VERB TECHNOLOGY COMPANY, INC. Forward-Looking Statements
The following discussion and analysis of the results of operations and financial condition of our company for the three-month periods endedMarch 31, 2022 and 2021 should be read in conjunction with the financial statements and related notes and the other financial information that are included elsewhere this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical fact and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to business decisions, are subject to change. These uncertainties and contingencies can cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements. As used in this Quarterly Report on Form 10-Q, the terms "we," "us," "our," and "Verb" refer toVerb Technology Company, Inc. , aNevada corporation, individually, or as the context requires, collectively with its subsidiaries,Verb Direct, LLC , or Verb Direct,Verb Acquisition Co., Inc. , or Solofire, and verbMarketplace, LLC, or MARKET, on a consolidated basis, unless otherwise
specified.
Overview
We are a Software-as-a-Service ("SaaS") applications platform developer. Our
platform is comprised of a suite of interactive video-based sales enablement
business software products marketed on a subscription basis. Our applications,
available in both mobile and desktop versions, are offered as a fully integrated
suite, as well as on a standalone basis, and include verbCRM, our Customer
Relationship Management ("CRM") application, verbLEARN, our Learning Management
System application, verbLIVE, our Live Stream eCommerce application, verbPULSE,
our business/augmented intelligence notification and sales coach application,
and verbTEAMS, our self-onboarding video-based CRM and content management
application for professional sports teams, small business and solopreneurs, with
seamless synchronization with Salesforce , that also comes bundled with verbLIVE,
and more recently, we introduced verbMAIL, our interactive video-based sales
communication tool integrated into Microsoft Outlook. 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.
Our Technology
Our suite of applications can be distinguished from other sales enablement applications because our applications utilize our proprietary interactive video technology as the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and analytics capabilities of our applications inform our users on their devices in real time, when and for how long their prospects have watched a video, how many times such prospects watched it, and what they clicked on, which allows our users to focus their time and efforts on 'hot leads' or interested prospects rather than on those that have not seen such video or otherwise expressed interest in such content. Users can create their hot lead lists by using familiar, intuitive 'swipe left/swipe right' on-screen navigation. Our clients report that these capabilities provide for a much more efficient and effective sales process, resulting in increased sales conversion rates. We developed the proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending technologies that serve as the unique foundation for all our platform applications. 26 Our Products verbCRM combines the capabilities of CRM lead-generation, content management, and in-video ecommerce capabilities in an intuitive, yet powerful tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users to quickly and easily create, distribute, and post videos to which they can add a choice of on-screen clickable icons which, when clicked, allow viewers to respond to the user's call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology allows a prospect or customer to click on a product they see featured in a video and impulse buy it, or to click on a calendar icon in the video to make an appointment with a salesperson, among many other features and functionalities designed to eliminate or reduce friction from the sales process for our users. The verbCRM app is designed to be easy to use and navigate and takes little time and training for a user to begin using the app effectively. It usually takes less than four minutes for a novice user to create an interactive video from our app. Users can add interactive icons to pre-existing videos, as well as to newly created videos shot with practically any mobile device. verbCRM interactive videos can be distributed via email, text messaging, chat app, or posted to popular social media directly and easily from our app. No software download is required to view Verb interactive videos on virtually any mobile or desktop device, including smart TVs. verbLEARN is an interactive, video-based learning management system that incorporates all of the clickable in-video technology featured in our verbCRM application and adapts them for use by educators for video-based education. verbLEARN is used by enterprises seeking to educate a large sales team or a customer base about new products, or elicit feedback about existing products. It also incorporates Verb's proprietary data collection and analytics capabilities that inform users in real time when and for how long the viewers watched the video, how many times they watched it, and what they clicked on, in addition to adding gamification features that enhance the learning aspects of the application. verbLIVE builds on popular video-based platforms such as Facebook Live, Zoom, WebEx, and Go2Meeting, among others, by adding Verb's proprietary interactive in-video ecommerce capabilities - including an in-video Shopify shopping cart integrated for Shopify account holders - to our own live stream video broadcasting application. verbLIVE is a next-generation live stream platform that allows hosts to utilize a variety of novel sales-driving features, including placing interactive icons on-screen that appear on the screens of all viewers, providing in-video click-to-purchase capabilities for products or services featured in the live video broadcast, in real-time, driving friction-free selling. verbLIVE also provides the host with real-time viewer engagement data and interaction analytics. verbLIVE is entirely browser-based, allowing it to function easily and effectively on all devices without requiring the host or the viewers to download software, and is secured through end-to-end encryption. verbPULSE is a business/augmented intelligence notification-based sales enablement platform feature set that tracks users' interactions with current and prospective customers and then helps coach users by telling them what to do next in order to close the sale, virtually automating the selling process. verbTEAMS is our interactive, video-based CRM for professional sports teams, small-and medium-sized businesses and solopreneurs. verbTEAMS also incorporates verbLIVE as a bundled application. verbTEAMS features self-sign-up, self-onboarding, self-configuring, content management system capabilities, user level administrative capabilities, and high-quality analytics capabilities in both mobile and desktop platforms that sync with one another. It also has a built-in one-click sync capability withSalesforce .
