Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended June 30, 2022 and 2021
(in
thousands, except share and per share data)
(unaudited)
1.
DESCRIPTION OF BUSINESS
Our
Business
References
in this Quarterly Report to the “Company,” “Verb,” “we,” “us,” or “our” are
to Verb Technology Company, Inc., together with its consolidated subsidiaries unless the context otherwise requires. Throughout this
Quarterly Report, we use the terms “client” and “customer” interchangeably.
The
Company is a SaaS applications platform developer. Our platform is comprised of a suite of interactive video-based sales enablement
business software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are
offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer Relationship Management
(“CRM”) application, verbLEARN, our Learning Management System application, verbLIVE, our Live Stream eCommerce
application, verbPULSE, our business/augmented intelligence notification and sales coach application, and verbTEAMS, our
self-onboarding video-based CRM and content management application for professional sports teams, small business and solopreneurs,
with seamless synchronization with Salesforce, that also comes bundled with verbLIVE, and more recently, we introduced verbMAIL, our
interactive video-based sales communication tool integrated into Microsoft Outlook. MARKET.live is our multi-vendor,
multi-presenter, livestream social shopping platform that combines ecommerce and entertainment.
The
Company also provides certain non-digital services to some of its enterprise clients such as printing and fulfillment services.
Economic
Disruption
Our business is dependent
in part on general economic conditions. Many jurisdictions in which our customers are located and our products are sold have experienced
and could continue to experience unfavorable general economic conditions, such as inflation, increased interest rates and recessionary
concerns, which could negatively affect demand for our products. Under difficult economic conditions, customers may seek to cease spending
on our current products or fail to adopt our new products, which could negatively affect our financial performance. We cannot predict
the timing or magnitude of an economic slowdown or the timing or strength of any economic recovery. These and other economic factors could
have a material adverse effect on our business, financial condition, and results of operations.
COVID-19
As
of the date of this filing, there continues to be concern regarding the ongoing impacts and disruptions caused by the COVID-19
pandemic in the regions in which the Company operates. Although the impacts of the pandemic on our business have not been material
to date, a prolonged downturn in economic conditions as a result of the pandemic could have a material adverse effect on our
customers and demand for our products. At this time, it is not possible for the Company to predict the duration or magnitude of the
impacts of the pandemic, or other outbreaks of communicable diseases, on the Company’s business, financial condition and results of
operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and
applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.
Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the SEC on March 31, 2022 (the “2021 Annual Report”). The consolidated
balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to
fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all
adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not
necessarily indicative of fiscal year-end results.
Principles
of Consolidation
The
condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of Verb, Verb
Direct, LLC, Verb Acquisition Co., LLC, and verbMarketplace, LLC. All intercompany accounts have been eliminated in the
consolidation.
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the
accompanying condensed consolidated financial statements, during the six months ended June 30, 2022, the Company incurred a net loss
of $13,363 and used
cash in operations of $11,002.
These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the
date these financial statements were issued.
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 offering expenses (the “Registered Direct Offering”). The Purchase
Agreement, among other things, restricts us from selling shares of Common Stock pursuant to the Common Stock Purchase Agreement and
pursuant to an “at-the-market” offering previously entered into with Truist Securities. As a result of this
transaction, certain of our Series A warrants which previously had exercise prices ranging from $1.10 to
$2.10 per
share were repriced to $0.75 per
share. As a result of entering into the Purchase Agreement, the Company repaid $1,650 in
principal payments of the Notes issued pursuant to the Note Offering.
If
the Company is unable to generate sufficient cash flow from operations to operate its business and pay its debt obligations as they become
due, it may need to seek to raise additional capital, borrow additional funds, dispose of assets, reduce or delay capital expenditures,
or change its business strategy. There can be no assurance that the Company will ever be profitable or that debt or equity financing
will be available in the amounts, on terms, or at times deemed acceptable by the Company. The issuance of additional equity securities
would result in significant dilution in the equity interests of our current stockholders and could include rights or preferences senior
to those the current stockholders. Obtaining commercial loans would increase the Company’s liabilities and future cash commitments
and potentially impose significant operational or financial restrictions. If the Company is unable to obtain financing in the amounts
and on terms deemed acceptable, the Company may be unable to continue its business, as planned, and as a result may be required to scale
back or cease operations, which may result in the stockholders losing some or all of their investment.
For
additional information, refer to Note 1 to the condensed consolidated financial statements, and the section titled “Risk
Factors”, within the 2021 Annual Report.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses
during the reported periods. Management bases these estimates and assumptions upon historical experience, existing and known
circumstances, and other factors that management believes to be reasonable. In addition, the Company has considered the potential
impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary
concerns, on its business and operations.
Significant estimates include assumptions made in analysis of reserves for allowance of doubtful
accounts, inventory, assumptions made in purchase price allocations, impairment testing of long-term assets, realization of deferred
tax assets, determining fair value of derivative liabilities, and valuation of equity instruments issued for services. Some of those
assumptions can be subjective and complex, and therefore, actual results could differ materially from those estimates under
different assumptions or conditions.
Revenue
Recognition
The
Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) ASC 606, Revenue from
Contracts with Customers (“ASC 606”). The Company derives its revenue primarily from providing application services through
the SaaS application, digital marketing and sales support services.
