UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20222023
OR
|
|
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from to
Commission File Number 001-40682
Nogin, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | ||
|
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
1775 Flight WaySTE 400
Tustin,, CA92782
(949) (949) 222-0209
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common stock, par value $0.0001 per share | NOGN | The Nasdaq Stock Market LLC | ||
Warrants | NOGNW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of November 10, 2022,October 26, 2023, there were 66,694,29511,288,253 shares of the registrant’s common stock outstanding, par value $0.0001 per share, outstanding.share.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Report, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the section in our Registration StatementAnnual Report on Form S-110-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on September 16, 2022March 23, 2023 titled “Risk Factors.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:
•
| ● | the ability to maintain the listing of the shares of Common Stock and Warrants on Nasdaq; |
| ● | litigation, complaints, product liability claims and/or adverse publicity; |
•
| ● | privacy and data protection laws, privacy or data breaches, or the loss of data; |
| ● | the impact of changes in customer spending patterns, customer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability; and |
•
| ● | our ability to fulfill the obligations and comply with the covenants under the Indenture governing our Convertible Notes; and |
| ● | other risks and uncertainties included in this Report, including those under the section entitled “Risk Factors.” |
•
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Nogin, Inc. and Subsidiaries
Form 10-Q
Table of Contents
i
PART I—FINANCIALFINANCIAL INFORMATION
Item 1. FinancialFinancial Statements
Nogin, Inc. and Subsidiaries
Unaudited Condensed ConsolidatedConsolidated Balance Sheets
(In thousands, except share and per share data)
|
| September 30, |
|
| December 31, |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 15,827 |
|
| $ | 1,071 |
|
Accounts receivable, net |
|
| 1,631 |
|
|
| 1,977 |
|
Related party receivables |
|
| 8,477 |
|
|
| 5,356 |
|
Inventory |
|
| 12,520 |
|
|
| 22,777 |
|
Prepaid expenses and other current assets |
|
| 4,625 |
|
|
| 2,915 |
|
Total current assets |
|
| 43,080 |
|
|
| 34,096 |
|
Restricted cash |
|
| 1,500 |
|
|
| 3,500 |
|
Property and equipment, net |
|
| 3,080 |
|
|
| 1,789 |
|
Intangible assets, net |
|
| 939 |
|
|
| 1,112 |
|
Investment in unconsolidated affiliates |
|
| 11,675 |
|
|
| 13,570 |
|
Other non-current asset |
|
| 666 |
|
|
| 664 |
|
Total assets |
| $ | 60,940 |
|
| $ | 54,731 |
|
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 17,200 |
|
| $ | 16,098 |
|
Due to clients |
|
| 3,534 |
|
|
| 5,151 |
|
Related party payables |
|
| 229 |
|
|
| — |
|
Accrued expenses and other liabilities |
|
| 16,335 |
|
|
| 14,018 |
|
Total current liabilities |
|
| 37,298 |
|
|
| 35,267 |
|
Line of credit |
|
| — |
|
|
| 348 |
|
Long-term note payable, net |
|
| — |
|
|
| 19,249 |
|
Convertible notes |
|
| 74,486 |
|
|
| — |
|
Deferred tax liabilities |
|
| 1,308 |
|
|
| 1,174 |
|
Other long-term liabilities |
|
| 17,988 |
|
|
| 734 |
|
Total liabilities |
|
| 131,080 |
|
|
| 56,772 |
|
Commitments and contingencies (Note 17) |
|
|
|
|
|
| ||
CONVERTIBLE REDEEMABLE PREFERRED STOCK |
|
|
|
|
|
| ||
Series A convertible, redeemable preferred stock, $0.0001 par value, 8,864,495 shares |
|
| — |
|
|
| 4,687 |
|
Series B convertible, redeemable preferred stock, $0.0001 par value, 6,944,093 shares |
|
| — |
|
|
| 6,502 |
|
|
|
|
|
|
|
| ||
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
| ||
Common stock, $0.0001 par value, 500,000,000 and 60,760,816 shares authorized; 66,694,295 and |
|
| 7 |
|
|
| 4 |
|
Additional paid-in capital |
|
| 9,233 |
|
|
| 4,358 |
|
Treasury stock |
|
| — |
|
|
| (1,330 | ) |
Accumulated deficit |
|
| (79,380 | ) |
|
| (16,262 | ) |
Total stockholders’ deficit |
|
| (70,140 | ) |
|
| (13,230 | ) |
Total liabilities, convertible redeemable preferred stock and stockholders’ deficit |
| $ | 60,940 |
|
| $ | 54,731 |
|
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 1,885 | $ | 15,385 | ||||
| Accounts receivable, net | 2,913 | 1,578 | ||||||
| Inventory | 9,374 | 15,726 | ||||||
| Prepaid expenses and other current assets | 1,356 | 2,539 | ||||||
| Total current assets | 15,528 | 35,228 | ||||||
| Property and equipment, net | 1,872 | 1,595 | ||||||
| Right-of-use asset, net (Note 19) | 15,254 | 17,391 | ||||||
| Goodwill | — | 6,748 | ||||||
| Intangible assets, net | 5,258 | 5,493 | ||||||
| Investment in unconsolidated affiliates | 8,388 | 7,404 | ||||||
| Other non-current asset | 963 | 1,074 | ||||||
| Total assets | 47,263 | 74,933 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 15,396 | $ | 19,605 | ||||
| Due to clients | 5,556 | 10,891 | ||||||
| Related party payables | 931 | 1,033 | ||||||
| Loans (Note 7) | 7,608 | — | ||||||
| Accrued expenses and other liabilities (Note 6) | 16,814 | 17,826 | ||||||
| Convertible notes (Note 7) | 60,385 | — | ||||||
| Lease liabilities, current portion (Note 19) | 4,547 | 4,367 | ||||||
| Total current liabilities | $ | 111,237 | $ | 53,722 | ||||
| Convertible notes (Note 7) | — | 60,852 | ||||||
| Deferred tax liabilities | 585 | 394 | ||||||
| Lease liabilities, net of current portion (Note 19) | 12,538 | 15,223 | ||||||
| Other long-term liabilities (Note 6) | 18,455 | 17,766 | ||||||
| Total liabilities | 142,815 | 147,957 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized; 11,288,523 and 3,334,714 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | 1 | — | ||||||
| Additional paid-in capital | 22,709 | 9,270 | ||||||
| Accumulated deficit | (118,262 | ) | (82,294 | ) | ||||
| Total stockholders’ deficit | (95,552 | ) | (73,024 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 47,263 | $ | 74,933 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
1
Nogin, Inc. and Subsidiaries
Unaudited Condensed Consolidated StatementsStatements of Operations
(In thousands, except share and per share data)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net service revenue |
| $ | 10,013 |
|
| $ | 9,071 |
|
| $ | 27,800 |
|
| $ | 31,242 |
|
Net product revenue |
|
| 8,645 |
|
|
| 15,224 |
|
|
| 29,401 |
|
|
| 19,739 |
|
Net revenue from related parties |
|
| 2,316 |
|
|
| 2,652 |
|
|
| 9,321 |
|
|
| 4,240 |
|
Total net revenue |
|
| 20,974 |
|
|
| 26,947 |
|
|
| 66,522 |
|
|
| 55,221 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of services (1) |
|
| 6,304 |
|
|
| 5,250 |
|
|
| 17,496 |
|
|
| 16,721 |
|
Cost of product revenue (1) |
|
| 7,956 |
|
|
| 6,049 |
|
|
| 23,363 |
|
|
| 7,957 |
|
Sales and marketing |
|
| 925 |
|
|
| 528 |
|
|
| 2,111 |
|
|
| 1,205 |
|
Research and development |
|
| 1,400 |
|
|
| 1,609 |
|
|
| 4,227 |
|
|
| 4,033 |
|
General and administrative |
|
| 15,969 |
|
|
| 15,658 |
|
|
| 46,332 |
|
|
| 30,300 |
|
Depreciation and amortization |
|
| 194 |
|
|
| 144 |
|
|
| 614 |
|
|
| 384 |
|
Total operating costs and expenses |
|
| 32,748 |
|
|
| 29,238 |
|
|
| 94,143 |
|
|
| 60,600 |
|
Operating loss |
|
| (11,774 | ) |
|
| (2,291 | ) |
|
| (27,621 | ) |
|
| (5,379 | ) |
Interest expense |
|
| (2,568 | ) |
|
| (254 | ) |
|
| (4,685 | ) |
|
| (374 | ) |
Change in fair value of promissory notes |
|
| (1,995 | ) |
|
| — |
|
|
| (4,561 | ) |
|
| — |
|
Change in fair value of derivative instruments |
|
| 64 |
|
|
| — |
|
|
| 64 |
|
|
| — |
|
Change in fair value of unconsolidated affiliates |
|
| 87 |
|
|
| — |
|
|
| (1,895 | ) |
|
| 4,937 |
|
Change in fair value of convertible notes |
|
| (9,182 | ) |
|
| — |
|
|
| (9,182 | ) |
|
| — |
|
Debt extinguishment loss |
|
| (1,885 | ) |
|
| — |
|
|
| (1,885 | ) |
|
| — |
|
Other (loss) income, net |
|
| (1,574 | ) |
|
| 2,660 |
|
|
| 87 |
|
|
| 2,972 |
|
(Loss) Income before income taxes |
|
| (28,827 | ) |
|
| 115 |
|
|
| (49,678 | ) |
|
| 2,156 |
|
Provision for income taxes |
|
| 69 |
|
|
| 366 |
|
|
| 134 |
|
|
| 82 |
|
Net (loss) income |
| $ | (28,896 | ) |
| $ | (251 | ) |
| $ | (49,812 | ) |
| $ | 2,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income per common share – basic |
| $ | (0.58 | ) |
| $ | (0.01 | ) |
| $ | (1.16 | ) |
| $ | 0.04 |
|
Net (loss) income per common share – diluted |
| $ | (0.58 | ) |
| $ | (0.01 | ) |
| $ | (1.16 | ) |
| $ | 0.04 |
|
Weighted average shares outstanding – basic |
|
| 49,921,209 |
|
|
| 39,621,946 |
|
|
| 43,092,760 |
|
|
| 39,621,946 |
|
Weighted average shares outstanding – diluted |
|
| 49,921,209 |
|
|
| 39,621,946 |
|
|
| 43,092,760 |
|
|
| 40,896,279 |
|
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net service revenue | $ | 5,585 | $ | 10,013 | $ | 22,046 | $ | 27,800 | ||||||||
| Net product revenue | 4,596 | 8,645 | 15,879 | 29,401 | ||||||||||||
| Net revenue from related parties | 722 | 2,316 | 2,396 | 9,321 | ||||||||||||
| Total net revenue | 10,903 | 20,974 | 40,321 | 66,522 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of services (1) | 3,112 | 6,304 | 11,919 | 17,496 | ||||||||||||
| Cost of product revenue (1) | 4,318 | 7,956 | 10,231 | 23,363 | ||||||||||||
| Sales and marketing | 1,117 | 925 | 2,534 | 2,111 | ||||||||||||
| Research and development | 1,260 | 1,400 | 3,386 | 4,227 | ||||||||||||
| General and administrative | 11,359 | 15,969 | 44,498 | 46,332 | ||||||||||||
| Goodwill impairment | 6,748 | — | 6,748 | — | ||||||||||||
| Depreciation and amortization | 318 | 194 | 755 | 614 | ||||||||||||
| Total operating costs and expenses | 28,232 | 32,748 | 80,071 | 94,143 | ||||||||||||
| Operating loss | (17,329 | ) | (11,774 | ) | (39,750 | ) | (27,621 | ) | ||||||||
| Interest expense | (2,087 | ) | (2,568 | ) | (6,878 | ) | (4,685 | ) | ||||||||
| Change in fair value of promissory notes | — | (1,995 | ) | (418 | ) | (4,561 | ) | |||||||||
| Change in fair value of derivative instruments | 4,732 | 64 | 9,042 | 64 | ||||||||||||
| Change in fair value of unconsolidated affiliates | 1,922 | 87 | 984 | (1,895 | ) | |||||||||||
| Change in fair value of convertible notes | (1,250 | ) | (9,182 | ) | 2,044 | (9,182 | ) | |||||||||
| Debt extinguishment gain | — | (1,885 | ) | 63 | (1,885 | ) | ||||||||||
| Other (loss) income, net | (45 | ) | (1,574 | ) | (863 | ) | 87 | |||||||||
| Loss before income taxes | (14,057 | ) | (28,827 | ) | (35,776 | ) | (49,678 | ) | ||||||||
| (Benefit) Provision for income taxes | 178 | 69 | 191 | 134 | ||||||||||||
| Net loss | $ | (14,235 | ) | $ | (28,896 | ) | $ | (35,966 | ) | $ | (49,812 | ) | ||||
| Net loss per common share – basic and diluted | $ | (1.28 | ) | $ | (11.58 | ) | $ | (4.31 | ) | $ | (23.12 | ) | ||||
| Weighted average shares outstanding – basic and diluted | 11,092,559 | 2,496,060 | 8,339,682 | 2,154,638 | ||||||||||||
| (1) | Exclusive of depreciation and amortization shown separately. |
(1)
See the accompanying notes to the unaudited condensed consolidated financial statements
2
Nogin, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Convertible Redeemable Preferred Stock and Stockholders'Stockholders’ Deficit
(In thousands, except share data)
|
| Convertible Redeemable Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Series A |
|
| Series B |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Treasury Stock |
|
| Accumulated Deficit |
|
| Total Stockholders’ Deficit |
| ||||||||||
Balance, December 31, 2020 |
|
| 2,042,483 |
|
| $ | 4,687 |
|
|
| 1,459,462 |
|
| $ | 6,502 |
|
|
| 9,129,358 |
|
| $ | 1 |
|
| $ | 4,308 |
|
| $ | (1,330 | ) |
| $ | (16,197 | ) |
| $ | (13,218 | ) |
Retroactive application of reverse recapitalization (1) |
|
| 6,822,012 |
|
|
| — |
|
|
| 4,874,688 |
|
|
| — |
|
|
| 30,492,588 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Balance, December 31, 2020, as adjusted |
|
| 8,864,495 |
|
|
| 4,687 |
|
|
| 6,334,150 |
|
|
| 6,502 |
|
|
| 39,621,946 |
|
|
| 4 |
|
|
| 4,305 |
|
|
| (1,330 | ) |
|
| (16,197 | ) |
|
| (13,218 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,494 | ) |
|
| (1,494 | ) |
Balance, March 31, 2021 |
|
| 8,864,495 |
|
|
| 4,687 |
|
|
| 6,334,150 |
|
|
| 6,502 |
|
|
| 39,621,946 |
|
|
| 4 |
|
|
| 4,305 |
|
|
| (1,330 | ) |
|
| (17,691 | ) |
|
| (14,712 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
| — |
|
|
| 32 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,819 |
|
|
| 3,819 |
|
Balance, June 30, 2021 |
|
| 8,864,495 |
|
|
| 4,687 |
|
|
| 6,334,150 |
|
|
| 6,502 |
|
|
| 39,621,946 |
|
|
| 4 |
|
|
| 4,337 |
|
|
| (1,330 | ) |
|
| (13,872 | ) |
|
| (10,861 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (251 | ) |
|
| (251 | ) |
Balance, September 30, 2021 |
|
| 8,864,495 |
|
| $ | 4,687 |
|
|
| 6,334,150 |
|
| $ | 6,502 |
|
|
| 39,621,946 |
|
| $ | 4 |
|
| $ | 4,353 |
|
| $ | (1,330 | ) |
| $ | (14,123 | ) |
| $ | (11,096 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance, December 31, 2021 |
|
| 2,042,483 |
|
| $ | 4,687 |
|
|
| 1,459,462 |
|
| $ | 6,502 |
|
|
| 9,129,358 |
|
| $ | 1 |
|
| $ | 4,361 |
|
| $ | (1,330 | ) |
| $ | (16,262 | ) |
| $ | (13,230 | ) |
Retroactive application of reverse recapitalization (1) |
|
| 6,822,012 |
|
|
| — |
|
|
| 4,874,688 |
|
|
| — |
|
|
| 30,492,588 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Balance, December 31, 2021, as adjusted |
|
| 8,864,495 |
|
|
| 4,687 |
|
|
| 6,334,150 |
|
|
| 6,502 |
|
|
| 39,621,946 |
|
|
| 4 |
|
|
| 4,358 |
|
|
| (1,330 | ) |
|
| (16,262 | ) |
|
| (13,230 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| 58 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,942 | ) |
|
| (9,942 | ) |
Balance, March 31, 2022 |
|
| 8,864,495 |
|
|
| 4,687 |
|
|
| 6,334,150 |
|
|
| 6,502 |
|
|
| 39,621,946 |
|
|
| 4 |
|
|
| 4,416 |
|
|
| (1,330 | ) |
|
| (26,204 | ) |
|
| (23,114 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| — |
|
|
| 25 |
|
Warrant issuance |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 713 |
|
|
| — |
|
|
| — |
|
|
| 713 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,973 | ) |
|
| (10,973 | ) |
Balance, June 30, 2022 |
|
| 8,864,495 |
|
|
| 4,687 |
|
|
| 6,334,150 |
|
|
| 6,502 |
|
|
| 39,621,946 |
|
|
| 4 |
|
|
| 5,154 |
|
|
| (1,330 | ) |
|
| (37,177 | ) |
|
| (33,349 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| — |
|
|
| — |
|
|
| 17 |
|
Net settlement of liability classified warrants into common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 202,680 |
|
|
| — |
|
|
| 1,706 |
|
|
| — |
|
|
| — |
|
|
| 1,706 |
|
Net settlement of equity classified warrants into common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 559,051 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercise of stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 199,147 |
|
|
| — |
|
|
| 84 |
|
|
| — |
|
|
| — |
|
|
| 84 |
|
Conversion of redeemable convertible preferred stock to common shares and cancellation of treasury shares |
|
| (8,864,495 | ) |
|
| (4,687 | ) |
|
| (6,334,150 | ) |
|
| (6,502 | ) |
|
| 15,198,645 |
|
|
| 2 |
|
|
| 9,857 |
|
|
| 1,330 |
|
|
| — |
|
|
| 11,189 |
|
Reverse capitalization, net of transaction costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,864,076 |
|
|
| 1 |
|
|
| (8,439 | ) |
|
| — |
|
|
| (13,307 | ) |
|
| (21,745 | ) |
Equity classified warrants issued with PIPE convertible notes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 366 |
|
|
| — |
|
|
| — |
|
|
| 366 |
|
Common stock issued to settle PIPE convertible note issuance costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48,750 |
|
|
| — |
|
|
| 488 |
|
|
| — |
|
|
| — |
|
|
| 488 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,896 | ) |
|
| (28,896 | ) |
Balance, September 30, 2022 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| 66,694,295 |
|
| $ | 7 |
|
| $ | 9,233 |
|
| $ | — |
|
| $ | (79,380 | ) |
| $ | (70,140 | ) |
| Convertible Redeemable Preferred Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Paid-in | Treasury | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 443,224 | 4,687 | 316,707 | 6,502 | 1,981,097 | — | 4,362 | (1,330 | ) | (16,262 | ) | (13,230 | ) | |||||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | 58 | — | — | 58 | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (9,942 | ) | (9,942 | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 443,224 | 4,687 | 316,707 | 6,502 | 1,981,097 | — | 4,420 | $ | (1,330 | ) | $ | (26,204 | ) | $ | (23,114 | ) | ||||||||||||||||||||||||
| Stock-based Compensation | — | — | — | — | — | — | 25 | — | — | 25 | ||||||||||||||||||||||||||||||
| Warrant issuance | — | — | — | — | — | — | 713 | — | — | 713 | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (10,970 | ) | (10,970 | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 443,224 | 4,687 | 316,707 | 6,502 | 1,981,097 | — | 5,158 | $ | (1,330 | ) | $ | (37,174 | ) | $ | (33,346 | ) | ||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | 17 | — | — | 17 | ||||||||||||||||||||||||||||||
| Net settlement of liability classified warrants into common stock | — | — | — | — | 10,134 | — | 1,706 | — | — | 1,706 | ||||||||||||||||||||||||||||||
| Net settlement of equity classified warrants into common stock | — | — | — | — | 27,953 | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | 9,957 | — | 84 | — | — | 84 | ||||||||||||||||||||||||||||||
| Conversion of redeemable convertible preferred stock to common shares and cancellation of treasury shares | (443,224 | ) | (4,687 | ) | (316,707 | ) | (6,502 | ) | 759,931 | — | 9,857 | 1,330 | — | 11,187 | ||||||||||||||||||||||||||
| Reverse capitalization, net of transaction costs | — | — | — | — | 543,204 | — | (8,439 | ) | — | (13,307 | ) | (21,746 | ) | |||||||||||||||||||||||||||
| Equity classified warrants issued with PIPE convertible notes | — | — | — | — | — | — | 366 | — | — | 366 | ||||||||||||||||||||||||||||||
| Common stock issued to settle PIPE convertible note issuance costs | — | — | — | — | 2,438 | — | 488 | — | — | 488 | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (28,896 | ) | (28,896 | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2022 | — | — | — | — | 3,334,714 | — | 9,237 | $ | — | $ | (79,379 | ) | $ | (70,142 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2022 | — | — | — | — | 3,334,714 | — | 9,270 | — | (82,294 | ) | (73,024 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | 253 | — | — | 253 | ||||||||||||||||||||||||||||||
| Fair value of equity classified warrants in common stock | — | — | — | — | — | — | 430 | — | — | 430 | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (9,901 | ) | (9,901 | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2023 | — | $ | — | — | $ | — | 3,334,714 | $ | — | $ | 9,953 | $ | — | $ | (92,195 | ) | $ | (82,242 | ) | |||||||||||||||||||||
| Issuance of common stock | — | — | — | — | 7,699,277 | 1 | 12,526 | — | — | 12,527 | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | 117 | — | — | 117 | ||||||||||||||||||||||||||||||
| Warrant exercise | — | — | — | — | 58,568 | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (11,832 | ) | (11,832 | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2023 | — | $ | — | — | $ | — | 11,092,559 | $ | 1 | $ | 22,596 | $ | — | $ | (104,027 | ) | $ | (81,430 | ) | |||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 195,964 | — | 101 | — | — | 101 | ||||||||||||||||||||||||||||||
| Warrant exercise | — | — | — | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (14,235 | ) | (14,235 | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2023 | — | $ | — | — | $ | — | 11,288,523 | $ | 1 | $ | 22,709 | $ | — | $ | (118,262 | ) | $ | (95,552 | ) | |||||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
3
Nogin, Inc. and Subsidiaries
Unaudited Condensed Consolidated StatementsStatements of Cash Flows
(In thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (49,812 | ) |
| $ | 2,074 |
|
Adjustments to reconcile net (loss) income to net cash used by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 614 |
|
|
| 384 |
|
Amortization of debt issuance costs and discounts |
|
| 2,154 |
|
|
| 42 |
|
Debt issuance costs expensed under fair value option |
|
| 2,034 |
|
|
| — |
|
Amortization of contract acquisition costs |
|
| — |
|
|
| 362 |
|
Stock-based compensation |
|
| 100 |
|
|
| 48 |
|
Deferred income taxes |
|
| 134 |
|
|
| — |
|
Change in fair value of unconsolidated affiliates |
|
| 1,895 |
|
|
| (4,937 | ) |
Change in fair value of warrant liability |
|
| 717 |
|
|
| — |
|
Change in fair value of promissory notes |
|
| 4,561 |
|
|
| — |
|
Change in fair value of convertible notes |
|
| 9,182 |
|
|
| — |
|
Change in fair value of derivatives |
|
| (64 | ) |
|
| — |
|
Loss on extinguishment of debt |
|
| 1,885 |
|
|
| — |
|
Settlement of deferred revenue |
|
| (1,611 | ) |
|
| — |
|
Gain on extinguishment of PPP loan |
|
| — |
|
|
| (2,266 | ) |
Other |
|
| (321 | ) |
|
| 74 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 346 |
|
|
| 1,605 |
|
Related party receivables |
|
| (3,120 | ) |
|
| (4,587 | ) |
Inventory |
|
| 10,257 |
|
|
| (17,935 | ) |
Prepaid expenses and other current assets |
|
| (4,037 | ) |
|
| (1,130 | ) |
Accounts payable |
|
| 1,875 |
|
|
| 10,933 |
|
Due to clients |
|
| (1,617 | ) |
|
| (9,204 | ) |
Related party payables |
|
| 229 |
|
|
| — |
|
Accrued expenses and other liabilities |
|
| (688 | ) |
|
| 1,932 |
|
Net cash used in operating activities |
|
| (25,287 | ) |
|
| (22,605 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (1,744 | ) |
|
| (558 | ) |
Investment in unconsolidated affiliates |
|
| — |
|
|
| (1,500 | ) |
Net cash used in investing activities |
|
| (1,744 | ) |
|
| (2,058 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
| ||
Exercise of stock options |
|
| 84 |
|
|
| — |
|
Proceeds from business combination, net of issuance costs |
|
| 1,375 |
|
|
| — |
|
Proceeds from long-term notes payable |
|
| — |
|
|
| 10,000 |
|
Payment of long-term notes payable |
|
| (20,950 | ) |
|
| — |
|
Proceeds from promissory notes |
|
| 8,000 |
|
|
| — |
|
Proceeds from promissory notes – related parties |
|
| 2,175 |
|
|
| — |
|
Payment of promissory notes |
|
| (12,033 | ) |
|
| — |
|
Payment of promissory notes – related parties |
|
| (3,130 | ) |
|
| — |
|
Payment of debt issuance costs |
|
| (397 | ) |
|
| (125 | ) |
Proceeds from PIPE convertible note issuance |
|
| 65,500 |
|
|
| — |
|
Prepayment and other fees paid upon early settlement of debt |
|
| (489 | ) |
|
| — |
|
Proceeds from line of credit |
|
| 114,981 |
|
|
| 121,251 |
|
Repayments of line of credit |
|
| (115,329 | ) |
|
| (116,251 | ) |
Net cash provided by financing activities |
|
| 39,787 |
|
|
| 14,875 |
|
NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH |
|
| 12,756 |
|
|
| (9,788 | ) |
Beginning of period |
|
| 4,571 |
|
|
| 16,168 |
|
End of period |
| $ | 17,327 |
|
| $ | 6,380 |
|
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (35,966 | ) | $ | (49,812 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation and amortization | 755 | 614 | ||||||
| Amortization of debt issuance costs and discounts | 3,154 | 2,154 | ||||||
| Debt issuance costs expensed under fair value option | 554 | 2,034 | ||||||
| Stock-based compensation | 472 | 100 | ||||||
| Deferred income taxes | 191 | 134 | ||||||
| Change in fair value of unconsolidated affiliates | (984 | ) | 1,895 | |||||
| Change in fair value of warrant liability | (8,471 | ) | 717 | |||||
| Change in fair value of promissory notes | 981 | 4,561 | ||||||
| Change in fair value of convertible notes | (2,044 | ) | 9,182 | |||||
| Change in fair value of derivatives | (847 | ) | (64 | ) | ||||
| Loss on extinguishment of debt | — | 1,885 | ||||||
| Settlement of deferred revenue | — | (1,611 | ) | |||||
| Gain on extinguishment of accounts payable liabilities | (63 | ) | — | |||||
| Gain on disposal of asset | (1 | ) | — | |||||
| Goodwill impairment | 6,748 | — | ||||||
| Other | (3 | ) | (321 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,335 | ) | 346 | |||||
| Related party receivables | — | (3,120 | ) | |||||
| Inventory | 6,352 | 10,257 | ||||||
| Prepaid expenses and other current assets | 3,090 | (4,037 | ) | |||||
| Other non-current assets | 85 | — | ||||||
| Accounts payable | (2,213 | ) | 1,875 | |||||
| Due to clients | (5,335 | ) | (1,617 | ) | ||||
| Related party payables | (102 | ) | 229 | |||||
| Lease assets and liabilities | (369 | ) | — | |||||
| Accrued expenses and other liabilities | (407 | ) | (688 | ) | ||||
| Net cash used in operating activities | (35,758 | ) | (25,287 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (773 | ) | (1,744 | ) | ||||
| Proceeds from sale of property and equipment | 4 | — | ||||||
| Net cash used in investing activities | (769 | ) | (1,744 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Exercise of stock options | — | 84 | ||||||
| Proceeds from issuance of April 2023 Offering | 22,000 | — | ||||||
| Payment of issuance costs for April 2023 Offering | (1,291 | ) | — | |||||
| Proceeds from business combination, net of issuance costs | 12 | 1,375 | ||||||
| Payment of long-term note payable | — | (20,950 | ) | |||||
| Proceeds from short-term loans | 8,192 | — | ||||||
| Payment of short-term loans | (2,525 | ) | — | |||||
| Proceeds from promissory notes | — | 8,000 | ||||||
| Proceeds from promissory notes – related parties | — | 2,175 | ||||||
| Payment of promissory notes | (3,478 | ) | (12,033 | ) | ||||
| Payment of promissory notes – related parties | (106 | ) | (3,130 | ) | ||||
| Payment of debt issuance costs | 223 | (397 | ) | |||||
| Proceeds from PIPE convertible note issuance | — | 65,500 | ||||||
| Prepayment and other fees paid upon early settlement of debt | — | (489 | ) | |||||
