24% - 3.37 | % | |
| 0.10% - 0.92 | % |
Average expected term | |
| 5 years | | |
| 5
years | |
Expected volatility | |
| 143.6 – 149.5 | % | |
| 232.8 - 240.0 | % |
Expected dividend yield | |
| - | | |
| - | |
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected
term of the share option award; the expected term represents the weighted-average period of time that option awards are expected to be
outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based
upon historical volatility of the Company’s common stock; and the expected dividend yield is based on the fact that the Company
has not paid dividends in the past and does not expect to pay dividends in the future.
12.
STOCK WARRANTS
The
Company has the following warrants outstanding as of September 30, 2022:
SCHEDULE OF WARRANTS OUTSTANDING
| |
Warrants | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Life (Years) | | |
Aggregate Intrinsic Value | |
| |
| | |
| | |
| | |
| |
Outstanding as of January 1, 2022, all vested | |
| 10,984,740 | | |
$ | 2.67 | | |
| 2.38 | | |
$ | 507 | |
Granted, unvested as of September 30, 2022 | |
| 14,666,667 | | |
| 0.75 | | |
| 5.07 | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding as of September 30, 2022 | |
| 25,651,407 | | |
$ | 1.52 | | |
| 3.52 | | |
$ | - | |
In
connection with the April Registered Direct Offering on April 20, 2022, the Company issued 14,666,667 warrants to purchase common stock
with a vesting period of six months and an exercise price of $0.75. As a result of the April Registered Direct Offering, 3,704,826
warrants outstanding as of January 1, 2022, with exercise prices ranging from $1.10 to $2.10 per share, had the exercise prices reduced to $0.75 per share.
The change in fair value of such warrants as a result of the new exercise price is approximately $200 and the Company accounted for this
change as part of the change in fair value of derivative liability (see Note 8). In October 2022, the Company entered into the October
Purchase Agreement and as a result of this transaction, certain warrants which previously had an exercise price of $0.75 per share had the exercise price reduced to $0.34 per share (see Note 14). As of September 30, 2022, the intrinsic value of the outstanding warrants was $0.
13.
COMMITMENTS AND CONTINGENCIES
Litigation
The
Company is currently in a dispute with a former employee of its predecessor bBooth, Inc. who has interposed a breach of contract claim
in which he alleges that he is entitled to approximately $300 in unpaid bonus compensation from 2015. This former employee filed his
complaint in the Superior Court of California for the County of Los Angeles on November 20, 2019, styled Meyerson v. Verb Technology
Company, Inc., et al. (Case No. 19STCV41816). The Company does not believe the former employee’s claims have any merit as they
are contradicted by documentary evidence, and barred by the applicable statute of limitations, and barred by a release. On February 9,
2021, the former employee’s counsel filed a motion for summary judgment, or in the alternative, summary adjudication against the
Company. On October 13, 2021, the court issued an order (i) denying the former employee’s motion for summary judgment, (ii) partly
granting the former employee’s motion for summary adjudication, and (iii) partly denying the former employee’s motion for
summary adjudication. The court has set a trial date of December 28, 2022. The Company believes the resolution of this matter will not
have a material adverse effect on the Company or its operations.
|
b. |
Legal
Malpractice Action |
The
Company is currently in a dispute with Baker Hostetler LLP (“BH”) relating to corporate legal services provided by BH to
the Company. The Company filed its complaint in the Superior Court of California for the County of Los Angeles on May 17, 2021, styled
Verb Technology Company, Inc. v. Baker Hostetler LLP, et al. (Case No. 21STCV18387). The Company’s complaint arises from
BH’s alleged legal malpractice, breach of fiduciary duties owed to the Company, breach of contract, and violations of California’s
Business and Professions Code Section 17200 et seq. The Company is seeking, amongst other things, compensatory damages from BH. On October
5, 2021, BH filed a cross-complaint against the Company alleging, amongst other things, that the Company owes it approximately $915 in
legal fees. The Company disputes owing this amount to BH. The Company believes that the resolution of these matters will not have a material
adverse effect on the Company or its operations.
|
c. |
Dispute
with Warrant Holder |
The
Company is currently in a dispute with Iroquois Capital Investment Group LLC and Iroquois Master Fund, Ltd (collectively, “Iroquois”)
relating to a securities purchase agreement (the “SPA”) entered between the Company, Iroquois and certain other investors.
The Company filed a complaint in the Supreme Court of New York for the County of New York on April 6, 2022, styled Verb Technology
Company, Inc. v. Iroquois Capital Investment Group LLC, et al. (Index No. 651708/2022). The Company’s complaint seeks a judicial
declaration of its duties and obligations under the SPA. On May 5, 2022, Iroquois filed counterclaims against the Company for declaratory
relief, breach of contract, and breach of the implied covenant of good faith and fair dealing relating to the SPA. Iroquois alleges damages
of $1,500. The Company disputes Iroquois’ counterclaims and damages allegations. The Company intends to vigorously pursue its claims
and to vigorously defend itself against the counterclaims. The Company believes that the resolution of these matters will not have a
material adverse effect on the Company or its operations.
