TONX 10-Q
TON Strategy Co (TONX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from ________ to ________
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
The
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒
As of August 10, 2022, there were shares of common stock, $0.0001 par value per share, outstanding.
VERB TECHNOLOGY COMPANY, INC.
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the three months ended June 30, 2022 (this “Quarterly Report”), includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not statements of historical facts and can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those expressions. Forward-looking statements also include the assumptions underlying or relating to such statements.
Our forward-looking statements are based on our management’s current beliefs, assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations, financial performance or liquidity. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Some of the risks and uncertainties that may impact our forward-looking statements include, but are not limited to, the following factors:
● our incursion of significant net losses and uncertainty whether we will be able to achieve or maintain profitable operations;
● our ability to continue as a going concern;
● our ability to grow and compete in the future, and to execute our business strategy;
● our ability to maintain and expand our customer base and our ability to convince our customers to increase the use of our services and/or platform;
● the competitive market in which we operate;
● our ability to increase the number of our strategic relationships and grow the revenues from our current strategic relationships;
● our ability to develop enhancements and new features to our existing service or acceptable new services that keep pace with technological developments;
● our ability to successfully launch new product platforms, including MARKET, the rate of adoption of these platforms and the revenue generated from these platforms;
● the novel coronavirus (“COVID-19”) pandemic, which has had a negative impact on our business, sales, results of operations and financial condition;
● our ability to deliver our services, as we depend on third party Internet providers;
● our ability to raise additional capital or borrow additional funds to fund our operations and execute our business strategy, and the impact of these transactions on our business and existing stockholders;
● our ability to attract and retain qualified management personnel to lead our business;
● our ability to pay our debt obligations as they become due;
● our susceptibility to security breaches and other disruptions; and
● global economic, political, and social trends, including inflation, rising interest rates, and recessionary concerns.
The foregoing list may not include all of the risk factors that impact the forward-looking statements made in this Quarterly Report. Our actual financial condition and results could differ materially from those expressed or implied by our forward-looking statements as a result of various additional factors, including those discussed in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Quarterly Report and in the Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022 (the “2021 Annual Report”), as well as in the other reports we file with the SEC. You should read this Quarterly Report, and the other documents we file with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by our forward-looking statements.
We operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.
Forward-looking statements speak only as of the date they were made, and, except to the extent required by law or the rules of the Nasdaq Capital Market, we undertake no obligation to update or review any forward-looking statement because of new information, future events or other factors.
We qualify all of our forward-looking statements by these cautionary statements.
| 3 |
PART I — FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
| 4 |
VERB TECHNOLOGY COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Capitalized software development costs | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued officers’ salary | ||||||||
| Advances on future receipts, net | ||||||||
| Notes payable, current | ||||||||
| Deferred incentive compensation to officers, current | ||||||||
| Operating lease liabilities, current | ||||||||
| Contract liabilities | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Notes payable, non-current | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized: Series A Convertible Preferred Stock, shares authorized; issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Class A units, shares issued and authorized as of June 30, 2022 and December 31, 2021 | ||||||||
| Class B units, shares authorized, issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 5 |
VERB TECHNOLOGY COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | ||||||||||||||||
| Digital revenue | ||||||||||||||||
| SaaS recurring subscription revenue | $ | $ | $ | $ | ||||||||||||
| Other digital revenue | ||||||||||||||||
| Total digital revenue | ||||||||||||||||
| Non-digital revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Digital | ||||||||||||||||
| Non-digital | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Debt extinguishment, net | ||||||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
| 6 |
VERB TECHNOLOGY COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)
(unaudited)
For the six months ended June 30, 2022:
| Preferred Stock | Class A Units | Class B Units | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Sale of common stock from public offering | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for commitment fee related to equity line of credit agreement | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from option exercise | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle accrued expenses | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock awards, stock options and warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2022:
| Preferred Stock | Class A Units | Class B Units | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Sale of common stock from public offering | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle accrued expenses | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock awards, stock options and warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| 7 |
For the six months ended June 30, 2021:
| Preferred Stock | Class A Units | Class B Units | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Sale of common stock from public offering | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from warrant exercise | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from option exercise | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle note payable – related party | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle lawsuit | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred to common stock | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock awards | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of vested stock options and warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Extinguishment of derivative liability upon exercise of warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle accrued expenses | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of warrants issued to officer to modify note payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Class B Units to common shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2021:
| Preferred Stock | Class A Units | Class B Units | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle note payable – related party | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle lawsuit | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock awards | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Fair value of vested stock options and warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Extinguishment of derivative liability upon exercise of warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle accrued expenses | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
| 8 |
VERB TECHNOLOGY COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of debt issuance costs | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Debt extinguishment, net | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Loss on lease termination | ||||||||
| Loss on disposal of property and equipment | ( | ) | ||||||
| Allowance for doubtful accounts | ||||||||
| Effect of changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Operating lease right-of-use assets | ||||||||
| Accounts payable, accrued expenses, and accrued interest | ||||||||
| Contract liabilities | ||||||||
| Deferred incentive compensation | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing Activities: | ||||||||
| Proceeds from sale of property and equipment | ||||||||
| Capitalized software development costs | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ||||||
| Purchases of intangible assets | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Financing Activities: | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from notes payable | ||||||||
| Advances on future receipts | ||||||||
| Proceeds from warrant exercise | ||||||||
| Payment of notes payable | ( | ) | ||||||
| Payment of advances on future receipts | ( | ) | ( | ) | ||||
| Proceeds from option exercise | ||||||||
| Payment for debt issuance costs | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ||||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 9 |
VERB TECHNOLOGY COMPANY, INC.
Notes to Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 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, we use the terms “client” and “customer” 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 more recently, we introduced 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.
| 10 |
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 six months ended June 30, 2022, the Company incurred a net loss
of $
On
January 12, 2022, the Company entered into a common stock purchase agreement (the “Common Stock 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 $
On
January 12, 2022, the Company also entered into a securities purchase agreement with three institutional investors (collectively, the
“Note Holders”) providing for the sale and issuance of an aggregate original principal amount of $
On
April 20, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”), which provides for
the sale and issuance by the Company of an aggregate of (i) shares
of the Company’s common stock, $par
value per share, at a purchase price of $per
share, and (ii) warrants to purchase
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 may need to seek to raise additional capital, borrow additional funds, dispose of assets, reduce or delay capital expenditures, or change its business strategy. There can be no assurance that the Company will ever be profitable or 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 our current stockholders and could include rights or preferences senior to those the current stockholders. Obtaining commercial loans would increase the Company’s liabilities and future cash commitments and potentially impose significant operational or financial restrictions. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the Company may be unable to continue its business, as planned, and as a result may be required to scale back or cease operations, which may result in the stockholders 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.
| 11 |
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 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, which are now outsourced to a strategic partner as part of a cost reduction plan instituted in 2020, 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 will earn a certain percentage for customer referrals and merchandise sales as well as a cart site design fee, 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. Other than promotional activities, which can vary from time to time but nevertheless are entirely within the Company’s control, contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. The control of products we sell transfers to our customers upon shipment from our facilities, and our performance obligations are satisfied at that time. 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 six months ended June 30, 2022 and 2021 were immaterial.