We continue to invest in the future of interactive livestreaming. Following are some of our recent initiatives:
MARKET is akin to a virtual shopping mall, a centralized online destination where shoppers could explore hundreds, and over time thousands, of shoppable stores for their favorite brands, influencers, creators and celebrities, all of whom can and will host livestream shopping events from their virtual stores that can be seen by all shoppers at the virtual mall. Every store operator can host livestream events, even simultaneously, and over time we expect there will be thousands of such events, across numerous product and service categories, being hosted by people from all over the world, always on - 24/7 - where shoppers could communicate with the hosts and ask questions about products directly to the host in real-time through an on-screen chat visible to all shoppers. Shoppers can invite their friends and family to join them at any of the events to share the experience - to communicate directly with each other in real time, and then simply click on a non-intrusive - in-video overlay to place items in an on-screen shopping cart for purchase - all without interrupting the video. Shoppers can visit any number of other shoppable events to meet up and chat with friends, old and new, and together watch, shop and chat with the hosts, discover new products and services, and become part of an immersive entertaining shopping experience. Throughout the experience, the shopping cart follows shoppers seamlessly from event to event, shoppable video to shoppable video, host to
host, product to product. 27 The MARKET business model is a simple but next-level B to B play. It is a multi-vendor platform, with a single follow-me style unified shopping cart, and robust ecommerce capabilities with the tools for consumer brands, big box brick and mortar stores, boutiques, influencers and celebrities to connect with their clients, customers, their fans, followers, and prospects by providing a unique, interactive social shopping experience that we believe could keep them coming back and engaged for hours.
A big differentiator for MARKET is that it also provides an online meeting place for friends and family to meet, chat, shop and enjoy a fun, immersive shopping experience in real time together from anywhere and everywhere in the world. MARKET will provide vendors with extensive business building analytics capabilities not available on, and not shared by many operators of other social media sites who regard that information as valuable proprietary property. All vendors on MARKET will retain this valuable intelligence for their own, unlimited use. MARKET allows vendors an opportunity to reach not only the shoppers they invite to the site from their own client and contact lists, but also those shoppers who came to the site independently who will discover these vendors as they browse through the many other shoppable events hosted simultaneously on MARKET 24/7, from around the world. We believe our revenue model will be attractive to vendors and will consist of SaaS recurring revenue as well as a share of revenue generated through sales on the platform. MARKET is simply a platform; we hold no inventory, we take no inventory risk, and each vendor manages their own packing and fulfillment, as well as returns. Only vendors that have a demonstrated ability to manage inventory and fulfillment are selected to participate on MARKET.
As we continue onboarding vendors to the platform, we are seeing increased interest from product manufacturers seeking to embrace MARKET's direct-to-consumer selling capabilities, cutting-out distribution channel partners in order to reduce costs and increase profitability. As the economy tightens, we expect that trend to accelerate.
