UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-38834

Verb Technology Company, Inc.

(Exact name of registrant as specified in its charter)

(855) 250-2300

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of May 10, 2022, there were 101,440,840 shares of common stock, $0.0001 par value per share, outstanding.

VERB TECHNOLOGY COMPANY, INC.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the three months ended March 31, 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 achieve or maintain profitable operations;

● our ability to continue as a going concern;

● our ability to grow and compete in the future, which is dependent upon whether capital is available to us on favorable terms;

● our ability to maintain and expand our customer base and our ability to convince our customers to increase the use of our services and/or platform;

● the competitive market in which we operate;

● our ability to increase the number of our strategic relationships or grow the revenues received 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;

● the novel coronavirus (“COVID-19”) pandemic, which has had a sustained impact on our business, sales, results of operations and financial condition;

● our ability to deliver our services, as we depend on third party Internet providers;

● our ability to pay our debt obligations as they become due; and

● our susceptibility to security breaches and other disruptions.

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 entitled “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 (our “Annual Report”), as well as in the other reports we file with the Securities and Exchange Commission (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.

PART I — FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

See accompanying notes to the condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

See accompanying notes to the condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)

(unaudited)

For the three months ended March 31, 2022

For the three months ended March 31, 2021

See accompanying notes to the condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

See accompanying notes to the condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021

(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 SaaS applications platform developer. Our platform is comprised of a suite of interactive video-based sales enablement business software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer Relationship Management (“CRM”) application, verbLEARN, our Learning Management System application, verbLIVE, our Live Stream eCommerce application, verbPULSE, our business/augmented intelligence notification and sales coach application, and verbTEAMS, our self-onboarding video-based CRM and content management application for professional sports teams, small business and solopreneurs, with seamless synchronization with Salesforce, that also comes bundled with verbLIVE, and more recently, we introduced verbMAIL, our interactive video-based sales communication tool integrated into Microsoft Outlook. Of note is our forthcoming MARKET, a multi-vendor, multi-presenter, livestream social shopping platform at the forefront of the convergence of ecommerce and entertainment.

The Company also provides certain non-digital services to some of its enterprise clients such as printing, fulfillment services, design and print welcome kits and starter kits. We use the term “client” and “customer” interchangeably.

COVID-19

As of the date of this filing, there continues to be widespread 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 COVID-19 pandemic have not been material to date, a prolonged downturn in economic conditions could have a material adverse effect on our customers and demand for our services. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity.

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 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 presentation.

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, 2022, the Company incurred a net loss of $6,989 and used cash in operations of $5,899. 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.

On January 12, 2022, the Company entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) with Tumim Stone Capital LLC (the “Investor”). Pursuant to the agreement, the Company has the right, but not the obligation, to sell to the Investor, and the Investor is obligated to purchase, up to $50,000 of newly issued shares (the “Total Commitment”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) from time to time during the term of the agreement, subject to certain limitations and conditions. The Total Commitment is inclusive of 607,287 shares of Common Stock (the “Commitment Shares”), issued to the Investor as consideration for its commitment to purchase shares of Common Stock under the Common Stock Purchase Agreement.

On January 12, 2022, the Company also entered into a securities purchase agreement with three institutional investors (collectively, the “Note Holders”) providing for the sale and issuance of an aggregate original principal amount of $6,300 in convertible notes due January 2023 (each, a “Note,” and, collectively, the “Notes,” and such financing, the “Note Offering”). The Company and the Note Holders also entered into a security agreement, dated January 12, 2022, in connection with the Note Offering, pursuant to which the Company granted a security interest to the Note Holders in substantially all of its assets.

On April 20, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”), which provides for the sale and issuance by the Company of an aggregate of (i) 14,666,667 shares of the Company’s common stock, $0.0001 par value per share, at a purchase price of $0.75 per share, and (ii) warrants to purchase 14,666,667 shares of the common stock at an exercise price of $0.75 per share, for aggregate gross proceeds of $11,000 before deducting placement agent commissions and other estimated offering expenses (the “Registered Direct Offering”). The Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, and customary indemnification obligations of the Company. The Purchase Agreement amongst other things restricts us from selling shares using at the market (“ATM”) agreement with Truist Securities and the Common Stock Purchase Agreement. As a result of this transaction, certain of our Series A warrants priced at $1.10 per share were repriced to $0.75 per share under the terms of such warrant agreements. The fair value of such warrants at this new exercise price is approximately $500 and the Company will account for this change as a deemed dividend. In addition, as a result of entering into the Purchase Agreement, the Company repaid $1,650 in principal payments to Note Holders pursuant to the terms of the Note Offering, thereby reducing the outstanding principal balance from $6,300 to $4,650.