| Proceeds from line of credit | — | 114,981 | ||||||
| Repayments of line of credit | — | (115,329 | ) | |||||
| Net cash provided by financing activities | 23,027 | 39,787 | ||||||
| NET DECREASE IN CASH AND RESTRICTED CASH | (13,500 | ) | 12,756 | |||||
| Beginning of period | 15,385 | 4,571 | ||||||
| End of period | $ | 1,885 | $ | 17,327 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | 1,410 | $ | 2,231 | ||||
| Cash paid for taxes | 126 | 210 | ||||||
| Right-of-use assets exchanged for lease liabilities | 1,173 | — | ||||||
| Noncash Investing and Financing Activities | ||||||||
| Issuance of warrants with debt | $ | 1,483 | — | |||||
| Promissory Note Issuance (Default Interest) | 4,649 | — | ||||||
| Issuance of note to extinguish accounts payable | 1,933 | — | ||||||
| Issuance of common stock to settle transaction and advisory costs | — | 3,588 | ||||||
| Deferred transaction and advisory fees | — | 10,979 | ||||||
| Cash election consideration payable at closing of Business Combination | — | 9,198 | ||||||
| Conversion of redeemable convertible preferred stock into common stock | — | 11,189 | ||||||
| Net settlement of liability classified warrants | — | 1,706 | ||||||
| SCHEDULE OF CASH AND RESTRICTED CASH | ||||||||
| Cash | $ | 1,885 | $ | 15,827 | ||||
| Restricted cash | — | 1,500 | ||||||
| Total cash and restricted cash | $ | 1,885 | $ | 17,327 | ||||
4
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
SUPPLEMENTAL CASH FLOW INFORMATION |
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Cash paid for interest |
| $ | 2,231 |
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| $ | 49 |
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Cash paid for taxes |
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| 210 |
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|
| — |
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Non Cash Investing and Financing Activities |
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Issuance of common stock to settle transaction and advisory costs |
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| 3,588 |
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|
| — |
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Deferred transaction and advisory fees |
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| 10,979 |
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|
| — |
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Cash election consideration payable at closing of Business Combination |
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| 9,198 |
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|
| — |
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Conversion of redeemable convertible preferred stock into common stock |
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| 11,189 |
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|
| — |
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Net settlement of liability classified warrants |
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| 1,706 |
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| — |
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SCHEDULE OF CASH AND RESTRICTED CASH |
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Cash |
| $ | 15,827 |
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| $ | 4,380 |
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Restricted cash |
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| 1,500 |
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|
| 2,000 |
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Total cash and restricted cash |
| $ | 17,327 |
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| $ | 6,380 |
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See the accompanying notes to the unaudited condensed consolidated financial statements
5
Nogin, Inc. and Subsidiaries
Note to Unaudited Condensed Consolidated Financial Statements
| 1. | DESCRIPTION OF BUSINESS |
1.
Nogin, (theInc. (together with its subsidiaries, the “Company” or “Nogin”) is an e-commerce, technology platform provider that delivers Commerce-as-a-Service (“CaaS”) solutions as a headless, flexible full stack enterprise commerce platform with cloud services and optimizations along with experts for brands and retailers that provide a unique combination of customizability and sales efficiency. The Company manages clients’ front-to-back-end operationsso clients can focus on their business. The Company’s business model is based on providing a comprehensive e-commerce solution to its customers on a revenue sharing basis. Unless the context otherwise requires, references in this subsection to “we,” “our,” “Nogin” and the “Company” refer to the business and operations of Legacy Nogin (as defined below) and its consolidated subsidiaries prior to the Business Combination (as defined below) and to Nogin, Inc. (formerly known as Software Acquisition Group Inc. III) and its consolidated subsidiaries following the consummation of the Business Combination.
The Company’s headquarters and principal place of business are in Tustin, California.
Reverse Stock Split
On March 18, 2023, the Company’s Board of Directors (the “Board”) approved a one-for-twenty reverse stock split of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). The reverse stock split became effective upon filing of a certificate of amendment to the Company’s second amended and restated certificate of incorporation on March 28, 2023. Upon the effectiveness of the reverse stock split, (i) every twenty shares of outstanding Common Stock were reclassified and combined into one share of Common Stock and (ii) the number of Common Stock for which each outstanding option and warrant to purchase Common Stock is exercisable was proportionately decreased and the exercise price per share of Common Stock of each outstanding option and warrant to purchase Common Stock was proportionately increased. No fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of Common Stock and the par value per share of Common Stock did not change as a result of the reverse stock split. Accordingly, all share and per share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and exercise price of each outstanding option and warrant as if the transaction had occurred as of the beginning of the earliest period presented.
Business Combination
On August 26, 2022 (the “Closing Date”), the Company completed its previously announced Business Combination pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of February 14, 2022 (as amended on April 19, 2022 and August 26, 2022), by and among the Company (formerly known as Software Acquisition Group Inc. III (“SWAG”)), Nuevo Merger Sub, Inc., a wholly owned subsidiary of SWAG (“Merger Sub”), and Branded Online, Inc. dba Nogin (“Legacy Nogin”). Pursuant to the Merger Agreement, Merger Sub was merged with and into Legacy Nogin, with Legacy Nogin surviving the Business Combination as a wholly owned subsidiary of the Company (the “Business Combination” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”).
While Legacy Nogin became a wholly-owned subsidiary of the Company, Legacy Nogin was deemed to be the acquirer in the Business Combination for accounting purposes. Accordingly, the Business Combination was accounted for as a reverse recapitalization, in which case the condensed consolidated financial statements of the Company represent a continuation of Legacy Nogin and the issuance of common stock and cash consideration in exchange for the net assets of SWAG recognized at historical costs and no recognition of goodwill or other intangible assets. Operations prior to the Business Combination are those of Legacy Nogin and all share and per-share data included in these condensed consolidated financial statements have been retroactively adjusted to give effect to the Business Combination.
As a result of the Business Combination, equityholdersequity holders of Legacy Nogin received approximately 54.32.7 million shares of the Company’s common stock (“Common Stock”)Stock and cash consideration of $15.0$15.0 million, of which $10.9$10.9 million was deferred on the Closing Date (Note 9).
The treatment of the Business Combination as a reverse recapitalization was based on the stockholders of Legacy Nogin holding the majority of voting interests of the Company, Legacy Nogin’s existing management team serving primarily as the initial management team of the Company, Legacy Nogin’s appointment of the majority of the initial board of directors of the Company and Legacy Nogin’s operations comprising the ongoing operations of the Company.
In connection with the Business Combination, the Company received proceeds of approximately $58.8$58.8 million from SWAG’s trust account, net of redemptions by SWAG’s public shareholders, as well as approximately $65.5$65.5 million in proceeds from the contemporaneous issuance of convertible notes7.00% Convertible Senior Notes due 2026 (the “Convertible Notes”). The aggregate cash raised has been and will be used for general business purposes, the paydown of Legacy Nogin’s outstanding debt, the payment of transaction costs and the payment of the cash consideration.
The following table reconciles the elements of the Business Combination to the condensed consolidated statements of cash flows and the condensed consolidated statements of convertible redeemable preferred stock and stockholders’ deficit for the nine months ended September 30, 2022:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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The number of shares of Common Stock outstanding immediately following the consummation of the Business Combination was as follows:
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Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”).SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Consolidated Financial Statements for the year ended December 31, 2021, which are included in the Company’s registration statement on Form S-1 filed with the SEC on September 16, 2022. The interim results for the nine months ended September 30, 20222023, are not necessarily indicative of the results to be expected for the period ending December 31, 2022,2023, or for any future annual or interim periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
Liquidity and Capital Resources
Liquidity
Our primary requirements for short-term liquidity and capital are working capital, inventory management, capital expenditures, public company costs and general corporate needs. We expect these needs to continue as we develop and grow our business. Our future capital requirements will depend on many factors, including our levels of revenue, the expansion of sales and marketing activities, successful customer acquisitions, the results of business initiatives, the timing of new product introductions and overall economic conditions.
Prior to the Business Combination, the Company’s available liquidity and operations were financed through equity contributions, a line of credit, promissory notes and cash flow from operations. Subsequent to the Business Combination,Moving forward, the Company expects to fund operations through equity contributions and cash flow from operations.
In the third quarter of 2022, the impacts from the Company's inventory purchases, which began in 2021, were adversely affected by supply chain challenges which have led to lower revenue and cash flow from operating activities. To address the resulting cash flow challenges, the Company has implemented a comprehensive cost reduction and performance improvement program, including reduced headcount and elimination of certain discretionary and general and administrative expenses.
As of September 30, 2022, we had cash and restricted cash of $15.8 million and $1.5 million, respectively, which consists of amounts held as bank deposits. The Company believes its existing cash and restricted cash, together with the cash we expect to generate from
7
future operations, will be sufficient to support working capital and capital expenditure requirements for at least the next twelve months. The Company believes it has the ability to continue as a going concern. However, becauseBecause we are in the growth stage of our business and operate in an emerging field of technology, we expect to continue to invest in research and development and expand our sales and marketing teams worldwide. We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
The accompanying consolidated financial statements as of and for the nine months ended September 30, 2023, have been prepared assuming the Company will continue as a going concern. The Company has sustained recurring losses, negative working capital and negative cash flows from operations and had a cash balance of $1.9 million as of September 30, 2023. In particular,addition, the widespread COVID-19 pandemic has resultedCompany did not meet its financial covenants during the September 30, 2023, reporting period, and is in discussions with its convertible noteholders with respect to future activities and may continue to result in, significant disruption of global financial markets, reducingoutcomes. These conditions provide substantial doubt about our ability to access capital. If wecontinue as a going concern for at least twelve months from the date that these consolidated financial statements are unableissued.
On April 6, 2023, the Company consummated the April 2023 Offering and received gross proceeds of approximately $22 million in connection with the offering before deducting placement agent fees and other offering expenses.
In addition, the Company is currently executing on various strategies to raise additional fundsimprove available cash balances, liquidity and cash generated from operations, including strategic growth plans, ongoing comprehensive cost reduction and performance improvement programs, reduced headcount and elimination of certain discretionary and general and administrative expenses, and taking steps to improve the operational efficiency of our fulfillment operations. However, our failure to obtain financing as and when or on the terms desired,needed could have significant negative consequences for our business, financial condition, and results of operations could be adversely affected.
COVID-19 Pandemic
In March 2020,operations. Our future capital requirements and the World Health Organization declared the COVID-19 outbreak a pandemic. At the onsetadequacy of COVID-19, the Company anticipated an impact to the business, its financial conditions and results of operations. The Company applied for and was granted a Paycheck Protection Plan (“PPP”) loan. In addition, the Company has taken a number of actions to mitigate the impacts of the COVID-19 pandemic on its business. The Company witnessed a large shift in consumer spending from retail stores to online stores, and as a result, there were no significant declines in revenue for the periods presented. However, the impacts of the COVID-19 pandemicavailable funds will depend on future developments, including the duration and spreadmany factors, many of the pandemic. These developments and the impacts of the COVID-19 pandemic on the financial markets and overall economywhich are highly uncertain and cannot be predicted.beyond our control.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. The Company prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions. Significant estimates and assumptions reflected in the financial statements include, but are not limited to, the allowance for credit losses and revenue recognition, including variable consideration for estimated reserves for returns and other allowances.allowances, forecasts and other assumptions used in valuations. Management bases its estimates on historical experience and on assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgementsjudgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Accounts Receivable, Net
The allowance for doubtful accountscredit losses was $425$288 thousand as of September 30, 20222023, and $406$425 thousand as of December 31, 2021.2022.
Inventory
Inventory is comprised entirely of finished goods for resale. The reserve for returns was $326$45 thousand as of September 30, 20222023, and $532$535 thousand as of December 31, 2021.2022.
Concentration of Risks
Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, restricted cash and accounts receivables. The Company maintains cash balances at financial institutions. Amounts on deposit at these institutions are secured by the Federal Deposit Insurance Corporation (“FDIC”). At various times, the Company has had bank deposits in excess of the FDIC'sFDIC’s insurance limit. The Company has not experienced any losses in its cash accounts to date. Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
The Company performs ongoing credit evaluations of its customers and generally does not require collateral. As of September 30, 2023, receivables from two customers amounted to $320 thousand (or 14% of accounts receivable) and $207 thousand (or 9% of accounts receivable), respectively. As of December 31, 2022, receivables from two customers amounted to $0.7 million$771 thousand (or 8%44% of accounts receivable) and $7.7 million$153 thousand (or 80%9% of accounts receivable). As of December 31, 2021, receivables, respectively.
Major Customers
For the nine months ended September 30, 2023, revenue from twoour top three customers amounted to $1.1$7.4 million (or 15%18% of accounts receivable) and $5.4total revenue), $4.2 million (or 73%10% of accounts receivable).
Major Customers
total revenue), and $2.1 million (or 5% of total revenue), respectively. For the nine months ended September 30, 2022, revenue from our top three customers amounted to $21.3$21.3 million (or 32%32% of total revenue), $9.6$9.6 million (or 14%14% of total revenue), and $6.2$6.2 million (or 9% of total revenue). For the nine months ended September 30, 2021, revenue from three customer amounted to $14.1 million (or 25%9% of total revenue), $10.8 million (or 19% of total revenue), and $7.1 million (or 13% of total revenue).respectively.
Major Suppliers
For the nine months ended September 30, 2022,2023, our top three vendors accounted for $8.0operating expense of $4.5 million (or 12%10% of total operating expense
8
purchases), $6.8$2.4 million (or 10%5% of total operating expense purchases) and $6.3$2.0 million (or 9%4% of total operating expense purchases)., respectively. For the nine months ended September 30, 2021,2022, our top three vendors accounted for $5.5operating expense of $8.0 million (or 17%12% of total operating expense purchases), $4.0$6.8 million (or 13%10% of total operating expense purchases) and $2.8$6.3 million (or 9%9% of total operating expense purchases)., respectively.
Right-of-use Assets and Lease Liabilities
On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-02 and all subsequent amendments, collectively codified in ASC Topic 842, “Leases” (“ASC 842”), using the current period adjustment method. Accordingly, comparative period financial information was not restated for the effects of adopting ASC 842.
The significant practical expedients we adopted include the following:
| ● | We elected the practical expedient to apply the transition approach as of the beginning of the period of adoption and not restate comparative periods; |
| ● | We elected to utilize the “package of three” expedients, as defined in ASC 842, whereby we did not reassess whether contracts existing prior to the effective date contain leases, nor did we reassess lease classification determinations nor whether initial direct costs qualify for capitalization; |
| ● | We elected the practical expedient to not capitalize any leases with initial terms of twelve months or less on our consolidated balance sheet; |
| ● | For all underlying classes of leased assets, we elected the practical expedient to not separate lease and non-lease components; and |
| ● | We elected not to use hindsight in determining the lease term for lease contracts that have historically been renewed or amended. |
As of the date of adoption on January 1, 2022, the impact of ASC 842 resulted in the recognition of a right-of-use asset (“ROU asset”) and lease liability for our operating leases on our consolidated balance sheets of approximately $13.0 million and $15.1 million, respectively.
Lease liabilities were recognized based on the present value of remaining lease payments over the remaining lease term. ROU assets were recognized utilizing the lease liability as of January 1, 2022, adjusted for deferred rent recorded as under ASC 840 operating lease related balances. As the Company’s operating lease agreements do not provide a rate implicit in the lease, we discounted the remaining lease payments using an estimated incremental borrowing rate, which was based on the information available at the adoption date. Operating lease cost is recognized on a straight-line basis over the lease term. Variable lease costs such as common area costs and other operating costs are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The adoption of this new guidance did not have a material net impact on the Company’s consolidated statements of operations or consolidated statements of cash flows.
Our operating leases primarily consist of office space, distribution centers and equipment used within our operations. Most of the leases have lease terms ranging from three to eight years, although the terms and conditions of our leases can vary significantly from lease to lease.
Long-lived Assets
There was no impairment of long-lived assets at September 30, 2023 and December 31, 2022.
Goodwill
Given the Company’s constrained liquidity and working capital, the Company has been unable to execute certain obligations which have raised substantial doubt regarding the future viability of the affected assets and their operations. The Company performed a quantitative impairment analysis as of September 30, 2023, and recognized an impairment of goodwill of $6.7 million at September 30, 2023. There was no impairment of goodwill at December 31, 2022.
Intangibles
Intangible assets include acquired technology, trade names and other intangibles. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the asset, which range from five to fifteen years. Indefinite lived assets such as trade names are expected to generate cash flows indefinitely. Consequently, these assets were classified as indefinite-lived intangibles and accordingly are not amortized but reviewed for impairment annually, or sooner under certain circumstances. There was no impairment of indefinite-lived assets at September 30, 2023 and December 31, 2022.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480 and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares of common stock,Common Stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter until settlement. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed statements of operations.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC Topic 740, “Income Taxes” (ASC 740). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2022.2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since its inception.
Revenue Recognition
Revenue is accounted for using Financial Accounting Standards Board (“FASB”)FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.
In accordance with ASC Topic 606, the Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer, |
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| ● | Identification of the performance obligations in the contract, |
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| ● | Determination of the transaction price, |
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| ● | Allocation of the transaction price to the performance obligations in the contract, and |
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| ● | Recognition of revenue when or as the performance obligations are satisfied. |
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A performance obligation is a promise in a contract to transfer a distinct product. Performance obligations promised in a contract are identified based on the goods that will be transferred that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. Performance obligations include establishing and maintaining customer online stores, providing access to the Company’s e-commerce platform, customer service support, photography services, warehousing, and fulfillment. Most of the contracts of the Company with customers contain multiple promises, which may result in multiple performance obligations, while others are combined into one performance obligation. For contracts with customers, the Company accounts for individual promises separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone
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selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors.
The Company has concluded the sale of goods and related shipping and handling on behalf of our customers are accounted for as a single performance obligation, while the expenses incurred for actual shipping charges are included in cost of sales.
The Company’s revenue is mainly commission fees derived from contractually committed gross revenue processed by customers on the Company'sCompany’s e-commerce platform. The Company is acting as an agent in these arrangements and customers do not have the contractual right to take possession of the Company'sCompany’s software. Revenue is recognized in an amount that reflects the consideration that the Company expects to ultimately receive in exchange for those promised goods, net of expected discounts for sales promotions and customary allowances.