MARKET will also incorporate a modified version of our verbLIVE Attribution technology, allowing vendors who so choose, to leverage extremely powerful, built-in affiliate marketing capabilities. Non-vendor visitors to the site can search for those vendors that have activated the Attribution feature for their events and be compensated when people they referred to that vendor, purchase products or services during that vendor's shopping event. We expect that this feature, unique to MARKET, will drive many more shoppers who will be referred from all over the world, producing a cross-pollination effect enhancing the revenue opportunities for all MARKET vendors, while also creating an attractive income generating opportunity for non-vendor MARKET patrons. MARKET is an entirely new platform, built wholly independently and separate from our verbLIVE sales platform, representing what we believe is the state of the art of shoppable video technology. It will utilize an ultra-low latency private global CDN network that we control, allowing us to deliver a high-quality experience and platform performance capabilities. We also believe that MARKET will expose vendors to our entire suite of sales enablement products, such as verbMAIL, among others, that could drive new cross selling revenue opportunities. verbTV is an online destination for shoppable entertainment. Whereas MARKET is a social shopping experience, verbTV is a destination for those seeking commercial-free television content, such as concerts, game shows, sports, including e-sports, sitcoms, podcasts, special events, news, including live events, and other forms of video entertainment that is all interactive and shoppable. verbTV represents an entirely new distribution channel for all forms of content by a new generation of content creators looking for greater freedom to explore the creative possibilities that a native interactive video platform can provide for their audience. We believe content creators may also enjoy greater revenue opportunities through the native ecommerce capabilities the platform provides to sponsors and advertisers who will enjoy real-time monetization, data collection and analytics. Through verbTV, sponsors and advertisers will be able to accurately measure the ROI from their marketing spend, instead of relying on decades-old, imprecise viewership information. At launch, verbTV will feature interactive, shoppable programming, including the popular business pitch show "2 Minute Drill," the non-shoppable version of which is currently shown on AppleTV. Each episode is a fast-paced reality show where 5-6 entrepreneurs competing for$50,000 in cash and prizes, have 2 minutes to impress the judges with the best investor pitch. Our CEO is one of the judges on the show. verbTV viewers will be able to click on-screen and purchase the products and services of the contestants featured on the show, among other contemplated interactive features.Dave Meltzer , the creator of the show, and Co-founder of Sports 1 Marketing and the former CEO of the renownedLeigh Steinberg Sports & Entertainment agency, has signed-on with Verb to produce other interactive and shoppable entertainment for verbTV. Other such partnerships, as well as a creator program, are currently in progress. 28
Verb Partnerships and Integrations
verbMAIL for Microsoft Outlook is a product of our partnership with Microsoft and is available as an add-in to Microsoft Outlook for Outlook and Office 365 subscribers. verbMAIL allows users to create interactive videos seamlessly within Outlook by clicking the verbMAIL icon in the Outlook toolbar. The videos are automatically added to an email and can be sent easily through Outlook using the user's contacts they already have in Outlook. The application allows users to easily track viewer engagement and together with other features represents an effective sales tool available for all Outlook users worldwide. Salesforce Integration. We have completed and deployed the integration of verbLIVE intoSalesforce and have launched a joint marketing campaign withSalesforce to introduce the verbLIVE plug-in functionality to currentSalesforce users. We have also developed a verbCRM sync application forSalesforce users that is currently being utilized by at least one of our large enterprise clients and the verbLIVE plug-in is now being offered to allSalesforce users on a monthly subscription fee basis while we work to build adoption rates. Popular Enterprise Back-Office System Integrations. We have integrated verbCRM into systems offered by 19 of the most popular direct sales back-office system providers, such as Direct Scale, Exigo, By Design, Thatcher, Multisoft, Xennsoft, and Party Plan. Direct sales back-office systems provide many of the support functions required for direct sales operations, including payroll, customer genealogy management, statistics, rankings, and earnings, among other direct sales financial tracking capabilities. The integration into these back-office providers, facilitated through our own API development, allows single sign-on convenience for users, as well as enhanced data analytics and reporting capabilities for all users. Our experience confirms that our integration into these back-end platforms accelerates the adoption of verbCRM by large direct sales enterprises that rely on these systems and as such, we believe this represents a competitive advantage.