Revenues during the three and six months ended June 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.
| 12 |
Cost of Revenue
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 depreciation. Depreciation begins once the project has been completed and is ready for
its intended use. The Company will depreciate 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. As of June 30, 2022 and December
31, 2021, the Company capitalized $
Depreciation
expense related to capitalized software development costs are recorded in cost of revenue in the condensed consolidated statements
of operations. There was
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.
| 13 |
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.
The Company issues stock options and 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.
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.
As of June 30, 2022, and 2021, the Company had total outstanding options of and , respectively, warrants of and , respectively, outstanding restricted stock units of and , respectively, and Convertible Notes Due 2023 that are convertible into 1,495,289 and 0 shares at $3.00 per share, respectively, which were all excluded from the computation of net loss per share because they are anti-dilutive.
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 $
The Company evaluates
the concentration of credit risk associated with key customers. During the three and six months ended June 30, 2022 and 2021, we had no
customers that accounted for
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 June 30, 2022 and
December 31, 2021, we had no customers that accounted for
The
Company also evaluates the concentration of credit risk associated with key vendors. For
the three and six months ended June 30, 2022, we had one vendor that accounted for
| 14 |
Supplemental Cash Flow Information
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Fair value of derivative liability extinguished | ||||||||
| Fair value of common shares issued to settle accrued expenses | ||||||||
| Reclassification of Class B Units upon conversion to common stock | ||||||||
| Fair value of common stock issued to settle notes payable – related party | ||||||||
| Fair value of common stock received in exchange for employee’s payroll taxes | ||||||||
| Fair value of common stock issued for future services | ||||||||
| Discount recognized from advances on future receipts | ||||||||
| Fair value of common stock issued to settle lawsuit | ||||||||
| Accrued software development costs | ||||||||
| Discount recognized from notes payable | ||||||||
| Derecognition of operating lease right-of-use assets | ||||||||
| Derecognition of operating lease liabilities | ||||||||
| Recognition of operating lease right-of-use asset and related lease liability | ||||||||
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.
| 15 |
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 this ASU as of 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, a livestream ecommerce platform, and has capitalized $
There
has been
| 16 |
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 assuming 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 successfully completed the Primary Contractor Audit prior to May 15, 2022 (or a subsequent mutually agreed upon date) and 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:
June 30, 2022 | December 31, 2021 | |||||||
| Amortizable finite-lived intangible assets | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Finite-lived intangible assets, net | ||||||||
| Indefinite-lived intangible assets | ||||||||
| Intangible assets, net | $ | $ | ||||||
Amortizable
finite-lived intangible assets are being amortized over a period of to
The expected future amortization expense for amortizable finite-lived intangible assets as of June 30, 2022, is as follows:
| Year ending | Amortization | |||
| 2022 remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total amortization | $ | |||
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 $
On
April 26, 2022, the Company entered into an office space sub-lease agreement.
| 17 |
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Lease cost | ||||||||
| Operating lease cost (included in general and administrative expenses in the Company’s condensed consolidated statements of operations) | $ | $ | ||||||
| Other information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term – operating leases (in years) | ||||||||
| Weighted average discount rate – operating leases | % | % | ||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Operating leases | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Short-term operating lease liabilities | $ | $ | ||||||
| Long-term operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Year ending | Operating Leases | |||
| 2022 remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total lease payments | ||||
| Less: Imputed interest/present value discount | ( | ) | ||
| Present value of lease liabilities | $ | |||
6. ADVANCES ON FUTURE RECEIPTS
The Company has the following advances on future receipts as of June 30, 2022 and December 31, 2021:
| Note | Issuance Date | Maturity Date | Interest Rate | Original Borrowing | Balance at June 30, 2022 | Balance at December 31, 2021 | ||||||||||||||
| Note 1 | % | $ | $ | $ | ||||||||||||||||
| Note 2 | % | |||||||||||||||||||
| Note 3 | % | |||||||||||||||||||
| Total | $ | |||||||||||||||||||
| Debt discount | ( | ) | ( | ) | ||||||||||||||||
| Net | $ | $ | ||||||||||||||||||
| 18 |
Note 1
On
October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $
Note 2
On
October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $
Note 3
On
December 23, 2021, the Company received secured advances from an unaffiliated third party totaling $
7. NOTES PAYABLE
The Company has the following outstanding notes payable as of June 30, 2022 and December 31, 2021:
| Note | Issuance Date | Maturity Date | Interest Rate | Original Borrowing | Balance at June 30, 2022 | Balance at December 31, 2021 | ||||||||||||||
| Related party note payable (A) | % | $ | $ | $ | ||||||||||||||||
| Related party note payable (B) | % | |||||||||||||||||||
| Note payable (C) | % | |||||||||||||||||||
| Convertible Notes Due 2023 (D) | % | $ | ||||||||||||||||||
| Debt discount | ( | ) | ||||||||||||||||||
| Debt issuance costs | ( | ) | ||||||||||||||||||
| Total notes payable | ||||||||||||||||||||
| Non-current | ( | ) | ( | ) | ||||||||||||||||
| Current | $ | $ | ||||||||||||||||||
| (A) | ||
| (B) |
| 19 |
| (C) |
| |
| (D) |
| |
The
Company received $
In
connection with the Note Offering, the Company incurred $
As
of June 30, 2022, and December 31, 2021, the outstanding balance of the Notes amounted to $
Beginning
on May 12, 2022, the Company was required to make nine monthly principal payments of $ |
The following table provides a breakdown of interest expense for the periods presented:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Interest expense – amortization of debt discount | $ | $ | ||||||
| Interest expense – amortization of debt issuance costs | ||||||||
| Interest expense – other | ||||||||
| Total interest expense | $ | $ | ||||||
Total
interest expense for notes payable to related parties (see Notes A and B above) was $
The following table provides a breakdown of interest expense for the periods presented:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Interest expense – amortization of debt discount | $ | $ | ||||||
| Interest expense – amortization of debt issuance costs | ||||||||
| Interest expense – other | ||||||||
| Total interest expense | $ | $ | ||||||
Total
interest expense for notes payable to related parties (see Notes A and B above) was $
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.
| 20 |
The derivative liabilities were valued using a Binomial pricing model with the following assumptions:
| June 30, 2022 | December 31, 2021 | |||||||
| Stock Price | $ | $ | ||||||
| Exercise Price | $ | $ | ||||||
| Expected Life | ||||||||
| Volatility | % | % | ||||||
| Dividend Yield | % | % | ||||||
| Risk-Free Interest Rate | % | % | ||||||
| Total Fair Value | $ | $ | ||||||
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 six months ended June 30, 2022, the Company recorded a gain of $ to account for the changes in the fair value of these derivative liabilities during the period.