CaaS Revenuerevenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged primarily in an agency relationship with its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers'customers’ inventory or any credit risks relating to the products sold.
Variable consideration is included in revenue for potential product returns. The Company uses an estimate to constrain revenue for the expected variable consideration at each period end. The Company reviews and updates its estimates and related accruals of variable consideration each period based on the terms of the agreements, historical experience, and expected levels of returns. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe therefore not requiring any additional constraint on the variable consideration. The estimated reserve for returns is included on the balance sheet in accrued expenses with changes to the reserve in revenue on the accompanying statement of operations. The reserve for returns as of September 30, 20222023, was $0.7$0.3 million and as of December 31, 20212022 was $$1.4 million.1.8
million.
In most cases the Company acts as the merchant of record, resulting in a due to client liability (discussed below). However, in some instances, the Company may perform services without being the merchant of record in which case there is a receivable from the customer.
Payment terms and conditions are generally consistent for customers, including credit terms to customers ranging from seven days to 60 days, and the Company’s contracts do not include any significant financing component. The Company performs credit evaluations of customers and evaluates the need for allowances for potential credit losses based on historical experience, as well as current and expected general economic conditions.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net revenue in the condensed consolidated statements of operations.
Commerce as a Service
Commerce-as-a-Service
As noted above, the Company’s main revenue stream is CaaS revenue in which it receives commission fees derived from contractually committed gross revenue processed by customers on the Company'sCompany’s e-commerce platform. Consideration for online sales is collected directly from the end customer by the Company and amounts not owed to the Company are remitted to the customer. Revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged in an agency relationship with its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers'customers’ inventory or any credit risks relating to the products sold.
Product sales
Under twocertain licensee agreements, the Company is the owner of inventory and reseller of record. As a result, the Company is the principal in sales to end customers and records these revenues on a gross basis at a point in time.
Fulfillment services
Revenue for business-to-business (“B2B”) fulfillment services is recognized on a gross basis either at a point in time or over a point in time. For example, inbound and outbound services are recognized when the service is complete, while monthly storage services are recognized over the service period.
Marketing services
Revenue for marketing services is recognized on a gross basis as marketing services are complete. Performance obligations include providing marketing and program management such as procurement and implementation.
Shipping services
Revenue for shipping services is recognized on a gross basis as shipments are completed and products are shipped to end customers.
Set up and implementation services
The Company provides set up and implementation services for new clients. The revenue is recognized on a gross basis at the
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completion of the service, with the unearned amounts received for incomplete services recorded as deferred revenue, if any.
Other services
Revenue for other services such as photography, business to customer (“B2C”) fulfillment, customer service, development and web design are reimbursable costs and recognized on the gross basis, and are services rendered as part of the performance obligations to clients for which an online platform and online orders are managed. All reimbursable costs are the responsibility of the Company as the Company uses such services to fulfill its performance obligations.
Cost of services
Cost of services reflects costs directly related to providing services under the master service agreements with customers, which primarily includes service provider costs directly related to processing revenue transactions, marketing expenses and shipping and handling expenses which correspond to marketing and shipping revenues, as well as credit card merchant fees. Cost of services is exclusive of depreciation and amortization and general salaries and related expenses.
Cost of product revenue
Cost of product revenue reflects costs directly related to selling inventory acquired from select clients, which primarily includes product cost, warehousing costs, fulfillment costs, credit card merchant fees and third-party royalty costs. Cost of product revenue is exclusive of depreciation and amortization and general salaries and related expenses.
Due to Clients
Due to clients consists of amounts payable to clients pertaining to the client’s last month pro rata shares of revenue earned and collected by the Company, less any returns and any expenses incurred by the Company on behalf of the clients. In most cases, the Company acts as the merchant and seller of record and thus directly collects the funds from sales on the online store. As such, at the end of each month, there is an amount owed to the Company’s clients in net of the Company’s fees, and expenses incurred on the client’s behalf.
Fair Value Measurement
The Company applies the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.
The Company applies the provisions of ASC 820 to all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
The Company defines fair value as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. |
In determining fair value, the Company utilized valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counter party credit risk and nonperformance risk in its assessment of fair value.
The carrying value of the Company’s short-term financial instruments, such as cash and cash equivalents, restricted cash, accounts receivable, notes payable, and accounts payable, approximate the fair value due to the immediate or short-term maturity of these instruments. The carrying value of the Company’s long-term debt approximates fair value as the interest rate on the Company’s secured credit facility and certain other debt has a variable component, which is reflective of the market.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842), a comprehensive new lease recognition standard which will supersede previous existing lease recognition guidance. Under the standard, lessees will need to recognize a right-of use asset and a lease liability for leases with terms greater than twelve months. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, leases will be required to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). The standard is effective for fiscal periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022 and requires a modified retrospective adoption. The Company is currently evaluating the impact the adoption of this standard will have on the financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses” (Topic 326). The FASB issued this update to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the existing guidance of incurred loss impairment methodology with an approach that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” which clarifies the scope of guidance in the ASU 2016-13. The updated guidanceThis update is effective for interim and annual periods beginning after December 15, 2022, and interim periods within fiscal years beginning after December 15, 2023.with amendments generally applied prospectively. The Company is currently evaluating the impact the adoption ofadopted this standard will have on the financial statements.
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 isupdate effective for the Company beginning January 1, 2022. The Company has adopted this guidance2023, and there wasit did not have a material impact on the financial statements.
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which improves Convertible Instruments and Contracts in an Entity’s Own Equity and is expected to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.
The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. ASU 2020-06 is effective for the Company beginning January 1, 2024, with early adoption permitted as of January 1, 2021. The Company early adopted the provisions of ASU 2020-06 effective January 1, 2022. There was no impact to the Company’s financial statements as a result of adoption.
Other recently issued accounting standards are not expected to have a material effect on the Company'sCompany’s financial statements.
11
| 3. | PROPERTY AND EQUIPMENT |
Property and equipment, net as of September 30, 20222023, and December 31, 2021,2022, consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| September 30, 2023 | December 31, 2022 | ||||||||
Furniture and equipment |
| $ | 3,880 |
|
| $ | 2,160 |
| $ | 3,154 | $ | 2,406 | ||||
Leasehold Improvements |
|
| 536 |
|
|
| 536 |
| ||||||||
Property, plant, and equipment, gross |
|
| 4,416 |
|
|
| 2,696 |
| ||||||||
| Leasehold improvements | 572 | 572 | ||||||||||||||
| Property and equipment, gross | 3,726 | 2,978 | ||||||||||||||
Less accumulated depreciation |
|
| (1,336 | ) |
|
| (907 | ) | (1,854 | ) | (1,383 | ) | ||||
Property and equipment, net |
| $ | 3,080 |
|
| $ | 1,789 |
| $ | 1,872 | $ | 1,595 | ||||
Depreciation expense for property and equipment for the nine months ended September 30, 2023 and 2022 and 2021 was $445$493 thousand and $348$441 thousand, respectively.
The Company entered into a three-year
| 4. | GOODWILL AND INTANGIBLE ASSETS |
master service agreement with a new customer for a $2.0 million contract acquisition fee on July 16, 2018. The agreement resulted in the acquisition of nine new contracts with different companies and brands. The cost is amortized over a three-year period, which ended in 2021.
In connection with the BetabrandModCloth acquisition (Note 11)13), the Company recorded $6.7 million of goodwill. Given the company’s constrained liquidity and working capital, the company has been unable to execute certain obligations which have raised substantial doubt regarding the future viability of the affected assets and their operations. The Company performed a quantitative impairment analysis as of September 30, 2023 and recognized a full impairment of $6.7 million at of September 30, 2023.
In connection with the BTB (ABC), LLC (“Betabrand”) acquisition, the Company’s amortization expense for capitalized software for the nine months ended September 30, 2023 and 2022 and 2021 was $169$164 thousand and $36$169 thousand, respectively.
As of September 30, 20222023 and December 31, 2021,2022, intangible assets consist of the following (in thousands):
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Contract acquisition cost |
| $ | 2,000 |
|
| $ | 2,000 |
|
Software |
|
| 1,175 |
|
|
| 1,174 |
|
|
|
| 3,175 |
|
|
| 3,174 |
|
Less: Accumulated amortization |
|
| (2,236 | ) |
|
| (2,062 | ) |
Intangible assets-net |
| $ | 939 |
|
| $ | 1,112 |
|
| September 30, 2023 | December 31, 2022 | |||||||
| Software | $ | 1,166 | $ | 1,166 | ||||
| Trade Name | 4,617 | 4,617 | ||||||
| 5,783 | 5,783 | |||||||
| Less: Accumulated amortization | (525 | ) | (290 | ) | ||||
| Intangible assets-net | $ | 5,258 | $ | 5,493 | ||||
As of September 30, 2023, the Company’s amortization of intangibles for the next five years are as follows (in thousands):
| 2023 (remaining) | $ | 55 | ||
| 2024 | 219 | |||
| 2025 | 219 | |||
| 2026 | 219 | |||
| 2027 | — | |||
| Total remaining intangible amortization | $ | 712 |
| 5. | INVESTMENT IN UNCONSOLIDATED AFFILIATES |
5.
On April 6, 2021, the Company and Tiger Capital Group, LLC (“Tiger Capital”) formed a joint venture, ModclothModCloth Partners, LLC.LLC (“Modcloth”ModCloth”). The Company and Tiger Capital each contributed $1.5$1.5 million into ModclothModCloth and the Company will own 50%owned 50% of the outstanding membership units. Tiger Capital will provideprovided the financing for the inventory, while the Company entered into a Master Services Agreement (“MSA”) with ModclothModCloth to provide the eCommercee-commerce services (see Note 12)14). The Company accountsaccounted for its investment in ModCloth under the fair value option of accounting. As
On December 1, 2022, Tiger Capital assigned its interest in ModCloth to the Company for $1.5 million, at which point ModCloth became a wholly-owned subsidiary of September 30, 2022 and December 31, 2021, the investmentCompany. In addition, the Company paid the remaining balance related to ModCloth was $4.5of approximately $1 million and $6.4 million, respectively, and was included in investment in unconsolidated affiliates on the condensed consolidated balance sheets. For the nine months ended September 30, 2022, the Company recorded a fair value adjustment related to itsinventory financing arrangement between ModCloth investment of $and Tiger Capital (Note 13).1.9
million included in changes in fair value of unconsolidated affiliates on the condensed consolidated statements of operations.
On December 31, 2021, the Company and CFL Delaware, Inc. (“CFL”) formed a joint venture, IPCO, whereby Nogin contributed certain assets acquired from the BTB (ABC), LLC (“Betabrand”)Betabrand acquisition (see Note 11) and entered into a MSAMaster Services Agreement with IPCO to provide certain eCommercee-commerce services, marketing, photography, customer service and merchant credit card monitor fraud services (Note 12); and14). Also, CFL entered into a Master Supply Agreement with IPCO and agreed to procure the supply of inventory to IPCO, provide manufacturing, fulfillment, logistics and warehousing services for the inventory. The Company accounts for its investment in IPCO under the fair value option of accounting. As of September 30, 20222023, and December 31, 2021,2022, the investment balance related to IPCO was $7.2$8.4 million and $7.1$7.4 million, respectively, and was included in investment in unconsolidated affiliates on the condensed consolidated balance sheets. For the nine months ended September 30, 2022, the Company recorded $1.6a loss of $1.6 million to other income, netexpenses related to the settlement of deferred revenue related to sale of finished inventory to IPCO. In addition, the Company recorded a fair value adjustment related to its IPCO investment of $45$984 thousand gain and $45 thousand loss for the nine months ended September 30, 2023, and September 30, 2022, respectively, included in changes in fair value of unconsolidated affiliates on the condensed consolidated statement of operations for the nine months ended September 30, 2022.operations.
12
The following table presents summarized financial information for the joint venturesventure for the three and nine months ended September 30, 2023 and 2022, and as of September 30, 20222023 and December 31, 20212022 (in thousands):
|
| Modcloth |
|
| IPCO |
| ||||||||||
|
| Nine months ended |
|
| Three months ended |
|
| Nine months ended |
|
| Three months ended |
| ||||
|
| September 30, 2022 |
|
| September 30, 2022 |
|
| September 30, 2022 |
|
| September 30, 2022 |
| ||||
Net revenue |
| $ | 12,172 |
|
| $ | 2,822 |
|
| $ | 18,558 |
|
| $ | 4,991 |
|
Gross margin |
|
| 5,242 |
|
|
| 1,245 |
|
|
| 14,190 |
|
|
| 3,943 |
|
Net loss |
|
| (3,642 | ) |
|
| (1,111 | ) |
|
| (1,767 | ) |
|
| (461 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Modcloth |
|
| IPCO |
| ||||||||||
|
| As of September 30, 2022 |
|
| As of December 31, 2021 |
|
| As of September 30, 2022 |
|
| As of December 31, 2021 |
| ||||
Current assets |
| $ | 3,878 |
|
| $ | 5,009 |
|
| $ | 3,759 |
|
| $ | 2,596 |
|
Long term assets |
|
| 6,202 |
|
|
| 6,303 |
|
|
| 5,672 |
|
|
| 6,130 |
|
Current liabilities |
|
| 13,379 |
|
|
| 8,539 |
|
|
| 7,300 |
|
|
| 1,699 |
|
Long term liabilities |
|
| 3,292 |
|
|
| 5,698 |
|
|
| — |
|
|
| — |
|
| IPCO | ||||||||
| For the Nine Months Ended September 30, | For The Nine Months Ended September 30, | |||||||
| 2023 | 2022 | |||||||
| Net revenue | $ | 7,383 | $ | 18,558 | ||||
| Gross margin | 5,025 | 14,190 | ||||||
| Net loss | (2,673 | ) | (1,767 | ) | ||||
| IPCO | ||||||||
| As of September 30, 2023 | As of December 31, 2022 | |||||||
| Current assets | $ | 3,527 | $ | 4,254 | ||||
| Long term assets | 5,062 | 5,509 | ||||||
| Current liabilities | 5,903 | 6,142 | ||||||
| Long term liabilities | 2,847 | 1,032 | ||||||
The Company’s ModCloth and IPCO investments are Level 3 fair value measurement.measurements. The Company utilized the following valuation methods to conclude on the fair value as of September 30, 2022:2023:
- Discounted Cash Flow
| - | Discounted Cash Flow– The key unobservable input utilized was a discount rate of 17.9% for IPCO. |
– The key unobservable input utilized was a discount rate of 17.4% for Modcloth and 19.0% for IPCO.
| - | Guideline Public Company Method – The Company utilized a revenue multiple of 1.00x for IPCO on current period forecasted revenues. The revenue multiple was derived from public peers of IPCO. |
| - | Guideline Transaction Method – The Company utilized a revenue multiple of 1.15x for IPCO on current period forecasted revenues. The revenue multiple was derived from public transactions in which the target companies were similar to IPCO. |
Guideline Public Company Method – The Company utilized a revenue multiple of 0.78x for Modcloth and 0.28x for IPCO on current period forecasted revenues. The revenue multiple was derived from public peers of the Company.
- Guideline Transaction Method – The Company utilized a revenue multiple of 0.80x for Modcloth and 0.29x for IPCO on current period forecasted revenues. The revenue multiple was derived from public transactions in which the target companies were similar to the Company.
The following table summarizes the changes in the ModCloth and IPCO investment Level 3 fair value measurement (in thousands):
|
| Modcloth |
|
| IPCO |
| ||
Balance as of December 31, 2021 |
| $ | 6,437 |
|
| $ | 7,133 |
|
Change in fair value |
|
| (1,940 | ) |
|
| 45 |
|
Balance as of September 30, 2022 |
| $ | 4,497 |
|
| $ | 7,178 |
|
| IPCO | ||||
| Balance as of January 1, 2022 | $ | 7,133 | ||
| Change in fair value | 271 | |||
| Balance as of December 31, 2022 | 7,404 | |||
| Change in fair value | (645 | ) | ||
| Balance as of March 31, 2023 | $ | 6,759 | ||
| Change in fair value | (293 | ) | ||
| Balance as of June 30, 2023 | $ | 6,466 | ||
| Change in fair value | 1,922 | |||
| Balance as of September 30, 2023 | $ | 8,388 | ||
| 6. | CERTAIN LIABILITY ACCOUNTS |
6.
Accrued expenses and other current liabilities as of September 30, 20222023 and December 31, 20212022 were as follows (in thousands):
| September 30, 2023 | December 31, 2022 | |||||||||||||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
Cash election consideration payable |
|
| 5,000 |
|
|
| — |
| ||||||||
Deferred revenue |
|
| 2,381 |
|
|
| 4,524 |
| ||||||||
Deferred rent |
|
| 2,040 |
|
|
| 1,573 |
| ||||||||
| Business Combination consideration payable | $ | 5,000 | $ | 5,000 | ||||||||||||
| Contract liability | 3,931 | 5,058 | ||||||||||||||
Payroll and other employee costs |
|
| 1,678 |
|
|
| 2,196 |
| 1,468 | 1,300 | ||||||
Accrued transaction costs |
|
| 940 |
|
|
| 1,750 |
| ||||||||
Sales tax payable |
|
| 737 |
|
|
| 1,113 |
| 509 | 1,191 | ||||||
Accrued interest |
|
| 456 |
|
|
| — |
| 378 | 1,622 | ||||||
| Accrued transaction costs | — | 840 | ||||||||||||||
| Inventory accrual | — | 503 | ||||||||||||||
Other accrued expenses and current liabilities |
|
| 3,103 |
|
|
| 2,862 |
| 5,528 | 2,312 | ||||||
Total |
|
| 16,335 |
|
|
| 14,018 |
| $ | 16,814 | $ | 17,826 | ||||
Included in “Contract liability” are liabilities primarily related to unearned revenue and unredeemed gift cards. Unearned revenue is recorded when payments are received in advance of fulfilling our obligations and is recognized when the obligations are fulfilled.
13
As of September 30, 2023, our liabilities for unearned revenue were $3.1 million, which included $2.6 million employee retention credits received in June 2023. As of December 31, 2022, our liabilities for unearned revenue were $2.1 million. As of September 30, 2023 and December 31, 2022, our liabilities for unredeemed gift cards were $829 thousand and $3.0 million.
Other long-term liabilities as of September 30, 20222023 and December 31, 20212022 were as follows (in thousands):
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Deferred transaction costs payable |
|
| 10,979 |
|
|
| — |
|
Cash election consideration payable |
|
| 3,865 |
|
|
| — |
|
Standby agreement derivative liability |
|
| 1,900 |
|
|
| — |
|
Deferred PIPE issuance costs payable |
|
| 1,160 |
|
|
| — |
|
Warrant liability |
|
| — |
|
|
| 561 |
|
Other long-term liabilities |
|
| 84 |
|
|
| 173 |
|
Total |
|
| 17,988 |
|
|
| 734 |
|
| September 30, 2023 | December 31, 2022 | |||||||
| Deferred transaction costs payable | $ | 10,979 | $ | 10,979 | ||||
| Warrant liability | 2,024 | — | ||||||
| Business Combination consideration payable | 3,917 | 3,355 | ||||||
| Deferred PIPE issuance costs payable | 1,160 | 1,160 | ||||||
| PIPE principal accretion | — | 617 | ||||||
| Legal settlement | 290 | 621 | ||||||
| Standby agreement derivative liability | — | 847 | ||||||
| Other long-term liabilities | 85 | 187 | ||||||
| Total | $ | 18,455 | $ | 17,766 | ||||
| 7. | LONG-TERM DEBT |
Convertible Notes and Indenture
On April 19, 2022, the Company, certain guarantors named therein (the “Notes Guarantors”) and certain investors named therein (each, a “Subscriber” and collectively, the “Subscribers”), entered into subscription agreements (each, a “PIPE Subscription Agreement” and collectively, the “PIPE Subscription Agreements”) pursuant to which the Company agreed to issue and sell to the Subscribers immediately prior to the closing of the Business Combination (i) up to an aggregate principal amount of $75.0$75.0 million of 7.00%7.00% Convertible Senior Notes due 2026 (the “Convertible Notes”) at par value of the notes and (ii) up to an aggregate of 1.5 million warrants (the “PIPE Warrants”) with each whole PIPE Warrant entitling the holder thereof to purchase one share of Common Stock
On August 26, 2022, immediately prior to the closing of the Business Combination (the “Closing”), the Company issued $65.5$65.5 million aggregate principal amount of Convertible Notes and, as contemplated by the PIPE Subscription Agreements, the Company, the Note Guarantors and U.S. Bank Trust Company, National Association, as trustee, entered into an Indenture governing the Convertible Notes (the “Indenture”). The Convertible Notes were offered in a private placement under the Securities Act, pursuant to the PIPE Subscription Agreements. The Convertible Notes will mature on September 1, 2026 (the “Maturity Date”), unless earlier repurchased, redeemed or converted in accordance with their terms, and will accrue interest at a rate of 7.00%7.00% per annum, payable in cash. The Convertible Notes may be converted at any time (in whole or in part) into shares of Common Stock, at the option of the holder of such Convertible Note, based on the applicable conversion rate at such time. The initial conversion price is approximately $11.50$230.00 per share of Common Stock, based on an initial conversion rate of 86.95654.3478 shares of Common Stock per $1,000$1,000 principal amount of Convertible Notes. For conversions with a conversion date on or after the first anniversary of the closing of the Transactions and prior to the regular record date immediately preceding the Maturity Date, the conversion consideration will also include an interest make-whole payment equal to the remaining scheduled payments of interest on the Convertible Note being converted through the Maturity Date. The Company will be able to elect to make such interest make-whole payment in cash or in Common Stock, subject to certain conditions. The conversion rate is subject to adjustments set forth in the Indenture, including conversion rate resets (x) on August 27, 2023, September 26, 2023 and September 26, 2024 and (y) following the consummation of certain equity and equity-linked offerings by the Company and sales of certain equity and equity-linked securities by certain shareholders of the Company. On August 27, 2023, the conversion rate will reset to the greater of (i) the then-current conversion rate and (ii) if the Standby Capital VWAP Sale Price (as defined below) is less than or equal to $7.50,$150.00, the quotient of (x) $1,000$1,000 and (ii)(y) the volume weighted average sale price of shares of Common Stock sold under the Standby Agreement (as defined below) (the “Standby Capital VWAP Sale Price”). As of September 30, 2022,2023, the Standby Capital VWAP Sale Price was $$35.20.
2.40.
Each holder of a Convertible Note will havehas the right to cause the Post-Combination Company to repurchase for cash all or a portion of the Convertible Notes held by such holder upon the occurrence of a “Fundamental Change” (as defined in the Indenture) at a price equal to (i) on or before September 26, 2023, 100% of the original principal amount of such Convertible Note, and (ii) from and after September 26, 2023, 100% of the accreted principal amount applicable at such time pursuant to the terms of the Indenture, in each case, plus accrued and unpaid interest.
The Indenture includes restrictive covenants that, among other things, require the Company to maintain a minimum level of liquidity on a consolidated basis and limit the ability of the Company and its subsidiaries to incur indebtedness above certain thresholds or to issue preferred stock, to make certain restricted payments, to dispose of certain material assets and engage in other asset sales, subject to reinvestment rights, to pay certain advisory fees in connection to the Transactions and the transactions contemplated by the PIPE Subscription Agreements above a certain threshold, and other customary covenants with respect to the collateral securing the obligations created by the Convertible Notes and the Indenture, including the entry into security documents (in each case, subject to certain exceptions set forth in the Indenture); provided that the covenants with respect to (i) the making of restricted payments, (ii) the incurrence of indebtedness, (iii) the disposition of certain material assets and asset sales, (iv) liquidity, (v) the payment of advisory fees and (vi) the collateral securing the obligations created by the Convertible Notes and the Indenture shall terminate once less than 15% of the aggregate principal amount of the Convertible Notes are outstanding. The liquidity covenant would terminate if the Company achieves $175$175 million in consolidated revenue in the preceding four fiscal quarters. Certain of the Company’s subsidiaries
14
will serve as Notes Guarantors that jointly and severally, fully and unconditionally guarantee the obligations under the Convertible Notes and the Indenture. The Indenture also requires certain future subsidiaries of the Post-Combination Company, if any, to become Notes Guarantors. This covenant will terminate once less than 15% of the aggregate principal amount of the Convertible Notes are outstanding. The Indenture also includes customary events of default and related provisions for potential acceleration of the Convertible Notes.