A
description of our principal revenue generating activities is as follows:
|
1. |
Digital
Revenue which is divided into two main categories: |
|
a. |
SaaS
recurring digital revenue based on contract-based subscriptions to verb app products and platform services which include verbCRM,
verbLEARN, verbLIVE, verbTEAMS, and verbPULSE. The revenue is recognized straight-line over the subscription period. |
|
b. |
Non-SaaS,
non-recurring digital revenue, which is revenue generated by the use of app products and in-app purchases, such as sampling and other
services obtained through the app. The revenue for samples is recognized upon completion and shipment, while the design fees are recognized
when the service has been rendered and the app is delivered to the customer. |
Subscription
revenue from the application services is recognized over the life of the estimated subscription period. The Company also charges certain
customers setup or installation fees for the creation and development of websites and mobile applications. These fees are accounted for
as part of contract liabilities and amortized over the estimated life of the agreement. Revenue is measured as the amount of consideration
expected to be received in exchange for transferring the products or services to a customer.
|
2. |
Non-digital
revenue, which is revenue generated from non-app, non-digital sources through ancillary services provided as an accommodation to
clients and customers. These services, which are now outsourced to a strategic partner as part of a cost reduction plan instituted
in 2020, include design, printing services, fulfillment and shipping services. The revenue is recognized upon completion and
shipment of products or fulfillment to the customer. Effective April 1, 2022, the Company entered into a customer referral
agreement with a third party for its cart site and printing business. Under the agreement, the Company will earn a certain
percentage for customer referrals and merchandise sales as well as a cart site design fee, all of which will be recognized as
non-digital revenue on a net basis. |
The
non-digital products sold by us are distinctly individual. The products are offered for sale solely as finished goods, and there are
no performance obligations required post-shipment for customers to derive the expected value from them. Other than promotional
activities, which can vary from time to time but nevertheless are entirely within the Company’s control, contracts with
customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. The control of products
we sell transfers to our customers upon shipment from our facilities, and our performance obligations are satisfied at that time.
Amounts related to shipping and handling that are billed to customers are reflected as part of revenue, and the related costs are
reflected in cost of revenue in the accompanying condensed consolidated statements of operations. Historically, we have not
experienced any significant payment delays from customers. The Company allows returns within 30 days of purchase from end-users.
Customers may return purchased products under certain circumstances. Returns from customers during the three and six months ended
June 30, 2022 and 2021 were immaterial.
Revenues
during the three and six months ended June 30, 2022 and 2021 were substantially all generated from clients and customers located
within the United States of America, though some utilize the Company’s applications outside the United
States of America.
Cost
of Revenue
Cost
of revenue primarily consists of the salaries of certain employees and contractors, digital content costs, purchase price of consumer
products, packaging supplies, and customer shipping and handling expenses. Shipping costs to receive products from our suppliers are
included in our inventory and recognized as cost of revenue upon sale of products to our customers.
Contract
Liabilities
Contract
liabilities represent consideration received from customers under revenue contracts for which the Company has not yet delivered or completed
its performance obligation to the customer. Contract liabilities are recognized over the contract period.
Capitalized
Software Development Costs
The
Company capitalizes internal and external costs directly associated with developing internal-use software, and hosting arrangements that
include an internal-use software license, during the application development stage of its projects. The Company’s internal-use
software is reported at cost less accumulated depreciation. Depreciation begins once the project has been completed and is ready for
its intended use. The Company will depreciate the asset on a straight-line basis over a period of three years, which is the estimated
useful life. Software maintenance activities or minor upgrades are expensed in the period performed. As of June 30, 2022 and December
31, 2021, the Company capitalized $6,461 and $4,348, respectively, in software development costs and recorded as capitalized software
development costs in the condensed consolidated balance sheets (see Note 3).
Depreciation
expense related to capitalized software development costs are recorded in cost of revenue in the condensed consolidated statements
of operations. There was no
depreciation expense related to capitalized software development costs for the three and six months ended June 30, 2022 and 2021 as
the software had not been completed and utilized as of the balance sheet dates.
Fair
Value of Financial Instruments
The
Company follows the guidance of FASB ASC 820 and ASC 825 for disclosure and measurement of the fair value of its financial instruments.
FASB ASC 820 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs.
The
three levels of fair value hierarchy defined by ASC 820 are described below:
|
Level
1: |
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
Level
2: |
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the
reporting date. |
|
Level
3: |
Pricing
inputs that are generally observable inputs and not corroborated by market data. |
The
carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalents, prepaid expenses,
accounts payable and accrued expenses approximate their fair value due to their short-term nature. The carrying values of financing
obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing
market interest rates. The Company uses Level 2 inputs for its valuation methodology for derivative financial instruments.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as
embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the
condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the condensed consolidated balance sheet as current or non-current based on whether or not net-cash settlement of
the derivative instrument could be required within 12 months of the balance sheet date.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using
a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any
increase or decrease in the fair value being recorded in results of operations as adjusted to fair value of derivatives.
Share-Based
Compensation
The
Company issues stock options 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.
As
of June 30, 2022, and 2021, the Company had total outstanding options of 5,983,669
and 5,875,190,
respectively, warrants of 25,651,407
and 12,389,228,
respectively, outstanding restricted stock units of 2,199,388
and 2,751,508,
respectively, and Convertible Notes Due 2023 that are convertible into 1,495,289 and 0 shares at $3.00 per share, respectively, which were all
excluded from the computation of net loss per share because they are anti-dilutive.