During
the six months ended June 30, 2021, the Company recorded expense of $
The details of derivative liability transactions for the six months ended June 30, 2022 and 2021 are as follows:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Change in fair value | ( | ) | ||||||
| Extinguishment | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
9. COMMON STOCK
The Company’s common stock activity for the six months ended June 30, 2022, was as follows:
During
the six months ended June 30, 2022, the Company issued shares of common stock as part of a Registered Direct Offering, which resulted in proceeds of $
During
the six months ended June 30, 2022, the Company issued
shares of common stock pursuant to the Common Stock Purchase Agreement, which resulted in proceeds of $
| 21 |
During
the six months ended June 30, 2022, the Company issued shares of common stock to certain employees and
vendors for services rendered and to be rendered with an aggregate grant date fair value of $
During
the six months ended June 30, 2022, the Company issued
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 $
The
Company also issued 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 $
During the six months ended June 30, 2022, the Company issued shares of common stock to certain officers, employees and directors associated with the vesting of restricted stock units.
10. RESTRICTED STOCK UNITS
| Weighted- | ||||||||
| Average | ||||||||
| Grant Date | ||||||||
| Shares | Fair Value | |||||||
| Non-vested at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested/deemed vested | ( | ) | ||||||
| Forfeitures and other | ( | ) | ||||||
| Non-vested at June 30, 2022 | $ | |||||||
During the six months ended June 30, 2022, the Company granted restricted stock units to certain officers, employees and directors. . 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 $, which is being amortized as share-based compensation expense over the respective vesting terms.
| 22 |
The total fair value of restricted stock units that vested during the three and six months ended June 30, 2022, was $ and $, respectively. As of June 30, 2022, the remaining share-based compensation expense associated with previously issued restricted stock units was $ 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. When calculating diluted net loss per share, these shares are included in weighted average common shares outstanding as of their grant date.
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Options | Price | Life (Years) | Value | |||||||||||||
| Outstanding at January 1, 2022 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Outstanding at June 30, 2022 | $ | $ | 26 | |||||||||||||
| Vested June 30, 2022 | $ | $ | - | |||||||||||||
| Exercisable at June 30, 2022 | $ | $ | - | |||||||||||||
At June 30, 2022, the intrinsic value of the outstanding options was $.
During
the six months ended June 30, 2022, the Company granted stock options to certain employees and consultants to purchase a total of
shares of common stock for services rendered or to be rendered. The options have an average exercise price of $
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 $
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 six months ended June 30, 2022, was $
During the six months ended June 30, 2022, a total of stock options were exercised. As a result of the exercise of the option, the Company issued
shares of common stock and received cash of $
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Risk-free interest rate | % - | % | % - | % | ||||
| Average expected term | years | years | ||||||
| Expected volatility | – | % | - | % | ||||
| Expected dividend yield | ||||||||
| 23 |
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 share option awards granted 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 June 30, 2022:
| Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2022, all vested | $ | $ | ||||||||||||||
| Granted, unvested as of June 30, 2022 | 5.32 | - | ||||||||||||||
| Forfeited | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Outstanding at June 30, 2022 | $ | $ | ||||||||||||||
In
connection with the Registered Direct Offering, the Company issued
13. COMMITMENTS AND CONTINGENCIES
Litigation
| a. | Former Employee |
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 $
| 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 $
| 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 $
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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 August 15, 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.
Issuance of Common Stock
Subsequent
to June 30, 2022, the Company issued shares of common stock to vendors for services
rendered with a grant date fair value of $
Subsequent to June 30, 2022, the Company issued shares of common stock to certain officers and employees associated with the vesting of restricted stock units.
Issuances of Stock Options
Subsequent to June 30, 2022, the Company granted stock options to certain employees to purchase a total of stock options for services to be rendered. The options have an average exercise price of $ per share, expire in , and vest four years from grant date. The total grant date fair value of these options was $ based on the Black-Scholes option pricing model.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion and analysis of the results of operations and financial condition of our company for the three and six month periods ended June 30, 2022 and 2021 should be read in conjunction with the financial statements and related notes and the other financial information that are included elsewhere this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical fact and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to business decisions, are subject to change. These uncertainties and contingencies can cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
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.
Overview
We are a Software-as-a-Service (“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 more recently, we introduced 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.
Our Technology
Our suite of applications can be distinguished from other sales enablement applications because our applications utilize our proprietary interactive video technology as the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and analytics capabilities of our applications inform our users on their devices in real time, when and for how long their prospects have watched a video, how many times such prospects watched it, and what they clicked on, which allows our users to focus their time and efforts on ‘hot leads’ or interested prospects rather than on those that have not seen such video or otherwise expressed interest in such content. Users can create their hot lead lists by using familiar, intuitive ‘swipe left/swipe right’ on-screen navigation. Our clients report that these capabilities provide for a much more efficient and effective sales process, resulting in increased sales conversion rates. We developed the proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending technologies that serve as the unique foundation for all our platform applications.
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Our Products
verbCRM combines the capabilities of CRM lead-generation, content management, and in-video ecommerce capabilities in an intuitive, yet powerful tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users to quickly and easily create, distribute, and post videos to which they can add a choice of on-screen clickable icons which, when clicked, allow viewers to respond to the user’s call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology allows a prospect or customer to click on a product they see featured in a video and impulse buy it, or to click on a calendar icon in the video to make an appointment with a salesperson, among many other features and functionalities designed to eliminate or reduce friction from the sales process for our users. The verbCRM app is designed to be easy to use and navigate and takes little time and training for a user to begin using the app effectively. It usually takes less than four minutes for a novice user to create an interactive video from our app. Users can add interactive icons to pre-existing videos, as well as to newly created videos shot with practically any mobile device. verbCRM interactive videos can be distributed via email, text messaging, chat app, or posted to popular social media directly and easily from our app. No software download is required to view Verb interactive videos on virtually any mobile or desktop device, including smart TVs.
verbLEARN is an interactive, video-based learning management system that incorporates all of the clickable in-video technology featured in our verbCRM application and adapts them for use by educators for video-based education. verbLEARN is used by enterprises seeking to educate a large sales team or a customer base about new products, or elicit feedback about existing products. It also incorporates Verb’s proprietary data collection and analytics capabilities that inform users in real time when and for how long the viewers watched the video, how many times they watched it, and what they clicked on, in addition to adding gamification features that enhance the learning aspects of the application.
verbLIVE builds on popular video-based platforms such as Facebook Live, Zoom, WebEx, and Go2Meeting, among others, by adding Verb’s proprietary interactive in-video ecommerce capabilities – including an in-video Shopify shopping cart integrated for Shopify account holders – to our own live stream video broadcasting application. verbLIVE is a next-generation live-stream platform that allows hosts to utilize a variety of novel sales-driving features, including placing interactive icons on-screen that appear on the screens of all viewers, providing in-video click-to-purchase capabilities for products or services featured in the live video broadcast, in real-time, driving friction-free selling. verbLIVE also provides the host with real-time viewer engagement data and interaction analytics. verbLIVE is entirely browser-based, allowing it to function easily and effectively on all devices without requiring the host or the viewers to download software, and is secured through end-to-end encryption.
verbPULSE is a business/augmented intelligence notification-based sales enablement platform feature set that tracks users’ interactions with current and prospective customers and then helps coach users by telling them what to do next in order to close the sale, virtually automating the selling process.
verbTEAMS is our interactive, video-based CRM for professional sports teams, small-and medium-sized businesses and solopreneurs. verbTEAMS also incorporates verbLIVE as a bundled application. verbTEAMS features self-sign-up, self-onboarding, self-configuring, content management system capabilities, user level administrative capabilities, and high-quality analytics capabilities in both mobile and desktop platforms that sync with one another. It also has a built-in one-click sync capability with Salesforce.