If the Company does not have an effective registration statement on file with the SEC within 90 days of the Closing Date, registering the underlying shares issuable upon conversion of the Convertible Notes, or fails to maintain the effectiveness of such registration statement, then additional interest would accrue on the outstanding principal of the Convertible Notes at a rate of (a) 0.25% per annum for the first 90 days commencing on the first business day following a ten business day grace period and (b) 0.50% per annum thereafter, in each case, until the Company cures the lapse of effectiveness. The Company accounts for such additional interest in accordance with ASC subtopic 825-20, Registration Payment Arrangements (“ASC 825-20”). ASC 825-20 specifies that the contingent obligation to make future payments under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument, should be separately recognized and accounted for as a contingency in accordance with ASC 450-20, Loss Contingencies. The Company recorded no amount for this contingency at issuance of the Convertible Notes, nor as of September 30, 2022 as the likelihood of making such registration payments was remote at each date.
The Company elected to account for the Convertible Notes under the fair value option of accounting upon issuance of the Convertible Notes. At issuance the Company recognized the fair value of the Convertible Notes of $65.1$65.1 million with the remaining $0.4$0.4 million of proceeds received allocated to the PIPE Warrants. As of September 30, 2023 and December 31, 2022, the fair value of the Convertible Notes was $74.9were $60.8 million and $62.5 million, respectively, of which $0.5$378 thousand and $1.6 million, respectively, representing accrued interest, is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. The lossDuring the nine months ended September 30, 2023, the gain on the increase in fair value of the Convertible Notes duringwas $2 million and the three and nine months ended September 30, 2022interest expense was $9.8$3.4 million, of which $0.6 million is included in interest expense, which is recognized based on the effective interest method, and $method.9.2
million included in the change in fair value of convertible notes on the condensed consolidated statements of operations. The difference between the amount due at maturity of $73.8 million, which is due on September 1, 2026, and the fair value of the Convertible Notes as of September 30, 2022 is $1.1 million.
The primary reason for electing the fair value option is for simplification and cost-benefit considerations of accounting for the Convertible Notes (the hybrid financial instrument) at fair value in its entirety versus bifurcation of the embedded derivatives. The fair value was determined using a binomial lattice valuation model. The significant inputs to the valuation of the Convertible Notes at fair value are Level 3 inputs since they are not directly observable. The fair value was determined using a binomial lattice valuation model. The significant assumptions used in the model are the discount rate of 14.03%, which is based on the company’s credit spread andrating, volatility of the Common Stock.98.71% and 35 time-nodes.
As of September 30, 2022, there have been no interest or principal payments made on the Convertible Notes.
Line of credit2023 Promissory Notes and 2023 Convertible Promissory Notes
Effective January 14, 2015, the Company entered into a Revolving Credit Agreement with a financial institution that provided maximum borrowing under a revolving loan commitment of up to $2 million, bearing an interest rate of 2% plus prime rate as published by the Wall Street Journal. Effective July 3, 2020, the Company renewed the line of credit with the financial institution through May 31, 2021 that provided maximum borrowing under a revolving loan commitment of up to $5 million. In May 2021 the maturity date was extended to June 30, 2021 and then further extended to July 31, 2021. The line was then renewed on July 21, 2021 with an expanded credit limit of $8 million, a new maturity date of June 30, 2023 and an amended per annum interest rate of the greater of 2.25% plus prime rate as published by the Wall Street Journal or 5.50%. The line of credit was repaid at the closing of the Business Combination.
Notes Payable
On August 11, 2021, the Company entered into a loan and security agreement (the “Note Agreement”) with a financial institution that provided for a borrowing commitment of $15 million in the form of promissory notes. In August 2021, the Company borrowed $10 million under the first tranche (“First Tranche Notes”). The Note Agreement had a commitment for additional second tranche borrowings of $5 million through June 30, 2022 (“Second Tranche Notes”). In October 2021, the Company borrowed the remaining $5 million committed under the Note Agreement. The borrowings under the Note Agreement were secured by substantially all assets of the Company.
The First Tranche Notes and Second Tranche Notes were due to mature on September 1, 2026 and November 1, 2026, respectively, and bore interest at a rate per annumCompany did not timely make the payment of 6.25% plus the greater of 3.25% or the prime rate as published by the Wall Street Journal. The Company was required to make interest-only payments on the first of each month beginning October 1, 2021 and December 1, 2021, respectively. Beginning October 1, 2023 and December 1, 2023, respectively, the Company would have been required to make principal payments of $278 thousand and $139 thousand, respectively, plus accrued interest on the first of each month through maturity. Upon payment in full of the First TrancheConvertible Notes and Second Tranche Notes,due on March 1, 2023. On March 26, 2023, the Company, was requiredthe Notes Guarantors and Holders entered into limited waivers and consents pursuant to pay exit fees of $600 thousandwhich each holder agreed to (i) waive the Specified Default (as defined below) and $300 thousand, respectively.
15
In December 2021, the Company borrowed an additional $1 million from the same financial institution, which was repaid in full on December 31, 2021. In addition, the Company borrowed an additional $5 million (“Third Tranche Notes”) that bore interest at a rate per annum of 6.25% plus the greater of 3.25% or the prime rate as published by the Wall Street Journal. The Company is required to make interest-only payments on the first of each month beginning February 1, 2022, with the full principal amount due on July 1, 2023. Uponany payment in full, the Company is required to pay exit fees of $50 thousand.
In connection with the Note Agreement, the Company issued warrants to purchase up to 33,357 shares of common stockobligation of the Company (the “Legacy Liability Warrants”under the Indenture with respect to the March Interest Payment (as defined below), (ii) in lieu of the March Interest Payment and payment of the accrued interest on the Convertible Notes due on September 1, 2023 (collectively, the “Interest Payments”) at an, (a) receive a promissory note and (b) amend the Warrant Agreement (as defined below) to reduce the exercise price of $the warrants governed thereby from $11.50 to $0.01, and (iii) consent to the entry into the Supplemental Indenture (as defined below).0.01
per share (Note 8). On
The Supplemental Indenture, among other things, (i) lowered the dateminimum amounts of issuance,liquidity the Company recordedmust maintain on a consolidated basis for each quarter in 2023 and the fair valuefirst quarter of 2024, (ii) added restrictions on the Company’s ability to make payments relating to certain restricted investments, (iii) decreased the maximum amount of equity interests that the Company may repurchase, redeem, acquire or retire, (iv) removed the Company’s ability to issue preferred stock or incur certain unsecured indebtedness or junior lien indebtedness, (v) decreased other permitted debt baskets, (vi) decreased the threshold for a cross-default for purposes of determining an Event of Default (as defined in the Indenture) and (vii) added a new Event of Default in the event the Company did not consummate an underwritten primary equity offering providing at least $10 million of proceeds to the Company by April 30, 2023.
On March 26, 2023, the Company, the Notes Guarantors and each holder of the Legacy Liability Warrants asConvertible Notes executed unsecured promissory notes (each, a discount“2023 Promissory Note” and collectively, the “2023 Promissory Notes”), with each 2023 Promissory Note having an aggregate principal amount equal to the First Tranchesuch holder’s interest payments. The 2023 Promissory Notes which was being amortized intomature on March 26, 2025 and accrue interest expense over the term of the First Tranche Notes using the effective interest method. The issuance costs were deferred over the repayment term of the debt. Deferred issuance costs relate to the Company’s debt instruments, the short-term and long-term portions are reflected as a deduction from the carrying amount of the related debt.at seven percent (7.0%) per annum.
In addition, the 2023 Promissory Notes provide that, in the event the Company issued additional notes payable in July 2022 for proceedsconsummates the April 2023 Offering by April 30, 2023, the holder of $3.0 million. Such notes payable matured oneach 2023 Promissory Note has the earlier of (a) December 30, 2022 or (b)option to require the closeCompany to repay a portion of the Business Combination. The amount due at maturity was $4.5 million. The Company elected to account for the additional notes payable under the fair value option of accounting.
The notes payable were repaid at the closingprincipal balance of the Business Combination.
2023 Promissory Notes
During the second quarter of 2022, the Company entered into promissory notes with various individuals (the “Promissory Notes”), including current investors, members of management and other unrelated parties in exchange for cashNote in an amount equal to $7.0 millionor less than the gross proceeds to the Company from any purchases by the holder of the Company’s securities in the April 2023 Offering (the “Promissory Notes”“Put Option”). TheEach holder may exercise its Put Option within ten business days following the closing and funding of the April 2023 Offering. In addition, certain of the 2023 Promissory Notes were due to mature on the earlier of (a) one year from issuance or (b) the closing of the Business Combination (Note 1) and bore per annum interest at the rate of 7.75% plus the greater of 3.50% or the prime rate as published by the Wall Street Journal. The Company was required to make nine interest-only payments, followed by three principal and interest payments. In connectionprovide such holders with the right to convert their respective promissory note (the “2023 Convertible Promissory Notes, the Company issued warrants (“Promissory Note Warrants”Notes”) to purchase up to 31,024 shares of common stockinto unregistered securities of the Company at an exercise price of $(the “Unregistered Securities”) on the same terms as the securities offered in the April 2023 Offering in the event such offering is consummated.0.01
per share (Note 7). Upon payment in full of the Promissory Notes, the Company was required to make an additional final payment (“Final Payment”) of $3.5
million.
The Company elected to account for the 2023 Promissory Notes and 2023 Convertible Promissory Notes under the fair value option of accounting upon issuance of each of the Promissory Notes.such notes. At issuance the Company recognized the fair value of the 2023 Promissory Notes and 2023 Convertible Promissory Notes of $$4.8 million.6.3
million with
In April 2023, upon consummation of the remaining $0.7 millionApril 2023 Offering, all holders of proceeds received allocated to the 2023 Promissory Notes exercised their Put Options and the holder of the 2023 Convertible Promissory Note Warrants.converted such note into Unregistered Securities. As of September 30, 2023, the 2023 Promissory Notes and 2023 Convertible Promissory Note were repaid in full.
The Promissory Notes were repaid at the closing of the Business Combination.
Paycheck Protection Program LoanLoans
On April 14, 2020,
In August 2023, the Company receivedobtained a loan proceeds of $2.3 million pursuant to the Paycheck Protection Program (the “PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The PPP Loan hadfor $320 thousand with a maturity date of April 22, 2022 and bore interest at amerchant third-party with an annual percentage rate of 1% per annum. The balance as of December 31, 2020 of $2.3 million is included in Paycheck Protection Program loan payable on9.77%, which are to be repaid from future cash receipts directly from the condensed consolidated balance sheets. On September 17, 2021, the PPP Loan was forgiven in full including accrued interest thereon. As such, the Company recorded a gain on loan forgiveness duringmerchant. During the nine months ended September 30, 20212023, repayments of $$20 thousand have been made and the loan is expected to be fully repaid in February 2024. As of September 30, 2023, the outstanding balance of the loan was $325 thousand.2.3
million included in other income in the consolidated statement of operations.
In connectionJuly 2023, the Company refinanced the existing loan obtained in February to $2 million with the Note Agreement, onthird-party with an annual interest rate of 34% and debt issuance cost of $25 thousand (the “Refinanced February 2023 Loan”), which are to be paid from future cash receipts. The third-party has rights to future cash receipts until the loan is fully repaid. The weekly repayments began in August 11, 20212023 for $74 thousand and will continue until the loan is fully repaid in March 2024. As of September 30, 2023, the outstanding balance of the loan was $1.6 million.
In August 2023, the Company granted Legacy Liability Warrantsobtained a loan for $2 million with the same third-party provided the July 2023 Loan with an annual interest rate of 39% and debt issuance cost of $50 thousand (the “August 2023 Loan”), which are to purchase upbe paid from future cash receipts. The third-party has rights to future cash receipts until the loan is fully repaid. The weekly repayments began in August 2023 for $87 thousand and will continue until the loan is fully repaid in March 2024. As of September 30, 2023, the outstanding balance of the loan was $1.7 million.33,357
shares
In September 2023, the Company obtained two loans for a total of common stock at$1.5 million with two third-party loan originators with an annual interest rate of 42% and debt issuance cost of $73 thousand (each, a price“September 2023 Loan” and collectively, the “September 2023 Loans”), which are to be paid from future cash receipts. The third-party loan originators have rights to future cash receipts until the loans are fully repaid. The weekly repayments began in October 2023 for $71 thousand and will continue until the loans are fully repaid in April 2024. As of $September 30, 2023, the outstanding balance of the loan was $1.5 million.0.01
per share. The Legacy Liability Warrants were exercisable at any time through
In September 2023, the tenth anniversaryCompany obtained a loan for $500 thousand with a merchant third-party with an annual percentage rate of 26.55%, which are to be repaid from future cash receipts directly from the date of grant. The Legacy Liability Warrants had customary anti-dilution provisions for stock splits, stock dividends and recapitalizations ofmerchant. During the Company’s common stock. In addition, in connection with issuance of the additional notes payable in July 2022, the Company granted additional Legacy Liability Warrants to purchase up to 13,343 shares of Common Stock that had a fair value of $428 thousand at issuance. The Legacy Liability Warrants had been determined to be liability classified as the exercise price may be reduced and result in the issuance of additional shares in connection with the sale of the Company if such Legacy Liability Warrants are not assumed. The Legacy Liability Warrants were initially recorded at fair value with a corresponding debt discount (Note 7) at grant date and are subsequently remeasured to fair value each reporting period. The Company recorded a fair value loss on the Legacy Liability Warrants of $208 thousand and $717 thousand for the three and nine months ended September 30, 2022, respectively, which2023, repayments of $7 thousand have been made and the loan is includedexpected to be fully repaid in other (loss) income, netMarch 2024. As of September 30, 2023, the outstanding balance of the loan was $495 thousand.
In June 2023, the Company entered into a payment plan agreement with an existing vendor with an outstanding accounts payable amount of $2 million. The Company agreed to pay $125 thousand upon the execution of the agreement and on the condensed consolidated statementsfirst day of operations. The Company did not recognize a change in fair value oneach month commencing July 1, 2023 through and including August 1, 2024. During the Legacy Liability Warrants during the three and nine months ended September 30, 2021. The fair value2023, repayments of $125 thousand have been made. On September 1, 2024, a final payment in an amount equal to the then outstanding balance plus accrued interest at a rate of five percent per annum shall be paid. As of September 30, 2023, the outstanding balance of the warrant liability as of December 31, 2021loan was $561 thousand, and is included in other long-term liabilities in the condensed consolidated balance sheets. All Legacy Liability Warrants were settled in connection with the closing of the Business Combination.$1.9 million.
16
The Company had determinedcalculates the warrant liability to be a Level 3 fair value measurement. The Company utilizes the Black-Scholes-Merton (“Black-Scholes”) model to determine the fair valueinterest and expenses of the Legacy Liability Warrants at each reporting date. The significant inputs utilized indebt issuance cost using the Black-Scholes model as of December 31, 2021 were as follows. effective interest rate method.
|
| December 31, 2021 |
| |
Common Stock Fair Value Per Share |
| $ | 16.81 |
|
Exercise Price Per Share |
| $ | 0.01 |
|
Volatility |
|
| 75.7 | % |
Risk-free rate |
|
| 0.53 | % |
Expected Dividend Rate |
|
| 0.0 | % |
| 8. | WARRANTS AND DERIVATIVES |
The expected dividend rate was 0.0% as the Company has not and does not intend to pay dividends. The Company utilized the probability weighted expected return method (“PWERM”) to value the Company’s common stock.
The following table summarizes the changes in the warrant liability included in other long-term liabilities that were issued in connection with the Note Agreement (in thousands):
|
| Warrant Liability |
| |
Balance as of December 31, 2021 |
| $ | 561 |
|
Legacy Liability Warrants issued |
|
| 428 |
|
Change in fair value |
|
| 717 |
|
Settlement of warrant liability in common stock |
|
| (1,706 | ) |
Balance as of September 30, 2022 |
| $ | — |
|
Convertible Note Warrants
The Company issued the PIPE Warrants in connection with the Convertible Notes issuance. There were 1,396,419 PIPE Warrants issued to purchase common stock of the CompanyCommon Stock at $11.50$11.50 per share. The PIPE Warrants are redeemable for $0.01$0.01 once the Company’s stock pricesprice reaches $18.00$18.00 per share. The PIPE Warrants are equity classified. Approximately $377$377 thousand of the proceeds upon issuance of the Convertible Notes was allocated to the PIPE Warrants along with an immaterial amount of issuance costs.
Other Warrants
TheOn March 26, 2023, the Company had also granted Legacy Equity Warrants in 2017 and 2018Continental Stock Transfer & Trust Company (the “Warrant Agent”) entered into an Amendment to purchase 100,000 sharesthat certain Warrant Agreement, dated as of common stock at a price of $0.96 per share. 75,000 of such warrants were set to expire on January 12, 2027August 26, 2022, by and between the Company and the remaining 25,000 were setWarrant Agent (the “Warrant Agreement”). Pursuant to expire on July 20, 2028. The Legacy Equity Warrants were fully vested and exercisable at the Holder’s option at any time. Any shares not exercised at time of an acquisition would have automatically been deemedAmendment to be cashless exercised. Under the applicable accounting literature, these warrants meetWarrant Agreement, the criteria to be classified as permanent equity within the equity section of the condensed consolidated balance sheet. These warrants were settled in connection with the closing of the Business Combination.
In addition, in connection with the Promissory Notes, the Company issued the Promissory Note Warrants to purchase up to 31,024 shares of common stock of the Company at an exercise price of $each warrant was reduced from $11.50 to $0.01. The Company recorded a loss related to the warrant amendment of $430 thousand in other expense in the consolidated statement of operations.
0.01
On March 28, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Second Amended and Restated Certificate of Incorporation to effect a 1-for-20 reverse stock split of the Common Stock (the “Reverse Stock Split”). Proportionate adjustments have been made to the per share exercise price and the number of shares of Common Stock that may be purchased upon exercise of warrants issued by the Company. As a result of the 1-for-20 reverse stock split, the number of PIPE Warrants outstanding was adjusted from 1,396,419 to 69,821 and the exercise price was increased from $0.01 per share to $0.20 per share. The Promissory NoteDuring the nine months ended September 30, 2023, holders exercised 58,568 PIPE Warrants. As of September 30, 2023, 11,253 PIPE Warrants are fully vested and exercisable at the Holder’s option at any time. Under the applicable accounting literature, these warrants meet the criteria to be classified as permanent equity within the equity section of the condensed consolidated balance sheet. These warrants were settled in connection with the closing of the Business Combination.remain outstanding.
Standby Agreement Derivative Liability
In connection with the Business Combination, Legacy Nogin acquired from SWAG a derivative liability associated with agreements entered into by SWAG prior to the Closing Date. SWAG entered into an agreement with a financial institution (the “Financial Institution”), whereby the Financial Institution purchased SWAG Class A common stock from third parties prior to the Closing Date (the “Standby Agreement”). At the Closing Date, the Company paid the Financial Institution 80%80% of the Financial Institution’s aggregate purchase price of such shares of SWAG Class A common stock. After the Closing Date, the Financial Institution may sell the shares purchased pursuant to the Standby Agreement and keep all the proceeds of such sales until they have recouped the remaining 20%20% of the aggregate purchase price of the shares purchased prior to the Closing Date. After such time, proceeds from the sale of such shares would be paid to the Company less a liquidity fee equal to 3.5%3.5% of the proceeds from such sales. If the Financial Institution has not fully recouped the aggregate purchase price of the shares purchased prior to the Closing Date by August 26, 2026,
17
the Company would be obligated to pay the remaining amount due to the Financial Institution on such date. Any remaining unsold shares as of August 26, 2026 would be returned to the Company.
In addition, SWAG entered into a subscription agreement (the “Subscription Agreement”) with the same Financial Institution whereby the Financial Institution purchased 517,079 shares of Common Stock at a purchase price of $10.17$10.17 per share at the closing of the Business Combination and paid the Company an amount equal to 20%20% of the purchase price. The Subscription Agreement was structured similarly to the Standby Agreement between the Company and the Financial Institution regarding the timing and amount of future payments, as well as the return of any unsold shares at maturity.
The Company concluded the Standby Agreement would be accounted for as a derivative in its entirety in accordance with ASC 815-10, and the structured payments within the Subscription Agreement was considered an embedded feature in the Subscription Agreement that met the definition of a derivative and required bifurcation from the Subscription Agreement, as it is not clearly and closely related to the Subscription Agreement and would be accounted for in accordance with ASC 815-10 (together the “Standby Agreement Derivative)Derivative”). The Standby Agreement Derivative was not entered in tointo for hedging purposes. The Company accounted for the Standby Agreement Derivative acquired at fair value upon the closing of the Business Combination. The Company will continue to account for the Standby Agreement Derivative at fair value each reporting period in accordance with ASC 815-10.
The Company engaged a third-party valuation specialist to assist with the fair value assessment. The acquisition date fair value at the closing of the Business Combination was $2.0 million. The fair value as of September 30,December 31, 2022 of the Standby Agreement Derivative liability is $1.9 millionwas $847 thousand and is recognizedwas recorded in other long-term liabilities on the condensed consolidated balance sheets. The change inIn March 2023, all shares were resold by the Financial Institution and the Company recognized a gain to fair value of the Standby Agreement Derivative liabilityderivative instruments of $847 thousand for both the three and nine months ended September 30, 2022 of $0.1 million is recorded in change in fair value of derivatives2023 on the condensed consolidated statements of operations.
April 2023 Offering Warrants
On April 4, 2023, the Company entered into the Purchase Agreements with the Investors pursuant to which the Company agreed to sell, issue, and deliver to Investors, in the April 2023 Offering (i) 7,333,334 shares of Common Stock and (ii) 7,333,334 Common Warrants. Under the terms of the Purchase Agreements, the Company agreed to sell its Common Stock and accompanying Common Warrants at a combined offering price of $3.00 per share of Common Stock and accompanying Common Warrant. On April 6, 2023, the Company consummated the April 2023 Offering and received gross proceeds of approximately $22 million in connection with the offering before deducting placement agent fees and other offering expenses. Each Common Warrant entitles the holder thereof the ability to exercise one Common Warrant for one share of Common Stock of the Company, par value $0.0001 per share, for $3.00 per share.
In April 2023, upon consummation of the April 2023 Offering, all holders of the 2023 Promissory Notes exercised their Put Options. The holder of the 2023 Convertible Promissory Note, Tenor Metric Co-Invest Fund L.P (“Tenor”), exercised their conversion option on April 25, 2023 by giving notice to the Company to convert all of the then-outstanding principal balance plus accrued interest into a number of shares of Common Stock (the “Tenor Shares”) and a number of warrants to purchase Common Stock (the “Tenor Warrants”) pursuant to the terms of the 2023 Convertible Promissory Note. Tenor received 356,970 Tenor Shares and 356,970 Tenor Warrants upon conversion. The Tenor Warrants have the same terms as the Common Warrants described above.
