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)
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| (Address of principal executive offices) | (Zip Code) |
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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.
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| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
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As of November 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 September 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 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.live, 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, results of operations and financial condition;
● our ability to deliver our services, in light of our dependency 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;
● 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 our 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)
| September 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, net | ||||||||
| 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’ compensation | ||||||||
| Advances on future receipts, net | ||||||||
| Convertible 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 September 30, 2022 and December 31, 2021 | ||||||||
| Class A units, shares issued and authorized as of September 30, 2022 and December 31, 2021 | ||||||||
| Class B units, shares authorized, issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of September 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 September 30, | Nine Months Ended September 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividends to Series A stockholders | ( | ) | ( | ) | ||||||||||||
| Net loss to common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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 nine months ended September 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 as of 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 as of September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
For the three months ended September 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 as of June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Fair value of common shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock awards, stock options and warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| 7 |
For the nine months ended September 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 as of 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 warrants issued to Series A preferred stockholders – deemed dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle accounts payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| 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 as of September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
For the three months ended September 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 as of June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Sale of common stock from public offering | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from warrant exercise | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred to common stock | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||||||
| Fair value of warrants issued to Series A preferred stockholders – deemed dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Fair value of common shares issued to settle accounts payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| 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 from option exercise | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of September 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)
| Nine Months Ended September 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 | ||||||||
| (Gain)/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 | ||||||||
| Other 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 used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities: | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Advances on future receipts | ||||||||
| Proceeds from warrant exercise | ||||||||
| Payments of convertible notes payable | ( | ) | ||||||
| Payments of advances on future receipts | ( | ) | ( | ) | ||||
| Proceeds from option exercise | ||||||||
| Payments 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 Nine Months Ended September 30, 2022 and 2021
(in thousands, except share and per share data)
(unaudited)
1. DESCRIPTION OF BUSINESS
Our Business
References in this Quarterly Report to the “Company,” “Verb,” “we,” “us,” or “our” are to Verb Technology Company, Inc., together with its consolidated subsidiaries unless the context otherwise requires. Throughout this Quarterly Report, the terms “client” and “customer” are used interchangeably.
The Company is a SaaS applications platform developer. Our platform is comprised of a suite of interactive video-based sales enablement business software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer Relationship Management (“CRM”) application, verbLEARN, our Learning Management System application, verbLIVE, our Live Stream eCommerce application, verbPULSE, our business/augmented intelligence notification and sales coach application, and verbTEAMS, our self-onboarding video-based CRM and content management application for professional sports teams, small business and solopreneurs, with seamless synchronization with Salesforce, that also comes bundled with verbLIVE, and verbMAIL, our interactive video-based sales communication tool integrated into Microsoft Outlook. MARKET.live is our multi-vendor, multi-presenter, livestream social shopping platform that combines ecommerce and entertainment.
The Company also provides certain non-digital services to some of its enterprise clients such as printing and fulfillment services.
Economic Disruption
Our business is dependent in part on general economic conditions. Many jurisdictions in which our customers are located and our products are sold have experienced and could continue to experience unfavorable general economic conditions, such as inflation, increased interest rates and recessionary concerns, which could negatively affect demand for our products. Under difficult economic conditions, customers may seek to cease spending on our current products or fail to adopt our new products, which could negatively affect our financial performance. We cannot predict the timing or magnitude of an economic slowdown or the timing or strength of any economic recovery. These and other economic factors could have a material adverse effect on our business, financial condition, and results of operations.
COVID-19
As of the date of this filing, there continues to be concern regarding the ongoing impacts and disruptions caused by the COVID-19 pandemic in the regions in which the Company operates. Although the impacts of the pandemic on our business have not been material to date, a prolonged downturn in economic conditions as a result of the pandemic could have a material adverse effect on our customers and demand for our products. At this time, it is not possible for the Company to predict the duration or magnitude of the impacts of the pandemic, or other outbreaks of communicable diseases, on the Company’s business, financial condition and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 31, 2022 (the “2021 Annual Report”). The consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
Principles of Consolidation
The condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of Verb, Verb Direct, LLC, Verb Acquisition Co., LLC, and verbMarketplace, LLC. All intercompany accounts have been eliminated in the consolidation.
| 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 nine months ended September 30, 2022, the Company incurred a net loss of $
On
January 12, 2022, the Company entered into a common stock purchase agreement (the “January Purchase Agreement”) with
Tumim Stone Capital LLC (the “Investor”). Pursuant to the agreement, the Company has the right, but not the obligation,
to sell to the Investor, and the Investor is obligated to purchase, up to $
On
January 12, 2022, the Company also entered into a securities purchase agreement (the “January Note Purchase Agreement”)
with three institutional investors (collectively, the “January Note Holders”) providing for the sale and issuance of an
aggregate original principal amount of $
On
April 20, 2022, the Company entered into a securities purchase agreement, which provides for the sale and issuance by the Company of
an aggregate of (i)
shares of Common Stock, and (ii) warrants to purchase
As
of September 30, 2022, the Company had cash of $
The Company,
through its Professional Employer Organization, filed for federal government assistance for the second and third quarters of 2021 in
the aggregate amount of approximately $
Prior to September
30, 2022, the U.S. Small Business Administration (“SBA”) approved an additional loan of $
On
October 25, 2022, the Company entered into a securities purchase agreement (the “October Purchase Agreement”), which
provides for the sale and issuance by the Company of an aggregate of (i) shares
of Common Stock, at a purchase price of $per
share, and (ii) warrants to purchase
On
November 7, 2022, the Company entered into a note purchase agreement (the “November Note Purchase Agreement”) and promissory
note with an institutional investor (the “November Note Holder”) providing for the sale and issuance of an unsecured, non-convertible
promissory in the original principal amount of $
If the Company is unable to generate sufficient cash flow from operations to operate its business and pay its debt obligations as they become due, it will need to seek to raise additional capital, borrow additional funds, dispose of subsidiaries or assets, reduce or delay capital expenditures, or change its business strategy. However, in light of the restrictive covenants imposed by certain of the Company’s prior financing arrangements, in combination with the recent decline in the trading price of the Common Stock, the Company may be unable to raise additional capital in sufficient amounts when needed to operate its business, service its debt or execute on its strategic plans. Further, notwithstanding such restrictions, there can be no assurance that debt or equity financing will be available in the amounts, on terms, or at times deemed acceptable by the Company. The issuance of additional equity securities would result in significant dilution in the equity interests of the Company’s current stockholders and could include rights or preferences senior to those of the current stockholders. Borrowing additional funds would increase the Company’s liabilities and future cash commitments and potentially impose significant operational or financial restrictions and require the Company to further encumber its assets. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the Company may be unable to continue to operate its business or pay its obligations as they become due, and as a result may be required to curtail or cease operations, which may result in stockholders or noteholders losing some or all of their investment.
For additional information, refer to Note 1 to the condensed consolidated financial statements, and the section titled “Risk Factors,” within the 2021 Annual Report.
| 11 |
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business and operations.