On April 20, 2022, the Company also entered into a placement agency agreement (the “Placement Agency Agreement”) with A.G.P./Alliance Global Partners (the “Placement Agent”). Pursuant to the terms of the Placement Agency Agreement, the Placement Agent agreed to use its reasonable best efforts to arrange for the sale of the Securities in the Registered Direct Offering. See Note 14 – Subsequent Events.

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:

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

The products sold by us are distinctly individual. The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Other than promotional activities, which can vary from time to time but nevertheless are entirely within the Company’s control, contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. The control of products we sell transfers to our customers upon shipment from our facilities, and our performance obligations are satisfied at that time. Amounts related to shipping and handling that are billed to customers are reflected as part of revenue, and the related costs are reflected in cost of revenue in the accompanying 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 in the past and during the three months ended March 31, 2022 and 2021 are immaterial.

Revenues during the three months ended March 31, 2022 and 2021 were substantially all generated from 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.

Capitalized Software Development Costs

The Company capitalizes internal and external costs directly associated with developing internal-use software, and hosting arrangements that include an internal-use software license, during the application development stage of its projects. The Company’s internal-use software is reported at cost less accumulated depreciation. Depreciation begins once the project has been completed and is ready for its intended use. The Company will depreciate the asset on a straight-line basis over a period of three years, which is the estimated useful life. Software maintenance activities or minor upgrades are expensed in the period performed. As of March 31, 2022 and December 31, 2021, the Company capitalized $6,207 and $4,348, respectively, in software development costs and recorded as capitalized software development costs in our condensed consolidated balance sheets (see Note 3).

Depreciation expense related to capitalized software development costs are recorded in Cost of revenue in the consolidated statements of operations. There was no depreciation expense related to capitalized software development costs for the three months ended March 31, 2022 and 2021 as the software has not been completed and utilized.

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:

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, 2022, and 2021, the Company had total outstanding options of 5,877,643 and 5,799,013, respectively, and warrants of 10,984,740 and 12,422,562, respectively, and outstanding restricted stock awards of 2,211,525 and 2,751,508, 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. As of March 31, 2022, we have one vendor that accounted for 33% of our purchases individually and in aggregate. In addition, we had one vendor that accounted for 49% of accounts payable individually and in aggregate.

As of March 31, 2022, we had no customers that accounted for 10% of our accounts receivable individually and in the aggregate.

During the three months ended March 31, 2022 and 2021, 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 

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 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.

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 financial statements and related disclosures.

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, the next generation of interactive livestream ecommerce, and has capitalized $6,207 and $4,348 of internal and external development costs as of March 31, 2022 and December 31, 2021, respectively. In October 2021, the Company entered into a 10-year License and Services Agreement with a third party (the “Primary Contractor”) engaged to develop certain components of MARKET. The Primary Contractor’s fees for developing such components, including the 10-year license fee for such components, is $5,750. At March 31, 2022, the Company’s remaining software development obligation to the Primary Contractor was $1,150, which was subsequently paid in April 2022. The Primary Contractor was also paid an additional $500 bonus in April 2022. In addition, as of March 31, 2022 and December 31, 2021, the Company had paid or accrued $380 and $248, respectively, of other capitalized software development costs.

There has been no depreciation expense related to capitalized software development costs for the three months ended March 31, 2022 and 2021.

Option to Acquire Primary Contractor

In August 2021, the Company entered into an agreement providing the Company the option to purchase the Primary Contractor. In November 2021, the Company exercised this option. During 2021, the Company and the Primary Contractor reached an agreement on the terms for the Company’s acquisition of the Primary Contractor, which is subject to the execution of a share purchase agreement (the “SPA”) and the completion of an audit of the Primary Contractor (the “Primary Contractor Audit”). The agreement stipulates that if the Company enters into the SPA and successfully completes the Primary Contractor Audit before May 15, 2022 or such other mutually agreed date and thereafter determines not to consummate the acquisition of the Primary Contractor, the Company may be liable for a $1,000 break-up fee payable to the Primary Contractor. As of the date of the issuance of these financial statements, the Primary Contractor Audit is ongoing, the SPA has not been executed, and the parties are determining a mutually agreeable date to consummate the transaction. The purchase price for the Primary Contractor is $12,000, which can be paid in cash and/or stock, subject to the parties’ mutual agreement.