The Company concluded the Common Warrants and Tenor Warrants would be accounted for as derivatives in accordance with ASC 815-10 as they met the definition of derivatives and the Common Warrants and Tenor Warrants did not meet the scope exception pursuant to ASC 815-10-15-74(a) as a result of changes to the settlement amount upon certain fundamental transactions. These Warrants will be accounted for as derivative liabilities and measured at fair value with the changes in fair values recognized in earnings.
9.
The Company utilized the Black-Scholes valuation model to value the Common Warrants and Tenor Warrants at issuance and as of September 30, 2023. The Black-Scholes model provides the theoretical estimate of the price of European style option, considering the price of the underlying stock, strike price, time to expiration, risk-free rate, and volatility. The Company utilized the following weighted average inputs as of April issuance and September 30, 2023.
| April 6, 2023 | September 30, 2023 | |||||||
| Underlying price | $ | 1.91 | $ | 0.54 | ||||
| Strike price/exercise price | 3.00 | 3.00 | ||||||
| Expected life | 5.00 | 4.52 | ||||||
| Risk-free rate | 3.37 | % | 4.65 | % | ||||
| Volatility | 96.23 | % | 102.94 | % | ||||
The Company utilized the following steps to establish the inputs for the Black-Scholes model:
- Underlying price– The underlying price was based on the VWAP of the Company.
- Strike price/exercise price – The exercise price was based on the warrant agreements.
- Expected life – The expected life is calculated as the remaining life of the warrants.
- Risk-free rate – Risk-free rate was the linearly interpolated yield for the expected life based on Treasury Yield.
- Volatility – The volatility was based on the volatilities of the group peer companies.
The fair value as of September 30, 2023 of one Common Warrant or one Tenor Warrant was $0.26. The fair value of the Common Warrants and Tenor Warrants liability was $2.0 million and was recorded in other long-term liabilities on the condensed consolidated balance sheets.
| 9. | FAIR VALUE MEASUREMENTS |
The Company applies the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)ASC 820,Fair Value Measurements and Disclosures (“ASC 820”), which provides a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.
The Company applies the provisions of ASC 820 to all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
The Company defines fair value as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 - – Quoted prices in active markets for identical assets or liabilities.
Level 2 - – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
In determining fair value, the Company utilized valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counter party credit risk and nonperformance risk in its assessment of fair value.
The carrying value of the Company’s short-term financial instruments, such as cash, restricted cash, accounts receivable, notes payable, and accounts payable, approximate the fair value due to the immediate or short-term maturity of these instruments. As of September 30, 2022, the Company no longer has recurring measurements for warrant liability. Further, theThe Company has elected to apply the fair value option of accounting for its warrant liability, Convertible Notes and equity investments in unconsolidated affiliates. The Company is required to present the fair value of the Standby Agreement derivative liability each reporting period.
The following details the Company’s recurring measurements for assets and liabilities at fair value (in thousands):
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Warrant liability (Level 3) - Note 8 |
| $ | - |
|
| $ | 561 |
|
Investment in unconsolidated affiliates (Level 3) - Note 5 |
|
| 11,674 |
|
|
| 13,570 |
|
Convertible Note (Level 3) - Note 7 |
|
| 74,942 |
|
|
| - |
|
Standby Agreement derivative liability (Level 3)- Note 8 |
|
| 1,900 |
|
|
| - |
|
Non-current Cash Consideration (Level 3) |
|
| 3,865 |
|
|
| - |
|
18
| September 30, 2023 | December 31, 2022 | |||||||
| Warrant liability (Level 2) – Note 8 | $ | 2,024 | $ | — | ||||
| Investment in unconsolidated affiliates (Level 3) – Note 5 | 8,388 | 7,404 | ||||||
| Convertible Note (Level 3) – Note 7 | 60,762 | 60,852 | ||||||
| Standby Agreement derivative liability (Level 3) – Note 8 | — | 847 | ||||||
| Non-current Business Combination Cash Consideration (Level 3) | 3,917 | 3,355 | ||||||
Deferred Business Combination cash consideration
In connection with the Business Combination, Legacy Nogin equityholdersequity holders elected to receive $15.0$15.0 million of the merger consideration in cash. In order to meet conditions to close the Transactions, the Company paid $4.1$4.1 million of the $15.0$15.0 million cash consideration at the Closing Date. Of the $10.9$10.9 million in deferred cash consideration, $5.0$5.0 million is payable, subject to certain conditions, on February 21, 2023, and is included in accrued expenses and other current liabilities as of September 30, 20222023 on the condensed consolidated balance sheets (the “Current Cash Consideration”). The remaining $5.9$5.9 million (the “Non-current Cash Consideration”) is payable, subject to certain conditions, on the earlier of (a) the date on which the Company completes a primary offering of equity securities that generates gross proceeds to the Company equal to or in excess of $15.0$15.0 million and (b) November 25, 2026. In the event the conditions to paying cash consideration are not met and cash consideration remains unpaid as of November 25, 2026, the unpaid cash consideration will be settled in shares of the Company’s common stockCommon Stock with the number of shares issued determined based on the quotient of unpaid cash consideration divided by the 10-day volume weighted average trading price of the Company’s common stockCommon Stock on NASDAQ.the Nasdaq Stock Market LLC (“Nasdaq”). The Company elected to account for the Non-current Cash Consideration of $5.9$5.9 million under the fair value option of accounting under ASC 825-10. At the Closing Date, the fair value of the Non-current Cash Consideration was $4.2$4.2 million. In connection with the reverse recapitalization, the cash consideration would be akin to a distribution of capital. As a result, the Company recorded the fair value of the distribution at the Closing Date of $13.3$13.3 million, which included the $4.1$4.1 million paid at the Closing Date, $5.0$5.0 million Current Cash Consideration and $4.2$4.2 million Non-current Cash Consideration, against accumulated deficit. As of September 30, 2022,2023, the fair value of the Non-current Cash Consideration was $3.9$3.9 million which is included in other long-term liabilities on the condensed consolidated balance sheets. The change in fair value from the Closing Date for the three and nine months ended September 30, 20222023 of $0.3$0.6 million is included in other (loss) income net on the condensed consolidated statements of operations.
The significant inputs to the valuation of the deferred cash consideration at fair value are Level 3 inputs since they are not directly observable. The Company primarily used a discounted cash flow method to value the deferred cash consideration, based on the expected future payment discounted to present value. The significant input is the discount rate which is based on the Company’s credit rating.
| 10. | INCOME TAXES |
10.
The income tax expense for the nine months ended September 30, 20222023 and September 30, 20212022 was $134an expense of $191 thousand and $82$134 thousand, respectively. Income tax expense differs from the income taxes expected at the U.S. federal statutory tax rate of 21%21%, primarily due to state taxes and additional valuation allowance for the nine monthsperiod ended September 30, 2023 and December 31, 2022.
| 11. | COMMON STOCK |
11.
Holders of Common Stock are entitled to one vote per share and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to holders of Common Stock. The holders of Common Stock have no preemptive or other subscription rights, and there is no redemption or sinking fund provisions with respect to such shares.
On December 2, 2021,April 4, 2023, the Company acquiredentered into the assetsPurchase Agreements with the Investors pursuant to which the Company agreed to sell, issue, and deliver to Investors, in the April 2023 Offering (i) 7,333,334 shares of Betabrand throughCommon Stock and (ii) 7,333,334 Common Warrants. Under the terms of the Purchase Agreements, the Company agreed to sell its Common Stock and accompanying Common Warrants at a credit bidcombined offering price of $$3.00 per share of Common Stock and accompanying Common Warrant. On April 6, 2023, the Company consummated the April 2023 Offering and received gross proceeds of approximately $22 million in connection with the offering before deducting placement agent fees and other offering expenses.7.0
million
Common Stock will be subordinate to any preferred stock the Company issues in the future with respect to rights upon liquidation of the Company.
| 12. | STOCK COMPENSATION PLAN |
In 2013, Legacy Nogin adopted the Branded Online, Inc. 2013 Stock Incentive Plan (the “2013 Plan”) pursuant to which Legacy Nogin was authorized to issue stock options or nonvested shares to officers and key employees in an amount up to 132,770 shares of its common stock. In connection with the Business Combination, the Company adopted the Nogin, Inc. 2022 Incentive Award Plan (the “2022 Plan”), which became effective on Betabrand’sthe Closing Date. The aggregate number of shares of Common Stock available for issuance under the 2022 Plan is equal to (i) 255,147 shares plus (ii) an annual increase for ten years on the first day of each calendar year beginning on January 1, 2023, equal to the lesser of (A) 15% of the aggregate number of shares of Common Stock outstanding indebtedness. on the last day of the immediately preceding calendar year and (B) such smaller amount of shares as determined by the Board. Following the effectiveness of the 2022 Plan, the Company will not grant additional awards under the 2013 Plan.
At September 30, 2023 and December 31, 2022, there were 172,147 and 59,028 shares available respectively, for grant under the Company’s stock incentive plans.
Stock Options
Stock options have been granted under the 2013 and 2022 Plans. Such options have a 10-year term and generally vest ratably over a period of four years. Summary information related to stock options outstanding as of September 30, 2023 and December 31, 2022 is as follows:
| Outstanding Stock Options | ||||
| Outstanding at January 1, 2022 | 42,546 | |||
| Granted | 87,323 | |||
| Exercised | (9,957 | ) | ||
| Forfeited / Terminated | (46,171 | ) | ||
| Outstanding at December 31, 2022 | 73,741 | |||
| Granted | 83,000 | |||
| Exercised | — | |||
| Forfeited / Terminated | (75,140 | ) | ||
| Outstanding at September 30, 2023 | 81,601 | |||
The weighted average exercise price of the outstanding options was $35.83 and $255.40 per share as of September 30, 2023 and December 31, 2022, respectively. There were 64,252 and 46,660 fully vested and exercisable options as of September 30, 2023 and December 31, 2022, respectively.
The Company engaged a third-party valuation specialistrecognized $223 thousand and $100 thousand in stock compensation expense for the nine months ending September 30, 2023 and 2022, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility was computed based on the historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield to assist withcurve in effect at the purchase price valuation, which resulted in goodwilltime of $grant.3.1
million.
The Company has no history or expectations of paying dividends on its Common Stock.
The following table summarizes the finalizedassumptions used in the calculation of the fair market value for awards granted during the nine months ended September 30, 2023:
Valuations assumptions
| Expected dividend yield | — | % | ||
| Expected volatility | 61 | % | ||
| Expected term (years) | 6 | |||
| Risk-free interest rate | 3.9 | % | ||
Restricted Stock Units
As of September 30, 2023, restricted stock units (“RSUs”) of 506,250 shares were granted under the 2022 Plan. The RSUs are issued upon vesting. The RSUs vest over a period of 1-3 years and are expected to be settled in shares upon vesting. The weighted average exercise price of each RSU was $15.40 per share as of September 30, 2023. The Company recognized $248 thousand in stock compensation expense for the nine months ending September 30, 2023. There were no RSUs granted in fiscal year 2022.
| 13. | ACQUISITION |
Prior to December 1, 2022, the Company owned a 50% equity interest in a joint venture, ModCloth, which was accounted for under the fair value option of accounting. On December 1, 2022, the Company acquired the remaining 50% equity interest in ModCloth (the “ModCloth Acquisition”) from Tiger Capital, pursuant to Tiger Capital’s exercise of their put option to require the Company to purchase all of Tiger Capital’s equity interest for $1.5 million in cash. As a result of the ModCloth Acquisition, ModCloth is now a wholly owned consolidated subsidiary of the Company.
Total purchase consideration in connection with the ModCloth Acquisition was $6.9 million, including $1.5 million in cash and $5.4 million for the settlement of a preexisting relationship. Under the terms of the ModCloth Tiger Assignment, control of ModCloth transferred to the Company on December 1, 2022. Cash consideration was funded with cash previously recorded as restricted cash in our consolidated balance sheets as of December 31, 2022. We did not incur material fees and expenses in connection with the ModCloth Acquisition.
Prior to the closing of the ModCloth Acquisition, the Company accounted for the existing 50% equity interest in ModCloth using the fair value option of accounting. As of September 30, 2022 the Company’s investment in ModCloth had a fair value and carrying value of $4.5 million. The Company accounted for the acquisition of the remaining 50% equity interest in ModCloth as a step acquisition, which required remeasurement of the Company’s existing 50% ownership interest in ModCloth to fair value as of December 1, 2022. The Company utilized weighted discounted cash flow, guideline public company and comparable market transaction valuation approaches to determine the fair value of the existing equity interest. This resulted in a fair value of $1.92 million and the recognition of a loss of $2.6 million, which was included in Change in fair value of unconsolidated affiliates on the consolidated statements of operations.
The ModCloth Acquisition was accounted for as a business combination by applying the acquisition method of accounting pursuant to ASC Topic 805, “Business Combinations”.
The following table summarizes the purchase price consideration in connection with the ModCloth Acquisition as of December 1, 2022 (amounts in thousands):
| Total cash consideration | $ | 1,500 | ||
| Settlement of pre-existing relationship (a) | 5,415 | |||
| Total consideration | 6,915 | |||
| Fair value of previously held equity interest | 1,920 | |||
| Total | 8,835 |
(a) Effective settlement of pre-existing accounts receivable of $5.4 million for services provided to ModCloth under the Company’s Master Services Agreement with ModCloth and additional operational funding provided by the Company to ModCloth. The $5.4 million accounts receivable balance as of the acquisition date was based on the Company’s estimate of the amount that will ultimately be collected from ModCloth.
The following table summarizes the preliminary fair values of the assets acquired, liabilities assumed and resulting goodwill in the ModCloth Acquisition as of December 1, 2022 (amounts in thousands):
| As of December 1, 2022 | ||||
| Acquired assets | ||||
| Cash | $ | 3 | ||
| Accounts receivable, net | 25 | |||
| Inventory | 4,787 | |||
| Prepaid expenses and other current assets | 30 | |||
| Property and equipment, net | 108 | |||
| Right-of-use asset, net | 895 | |||
| Other non-current asset | 80 | |||
| Intangible assets, net | 4,610 | |||
| Goodwill | 6,748 | |||
| Total acquired assets | $ | 17,286 | ||
| Liabilities assumed | ||||
| Accounts payable | $ | 5,544 | ||
| Accrued expenses and other liabilities | 2,908 | |||
| Total liabilities assumed | $ | 8,452 | ||
The fair value of ModCloth’s identifiable intangible assets and assumed liabilities (in thousands)useful lives are as follows (amounts in thousands, except years):
| Fair Value | Useful Life (Years) | |||||||
| Trade name | 4,610 | 10 | ||||||
| Total identifiable intangible assets | $ | 4,610 | ||||||
|
| As of |
| |
Acquired assets |
|
|
| |
Inventory |
| $ | 2,408 |
|
Other current assets |
|
| 741 |
|
Property and equipment |
|
| 25 |
|
Internal-use software and website |
|
| 348 |
|
Intangible assets |
|
|
| |
Customer relationships |
|
| 2,538 |
|
Developed technology |
|
| 748 |
|
Trade name |
|
| 438 |
|
Security Deposits |
|
| 19 |
|
Total identifiable assets |
| $ | 7,265 |
|
Liabilities assumed |
|
|
| |
Accounts payable |
| $ | 151 |
|
Deferred revenue |
|
| 3,224 |
|
Total liabilities |
| $ | 3,375 |
|
On December 31, 2021,Fair value measurement methodology used to estimate the Company and CFL entered into a Limited Liability Operating Agreement (the “LLC Agreement”), whereby Nogin contributed certain assets acquiredfair value of the trade name is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. Some of the more significant assumptions inherent in the development of intangible asset fair values, from the Betabrand acquisitionperspective of a market participant, include, but are not limited to (i) the amount and entered into a MSA with IPCOtiming of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to provide certain eCommerce services, marketing, photography,measure the risks inherent in the future cash flows, and (iii) the assessment of the asset’s life cycle.
The goodwill of $6.7 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer service and merchant credit card monitor fraud services; and CFL entered into a Master Supply Agreement with IPCO and agreed to procure the supply of inventory to IPCO, provide manufacturing, fulfillment, logistics and warehousing servicesrelationships. The goodwill recorded is not deductible for the inventory. The Company and CFL each received fifty percent ownership.income tax purposes.
19
| 14. | RELATED PARTY TRANSACTIONS |
The Company provides services to its joint ventures, ModCloth andventure, IPCO, under Master Services agreements (“MSA”),Agreements, which were entered into on April 25, 2021 and December 31, 2021, respectively. 2021.
Sales under the MSAMaster Services Agreement to ModCloth and IPCO were equal to $4.4$1.7 million and $4.9$3.5 million respectively, duringfor the nine months ended September 30, 2023 and September 30, 2022. In addition, the Company sold inventory to IPCO for $0.6$0.6 million during the nine months ended September 30,first quarter of 2022, whichand such amount is included in net revenue to related parties in the condensed consolidated statement of operations. As of September 30, 20222023 and December 31, 2021,2022, the Company had receivables from ModClothpayables to IPCO of $7.7$0.9 million and $5.3$1.0 million, respectively, which were included in related party receivablespayables on the condensed consolidated balance sheets. As of September 30,
Prior to December 1, 2022, the Company had payables to IPCO of $0.2 million,owned a 50% equity interest in a joint venture, ModCloth, which was included in related party payables onaccounted for under the condensed consolidated balance sheets.
During the second quarterfair value option of accounting. On December 1, 2022, the Company issuedacquired the remaining 50% equity interest in ModCloth from Tiger Capital, pursuant to Tiger Capital’s exercise of their put option to require the Company to purchase all of Tiger Capital’s equity interest for $1.5 million in cash. As a portionresult of the Promissory Notes described in Note 7 to certain principal owners and members of managementModCloth Acquisition, ModCloth is now a wholly owned consolidated subsidiary of the Company, which have been identified as related parties. The Company received proceeds in connection withand the Promissory Notesresults of ModCloth are consolidated into the results of the company post-assignment. Sales under the Master Services Agreement to related parties of $2.0 million at issuance of which $0.2 million was allocatedModCloth prior to the Promissory Note Warrants. The Company paid $3.1assignment were $7.0 million to settlefor the Promissory Notes at the closing of the Business Combination.nine months ended September 30, 2022.
One of the
The Company’s co-chiefchief executive officersofficer and his immediate family member (together, the “PIPE Related Parties”) were investors in the PIPE issuance of Convertible Notes (Note 7) for total proceeds of $1.5 million, which is included in proceeds from PIPE convertible note issuance in the condensed consolidated statements of cash flows for the nine months ended September 30, 2022.$1.5 million. In addition to the $1.5$1.5 million in Convertible Notes, the PIPE Related Parties also received 32,142 equity classified Convertible Note Warrants (Note 8). As of September 30, 2022,2023, the fair value of the Convertible Notes with the PIPE Related Parties was $1.7$1.4 million, which is included in Convertible Notes on the condensed consolidated balance sheets. The terms of the Convertible Notes with the PIPE Related Parties are consistent with the rest of the holders of the Convertible NoteNote.
As part of the April 2023 Offering, the PIPE Related Parties and other related parties received 1,888,814 liability classified Common Warrants (Note 8). As of September 30, 2023, the fair value of the Common Warrants held by the PIPE Related Parties and other related parties was $497 thousand, which is included in warrant liabilities on the consolidated balance sheets. The terms of the Common Warrants held by the PIPE Related Parties and other related parties are consistent with the terms of the Common Warrants held by the non-related party holders.
| 15. | REVENUE |
Disaggregation of Revenue
The Company has five major streams of revenue. CaaS service revenue, product revenue and shipping revenue are considered transferred to customers at the point of sale. Marketing and other revenue (other than B2C fulfillment services for rental space) are considered transferred to customers when services are performed. Thus, these revenues streams are recognized at a point in time. B2C fulfillment services for rental space is recognized over time.
The following table presents a disaggregation of the Company’s revenues by revenue source for the nine months ended September 30, 20222023 and 20212022 (in thousands):
|
| Three Months ended September 30, |
|
| Nine Months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Commerce-as-a-Service Revenue |
| $ | 5,422 |
|
| $ | 4,409 |
|
| $ | 15,729 |
|
| $ | 13,791 |
|
Product sales revenue |
|
| 8,645 |
|
|
| 15,224 |
|
|
| 29,401 |
|
|
| 19,739 |
|
Marketing revenue |
|
| 3,417 |
|
|
| 4,319 |
|
|
| 11,104 |
|
|
| 13,127 |
|
Shipping revenue |
|
| 2,574 |
|
|
| 1,583 |
|
|
| 6,688 |
|
|
| 4,405 |
|
Other revenue |
|
| 916 |
|
|
| 1,412 |
|
|
| 3,600 |
|
|
| 4,159 |
|
Total revenue |
| $ | 20,974 |
|
| $ | 26,947 |
|
| $ | 66,522 |
|
| $ | 55,221 |
|
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Commerce-as-a-Service Revenue | $ | 9,229 | $ | 15,729 | ||||
| Product sales revenue | 15,880 | 29,401 | ||||||
| Marketing revenue | 6,757 | 11,104 | ||||||
| Shipping revenue | 4,348 | 6,688 | ||||||
| Other revenue | 4,107 | 3,600 | ||||||
| Total revenue | $ | 40,321 | $ | 66,522 | ||||
| 16. | SEGMENT REPORTING |
14.
The Company conducts business domestically and our revenue is managed on a consolidated basis. Our Co-ChiefChief Executive Officer, Jonathan S. Huberman, who is our Chief Operating Decision Maker, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable for operations, operating results, and plans for levels, components, or types of products or services below the consolidated unit level. Accordingly, the Company is considered to be a single reportable segment.
All of the Company’s long-lived assets and external customers are located within the United States.
20
| 17. | EARNINGS PER SHARE |
Basic and diluted net income (loss) per share are computed using the two-class method as required when there are participating securities. The shares of the Company’s redeemable convertible preferred stock arewere participating securities as the holders of the redeemable convertible preferred stock arewere entitled to participate with any dividends payable in dividends with common stock.Common Stock. In periods of net income, net income is attributed to common stockholdersholders of Common Stock and participating securities based on their participating rights. Net losses are not allocated to the participating securities as the participating securities do not have a contractual obligation to share in any losses. The following table presents the Company’s basic and diluted net income (loss) per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (In thousands, except share and per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Numerator: Basic EPS | ||||||||||||||||
| Net loss | $ | (14,235 | ) | $ | (28,896 | ) | $ | (35,966 | ) | $ | (49,812 | ) | ||||
| Net loss attributable to common stockholders-basic | $ | (14,235 | ) | $ | (28,896 | ) | $ | (35,966 | ) | $ | (49,812 | ) | ||||
| Denominator: Basic EPS | ||||||||||||||||
| Weighted average shares of common stock outstanding-basic | 11,092,559 | 2,496,060 | 8,339,682 | 2,154,638 | ||||||||||||
| Net loss per share attributable to common stock-basic | $ | (1.28 | ) | $ | (11.58 | ) | $ | (4.31 | ) | $ | (23.12 | ) | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (In thousands, except share and per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Numerator: Diluted EPS | ||||||||||||||||
| Net loss attributable to common stockholders-diluted | $ | (14,235 | ) | $ | (28,896 | ) | $ | (35,966 | ) | $ | (49,814 | ) | ||||
| Denominator: Diluted EPS | ||||||||||||||||
| Adjusted weighted average shares of common stock outstanding-basic | 11,092,559 | 2,496,060 | 8,339,682 | 2,154,638 | ||||||||||||
| Dilutive potential shares of common stock: | ||||||||||||||||
| Options to purchase shares of common stock | — | — | — | — | ||||||||||||
| Warrants to purchase shares of common stock | — | — | — | — | ||||||||||||
| Weighted average shares of common stock outstanding-diluted | 11,092,559 | 2,496,060 | 8,339,682 | 2,154,638 | ||||||||||||
| Net loss per share attributable to common stock-diluted | $ | (1.28 | ) | $ | (11.58 | ) | $ | (4.31 | ) | $ | (23.12 | ) | ||||
|
| Three Months ended September 30, |
|
| Nine Months ended September 30, |
| ||||||||||
(In thousands, except share and per share amounts) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
| $ | (28,896 | ) |
| $ | (251 | ) |
| $ | (49,812 | ) |
| $ | 2,074 |
|
Less: Undistributed earnings attributable to participating securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (581 | ) |
Net (loss) income attributable to common stockholders-basic |
| $ | (28,896 | ) |
| $ | (251 | ) |
| $ | (49,812 | ) |
| $ | 1,493 |
|
Denominator: Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares of common stock outstanding-basic |
|
| 49,921,209 |
|
|
| 39,621,946 |
|
|
| 43,092,760 |
|
|
| 39,621,946 |
|
Net (loss) income per share attributable to common stock-basic |
| $ | (0.58 | ) |
| $ | (0.01 | ) |
| $ | (1.16 | ) |
| $ | 0.04 |
|
|
| Three Months ended September 30, |
|
| Nine Months ended September 30, |
| ||||||||||
(In thousands, except share and per share amounts) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) attributable to common stockholders-diluted |
| $ | (28,896 | ) |
| $ | (251 | ) |
| $ | (49,812 | ) |
| $ | 1,493 |
|
Denominator: Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted weighted average shares of common stock outstanding-basic |
|
| 49,921,209 |
|
|
| 39,621,946 |
|
|
| 43,092,760 |
|
|
| 39,621,946 |
|
Dilutive potential shares of common stock: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Options to purchase shares of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 728,284 |
|
Warrants to purchase shares of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 546,049 |
|
Weighted average shares of common stock outstanding-diluted |
|
| 49,921,209 |
|
|
| 39,621,946 |
|
|
| 43,092,760 |
|
|
| 40,896,279 |
|
Net income (loss) per share attributable to common stock-diluted |
| $ | (0.58 | ) |
| $ | (0.01 | ) |
| $ | (1.16 | ) |
| $ | 0.04 |
|
The Company’s potentially dilutive securities below, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive.