MARKET is akin to a virtual shopping mall, a centralized online destination where shoppers could explore hundreds, and over time thousands, of shoppable stores for their favorite brands, influencers, creators and celebrities, all of whom can and will host livestream shopping events from their virtual stores that can be seen by all shoppers at the virtual mall. Every store operator can host livestream events, even simultaneously, and over time we expect there will be thousands of such events, across numerous product and service categories, being hosted by people from all over the world, always on – 24/7 - where shoppers could communicate with the hosts and ask questions about products directly to the host in real-time through an on-screen chat visible to all shoppers. Shoppers can invite their friends and family to join them at any of the events to share the experience - to communicate directly with each other in real time, and then simply click on a non-intrusive - in-video overlay to place items in an on-screen shopping cart for purchase – all without interrupting the video. Shoppers can visit any number of other shoppable events to meet up and chat with friends, old and new, and together watch, shop and chat with the hosts, discover new products and services, and become part of an immersive entertaining shopping experience. Throughout the experience, the shopping cart follows shoppers seamlessly from event to event, shoppable video to shoppable video, host to host, product to product.
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The MARKET business model is a simple but next-level B to B play. It is a multi-vendor platform, with a single follow-me style unified shopping cart, and robust ecommerce capabilities with the tools for consumer brands, big box brick and mortar stores, boutiques, influencers and celebrities to connect with their clients, customers, their fans, followers, and prospects by providing a unique, interactive social shopping experience that we believe could keep them coming back and engaged for hours.
A big differentiator for MARKET is that it also provides an online meeting place for friends and family to meet, chat, shop and enjoy a fun, immersive shopping experience in real time together from anywhere and everywhere in the world. MARKET will provide vendors with extensive business building analytics capabilities not available on, and not shared by many operators of other social media sites who regard that information as valuable proprietary property. All vendors on MARKET will retain this valuable intelligence for their own, unlimited use.
MARKET allows vendors an opportunity to reach not only the shoppers they invite to the site from their own client and contact lists, but also those shoppers who came to the site independently who will discover these vendors as they browse through the many other shoppable events hosted simultaneously on MARKET 24/7, from around the world. We believe our revenue model will be attractive to vendors and will consist of SaaS recurring revenue as well as a share of revenue generated through sales on the platform.
MARKET is simply a platform; we hold no inventory, we take no inventory risk, and each vendor manages their own packing and fulfillment, as well as returns. Only vendors that have a demonstrated ability to manage inventory and fulfillment are selected to participate on MARKET.
As we continue onboarding vendors to the platform, we are seeing increased interest from product manufacturers seeking to embrace MARKET’s direct-to-consumer selling capabilities, cutting-out distribution channel partners in order to reduce costs and increase profitability. As the economy tightens, we expect that trend to accelerate.
MARKET will also incorporate a modified version of our verbLIVE Attribution technology, allowing vendors who so choose, to leverage extremely powerful, built-in affiliate marketing capabilities. Non-vendor visitors to the site can search for those vendors that have activated the Attribution feature for their events and be compensated when people they referred to that vendor, purchase products or services during that vendor’s shopping event. We expect that this feature, unique to MARKET, will drive many more shoppers who will be referred from all over the world, producing a cross-pollination effect enhancing the revenue opportunities for all MARKET vendors, while also creating an attractive income generating opportunity for non-vendor MARKET patrons.
MARKET is an entirely new platform, built wholly independently and separate from our verbLIVE sales platform, representing what we believe is the state of the art of shoppable video technology. It will utilize an ultra-low latency private global CDN network that we control, allowing us to deliver a high-quality experience and platform performance capabilities. We also believe that MARKET will expose vendors to our entire suite of sales enablement products, such as verbMAIL, among others, that could drive new cross selling revenue opportunities.
verbTV is an online destination for shoppable entertainment. Whereas MARKET is a social shopping experience, verbTV is a destination for those seeking commercial-free television content, such as concerts, game shows, sports, including e-sports, sitcoms, podcasts, special events, news, including live events, and other forms of video entertainment that is all interactive and shoppable. verbTV represents an entirely new distribution channel for all forms of content by a new generation of content creators looking for greater freedom to explore the creative possibilities that a native interactive video platform can provide for their audience. We believe content creators may also enjoy greater revenue opportunities through the native ecommerce capabilities the platform provides to sponsors and advertisers who will enjoy real-time monetization, data collection and analytics. Through verbTV, sponsors and advertisers will be able to accurately measure the ROI from their marketing spend, instead of relying on decades-old, imprecise viewership information.
At launch, verbTV will feature interactive, shoppable programming, including the popular business pitch show “2 Minute Drill,” the non-shoppable version of which is currently shown on AppleTV. Each episode is a fast-paced reality show where 5-6 entrepreneurs competing for $50,000 in cash and prizes, have 2 minutes to impress the judges with the best investor pitch. Our CEO is one of the judges on the show. verbTV viewers will be able to click on-screen and purchase the products and services of the contestants featured on the show, among other contemplated interactive features. Dave Meltzer, the creator of the show, and Co-founder of Sports 1 Marketing and the former CEO of the renowned Leigh Steinberg Sports & Entertainment agency, has signed-on with Verb to produce other interactive and shoppable entertainment for verbTV. Other such partnerships, as well as a creator program, are currently in progress.
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Verb Partnerships and Integrations
verbMAIL for Microsoft Outlook is a product of our partnership with Microsoft and is available as an add-in to Microsoft Outlook for Outlook and Office 365 subscribers. verbMAIL allows users to create interactive videos seamlessly within Outlook by clicking the verbMAIL icon in the Outlook toolbar. The videos are automatically added to an email and can be sent easily through Outlook using the user’s contacts they already have in Outlook. The application allows users to easily track viewer engagement and together with other features represents an effective sales tool available for all Outlook users worldwide.
Salesforce Integration. We have completed and deployed the integration of verbLIVE into Salesforce and have launched a joint marketing campaign with Salesforce to introduce the verbLIVE plug-in functionality to current Salesforce users. We have also developed a verbCRM sync application for Salesforce users that is currently being utilized by at least one of our large enterprise clients and the verbLIVE plug-in is now being offered to all Salesforce users on a monthly subscription fee basis while we work to build adoption rates.
Popular Enterprise Back-Office System Integrations. We have integrated verbCRM into systems offered by 19 of the most popular direct sales back-office system providers, such as Direct Scale, Exigo, By Design, Thatcher, Multisoft, Xennsoft, and Party Plan. Direct sales back-office systems provide many of the support functions required for direct sales operations, including payroll, customer genealogy management, statistics, rankings, and earnings, among other direct sales financial tracking capabilities. The integration into these back-office providers, facilitated through our own API development, allows single sign-on convenience for users, as well as enhanced data analytics and reporting capabilities for all users. Our experience confirms that our integration into these back-end platforms accelerates the adoption of verbCRM by large direct sales enterprises that rely on these systems and as such, we believe this represents a competitive advantage.