Concentration
of Credit and Other Risks
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited
with a limited number of financial institutions. The balances held at any one financial institution at times may be in excess of Federal
Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250.
The Company evaluates
the concentration of credit risk associated with key customers. During the three and six months ended June 30, 2022 and 2021, we had no
customers that accounted for 10% of our revenues individually or in the aggregate.
The
Company extends limited credit to customers based on an evaluation of their financial condition and other factors. The Company generally
does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for doubtful accounts and sales credits. The Company believes that any concentration of credit risk
in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and credit worthiness of its customers.
As of June 30, 2022 and
December 31, 2021, we had no customers that accounted for 10% of our accounts receivable individually or in the aggregate.
The
Company also evaluates the concentration of credit risk associated with key vendors. For
the three and six months ended June 30, 2022, we had one vendor that accounted for 44%
and 41%,
respectively, of our purchases individually and in the aggregate. For the three and six months ended June 30, 2021, we had one
vendor that accounted for 30%
and 28%,
respectively, of our purchases individually and in the aggregate. As of June 30, 2022 and December 31, 2021, we had one vendor that
accounted for 41%
and 40%,
respectively, of accounts payable individually and in the aggregate.
Supplemental
Cash Flow Information
SCHEDULE
OF SUPPLEMENTAL CASH FLOW INFORMATION
| |
| | | |
| | |
| |
| Six
Months Ended June 30,
| |
| |
| 2022 | | |
| 2021 | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 95 | | |
$ | 34 | |
Cash paid for income taxes | |
| 1 | | |
| 1 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Fair value of derivative liability extinguished | |
| - | | |
| 2,300 | |
Fair value of common shares issued to settle accrued expenses | |
| 450 | | |
| 281 | |
Reclassification of Class B Units upon conversion to common stock | |
| - | | |
| 3,065 | |
Fair value of common stock issued to settle notes payable – related party | |
| - | | |
| 200 | |
Fair value of common stock received in exchange for employee’s payroll taxes | |
| 6 | | |
| 130 | |
Fair value of common stock issued for future services | |
| - | | |
| 164 | |
Discount recognized from advances on future receipts | |
| - | | |
| 1,986 | |
Fair value of common stock issued to settle lawsuit | |
| - | | |
| 678 | |
Accrued software development costs | |
| 105 | | |
| - | |
Discount recognized from notes payable | |
| 300 | | |
| - | |
Derecognition of operating lease right-of-use assets | |
| 543 | | |
| - | |
Derecognition of operating lease liabilities | |
| 521 | | |
| - | |
Recognition of operating lease right-of-use asset and related lease liability | |
| 212 | | |
| - | |
Recent
Accounting Pronouncements
Recently
Adopted Accounting Pronouncements
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06
reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial
conversion models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized
cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the
effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income
per share calculation for convertible instruments will require the Company to use the if-converted method. ASU 2020-06 will be
effective January 1, 2024, for the Company and is to be adopted through a cumulative-effect adjustment to the opening balance of
retained earnings. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year.
Effective January 1, 2022, the Company early adopted ASU 2020-06 and that adoption did not have any material impact on the
Company’s consolidated financial statements or the related disclosures.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.
ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures
the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value
of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories
of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and
modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal
years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided
in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04
effective January 1, 2022. The adoption of ASU 2021-04 did not have any material impact on the Company’s consolidated financial
statements or the related disclosures.
In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. ASU 2021-08 will require companies to recognize and measure contract assets and contract liabilities
relating to contracts with customers that are acquired in a business combination in accordance with ASC 606. Under current GAAP, an acquirer
generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities
arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording
acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under
ASC Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted
this ASU as of January 1, 2022 on a prospective basis and the adoption impact of the new standard will depend on the magnitude of future
acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the
adoption date.
In
November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)—Disclosures by Business Entities about
Government Assistance. ASU 2021-10 increases the transparency of government assistance including the disclosure of (1) the types
of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s
financial statements. The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU as of
January 1, 2022 on a prospective basis. The adoption of this standard did not have any material impact on the Company’s
consolidated financial statements or the related disclosures.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASC 326”).
The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes
receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model,
under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s
provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance
is effective. As a small business filer, ASU 2020-06 will be effective January 1, 2024, for the Company and the provisions of this update
can be adopted using either the modified retrospective method or a fully retrospective method. Management is currently assessing the
impact of adopting this standard on the Company’s consolidated financial statements or the related disclosures.
3.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In
2020, the Company began developing MARKET, a livestream ecommerce platform, and has capitalized $6,461 and
$4,348 of
internal and external development costs as of June 30, 2022 and December 31, 2021, respectively. In October 2021, the Company
entered into a 10-year
license and services agreement with a third party (the “Primary Contractor”) to develop certain components of MARKET.
The Primary Contractor’s fees for developing such components, including the license fee, is $5,750.
As of June 30, 2022, the Company’s remaining software development obligation to the Primary Contractor was $105.
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 June 30, 2022 and December 31,
2021, the Company had paid or accrued $389 and
$248,
respectively, of other capitalized software development costs.
There
has been no amortization expense related to capitalized software development costs for the three and six months ended June 30, 2022 and
2021.