Weighted-average number of potentially anti-dilutive shares excluded from calculation of dilutive earnings per share
|
| Three Months ended September 30, |
|
| Nine Months ended September 30, |
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Series A convertible, redeemable preferred shares |
|
| 5,492,133 |
|
|
| 8,864,495 |
|
|
| 7,728,022 |
|
|
| 8,864,495 |
| — | 274,607 | — | 386,401 | ||||||||||||
Series B convertible, redeemable preferred shares |
|
| 3,924,419 |
|
|
| 6,334,150 |
|
|
| 5,522,080 |
|
|
| 6,334,150 |
| — | 196,221 | — | 276,104 | ||||||||||||
Stock-based compensation awards |
|
| 1,927,862 |
|
|
| — |
|
|
| 2,419,681 |
|
|
| — |
| 603,156 | 96,393 | 602,930 | 120,984 | ||||||||||||
Legacy Nogin Warrants |
|
| 472,624 |
|
|
| — |
|
|
| 572,779 |
|
|
| — |
| — | 23,631 | — | 28,639 | ||||||||||||
PIPE Warrants |
|
| 531,246 |
|
|
| — |
|
|
| 179,028 |
|
|
| — |
| 11,253 | 26,562 | 29,880 | 8,951 | ||||||||||||
SWAG Warrants |
|
| 8,136,240 |
|
|
| — |
|
|
| 2,741,883 |
|
|
| — |
| 1,069,334 | 406,812 | 1,069,334 | 137,094 | ||||||||||||
Shares Underlying Convertible Notes |
|
| 2,166,825 |
|
|
| — |
|
|
| 730,212 |
|
|
| — |
| 284,783 | 108,341 | 284,783 | 36,511 | ||||||||||||
| April 2023 Offering Common Warrants | 7,690,304 | — | 4,961,177 | — | ||||||||||||||||||||||||||||
| 18. | MEZZANINE EQUITY AND SHAREHOLDERS’ DEFICIT |
21
SignificantThere were no significant changes in the Company’s mezzanine equity and shareholders’ deficit during the ninethree months ended September 30, 2022 were as follows:2023.
Common Stock
Subsequent to the Business Combination, the Company is authorized to issue up to 500 million shares of common stockCommon Stock with a par value of $0.0001$0.0001 per share. Each share of common stockCommon Stock entitles the shareholder to one vote.
On April 4, 2023, the Company entered into the Purchase Agreements with the Investors pursuant to which the Company agreed to sell, issue, and deliver to Investors, in the April 2023 Offering (i) 7,333,334 shares of Common Stock and (ii) 7,333,334 Common Warrants. Under the terms of the Purchase Agreements, the Company agreed to sell its Common Stock and accompanying Common Warrants at a combined offering price of $3.00 per share of Common Stock and accompanying Common Warrant. On April 6, 2023, the Company consummated the April 2023 Offering and received gross proceeds of approximately $22 million in connection with the offering before deducting placement agent fees and other offering expenses.
Preferred Stock
As part of the Business Combination, all of the convertible preferred stock of Legacy Nogin, (including both the Series A preferred stock and Series B preferred stock) were converted into approximately 15.2 million shares of the Company’s Common Stock. As a result of the conversion of the Series A preferred stock and Series B preferred stock, the Company reclassified the amounts previously recorded in mezzanine equity to additional paid-in capital.
Subsequent to the Business Combination, the Company is authorized to issue 50 million shares of preferred stock with a par value of $0.0001$0.0001 per share. There were no shares of preferred stock issued and outstanding as of September 30, 2022.2023.
Operating Leases
| 19. | OPERATING LEASES |
The Company has entered into lease agreements for offices and warehouses located in California.California and Pennsylvania.
On January 1, 2022, the Company adopted ASU 2016-02 and all subsequent amendments, collectively codified in ASC 842, using the current period adjustment method. Accordingly, comparative period financial information was not restated for the effects of adopting ASC 842.
As of September 30,the date of adoption on January 1, 2022, the monthlyimpact of ASC 842 resulted in the recognition of a ROU asset and lease liability for our operating leases on our consolidated balance sheets of approximately $13.0 million and $15.1 million, respectively.
Lease liabilities were recognized based on the present value of remaining lease payments over the remaining lease term. ROU assets were recognized utilizing the lease liability as of January 1, 2022 adjusted for certain ASC 840 operating lease related balances. As the leases range from approximately $36 thousand to approximately $124 thousand andCompany’s operating lease agreements do not provide a rate implicit in the leases expirelease, we discounted the remaining lease payments using an estimated incremental borrowing rate, which was based on the information available at various times through November 2028. Some of the leases contain renewal options.
Minimum rent payments under all operating leases areadoption date. Operating lease cost is recognized on a straight-line basis over the lease term. Variable lease costs such as common area costs and other operating costs are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the lease including any periods of free rent, and any difference between rental payments and straight-line is recognized as deferred rent in the accompanying condensed consolidated balance sheet. The adoption of this new guidance did not have a material net impact on the Company’s consolidated statements of operations or consolidated statements of cash flows.
Rent
Our operating leases primarily consist of office space, distribution centers and equipment used within our operations. Most of the leases have lease terms ranging from three to eight years, although the terms and conditions of our leases can vary significantly from lease to lease.
The following schedule represents the components of the Company’s operating lease assets and liabilities as of September 30, 2023 (in thousands):
| Leases | Classification | September 30, 2023 | ||||
| Assets | ||||||
| Operating | Operating lease right-of-use assets | $ | 15,254 | |||
| Liabilities | ||||||
| Operating lease liabilities (current) | Operating lease liabilities, current | $ | 4,547 | |||
| Operating lease liabilities (non-current) | Operating lease liabilities, non-current | 12,538 | ||||
The following schedule represents the components of lease expense for the nine monthsfiscal year ended September 30, 20222023 (in thousands):
| September 30, 2023 | ||||
| Lease Costs: | ||||
| Operating lease costs | $ | 4,387 | ||
| Variable lease costs | 619 | |||
| Short-term lease costs | — | |||
| Sublease income | — | |||
| Total lease costs | $ | 5,006 | ||
As of September 30, 2023, the Company’s maturity of operating lease liabilities for the next five years and 2021 was approximately $thereafter are as follows (in thousands):4.1
million and $2.7
| Operating Leases | ||||
| 2023 (remaining payments) | $ | 1,323 | ||
| 2024 | 5,250 | |||
| 2025 | 5,322 | |||
| 2026 | 3,465 | |||
| 2027 | 2,234 | |||
| Thereafter | 904 | |||
| Total lease payments | 18,498 | |||
| Less: imputed interest | (2,123 | ) | ||
| Total operating lease payments | $ | 16,375 | ||
million, respectively, and
Other operating leases information:
| Cash paid for amounts included in the measurement of lease liabilities | $ | 4,726 | ||
| Right-of-use assets obtained in exchange for new lease liabilities | $ | 1,173 | ||
| Weighted-average remaining term (in years) | 3.7 | |||
| Weighted-average discount rate | 6.5 | % |
In accordance with ASC 840, the following is includeda schedule by years of future minimum lease payments required under the operating leases that have initial or noncancelable lease terms in general and administrative expenses in the condensed consolidated statementsexcess of operations.one year as of September 30, 2022.
| As of September 30, 2022: | ||||
| 2022 (remaining payments) | $ | 570 | ||
| 2023 | 1,272 | |||
| 2024 | 873 | |||
| 2025 | 900 | |||
| 2026 | 927 | |||
| Thereafter | 1,853 | |||
| Total minimum lease payments | $ | 6,395 | ||
In July 2018, the Company assumed the operating lease for office space of the entity with which an asset purchase agreement (APA) was executed. The monthly lease payment is $75was $75 thousand and expiresexpired in May 2023.2023. The future minimum lease payments are included in the table below.above. The Company subleased the office space to a third-party in December 2018 for approximately $87$87 thousand per month. The sublease agreement will expireexpired in May 2023.2023. Future rental income is as follows: approximately $1.0$1.0 million forper year during 2022 and approximately $435$435 thousand forin 2023.
Future minimum lease payments under non-cancelable terms are as follows (in thousands):
|
| As of September 30, 2022 |
| |
2022 (remaining payments) |
| $ | 570 |
|
2023 |
|
| 1,272 |
|
2024 |
|
| 873 |
|
2025 |
|
| 900 |
|
2026 |
|
| 927 |
|
Thereafter |
|
| 1,853 |
|
Total minimum lease payments |
| $ | 6,395 |
|
Litigation
InRent expense for the ordinary course of business, the Company may face various claims brought by third parties and the Company may, from time to time, make claims or take legal actions to assert its rights, including intellectual property disputes, contractual disputes, and other commercial disputes. Any of these claims could subject the Company to litigation. As ofnine months ended September 30, 2022 there are no claims that would cause a material impact on the condensed consolidated financial statements.
Indemnities
The Company’s directorswas approximately $2.7 million, and officers agreements require us, among other things, to indemnify the director or officer against specifiedis included in general and administrative expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection
22
with any action, suit or proceeding arising out of the individual’s status or service as our director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by the Company. The Company also indemnifies its lessor in connection with its facility lease for certain claims arising from the use of the facilities.
These indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying condensed consolidated balance sheets.
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements were issued. The Company did not identify any subsequent events or transactions that would require adjustment or disclosure in the condensed consolidated financial statements.statements of operations.
23
| 20. | SUBSEQUENT EVENTS |
On October 5th, 2023, the Company entered into a contribution agreement to contribute its interest in Modcloth and IPCO to a newly established joint venture entity, BiCoastal Alliance, LLC, of which the Company will have 50% ownership interest. Subject to certain closing conditions, the contribution is expected to be completed in the 4th quarter of 2023.
On November 16, 2023, Nogin, Inc. (“Nogin”) entered into a promissory note with B. Riley Securities, Inc., in its capacity as the lender (the “Lender”) pursuant to which Nogin borrowed $8,530,000. Borrowings thereunder must be paid on the earliest to occur of (i) June 30, 2025 and (ii) the date on which acceleration occurs thereunder as a result of certain events of default. Interest on the amounts borrowed accrues at 15% per annum and is payable quarterly. The promissory note contains covenants that must be performed by Nogin including those that are contained in the indenture governing Nogin’s existing convertible secured notes with respect to (i) Exchange Act Reports; (ii) compliance and default certificates); (iii) restricted payments; (iv) collateral; (v) incurrence of indebtedness and issuance of preferred stock; and (vi) additional guarantees. The borrowings are secured pursuant to a security agreement between Nogin and the Lender dated November 16, 2023 pursuant to which the Lender was granted a security interest in all right, title, and interest of each grantor in certain of each grantor’s assets including all accounts, chattel paper, commercial tort claims, deposit accounts, documents, equipment, inventory, fixtures, goods, general intangibles (including, without limitation, patents, trademarks, service marks, trade names, and copyrights, and all grantor’s rights in and under any registrations or applications to register any of the foregoing, and all grantor’s goodwill, instruments, investment property, letter of credit rights and money, and all other assets of such grantor, then owned and existing or thereafter acquired or arising and wherever located, and all proceeds of the foregoing.
On November 16, 2023, Nogin, the Lender, B. Riley Principal Investments, LLC, as plan sponsor, holders of 90% of Nogin’s convertible secured notes entered into a restructuring support agreement (the “Agreement”).
The Agreement provides for the sale of Nogin and contemplates that Nogin will file a voluntary petition for bankruptcy no later than December 1, 2023. In connection therewith it is contemplated that the plan sponsor would provide a debtor-in-possession loan which, together with the loan described above, would be equitized into 100% ownership of Nogin or be used to acquire substantially all of Nogin’s assets. The parties have agreed to support the proposed restructuring including debtor-in-possession financing. The contemplated restructuring would result in a payment of $15,000,000 to the convertible note holders in satisfaction of their claims together with a priority claim on the proceeds of any litigation proceeds up to the amount of their secured claim.
Nogin and its board of directors may refrain from taking any actions or take any actions inconsistent with the Agreement if there is a determination that acting or refraining to act would be inconsistent with applicable law including any fiduciary duty obligations.
The contemplated restructuring is unlikely to result in any distribution to holders of Nogin’s common stock in their capacity as such and Nogin’s existing common stock and warrants are likely to become worthless.
On November 16, 2023, Nogin received a notice of noncompliance from Nasdaq regarding its listing standards given Nogin did not file its quarterly report on Form 10-Q for the quarter ended September 30, 2023 on its original due date as required pursuant to Nasdaq listing rule 5250(c)(1). On November 15, 2023, Nogin did file a Notification of Late Filing on Form 12b-25 within the prescribed time period under the rules promulgated by the United States Securities and Exchange Commission.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related notes of Nogin, Inc. and its subsidiaries included elsewhere in this Report. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section captioned “Risk Factors” in our Registration StatementAnnual Report on Form S-110-K filed with the SEC on September 16, 2022March 23, 2023 and elsewhere in this Report, actual results may differ materially from those anticipated in these forward-looking statements.
Unless the context otherwise requires, references in this subsection to “we,” “our,” “Nogin” and the “Company” refer to the business and operations of Branded Online, Inc. dba Nogin and its consolidated subsidiaries prior to the Business Combination and to Nogin, Inc. (formerly known as Software Acquisition Group Inc. III) and its consolidated subsidiaries following the consummation of the Business Combination (as defined below).
Company Overview
Nogin is an e-commerce, technology platform provider in the apparel and ancillary industry’s multichannel retailing, business-to-consumer and business-to-business domains. Nogin’s CaaS platform delivers full-stack enterprise-level capabilities to our clients enabling them to compete with large retailers. As clients grow their brand, they require additional capabilities beyond a simple online storefront. We provide the technology for these growing brands to manage complexities related to customer management, order optimization, returns, and fulfillment. The platform’s tools provide clients with capabilities around website development, photography, content management, customer service, marketing, warehousing, and fulfillment. The Company’s business model is based on providing a total e-commerce software solution to its partners on a revenue-sharing basis. The Company’s platform is used by online businesses whose needs are too complex for low costlow-cost SaaS ecommercee-commerce platforms, yet require more flexibility and economic viability than provided by enterprise solutions.
Our platform helps brands develop relationships directly with their customers leading to accelerated revenue growth, improved customer engagement, and reduced costs related to re-platforming and third-party integrations.
Recent Developments
Business Combination
Notice of Noncompliance from Nasdaq
On February 14, 2022,September 5, 2023, the Company entered intoreceived a written notice (the “Notice”) from the Merger AgreementListing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, based on the closing bid price of the Company’s common stock, par value $0.0001 per share, for the last 30 consecutive trading days, the Company no longer complies with Merger Subthe minimum bid price requirement for continued listing on The Nasdaq Global Market. Nasdaq Listing Rule 5450(a)(1) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Legacy Nogin, pursuantNasdaq Listing Rule 5810(c)(3)(A) provides that a failure to which Merger Submeet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days.
The Notice has no immediate effect on the listing of the Common Stock on The Nasdaq Global Market. Pursuant to the Nasdaq Listing Rules, the Company has been provided an initial compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of the Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days prior to March 4, 2024, and the Company must otherwise satisfy The Nasdaq Global Market’s requirements for listing.
If the Company does not regain compliance by March 4, 2024, the Company may be eligible for an additional 180 calendar day compliance period if it elects (and meets the listing standards) to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. To qualify, the Company would mergebe required, among other things, to meet the continued listing requirement for market value of publicly held shares as well as all other standards for initial listing on The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and into Legacy Nogin,would need to provide written notice of its intention to cure the bid price deficiency during the second compliance period. If the Company does not regain compliance within the compliance period(s), including any extensions that may be granted by Nasdaq, the Common Stock will be subject to delisting.
The Company intends to monitor the bid price of the Common Stock and consider available options to resolve the noncompliance with Legacy Nogin surviving the merger asMinimum Bid Price Requirement. There can be no assurance that the Company will be able to regain compliance with The Nasdaq Global Market’s continued listing requirements or that Nasdaq will grant the Company a further extension of time to regain compliance, if applicable.
The Notice is unrelated to the previously disclosed notice received by the Company from Nasdaq on July 10, 2023 regarding the Company’s noncompliance with the market value of publicly held shares requirement for continued listing on The Nasdaq Global Market under Nasdaq Listing Rule 5450(b)(2)(C).
Joint Venture
On October 4, 2023, the Company’s wholly owned subsidiary, of the Company.
On April 19, 2022, the Company, the Notes Guarantors and the Subscribers entered into the PIPE Subscription Agreements pursuant to which the Company agreed to issue and sell to the Subscribers immediately prior to the closing of the Business Combination (i) up to an aggregate principal amount of $75.0 million of Convertible Notes at the par value of the notes and (ii) up to an aggregate of 1.5 PIPE Warrants with each whole PIPE Warrant entitling the holder thereof to purchase one share of Common Stock.
On August 26, 2022, the Company and a subscriber (the “Equity Subscriber”) entered into a subscription agreement (the “Equity PIPE Subscription Agreement”) pursuant to which the Company agreed to issue and sell to the Equity Subscriber, immediately prior to the closing of the Business Combination, 517,079 shares of Common Stock (the “PIPE Shares”) at a price per PIPE Share equal to $10.17 (the “Equity PIPE” and, together with the transactions described in clauses (i) and (ii) above, the “PIPE Investment”).
On August 26, 2022, immediately prior to the Closing, the Company issued (i) 517,079 shares of Common Stock to the Equity Subscriber in accordance with the terms of the Equity PIPE Subscription Agreement, (ii) $65.5 million aggregate principal amount of Convertible Notes to the Subscribers in accordance with the terms of the PIPE Subscription Agreements and (iii) 1,396,419 PIPE Warrants to the Subscribers in accordance with the terms of the PIPE Subscription Agreements.
On the Closing Date, pursuant to the Merger Agreement, Merger Sub merged with and into Legacy Nogin, with Legacy Nogin surviving the merger as a wholly owned subsidiary of the Company. In connection with Closing, we changed our name to Nogin, Inc.
Joint Ventures
On April 6, 2021, the Company and Tiger CapitalNative Brands Group LLC (“Tiger Capital”Native Member”), and Gabriel M. Zeitouni (“EZ Member”) formed a joint venture, ModclothBicoastal Alliance LLC (“ModCloth”Bicoastal”). The CompanyNative Member contributed 100% of the membership interest of ModCloth Partners LLC, and Tiger Capital each contributed $1.5 million into ModCloth and Nogin owns 50% of the outstanding membership units. Tiger Capital provides the financing for the inventory, while Nogin entered into a Master Services Agreement (“MSA”) with ModCloth to provide the Intelligent Commerce Platform and eCommerce services. The Company accounts for its investment in ModCloth under the fair value optioninterest of accounting. As of December 31, 2021, the investment balance related to
24
ModCloth was$6.4 million and was included in investment in unconsolidated affiliates on the consolidated balance sheets. For the year ended December 31, 2021, the Company recorded a fair value adjustment related to its ModCloth investment of $4.9 million included in changes in fair value of unconsolidated affiliates on the consolidated statements of operations.
On December 31, 2021, the Company and CFL Delaware, Inc. (“CFL”) formed a joint venture, IPCO Holdings LLC, (“IPCO”), whereby the Company contributed certain assets acquired from the BTB (ABC), LLC (“Betabrand”) acquisition and entered into a MSA with IPCO to provide certain eCommerce services, marketing, photography, customer service and merchant credit card monitor fraud services; and CFL entered into a Master Supply Agreement with IPCO and agreed to procure the supply of inventory to IPCO, provide manufacturing, fulfillment, logistics and warehousing servicesin exchange for the inventory. The Company accounts for its investment in IPCO under the fair value option of accounting. As of December 31, 2021, the investment balance related to IPCO was $7.1 million and was included in investment in unconsolidated affiliates on the consolidated balance sheets.
The Company has determined that it does not have the ability to direct the most significant activities50% of the joint ventures.Bicoastal membership interest. EZ Member contributed $700 thousand to Bicoastal in exchange for 50% of the Bicoastal membership interest. The Company’s maximum exposure to loss as a result of its investmentsEZ Member capital contribution will be in the joint ventures is equal to its carrying valueform of the investment. The Company has recorded its 50% equitya note at an interest in the joint ventures as investments in unconsolidated affiliates under the fair value optionrate of accounting. Changes in the fair value of the joint ventures, which are inclusive of equity in income, are recorded as changes in fair value of unconsolidated affiliates in the consolidated statements of operations during the periods such changes occur.Prime plus 2% per annum.
Impact of COVID-19 pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The worldwide spread of COVID-19 has resulted, and is expected to continue to result, in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting sales channels and advertising and marketing activities for an unknown period until the virus is contained, or economic activity normalizes. Our revenue growth and results of operations have been resilient despite the headwinds created by the COVID-19 pandemic. The extent to which ongoing and future developments related to the global impact of the COVID-19 pandemic and relatedvaccination measures designed to curb its spread continue to impact our business, financial condition, and results of operations, all of which cannot be predicted with certainty. Many of these ongoing and future developments are beyond our control, including the speed of contagion, the development, distribution and implementation of effective preventative or treatment measures, including vaccines (and vaccination rates), the scope of governmental and other restrictions on travel, discretionary services and other activity, and the public reactions and receptiveness to these developments. See the section entitled “Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.
At the onset of COVID-19, the Company anticipated an impact to the business, its financial conditions and results of operations. The Company applied for and was granted a Paycheck Protection Plan (“PPP”) loan. In addition, the Company has taken a number of actions to mitigate the impacts of the COVID-19 pandemic on its business. The Company witnessed a large shift in consumer spending from retail stores to online stores, and as a result, there were no significant declines in the periods presented. However, the impacts of the COVID-19 pandemic will depend on future developments, including the duration and spread of the pandemic. These developments and the impacts of the COVID-19 pandemic on the financial markets and overall economy are highly uncertain and cannot be predicted.