Non-Digital Products and Services
Historically, we provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences and other events. We also managed the fulfillment of our clients’ product sample packs that verbCRM users order through the app for automated delivery and tracking to their customers and prospects.
In May 2020, we executed a contract with Range Printing (“Range”), a company in the business of providing enterprise class printing, sample assembly, warehousing, packaging, shipping, and fulfillment services. Pursuant to the contract, through an automated process we have established for this purpose, Range receives orders for samples and merchandise from us as and when we receive them from our clients and users, and print, assemble, store, package and ship such samples and merchandise on our behalf. The Range contract provides for a service fee arrangement based upon the specific services to be provided by Range that is designed to maintain our relationship with our clients by continuing to service their non-digital needs, while eliminating the labor and overhead costs associated with the provision of such services by us. Effective April 1, 2022, we entered into a customer referral agreement with Range for our cart site and printing business. Under the agreement, we will earn 10% commission for customers referrals, 8% on merchandize sales and certain cart site design fee which will all be recognized as non-digital revenue. Prior to entering into such agreement, we were recognizing revenues and cost of revenues associated with such business in the condensed consolidated statements of operations.
Our Market
Historically, our client base consisted primarily of multi-national direct sales enterprises to whom we provide white-labeled, client-branded versions of our products. During the year ended December 31, 2021, our client base expanded to include large enterprises in the life sciences sector, professional sports franchises, educational institutions, and not-for-profit organizations, as well as clients in the entertainment industry, and the burgeoning CBD industry, among other business sectors. As of June 30, 2022, we provided subscription-based application services to approximately 150 enterprise clients for use in over 100 countries, in over 48 languages, which collectively account for a user base generated through more than 3.4 million downloads of our verbCRM application. Among the new business sectors targeted for this year are medical equipment and pharmaceutical sales, armed services and government institutions, small businesses and individual entrepreneurs.
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Revenue Generation
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 our verb app products and platform services which include verbCRM, verbLEARN, verbLIVE, verbPULSE, and verbTeams. The revenue is recognized 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 and the app is delivered to the customer. |
| 2. | Non-digital revenue, which is revenue we generate from non-app, non-digital sources through ancillary services we provide as an accommodation to our clients and customers. These services, which we now outsource to a strategic partner as part of a cost reduction plan we instituted in 2020, include design, printing services, fulfillment and shipping services. The revenue is recognized upon completion and shipment of products or fulfillment to customers. 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 will earn certain percentage for customer referrals and merchandize sales as well as a cart site design fee, all of which will be recognized as non-digital revenue on a net basis. | |
| 3. | MARKET will generate revenue through several sources as follows: |
| a. | All sales run through our ecommerce facility on MARKET from which we deduct a platform fee that ranges from 10% to 35% of gross sales, with an average of between 15-20%, depending upon the pricing package the vendors select as well as the product category and profit margins associated with such categories. The revenue is derived from sales generated during livestream events, from viewers of previously recorded events available in each vendor’s store, as well as from sales of product and merchandise done through the vendors’ stores, all of which are available 24/7. |
| b. | Produced events. MARKET will offer fee-based services that range from full production of a livestream event, to providing professional hosts and event consulting. |
| c. | The MARKET site is designed to incorporate sponsorships and other advertising based on typical industry rates. |
Economic Disruption and the COVID-19 Pandemic
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. We cannot predict the timing or impact 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.
Governments and businesses around the world continue to take actions to mitigate the spread of COVID-19 and its variants. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
Despite increased vaccine distribution programs and loosening of COVID-19 related restrictions in the regions in which we operate during the three and six months ended June 30, 2022, both the pandemic and ongoing containment and mitigation measures have had, and are likely to continue to have, an adverse impact on the global and U.S. economies, the severity and duration of which are uncertain. As such, our business, operations and financial condition has been, and we anticipate will continue to be, adversely impacted by reduced demand for our applications and non-digital services, as well as reduced access to capital. To mitigate the adverse impact COVID-19 may have on our business and operations, we implemented a number of measures to strengthen our financial position, including eliminating, reducing, or deferring non-essential expenditures. However, the extent to which the COVID-19 pandemic will impact our business, financial conditions, and results of operations in the future remains uncertain and will be affected by a number of factors, including the duration and extent of the pandemic, the emergence of variants to COVID-19 the duration and extent of imposed or recommended containment and mitigation measures, the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of effective vaccines.
The COVID-19 pandemic may have long-term effects on the nature of the office environment and remote working. This may present operational and workplace culture challenges that may adversely affect our business. Throughout the three and six months ended June 30, 2022, we have encouraged safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond and to maintain the mental health and well-being of our employees.
We continue to actively communicate with and listen to our customers to ensure we are responding to their needs in the current environment with innovative solutions that will not only be beneficial now but also over the long-term. We monitor developments related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic.
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Results of Operations
Three Months Ended June 30, 2022 as Compared to the Three Months Ended June 30, 2021
The following is a comparison of our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):
| Three Months Ended June 30, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Revenue | ||||||||||||
| Digital revenue | ||||||||||||
| SaaS recurring subscription revenue | $ | 1,975 | $ | 1,601 | $ | 374 | ||||||
| Other digital revenue | 186 | 209 | (23 | ) | ||||||||
| Total digital revenue | 2,161 | 1,810 | 351 | |||||||||
| Non-digital revenue | 238 | 582 | (344 | ) | ||||||||
| Total revenue | 2,399 | 2,392 | 7 | |||||||||
| Cost of revenue | ||||||||||||
| Digital | 609 | 569 | 40 | |||||||||
| Non-digital | 226 | 550 | (324 | ) | ||||||||
| Total cost of revenue | 835 | 1,119 | (284 | ) | ||||||||
| Gross margin | 1,564 | 1,273 | 291 | |||||||||
| Operating expenses | ||||||||||||
| Research and development | 1,382 | 3,213 | (1,831 | ) | ||||||||
| Depreciation and amortization | 395 | 400 | (5 | ) | ||||||||
| General and administrative | 6,562 | 6,542 | 20 | |||||||||
| Total operating expenses | 8,339 | 10,155 | (1,816 | ) | ||||||||
| Loss from operations | (6,775 | ) | (8,882 | ) | 2,107 | |||||||
| Other income (expense) | ||||||||||||
| Interest expense | (642 | ) | (596 | ) | (46 | ) | ||||||
| Change in fair value of derivative liability | 1,024 | (2,445 | ) | 3,469 | ||||||||
| Other income (expense) | 19 | 20 | (1 | ) | ||||||||
| Debt extinguishment, net | - | 91 | (91 | ) | ||||||||
| Total other income, net | 401 | (2,930 | ) | 3,331 | ||||||||
| Net loss | $ | (6,374 | ) | $ | (11,812 | ) | $ | 5,438 | ||||
Revenue
Our SaaS recurring subscription revenues continue to grow year over year, which is a reflection of our systematic investment in our business. SaaS recurring subscription revenue as a percentage of total revenue for the three months ended June 30, 2022, was 82%, compared to 67% for the three months ended June 30, 2021.