Option
to Acquire Primary Contractor
In August
2021, the Company entered into a term sheet that provided the Company the option to purchase the Primary Contractor assuming certain
conditions are met. In November 2021, the Company exercised this option. The Company and the Primary Contractor subsequently reached
an agreement-in-principle on the terms for the Company’s acquisition of the Primary Contractor, the final consummation of
which is subject to the execution of a share purchase agreement (the “SPA”) and the completion of an audit of the
Primary Contractor that is satisfactory to the Company (the “Primary Contractor Audit”), as well as the fulfillment by
the Primary Contractor of certain other conditions set forth in the term sheet. The term sheet stipulates that if the Company had
entered into the SPA and the Primary Contractor successfully completed the Primary Contractor Audit prior to May 15, 2022 (or a
subsequent mutually agreed upon date) and thereafter determines not to consummate the acquisition of the Primary Contractor, the
Company would have been liable for a $1,000 break-up fee payable to the Primary Contractor. However, as of the date of the issuance
of these financial statements, the SPA has not been executed and the Primary Contractor Audit is ongoing. The parties are in
discussions regarding the transaction. Based on the term sheet, the purchase price for the Primary Contractor would be $12,000,
which can be paid in cash and/or stock, although the final terms of the acquisition will be set forth in the SPA. There can be no
assurance that the acquisition will be completed on the terms set forth in the term sheet or at all.
4.
INTANGIBLE ASSETS
Intangible
assets, net consisted of the following:
SCHEDULE
OF INTANGIBLE ASSETS
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Amortizable finite-lived intangible assets | |
$ | 7,399 | | |
$ | 7,317 | |
Accumulated amortization | |
| (4,523 | ) | |
| (3,806 | ) |
Finite-lived intangible assets, net | |
| 2,876 | | |
| 3,511 | |
| |
| | | |
| | |
Indefinite-lived intangible assets | |
| 442 | | |
| 442 | |
| |
| | | |
| | |
Intangible assets, net | |
$ | 3,318 | | |
$ | 3,953 | |
Amortizable
finite-lived intangible assets are being amortized over a period of three to five years. There were no impairment charges incurred in the periods
presented. During the three and six months ended June 30, 2022 and 2021, the Company recorded amortization expense of $351 and $355,
respectively, and $717 and $725, respectively.
The
expected future amortization expense for amortizable finite-lived intangible assets as of June 30, 2022, is as follows:
SCHEDULE OF ESTIMATED AMORTIZATION EXPENSE
| |
| | |
Year ending | |
Amortization | |
2022 remaining | |
$ | 717 | |
2023 | |
| 1,386 | |
2024 | |
| 573 | |
2025 | |
| 200 | |
Total amortization | |
$ | 2,876 | |
5.
OPERATING LEASES
On
January 3, 2022, the Company terminated the lease agreements relating to our office and warehouse leases in American Fork, Utah. In
accordance with ASC 842, the Company derecognized the right-of-use assets of $543 and the
corresponding lease liabilities of $521,
resulting in a loss on lease termination of $22.
On
April 26, 2022, the Company entered into an office space sub-lease agreement. The agreement requires us to pay $12 per month for an initial
term of eighteen months, which increases by 3% per annum after twelve months. In accordance with ASC 842, the Company recognized a right-of-use asset
and the related lease liability of $212 on the commencement date of the lease.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
SCHEDULE
OF LEASE COST
- | |
| | | |
| | |
| |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
Lease cost | |
| | | |
| | |
Operating lease cost (included in general and administrative expenses in the
Company’s condensed consolidated statements of operations) | |
$ | 241 | | |
$ | 349 | |
| |
| | | |
| | |
Other information | |
| | | |
| | |
Cash paid for amounts included in the measurement of lease liabilities | |
$ | 308 | | |
$ | 393 | |
Weighted average remaining lease term – operating leases (in years) | |
| 4.15 | | |
| 4.26 | |
Weighted average discount rate – operating leases | |
| 4.2 | % | |
| 4.0 | % |
SCHEDULE
OF OPERATING LEASES
| |
June 30, 2022 | | |
December 31, 2021 | |
Operating leases | |
| | | |
| | |
Right-of-use assets | |
$ | 1,673 | | |
$ | 2,177 | |
| |
| | | |
| | |
Short-term operating lease liabilities | |
$ | 471 | | |
$ | 592 | |
Long-term operating lease liabilities | |
| 1,841 | | |
| 2,299 | |
Total operating lease liabilities | |
$ | 2,312 | | |
$ | 2,891 | |
SCHEDULE OF PRESENT VALUE OF LEASE LIABILITIES
Year ending | |
Operating Leases | |
2022 remaining | |
$ | 300 | |
2023 | |
| 583 | |
2024 | |
| 472 | |
2025 | |
| 484 | |
2026 and thereafter | |
| 705 | |
Total lease payments | |
| 2,544 | |
Less: Imputed interest/present value discount | |
| (232 | ) |
Present value of lease liabilities | |
$ | 2,312 | |
6.
