Notes
to Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2023 and 2022
(in
thousands, except share and per share data)
(unaudited)
1.
DESCRIPTION OF BUSINESS
Our
Business
References
in this document to the “Company,” “Verb,” “we,” “us,” or “our” are intended
to mean Verb Technology Company, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated
basis.
The
Company is a Software-as-a-Service (“SaaS”) applications platform developer that offers three platforms, each designed for
a specific target customer. Its SaaS platform for the direct sales industry is comprised of a suite of interactive video-based sales
enablement business software products marketed on a subscription basis. Available in both mobile and desktop versions, its base SaaS
product is verbCRM, a Customer Relationship Management (“CRM”) application, to which the Company’s clients can add
a choice of enhanced, fully integrated application modules that include verbLEARN, our gamified Learning Management System application;
verbLIVE, a Live Stream interactive eCommerce application; and verbPULSE, a business/augmented intelligence notification and sales coach
application. verbTEAMS is a standalone, self-onboarding, video-based CRM and content management application for life sciences companies,
professional sports teams, small businesses, and solopreneurs, with seamless one-button synchronization with Salesforce, that also comes
bundled with verbLIVE. MARKET.live is the Company’s 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.
On April 12, 2019,
the Company acquired Sound Concepts Inc. (“Sound Concepts”). The acquisition was intended to augment and diversify the Company’s
internet and Software-as-a-Service (“SaaS”) business. Sound Concepts is now known as Verb Direct, LLC.
On September 4, 2020,
Verb Acquisition Co., LLC (“Verb Acquisition”), a subsidiary of the Company, acquired Ascend Certification, LLC, dba SoloFire
(“SoloFire”). The acquisition was intended to augment and diversify the Company’s internet and SaaS business.
On October 18, 2021,
the Company established verbMarketplace, LLC (“Market LLC”), a Nevada limited liability company. Market LLC is a wholly owned
subsidiary of the Company established for the MARKET.live platform.
Going
Concern
The
accompanying 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 consolidated financial
statements, during the three months ended March 31, 2023, the Company incurred a net loss of $5,514 and used cash in operations of $2,918.
These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date
of the financial statements being issued.
As of March 31, 2023,
the Company had cash of $3,790.
Equity financing:
On
January 24, 2023, the Company issued 901,275 shares of the Company’s common stock which resulted in proceeds of $6,578, net of
offering costs of $622.
Debt
financing:
On
January 12, 2022, the Company entered into a securities purchase agreement (the “January Note Purchase Agreement”) with three
institutional investors (collectively, the “January Note Holders”) providing for the sale and issuance of an aggregate original
principal amount of $6,300 in convertible notes due January 2023 (each, a “Note,” and, collectively, the “Notes,”
and such financing, the “January Note Offering”). The Company and the January Note Holders also entered into a security agreement,
dated January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the
January Note Holders in substantially all of its assets. During the year ended December 31, 2022, the Company repaid $4,950 in principal
payments and $357 of accrued interest to January Note Holders pursuant to the terms of the Notes. On January 26, 2023, the Company repaid
the remaining principal balance of $1,350 and $208 of accrued interest under the January Note Offering dated January 12, 2022.
In
September 2022, the U.S. Small Business Administration approved a loan of $350, which, as of May 22, 2023, the Company has not received
these funds.
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 note in the original principal amount of $5,470, which has an original issue discount of $470, resulting in gross proceeds
to the Company of approximately $5,000 (the “November Note,” and such financing, the “November Note Offering”).
The November Note matures eighteen months following the date of issuance. Commencing six months from the date of issuance, the Company
is required to make monthly cash redemption payments in an amount not to exceed $600. The November Note may be repaid in whole or in
part prior to the maturity date for a 10% premium. The November Note requires the Company to use up to 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 $2,000
cap on the aggregate prepayment amount. Until all obligations under the November Note have been paid in full, the Company is not permitted
to grant a security interest in any of its assets, or to issue securities convertible into shares of common stock, subject in each case
to certain exceptions. verbMarketplace, LLC entered into a guaranty, dated November 7, 2022, in connection with the November Note Offering,
pursuant to which it guaranteed the obligations of the Company under the November Note in exchange for receiving a portion of the loan
proceeds. As of March 31, 2023, the outstanding balance of the November Notes amounted to $5,470. On May 16, 2023, the Company received a redemption notice under the terms
of the November Note Purchase Agreement for $300. See Note 14 – Subsequent Events.
On
February 16, 2023, the Company modified and combined the unpaid balances of the previous two advances on future receipts with a new
advance from the same third party totaling $1,550
for the purchase of future receipts/revenues of $2,108,
resulting in a debt discount of $558.
As of March 31, 2023, the outstanding balance of the note was $1,811
and is being repaid by making daily payments of $10
on each banking day with a scheduled maturity date of December 14, 2023.
Other:
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 $1,528
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 March 31, 2023 and December 31, 2022, the Company had a receivable of $1,528
as the amended payroll tax returns have been filed with the IRS related to the quarterly periods ending June 2021 and September
2021. Due to the uncertain timing of the receipt of this receivable, it is being classified as a long-term asset in the consolidated
balance sheet at March 31, 2023.
In
November 2022, a cost savings plan was approved and implemented to improve liquidity and preserve cash for operations (the “Cost
Savings Plan”). This plan was expected to further reduce expenses moving forward through such actions as a reduction in force, elimination
of certain services provided by various vendors, and a 25% reduction in cash compensation by senior management over a four-month period
in exchange for shares of common stock. Subsequently, the Company extended the Cost Savings Plan through April 30, 2023.
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.
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.
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, 2022 filed with the SEC on April 17, 2023 (the “2022 Annual Report”). The consolidated
balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date.