Significant estimates include assumptions made in analysis of reserves for allowance of doubtful accounts, inventory, assumptions made in purchase price allocations, impairment testing of long-term assets, realization of deferred tax assets, determining fair value of derivative liabilities, and valuation of equity instruments issued for services. Some of those assumptions can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company derives its revenue primarily from providing application services through the SaaS application, digital marketing and sales support services.
A description of our principal revenue generating activities is as follows:
| 1. | Digital Revenue which is divided into two main categories: |
| a. | SaaS recurring digital revenue based on contract-based subscriptions to Verb app products and platform services which include verbCRM, verbLEARN, verbLIVE, verbTEAMS, and verbPULSE. The revenue is recognized straight-line over the subscription period. | |
| b. | Non-SaaS, non-recurring digital revenue, which is revenue generated by the use of app products and in-app purchases, such as sampling and other services obtained through the app. The revenue for samples is recognized upon completion and shipment, while the design fees are recognized when the service has been rendered, collectability is reasonably assured, and the app is delivered to the customer. |
Subscription revenue from the application services is recognized over the life of the estimated subscription period. The Company also charges certain customers setup or installation fees for the creation and development of websites and mobile applications. These fees are accounted for as part of contract liabilities and amortized over the estimated life of the agreement. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the products or services to a customer.
| 2. | Non-digital revenue, which is revenue generated from non-app, non-digital sources through ancillary services provided as an accommodation to clients and customers. These services include design, printing services, fulfillment and shipping services. The revenue is recognized upon completion and shipment of products or fulfillment to the customer. Effective April 1, 2022, the Company entered into a customer referral agreement with a third party for its cart site and printing business. Under the agreement, the Company earns a certain percentage for customer referrals and merchandise sales as well as cart site design fees, all of which will be recognized as non-digital revenue on a net basis. |
The non-digital products sold by us are distinctly individual. The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Amounts related to shipping and handling that are billed to customers are reflected as part of revenue, and the related costs are reflected in cost of revenue in the accompanying condensed consolidated statements of operations. Historically, we have not experienced any significant payment delays from customers. The Company allows returns within 30 days of purchase from end-users. Customers may return purchased products under certain circumstances. Returns from customers during the three and nine months ended September 30, 2022 and 2021 were immaterial.
Revenue during the three and nine months ended September 30, 2022 and 2021 were substantially all generated from clients and customers located within the United States of America, though some utilize the Company’s applications outside the United States of America.
| 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 amortization. Amortization begins once the project has been completed and is ready for its intended use. The Company will amortize the asset on a straight-line basis over a period of three years, which is the estimated useful life. Software maintenance activities or minor upgrades are expensed in the period performed.
Amortization expense related to capitalized software development costs are recorded in depreciation and amortization in the condensed consolidated statements of operations.
Goodwill and Intangible Assets
Management reviews goodwill and indefinite lived intangible assets for impairment at least annually or whenever events or circumstances indicate a potential impairment. Management reviews all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable.
As of September 30, 2022, management concluded that there were no impairment indicators. If economic uncertainty increases and/or the global economy worsens, the Company’s business, financial condition and results of operations may be sufficiently impacted to result in future impairment charges in the short-term. Management will continue to monitor the effects that macroeconomic conditions have on its business and operations and will review impairment indicators to the extent necessary in the upcoming months.
Fair Value of Financial Instruments
The Company follows the guidance of FASB ASC 820 and ASC 825 for disclosure and measurement of the fair value of its financial instruments. FASB ASC 820 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The three levels of fair value hierarchy defined by ASC 820 are described below:
| Level 1: | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2: | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3: | Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to their short-term nature. The carrying values of financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. The Company uses Level 2 inputs for its valuation methodology for derivative financial instruments.
| 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, 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 or conversion.
As
of September 30, 2022, and 2021, the Company had total outstanding options of and , respectively, outstanding warrants
of and , respectively, outstanding restricted stock units of and , respectively, the
Notes that are convertible into
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 months ended September 30, 2022, we
had one customer 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 September 30, 2022 and December 31, 2021, we had no customers that accounted for
The
Company also evaluates the concentration of risk associated with key vendors. For the three and nine months ended September 30, 2022,
we had two vendors that accounted for
Reclassification Adjustment
The
Company reclassified $
| 14 |
Supplemental Cash Flow Information
| Nine Months Ended September 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 accounts payable | ||||||||
| 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 debt forgiveness | ||||||||
| Fair value of warrants issued to Series A preferred stockholders – deemed dividend | ||||||||
| Fair value of common stock issued to settle lawsuit | ||||||||
| Accrued software development costs | ||||||||
| Discount recognized from convertible 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 ASU 2021-08 effective January 1, 2022 on a prospective basis and the adoption impact of the new standard will depend on the magnitude of future acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)—Disclosures by Business Entities about Government Assistance. ASU 2021-10 increases the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU as of January 1, 2022 on a prospective basis. The adoption of this standard did not have any material impact on the Company’s consolidated financial statements or the related disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a small business filer, ASU 2020-06 will be effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method or a fully retrospective method. Management is currently assessing the impact of adopting this standard on the Company’s consolidated financial statements or the related disclosures.
3. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In
2020, the Company began developing MARKET.live, a livestream ecommerce platform, and has capitalized $
For
the three and nine months ended September 30, 2022 and 2021, the Company amortized $
Capitalized software development costs, net consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions | ||||||||
| Amortization | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
| 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 provided certain
conditions are met. In November 2021, the Company exercised this option. The Company and the Primary Contractor subsequently reached
an agreement-in-principle on the terms for the Company’s acquisition of the Primary Contractor, the final consummation of which
is subject to the execution of a share purchase agreement (the “SPA”) and the completion of an audit of the Primary Contractor
that is satisfactory to the Company (the “Primary Contractor Audit”), as well as the fulfillment by the Primary Contractor
of certain other conditions set forth in the term sheet. The term sheet stipulates that if the Company had entered into the SPA and the
Primary Contractor had the Primary Contractor Audit successfully completed prior to May 15, 2022 (or a subsequent mutually agreed upon
date) and the Company thereafter determines not to consummate the acquisition of the Primary Contractor, the Company would have been
liable for a $
4. INTANGIBLE ASSETS
Intangible assets, net consisted of the following:
September 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 September 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:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Lease cost | ||||||||
| Operating lease cost (included in general and administrative expenses in the Company’s condensed consolidated statements of operations) | $ | $ | ||||||
| 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 | % | % | ||||||
| September 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 September 30, 2022 and December 31, 2021:
| Note | Issuance Date | Maturity Date | Interest Rate | Original Borrowing | Balance as of September 30, 2022 | Balance as of December 31, 2021 | ||||||||||||||
| Note 1 | % | $ | $ | $ | ||||||||||||||||
| Note 2 | % | |||||||||||||||||||
| Note 3 | % | |||||||||||||||||||
| Note 4 | % | |||||||||||||||||||
| Total | $ | |||||||||||||||||||
| Debt discount | ( | ) | ( | ) | ||||||||||||||||
| Debt issuance costs | ( | ) | ||||||||||||||||||
| 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 $
Note 4
On
August 25, 2022, the Company received secured advances from an unaffiliated third party totaling $
7. CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
The Company has the following outstanding notes payable as of September 30, 2022 and December 31, 2021:
| Note | Issuance Date | Maturity Date | Interest Rate | Original Borrowing | Balance as of September 30, 2022 | Balance as of December 31, 2021 | ||||||||||||||
| Related party convertible note payable (A) | % | $ | $ | $ | ||||||||||||||||
| Related party convertible 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 January Note Offering, the Company paid $ | ||
| As
of September 30, 2022, and December 31, 2021, the outstanding balance of the Notes amounted to $ | ||
| On
October 28, 2022, the Company paid $ |
The following table provides a breakdown of interest expense for the periods presented:
| Three Months Ended September 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:
| Nine Months Ended September 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:
| September 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 nine months ended September 30, 2022, the Company recorded a gain of $
During
the nine months ended September 30, 2021, the Company recorded expense of $
The details of derivative liability transactions for the nine months ended September 30, 2022 and 2021 are as follows:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Change in fair value | ( | ) | ||||||
| Extinguishment | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
9. COMMON STOCK
The Company’s common stock activity for the nine months ended September 30, 2022, was as follows:
During
the nine months ended September 30, 2022, the Company issued shares of common stock as part of the April Registered Direct
Offering, which resulted in proceeds of $
During
the nine months ended September 30, 2022, the Company issued shares of common stock pursuant to the January Purchase Agreement,
which resulted in proceeds of $
| 21 |
During
the nine months ended September 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 nine months ended September 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 $
During
the nine months ended September 30, 2022, the Company 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 nine months ended September 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 as of January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested/deemed vested | ( | ) | ||||||
| Forfeitures and other | ( | ) | ||||||
| Non-vested as of September 30, 2022 | $ | |||||||
During the nine months ended September 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 nine months ended September 30, 2022, was $ and $, respectively. As of September 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.