ADVANCES ON FUTURE RECEIPTS
The
Company has the following advances on future receipts as of June 30, 2022 and December 31, 2021:
SCHEDULE OF ADVANCES ON FUTURE RECEIPTS
Note | |
Issuance Date | |
Maturity Date | |
Interest Rate | | |
Original Borrowing | | |
Balance at June 30, 2022 | | |
Balance at December 31, 2021 | |
| |
| |
| |
| | |
| | |
| | |
| |
Note 1 | |
October 29, 2021 | |
April 28, 2022 | |
| 5 | % | |
$ | 2,120 | | |
$ | - | | |
$ | 1,299 | |
Note 2 | |
October 29, 2021 | |
July 25, 2022 | |
| 28 | % | |
| 3,808 | | |
| 589 | | |
| 2,993 | |
Note 3 | |
December 23, 2021 | |
June 22, 2022 | |
| 5 | % | |
| 689 | | |
| - | | |
| 689 | |
Total | |
| |
| |
| | | |
$ | 6,617 | | |
| 589 | | |
| 4,981 | |
Debt discount | |
| |
| |
| | | |
| | | |
| (35 | ) | |
| (800 | ) |
Net | |
| |
| |
| | | |
| | | |
$ | 554 | | |
$ | 4,181 | |
Note
1
On
October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,015
for the purchase of future receipts/revenues
of $2,120.
During the six months ended June 30, 2022, the Company paid $1,270
and amortized $41
of the debt discount. The note was paid in full
on April 28, 2022. As of June 30, 2022, the outstanding balance of the note was $0
and the unamortized balance of the debt discount
was $0.
Note
2
On
October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,744 for the purchase of future receipts/revenues
of $3,808. During the six months ended June 30, 2022, the Company paid $2,404 and amortized $659 of the debt discount. As of June 30,
2022, the outstanding balance of the note was $589, and the unamortized balance of the debt discount was $35. Subsequent to June
30, 2022, the remaining balance was paid in full.
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 six months ended June 30, 2022, the Company paid $689
and amortized $36
of the debt discount. The note was paid in full
on June 22, 2022. As of June 30, 2022, the outstanding balance of the note was $0
and the unamortized balance of the debt discount
was $0.
7.
NOTES PAYABLE
The
Company has the following outstanding notes payable as of June 30, 2022 and December 31, 2021:
SCHEDULE
OF NOTES PAYABLE RELATED PARTIES
Note | |
Issuance Date | |
Maturity Date | |
Interest Rate | | |
Original Borrowing | | |
Balance at June 30, 2022 | | |
Balance at December 31, 2021 | |
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 | | |
| 4,404 | | |
| - | |
Debt discount | |
| |
| |
| | | |
| | | |
| (128 | ) | |
| - | |
Debt issuance costs | |
| |
| |
| | | |
| | | |
| (196 | ) | |
| - | |
Total notes payable | |
| |
| |
| | | |
| | | |
| 4,995 | | |
| 915 | |
Non-current | |
| |
| |
| | | |
| | | |
| (875 | ) | |
| (875 | ) |
Current | |
| |
| |
| | | |
| | | |
$ | 4,120 | | |
$ | 40 | |
|
(A) |
On
December 1, 2015, the Company issued a convertible note payable to Mr. Cutaia, the Company’s Chief Executive Officer and a director, to
consolidate all loans and advances made by Mr. Cutaia to the Company as of that date. On May 12, 2022, the maturity date of the note
was extended to April
1, 2023. As of June 30, 2022, and December 31, 2021, the outstanding balance under the note was $725. |
|
|
|
|
(B) |
On
April 4, 2016, the Company issued a convertible note payable to Mr. Cutaia, in the amount of $343, to consolidate all advances made
by Mr. Cutaia to the Company during the period December 2015 through March 2016. As of June 30, 2022 and December 31, 2021, the outstanding
balance under the note was $40. |
|
(C) |
On
May 15, 2020, the Company executed an unsecured loan with the U.S. Small Business Administration (SBA) under the Economic Injury
Disaster Loan program in the amount of $150. Installment payments, including principal and interest, will begin on October 15, 2022.
As of June 30, 2022, and December 31, 2021, the outstanding balance of the note amounted to $150, respectively.
|
|
(D) |
On
January 12, 2022, the Company entered into the Note Offering, which provided for the sale and issuance of an aggregate original
principal amount of $6,300
in convertible notes due 2023. The Company and the 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. There are no financial covenants related to these notes payable.
|
|
|
The
Company received $6,000 in gross proceeds from the sale of the Notes. The Notes bear
interest of 6.0% per annum, have an original issue discount of 5.0%, mature 12 months from the closing date, and have an initial
conversion price of $3.00, subject to adjustment in certain circumstances as set forth in the Notes.
In
connection with the Note Offering, the Company incurred $460 of debt issuance costs. The debt issuance costs and the debt discount
of $300 are being amortized over the term of the Notes using the effective interest rate method. During the six months ended
June 30, 2022, the Company amortized $172 of debt discount and $264 of debt issuance costs. As of June 30, 2022, the amount of unamortized
debt discount and debt issuance costs was $128 and $196, respectively.
As
of June 30, 2022, and December 31, 2021, the outstanding balance of the Notes amounted to $4,404,
and $0,
respectively. During the six months ended June 30, 2022, the Company repaid $1,896
in principal payments pursuant to the Note Holders pursuant to the Notes.