On
April 18, 2023, we implemented a 1-for-40 reverse stock split (the “Reverse Stock Split”) of our common stock, $0.0001
par value per share (the “Common Stock”). Our Common Stock commenced trading on a post Reverse Stock Split basis on
April 19, 2023. As a result of the Reverse Stock Split, every forty (40) shares of our pre-Reverse Stock Split Common Stock were
combined and reclassified into one share of our Common Stock. The number of shares of Common Stock subject to outstanding options,
warrants, and convertible securities were also reduced by a factor of forty and the exercise price of such securities increased by a
factor of forty, as of April 18, 2023. All historical share and per-share amounts reflected throughout our condensed consolidated
financial statements and other financial information in this Quarterly Report have been adjusted to reflect the Reverse Stock Split.
The par value per share of our Common Stock was not affected by the Reverse Stock Split.
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
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. Certain prior period amounts have been reclassified to conform to the current year presentation within the consolidated
balance sheets as of March 31, 2023 and December 31, 2022.
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. 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. Amounts could materially change in the
future.
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. The Company also derives revenue from the sale of customized print
products and training materials, branded apparel, and digital tools, as demanded by its customers.
A
description of our principal revenue generating activities is as follows:
|
1. |
Digital Revenue which is divided into two main categories: |
|
a. |
SaaS recurring digital revenue based on contract-based
subscriptions to verb app products and platform services which include verbCRM, verbLEARN, verbLIVE, verbTEAMS, and verbPULSE. The
revenue is recognized straight-line over the subscription period. |
|
b. |
Non-SaaS, non-recurring digital revenue, which is revenue
generated by the use of app products and in-app purchases, such as sampling and other services obtained through the app. The revenue
for samples is recognized upon completion and shipment, while the design fees are recognized when the service has been rendered and
the app is delivered to the customer. |
Subscription
revenue from the application services is recognized over the life of the estimated subscription period. The Company also charges certain
customers setup or installation fees for the creation and development of websites and phone application. 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 the Company generates from non-app, non-digital sources through ancillary services provided as an accommodation to 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, 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 10% commission for customer
referrals and 8% on merchandise sales and certain cart site design fees, all of which are recognized as non-digital revenue on a
net basis. |
Revenues
during the three months ended March 31, 2023 and 2022 were substantially all generated from clients and customers located within the
United States of America, though some utilize the Company’s applications outside the United States of America.
Cost
of Revenue
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.
The
following table provides information about contract liabilities from contracts with customers, including significant changes in the contract
liabilities balance during the period:
SCHEDULE
OF CONTRACTUAL LIABILITIES
| |
March
31, 2023 | | |
December
31, 2022 | |
| |
| | |
| |
Beginning balance | |
$ | 1,340 | | |
$ | 986 | |
| |
| | | |
| | |
Increase due to deferral of revenue | |
| 971 | | |
| 3,357 | |
Decrease due to recognition of revenue | |
| (866 | ) | |
| (3,003 | ) |
| |
| | | |
| | |
Ending balance | |
$ | 1,445 | | |
$ | 1,340 | |
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 consolidated statements
of operations.
Intangible
Assets
The
Company has 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.
The
Company reviews 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, the Company recognizes an impairment loss for the excess carrying value over
the fair value in our consolidated statements of operations.
In
December 2022, the Company recorded an impairment loss of $440
on its indefinite-lived intangible assets that had been recognized as part of the Sound Concepts acquisition in 2019. The Company
also recorded an impairment loss of $2
that had been recognized as part of the Solofire acquisition in 2020. As a result, the carrying amount of the Company’s
indefinite-lived intangible assets was reduced to $0
as of December 31, 2022.
The
Company did not record any impairment charges related to finite-lived intangible assets during the three months ended March 31, 2023.
Goodwill
In
accordance with FASB ASC 350, Intangibles-Goodwill and Other, the Company reviews goodwill and indefinite-lived intangible assets
for impairment at least annually or whenever events or circumstances indicate a potential impairment. The Company’s impairment
testing is performed annually at December 31 (its fiscal year end). Impairment of goodwill and indefinite-lived intangible assets is
determined by comparing the fair value of the Company’s reporting unit to the carrying value of the underlying net assets in the
reporting unit. If the fair value of the 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. In accordance with the “Segment Reporting”
Topic of the ASC, the Company’s chief operating decision maker (the Company’s Chief Executive Officer) determined that there
is only one reporting unit.
The
Company’s annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative
impairment test. In performing a qualitative assessment, the Company reviewed events and circumstances that could affect the significant
inputs used to determine if the fair value is less than the carrying value of goodwill. As a result of this qualitative assessment, the
Company determined that a triggering event had occurred to necessitate performing the quantitative impairment test.
After
performing the quantitative impairment test at December 31, 2022 in accordance with ASC 350-20-35-3C, the Company determined that
goodwill was impaired by $10,183.
As a result of the impairment losses recognized, the carrying amount of the Company’s goodwill was reduced to $9,581
as of December 31, 2022.
The Company did not record any impairment charges related to goodwill during the three months ended March
31, 2023.
Series
B Redeemable Preferred Stock
On
February 17, 2023, the Company entered into a subscription agreement with Rory J. Cutaia, its Chief Executive Officer, pursuant to which
the Company agreed to issue and sell one (1) share of the Company’s Series B Preferred Stock, par value $0.0001 per share, for
$5 in cash.
The
Certificate of Designation setting for the rights and preferences of the Series B Preferred Stock provides that the holder of the Series
B Preferred Stock will have 700,000,000 votes and will vote together with the outstanding shares of the Company’s common stock
as a single class exclusively with respect to any proposal to amend the Company’s Articles of Incorporation, as amended, to effect
a reverse stock split of the Company’s common stock and to increase the number of authorized shares of common stock of the Company.
The Preferred Stock will be voted, without action by the holder, on any such proposal in the same proportion, both For and Against, as
the shares of common stock are voted. The Preferred Stock otherwise has no voting rights except as otherwise required by the Nevada Revised
Statutes.