4. INTANGIBLE ASSETS

Intangible assets, net consisted of the following:

SCHEDULE OF INTANGIBLE ASSETS 

Amortizable finite-lived intangible assets are being amortized over a period of 3 to 5 years. There were no impairment charges incurred in the periods presented. During the three months ended March 31, 2022 and 2021, the Company recorded amortization expense of $366 and $370, respectively.

The expected future amortization expense for amortizable finite-lived intangible assets as of March 31, 2022 is as follows:

SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE 

5. OPERATING LEASES

On January 3, 2022, the Company terminated the lease agreements for our office and warehouse leases in American Fork, Utah. In accordance with ASC 842, the Company derecognized the right of use asset of $1,287, net of accumulated amortization of $744. The Company has also derecognized the corresponding lease liabilities of $521, resulting in a loss on lease termination of $22.

Effective April 26, 2022, the Company entered into an office space sub-lease agreement. See Note 14 – Subsequent Events.

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

SCHEDULE OF LEASE COST 

SCHEDULE OF OPERATING LEASES 

SCHEDULE OF PRESENT VALUE OF LEASE LIABILITIES 

6. ADVANCES ON FUTURE RECEIPTS

The Company has the following advances on future receipts as of March 31, 2022 and December 31, 2021:

SCHEDULE OF ADVANCES ON FUTURE RECEIPTS 

Note 1

On October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,015 for the purchase of future receipts/revenues of $2,120. During the three months ended March 31, 2022, the Company paid $982 and amortized $52 of the debt discount. As of March 31, 2022, the outstanding balance of the note amounted to $288 and the unamortized balance of the debt discount was $18, the note was paid in full on April 28, 2022.

Note 2

On October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,744 for the purchase of future receipts/revenues of $3,808. During the three months ended March 31, 2022, the Company paid $1,180 and amortized $419 of the debt discount. As of March 31, 2022, the outstanding balance of the note amounted to $1,813 and the unamortized balance of the debt discount was $275.

Note 3

On December 23, 2021, the Company received secured advances from an unaffiliated third party totaling $651 for the purchase of future receipts/revenues of $689. During the three months ended March 31, 2022, the Company paid $345 and amortized $19 of the debt discount. As of March 31, 2022, the outstanding balance of the note amounted to $344 and the unamortized balance of the debt discount was $17.

7. NOTES PAYABLE

The Company has the following outstanding notes payable as of March 31, 2022 and December 31, 2021:

SCHEDULE OF NOTES PAYABLE RELATED PARTIES 

The following table provides a breakdown of interest expense:

SCHEDULE OF INTEREST EXPENSE 

Total interest expense for notes payable to related parties (see Notes A and B above) was $23 and $32 for the three months ended March 31, 2022 and 2021, respectively. The Company paid $0 and $34 in interest for the three months ended March 31, 2022 and 2021, 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 

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.

As of December 31, 2021, the outstanding fair value of the derivative liability amounted to $3,155. 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. At March 31, 2022, the fair value of the derivative liability amounted to $2,017.

During the three months ended March 31, 2021, the Company recorded income of $500 to account for the changes in the fair value of these derivative liabilities during the period. In addition, 1,027,578 shares of the Series A warrants that were accounted for as a derivative liability were exercised. As result, the Company computed the fair value of the corresponding derivative liability one last time which amounted to $(2,286) and the extinguishment was accounted for as part of equity.

The details of derivative liability transactions for the three months ended March 31, 2022 and 2021 are as follows:

SCHEDULE OF DERIVATIVE LIABILITY TRANSACTIONS 

9. COMMON STOCK

The Company’s common stock activity for the three months ended March 31, 2022 is as follows:

Common Stock

Issuances of Common Stock

During the three months ended March 31, 2022, the Company issued 7,396,683 shares of common stock as part of the common stock purchase agreement in exchange for cash of $7,435, net of offering costs of $155. In addition, the Company issued 607,287 shares of common stock as a commitment fee to consummate the common stock purchase agreement.