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Options | Price | Life (Years) | Value | |||||||||||||
| Outstanding as of January 1, 2022 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Outstanding as of September 30, 2022 | $ | $ | ||||||||||||||
| Vested as of September 30, 2022 | $ | $ | - | |||||||||||||
| Exercisable as of September 30, 2022 | $ | $ | - | |||||||||||||
As of September 30, 2022, the intrinsic value of the outstanding options was $.
During
the nine months ended September 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 nine months ended September 30, 2022, was $
During
the nine months ended September 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 $
| Nine Months Ended September 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 option awards are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future.
12. STOCK WARRANTS
The Company has the following warrants outstanding as of September 30, 2022:
| Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of January 1, 2022, all vested | $ | $ | ||||||||||||||
| Granted, unvested as of September 30, 2022 | - | |||||||||||||||
| Forfeited | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Outstanding as of September 30, 2022 | $ | $ | ||||||||||||||
In
connection with the April Registered Direct Offering on April 20, 2022, 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 November 14, 2022, the date these condensed consolidated financial statements were issued. There were no material events or transactions that require disclosure in the financial statements other than the items discussed below.
Equity Financing
Subsequent
to September 30, 2022, the Company issued shares and received $
On
October 25, 2022, the Company entered into the October Purchase Agreement, which provides for the sale and issuance by the Company of
an aggregate of (i) shares of Common Stock, at a purchase price of $ per share, and (ii) warrants
to purchase
In addition, the Company paid $
Debt Financing
Subsequent
to September 30, 2022, the Company received secured advances from an unaffiliated third party totaling $
On
November 7, 2022, the Company entered into the November Note Purchase Agreement with the November Note Holder providing for the sale
and issuance of an unsecured, non-convertible promissory note in the original principal amount of $
Issuance of Common Stock
Subsequent
to September 30, 2022, the Company issued shares of common stock to vendors for services
rendered with a grant date fair value of $
Subsequent to September 30, 2022, the Company issued shares of common stock to certain employees associated with the vesting of restricted stock units.
Issuances of Stock Options
Subsequent to September 30, 2022, the Company granted stock options to certain employees to purchase a total of stock options for services to be rendered. The options have an average exercise price of $ per share, expire in , and vest from grant date. The total grant date fair value of these options was $ based on the Black-Scholes option pricing model.
Other
On November 9, 2022,
the Company received a written notification from the Nasdaq Stock Market Listing Qualifications Staff (the “Staff”) indicating
that the Company has been granted an additional 180-calendar-day period, or until May 8, 2023, to regain compliance with the $
Nasdaq’s determination
was based on (i) the Company having met the continued listing requirement for market value of publicly held shares and all other applicable
requirements for initial listing on the Nasdaq Capital Market, with the sole exception of the Minimum Bid Price Requirement, and (ii)
the Company’s written notice to Nasdaq of its intention to cure the deficiency during the compliance period, including by potentially
effecting a reverse stock split if necessary. If, at any time during this additional compliance period, the closing bid price of
the Common Stock is at least $
The Company will monitor the closing bid price of its Common Stock and will consider various options to regain compliance with the Minimum Bid Price Requirement before May 8, 2023.
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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 nine month periods ended September 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 in 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 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 is a next-generation interactive live-stream platform with in-video ecommerce capabilities for sales reps that allows them 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 sales reps 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 eliminating the lack of skill, training and experience among sales reps from 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.live 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 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 live shopping 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 social 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.live 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, 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.live 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.live 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.live will retain this valuable intelligence for their own, unlimited use.
MARKET.live 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.live 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.live 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.live.
As we continue onboarding vendors to the platform, we are seeing increased interest from product manufacturers seeking to embrace MARKET.live’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.live 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 built-in affiliate marketing 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.live, 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.live vendors, while also creating an attractive income generating opportunity for non-vendor MARKET.live patrons.
MARKET.live 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. Whereas verbLIVE is a sales tool for sales reps that subscribe either directly or through their principal to verbCRM or verbTEAMS, MARKET.live is a multivendor social shopping platform for retailers, brands, manufacturers, creators and influencers who seek to participate in an open market-style eco-system environment. More recently, we are beginning to see interest from existing verbLIVE clients who see the value of MARKET.live as a corporate communications tool for use in sales, marketing, lead-generation, training and recruitment initiatives.
We recently launched our “Creators on MARKET,” a new program that allows creators to monetize their content through livestream shopping and personalized storefronts on MARKET.live. The program is being marketed to video content creators across multiple social media channels. Through this new program, creators and influencers can choose the products they love from hundreds of brands and retailers on MARKET.live and offer their fans and followers those products through livestream shopping events broadcast live on MARKET.live and simulcast on the creators’ existing social platforms. They can also offer their favorite products through the Creators’ personally branded storefronts they can establish quickly and easily on MARKET.live. Depending on the products chosen, Creators can earn between 5% and 20% of their gross sales at no cost and no risk to the Creators selected to participate in the program.