The
Series B Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities
of the Company. The Series B Preferred Stock has no rights with respect to any distribution of assets of the Company, including upon
a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or
involuntarily. The holder of the Series B Preferred Stock will not be entitled to receive dividends of any kind.
The
outstanding share of Series B Preferred Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered
by the Board of Directors in its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Certificate of
Incorporation implementing a reverse stock split and the increase in authorized shares of common stock of the Company. See Note 14 –
Subsequent Events.
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 (3) 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 (3) 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, and accounts
payable and accrued expenses approximate their fair value due to their short-term nature. The carrying values 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 the derivative liabilities.
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 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 balance sheet as
current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of
the balance sheet date.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using
a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any
increase or decrease in the fair value being recorded in results of operations as adjusted to fair value of derivatives.
Share-Based
Compensation
The
Company issues stock options 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.
Net
Loss Per Share
Basic
net loss per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted net loss
per share is computed giving effect to all dilutive potential shares of common stock that were outstanding during the period. Dilutive
potential shares of common stock consist of incremental shares of common stock issuable upon exercise of stock options. No dilutive potential
shares of common stock were included in the computation of diluted net loss per share because their impact was anti-dilutive.
As
of March 31, 2023, and 2022, the Company had total outstanding options of 131,074 and 146,941, respectively, and warrants of 951,804
and 274,619, respectively, and outstanding restricted stock awards of 25,297 and 55,288, respectively, the Notes that were convertible
into 0 and 53,183 shares at $120.00 per share, respectively, and convertible notes issued to a related party that were convertible into
21,319 and 19,102 shares at $41.20 per share, respectively, which were excluded from the computation of net loss per share because they
are anti-dilutive.
Concentration
of Credit and Other Risks
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited
with a limited number of financial institutions. The balances held at any one financial institution at times may be in excess of Federal
Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250.
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
the high level of credit worthiness of its customers.
The
Company’s concentration of credit risk includes its concentrations from key customers and vendors. The details of these significant
customers and vendors are presented in the following table for the three months ended March 31, 2023 and 2022:
SCHEDULE
OF CONCENTRATION RISK
|
|
Three
Months Ended March 31, |
|
|
2023 |
|
2022 |
The Company’s largest customers
are presented below as a percentage of the aggregate |
|
|
|
|
|
|
|
|
|
Revenues and Accounts receivable |
|
No customers individually
over 10% |
|
No customers individually
over 10% |
|
|
|
|
|
The Company’s largest vendors are presented
below as a percentage of the aggregate |
|
|
|
|
|
|
|
|
|
Purchases |
|
One vendor that accounted for 28% of its purchases individually and in
the aggregate |
|
One vendor that accounted
for 33% of its purchases individually and in the aggregate |
During
the three months ended March 31, 2023 and 2022, we had no customers that accounted for 10% of our revenues individually and in the aggregate.
Supplemental
Cash Flow Information
SCHEDULE
OF SUPPLEMENTAL CASH FLOW INFORMATION
| |
| Three
Months Ended March 31,
| |
| |
| 2023 | | |
| 2022 | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 227 | | |
$ | - | |
Cash paid for income taxes | |
$ | 1 | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Fair value of common shares issued to settle accrued expenses | |
$ | - | | |
$ | 350 | |
Discount recognized from advances on future receipts | |
| 558 | | |
| - | |
Accrued software development costs | |
| 113 | | |
| 1,675 | |
Accrued share-based compensation | |
| 50 | | |
| - | |
Discount recognized from notes payable | |
| - | | |
| 300 | |
Derecognition of operating lease right-of-use assets | |
| - | | |
| 543 | |
Derecognition of operating lease liabilities | |
| - | | |
| 521 | |
Debt issuance costs in accounts payable | |
$ | - | | |
$ | 80 | |
Recent
Accounting Pronouncements
Recently
Adopted Accounting Pronouncements
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. The adoption of this standard did not have any material impact on the Company’s financial statements.
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 financial statements and 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
statement presentation or disclosures.
In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. ASU 2021-08 will require companies to recognize and measure contract assets and contract liabilities
relating to contracts with customers that are acquired in a business combination in accordance with ASC 606. Under current GAAP, an acquirer
generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities
arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording
acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under
ASC Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted
this ASU as of January 1, 2022 on a prospective basis and the adoption impact of the new standard will depend on the magnitude of future
acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the
adoption date.
In
November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)—Disclosures by Business Entities about Government
Assistance. ASU 2021-10 increases the transparency of government assistance including the disclosure of (1) the types of assistance,
(2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements.
The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU as of January 1, 2022 on a prospective
basis. The adoption of this standard did not have any material impact on the Company’s financial statements.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management to have a material
impact on the Company’s present or future consolidated financial statements.
3.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In
2020, the Company began developing MARKET.live, a livestream ecommerce platform, and has capitalized $7,131 and $7,108 of internal and
external development costs as of March 31, 2023 and December 31, 2022, respectively. In October 2021, the Company entered into a 10-year
license and services agreement with a third party (the “Primary Contractor”) to develop on a work-for-hire basis certain
components of MARKET.live. The Primary Contractor’s fees for developing such components, including the license fee, is $5,750.
The Primary Contractor was paid an additional $500 bonus in April 2022 for services rendered pursuant to the license and service agreement.
In addition, as of March 31, 2023 and December 31, 2022, the Company had paid or accrued $605 and $604, respectively, of other capitalized
software development costs.
For
the three months ended March 31, 2023 and 2022, the Company amortized $538 and $0, respectively.