Non-Digital Products and Services
Historically, we provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client's custom-branded merchandise they use for marketing purposes at conferences and other events. We also managed the fulfillment of our clients' product sample packs that verbCRM users order through the app for automated delivery and tracking to their customers and prospects. InMay 2020 , we executed a contract with Range Printing ("Range"), a company in the business of providing enterprise class printing, sample assembly, warehousing, packaging, shipping, and fulfillment services. Pursuant to the contract, through an automated process we have established for this purpose, Range receives orders for samples and merchandise from us as and when we receive them from our clients and users, and print, assemble, store, package and ship such samples and merchandise on our behalf. The Range contract provides for a service fee arrangement based upon the specific services to be provided by Range that is designed to maintain our relationship with our clients by continuing to service their non-digital needs, while eliminating the labor and overhead costs associated with the provision of such services by us. Our Market
Historically, our client base consisted primarily of multi-national direct sales enterprises to whom we provide white-labeled, client-branded versions of our products. During the year endedDecember 31, 2021 , our client base expanded to include large enterprises in the life sciences sector, professional sports franchises, educational institutions, and not-for-profit organizations, as well as clients in the entertainment industry, and the burgeoning CBD industry, among other business sectors. As ofMarch 31, 2022 , we provided subscription-based application services to approximately 150 enterprise clients for use in over 100 countries, in over 48 languages, which collectively account for a user base generated through more than 3.3 million downloads of our verbCRM application. Among the new business sectors targeted for this year are medical equipment and pharmaceutical sales, armed services and government institutions, small businesses and individual entrepreneurs. 29 Revenue Generation
A description of our principal revenue generating activities is as follows:
1. Digital Revenue which is divided into two main categories:
a. SaaS recurring digital revenue based on contract-based subscriptions to our
verb app products and platform services which include verbCRM, verbLEARN,
verbLIVE, verbPULSE, and verbTeams. The revenue is recognized over the
subscription period.
b. Non-SaaS, non-recurring digital revenue, which is revenue generated by the
use of our app products and in-app purchases, such as sampling and other
services obtained through the app. The revenue for samples is recognized upon
completion and shipment, while the design fees are recognized when the
service has been rendered and the app is delivered to the customer.
2. Non-digital revenue, which is revenue we generate from non-app, non-digital
sources through ancillary services we provide as an accommodation to our
clients and customers. These services, which we now outsource to a strategic
partner as part of a cost reduction plan we instituted in 2020, include
design, printing services, fulfillment and shipping services. The revenue is
recognized upon completion and shipment of products or fulfillment to
customers.
3. MARKET will generate revenue through several sources as follows:
a. All sales run through our ecommerce facility on MARKET from which we deduct a
platform fee that ranges from 10% to 35% of gross sales, with an average of
between 15-20%, depending upon the pricing package the vendors select as well
as the product category and profit margins associated with such categories.
The revenue is derived from sales generated during livestream events, from
viewers of previously recorded events available in each vendor's store, as
well as from sales of product and merchandise done through the vendors'
stores, all of which are available 24/7.
b. Produced events. MARKET will offer fee-based services that range from full
production of a livestream event, to providing professional hosts and event
consulting.
c. The MARKET site is designed to incorporate sponsorships and other advertising
based on typical industry rates.
Impact of COVID-19 on Our Business and Industry
Governments and businesses around the world continue to take actions to mitigate the spread of COVID-19 and its variants, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets. Despite increased vaccine distribution programs and loosening of COVID-19 related restrictions in the regions in which we operate during the three months endedMarch 31, 2022 , both the pandemic and ongoing containment and mitigation measures have had, and are likely to continue to have, an adverse impact on the global andU.S. economies, the severity and duration of which are uncertain. As such, our business, operations and financial condition has been, and we anticipate will continue to be, adversely impacted by reduced demand for our applications and non-digital services, as well as reduced access to capital. To mitigate the adverse impact COVID-19 may have on our business and operations, we implemented a number of measures to strengthen our financial position, including eliminating, reducing, or deferring non-essential expenditures. However, the extent to which the COVID-19 pandemic will impact our business, financial conditions, and results of operations in the future remains uncertain and will be affected by a number of factors, including the duration and extent of the pandemic, the emergence of variants to COVID-19 the duration and extent of imposed or recommended containment and mitigation measures, the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the successful distribution of effective vaccines. The COVID-19 pandemic may have long-term effects on the nature of the office environment and remote working. This may present operational and workplace culture challenges that may adversely affect our business. Throughout the three months endedMarch 31, 2022 , we have encouraged safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond and to maintain the mental health and well-being of our employees. We continue to actively communicate with and listen to our customers to ensure we are responding to their needs in the current environment with innovative solutions that will not only be beneficial now but also over the long-term. We monitor developments related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic. 30 Results of Operations
Three Months Ended
The following is a comparison of our results of operations for the three months
ended
Three Months Ended March 31,
2022 2021 Change
Revenue
Digital revenueSaaS recurring subscription revenue$ 2,003 $ 1,461
$ 542 Other digital revenue 147 340 (193 ) Total digital revenue 2,150 1,801 349 Non-digital revenue 541 725 (184 ) Total revenue 2,691 2,526 165 Cost of revenue Digital 557 540 17 Non-digital 416 675 (259 ) Total cost of revenue 973 1,215 (242 ) Gross margin 1,718 1,311 407 Operating expenses Research and development 1,580 2,884 (1,304 ) Depreciation and amortization 409 414 (5 ) General and administrative 7,036 7,343 (307 ) Total operating expenses 9,025 10,641 (1,616 ) Loss from operations (7,307 ) (9,330 ) 2,023 Other income (expense) Interest expense (756 ) (508 ) (248 )
Change in fair value of derivative liability 1,138 500
638
Other income (expense) (64 ) 54 (118 )
Debt extinguishment, net - 939 (939 )
Total other income, net 318 985 (667 )
Net loss $ (6,989 ) $ (8,345 ) $ 1,356
Revenue
Our SaaS recurring subscription revenues continue to grow year over year, which
is a reflection of our systematic investment in our business. SaaS recurring
subscription revenue as a percentage of total revenue for the three months ended
March 31, 2022 was 74%, compared to 58% for the three months ended March 31,
2021 .