With more than 12 million products from brands like Athleta, Best Buy, Target, Container Store, Banana Republic, GAP, Saks Off 5th, SSENSE, LOFT, DERMSTORE, INTERMIX, UNCOMMON GOODS, and many more, Creators can choose to feature their favorite products and promote and sell them to their fans and followers. All MARKET.live events are interactive so followers and fans can chat with the Creators in real time, as well as with one another, creating a more entertaining and engaging social shopping experience. When their interest level peaks, Creators’ fans and followers can click on the screen to buy the products. Creators accepted into the program are not required to make any investment in inventory, nor do they have the burden of managing fulfillment or shipping. The only requirement for them to remain in the program is for them to continue to create and promote the same videos they’re already doing on YouTube and elsewhere online. Livestream events are recorded and available to watch in the Creators’ personally branded stores on MARKET.live for those fans and followers to return 24/7 after the livestream events to browse and purchase the Creators’ featured products, as the recorded livestream videos remain shoppable.
verbTV will launch as a feature of our MARKET.live platform, serving to draw an audience of people seeking to consume video content that is also interactive and shoppable. We expect this additional audience will also be exposed to and enhance the eco-system of shoppers and retailers on MARKET.live. Over time it is anticipated that verbTV will feature 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 imprecise viewership information traditionally offered to television sponsors and advertisers.
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Verb Partnerships and Integrations
verbMAIL for Microsoft Outlook and Saleforce Integration of verbLIVE and verbTEAMS. verbMAIL 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. We have completed and deployed the integration of verbLIVE into Salesforce and have a verbTEAMS sync application for Salesforce users. To date, adoption of these products has been low due in large part to management’s decision to reduce and deploy development and marketing resources to other areas of the Company’s business that it believes can generate a greater return on investment.
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. Due to COVID-19, we experienced a marked decline in non-digital services and associated revenue, as reflected in our current and historical financial statements, as our clients reduced or eliminated in-person conferences and other events. This reduction in non-digital services was nevertheless consistent with management’s strategy to exit this area of our business due to the low margin, high costs and limited scalability of this component of our business.
In furtherance of the strategy, 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 expanded our relationship with Range when we entered into a customer referral agreement with them for our cart site and printing business. Under the agreement, we earn 10% commission for customers referrals, 8% on merchandise sales and certain cart site design fees 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 the non-digital business in the condensed consolidated statements of operations.
For these reasons, management has suggested that a more accurate measure of our performance is the historical growth of our SaaS and digital business and associated revenue, which has been the focus of our initiatives, while we have continued to exit the low margin, non-digital business. While the SaaS and digital business has grown year over year, that growth is not readily apparent when analyzing our top-line revenue because the total revenue represents the growing SaaS and digital business upon which we are focused, off-set by the declining non-digital business we are intentionally exiting.
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 September 30, 2022, we provided subscription-based application services to approximately 150 enterprise clients for use in over 100 countries and in over 48 languages. Since inception, we have had more than 3.4 million downloads of our verbCRM applications across all of the white-labelled versions created for clients on our platform.
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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, collectability is reasonably assured, and the app is delivered to the customer. |
| 2. | Non-digital revenue, 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 include design, printing, fulfillment and shipping services. The revenue is recognized upon completion and shipment of products or fulfillment to customers. Effective April 1, 2022, we entered into a customer referral agreement with Range for our cart site and printing business. Under the agreement, we earn 10% commission for customer referrals and 8% on merchandize sales and certain cart site design fees, all of which are recognized as non-digital revenue on a net basis. | |
| 3. | MARKET.live, launched at the end of July 2022, generates revenue through several sources as follows: |
| a. | All sales run through our ecommerce facility on MARKET.live from which we deduct a platform fee that ranges from 10% to 35% of gross sales, with an average of approximately 15%, 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 sales realized through views of previously recorded live events available in each vendor’s store, as well as from sales of product and merchandise displayed in the vendors’ online stores, all of which are shoppable 24/7. | |
| b. | Produced events. MARKET.live offers fee-based services that range from full production of livestream events, to providing professional hosts and event consulting. | |
| c. | The MARKET.live 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 nine months ended September 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 nine months ended September 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 September 30, 2022 as Compared to the Three Months Ended September 30, 2021
The following is a comparison of our results of operations for the three months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Revenue | ||||||||||||
| Digital revenue | ||||||||||||
| SaaS recurring subscription revenue | $ | 1,851 | $ | 1,846 | $ | 5 | ||||||
| Other digital revenue | 165 | 510 | (345 | ) | ||||||||
| Total digital revenue | 2,016 | 2,356 | (340 | ) | ||||||||
| Non-digital revenue | 171 | 544 | (373 | ) | ||||||||
| Total revenue | 2,187 | 2,900 | (713 | ) | ||||||||
| Cost of revenue | ||||||||||||
| Digital | 580 | 542 | 38 | |||||||||
| Non-digital | 156 | 544 | (388 | ) | ||||||||
| Total cost of revenue | 736 | 1,086 | (350 | ) | ||||||||
| Gross margin | 1,451 | 1,814 | (363 | ) | ||||||||
| Operating expenses | ||||||||||||
| Research and development | 1,372 | 3,513 | (2,141 | ) | ||||||||
| Depreciation and amortization | 790 | 400 | 390 | |||||||||
| General and administrative | 6,965 | 6,130 | 835 | |||||||||
| Total operating expenses | 9,127 | 10,043 | (916 | ) | ||||||||
| Loss from operations | (7,676 | ) | (8,229 | ) | 553 | |||||||
| Other income (expense) | ||||||||||||
| Interest expense | (550 | ) | (525 | ) | (25 | ) | ||||||
| Change in fair value of derivative liability | 198 | (141 | ) | 339 | ||||||||
| Other income (expense) | - | 8 | (8 | ) | ||||||||
| Debt extinguishment, net | - | 82 | (82 | ) | ||||||||
| Total other income, net | (352 | ) | (576 | ) | 224 | |||||||
| Net loss | (8,028 | ) | (8,805 | ) | 777 | |||||||
| Deemed dividend to Series A preferred stockholders | - | (348 | ) | 348 | ||||||||
| Net loss to common stockholders | $ | (8,028 | ) | $ | (9,153 | ) | $ | 1,125 | ||||
Revenue
Our SaaS recurring subscription revenue as a percentage of total revenue for the three months ended September 30, 2022, was 85%, compared to 64% for the three months ended September 30, 2021.
For the three months ended September 30, 2022, our total digital revenue was 92% of total revenue compared with 81% for the three months ended September 30, 2021. Total digital revenue for the three months ended September 30, 2022 was $2.0 million, a decrease of 14% compared to $2.4 million for the three months ended September 30, 2021. SaaS recurring subscription-based revenue associated with our verbCRM, verbLIVE, verbTEAMS, verbLEARN, and verbPULSE applications totaled $1.9 million, compared to $1.8 million reported for the three months ended September 30, 2021.