Capitalized
software development costs, net consisted of the following:
SCHEDULE
OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS
| |
March
31, 2023 | | |
December
31, 2022 | |
| |
| | |
| |
Beginning balance | |
$ | 6,176 | | |
$ | 4,348 | |
| |
| | | |
| | |
Additions | |
| 23 | | |
| 2,760 | |
Amortization | |
| (538 | ) | |
| (932 | ) |
Ending balance | |
$ | 5,661 | | |
$ | 6,176 | |
The
expected future amortization expense for capitalized software development costs as of March 31, 2023, is as follows:
SCHEDULE
OF ESTIMATED AMORTIZATION EXPENSE
Year ending | |
| Amortization | |
2023 remaining | |
$ | 1,783 | |
2024 | |
| 2,377 | |
2025 | |
| 1,445 | |
2026 | |
| 56 | |
Total amortization | |
$ | 5,661 | |
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 22, 2022 (or a subsequent mutually agreed upon
date) and the Company thereafter determines not to consummate the acquisition of the Primary Contractor, the Company would have been
liable for a $1,000 break-up fee payable to the Primary Contractor. However, as of May 22, 2022, the SPA had not been executed and the
Primary Contractor Audit was not completed. The parties are still working together and in discussions regarding the transaction. Based
on the term sheet, the purchase price for the Primary Contractor would have been $12,000, which could be paid in cash and/or stock, although
the final terms of the acquisition if pursued will be set forth in the final executed SPA. There can be no assurance that the acquisition
will be completed on the terms set forth in the term sheet or at all.
4.
GOODWILL AND INTANGIBLE ASSETS
Goodwill
In
December 2022, after performing the quantitative impairment test in accordance with ASC 350-20-35-3C, the Company determined that
goodwill was impaired by $10,183.
As a result of the impairment losses recognized, the carrying amount of the Company’s goodwill was reduced to $9,581 as of
December 31, 2022.
The Company did not
record any impairment charges during the three months ended March 31, 2023.
Intangible
assets
Intangible
assets, net consisted of the following:
SCHEDULE OF INTANGIBLE ASSETS
| |
March
31, 2023 | | |
December
31, 2022 | |
| |
| | |
| |
Amortizable finite-lived intangible assets | |
$ | 1,499 | | |
$ | 1,499 | |
Accumulated amortization | |
| (737 | ) | |
| (666 | ) |
| |
| | | |
| | |
Intangible assets, net | |
$ | 762 | | |
$ | 833 | |
Amortizable
finite-lived intangible assets are being amortized over a period of 3 to 5 years. During the three months ended March 31, 2023 and 2022,
the Company recorded amortization expense of $71 and $366, respectively.
In
December 2022, the Company recorded an impairment loss of $440 on its indefinite-lived intangible assets that had been recognized as
part of the Sound Concepts acquisition in 2019. The Company also recorded an impairment loss of $2 that had been recognized as part of
the Solofire acquisition in 2020. As a result of the impairment losses recognized, the carrying amount of the Company’s indefinite-lived
intangible assets were reduced to $0 as of December 31, 2022.
The
expected future amortization expense for amortizable finite-lived intangible assets as of March 31, 2023 is as follows:
SCHEDULE
OF AMORTIZATION EXPENSE FINITE LIVED INTANGIBLE ASSETS
Year ending |
|
Amortization |
|
2023 remaining |
|
$ |
240 |
|
2024 |
|
|
308 |
|
2025 |
|
|
214 |
|
Total
amortization |
|
$ |
762 |
|
5.
OPERATING LEASES
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
SCHEDULE
OF LEASE COST
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Lease cost | |
| | | |
| | |
Operating lease cost (included in general and administrative expenses in the Company’s statement of operations) | |
$ | 122 | | |
$ | 107 | |
| |
| | | |
| | |
Other information | |
| | | |
| | |
Cash paid for amounts included in the measurement of lease liabilities | |
$ | 150 | | |
$ | 171 | |
Weighted average remaining lease term – operating leases (in years) | |
| 3.73 | | |
| 5.17 | |
Weighted average discount rate – operating leases | |
| 4.2 | % | |
| 4.0 | % |
SCHEDULE
OF OPERATING LEASES
| |
March 31, 2023 | | |
December 31, 2022 | |
Operating leases | |
| | | |
| | |
Right-of-use assets | |
$ | 1,371 | | |
$ | 1,473 | |
| |
| | | |
| | |
Short-term operating lease liabilities | |
$ | 447 | | |
$ | 476 | |
Long-term operating lease liabilities | |
| 1,481 | | |
| 1,581 | |
Total operating lease liabilities | |
$ | 1,928 | | |
$ | 2,057 | |
SCHEDULE
OF PRESENT VALUE OF LEASE LIABILITIES
Year
ending |
|
Operating
Leases |
|
2023 remaining |
|
$ |
432 |
|
2024 |
|
|
472 |
|
2025 |
|
|
484 |
|
2026 | |
|
496 |
|
2027
and thereafter |
|
|
209 |
|
Total lease payments |
|
|
2,093 |
|
Less:
Imputed interest/present value discount |
|
|
(165 |
) |
Present
value of lease liabilities |
|
$ |
1,928 |
|
6.