Beginning
on May 12, 2022, the Company was required to make nine monthly principal payments of $246,
plus accrued interest, to the Note Holders, with the remaining principal amount of $2,436,
plus accrued interest, due on the maturity date. The Note Holders agreed to allow the Company to defer the payment originally due on
June 12, 2022 and to instead increase the amount of the principal payments required to be made beginning on July 12, 2022 to $281,
with the remaining principal amount of $2,436,
plus accrued interest, due on the maturity date. There was no change in the aggregate amount of indebtedness as a result of this
payment deferral. |
The
following table provides a breakdown of interest expense for the periods presented:
SCHEDULE OF INTEREST EXPENSE
| |
| | | |
| | |
| |
Three Months Ended June 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Interest expense – amortization of debt discount | |
$ | 372 | | |
$ | 565 | |
Interest expense – amortization of debt issuance costs | |
| 151 | | |
| - | |
Interest expense – other | |
| 119 | | |
| 31 | |
| |
| | | |
| | |
Total interest expense | |
$ | 642 | | |
$ | 596 | |
Total
interest expense for notes payable to related parties (see Notes A and B above) was $23 and $29 for the three months ended June 30, 2022
and 2021, respectively. The Company paid $0 and $34 in interest to related parties for the three months ended June 30, 2022 and 2021, respectively.
The following table provides a
breakdown of interest expense for the periods presented:
| |
| | | |
| | |
| |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Interest expense – amortization of debt discount | |
$ | 908 | | |
$ | 1,040 | |
Interest expense – amortization of debt issuance costs | |
| 264 | | |
| - | |
Interest expense – other | |
| 226 | | |
| 64 | |
| |
| | | |
| | |
Total interest expense | |
$ | 1,398 | | |
$ | 1,104 | |
Total
interest expense for notes payable to related parties (see Notes A and B above) was $46
and $61
for the six months ended June 30, 2022 and 2021, respectively. The Company paid $0
and $34
in interest to related parties for the six months ended June 30, 2022 and 2021, respectively.
8.
DERIVATIVE LIABILITY
In prior years, the Company granted certain warrants that included a fundamental transaction provision that could give rise to an
obligation to pay cash to the warrant holder. As a result, the fundamental transaction clause of these warrants is accounted for as
a derivative liability in accordance with ASC 815 and are being re-measured every reporting period with the change in value reported
in the Company’s condensed consolidated statements of operations.
The
derivative liabilities were valued using a Binomial pricing model with the following assumptions:
SCHEDULE OF DERIVATIVE LIABILITY USING BINOMIAL PRICING MODEL ASSUMPTIONS
| |
June 30, 2022 | | |
December 31, 2021 | |
Stock Price | |
$ | 0.52 | | |
$ | 1.24 | |
Exercise Price | |
$ | 0.75 | | |
$ | 1.11 | |
Expected Life | |
| 2.47 | | |
| 2.97 | |
Volatility | |
| 103 | % | |
| 119 | % |
Dividend Yield | |
| 0 | % | |
| 0 | % |
Risk-Free Interest Rate | |
| 2.96 | % | |
| 0.97 | % |
Total Fair Value | |
$ | 993 | | |
$ | 3,155 | |
The
expected life of the warrants was based on the remaining contractual term of the instruments. The Company uses the historical volatility
of its common stock to estimate the future volatility for its common stock. The expected dividend yield was based on the fact that the
Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based
on rates established by the Federal Reserve Bank.
During the six months
ended June 30, 2022, the Company recorded a gain of $2,162 to account for the changes in the fair value of these derivative liabilities
during the period.
During
the six months ended June 30, 2021, the Company recorded expense of $1,945 to account for the changes in the fair value of these derivative
liabilities during the period. In addition, 1,094,246 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 $2,300 and the extinguishment was accounted for as part of equity.
The
details of derivative liability transactions for the six months ended June 30, 2022 and 2021 are as follows:
SCHEDULE OF DERIVATIVE LIABILITY TRANSACTIONS
| |
| | | |
| | |
| |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 3,155 | | |
$ | 8,266 | |
Change in fair value | |
| (2,162 | ) | |
| 1,945 | |
Extinguishment | |
| - | | |
| (2,300 | ) |
Ending balance | |
$ | 993 | | |
$ | 7,911 | |
9.
COMMON STOCK
The
Company’s common stock activity for the six months ended June 30, 2022, was as follows:
During
the six months ended June 30, 2022, the Company issued 14,666,667 shares of common stock as part of a Registered Direct Offering, which resulted in proceeds of $10,242, net of offering costs of $758.
During
the six months ended June 30, 2022, the Company issued 11,096,683
shares of common stock pursuant to the Common Stock Purchase Agreement, which resulted in proceeds of $9,836,
net of offering costs of $197.
In addition, the Company issued 607,287
shares of common stock as a commitment fee in connection with the consummation of the transactions contemplated by the Common Stock Purchase Agreement.
During
the six months ended June 30, 2022, the Company issued 1,291,300
shares of common stock to certain employees and
vendors for services rendered and to be rendered with an aggregate grant date fair value of $1,148.
These shares of common stock were valued based on the closing price of the Company’s common stock on the date of the issuance or
the date the Company entered into the agreement related to the issuance.
During
the six months ended June 30, 2022, the Company issued 189,394
shares of common stock to the Company’s Chief Executive Officer in lieu of the cash payment of a bonus accrued in a prior
year, with an aggregate grant date fair value of $100
based on the closing price of the Company’s common stock on the date of issuance.