In 2020, due to COVID-19, the Company implemented a pay reduction of 20% for the majority of our salaried employees. Once the PPP loan was received, the Company removed the pay reduction for the employees who were affected by the pay reduction.
Components of Our Results of Operations
Revenue
Revenue
The Company’s sources of revenue are summarized as follows:
25
| ● | Product revenue |
| ○ | Under certain licensee agreements, the Company is the owner of inventory and reseller of record. As a result, the Company is the principal in sales to end customers and records these revenues on a gross basis at a point in time. |
o
| ● | Service revenue |
Marketing service revenue—
| ○ | Commerce-as-a-Service—The Company’s main revenue stream is CaaS revenue in which it receives commission fees derived from contractually committed gross revenue processed by customers on the Company’s e-commerce platform. Consideration for online sales is collected directly from the end customer by the Company and amounts not owed to the Company are remitted to the customer. Revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged in an agency relationship with its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers’ inventories or any credit risks relating to the products sold. |
Revenue for marketing services is recognized on a gross basis as marketing services are complete. Performance obligations include providing marketing and program management such as procurement and implementation.
| ○ | Fulfillment service revenue—Revenue for B2B fulfillment services is recognized on a gross basis either at a point in time or over a point in time. For example, inbound and outbound services are recognized when the service is complete, while monthly storage services are recognized over the service period. |
| ○ | Marketing service revenue—Revenue for marketing services is recognized on a gross basis as marketing services are completed. Performance obligations include providing marketing and program management such as procurement and implementation. |
o
| ○ | Shipping service revenue—Revenue for shipping services is recognized on a gross basis as shipments are completed and products are shipped to end customers. |
Shipping service revenue—
| ○ | Other service revenue—Revenue for other services such as photography, B2C fulfillment, customer service, development and web design are reimbursable costs and recognized on the gross basis, and are services rendered as part of the performance obligations to clients for which an online platform and online orders are managed. All reimbursable costs are the responsibility of the Company as the Company uses such services to fulfill its performance obligations. |
Revenue for shipping services is recognized on a gross basis as shipments are completed and products are shipped to end customers. This historical source of revenue is separate from the Smart Ship offering. Smart Ship is an offering that provides order storage and fulfillment solutions, designed for small to mid-size companies to manage the fulfillment of their orders and would be included as Fulfillment service revenue.
| ○ | Set up and implementation service revenue—The Company provides set up and implementation services for new clients. The revenue is recognized on a gross basis at the completion of the service, with the unearned amounts received for incomplete services recorded as deferred revenue, if any. |
The Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; |
•
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
•
A performance obligation is a promise in a contract to transfer a distinct product. Performance obligations promised in a contract are identified based on the goods that will be transferred that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. Performance obligations include establishing and maintaining customer online stores, providing access to the Company’s e-commerce platform, customer service support, photography services, warehousing, and fulfillment. Most of the contracts of the Company with customers contain multiple promises, which may result in multiple performance obligations, while others are combined into one performance obligation. For contracts with customers, the Company accounts for individual promises separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors.
The Company has concluded the sale of goods and related shipping and handling on behalf of our customers are accounted for as a single performance obligation, while the expenses incurred for actual shipping charges are included in cost of sales.
The Company’s revenue is mainly commission fees derived from contractually committed gross revenue processed by customers on the Company'sCompany’s e-commerce platform. The Company is acting as an agent in these arrangements and customers do not have the contractual right to take possession of the Company'sCompany’s software. Revenue is recognized in an amount that reflects the consideration that the Company expects to ultimately receive in exchange for those promised goods, net of expected discounts for sales promotions and customary allowances.
CaaS Revenuerevenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged primarily in an agency relationship with its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers'customers’ inventory or any credit risks related to the products sold.
Variable consideration is included in revenue for potential product returns. The Company uses an estimate to constrain revenue for the expected variable consideration at each period end. The Company reviews and updates its estimates and related accruals of variable consideration each period based on the terms of the agreements, historical experience, and expected levels of returns. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe therefore not requiring any additional constraint on the variable consideration. The estimated reserve for returns is included on the balance sheet in accrued expenses with changes to the reserve in revenue on the accompanying statement of operations.
26
In most cases the Company acts as the merchant of record, resulting in a due to client liability (discussed below). However, in some instances, the Company may perform services without being the merchant of record in which case there is a receivable from the customer.
Payment terms and conditions are generally consistent for customers, including credit terms to customers ranging from seven days to 60 days, and the Company’s contracts do not include any significant financing component. The Company performs credit evaluations of customers and evaluates the need for allowances for potential credit losses based on historical experience, as well as current and expected general economic conditions.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net revenue in the condensed consolidated statements of operations.
Operating Expenses
We classify our operating expenses into the following categories:
| ● | Cost of services. Cost of services reflects costs directly related to providing services under the master service agreements with customers, which primarily includes service provider costs directly related to processing revenue transactions, marketing expenses and shipping and handling expenses which correspond to marketing and shipping revenues, as well as credit card merchant fees. Cost of services is exclusive of depreciation and amortization and general salaries and related expenses. |
| ● | Cost of product revenue. Cost of product revenue reflects costs directly related to selling inventory acquired from select clients, which primarily includes product cost, warehousing costs, fulfillment costs, credit card merchant fees and third-party royalty costs. Cost of product revenue is exclusive of depreciation and amortization and general salaries and related expenses. |
| ● | Sales and marketing. Sales and marketing expense consists primarily of salaries associated with selling across all our revenue streams. |
| ● | Research and development. Research and development expense consists primarily of salaries and contractors’ costs associated with research and development of the Company’s technology platform. |
| ● | General, and administrative. General and administrative expense consists primarily of lease expense, materials and equipment, dues and subscriptions, professional services, and acquisition costs incurred. |
| ● | Depreciation and amortization. Depreciation and amortization expenses are primarily attributable to our capital investment and consist of fixed asset depreciation and amortization of intangibles considered to have finite lives. |
Interest Expense
Interest expense primarily consists of interest incurred under our line of credit and promissory notes.Convertible Notes.
Change in Fair Value of Unconsolidated Affiliates
Change in fair value of unconsolidated affiliates represents the fair value adjustments associated with the Company’s ModCloth and IPCOjoint venture investments for which the Company elected to use the fair value option of accounting.
Other Income (Expense)
Other income (expense) is mainly related to change in fair value of deferred cash consideration, change in fair value of warrant, debt issuance cost expensed under the fair value option, offset by sublease rental income derived from the sublease of property by the Company as well as gain from settlement of deferred revenue and PPP loan forgiveness.revenue.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes consist primarily of U.S. federal, state, and foreign income taxes. Deferred tax assets and liabilities are recognized with respect to the tax consequences attributable to differences between the financial statement carrying values and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. A valuation allowance is established, when necessary, to reduce deferred tax assets if it is more likely than not that some portion or all the deferred tax assets will not be realized.
Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical, as well as future, projected taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes our realization of tax attributes, assessment of tax credits and utilization of net operating loss carryforwards during the year.
27
Results of Operations
The following tables set forth our consolidated results of operations and outour consolidated results of operations as a percentage of revenue for the periods presented (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net service revenue |
| $ | 10,013 |
|
| $ | 9,071 |
|
| $ | 27,800 |
|
| $ | 31,242 |
|
Net product revenue |
|
| 8,645 |
|
|
| 15,224 |
|
|
| 29,401 |
|
|
| 19,739 |
|
Net revenue from related parties |
|
| 2,316 |
|
|
| 2,652 |
|
|
| 9,321 |
|
|
| 4,240 |
|
Total net revenue |
|
| 20,974 |
|
|
| 26,947 |
|
|
| 66,522 |
|
|
| 55,221 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of services (1) |
|
| 6,304 |
|
|
| 5,250 |
|
|
| 17,496 |
|
|
| 16,721 |
|
Cost of product revenue (1) |
|
| 7,956 |
|
|
| 6,049 |
|
|
| 23,363 |
|
|
| 7,957 |
|
Sales and marketing |
|
| 925 |
|
|
| 528 |
|
|
| 2,111 |
|
|
| 1,205 |
|
Research and development |
|
| 1,400 |
|
|
| 1,609 |
|
|
| 4,227 |
|
|
| 4,033 |
|
General and administrative |
|
| 15,969 |
|
|
| 15,658 |
|
|
| 46,332 |
|
|
| 30,300 |
|
Depreciation and amortization |
|
| 194 |
|
|
| 144 |
|
|
| 614 |
|
|
| 384 |
|
Total operating costs and expenses |
|
| 32,748 |
|
|
| 29,238 |
|
|
| 94,143 |
|
|
| 60,600 |
|
Operating loss |
|
| (11,774 | ) |
|
| (2,291 | ) |
|
| (27,621 | ) |
|
| (5,379 | ) |
Interest expense |
|
| (2,568 | ) |
|
| (254 | ) |
|
| (4,685 | ) |
|
| (374 | ) |
Change in fair value of promissory notes |
|
| (1,995 | ) |
|
| — |
|
|
| (4,561 | ) |
|
| — |
|
Change in fair value of derivative instruments |
|
| 64 |
|
|
| — |
|
|
| 64 |
|
|
| — |
|
Change in fair value of unconsolidated affiliates |
|
| 87 |
|
|
| — |
|
|
| (1,895 | ) |
|
| 4,937 |
|
Change in fair value of convertible notes |
|
| (9,182 | ) |
|
| — |
|
|
| (9,182 | ) |
|
| — |
|
Debt extinguishment loss |
|
| (1,885 | ) |
|
| — |
|
|
| (1,885 | ) |
|
| — |
|
Other (loss) income, net |
|
| (1,574 | ) |
|
| 2,660 |
|
|
| 87 |
|
|
| 2,972 |
|
(Loss) Income before income taxes |
|
| (28,827 | ) |
|
| 115 |
|
|
| (49,678 | ) |
|
| 2,156 |
|
Provision for income taxes |
|
| 69 |
|
|
| 366 |
|
|
| 134 |
|
|
| 82 |
|
Net (loss) income |
| $ | (28,896 | ) |
| $ | (251 | ) |
| $ | (49,812 | ) |
| $ | 2,074 |
|
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net service revenue | $ | 5,585 | $ | 10,013 | $ | 22,046 | $ | 27,800 | ||||||||
| Net product revenue | 4,596 | 8,645 | 15,879 | 29,401 | ||||||||||||
| Net revenue from related parties | 722 | 2,316 | 2,396 | 9,321 | ||||||||||||
| Total net revenue | 10,903 | 20,974 | 40,321 | 66,522 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of services (1) | 3,112 | 6,304 | 11,919 | 17,496 | ||||||||||||
| Cost of product revenue (1) | 4,318 | 7,956 | 10,231 | 23,363 | ||||||||||||
| Sales and marketing | 1,117 | 925 | 2,534 | 2,111 | ||||||||||||
| Research and development | 1,260 | 1,400 | 3,386 | 4,227 | ||||||||||||
| General and administrative | 11,359 | 15,969 | 44,498 | 46,332 | ||||||||||||
| Goodwill impairment | 6,748 | — | 6,748 | — | ||||||||||||
| Depreciation and amortization | 318 | 194 | 755 | 614 | ||||||||||||
| Total operating costs and expenses | 28,232 | 32,748 | 80,071 | 94,143 | ||||||||||||
| Operating loss | (17,329 | ) | (11,774 | ) | (39,750 | ) | (27,621 | ) | ||||||||
| Interest expense | (2,087 | ) | (2,568 | ) | (6,878 | ) | (4,685 | ) | ||||||||
| Change in fair value of promissory notes | — | (1,995 | ) | (418 | ) | (4,561 | ) | |||||||||
| Change in fair value of derivative instruments | 4,732 | 64 | 9,042 | 64 | ||||||||||||
| Change in fair value of unconsolidated affiliates | 1,922 | 87 | 984 | (1,895 | ) | |||||||||||
| Change in fair value of convertible notes | (1,250 | ) | (9,182 | ) | 2,044 | (9,182 | ) | |||||||||
| Debt extinguishment gain | — | (1,885 | ) | 63 | (1,885 | ) | ||||||||||
| Other (loss) income, net | (45 | ) | (1,574 | ) | (863 | ) | 87 | |||||||||
| Loss before income taxes | (14,057 | ) | (28,827 | ) | (35,776 | ) | (49,678 | ) | ||||||||
| (Benefit) Provision for income taxes | 178 | 69 | 191 | 134 | ||||||||||||
| Net loss | $ | (14,235 | ) | $ | (28,896 | ) | $ | (35,966 | ) | $ | (49,812 | ) | ||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(as a percentage of total revenue*) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net service revenue |
|
| 47.7 | % |
|
| 33.7 | % |
|
| 41.8 | % |
|
| 56.6 | % |
Net product revenue |
|
| 41.2 | % |
|
| 56.5 | % |
|
| 44.2 | % |
|
| 35.7 | % |
Net revenue from related parties |
|
| 11.0 | % |
|
| 9.8 | % |
|
| 14.0 | % |
|
| 7.7 | % |
Total net revenue |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of services (1) |
|
| 30.1 | % |
|
| 19.5 | % |
|
| 26.3 | % |
|
| 30.3 | % |
Cost of product revenue (1) |
|
| 37.9 | % |
|
| 22.4 | % |
|
| 35.1 | % |
|
| 14.4 | % |
Sales and marketing |
|
| 4.4 | % |
|
| 2.0 | % |
|
| 3.2 | % |
|
| 2.2 | % |
Research and development |
|
| 6.7 | % |
|
| 6.0 | % |
|
| 6.4 | % |
|
| 7.3 | % |
General and administrative |
|
| 76.1 | % |
|
| 58.1 | % |
|
| 69.6 | % |
|
| 54.9 | % |
Depreciation and amortization |
|
| 0.9 | % |
|
| 0.5 | % |
|
| 0.9 | % |
|
| 0.7 | % |
Total operating costs and expenses |
|
| 156.1 | % |
|
| 108.5 | % |
|
| 141.5 | % |
|
| 109.7 | % |
Operating loss |
|
| -56.1 | % |
|
| -8.5 | % |
|
| -41.5 | % |
|
| -9.7 | % |
Interest expense |
|
| -12.2 | % |
|
| -0.9 | % |
|
| -7.0 | % |
|
| -0.7 | % |
Change in fair value of promissory notes |
|
| -9.5 | % |
|
| 0.0 | % |
|
| -6.9 | % |
|
| 0.0 | % |
Change in fair value of derivative instruments |
|
| 0.3 | % |
|
| 0.0 | % |
|
| 0.1 | % |
|
| 0.0 | % |
Change in fair value of unconsolidated affiliates |
|
| 0.4 | % |
|
| 0.0 | % |
|
| -2.8 | % |
|
| 8.9 | % |
Change in fair value of convertible notes |
|
| -43.8 | % |
|
| 0.0 | % |
|
| -13.8 | % |
|
| 0.0 | % |
Debt extinguishment loss |
|
| -9.0 | % |
|
| 0.0 | % |
|
| -2.8 | % |
|
| 0.0 | % |
Other (loss) income, net |
|
| -7.5 | % |
|
| 9.9 | % |
|
| 0.1 | % |
|
| 5.4 | % |
(Loss) Income before income taxes |
|
| -137.4 | % |
|
| 0.4 | % |
|
| -74.7 | % |
|
| 3.9 | % |
Provision for income taxes |
|
| 0.3 | % |
|
| 1.4 | % |
|
| 0.2 | % |
|
| 0.1 | % |
Net (loss) income |
|
| -137.8 | % |
|
| -0.9 | % |
|
| -74.9 | % |
|
| 3.8 | % |
* Percentages may not sum due to rounding
28
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (as a percentage of total revenue*) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Net service revenue | 51.2 | % | 47.7 | % | 54.7 | % | 41.8 | % | ||||||||
| Net product revenue | 42.2 | % | 41.2 | % | 39.4 | % | 44.2 | % | ||||||||
| Net revenue from related parties | 6.6 | % | 11.0 | % | 5.9 | % | 14.0 | % | ||||||||
| Total net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of services (1) | 28.5 | % | 30.1 | % | 29.6 | % | 26.3 | % | ||||||||
| Cost of product revenue (1) | 39.6 | % | 37.9 | % | 25.4 | % | 35.1 | % | ||||||||
| Sales and marketing | 10.2 | % | 4.4 | % | 6.3 | % | 3.2 | % | ||||||||
| Research and development | 11.6 | % | 6.7 | % | 8.4 | % | 6.4 | % | ||||||||
| General and administrative | 104.2 | % | 76.1 | % | 110.4 | % | 69.6 | % | ||||||||
| Goodwill impairment | 61.9 | % | 0.0 | % | 16.7 | % | 0.0 | % | ||||||||
| Depreciation and amortization | 2.9 | % | 0.9 | % | 1.9 | % | 0.9 | % | ||||||||
| Total operating costs and expenses | 258.9 | % | 156.1 | % | 198.6 | % | 141.5 | % | ||||||||
| Operating loss | -158.9 | % | -56.1 | % | -98.6 | % | -41.5 | % | ||||||||
| Interest expense | -19.1 | % | -12.2 | % | -17.1 | % | -7.0 | % | ||||||||
| Change in fair value of promissory notes | 0.0 | % | -9.5 | % | -1.0 | % | -6.9 | % | ||||||||
| Change in fair value of derivative instruments | 43.4 | % | 0.3 | % | 22.4 | % | 0.1 | % | ||||||||
| Change in fair value of unconsolidated affiliates | 17.6 | % | 0.4 | % | 2.4 | % | -2.8 | % | ||||||||
| Change in fair value of convertible notes | -11.5 | % | -43.8 | % | 5.1 | % | -13.8 | % | ||||||||
| Debt extinguishment gain | 0.0 | % | -9.0 | % | 0.2 | % | -2.8 | % | ||||||||
| Other (loss) income, net | -0.4 | % | -7.5 | % | -2.1 | % | 0.1 | % | ||||||||
| Loss before income taxes | -128.9 | % | -137.4 | % | -88.7 | % | -74.7 | % | ||||||||
| (Benefit) Provision for income taxes | 1.6 | % | 0.3 | % | 0.5 | % | 0.2 | % | ||||||||
| Net loss | -130.6 | % | -137.8 | % | -89.2 | % | -74.9 | % | ||||||||
| * | Percentages may not sum due to rounding |
| (1) | Exclusive of depreciation and amortization shown separately. |
Comparison of the Nine Monthsnine months Ended September 30, 20222023 and 20212022
Net service revenue
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Net service revenue |
| $ | 27,800 |
|
| $ | 31,242 |
|
| $ | (3,442 | ) |
|
| (11.0 | )% |
Percent of total revenue |
|
| 41.8 | % |
|
| 56.6 | % |
|
|
|
|
|
| ||
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Net service revenue | $ | 22,046 | $ | 27,800 | $ | (5,754 | ) | (20.7 | )% | |||||||
| Percent of total revenue | 54.7 | % | 41.8 | % | ||||||||||||
Net service revenue decreased by $3.4$5.8 million, or 11.0%20.7%, to $22.0 million for the nine months ended September 30, 2023, as compared to $27.8 million for the nine months ended September 30, 2022 as compared to $31.2 million for the nine months ended September 30, 2021.2022. The Company historically recognizes netdecrease in service revenue as a percentage of service sales. The decrease is primarily due to a client for whom the Company recognized(i) lower sales, (ii) lowered service revenue in 2021 until the Company purchased inventory from the client,percentage charged to certain clients, and as a result, the Company began recognizing product revenue instead of service revenue starting in the third quarter of 2021. See below for further discussion on product revenue. (iii) clients offboarding. Net service revenue as a percentage of total revenue was 54.7% for the nine months ended September 30, 2023 compared to 41.8% for the nine months ended September 30, 2022 compared2022.
Net product revenue
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Net product revenue | $ | 15,879 | $ | 29,401 | $ | (13,522 | ) | (46.0 | )% | |||||||
| Percent of total revenue | 39.4 | % | 44.2 | % | ||||||||||||
Net product revenue decreased by $13.5 million, or 46.0%, to 56.6%$15.9 million for the nine months ended September 30, 2021.
Net product revenue
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Net product revenue |
| $ | 29,401 |
|
| $ | 19,739 |
|
| $ | 9,662 |
|
|
| 48.9 | % |
Percent of total revenue |
|
| 44.2 | % |
|
| 35.7 | % |
|
|
|
|
|
| ||
Net product revenue increased by $9.7 million, or 48.9%,2023, as compared to $29.4 million for the nine months ended September 30, 2022 as compared to $19.7 million for the nine months ended September 30, 2021.2022. The Company historically recognizes net revenue as a percentage of service sales. Starting in the second quarter of 2021, the Company added product revenue, which was generated from purchased inventory from select clients, to assist those clients with managing inventory through the pandemic in order to continue marketing and selling their particular brand of products. The Company sourced the products from vendors approved by licensees, and the products were received into the Company’s leased distribution centers and orders by end-customers were then fulfilled. As a result, the Company recognized the gross revenue for the sale of the inventory-owned products, and the corresponding cost of product revenue in the period the order was fulfilled. The practice of purchasing inventory was unique to 2021 and 2022, and the Company does not anticipate continuing after finding a buyer to distribute the inventory. The increasedecrease in product revenue is primarily due to the additionclosing of a secondone product line and lower sales in the other product lines. The closing of one product line resulted in the reduction of product revenue client thatof $6.9 million. The revenue of the other product line decreased $12.8 million. The reduction was added inoffset by the third quarter of 2021.ModCloth product revenue $6.0 million. Net product revenue as a percentage of total revenue was 39.4% for the nine months ended September 30, 2023, compared to 44.2% for the nine months ended September 30, 2022 compared2022.
Net revenue from related parties
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Net revenue from related parties | $ | 2,396 | $ | 9,321 | $ | (6,925 | ) | (74.3 | )% | |||||||
| Percent of total revenue | 5.9 | % | 14.0 | % | ||||||||||||
Net revenue from related parties decreased by $6.9 million, or 74.3%, to 35.7%$2.4 million for the nine months ended September 30, 2021.
Net revenue from related parties
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Net revenue from related parties |
| $ | 9,321 |
|
| $ | 4,240 |
|
| $ | 5,081 |
|
|
| 119.8 | % |
Percent of total revenue |
|
| 14.0 | % |
|
| 7.7 | % |
|
|
|
|
|
| ||
Net revenue from related parties increased by $5.1 million, or 119.8%,2023, as compared to $9.3 million for the nine months ended September 30, 2022 as compared to $4.2 million for the nine months ended September 30, 2021. 2022. The Company provides services to its joint ventures under Master Services agreementsAgreements that are classified as related party revenue. The increaseOn December 1, 2022, the Company acquired the remaining 50% equity interest in ModCloth; as a result, ModCloth became a wholly owned consolidated subsidiary of the Company, and the results of ModCloth are consolidated into the results of the Company. As such, the decrease in revenue from related parties is primarily due to the addition of a second joint venture addedModCloth’s revenue being recorded in product revenue starting in the fourth quarterfirst three quarters of 2021, and2023, as compared to being recorded in revenue forfrom related parties in the second joint venture was included for the nine months ending September 30, 2022.same quarters last year. Net service revenue from related parties as a percentage of total revenue was 5.9% for the nine months ended September 30, 2023, compared to 14.0% for the nine months ended September 30, 2022 compared2022.
Cost of services
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Cost of services | $ | 11,919 | $ | 17,496 | $ | (5,577 | ) | (31.9 | )% | |||||||
| Percent of total revenue | 29.6 | % | 26.3 | % | ||||||||||||
Cost of services decreased by $5.6 million, or 31.9%, to 7.7%$11.9 million for the nine months ended September 30, 2021.