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Total non-digital revenue for the three months ended September 30, 2022, was $0.2 million, a decrease of 69% compared to $0.5 million reported for the three months ended September 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 September 30, 2020 through the three months ended September 30, 2022, which reflects the trend of revenue over the past nine fiscal quarters (in thousands):
| 2020 | 2021 | 2022 | ||||||||||||||||||||||||||||||||||
| Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | ||||||||||||||||||||||||||||
| SaaS recurring subscription revenue | $ | 1,478 | $ | 1,305 | $ | 1,461 | $ | 1,601 | $ | 1,846 | $ | 1,923 | $ | 2,003 | $ | 1,975 | $ | 1,851 | ||||||||||||||||||
| Other digital | 360 | 218 | 340 | 209 | 510 | 288 | 147 | 186 | 165 | |||||||||||||||||||||||||||
| Total digital revenue | 1,838 | 1,523 | 1,801 | 1,810 | 2,356 | 2,211 | 2,150 | 2,161 | 2,016 | |||||||||||||||||||||||||||
| Total non-digital revenue | 1,022 | 576 | 725 | 582 | 544 | 495 | 541 | 238 | 171 | |||||||||||||||||||||||||||
| Grand total | $ | 2,860 | $ | 2,099 | $ | 2,526 | $ | 2,392 | $ | 2,900 | $ | 2,706 | $ | 2,691 | $ | 2,399 | $ | 2,187 | ||||||||||||||||||
Cost of Revenue
Total cost of revenue for the three months ended September 30, 2022, was $0.7 million, compared to $1.1 million for the three months ended September 30, 2021, reflecting a 32% 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 September 30, 2022, was $1.5 million, compared to $1.8 million for the three months ended September 30, 2021, representing a decline in our other digital and non-digital revenues. For the three months ended September 30, 2022, our digital gross margin was 71% and non-digital gross margin was 9%. Gross margin as a percent of total revenue 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 September 30, 2022, as compared to $3.5 million for the three months ended September 30, 2021, reflecting a 61% reduction. Research and development expenses primarily consisted of sums paid to employees and vendors contracted to perform research projects and develop technology. As our products move from research and development stage to operating stage, we expect our research and development cost reductions to continue, as experienced during the three months ended September 30, 2022.
Depreciation and amortization expenses were $0.8 million for the three months ended September 30, 2022, as compared to $0.4 million for the three months ended September 30, 2021. The increase in depreciation and amortization is attributed to amortization of capitalized software development costs associated with our MARKET.live platform.
General and administrative expenses for the three months ended September 30, 2022, were $7.0 million as compared to $6.1 million for the three months ended September 30, 2021. This increase is primarily due to MARKET.live costs of $1.1 million which includes $0.4 million for professional services, $0.4 million for other MARKET.live related cost, and $0.2 million for labor costs. Excluding MARKET.live costs, our general and administrative expenses decreased by $0.3 million or 4% on a quarter over quarter basis.
Other expense, net, for the three months ended September 30, 2022, was $0.4 million, which was primarily attributable to interest expense of $0.6 million, offset by a decrease in the change in the fair value of derivative liability of $0.2 million.
Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021
The following is a comparison of our results of operations for the nine months ended September 30, 2022 and 2021 (in thousands):
| Nine Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Revenue | ||||||||||||
| Digital revenue | ||||||||||||
| SaaS recurring subscription revenue | $ | 5,829 | $ | 4,908 | $ | 921 | ||||||
| Other digital revenue | 498 | 1,059 | (561 | ) | ||||||||
| Total digital revenue | 6,327 | 5,967 | 360 | |||||||||
| Non-digital revenue | 950 | 1,851 | (901 | ) | ||||||||
| Total revenue | 7,277 | 7,818 | (541 | ) | ||||||||
| Cost of revenue | ||||||||||||
| Digital | 1,746 | 1,651 | 95 | |||||||||
| Non-digital | 798 | 1,769 | (971 | ) | ||||||||
| Total cost of revenue | 2,544 | 3,420 | (876 | ) | ||||||||
| Gross margin | 4,733 | 4,398 | 335 | |||||||||
| Operating expenses | ||||||||||||
| Research and development | 4,334 | 9,610 | (5,276 | ) | ||||||||
| Depreciation and amortization | 1,594 | 1,214 | 380 | |||||||||
| General and administrative | 20,563 | 20,018 | 545 | |||||||||
| Total operating expenses | 26,491 | 30,842 | (4,351 | ) | ||||||||
| Loss from operations | (21,758 | ) | (26,444 | ) | 4,686 | |||||||
| Other income (expense) | ||||||||||||
| Interest expense | (1,948 | ) | (1,629 | ) | (319 | ) | ||||||
| Change in fair value of derivative liability | 2,360 | (2,086 | ) | 4,446 | ||||||||
| Other income (expense) | (45 | ) | 85 | (130 | ) | |||||||
| Debt extinguishment, net | - | 1,112 | (1,112 | ) | ||||||||
| Total other income, net | 367 | (2,518 | ) | 2,885 | ||||||||
| Net loss | (21,391 | ) | (28,962 | ) | 7,571 | |||||||
| Deemed dividend to Series A preferred stockholders | - | (348 | ) | 348 | ||||||||
| Net loss to common stockholders | $ | (21,391 | ) | $ | (29,310 | ) | $ | 7,919 | ||||
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Revenue
SaaS recurring subscription revenue as a percentage of total revenue for the nine months ended September 30, 2022, was 80%, compared to 63% for the nine months ended September 30, 2021.
For the nine months ended September 30, 2022, our total digital revenue was 87% of total revenue compared with 76% for the nine months ended September 30, 2021. Total digital revenue for the nine months ended September 30, 2022 was $6.3 million, an increase of 6% compared to $6.0 million for the nine months ended September 30, 2021. The increase was primarily driven from SaaS recurring subscription-based revenue associated with our verbCRM, verbLIVE, verbTEAMS, verbLEARN, and verbPULSE applications totaling $5.8 million, an increase of 19% compared to $4.9 million reported for the nine months ended September 30, 2021.
Total non-digital revenue for the nine months ended September 30, 2022, was $1.0 million compared to $1.9 million, a decrease of 49% reported for the nine months ended September 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 nine months ended September 30, 2022, was $2.5 million, compared to $3.4 million for the nine months ended September 30, 2021, reflecting a 26% 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 nine months ended September 30, 2022, was $4.7 million, compared to $4.4 million for the nine months ended September 30, 2021, representing an 8% improvement. For the nine months ended September 30, 2022, our digital gross margin was 72% and non-digital gross margin was 16%. 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 $4.3 million for the nine months ended September 30, 2022, as compared to $9.6 million for the nine months ended September 30, 2021, reflecting a 55% reduction. Research and development expenses primarily consisted of sums paid to employees and vendors contracted to perform research projects and develop technology. As our products move from research and development stage to operating stage, we expect our research and development cost reductions to continue, as experienced during the nine months ended September 30, 2022.
Depreciation and amortization expenses were $1.6 million for the nine months ended September 30, 2022, as compared to $1.2 million for the nine months ended September 30, 2021. The increase in depreciation and amortization is attributed to amortization of our capitalized software development costs associated with our MARKET.live platform.
General and administrative expenses for the nine months ended September 30, 2022, were $20.6 million, as compared to $20.0 million for the same period in 2021, representing a 3% increase. This increase was primarily due to MARKET.live costs of $1.6 million, which includes $0.6 million of labor costs, $0.5 million for professional services, and $0.5 million of other MARKET.live related expenses. Excluding MARKET.live costs, our general and administrative expenses decreased by $1.1 million year over year or 5%.