For the three months ended June 30, 2022, our total digital revenue was 90% of total revenue compared with 76% for the three months ended June 30, 2021. Total digital revenue for the three months ended June 30, 2022 was $2.2 million, an increase of 19% compared to $1.8 million for the three months ended June 30, 2021. The increase was primarily driven from SaaS recurring subscription-based revenue associated with our verbCRM, verbLIVE, verbTEAMS, verbLEARN, and verbPULSE applications totaling $2.0 million, an increase of 23% compared to $1.6 million reported for the three months ended June 30, 2021.
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Total non-digital revenue for the three months ended June 30, 2022, was $0.2 million, a decrease of 59% compared to $0.6 million reported for the three months ended June 30, 2021, which is consistent with the Company’s strategy to exit the low margin printing, fulfillment, and shipping aspects of the legacy business to focus on digital revenue streams.
The table below sets forth our quarterly revenues from the three months ended June 30, 2020 through the three months ended June 30, 2022, which reflects the trend of revenue over the past nine fiscal quarters (in thousands):
| 2020 Quarterly Revenue | 2021 Quarterly Revenue | 2022 | ||||||||||||||||||||||||||||||||||
| Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | ||||||||||||||||||||||||||||
| SaaS recurring subscription revenue | $ | 1,274 | $ | 1,478 | $ | 1,305 | $ | 1,461 | $ | 1,601 | $ | 1,846 | $ | 1,923 | $ | 2,003 | $ | 1,975 | ||||||||||||||||||
| Other digital | 406 | 360 | 218 | 340 | 209 | 510 | 288 | 147 | 186 | |||||||||||||||||||||||||||
| Total digital revenue | 1,680 | 1,838 | 1,523 | 1,801 | 1,810 | 2,356 | 2,211 | 2,150 | 2,161 | |||||||||||||||||||||||||||
| Total non-digital revenue | 972 | 1,022 | 576 | 725 | 582 | 544 | 495 | 541 | 238 | |||||||||||||||||||||||||||
| Grand total | $ | 2,652 | $ | 2,860 | $ | 2,099 | $ | 2,526 | $ | 2,392 | $ | 2,900 | $ | 2,706 | $ | 2,691 | $ | 2,399 | ||||||||||||||||||
Cost of Revenue
Total cost of revenue for the three months ended June 30, 2022, was $0.8 million, compared to $1.1 million for the three months ended June 30, 2021, reflecting a 25% decline. The decrease in cost of revenue is primarily attributed to a decrease in non-digital costs partially offset by increased digital costs to support additional enterprise customers on the platform and increased users within our existing customer base.
Gross Margin
Total gross margin for the three months ended June 30, 2022, was $1.6 million, compared to $1.3 million for the three months ended June 30, 2021, representing a 23% improvement. Gross margins improved as a result of our strategy to focus on higher margin digital revenue and systematic reduction in non-digital revenue.
Operating Expenses
Research and development expenses were $1.4 million for the three months ended June 30, 2022, as compared to $3.2 million for the three months ended June 30, 2021, reflecting a 57% reduction. Research and development expenses primarily consisted of fees paid to employees and vendors contracted to perform research projects and develop technology. As our products move from research and development mode to operating mode, we expect our research and development cost reductions to continue, as experienced during the three months ended June 30, 2022.
Depreciation and amortization expenses were $0.4 million for the three months ended June 30, 2022, and June 30, 2021.
General and administrative expenses for the three months ended June 30, 2022, were $6.6 million as compared to $6.5 million for the three months ended June 30, 2021, materially flat despite inflationary pressure. Our general and administrative expenses remained flat primarily increasing labor costs of $0.7 million, marketing and promotion of $0.2 million, and other expenses of $0.1 million to support future growth with anticipated product launches. These increases were offset by a decrease in professional services of $1.1 million due to the completion of the implementation of NetSuite ERP system at the beginning of the year and a legal settlement that occurred in the comparable prior year period.
Other income, net, for the three months ended June 30, 2022, was $0.4 million, which was primarily attributable to a change in the fair value of derivative liability of $1.0 million, offset by interest expense of $0.6 million.
Six Months Ended June 30, 2022 as Compared to the Six Months Ended June 30, 2021
The following is a comparison of our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):
| Six Months Ended June 30, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Revenue | ||||||||||||
| Digital revenue | ||||||||||||
| SaaS recurring subscription revenue | $ | 3,978 | $ | 3,062 | $ | 916 | ||||||
| Other digital revenue | 333 | 549 | (216 | ) | ||||||||
| Total digital revenue | 4,311 | 3,611 | 700 | |||||||||
| Non-digital revenue | 779 | 1,307 | (528 | ) | ||||||||
| Total revenue | 5,090 | 4,918 | 172 | |||||||||
| Cost of revenue | ||||||||||||
| Digital | 1,166 | 1,109 | 57 | |||||||||
| Non-digital | 642 | 1,225 | (583 | ) | ||||||||
| Total cost of revenue | 1,808 | 2,334 | (526 | ) | ||||||||
| Gross margin | 3,282 | 2,584 | 698 | |||||||||
| Operating expenses | ||||||||||||
| Research and development | 2,962 | 6,097 | (3,135 | ) | ||||||||
| Depreciation and amortization | 804 | 814 | (10 | ) | ||||||||
| General and administrative | 13,598 | 13,885 | (287 | ) | ||||||||
| Total operating expenses | 17,364 | 20,796 | (3,432 | ) | ||||||||
| Loss from operations | (14,082 | ) | (18,212 | ) | 4,130 | |||||||
| Other income (expense) | ||||||||||||
| Interest expense | (1,398 | ) | (1,104 | ) | (294 | ) | ||||||
| Change in fair value of derivative liability | 2,162 | (1,945 | ) | 4,107 | ||||||||
| Other income (expense) | (45 | ) | 74 | (119 | ) | |||||||
| Debt extinguishment, net | - | 1,030 | (1,030 | ) | ||||||||
| Total other income, net | 719 | (1,945 | ) | 2,664 | ||||||||
| Net loss | $ | (13,363 | ) | $ | (20,157 | ) | $ | 6,794 | ||||
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Revenue
SaaS recurring subscription revenue as a percentage of total revenue for the six months ended June 30, 2022, was 78%, compared to 62% for the six months ended June 30, 2021.
For the six months ended June 30, 2022, our total digital revenue was 85% of total revenue compared with 73% for the six months ended June 30, 2021. Total digital revenue for the six months ended June 30, 2022 was $4.3 million, an increase of 19% compared to $3.6 million for the six months ended June 30, 2021. The increase was primarily driven from SaaS recurring subscription-based revenue associated with our verbCRM, verbLIVE, verbTEAMS, verbLEARN, and verbPULSE applications totaling $4.0 million, an increase of 30% compared to $3.1 million reported for the six months ended June 30, 2021.
Total non-digital revenue for the six months ended June 30, 2022, was $0.8 million compared to $1.3 million, a decrease of 40% reported for the six months ended June 30, 2021, which is consistent with the Company’s strategy to exit the low margin printing, fulfillment, and shipping aspects of the legacy business to focus on digital revenue streams.