ADVANCES ON FUTURE RECEIPTS
The
Company has the following advances on future receipts as of March 31, 2023 and December 31, 2022:
SCHEDULE
OF ADVANCES ON FUTURE RECEIPTS
Note | |
Issuance
Date | |
Maturity
Date | |
Interest
Rate | | |
Original
Borrowing | | |
Balance at March 31, 2023 | | |
Balance at December 31, 2022 | |
| |
| |
| |
| | |
| | |
| | |
| |
Note 1 | |
August 25, 2022 | |
May 11, 2023 | |
| 26 | % | |
$ | 3,400 | | |
$ | - | | |
$ | 1,782 | |
Note 2 | |
October 25, 2022 | |
April 26, 2023 | |
| 30 | % | |
| 322 | | |
| - | | |
| 207 | |
Note 3 | |
February 16, 2023 | |
December 14, 2023 | |
| 35 | % | |
| 2,108 | | |
| 1,811 | | |
| - | |
Total | |
| |
| |
| | | |
$ | 5,830 | | |
| 1,811 | | |
| 1,989 | |
Debt discount | |
| |
| |
| | | |
| | | |
| (424 | ) | |
| (311 | ) |
Debt issuance costs | |
| |
| |
| | | |
| | | |
| (66 | ) | |
| (37 | ) |
Net | |
| |
| |
| | | |
| | | |
$ | 1,321 | | |
$ | 1,641 | |
Note
1
On
August 25, 2022, the Company received secured advances from an unaffiliated third party totaling $2,500 for the purchase of future receipts/revenues
of $3,400, resulting in a debt discount of $900. The Company also paid $100 of debt issuance costs. The debt discount and debt issuance
costs were being amortized over the term of the secured advance using the effective interest rate method. As of December 31, 2022, the
outstanding balance of the note was $1,782 and the unamortized balance of the debt discount and debt issuance costs were $267 and $30,
respectively. During the three months ended March 31, 2023, the Company paid $643 and amortized $155 and $17 of the debt discount and
debt issuance costs, respectively. On February 16, 2023, the Company agreed to combine the unpaid balance with a new advance, see Note
3 below. The unamortized amounts of debt discount and debt issuance costs of $112 and $13, respectively, were written off as part of
the accounting for debt extinguishment.
Note
2
On
October 25, 2022, the Company received secured advances from an unaffiliated third party totaling $225 for the purchase of future receipts/revenues
of $322, resulting in a debt discount of $97. The Company also paid $16 of debt issuance costs. The debt discount and debt issuance costs
were being amortized over the term of the secured advance using the effective interest rate method. As of December 31, 2022, the outstanding
balance of the note was $207 and the unamortized balance of the debt discount and debt issuance costs were $44 and $7, respectively.
During the three months ended March 31, 2023, the Company paid $86 and amortized $28 and $4 of the debt discount and debt issuance costs,
respectively. On February 16, 2023, the Company agreed to combine the unpaid balance with a new advance, see Note 3 below. The unamortized
amounts of debt discount and debt issuance costs of $16 and $3, respectively, were written off as part of the accounting for debt extinguishment.
Note
3
On
February 16, 2023, the Company modified and combined the unpaid balances of the previous two advances (see Notes 1 and 2 above) with
a new advance from the same third party totaling $1,550
for the purchase of future receipts/revenues of $2,108,
resulting in a debt discount of $558.
The Company received $290
and paid $87
of debt issuance costs upon closing. The debt discount and debt issuance costs are being amortized over the term of the secured
advance using the effective interest rate method. During the three months ended March 31, 2023, the Company paid $297
and amortized $134
and $21
of the debt discount and debt issuance costs, respectively. As of March 31, 2023, the outstanding balance of the note was $1,811
and the unamortized balance of the debt discount and debt issuance costs were $424
and $66,
respectively.
7.
CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
The
Company has the following outstanding notes payable as of March 31, 2023 and December 31, 2022:
SCHEDULE OF NOTES PAYABLE RELATED PARTIES
Note | |
Issuance Date | |
Maturity Date | |
Interest Rate | | |
Original Borrowing | | |
Balance at March 31, 2023 | | |
Balance at December 31, 2022 | |
Related party note payable (A) | |
December 1, 2015 | |
April 1, 2023 | |
| 12.0 | % | |
$ | 1,249 | | |
$ | 725 | | |
$ | 725 | |
Related party note payable (B) | |
April 4, 2016 | |
June 4, 2021 | |
| 12.0 | % | |
| 343 | | |
| 40 | | |
| 40 | |
Note payable (C) | |
May 15, 2020 | |
May 15, 2050 | |
| 3.75 | % | |
| 150 | | |
| 150 | | |
| 150 | |
Convertible Notes Due 2023 (D) | |
January 12, 2022 | |
January 12, 2023 | |
| 6.0 | % | |
| 6,300 | | |
| - | | |
| 1,350 | |
Promissory note payable (E) | |
November 7, 2022 | |
May 7, 2024 | |
| 9.0 | % | |
| 5,470 | | |
| 5,470 | | |
| 5,470 | |
Debt discount | |
| |
| |
| | | |
| | | |
| (323 | ) | |
| (408 | ) |
Debt issuance costs | |
| |
| |
| | | |
| | | |
| (240 | ) | |
| ) |
Total notes payable | |
| |
| |
| | | |
| | | |
| 5,822 | | |
| 7,018 | |
Non-current | |
| |
| |
| | | |
| | | |
| (150 | ) | |
| (1,215 | ) |
Current | |
| |
| |
| | | |
| | | |
$ | 5,672 | | |
$ | 5,803 | |
|
(A) |
On December 1, 2015, the
Company issued a convertible note payable to Mr. Cutaia, the Company’s Chief Executive Officer and a director, to consolidate
all loans and advances made by Mr. Cutaia to the Company as of that date. On May 19, 2021, the Company amended the note to allow
for conversion of the note at any time at the discretion of the holder at a fixed conversion price of $41.20, 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 March 31, 2023 and December 31, 2022, the outstanding balance under the note was $833 and $811, respectively. |
|
|
|
|
(B) |
On April 4, 2016, the Company
issued a convertible note payable to Mr. Cutaia, in the amount of $343, to consolidate all advances made by Mr. Cutaia to the Company
during the period December 2015 through March 2016. On May 19, 2021, the Company amended the note to allow for conversion of the
note at any time at the discretion of the holder at a fixed conversion price of $41.20, which was the closing price of the common
stock on the amendment date. As of March 31, 2023 and December 31, 2022, the outstanding balance under the note was $46 and $45,
respectively. |
|
(C) |
On
May 15, 2020, the Company executed an unsecured loan with the SBA under the Economic Injury Disaster Loan program in the amount of
$150. Installment payments, including principal and interest, began on October 26, 2022. In September 2022, the SBA approved an additional
loan of $350. As of May 22, 2023, the Company has not received these funds. As of March 31, 2023 and December 31, 2022, the outstanding
balance under the note was $150.