During the three months ended March 31, 2022, the Company issued 372,446 shares of common stock to certain employees and vendors for services rendered and to be rendered with an aggregate fair value of $510. These shares of common stock were valued based on the market value of the Company’s common stock price at the issuance date or the date the Company entered into the agreement related to the issuance.

During the three months ended March 31, 2022, the Company issued 227,136 shares of common stock to the former Chief Financial Officer as part of a separation agreement, with an aggregate fair value of $277. These shares of common stock were valued based on the market value of the Company’s common stock price at the issuance date.

During the three months ended March 31, 2022, the Company issued 457,046 shares of common stock to officers and board members associated with the vesting of a Restricted Stock Unit.

Exercise of Options

During the three months ended March 31, 2022, a total of 332,730 options were exercised into 332,730 shares of common stock at a weighted average exercise price of $1.13. The Company received cash of $377 upon exercise of the options.

Issuances of Restricted Stock Units

During the three months ended March 31, 2022, the Company granted an additional 1,334,270 shares of its restricted stock to employees and members of Board of Directors. The Restricted Stock Units vest in various dates, starting on January 20, 2023 up to March 30, 2026. These Restricted Stock Units were valued based on market value of the Company’s stock price at the respective date of grant and had aggregate fair value of $1,561, which is being amortized as stock compensation expense over its vesting term.

Issuances of Stock Options

During the three months ended March 31, 2022, the Company granted stock options to employees and consultants to purchase a total of 1,983,555 stock options for services to be rendered. The options have an average exercise price of $1.25 per share, expire in five years, and vest between one and four years from grant date. The total fair value of these options at the grant date was $2,241 using the Black-Scholes option pricing model.

10. RESTRICTED STOCK UNITS

A summary of restricted stock unit activity for the three months ended March 31, 2022 is presented below.

SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY 

During the three months ended March 31, 2022, the Company granted 1,334,270 restricted stock units to officers, directors, and employees that vest over four years. These restricted stock units were valued based on market value of the Company’s stock price at the date of grants and had an aggregate fair value of $1,561.

The total fair value of restricted stock units that vested or deemed vested during the three months ended March 31, 2022 was $247. As of March 31, 2022 the amount of unvested compensation related to issuances of restricted stock units was $2,359 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, 2022 is presented below.

SCHEDULE OF STOCK OPTION ACTIVITY 

At March 31, 2022, the intrinsic value of the outstanding options was $0.

During the three months ended March 31, 2022, the Company granted stock options to employees and consultants to purchase a total of 1,983,555 shares of common stock for services rendered. The options have an average exercise price of $1.25 per share, expire between one and five years, vesting from zero and four years from grant date. The total fair value of these options at grant date was approximately $2,241 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, 2022 amounted to $531. As of March 31, 2022, the total unrecognized share-based compensation expense was $4,276, which is expected to be recognized as part of operating expense through March 2026.

In addition, a total of 332,730 shares of stock options were exercised. As a result of the exercise of the option, the Company issued 332,730 shares of common stock and received cash of $377.

The 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 

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, 2022, all of which are exercisable:

SCHEDULE OF WARRANTS OUTSTANDING 

At March 31, 2022 the intrinsic value of the outstanding warrants was $0.

13. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is currently in a dispute with a former employee of its predecessor bBooth, Inc. who has interposed a breach of contract claim in which he alleges that he is entitled to approximately $300 in unpaid bonus compensation from 2015. This former employee filed his complaint in the Superior Court of California for the County of Los Angeles on November 20, 2019, styled Meyerson v. Verb Technology Company, Inc., et al. (Case No. 19STCV41816). The Company does not believe his claims have any merit as they are contradicted by documentary evidence, and barred by the applicable statute of limitations, and barred by a release executed by the former employee when the Company purchased all of his shares of stock more than 4 years ago in January 2016. 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 June 27, 2022. The Company believes that the resolution of this matter will have no material effect on the Company or its operations.

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.

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 $475 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, 2022 was $119. As of March 31, 2022, total board fees to be recognized in future period amounted to $356 and will be recognized once the service has been rendered.

14. SUBSEQUENT EVENTS