Cost of Revenue
Total cost of revenue for the six months ended June 30, 2022, was $1.8 million, compared to $2.3 million for the six months ended June 30, 2021, reflecting a 23% decrease. The decrease in cost of revenue is primarily attributed to a decrease in non-digital costs partially offset by increased digital costs to support additional enterprise customers on the platform and increased users within our existing customer base.
Gross Margin
Total gross margin for the six months ended June 30, 2022, was $3.3 million, compared to $2.6 million for the six months ended June 30, 2021, representing a 27% improvement. Gross margins improved as a result of our strategy to focus on higher margin digital revenue and systematic reduction in non-digital revenue.
Operating Expenses
Research and development expenses were $3.0 million for the six months ended June 30, 2022, as compared to $6.1 million for the six months ended June 30, 2021, reflecting a 51% reduction. Research and development expenses primarily consisted of fees paid to employees and vendors contracted to perform research projects and develop technology. As our products move from research and development mode to operating mode, we expect our research and development cost reductions to continue, as experienced during the six months ended June 30, 2022.
Depreciation and amortization expenses were $0.8 million for the six months ended June 30, 2022, and June 30, 2021.
General and administrative expenses for the six months ended June 30, 2022, were $13.6 million, as compared to $13.9 million for the six months ended June 30, 2021, representing a 2% decrease despite inflationary pressure. The decrease in general and administrative expenses is primarily due to lower spending on marketing and promotion of $0.2 million, a decrease of $0.8 million in professional services and other, combined with a decrease in share-based compensation of $1.1 million, offset by an increase in labor costs of $1.8 million to support future growth with anticipated product launches.
Other income, net, for the six months ended June 30, 2022, was $0.7 million, which was primarily attributable to a change in the fair value of derivative liability of $2.1 million, offset by interest expense of $1.4 million.
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Use of Non-GAAP Measures – Modified EBITDA
In addition to our results under generally accepted accounting principles (“GAAP”), we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, share-based compensation, financing costs and changes in fair value of derivative liability.
Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net loss | $ | (6,374 | ) | $ | (11,812 | ) | $ | (13,363 | ) | $ | (20,157 | ) | ||||
| Adjustments: | ||||||||||||||||
| Depreciation and amortization | 395 | 400 | 804 | 814 | ||||||||||||
| Share-based compensation | 1,317 | 1,264 | 2,618 | 3,666 | ||||||||||||
| Interest expense | 642 | 596 | 1,398 | 1,104 | ||||||||||||
| Change in fair value of derivative liability | (1,024 | ) | 2,445 | (2,162 | ) | 1,945 | ||||||||||
| Other (income)/ expense | (19 | ) | (20 | ) | 45 | (74 | ) | |||||||||
| Debt extinguishment, net | - | (91 | ) | - | (1,030 | ) | ||||||||||
| Other non-recurring | - | - | 126 | - | ||||||||||||
| Total EBITDA adjustments | 1,311 | 4,594 | 2,829 | 6,425 | ||||||||||||
| Modified EBITDA | $ | (5,063 | ) | $ | (7,218 | ) | $ | (10,534 | ) | $ | (13,732 | ) | ||||
The $2.2 million increase in Modified EBITDA for the three months ended June 30, 2022, compared to the same period in 2021, resulted from increased revenues, decreases in cost of revenue, research and development, and professional services offset by an increase in labor related costs to support future growth.
The $3.2 million increase in Modified EBITDA for the six months ended June 30, 2022, compared to the same period in 2021, resulted from increased revenues, decreases in cost of revenue, research and development, professional services, and marketing and promotion, offset by an increase in labor related costs to support future growth.
We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:
| ● | Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; | |
| ● | Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | |
| ● | Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and |
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| ● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements. |
Liquidity and Capital Resources
Going Concern
We have incurred operating losses and negative cash flows from operations since inception. We incurred a net loss of $13.4 million during the six months ended June 30, 2022. We also utilized cash in operations of $11.0 million during the six months ended June 30, 2022. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations.
On January 12, 2022, we entered into a common stock purchase agreement with Tumim Stone Capital LLC. 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 $50.0 million of newly issued shares of our common stock, par value $0.0001 per share 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 Common Stock Purchase Agreement.
On January 12, 2022, we also entered into a securities purchase agreement with three institutional investors providing for the sale and issuance of an aggregate original principal amount of $6.3 million in convertible notes due 2023. We also entered into a security agreement with the Note Holders, dated January 12, 2022, in connection with the Note Offering, pursuant to which we granted a security interest to the Note Holders in substantially all of its assets.
On April 20, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”), which provides for the sale and issuance by the Company of an aggregate of (i) 14,666,667 shares of the Company’s common stock, $0.0001 par value per share, at a purchase price of $0.75 per share, 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 “Registered Direct Offering”). The Purchase Agreement, among other things, restricts us from selling shares of Common Stock pursuant to the Common Stock Purchase Agreement and pursuant to an “at-the-market” offering previously entered into with Truist Securities. As a result of this transaction, certain of our Series A warrants which previously had exercise prices ranging from $1.10 to $2.10 per share were repriced to $0.75 per share. As a result of entering into the Purchase Agreement, the Company repaid $1.6 million in principal payments of the Notes issued pursuant to the Note Offering.
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 may need to seek to raise additional capital, borrow additional funds, dispose of assets, reduce or delay capital expenditures, or change its business strategy. There can be no assurance that the Company will ever be profitable or 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 our current stockholders and could include rights or preferences senior to those the current stockholders. Obtaining commercial loans would increase the Company’s liabilities and future cash commitments and potentially impose significant operational or financial restrictions. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the Company may be unable to continue its business, as planned, and as a result may be required to scale back or cease operations, which may result in the stockholders 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.
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Overview
As of June 30, 2022, we had cash of $5.5 million. We estimate our operating expenses for the next twelve months may continue to exceed any revenue we generate, and we may need to raise capital through either debt or equity offerings to continue operations. Due to market conditions and the early stage of our operations, there is considerable risk that we will not be able to raise such financings at all, or on terms that are not dilutive to our existing stockholders. We can offer no assurance that we will be able to raise such funds. If we are unable to raise the funds we require for all of our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and we may be forced to reduce or discontinue operations.
The following is a summary of our cash flows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 (in thousands):
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash used in operating activities | $ | (11,002 | ) | $ | (13,620 | ) | ||
| Cash (used in) / provided by investing activities | (4,211 | ) | 11 | |||||
| Cash provided by financing activities | 19,823 | 18,243 | ||||||
| Increase in cash | $ | 4,610 | $ | 4,634 | ||||
Cash Flows – Operating
For the six months ended June 30, 2022, our cash flows used in operating activities amounted to $11.0 million, compared to cash used for the six months ended June 30, 2021, of $13.6 million. We generated $2.6 million additional cash from operations due to higher revenues, decreases in research and development expenses, both offset by an increase in labor related costs to support future growth.
Cash Flows – Investing
For the six months ended June 30, 2022, our cash flows used in investing activities amounted to $4.2 million, primarily due to our investment in capitalized software development costs related to MARKET.