|
|
(D) |
On
January 12, 2022, the Company entered into a securities purchase agreement (the “January Note Purchase Agreement”) with
three institutional investors (collectively, the “January Note Holders”) providing for the sale and issuance of an aggregate
original principal amount of $6,300 in convertible notes due January 2023 (each, a “Note,” and, collectively, the “Notes,”
and such financing, the “January Note Offering”). The Company and the January Note Holders also entered into a security
agreement, dated January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security
interest to the January Note Holders in substantially all of its assets. The January Note Purchase Agreement prohibits the Company
from entering into an agreement to effect any issuance of common stock involving a Variable Rate Transaction (as defined therein)
during the term of the agreement, subject to certain exceptions set forth therein. The January Note Purchase Agreement also gives
the January Note Holders the right to require the Company to use up to 15% of the gross proceeds raised from future debt or equity
financings to redeem the Notes, which redemptions have been elected by the January Note Holders. There are no financial covenants
related to these notes payable.
The
Company received $6,000 in gross proceeds from the sale of the Notes. The Notes bear interest of 6.0% per annum, have an original
issue discount of 5.0%, mature 12 months from the closing date, and have an initial conversion price of $120.00, subject to adjustment
in certain circumstances as set forth in the Notes.
In
connection with the January Note Offering, the Company paid $461 of debt issuance costs. The debt issuance costs and the debt discount
of $300 were amortized over the term of the Notes using the effective interest rate method. As of December 31, 2022, the amount of
unamortized debt discount and debt issuance costs was $6 and $10, respectively. During the three months ended March 31, 2023, the
Company amortized the remaining amount of debt discount and debt issuance costs. |
|
|
|
|
|
As
of December 31, 2022, the outstanding principal balance of the Notes amounted to $1,350.
On January 26, 2023, the Company repaid in full all outstanding obligations under the January Note Offering dated January 12,
2022. |
|
(E) |
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 note in the original principal amount of $5,470, which has an original issue discount of $470, resulting
in gross proceeds to the Company of approximately $5,000 (the “November Note,” and such financing, the “November
Note Offering”). The November Note matures eighteen months following the date of issuance. Commencing six months from the date
of issuance, the Company is required to make monthly cash redemption payments in an amount not to exceed $600. The November Note
may be repaid in whole or in part prior to the maturity date for a 10% premium. The November Note requires the Company to use up
to 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 $2,000 cap on the aggregate prepayment amount. Until all obligations under the November Note have
been paid in full, the Company is not permitted to grant a security interest in any of its assets, or to issue securities convertible
into shares of common stock, subject in each case to certain exceptions. verbMarketplace, LLC entered into a guaranty, dated November
7, 2022, in connection with the November Note Offering, pursuant to which it guaranteed the obligations of the Company under the
November Note in exchange for receiving a portion of the loan proceeds.
In
connection with the November Note Offering, the Company incurred $335 of debt issuance costs. The debt issuance costs and the debt
discount of $450 are being amortized over the term of the November Notes using the effective interest rate method. As of December
31, 2022, the amount of unamortized debt discount and debt issuance costs was $402 and $299, respectively. During the three months
ended March 31, 2023, the Company amortized $79 of debt discount and $59 of debt issuance costs. As of March 31, 2023, the amount
of unamortized debt discount and debt issuance costs was $323 and $240, respectively.
As
of March 31, 2023, the outstanding balance of the November Notes amounted to $5,470. On May 16, 2023, the Company received a redemption notice under the terms
of the November Note Purchase Agreement for $300. See Note 14 – Subsequent Events. |
The
following table provides a breakdown of interest expense:
SCHEDULE OF INTEREST EXPENSE
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Interest expense – amortization of debt discount | |
$ | 402 | | |
$ | 536 | |
Interest expense – amortization of debt issuance costs | |
| 112 | | |
| 113 | |
Interest expense – other | |
| 315 | | |
| 107 | |
| |
| | | |
| | |
Total interest expense | |
$ | 829 | | |
$ | 756 | |
Total
interest expense for notes payable to related parties (see Notes A and B above) was $23
and $23
for the three months ended March 31, 2023 and 2022, respectively. The Company paid $0
and $0
in interest to related parties for the three months ended March 31, 2023 and 2022, respectively.
8.
DERIVATIVE LIABILITY
Under
authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own
stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. 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 are 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 statement of operations.
The
derivative liabilities were valued using a Binomial pricing model with the following average assumptions:
SCHEDULE OF DERIVATIVE LIABILITY USING BINOMIAL PRICING MODEL ASSUMPTIONS
| |
March 31, 2023 | | |
December 31, 2022 | |
Stock Price | |
$ | 4.80 | | |
$ | 6.40 | |
Exercise Price | |
$ | 8.00 | | |
$ | 13.60 | |
Expected Life | |
| 1.74 | | |
| 1.98 | |
Volatility | |
| 124 | % | |
| 107 | % |
Dividend Yield | |
| 0 | % | |
| 0 | % |
Risk-Free Interest Rate | |
| 4.29 | % | |
| 4.41 | % |
Total Fair Value | |
$ | 214 | | |
$ | 222 | |
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 three months ended March 31, 2023, the Company recorded income of $8 to account for the changes in the fair value of these derivative
liabilities during the period. At March 31, 2023, the fair value of the derivative liability amounted to $214.
During
the three months ended March 31, 2022, the Company recorded income of $1,138 to account for the changes in the fair value of these derivative
liabilities during the period.
The
details of derivative liability transactions for the three months ended March 31, 2023 and 2022 are as follows:
SCHEDULE
OF DERIVATIVE LIABILITY TRANSACTION
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Beginning balance | |
$ | 222 | | |
$ | 3,155 | |
Change in fair value | |
| (8 | ) | |
| (1,138 | ) |
Ending balance | |
$ | 214 | | |
$ | 2,017 | |
9.