From
time to time, the Company is involved in various other legal proceedings, disputes or claims arising from or related to the normal course
of its business activities. Although the results of legal proceedings, disputes and other claims cannot be predicted with certainty,
the Company believes it is not currently a party to any other legal proceedings, disputes or claims which, if determined adversely to
the Company, would, individually or taken together, have a material adverse effect on the Company’s business, operating results,
financial condition or cash flows. However, regardless of the merit of the claims raised or the outcome, legal proceedings may have an
adverse impact on the Company as a result of defense and settlement costs, diversion of management time and resources, and other factors.
14.
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through November 14, 2022, the date these condensed consolidated financial statements were issued.
There were no material events or transactions that require disclosure in the financial statements other than the items discussed below.
Equity
Financing
Subsequent
to September 30, 2022, the Company issued 867,741 shares and received $302 of net proceeds associated with at-the-market (“ATM”)
issuances.
On
October 25, 2022, the Company entered into the October Purchase Agreement, which provides for the sale and issuance by the Company of
an aggregate of (i) 12,500,000 shares of Common Stock, at a purchase price of $0.32 per share, and (ii) warrants
to purchase 12,500,000 shares of the common stock at an exercise price of $0.34 per share, for aggregate gross proceeds of $4,000 before
deducting placement agent commissions and other offering expenses. As a result of this transaction, certain warrants which previously
had an exercise price of $0.75 per share had the exercise price reduced to $0.34 per share.
In addition, the Company paid $1,172
towards principal and accrued interest on the Notes. The Company and the January Note Holders also agreed to
interest only payments with a final principal payment of $2,545
due on the maturity date.
Debt
Financing
Subsequent
to September 30, 2022, the Company received secured advances from an unaffiliated third party totaling $225 for the purchase of future
receipts/revenues of $322. In connection with the secured advance, the Company paid $11 of debt issuance costs which will be amortized
over the term using the effective interest rate method.
On
November 7, 2022, the Company entered into the November Note Purchase Agreement with the November Note Holder providing for the sale
and issuance of an unsecured, non-convertible promissory note in the original principal amount of $5,470,
which has an original issue discount of $470,
resulting in gross proceeds to the Company of approximately $5,000. The November Note matures eighteen months following the date of issuance. Commencing six months from the date of issuance, the Company is required to make monthly cash redemption payments in an amount not to exceed $600. The November Note may be repaid in whole or in part prior to the maturity date for a 10% premium. The November Note requires the Company to use 20% of the gross proceeds raised from future equity or debt financings, or the sale of any subsidiary or material asset, to prepay the November Note, subject to a cap on the aggregate prepayment amount. Until all obligations under the November Note have been paid in full, the Company is
not permitted to grant a security interest in any of its assets, or to issue securities convertible into shares of Common Stock,
subject in each case to certain exceptions. verbMarketplace, LLC entered into a guaranty, dated November 7, 2022, in connection with
the November Note Offering, pursuant to which it guaranteed the obligations of the Company under the November Note in exchange for
receiving a portion of the loan proceeds.
Issuance
of Common Stock
Subsequent
to September 30, 2022, the Company issued 187,523
shares of common stock to vendors for services
rendered with a grant date fair value of $64.
These shares of common stock were valued based on the closing price of the Company’s common stock on the date of issuance or the
date the Company entered into the agreement related to the issuance.
Subsequent
to September 30, 2022, the Company issued 6,185 shares of common stock to certain employees associated with the vesting
of restricted stock units.
Issuances
of Stock Options
Subsequent
to September 30, 2022, the Company granted stock options to certain employees to purchase a total of 32,000
stock options for services to be rendered. The options have an average exercise price of $0.38
per share, expire in five
years, and vest four
years from grant date. The total grant date fair
value of these options was $8
based on the Black-Scholes option pricing model.
Other
On November 9, 2022,
the Company received a written notification from the Nasdaq Stock Market Listing Qualifications Staff (the “Staff”) indicating
that the Company has been granted an additional 180-calendar-day period, or until May 8, 2023, to regain compliance with the $1.00 minimum
closing bid price requirement for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rules (the “Minimum
Bid Price Requirement”).
Nasdaq’s determination
was based on (i) the Company having met the continued listing requirement for market value of publicly held shares and all other applicable
requirements for initial listing on the Nasdaq Capital Market, with the sole exception of the Minimum Bid Price Requirement, and (ii)
the Company’s written notice to Nasdaq of its intention to cure the deficiency during the compliance period, including by potentially
effecting a reverse stock split if necessary. If, at any time during this additional compliance period, the closing bid price of
the Common Stock is at least $1.00 per share for a minimum of ten consecutive trading days, Nasdaq will provide written confirmation of
compliance. If compliance cannot be demonstrated by May 8, 2023, the Staff will provide written notification that the Company’s
securities will be delisted, provided that the Company may appeal the Staff’s determination to a Hearings Panel of Nasdaq at that
time.
The Company will
monitor the closing bid price of its Common Stock and will consider various options to regain compliance with the Minimum Bid Price Requirement
before May 8, 2023.