Cash Flows – Financing
Our cash provided by financing activities for the six months ended June 30, 2022 amounted to $19.8 million, which represented $20.1 million of net proceeds from the issuance of shares of our common stock, $6.0 million of gross proceeds from the issuance of notes payable, and proceeds from option exercises of $0.4 million, all offset by $4.4 million of payments on advances on future receipts, $1.9 million of payments on notes payable and payments for debt issuance costs of $0.4 million.
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Advances on Future Receipts
On October 29, 2021, we received secured advances from an unaffiliated third party totaling $2.7 million for the purchase of future receipts/revenues of $3.8 million. As of June 30, 2022, the outstanding balance of the note was $0.6 million. Subsequent to June 30, 2022, the remaining balance was paid in full.
Notes Payable
We have the following outstanding notes payable as of June 30, 2022 (in thousands):
| Note | Issuance Date | Maturity Date | Interest Rate | Original Borrowing | Balance at June 30, 2022 | |||||||||||
| Related party note payable (A) | December 1, 2015 | April 1, 2023 | 12.0 | % | $ | 1,249 | $ | 725 | ||||||||
| Related party note payable (B) | April 4, 2016 | June 4, 2021 | 12.0 | % | 343 | 40 | ||||||||||
| Note payable (C) | May 15, 2020 | May 15, 2050 | 3.75 | % | 150 | 150 | ||||||||||
| Convertible Notes Due 2023 (D) | January 12, 2022 | January 12, 2023 | 6.0 | % | $ | 6,300 | 4,404 | |||||||||
| Debt discount | (128 | ) | ||||||||||||||
| Debt issuance costs | (196 | ) | ||||||||||||||
| Total notes payable | 4,995 | |||||||||||||||
| Non-current | (875 | ) | ||||||||||||||
| Current | $ | 4,120 | ||||||||||||||
| (A) | On December 1, 2015, we 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 us as of that date. On May 12, 2022, the maturity date of the note was extended to April 1, 2023. As of June 30, 2022, the outstanding balance under the note was $0.7 million. |
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| (B) | On April 4, 2016, we issued a convertible note to Mr. Cutaia, in the amount of $0.3 million, to consolidate all advances made by Mr. Cutaia to us during the period December 2015 through March 2016. As of June 30, 2022, the outstanding balance under the note was less than $0.1 million. |
| (C) | On May 15, 2020, we executed an unsecured loan with the U.S. Small Business Administration (SBA) under the Economic Injury Disaster Loan program in the amount of $0.15 million. Installment payments, including principal and interest, will begin on October 15, 2022. As of June 30, 2022, the outstanding balance of the note amounted to $0.15 million.
| |
| (D) | On January 12, 2022, we entered into the Note Offering, which provided for the sale and issuance of an aggregate original principal amount of $6.3 million in convertible notes due 2023. We also entered into a security agreement, dated January 12, 2022, in connection with the Note Offering, pursuant to which the Company granted a security interest to the Note Holders in substantially all of its assets. There are no financial covenants related to these notes payable.
We received $6.0 million 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 Note Offering, we incurred $0.5 million of debt issuance costs. The debt issuance costs and the debt discount of $0.3 million are being amortized over the term of the Notes using the effective interest rate method. As of June 30, 2022, the amount of unamortized debt discount and debt issuance costs was $0.1 million and $0.2 million, respectively.
As of June 30, 2022, the outstanding balance of the Note amounted to $4.4 million. We have repaid $1.9 million in principal and $0.1 million of accrued interest.
Beginning on May 12, 2022, we were required to make nine monthly principal payments of $0.2 million, plus accrued interest, to the Note Holders, with the remaining principal amount of $2.4 million, plus accrued interest, due on the maturity date. The Note Holders agreed to allow us to defer the payment originally due on June 12, 2022 and to instead increase the amount of the principal payments required to be made beginning on July 12, 2022, to $0.3 million with the remaining principal amount of $2.4 million, plus accrued interest, due on the maturity date. There was no change in the aggregate amount of indebtedness as a result of this payment deferral. |
Critical Accounting Policies
The condensed consolidated financial statements have been prepared in accordance with GAAP, which require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.
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 revenues 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 for reserves of uncollectible accounts receivable, assumptions made in valuing assets acquired in business combinations, impairment testing of goodwill and other long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Some of those assumptions can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions
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Revenue Recognition
The Company derives its revenue primarily from providing application services through the SaaS application, digital marketing and sales support services.
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.
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 our 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 our 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 and the app is delivered to the customer. |
| 2. | Non-digital revenue, which is revenue we generate from non-app, non-digital sources through ancillary services we provide as an accommodation to our clients and customers. These services, which we now outsource to a strategic partner as part of a cost reduction plan we instituted in 2020, includes 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 will earn certain percentage for customer referrals, and merchandise sales as well as earn a cart site design fee, all of which will be recognized as non-digital revenue on a net basis. |
Derivative Financial Instruments
We evaluate our 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 sheets 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.
We use Level 2 inputs for our valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. Our 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 adjustments to fair value of derivatives.
Share-Based Compensation
The Company issues stock options and 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.
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Goodwill
In accordance with FASB ASC 350, Intangibles-Goodwill and Other, we review goodwill and indefinite lived intangible assets for impairment at least annually or whenever events or circumstances indicate a potential impairment. Our impairment testing is performed annually at December 31 (our fiscal year end). Impairment of goodwill and indefinite lived intangible assets is determined by comparing the fair value of our reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities.
Intangible Assets
We have certain intangible assets that were initially recorded at their fair value at the time of acquisition. The finite-lived intangible assets consist of developed technology and customer contracts. Indefinite-lived intangible assets consist of domain names. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful life of five years.
We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.
Recently Issued Accounting Pronouncements
For a summary of our recent accounting policies, refer to Note 2 - Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
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We carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d- 15(e) under the Exchange Act) as of June 30, 2022. Based on this evaluation, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of June 30, 2022 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
From time to time, the Company is involved in various 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.
For additional information, refer to Note 13 - Commitments and Contingencies to the condensed consolidated financial statements.
ITEM 1A. RISK FACTORS
An investment in our common stock and warrants involves risks. Before making an investment decision, you should carefully consider the information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in the condensed consolidated financial statements and the related notes contained within this Quarterly Report. In addition, you should carefully consider the risks and uncertainties described in the section titled “Risk Factors” in the 2021 Annual Report, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, operating results, financial condition and cash flows could be materially and adversely affected. In that case, the trading price of our common stock and the value of our warrants may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, operating results, financial condition and cash flows.
During the three months ended June 30, 2022, there were no material changes to the risks and uncertainties described in the section titled “Risk Factors” in the 2021 Annual Report.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
Reference is made to the exhibits listed on the Index to Exhibits.
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INDEX TO EXHIBITS
| * | Filed herewith. | |
| ** | The certifications shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VERB TECHNOLOGY COMPANY, INC. | ||
| Date: August 15, 2022 | By: | /s/ Rory J. Cutaia |
| Rory J. Cutaia | ||
| President, Chief Executive Officer, | ||
| Secretary, and Director | ||
| (Principal Executive Officer) | ||
| Date: August 15, 2022 | By: | /s/ Salman H. Khan |
| Salman H. Khan | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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