COMMON STOCK
The
Company’s common stock activity for the three months ended March 31, 2023 is as follows:
Common
Stock
Shares Issued as Part of Public Offering
On
January 24, 2023, the Company entered into an underwriting agreement with Aegis relating to the offering, issuance and sale of 901,275
shares of the Company’s common stock at a public offering price of $8.00 per share. The net proceeds for the offering were $6,578,
after deducting discounts, commissions and estimated offering expenses. As a result of this transaction, certain warrants which previously
had an exercise price of $13.60 per share, had the exercise price reduced to $8.00 per share.
Shares
Issued for Services
During
the three months ended March 31, 2023, the Company issued 49,596
shares of common stock to officers and employees associated with the vesting of Restricted Stock
Units.
Termination
of Equity Line of Credit Agreement
On
January 26, 2023, the Company terminated the January Purchase Agreement dated January 12, 2022, which provided for the sale by the Company
of up to $50,000 of newly issued shares.
Issuances
of Stock Options
During the
three months ended March 31, 2023, the Company granted stock options to board members to purchase a total of 8,090
stock options as replacement awards related to forfeited restricted stock units. The options have an average exercise price of
$9.20
per share, expire in five years, and vested on the grant date. The total grant date fair value of these options was $66
based on the Black-Scholes option pricing model.
10.
RESTRICTED STOCK UNITS
A
summary of restricted stock unit activity for the three months ended March 31, 2023 is presented below.
SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY
| |
| | |
Weighted- | |
| |
| | |
Average | |
| |
| | |
Grant Date | |
| |
Shares | | |
Fair Value | |
| |
| | |
| |
Non-vested at January 1, 2023 | |
| 89,898 | | |
$ | 29.04 | |
Granted | |
| 7 | | |
| 8.80 | |
Vested/deemed vested | |
| (49,596 | ) | |
| 15.63 | |
Forfeited | |
| (15,012 | ) | |
| 40.70 | |
Non-vested at March 31, 2023 | |
| 25,297 | | |
$ | 48.41 | |
The
total fair value of restricted stock units that vested or deemed vested during the three months ended March 31, 2023 was $775. The total stock compensation expense recognized relating to the vesting of restricted stock units for the three months
ended March 31, 2023 amounted to $536. As of
March 31, 2023 the amount of unvested compensation related to issuances of restricted stock units was $1,052 which will be recognized
as an expense in future periods as the shares vest. When calculating basic net loss per share, these shares are included in weighted
average common shares outstanding from the time they vest. When calculating diluted net loss per share, these shares are included in
weighted average common shares outstanding as of their grant date.
11.
STOCK OPTIONS
A
summary of option activity for the three months ended March 31, 2023 is presented below.
SCHEDULE OF STOCK OPTION ACTIVITY
| |
| | |
| | |
Weighted- | | |
| |
| |
| | |
Weighted- | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
| | |
Exercise | | |
Contractual | | |
Intrinsic | |
| |
Options | | |
Price | | |
Life
(Years) | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding
at January 1, 2023 | |
| 139,054 | | |
$ | 52.11 | | |
| 3.37 | | |
$ | - | |
Granted | |
| 8,090 | | |
| 9.20 | | |
| - | | |
| - | |
Forfeited | |
| (16,070 | ) | |
| 52.46 | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding
at March 31, 2023 | |
| 131,074 | | |
$ | 49.42 | | |
| 3.17 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Vested
March 31, 2023 | |
| 80,690 | | |
$ | 52.40 | | |
| | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable
at March 31, 2023 | |
| 80,690 | | |
$ | 52.40 | | |
| | | |
$ | - | |
At
March 31, 2023, the intrinsic value of the outstanding options was $0.
During
the three months ended March 31, 2023, the Company granted stock options to board members to purchase a total of 8,090 stock options
as replacement awards related to forfeited restricted stock units. The options have an average exercise price of $9.20
per share, expire in five years, and vested on the grant date. The total fair value of these options at grant date was $66
using the Black-Scholes Option Pricing model.
The total stock compensation expense recognized relating to the vesting of stock options for the three months ended March 31, 2023 amounted
to $367.
As of March 31, 2023, the total unrecognized share-based compensation expense was $1,815,
which is expected to be recognized as part of operating expense through December 2025.
The
fair value of share option award is estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:
SCHEDULE OF FAIR VALUE ASSUMPTIONS USING BLACK-SCHOLES METHOD
| |
Three
Months Ended March 31, | |
| |
2023 | | |
2022 | |
Risk-free
interest rate | |
| 1.24%$
- 4.27 | % | |
| 1.24%
- 2.10 | % |
Average
expected term | |
| 5
years | | |
| 5
years | |
Expected
volatility | |
| 155.85 | % | |
| 149.53 | % |
Expected
dividend yield | |
| - | | |
| |
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected
term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are
expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility
is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based on the fact that the
Company has not paid dividends in the past and does not expect to pay dividends in the future.
12.
STOCK WARRANTS
The
Company has the following warrants outstanding as of March 31, 2023, all of which are exercisable:
SCHEDULE OF WARRANTS OUTSTANDING
| |
Warrants | | |
Weighted-
Average
Exercise
Price | | |
Weighted-
Average
Remaining
Contractual
Life (Years) | | |
Aggregate
Intrinsic
Value | |
| |
| | |
| | |
| | |
| |
Outstanding
at January 1, 2023 | |
| 952,638 | | |
$ | 37.60 | | |
| 3.56 | | |
$ | - | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited | |
| (834 | ) | |
| 13.60 | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding
at March 31, 2023, all vested | |
| 951,804 | | |
$ | 32.80 | | |
| 2.93 | | |
$ | - | |
At
March 31, 2023 the intrinsic value of the outstanding warrants was $0.