Other income, net, for the nine months ended September 30, 2022, was $0.4 million, which was primarily attributable to a change in the fair value of derivative liability of $2.4 million, offset by interest expense of $2.0 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 depreciation and amortization expense, share-based compensation expense, interest expense, change in fair value of derivative liability, other (income) expense, debt extinguishment costs, net, MARKET.live startup costs, and other non-recurring charges.
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net loss | $ | (8,028 | ) | $ | (8,805 | ) | $ | (21,391 | ) | $ | (28,962 | ) | ||||
| Adjustments: | ||||||||||||||||
| Depreciation and amortization | 790 | 400 | 1,594 | 1,214 | ||||||||||||
| Share-based compensation | 1,050 | 986 | 3,668 | 4,652 | ||||||||||||
| Interest expense | 550 | 525 | 1,948 | 1,629 | ||||||||||||
| Change in fair value of derivative liability | (198 | ) | 141 | (2,360 | ) | 2,086 | ||||||||||
| Other (income)/ expense | - | (8 | ) | 45 | (85 | ) | ||||||||||
| Debt extinguishment, net | - | (82 | ) | - | (1,112 | ) | ||||||||||
| MARKET.live non-recurring startup costs* | 683 | - | 736 | - | ||||||||||||
| Other non-recurring | - | - | 126 | - | ||||||||||||
| Total EBITDA adjustments | 2,875 | 1,962 | 5,757 | 8,384 | ||||||||||||
| Modified EBITDA | $ | (5,153 | ) | $ | (6,843 | ) | $ | (15,634 | ) | $ | (20,578 | ) | ||||
* Includes general and administrative and R&D expenses that are directly related to the launch of our MARKET.live platform and are not expected to be recurring in future periods.
The $1.7 million or 25% increase in Modified EBITDA for the three months ended September 30, 2022, compared to the same period in 2021, resulted from decreases in cost of revenue and research and development costs, offset by an increase in labor related costs to support future growth.
The $4.9 million or 24% increase in Modified EBITDA for the nine months ended September 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.
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 |
| ● | 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. |
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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 $21.4 million during the nine months ended September 30, 2022. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date these financial statements were issued. We also utilized cash in operations of $16.0 million during the nine months ended September 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. Our independent registered public accounting firm, in its report on our consolidated financial statements for the year ended December 31, 2021, has also expressed substantial doubt about our ability to continue as a going concern. We intend to continue to seek additional debt or equity financing, as well as certain strategic opportunities to continue our operations.
On January 12, 2022, we entered into a common stock purchase agreement (the “January Purchase Agreement”) with Tumim Stone Capital LLC (the “Investor”). Pursuant to the agreement, we have 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 (the “Common Stock”) from time to time during the term of the agreement, subject to certain limitations and conditions. The Total Commitment is inclusive of 607,287 shares of Common Stock issued to the Investor as consideration for its commitment to purchase shares of Common Stock under the January Purchase Agreement. In connection with the January Purchase Agreement, we are restricted from entering into an agreement to effect any issuance of Common Stock involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions set forth therein.
On January 12, 2022, we also entered into a securities purchase agreement (the “January Note Purchase Agreement”) with three institutional investors (collectively, the “January Note Holders”) providing for the sale and issuance of an aggregate original principal amount of $6.3 million in Convertible Notes Due 2023 (each, a “Note,” and, collectively, the “Notes,” and such financing, the “January Note Offering”). The Company and the January Note Holders also entered into a security agreement, dated January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the January Note Holders in substantially all of its assets. The January Note Purchase Agreement prohibits us from entering into an agreement to effect any issuance of Common Stock involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions set forth therein. The January Note Purchase Agreement also gives the January Note Holders the right to require the Company to use up to 15% of the gross proceeds raised from future debt or equity financings to redeem the Notes, which redemptions have been elected by the January Note Holders as described below.
On April 20, 2022, we entered into a securities purchase agreement, which provides for the sale and issuance by us of an aggregate of (i) 14,666,667 shares of Common Stock, and (ii) warrants to purchase 14,666,667 shares of Common Stock at an exercise price of $0.75 per share, for aggregate gross proceeds of $11.0 million before deducting placement agent commissions and other offering expenses (the “April Registered Direct Offering”). As a result of this transaction, certain warrants which previously had exercise prices ranging from $1.10 to $2.10 per share had the exercise price reduced to $0.75 per share. We used a portion of the proceeds from the April Registered Direct Offering to repay $1.6 million in principal amount of the Notes issued pursuant to the January Note Offering.
We, through our Professional Employer Organization, filed for federal government assistance for the second and third quarters of 2021 in the aggregate amount of approximately $1.5 million through Employee Retention Credit (“ERC”) provisions of the Consolidated Appropriations Act of 2021. The purpose of the ERC is to encourage employers to keep employees on the payroll, even if they are not working during the covered period due to the effects of the COVID-19 pandemic. As of September 30, 2022, we have yet to receive the funds and accordingly, our condensed consolidated financial statements do not reflect the effect of this credit.
Prior to September 30, 2022, the U.S. Small Business Administration (“SBA”) approved an additional loan of $0.35 million which we expect to receive before the end of 2022.
On October 25, 2022, we entered into a securities purchase agreement (the “October Purchase Agreement”), which provides for the sale and issuance by us of an aggregate of (i) 12,500,000 shares of Common Stock at a purchase price of $0.32 per share, and (ii) warrants to purchase 12,500,000 shares of Common Stock at an exercise price of $0.34 per share, for aggregate gross proceeds of $4.0 million before deducting placement agent commissions and other offering expenses (the “October Registered Direct Offering”). As a result of this transaction, certain warrants which previously had an exercise price of $0.75 per share had the exercise price reduced to $0.34 per share. Further, in connection with the October Purchase Agreement, we are restricted from (i) issuing or filing any registration statement to offer the sale of any Common Stock or securities convertible into or exercisable for shares of Common Stock until 75 days after the date thereof; and (ii) entering into an agreement to effect any issuance of Common Stock involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions set forth therein. As a result of this transaction, we paid $1.2 million towards principal and accrued interest on the Notes. We and the January Note Holders agreed to interest only payments with a final principal payment of $2.5 million due on the maturity date.
On November 7, 2022, we entered into a note purchase agreement (the “November Note Purchase Agreement”) and promissory note with an institutional investor providing for the sale and issuance of an unsecured, non-convertible promissory in the original principal amount of $5.5 million, which has an original issue discount of $0.5 million, resulting in gross proceeds to us of approximately $5.0 million (the “November Note,” and such financing, the “November Note Offering”). The November Note matures eighteen months following the date of issuance. Commencing six months from the date of issuance, we are required to make monthly cash redemption payments in an amount not to exceed $0.6 million. The November Note may be repaid in whole or in part prior to the maturity date for a 10% premium. The November Note requires us to use 20% of the gross proceeds raised from future equity or debt financings, or the sale of any subsidiary or material asset, to prepay the November Note, subject to a cap on the aggregate prepayment amount. Until all obligations under the November Note have been paid in full, we are not permitted to grant a security interest in any of its assets, or to issue securities convertible into shares of Common Stock, subject in each case to certain exceptions. Our wholly owned subsidiary verbMarketplace, LLC entered into a guaranty, dated November 7, 2022, in connection with the November Note Offering, pursuant to which it guaranteed the obligations on our behalf under the November Note in exchange for receiving a portion of the loan proceeds.