The
Company also issued 227,136 shares
of common stock to the Company’s former Chief Financial Officer as part of a separation agreement, with an aggregate grant
date fair value of $277 based
on the closing price of the Company’s common stock on the date of issuance.
During
the six months ended June 30, 2022, the Company issued 463,234
shares of common stock to certain officers, employees and directors associated with the vesting of restricted stock
units.
10.
RESTRICTED STOCK UNITS
A
summary of restricted stock unit activity for the six months ended June 30, 2022, is presented below.
SUMMARY
OF RESTRICTED STOCK AWARD ACTIVITY
| |
| | |
Weighted- | |
| |
| | |
Average | |
| |
| | |
Grant Date | |
| |
Shares | | |
Fair Value | |
| |
| | |
| |
Non-vested at January 1, 2022 | |
| 1,821,833 | | |
$ | 1.41 | |
Granted | |
| 1,334,270 | | |
| 1.17 | |
Vested/deemed vested | |
| (463,234 | ) | |
| 1.66 | |
Forfeitures and other | |
| (493,481 | ) | |
| 1.33 | |
Non-vested at June 30, 2022 | |
| 2,199,388 | | |
$ | 1.23 | |
During the
six months ended June 30, 2022, the Company granted 1,334,270
restricted stock units to certain officers, employees and directors. The
restricted stock units vest on various dates from January 2023 through March 2026. These restricted stock units were valued
based on the closing price of the Company’s common stock on the respective dates of issuance and had an aggregate grant date
fair value of $1,561,
which is being amortized as share-based compensation expense over the respective vesting terms.
The
total fair value of restricted stock units that vested during the three and six months ended June 30, 2022, was $318
and $565,
respectively. As of June 30, 2022, the remaining share-based compensation expense associated with previously issued restricted stock
units was $2,051
which will be recognized in future periods as the units vest. When calculating basic net loss per share, these shares
are included in weighted average common shares outstanding from the time they vest. When calculating diluted net loss per share,
these shares are included in weighted average common shares outstanding as of their grant date.
11.
STOCK OPTIONS
A
summary of option activity for the six months ended June 30, 2022, is presented below.
SCHEDULE OF STOCK OPTION ACTIVITY
| |
| | |
| | |
Weighted- | | |
| |
| |
| | |
Weighted- | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
| | |
Exercise | | |
Contractual | | |
Intrinsic | |
| |
Options | | |
Price | | |
Life (Years) | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding at January 1, 2022 | |
| 5,404,223 | | |
$ | 1.72 | | |
| 2.24 | | |
$ | 107 | |
Granted | |
| 2,689,555 | | |
| 1.07 | | |
| - | | |
| - | |
Forfeited | |
| (1,777,379 | ) | |
| 1.59 | | |
| - | | |
| - | |
Exercised | |
| (332,730 | ) | |
| 1.13 | | |
| - | | |
| - | |
Outstanding at June 30, 2022 | |
| 5,983,669 | | |
$ | 1.45 | | |
| 1.83 | | |
$ | 26 | |
| |
| | | |
| | | |
| | | |
| | |
Vested June 30, 2022 | |
| 2,982,073 | | |
$ | 1.86 | | |
| | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at June 30, 2022 | |
| 1,741,272 | | |
$ | 2.13 | | |
| | | |
$ | - | |
At
June 30, 2022, the intrinsic value of the outstanding options was $26.
During
the six months ended June 30, 2022, the Company granted stock options to certain employees and consultants to purchase a total of 2,689,555
shares of common stock for services rendered or to be rendered. The options have an average exercise price of $1.07
per share, terms between one and five years, and vest between zero and four years from the respective grant dates. The total grant
date fair value of these options was approximately $2,596
using the Black-Scholes option pricing model. The total share-based compensation expense recognized relating to the vesting of stock
options for the three and six months ended June 30, 2022, was $374
and $905,
respectively. As of June 30, 2022, the remaining share-based compensation expense associated with previously issued stock options
was $3,022,
which will be recognized in future periods as the options vest.
During the six months ended June 30, 2022, a total of 332,730 stock options were exercised. As a result of the exercise of the option, the Company issued 332,730
shares of common stock and received cash of $377.
The
grant date fair value of option awards is estimated using the Black-Scholes option pricing model based on the following assumptions:
SCHEDULE
OF FAIR VALUE ASSUMPTIONS USING BLACK-SCHOLES METHOD
|
|
Six
Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Risk-free
interest rate |
|
|
1.24%
- 3.01 |
% |
|
|
0.10%
- 0.92 |
% |
Average
expected term |
|
|
5
years |
|
|
|
5
years |
|
Expected
volatility |
|
|
147.8
– 149.5 |
% |
|
|
236.2
- 240.0 |
% |
Expected
dividend yield |
|
|
- |
|
|
|
- |
|
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected
term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are
expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility
is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based on the fact that the
Company has not paid dividends in the past and does not expect to pay dividends in the future.
12.
STOCK WARRANTS
The
Company has the following warrants outstanding as of June 30, 2022:
SCHEDULE OF WARRANTS OUTSTANDING
| |
Warrants | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Life (Years) | | |
Aggregate Intrinsic Value | |
| |
| | |
| | |
| | |
| |
Outstanding at January 1, 2022, all vested | |
| 10,984,740 | | |
$ | 2.67 | | |
| 2.38 | | |
$ | 507 | |
Granted, unvested as of June 30, 2022 | |
| 14,666,667 | | |
| 0.75 | | |
| 5.32 | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding at June 30, 2022 | |
| 25,651,407 | | |
$ | 1.52 | | |
| 3.65 | | |
$ | - | |
In
connection with the Registered Direct Offering, the Company issued 14,666,667 warrants
to purchase common stock with a vesting period of six months
and an exercise price of $0.75.