On
January 24, 2023, the Company entered into an underwriting agreement with Aegis relating to the January 2023 offering, issuance and sale
of 901,275 shares of the Company’s common stock at a public offering price of $8.00 per share. As a result of this transaction,
certain warrants which previously had an exercise price of $13.60 per share, had the exercise price reduced to $8.00 per share, which resulted in the Company recognizing a deemed dividend of $164.
13.
COMMITMENTS AND CONTINGENCIES
Litigation
The
Company is currently in a dispute with a former employee of its predecessor bBooth, Inc. who has interposed a breach of contract claim
in which he alleges that he is entitled to approximately $300 in unpaid bonus compensation from 2015. This former employee filed his
complaint in the Superior Court of California for the County of Los Angeles on November 20, 2019, styled Meyerson v. Verb Technology
Company, Inc., et al. (Case No. 19STCV41816). The Company does not believe the former employee’s claims have any merit as they
are contradicted by documentary evidence, and barred by the applicable statute of limitations, and barred by a release. On February 9,
2021, the former employee’s counsel filed a motion for summary judgment, or in the alternative, summary adjudication against the
Company. On October 13, 2021, the court issued an order (i) denying the former employee’s motion for summary judgment, (ii) partly
granting the former employee’s motion for summary adjudication, and (iii) partly denying the former employee’s motion for
summary adjudication. The court has set a trial date of August 28, 2023. The Company believes the resolution of this matter will not
have a material adverse effect on the Company or its operations.
|
b. |
Legal
Malpractice Action |
The
Company is currently in a dispute with Baker Hostetler LLP (“BH”) relating to corporate legal services provided by BH to
the Company. The Company filed its complaint in the Superior Court of California for the County of Los Angeles on May 17, 2021, styled
Verb Technology Company, Inc. v. Baker Hostetler LLP, et al. (Case No. 21STCV18387). The Company’s complaint arises from
BH’s alleged legal malpractice, breach of fiduciary duties owed to the Company, breach of contract, and violations of California’s
Business and Professions Code Section 17200 et seq. The Company is seeking, amongst other things, compensatory damages from BH. On October
5, 2021, BH filed a cross-complaint against the Company alleging, amongst other things, that the Company owes it approximately $915 in
legal fees. The Company disputes owing this amount to BH. The Company believes that the resolution of these matters will have no material
effect on the Company or its operations. On March 1, 2023, BH and the Company entered into an out of court settlement and the Company
agreed to pay $25 on execution of the settlement agreement and $6.25 per month over a period of 12 months with a total settlement amount
of $100. The total settlement amount was accrued by the Company as of March 31, 2023.
c.
Dispute with Warrant Holder
The
Company is currently in a dispute with Iroquois Capital Investment Group LLC and Iroquois Master Fund, Ltd (collectively, “Iroquois”)
relating to a securities purchase agreement (the “SPA”) entered between the Company, Iroquois and certain other investors.
The Company filed a complaint in the Supreme Court of New York for the County of New York on April 6, 2022, styled Verb Technology
Company, Inc. v. Iroquois Capital Investment Group LLC, et al. (Index No. 651708/2022). The Company’s complaint seeks a judicial
declaration of its duties and obligations under the SPA. On May 5, 2022, Iroquois filed counterclaims against the Company for declaratory
relief, breach of contract, and breach of the implied covenant of good faith and fair dealing relating to the SPA. Iroquois alleges damages
of $1,500. The Company disputes Iroquois’ counterclaims and damages allegations. The Company intends to vigorously pursue its claims
and to vigorously defend itself against the counterclaims. The Company believes that the resolution of these matters will not have a
material adverse effect on the Company or its operations.
The
Company knows of no material proceedings in which any of its directors, officers, or affiliates, or any registered or beneficial stockholder
is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.
The
Company believes it has adequately reserved for all litigation within its financial statements.
Board
of Directors
The
Company has committed an aggregate of $357 in board fees to its five board members over the term of their appointment for services to
be rendered. Board fees are accrued and paid monthly. The members will serve on the board until the annual meeting for the year in which
their term expires or until their successors has been elected and qualified.
Total
board fees expensed during the three months ended March 31, 2023 was $75. As of March 31, 2023, total board fees to be recognized in
future period amounted to $282 and will be recognized once the service has been rendered.
14.
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through May 22, 2023, the date these financial statements are available to be issued. The Company
believes there were no material events or transactions discovered during this evaluation that requires recognition or disclosure in the
financial statements other than the items discussed below.
Redemption of Series B
Redeemable Preferred Stock
On April 20, 2023, the Company redeemed the Preferred Stock for $5 in cash.
Reverse
Stock Split
At
a Special Meeting of Stockholders on April 10, 2023, the stockholders of the Company approved a Certificate of Amendment to the
Articles of Incorporation of the Company to increase its authorized common stock from 200,000,000
shares to 400,000,000
shares and approved the grant of discretionary authority to the board of directors of the Company to effect a reverse stock split of
its outstanding shares of common stock at a specific ratio within a range of one-for-five (1-for-5) to a maximum of a one-for-forty
(1-for-40) split. On April 18, 2023, we implemented the 1-for-40 reverse stock split (the “Reverse Stock Split”) of our
common stock. Our common stock commenced trading on a post- reverse stock split basis on April 19, 2023. As a result of the Reverse
Stock Split, every forty (40) shares of our pre-Reverse Stock Split common stock were combined and reclassified into one share of
our common stock. The number of shares of common stock subject to outstanding options, warrants, and convertible securities were
also reduced by a factor of forty and the exercise price of such securities increased by a factor of forty effective as of April 18,
2023.
Equity
Incentive Plan
At
the Special Meeting of Stockholders, the stockholders of the Company approved an amendment to the Company’s 2019 Incentive Compensation
Plan to increase the number of shares authorized under the plan by 15,000,000 shares of common stock to be authorized for awards granted
under the plan.
Notes Payable
Pursuant to the terms
of the November Note Purchase Agreement, on May 16, 2023, the Company received a redemption notice for $300.