If we are unable to generate sufficient cash flow from operations to operate our business and pay our debt obligations as they become due, we will need to seek to raise additional capital, borrow additional funds, dispose of subsidiaries or assets, reduce or delay capital expenditures, or change our business strategy. However, in light of the restrictive covenants imposed by certain of our prior financings and the recent decline in the price of Common Stock, we may be unable to raise additional capital when needed to operate our business or service our debt. Further, notwithstanding such restrictions, there can be no assurance that debt or equity financing will be available in the amounts, on terms, or at times deemed acceptable by us. 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 our liabilities and future cash commitments and potentially impose significant operational or financial restrictions. If we are unable to obtain financing in the amounts and on terms deemed acceptable, we may be unable to continue to operate our business or pay our obligations as they become due and as a result may be required to curtail or cease operations, which may result in stockholders or noteholders losing some or all of their investment.
For additional information, refer to Note 1, “Description of Business,” and Note 2, “Summary of Significant Accounting Policies and Supplemental Disclosures,” to the condensed consolidated financial statements, and the section titled “Risk Factors,” within our 2021 Annual Report.
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Overview
As of September 30, 2022, we had cash of $0.9 million. We estimate our operating expenses for the next twelve months will exceed any revenue we generate, and we will need to seek to raise additional capital, borrow additional funds, dispose of subsidiaries or assets, reduce or delay capital expenditures, or change our business strategy.
The following is a summary of our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash used in operating activities | $ | (15,975 | ) | $ | (20,511 | ) | ||
| Cash used in investing activities | (4,402 | ) | (56 | ) | ||||
| Cash provided by financing activities | 20,361 | 22,410 | ||||||
| Increase in cash | $ | (16 | ) | $ | 1,843 | |||
Cash Flows – Operating
For the nine months ended September 30, 2022, our cash flows used in operating activities amounted to $16.0 million, compared to cash used for the nine months ended September 30, 2021, of $20.5 million. We generated $4.5 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 nine months ended September 30, 2022, our cash flows used in investing activities amounted to $4.4 million, primarily due to our investment in capitalized software development costs related to MARKET.live.
Cash Flows – Financing
Our cash provided by financing activities for the nine months ended September 30, 2022 amounted to $20.4 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, $2.5 million of gross proceeds from advances on future receipts and proceeds from option exercises of $0.4 million, all offset by $5.4 million of payments on advances on future receipts, $2.7 million of payments on notes payable and payments for debt issuance costs of $0.5 million.
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Advances on Future Receipts
On August 25, 2022, we received secured advances from an unaffiliated third party totaling $2.5 million for the purchase of future receipts/ revenues of $3.4 million. As of September 30, 2022, the outstanding balance of the note was $3.0 million.
Convertible Notes Payable and Note Payable
We have the following outstanding notes payable as of September 30, 2022 (in thousands):
| Note | Issuance Date | Maturity Date | Interest Rate | Original Borrowing | Balance as of September 30, 2022 | |||||||||||
| Related party convertible note payable (A) | December 1, 2015 | April 1, 2023 | 12.0 | % | $ | 1,249 | $ | 725 | ||||||||
| Related party convertible 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 | 3,560 | |||||||||
| Debt discount | (61 | ) | ||||||||||||||
| Debt issuance costs | (93 | ) | ||||||||||||||
| Total notes payable | 4,321 | |||||||||||||||
| Non-current | (150 | ) | ||||||||||||||
| Current | $ | 4,171 | ||||||||||||||
| (A) | On December 1, 2015, we issued a convertible note payable to Mr. Cutaia, our Chief Executive Officer and a director, to consolidate all loans and advances made by Mr. Cutaia to us as of that date. On May 19, 2021, we amended the note to allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price of $1.03, which was the closing price of the common stock on the amendment date. On May 12, 2022, the maturity date of the note was extended to April 1, 2023. As of September 30, 2022, 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. On May 19, 2021, we amended the note to allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price of $1.03, which was the closing price of the common stock on the amendment date. As of September 30, 2022, the outstanding balance under the note was less than $0.1 million. | |
| (C) | On May 15, 2020, we executed an unsecured loan with the SBA under the Economic Injury Disaster Loan program in the amount of $0.15 million. Installment payments, including principal and interest, began on October 26, 2022. Prior to September 30, 2022, the SBA approved an additional loan of $0.35 million which is expected to be received before the end of 2022. As of September 30, 2022, the outstanding balance of the note amounted to $0.15 million.
| |
| (D) | On January 12, 2022, we entered into the January Note Offering, which provided for the sale and issuance of an aggregate original principal amount of $6.3 million of the Notes. We also entered into a security agreement, dated January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the January Note Holders in substantially all of its assets. There are no financial covenants related to these notes payable.
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 January 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 September 30, 2022, the amount of unamortized debt discount and debt issuance costs was $0.1 million and $0.1 million, respectively.
As of September 30, 2022, the outstanding balance of the Notes amounted to $3.6 million. We have repaid $2.7 million in principal and $0.2 million of accrued interest.
On October 28, 2022, the Company paid $1.2 million towards principal and accrued interest on the Notes. The Company and the January Note Holders agreed to interest only payments with a final principal payment of $2.5 million due on the maturity date.
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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, collectability is reasonably assured, 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 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 earns a certain percentage for customer referrals and merchandise sales as well as earn cart site design fees, all of which are 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 September 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 of September 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 September 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 September 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.
Except as set forth below, there were no material changes to the risks and uncertainties described in the section titled “Risk Factors” in the 2021 Annual Report during the three months ended September 30, 2022.
Risks Related to Our Business
Our independent registered public accounting firm’s reports for the fiscal years ended December 31, 2021 and 2020 have raised substantial doubt as to our ability to continue as a going concern.
Our independent registered public accounting firm indicated in its report on our audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 that there is substantial doubt about our ability to continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of liquidation. The ongoing presence of the going concern note to our financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.
Our ability to continue as a going concern ultimately is dependent upon our ability to achieve profitable operations, significantly reduce operating expenses, attain operating efficiencies, and obtain additional financing. If we are unable to generate sufficient cash flow from operations to operate our business and pay our debt obligations as they become due, we may need to seek to raise additional capital, borrow additional funds, dispose of subsidiaries or assets, reduce or delay capital expenditures, or change our business strategy. There can be no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. For example, in light of the restrictive covenants imposed by certain of our prior financing arrangements, in combination with the recent significant decline in the market price of our common stock, we may be unable to raise additional capital in sufficient amounts when needed to operate our business, service our debt, or executive on our strategic plans. Further, 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 of the current stockholders. Borrowing additional funds would increase our liabilities and future cash commitments and potentially impose significant operational or financial restrictions and require us to further encumber our assets. If we are unable to obtain financing in the amounts and on terms deemed acceptable, we may be unable to continue to operate our business or pay our obligations as they become due, and as a result may be required to curtail or cease operations, which may result in stockholders or warrant holders losing some or all of their investment. For additional information, please refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Going Concern,” as well as Note 2 to our consolidated financial statements included within this Quarterly Report.