For the three months ended March 31, 2022 , our total digital revenue was 80% of
total revenue compared with 71% for the three months ended March 31, 2021 . Total
digital revenue for the three months ended March 31, 2022 was $2.2 million , an
increase of 19% compared to $1.8 million for the three months ended March 31,
2021 . The increase was primarily driven from SaaS recurring subscription-based
revenue associated with our verbCRM, verbLEARN, verbTEAMS, verbLIVE, and
verbPULSE applications totaling $2.0 million , an increase of 37% compared to
$1.5 million reported for the three months ended March 31, 2021 .
31
Total non-digital revenue for the three months ended March 31, 2022 was $0.5
million , a decrease of 25% compared to $0.7 million reported for the three
months ended March 31, 2021 , which is consistent with the Company's strategy to
exit the low margin printing, fulfillment, and shipping aspects of the legacy
business to focus on digital revenue streams.
The table below sets forth our quarterly revenues from the three months ended
March 31, 2020 through the three months ended March 31, 2022 , which reflects the
trend of revenue over the past nine fiscal quarters (in thousands):
2020 Quarterly Revenue 2021 Quarterly Revenue 2022
Q1 Q2 Q3
Q4 Q1 Q2 Q3 Q4 Q1
SaaS recurring subscription revenue
400 406 360 218 340 209 510 288 147 Total digital revenue
1,457 1,680 1,838 1,523 1,801 1,810 2,356 2,211 2,150
Total non-digital revenue 897 972 1,022
576 725 582 544 495 541 Grand total$ 2,354 $ 2,652 $ 2,860 $ 2,099 $ 2,526 $ 2,392 $ 2,900 $ 2,706 $ 2,691 Cost of Revenue Total cost of revenue for the three months endedMarch 31, 2022 was$1.0 million , compared to$1.2 million for the three months endedMarch 31, 2021 . The decrease in cost of revenue is primarily attributed to a decrease in non-digital costs partially offset by increased digital costs to support additional enterprise customers on the platform and increased users within our existing customer base. Gross Margin Total gross margin for the three months endedMarch 31, 2022 , was$1.7 million , compared to$1.3 million for the three months endedMarch 31, 2021 , representing a 31% improvement. Gross margins improved as a result of our strategy to focus on higher margin digital revenue and systematic reduction in non-digital revenue. Operating Expenses Research and development expenses were$1.6 million for the three months endedMarch 31, 2022 , as compared to$2.9 million for the three months endedMarch 31, 2021 . Research and development expenses primarily consisted of fees paid to employees and vendors contracted to perform research projects and develop technology. As our products move from research and development mode to operating mode, we expect our research and development cost reductions to continue, as experienced during the three months endedMarch 31, 2022 .