As of a result of the Registered Direct Offering, 3,704,826 Series
A warrants with exercise prices ranging from $1.10 to
$2.10 per
share were repriced to $0.75 per
share. The change in fair value of such warrants as a result of the new exercise price is approximately $200 and
the Company accounted for this change as part of the change in fair value of derivative liability (see Note 8). As of June 30, 2022, the intrinsic value of the outstanding warrants was $0.
13.
COMMITMENTS AND CONTINGENCIES
Litigation
The
Company is currently in a dispute with a former employee of its predecessor bBooth, Inc. who has interposed a breach of contract
claim in which he alleges that he is entitled to approximately $300
in unpaid bonus compensation from 2015. This former employee filed his complaint in the Superior Court of California for the County
of Los Angeles on November 20, 2019, styled Meyerson v. Verb Technology Company, Inc., et al. (Case No. 19STCV41816). The
Company does not believe the former employee’s claims have any merit as they are contradicted by documentary evidence, and
barred by the applicable statute of limitations, and barred by a release. On February 9, 2021, the former employee’s counsel
filed a motion for summary judgment, or in the alternative, summary adjudication against the Company. On October 13, 2021, the court
issued an order (i) denying the former employee’s motion for summary judgment, (ii) partly granting the former
employee’s motion for summary adjudication, and (iii) partly denying the former employee’s motion for summary
adjudication. The court has set a trial date of December 28, 2022. The Company believes the resolution of this matter will not have a material adverse effect on the Company or its operations.
|
b. |
Legal
Malpractice Action |
The
Company is currently in a dispute with Baker Hostetler LLP (“BH”) relating to corporate legal services provided by BH to
the Company. The Company filed its complaint in the Superior Court of California for the County of Los Angeles on May 17, 2021,
styled Verb Technology Company, Inc. v. Baker Hostetler LLP, et al. (Case No. 21STCV18387). The Company’s complaint
arises from BH’s alleged legal malpractice, breach of fiduciary duties owed to the Company, breach of contract, and violations
of California’s Business and Professions Code Section 17200 et seq. The Company is seeking, amongst other things, compensatory
damages from BH. On October 5, 2021, BH filed a cross-complaint against the Company alleging, amongst other things, that the Company
owes it approximately $915 in
legal fees. The Company disputes owing this amount to BH. The Company believes that the resolution of these matters will not have a
material adverse effect on the Company or its operations.
|
c. |
Dispute
with Warrant Holder |
The Company is currently in a dispute with Iroquois Capital Investment
Group LLC and Iroquois Master Fund, Ltd (collectively, “Iroquois”) relating to a securities purchase agreement (the “SPA”)
entered between the Company, Iroquois and certain other investors. The Company filed a complaint in the Supreme Court of New York for the
County of New York on April 6, 2022, styled Verb Technology Company, Inc. v. Iroquois Capital Investment Group LLC, et al. (Index No.
651708/2022). The Company’s complaint seeks a judicial declaration of its duties and obligations under the SPA. On May 5, 2022,
Iroquois filed counterclaims against the Company for declaratory relief, breach of contract, and breach of the implied covenant of good
faith and fair dealing relating to the SPA. Iroquois alleges damages of $1,500.
The Company disputes Iroquois’ counterclaims and damages allegations.
The Company intends to vigorously pursue its claims and to vigorously defend itself against the counterclaims. The Company believes that
the resolution of these matters will not have a material adverse effect on the Company or its operations.
From time to time, the Company is involved in various other legal proceedings,
disputes or claims arising from or related to the normal course of its business activities. Although the results of legal proceedings,
disputes and other claims cannot be predicted with certainty, the Company believes it is not currently a party to any other legal proceedings,
disputes or claims which, if determined adversely to the Company, would, individually or taken together, have a material adverse effect
on the Company’s business, operating results, financial condition or cash flows. However, regardless of the merit of the claims
raised or the outcome, legal proceedings may have an adverse impact on the Company as a result of defense and settlement costs, diversion
of management time and resources, and other factors.
14.
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through August 15, 2022, the date these condensed consolidated financial statements were issued.
There were no material events or transactions that require disclosure in the financial statements other than the items discussed below.
Issuance
of Common Stock
Subsequent
to June 30, 2022, the Company issued 342,799
shares of common stock to vendors for services
rendered with a grant date fair value of $189.
These shares of common stock were valued based on the closing price of the Company’s common stock on the date of issuance or the
date the Company entered into the agreement related to the issuance.
Subsequent
to June 30, 2022, the Company issued 124,113
shares of common stock to certain officers and employees associated with the vesting of restricted stock units.
Issuances
of Stock Options
Subsequent
to June 30, 2022, the Company granted stock options to certain employees to purchase a total of 37,000
stock options for services to be rendered. The options have an average exercise price of $0.56
per share, expire in five
years, and vest four years from grant date. The total grant date fair value of these options was $19
based on the Black-Scholes option pricing model.