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The market price of our common stock has been, and may continue to be, subject to substantial volatility.
The market price of our common stock has experienced a significant recent decline, and may continue to fluctuate in response to numerous factors, many of which are beyond our control, including:
| ● | volatility in the trading markets generally and in our particular industry or market segment; | |
| ● | perceptions among current and prospective customers regarding our financial stability and ability to raise additional financing; | |
| ● | perceptions among market participants regarding our ability to continue as a going concern; | |
| ● | actual or anticipated fluctuations in our results of operations; | |
| ● | the financial projections we may provide to the public, any changes in those projections, and our failure to meet those projections; | |
| ● | announcements regarding our business or the business of our customers or competitors; | |
| ● | changes in accounting standards, policies, guidelines, interpretations, or principles; | |
| ● | actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; | |
| ● | developments or disputes concerning our intellectual property or our offerings, or third-party proprietary rights; | |
| ● | announced or completed acquisitions of businesses or technologies by us or our competitors; | |
| ● | new laws or regulations or new interpretations of existing laws or regulations applicable to our business; | |
| ● | any major change in our board of directors or management; | |
| ● | sales of shares of our common stock by us or by our stockholders; | |
| ● | lawsuits threatened or filed against us; | |
| ● | macroeconomic factors, including those relating to recessionary concerns, increasing interest rates, rising inflation and changes in consumer confidence; and | |
| ● | other events or factors, including those resulting from war, incidents of terrorism, pandemics (such as the COVID-19 pandemic) or responses to these events. |
Statements of, or changes in, opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we operate or expect to operate could have an adverse effect on the market price of our common stock. In addition, the stock market as a whole, as well as our particular market segment, has from time-to-time experienced extreme price and volume fluctuations, which may affect the market price for the securities of many companies, and which often have appeared unrelated to the operating performance of such companies. Any of these factors could negatively affect our stockholders’ ability to sell their shares of common stock at the time and price they desire.
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.
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ITEM 5 - OTHER INFORMATION
Note Financing Transaction
On November 7, 2022, Verb Technology Company, Inc. (the “Company”) entered into a note purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC (the “Investor”), pursuant to which the Investor purchased an unsecured, non-convertible promissory note (the “Note”) in the aggregate principal amount of $5,470,000 (the “Note Offering”).
The Note bears interest at 9.0% per annum compounded daily. The maturity date of the Note is 18 months from the date of its issuance (the “Maturity Date”). The Note carries an original issue discount of $450,000, which is included in the principal balance of the Note. If the Company elects to prepay the Note prior to the Maturity Date, it must pay to the Investor 110% of the portion of the outstanding balance the Company elects to prepay.
Commencing on the date that is six months after the issuance date of the Note, the Investor has the right to redeem up to $600,000 of the outstanding balance of the Note per month (“Redemption Amount”) by providing written notice to the Company (a “Redemption Notice”). Upon receipt of any Redemption Notice, the Company shall pay the applicable Redemption Amount in cash to the Investor within three (3) trading days of the Company’s receipt of such Redemption Notice. No prepayment premium shall be payable in respect of any Redemption Amount.
The Note requires the Company to use 20.0% of the gross proceeds raised from future equity or debt financings, or the sale of any subsidiary or material asset, to prepay the Note, subject to a maximum aggregate prepayment amount as described in the Note.
In connection with the Note Offering, verbMarketplace, LLC, a wholly-owned subsidiary of the Company, entered into a Guaranty, dated November 7, 2022, pursuant to which it guaranteed the obligations of the Company under the Note in exchange for receiving a portion of the proceeds.
The Purchase Agreement contains customary representations and warranties of the Company and the Investor. Also, until amounts due under the Note are paid in full, the Company agreed, among other things, to: (i) timely make all filings under the Securities Exchange Act of 1934, (ii) ensure the Company’s common stock (the “Common Stock”) continues to be listed on the Nasdaq Capital Market, (iii) ensure trading in the Common Stock will not be suspended or otherwise cease trading on the Company’s principal trading market, (iv) prohibit the Company from making any Restricted Issuance (as defined in the Note) without Investor’s prior written consent, (v) prohibit the Company from entering into any agreement or otherwise agree to any covenant, condition, or obligation that restricts it from entering into certain additional transactions with the Investor, and (vi) with the exception of any transaction involving Permitted Indebtedness (as defined in the Note), prohibit the Company from pledging or granting a security interest in any of its assets without Investor’s prior written consent.
Ascendiant Capital Markets, LLC served as the sole placement agent for the transaction and received $300,000 in the aggregate.
The foregoing descriptions of the Purchase Agreement and the Note are summaries, do not purport to be complete, and are qualified in their entirety by reference to the Purchase Agreement and the Note, which are filed as Exhibits 10.1 and 10.2, respectively, to this Quarterly Report.
Nasdaq Compliance Extension
On November 9, 2022, the Company received a written notification from the Nasdaq Stock Market Listing Qualifications Staff (the “Staff”) indicating that the Company has been granted an additional 180-calendar-day period, or until May 8, 2023, to regain compliance with the $1.00 minimum closing bid price requirement for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rules (the “Minimum Bid Price Requirement”).
Nasdaq’s determination was based on (i) the Company having met the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market, with the sole exception of the Minimum Bid Price Requirement, and (ii) the Company’s written notice to Nasdaq of its intention to cure the deficiency during the compliance period, including by potentially effecting a reverse stock split if necessary. If, at any time during this additional compliance period, the closing bid price of the Common Stock is at least $1.00 per share for a minimum of ten consecutive trading days, Nasdaq will provide written confirmation of compliance. If compliance cannot be demonstrated by May 8, 2023, the Staff will provide written notification that the Company’s securities will be delisted, provided that the Company may appeal the Staff’s determination to a Hearings Panel of Nasdaq at that time.
The Company will monitor the closing bid price of its Common Stock and will consider various options to regain compliance with the Minimum Bid Price Requirement before May 8, 2023.
ITEM 6 - EXHIBITS
Reference is made to the exhibits listed on the Index to Exhibits.
INDEX TO EXHIBITS
| Exhibit Number | Description | |
| 10.1* | Note Purchase Agreement, dated November 7, 2022, between Verb Technology Company, Inc. and Streeterville Capital, LLC | |
| 10.2* | Promissory Note, dated November 7, 2022, issued by Verb Technology Company, Inc. | |
| 31.1* | Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certification of Principal Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code | |
| 32.2** | Certification of Principal Financial and Accounting Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| * | 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: November 14, 2022 | By: | /s/ Rory J. Cutaia |
| Rory J. Cutaia | ||
| President, Chief Executive Officer, | ||
| Secretary, and Director | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2022 | By: | /s/ Salman H. Khan |
| Salman H. Khan | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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