Depreciation and amortization expenses were
General and administrative expenses for the three months endedMarch 31, 2022 were$7.0 million , as compared to$7.3 million for the three months endedMarch 31, 2021 . The decrease in general and administrative expenses is primarily due to lower spending on marketing and promotion of$(0.4) million along with a decrease in share-based compensation of$(1.1) million , both partially offset by an increase in labor costs of$0.9 million to support future growth with anticipated product launches. Other income, net, for the three months endedMarch 31, 2022 was$0.3 million , which was primarily attributable to a change in the fair value of derivative liability of$1.1 million , offset by interest expense of$(0.8) million . 32
Use of Non-GAAP Measures - Modified EBITDA
In addition to our results under generally accepted accounting principles
("GAAP"), we present Modified EBITDA as a supplemental measure of our
performance. However, Modified EBITDA is not a recognized measurement under GAAP
and should not be considered as an alternative to net income, income from
operations or any other performance measure derived in accordance with GAAP or
as an alternative to cash flow from operating activities as a measure of
liquidity. We define Modified EBITDA as net income (loss), plus interest
expense, depreciation and amortization, share-based compensation, financing
costs and changes in fair value of derivative liability.
Management considers our core operating performance to be that which our
managers can affect in any particular period through their management of the
resources that affect our underlying revenue and profit generating operations
that period. Non-GAAP adjustments to our results prepared in accordance with
GAAP are itemized below. You are encouraged to evaluate these adjustments and
the reasons we consider them appropriate for supplemental analysis. In
evaluating Modified EBITDA, you should be aware that in the future we may incur
expenses that are the same as or similar to some of the adjustments in this
presentation. Our presentation of Modified EBITDA should not be construed as an
inference that our future results will be unaffected by unusual or non-recurring
items.
Three Months Ended March 31,
(in thousands) 2022 2021
Net loss $ (6,989 ) $ (8,345 )
Adjustments
Depreciation and amortization 409 414
Share-based compensation 1,301 2,402
Interest expense 756 508Change in fair value of derivative liability (1,138 )
(500 ) Other (income) / expense 64 (54 ) Debt extinguishment, net - (939 ) Other non-recurring 126 - Total EBITDA adjustments 1,518 1,831 Modified EBITDA$ (5,471 ) $ (6,514 ) The$1.0 million increase in Modified EBITDA for the three months endedMarch 31, 2022 , compared to the same period in 2021, resulted from increased revenues, decreases in cost of revenue, research and development, and marketing and promotion, offset by an increase in labor related costs to support future growth. We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following: ? Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
? Modified EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
? Modified EBITDA does not reflect future interest expense, or the cash
requirements necessary to service interest or principal payments, on our
debts; and
33
? Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and
Modified EBITDA does not reflect any cash requirements for such replacements.
Liquidity and Capital Resources
Going Concern We have incurred operating losses and negative cash flows from operations since inception. We incurred a net loss of$7.0 million during the three months endedMarch 31, 2022 . We also utilized cash in operations of$5.9 million during the three months endedMarch 31, 2022 . As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue
our operations.
OnJanuary 12, 2022 , we entered into a common stock purchase agreement withTumim Stone Capital LLC . Pursuant to the agreement, the Company has the right, but not the obligation, to sell to the Investor, and the Investor is obligated to purchase, up to$50.0 million of newly issued shares of our common stock, par value$0.0001 per share from time to time during the term of the agreement, subject to certain limitations and conditions. The Total Commitment is inclusive of 607,287 shares of common stock issued to the Investor as consideration for its commitment to purchase shares of common stock under the Common Stock Purchase Agreement. OnJanuary 12, 2022 , we also entered into a securities purchase agreement with three institutional investors providing for the sale and issuance of an aggregate original principal amount of$6.3 million in convertible notes due 2023. We also entered into a security agreement with the Note Holders, datedJanuary 12, 2022 , in connection with the Note Offering, pursuant to which we granted a security interest to the Note Holders in substantially all of its assets. OnApril 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 withTruist 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$0.5 million and the Company will account for this change as a deemed dividend. In addition, as a result of entering into the Purchase Agreement, we have repaid$1.65 million in principal payments to Note Holders pursuant to the terms of the Note Offering, thereby reducing our outstanding principal balance from$6.3 million to$4.65 million . OnApril 20, 2022 , we 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. We will pay the Placement Agent a cash fee equal to 6.0% of the aggregate gross proceeds from the sale of the Securities, subject to certain exceptions described in the Placement Agency Agreement, and will reimburse the Placement Agent for certain expenses. The Placement Agency Agreement contains customary representations, warranties and agreements by us, customary representations and warranties of the Placement Agent, customary conditions to closing, and customary indemnification obligations of the Company.
Our consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations and continue our operations for the next twelve months. Our continuation as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until we begin generating positive cash flow. In addition, our independent registered public accounting firm, in its report on ourDecember 31, 2021 consolidated financial statements, has raised substantial doubt about our ability to continue as a going concern. 34 There is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease operations for our business, the results of which would be that our stockholders would lose some or all of their investment. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern. Overview As ofMarch 31, 2022 , we had cash of$3.7 million . We estimate our operating expenses for the next twelve months may continue to exceed any revenue we generate, and we may need to raise capital through either debt or equity offerings to continue operations. Due to market conditions and the early stage of our operations, there is considerable risk that we will not be able to raise such financings at all, or on terms that are not dilutive to our existing stockholders. We can offer no assurance that we will be able to raise such funds. If we are unable to raise the funds we require for all of our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and we may be forced to reduce or discontinue operations. The following is a summary of our cash flows from operating, investing, and financing activities for the quarters endedMarch 31, 2022 and 2021 (in thousands): Three Months EndedMarch 31, 2022 2021
Cash used in operating activities$ (5,899 ) $ (6,923 ) Cash (used in) / provided by investing activities (2,363 ) 5 Cash provided by financing activities 11,043
18,049
Increase in cash $ 2,781 $ 11,131
Cash Flows - Operating
For the three months endedMarch 31, 2022 , our cash flows used in operating activities amounted to$5.9 million , compared to cash used for the three months endedMarch 31, 2021 of$6.9 million . We generated$1.0 million additional cash from operations due to higher revenues, decreases in research and development expenses, marketing and promotion, which was offset by an increase in labor related costs to support future growth. Cash Flows - Investing
For the three months ended
Cash Flows - Financing
Our cash provided by financing activities for the three months endedMarch 31, 2022 amounted to$11.0 million , which represented$7.5 million of net proceeds from the issuance of shares of our common stock,$6.0 million of gross proceeds from the issuance of notes payable, and proceeds from option exercises of$0.4 million , all offset by$(2.5) million of payments on advances on future receipts and payments for debt issuance costs of$(0.4) million . 35 Advances on Future Receipts We have the following advances on future receipts as ofMarch 31, 2022 (in thousands): Original Balance at Note Issuance Date Maturity Date Interest Rate Borrowing March 31, 2022 Note 1 October 29, 2021 April 28, 2022 5 % 2,120 288 Note 2 October 29, 2021 July 25, 2022 28 % 3,808 1,813 Note 3 December 23, 2021 June 22, 2022 5 % 689 344 Total$ 6,617 2,445 Debt discount (310 ) Net $ 2,135 Note 1 OnOctober 29, 2021 , we received secured advances from an unaffiliated third party totaling$2.0 million for the purchase of future receipts/revenues of$2.1 million . As ofMarch 31, 2022 , the outstanding balance of the note amounted to$0.3 million , which we paid in full onApril 28, 2022 . Note 2 OnOctober 29, 2021 , we received secured advances from an unaffiliated third party totaling$2.7 million for the purchase of future receipts/revenues of$3.8 million . As ofMarch 31, 2022 , the outstanding balance of the note amounted
to$1.8 million . Note 3 OnDecember 23, 2021 , we received secured advances from an unaffiliated third party totaling$0.7 million for the purchase of future receipts/revenues of$0.7 million . As ofMarch 31, 2022 , the outstanding balance of the note amounted
to$0.3 million . Notes Payable We have the following outstanding notes payable as ofMarch 31, 2022 (in thousands): Balance at Original March 31, Note Issuance Date Maturity Date Interest Rate Borrowing 2022 Related party note payable (A) December 1, 2015 April 1, 2023 12.0 % 1,249$ 725 Related party note payable (B) April 4, 2016 June 4, 2021 12.0 % 343 40 Note payable (C) May 15, 2020 May 15, 2050 3.75 % 150 150 Notes payable (D) January 12, 2022 January 12, 2023 6.0
% 6,300 6,300 Debt discount (226 ) Debt issuance costs (347 ) Total notes payable 6,642 Non-current (875 ) Current$ 5,767
(A) On
Cutaia, the Company's majority stockholder and Chief Executive Officer, to
consolidate all loans and advances made by
On
2023. As of
$0.7 million . 36
(B) On
of
the period December 2015 through March 2016 . As of March 31, 2022 , the
outstanding balance of the note amounted to less than $0.1 million .
(C) On May 15, 2020, we executed an unsecured loan with the
Administration (SBA) under the Economic Injury Disaster Loan program in the
amount of $0.15 million . Installment payments, including principal and
interest, will begin on October 15, 2022 . As of March 31, 2022 , the
outstanding balance of the note amounted to $0.15 million .
(D) On
three institutional investors (collectively, the "Note Holders") providing
for the sale and issuance of an aggregate original principal amount of
million in convertible notes due 2023 (each, a "Note," and, collectively,
the "Notes," and such financing, the "Note Offering"). We also entered into
a security agreement with the Note Holders dated
connection with the Note Offering, pursuant to which the Company granted a
security interest to the Note Holders in substantially all of its assets.
There are no financial covenants related to these notes payable.
We received
Note Offering closed on January 12, 2022 . 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
adjustment in certain circumstances as set forth in the Notes.
In connection with the debt agreement, we incurred $0.5 million of debt
issuance costs. The debt issuance costs and the debt discount of $0.3
million are being amortized over the term of the agreement using the
effective interest rate method. As of March 31, 2022 , the amount of
unamortized debt discount and debt issuance costs was
million, respectively.
As of March 31, 2022 , the outstanding balance of the note amounted to $6.3
million. Subsequent to
and $0.1 million of accrued interest. As a result of the repayment, the
outstanding principal balance was $4.65 million as of the date of the
issuance of the financial statements.
Beginning on
payments of
the remaining principal amount of
on the maturity date.
Critical Accounting Policies
Our financial statements have been prepared in accordance with GAAP, which require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Significant estimates include assumptions made for reserves of uncollectible accounts receivable, assumptions made in valuing assets acquired in business combinations, impairment testing of goodwill and other long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in
the
future.
37
Revenue Recognition
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.
The Company recognizes revenue in accordance with Financial Accounting Standard
Board's ("FASB") ASC 606, Revenue from Contracts with Customers ("ASC 606"). ASC
606 creates a five-step model that requires entities to exercise judgment when
considering the terms of contract(s), which includes (1) identifying the
contract(s) or agreement(s) with a customer, (2) identifying our performance
obligations in the contract or agreement, (3) determining the transaction price,
(4) allocating the transaction price to the separate performance obligations,
and (5) recognizing revenue as each performance obligation is satisfied.
A description of our principal revenue generating activities is as follows:1. Digital Revenue, which is divided into two main categories:
a. SaaS recurring digital revenue based on contract-based subscriptions to our
verb app products and platform services which include verbCRM, verbLEARN,
verbLIVE, verbTEAMS, and verbPULSE. The revenue is recognized straight-line
over the subscription period.
b. Non-SaaS, non-recurring digital revenue, which is revenue generated by the
use of our app products and in-app purchases, such as sampling and other
services obtained through the app. The revenue for samples is recognized upon
completion and shipment, while the design fees are recognized when the
service has been rendered and the app is delivered to the customer.
2. Non-digital revenue, which is revenue we generate from non-app, non-digital
sources through ancillary services we provide as an accommodation to our
clients and customers. These services, which we now outsource to a strategic
partner as part of a cost reduction plan we instituted in 2020, includes
design, printing services, fulfillment and shipping services. The revenue is
recognized upon completion and shipment of products or fulfillment to the
customer.
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the 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. We use Level 2 inputs for our valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. Our derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. Share-Based Compensation The Company issues stock options and warrants, shares of common stock and restricted stock units as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation in accordance with FASB ASC 718, Compensation - Stock Compensation. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock and is recognized as expense over the service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services. 38Goodwill
In accordance with FASB ASC 350, Intangibles-Goodwill and Other, we review goodwill and indefinite lived intangible assets for impairment at least annually or whenever events or circumstances indicate a potential impairment. Our impairment testing is performed annually atDecember 31 (our fiscal year end). Impairment of goodwill and indefinite lived intangible assets is determined by comparing the fair value of our reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities. Intangible Assets We have certain intangible assets that were initially recorded at their fair value at the time of acquisition. The finite-lived intangible assets consist of developed technology and customer contracts. Indefinite-lived intangible assets consist of domain names. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful life of five years. We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.
Recently Issued Accounting Pronouncements
For a summary of our recent accounting policies, refer to Note 2 - Summary of Significant Accounting Policies, of our unaudited condensed consolidated financial statements included under Item 1 - Financial Statements in this Form 10-Q.
Off-Balance Sheet Arrangements
As of
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