Cost of services
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Cost of services |
| $ | 17,496 |
|
| $ | 16,721 |
|
| $ | 775 |
|
|
| 4.6 | % |
Percent of total revenue |
|
| 26.3 | % |
|
| 30.3 | % |
|
|
|
|
|
| ||
Cost of services increased by $0.8 million, or 4.6%,2023, as compared to $17.5 million for the nine months ended September 30, 2022 as compared to $16.7 million for the nine months ended September 30, 2021.2022. The increasedecrease in cost of services followed the similar trend of the decrease in 2022 wasservice revenue for the same period. Service revenue, including revenue from related to higher shipping
29
costs.parties, decreased 34.2% while the cost of services decreased 31.9%. Cost of services as a percentage of total revenue was 29.6% for the nine months ended September 30, 2023, compared to 26.3% for the nine months ended September 30, 2022 compared2022.
Cost of product revenue
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Cost of product revenue | $ | 10,231 | $ | 23,363 | $ | (13,132 | ) | (56.2 | )% | |||||||
| Percent of total revenue | 25.4 | % | 35.1 | % | ||||||||||||
Cost of product revenue decreased by $13.1 million, or 56.2%, to 30.3%$10.2 million for the nine months ended September 30, 2021.
Cost of product revenue
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Cost of product revenue |
| $ | 23,363 |
|
| $ | 7,957 |
|
| $ | 15,406 |
|
|
| 193.6 | % |
Percent of total revenue |
|
| 35.1 | % |
|
| 14.4 | % |
|
|
|
|
|
| ||
Cost of product revenue increased by $15.4 million, or 193.6%,2023, as compared to $23.4 million for the nine months ended September 30, 2022 as compared to $8.02022. The cost of the footwear product line decreased $2.9 million forwhile the nine months ended September 30, 2021. The increasecost of the apparel product decreased $11.6 million. Additionally, there was primarilya $1.0 million cost of product revenue related to the acquisition ofone time IPCO inventory startingsale in the secondfirst quarter of 2021 in order to support select clients during2022. The reduction was offset by the pandemic. The practiceModCloth cost of purchasing inventory was unique to 2021 and 2022, and the Company does not anticipate continuing after finding a buyer to distribute the inventory.product revenue of $2.5 million. Cost of product revenue as a percentage of total revenue was 25.4% for the nine months ended September 30, 2023, compared to 35.1% for the nine months ended September 30, 2022 compared2022.
Sales and Marketing
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Sales and marketing | $ | 2,534 | $ | 2,111 | $ | 423 | 20.0 | % | ||||||||
| Percent of total revenue | 6.3 | % | 3.2 | % | ||||||||||||
Sales and marketing expense increased by $423 thousand, or 20.0%, to 14.4%$2.5 million for the nine months ended September 30, 2021.
Sales and Marketing
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Sales and marketing |
| $ | 2,111 |
|
| $ | 1,205 |
|
| $ | 906 |
|
|
| 75.2 | % |
Percent of total revenue |
|
| 3.2 | % |
|
| 2.2 | % |
|
|
|
|
|
| ||
Sales and marketing expense increased by $0.9 million, or 75.2%,2023, as compared to $2.1 million for the nine months ended September 30, 2022 as compared2022. The increase in sales and marketing expense was primarily due to $1.2the severance $110 thousand and outsourced marketing firm engagement $667 thousand, offset by the reduction of the marketing contractors $224 thousand for the nine months ended September 30, 2023.
Research and development
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Research and development | $ | 3,386 | $ | 4,227 | $ | (841 | ) | (19.9 | )% | |||||||
| Percent of total revenue | 8.4 | % | 6.4 | % | ||||||||||||
Research and development expense decreased by $841 thousand, or 19.9%, to $3.4 million for the nine months ended September 30, 2021. The increase in sales and marketing expense in 2022 was primarily due to rebuilding of the sales team after a reduction2023, as a result of the COVID-19 pandemic.
Research and development
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Research and development |
| $ | 4,227 |
|
| $ | 4,033 |
|
| $ | 194 |
|
|
| 4.8 | % |
Percent of total revenue |
|
| 6.4 | % |
|
| 7.3 | % |
|
|
|
|
|
| ||
Research and development expense increased by $0.2 million, or 4.8%,compared to $4.2 million for the nine months ended September 30, 2022 as compared2022. The decrease in research and development expense was primarily due to $4.0rebalancing of the technology team.
General and administrative
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| General and administrative | $ | 44,498 | $ | 46,332 | $ | (1,834 | ) | (4.0 | )% | |||||||
| Percent of total revenue | 110.4 | % | 69.6 | % | ||||||||||||
General and administrative expense increased by $1.8 million, or 4.0%, to $44.5 million for the nine months ended September 30, 2021. The increase in research and development expense in 2022 was primarily due to general growth in the Company2023, as a result of the economic recovery from the COVID-19 pandemic, along with additional cost investments related to new product launches.
General and administrative
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
General and administrative |
| $ | 46,332 |
|
| $ | 30,300 |
|
| $ | 16,032 |
|
|
| 52.9 | % |
Percent of total revenue |
|
| 69.6 | % |
|
| 54.9 | % |
|
|
|
|
|
| ||
General and administrative expense increased by $16.0 million, or 52.9%,compared to $46.3 million for the nine months ended September 30, 2022. General and administrative expenses increased as a percentage of revenue from 69.6% for the nine months ended September 30, 2022, to 110.4% for the nine months ended September 30, 2023, which was primarily due to severance expense of $1.5 million, increased in legal fee of $2.8 million, increase in directors and officer insurance of $1.1 million, increase in stock compensation expense of $371 thousand and director fees of $264 thousand in the current fiscal period compared to the prior period. The increase was offset by the reduction of salary of $2.7 million and contractors of $3.5 million.
Goodwill impairment
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Goodwill impairment | $ | 6,748 | — | $ | (6,748 | ) | 100 | % | ||||||||
| Percent of total revenue | 16.7 | % | — | |||||||||||||
There was an impairment of Goodwill related to ModCloth for $6.7 million. Given the company’s constrained liquidity and working capital, the company has been unable to execute certain obligations which have raised substantial doubt regarding the future viability of the affected assets and their operations.
Depreciation and amortizations
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Depreciation and amortization | $ | 755 | $ | 614 | $ | 142 | 23.0 | % | ||||||||
| Percent of total revenue | 1.9 | % | 0.9 | % | ||||||||||||
Depreciation and amortization expense increased by $142 thousand, or 23.0% to $755 thousand for the nine months ended September 30, 2023, as compared to $30.3$614 thousand for the nine months ended September 30, 2022. The increase was due to a catch up depreciation of $71 thousand in the third quarter in 2023.
Interest expense
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Interest expense | $ | 6,878 | $ | 4,685 | $ | 2,192 | 46.8 | % | ||||||||
| Percent of total revenue | 17.1 | % | 7.0 | % | ||||||||||||
Interest expense increased by $2.2 million, or 46.8%, to $6.9 million for the nine months ended September 30, 2021. The increase in general and administrative expense in 2022 was primarily due to additional headcount and operating expense to support the growth in the Company’s total revenue.
Depreciation and amortization
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Depreciation and amortization |
| $ | 614 |
|
| $ | 384 |
|
| $ | 230 |
|
|
| 59.9 | % |
Percent of total revenue |
|
| 0.9 | % |
|
| 0.7 | % |
|
|
|
|
|
| ||
30
Depreciation and amortization expense increased by $0.2 million, or 59.9%, to $0.6 million for the nine months ended September 30, 20222023, as compared to $0.4 million for the nine months ended September 30, 2021. The increase in depreciation and amortization in 2022 was primarily due to the purchase of new hardware and equipment and additional amortization related to the acquired capitalized software.
Interest expense
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Interest expense |
| $ | 4,685 |
|
| $ | 374 |
|
| $ | 4,311 |
|
|
| 1152.7 | % |
Percent of total revenue |
|
| 7.0 | % |
|
| 0.7 | % |
|
|
|
|
|
| ||
Interest expense increased by $4.3 million, or 1152.7%, to $4.7 million for the nine months ended September 30, 2022. The increase in interest expense was primarily due to interest on the Convertible Notes entered into in the third quarter of 2022, as comparedand the various loans entered into in 2023.
Change in fair value of promissory notes
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of promissory notes | $ | 418 | $ | 4,561 | $ | (4,143 | ) | (90.8 | )% | |||||||
| Percent of total revenue | 1.0 | % | 6.9 | % | ||||||||||||
Change in fair value of promissory notes was $418 thousand for the nine months ended September 30, 2023, and $4.6 million for the nine months ended September 2022. The Company recognized a loss of $418 thousand for the nine months ended September 30, 2023 that were related to $0.4the 2023 Promissory Notes and 2023 Convertible Promissory Notes in connection with the amendments to the Convertible Notes. During the nine months ended September 2022, the changes in fair value of promissory notes of $4.6 million was related to 2022 Promissory Notes entered into during the second quarter of 2022. They were repaid at the closing of the Business Combination. The Company engaged a third party specialist to assist with the valuation of such notes.
Change in fair value of derivatives
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of derivatives | $ | (9,042 | ) | $ | (64 | ) | $ | (8,978 | ) | 14028.1 | % | |||||
| Percent of total revenue | (22.4 | )% | (0.1 | )% | ||||||||||||
Change in fair value of derivatives notes was a gain of $9.0 million for the nine months ended September 30, 2021. The increase in interest expense in 2022 was primarily due to interest on the Company’s notes payable issued in the third2023, and fourth quarters of 2021 and the third quarter of 2022 and investor notes issued in the second quarter of 2022. The notes payable and investor notes were fully repaid at closing of the Business Combination.
Change in fair value of promissory notes
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Change in fair value of promissory notes |
| $ | 4,561 |
|
| $ | — |
|
| $ | 4,561 |
|
|
| 100.0 | % |
Percent of total revenue |
|
| 6.9 | % |
|
| — | % |
|
|
|
|
|
| ||
Change in fair value of promissory notes was $4.6 million for the nine months ended September 30, 2022. The Company recognized a loss of $4.6 million for the nine months ended September 30, 2022 that were related to the Promissory Notes issued in the second and third quarter of 2022, which were based on the estimated cash payment needed to repay the Promissory Notes at closing of the Business Combination.
Change in fair value of derivatives
|
| For the Nine Months Ended September 30, | ||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change | |||
|
| (in thousands, except percentages) | ||||||||||||
Change in fair value of derivatives |
| $ | (64 | ) |
| $ | — |
|
| $ | (64 | ) |
| 100.0% |
Percent of total revenue |
|
| -0.1 | % |
|
| — | % |
|
|
|
|
| |
Change in fair value of derivates notes was a gain of $64 thousand for the nine months ended September 30, 2022. TheDuring the nine months ended September 30, 2023, the Company recognized a changegain in fair value changes of derivatederivatives notes $847 thousand in connection with the Standby Agreement, and $8.2 million in connection with the April 2023 Offering. During the nine months ended September 30, 2022, the Company recognized a gain in fair value changes of derivatives notes $64 thousand in connection with the Standby Agreement. All shares from the Standby Agreement were resold as of March 31, 2023.
Change in fair value of unconsolidated affiliate
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Change in fair value of unconsolidated affiliates |
| $ | 1,895 |
|
| $ | (4,937 | ) |
| $ | 6,832 |
|
|
| (138.4 | )% |
Percent of total revenue |
|
| 2.8 | % |
|
| (8.9 | )% |
|
|
|
|
|
| ||
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of unconsolidated affiliates | $ | (984 | ) | $ | 1,895 | $ | (2,779 | ) | (151.9 | )% | ||||||
| Percent of total revenue | (2.4 | )% | 2.8 | % | ||||||||||||
Change in fair value of unconsolidated affiliates decreased by $6.8 million, or 138.4%, towas a gain of $984 thousand for the nine months ended September 30, 2023, and a loss of $1.9 million for the nine months ended September 30, 2022 as compared to a gain of $4.9 million for2022. The loss during the nine months ended September 30, 2021. The decrease2022 is attributable to the Company’s investmentunconsolidated affiliate, ModCloth. On December 1, 2022, the Company acquired the remaining 50% equity interest in ModCloth; as a result, ModCloth which was formed in April 2021,became a wholly owned consolidated subsidiary of the Company, and IPCO, which was formed in December 2021.the results of ModCloth are consolidated into the results of the Company and no longer valued at fair value. The Company elected to apply the fair value option of accounting to the joint ventures.venture. The Company engaged a third-party valuation specialist to assist with the fair value assessment. As a result, the Company recorded a fair value adjustment for the investment in connection with its 50% interest on IPCO during the nine months ended September 30, 20222023 and recorded a fair value adjustment for the investment in connection with its 50% interest on IPCO and ModCloth during the nine months ended September 30, 2021.2022.
31
Change in fair value of convertible notes
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Change in fair value of convertible notes |
| $ | 9,182 |
|
| $ | — |
|
| $ | 9,182 |
|
|
| 100.0 | % |
Percent of total revenue |
|
| 13.8 | % |
|
| — | % |
|
|
|
|
|
| ||
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of convertible notes | $ | (2,044 | ) | $ | 9,182 | $ | (11,226 | ) | 122.3 | % | ||||||
| Percent of total revenue | (5.1 | )% | 13.8 | % | ||||||||||||
Change in fair value of convertible notesthe Convertible Notes was a gain of $2.0 million for the nine months ended September 30, 2023, and a loss of $9.2 million for the nine months ended September 30, 2022. The change ischanges are attributable to fair value of the convertible notes,Convertible Notes, which the Company engaged a third-party valuation specialist to assist with the fair value assessment.
Debt Extinguishment Lossextinguishment gain
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Debt extinguishment loss |
| $ | 1,885 |
|
| $ | — |
|
| $ | 1,885 |
|
|
| 100.0 | % |
Percent of total revenue |
|
| 2.8 | % |
|
| — | % |
|
|
|
|
|
| ||
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Debt extinguishment gain | $ | 63 | $ | (1,885 | ) | $ | 1,948 | 103.3 | % | |||||||
| Percent of total revenue | 0.2 | % | (2.8 | )% | ||||||||||||
Debt Extinguishmentextinguishment was a gain of $63 thousand for the nine months ended September 30, 2023, and a loss wasof $1.9 million for the nine months ended September 30, 2022. The Companydebt extinguishment gain in 2023 is attributable to the payment plan agreement entered into in June 2023 with an existing vendor. The debt extinguishment loss in 2022 was recognized a loss of $1.9 million for the extinguishment of debt as part of the closing of the Business Combination.
Other (loss) income
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Other (loss) income |
| $ | 87 |
|
| $ | 2,972 |
|
| $ | (2,885 | ) |
|
| (97.1 | )% |
Percent of total revenue |
|
| 0.1 | % |
|
| 5.4 | % |
|
|
|
|
|
| ||
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Other (loss) income | $ | (863 | ) | $ | 87 | $ | (950 | ) | (1092.0 | )% | ||||||
| Percent of total revenue | (2.1 | )% | 0.1 | % | ||||||||||||
Other (loss) income decreased by $2.9 million,$950 thousand, or 97.1%,1092.0 %, to $0.1 milliona loss of $863 thousand for the nine months ended September 30, 20222023, as compared to $3.0 milliona gain of $87 thousand for the nine months ended September 30, 2021.2022. The decrease was primarily related to the settlement of deferred revenue of $1.6 million related to sale of finished inventory to IPCO in the first quarter of 2022 and forgiveness of the PPP loan of $2.6 million in the third quarter of 2021.
Provision forother income tax
|
| For the Nine Months Ended September 30, |
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
| % Change |
| ||||
|
| (in thousands, except percentages) |
| ||||||||||||
Provision for income tax |
| $ | 134 |
|
| $ | 82 |
|
| $ | 52 |
|
| 63.4 | % |
Percent of total revenue |
|
| 0.2 | % |
|
| 0.1 | % |
|
|
|
|
| ||
The provision for income tax expense increased $0.1 million, or 63.4%, during the nine months ended September 30, 2022, as comparedincluded IPCO inventory sale in the amount of $1.6 million, sublease income $688 thousand, and offset by the cost related to the Business Combination $2.3 million. The other income during the nine months ended September 30, 2021.2023, included the fair value changes of the deferred cash consideration in the amount of $562 thousand, and the fair value adjustment of the PIPE warrants due to the PIPE amendment in the amount of $430 thousand.
Provision for income tax
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Provision for income tax | $ | 191 | $ | 134 | $ | 57 | 42.5 | % | ||||||||
| Percent of total revenue | 0.5 | % | 0.2 | % | ||||||||||||
The provision for income tax increased $57 thousand, or 42.5%, to $191 thousand during the nine months ended September 30, 2023, as compared to $134 thousand for the nine months ended September 30, 2022. The increase was primarily due to a full valuation allowance for differences related to GAAP and tax income related to the Company’s joint ventures due to election of accounting for the joint ventures using the equity method fair value option.
Comparison of the Three Months Ended September 30, 20222023 and 20212022
Net service revenue
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Net service revenue |
| $ | 10,013 |
|
| $ | 9,071 |
|
| $ | 942 |
|
|
| 10.4 | % |
Percent of total revenue |
|
| 47.7 | % |
|
| 33.7 | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Net service revenue | $ | 5,585 | $ | 10,013 | $ | (4,428 | ) | (44.2 | )% | |||||||
| Percent of total revenue | 51.2 | % | 47.7 | % | ||||||||||||
Net service revenue increaseddecreased by $0.9$4.4 million, or 10.4%44.2%, to $5.6 million for the three months ended September 30, 2023, as compared to $10.0 million for the three months ended September 30, 20222022. The decrease in service revenue is primarily due to (i) lower sales, (ii) lowered service percentage charged to certain clients, and (iii) clients offboarding. Net service revenue as a percentage of total revenue was 51.2% for the three months ended September 30, 2023 compared to $9.147.7% for the three months ended September 30, 2022.
Net product revenue
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Net product revenue | $ | 4,596 | $ | 8,645 | $ | (4,049 | ) | (46.8 | )% | |||||||
| Percent of total revenue | 42.2 | % | 41.2 | % | ||||||||||||
Net product revenue decreased by $4.4 million, or 46.8%, to $4.6 million for the three months ended September 30, 2021. The increase was primarily due to revenue associated with our Smart Ship technology that was introduced in the second quarter of 2022.
32
Net product revenue
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Net product revenue |
| $ | 8,645 |
|
| $ | 15,224 |
|
| $ | (6,579 | ) |
|
| -43.2 | % |
Percent of total revenue |
|
| 41.2 | % |
|
| 56.5 | % |
|
|
|
|
|
| ||
Net product revenue decreased by $6.6 million, or 43.2%,2023, as compared to $8.6 million for the three months ended September 30, 20222022. The decrease in product revenue is primarily due to the closing of one product line and lower sales in the other product lines. The closing of one product line resulted in the reduction of product revenue of $2.1 million. The revenue of the other product lines decreased $3.0 million. The reduction was offset by the ModCloth product revenue $1.0 million. Net product revenue as compared to $15.2 milliona percentage of total revenue was 42.2% for the three months ended September 30, 2021. The Company historically recognizes net revenue as a percentage of service sales. Starting in the second quarter of 2021, the Company added product revenue, which was generated from purchased inventory from select clients,2023, compared to assist those clients with managing inventory through the pandemic in order to continue marketing and selling their particular brand of products. The Company sourced the products from vendors approved by licensees, and the products were received into the Company’s leased distribution centers and orders by end-customers were then fulfilled. As a result, the Company recognized the gross revenue41.2% for the sale of the inventory-owned products, and the corresponding cost of product revenue in the period the order was fulfilled. The practice of purchasing inventory was unique to 2021 and 2022, and the Company does not anticipate continuing after finding a buyer to distribute the inventory. The decrease was primarily due to discounted pricing in the third quarter of 2022 to focus on generating cash through closing of the Business Combination.three months ended September 30, 2022.
Net revenue from related parties
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Net revenue from related parties |
| $ | 2,316 |
|
| $ | 2,652 |
|
| $ | (336 | ) |
|
| (12.7 | )% |
Percent of total revenue |
|
| 11.0 | % |
|
| 9.8 | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Net revenue from related parties | $ | 722 | $ | 2,316 | $ | (1,594 | ) | (68.8 | )% | |||||||
| Percent of total revenue | 6.6 | % | 11.0 | % | ||||||||||||
Net revenue from related parties decreased by $0.3$1.6 million, or 12.7%68.8%, to $722 thousand for the three months ended September 30, 2023, as compared to $2.3 million for the three months ended September 30, 2022 as compared to $2.7 million for the three months ended September 30, 2021.2022. The Company provides services to its joint ventures under Master Services agreementsAgreements that are classified as related party revenue. The increaseOn December 1, 2022, the Company acquired the remaining 50% equity interest in ModCloth; as a result, ModCloth became a wholly owned consolidated subsidiary of the Company, and the results of ModCloth are consolidated into the results of the Company. As such, the decrease in revenue from related parties is due to ModCloth’s revenue being recorded in product revenue starting in the third quarter of 2022 is due2023, as compared to being recorded in revenue from the IPCO joint venture, which was formedrelated parties in the fourth quartersame quarters last year. Net service revenue from related parties as a percentage of 2021.total revenue was 6.6% for the three months ended September 30, 2023, compared to 11.0% for the three months ended September 30, 2022.
Cost of services
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Cost of services |
| $ | 6,304 |
|
| $ | 5,250 |
|
| $ | 1,054 |
|
|
| 20.1 | % |
Percent of total revenue |
|
| 30.1 | % |
|
| 19.5 | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Cost of services | $ | 3,112 | $ | 6,304 | $ | (3,192 | ) | (50.6 | )% | |||||||
| Percent of total revenue | 28.5 | % | 30.1 | % | ||||||||||||
Cost of services increaseddecreased by $1.1$3.2 million, or 20.1%50.6%, to $3.1 million for the three months ended September 30, 2023, as compared to $6.3 million for the three months ended September 30, 20222022. The decrease in cost of services followed the similar trend of the decrease in service revenue for the same period. The service revenue, including revenue from related parties, decreased 44.2% while the cost of services decreased 50.6%. Cost of services as a percentage of total revenue was 28.5% for the three months ended September 30, 2023, compared to $5.330.1% for the three months ended September 30, 2022.
Cost of product revenue
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Cost of product revenue | $ | 4,318 | $ | 7,956 | $ | (3,638 | ) | (45.7 | )% | |||||||
| Percent of total revenue | 39.6 | % | 37.9 | % | ||||||||||||
Cost of product revenue decreased by $3.6 million, or 45.7%, to $4.3 million for the three months ended September 30, 2021. The increase in cost of services in 2022 was primarily attributable to increased social media and search engine costs.
Cost of product revenue
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Cost of product revenue |
| $ | 7,956 |
|
| $ | 6,049 |
|
| $ | 1,907 |
|
|
| 31.5 | % |
Percent of total revenue |
|
| 37.9 | % |
|
| 22.4 | % |
|
|
|
|
|
| ||
Cost of product revenue increased by $1.9 million, or 31.5%,2023, as compared to $8.0 million for the three months ended September 30, 2022 as compared to $6.0 million for2022. The decrease is in line with the three months ended September 30, 2021.decrease in product revenue. Cost of product revenue as a percentage of total revenue was 39.6% for the three months ended September 30, 2023, compared to 37.9% for the three months ended September 30, 2022 compared to 22.4% for the three months ended September 30, 2021. The increase in cost of product revenue is primarily attributed to discounted pricing in the third quarter of 2022 as the Company focused on generating cash through closing of the Business Combination.2022.
Sales and Marketing
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Sales and marketing |
| $ | 925 |
|
| $ | 528 |
|
| $ | 397 |
|
|
| 75.2 | % |
Percent of total revenue |
|
| 4.4 | % |
|
| 2.0 | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Sales and marketing | $ | 1,117 | $ | 925 | $ | 192 | 20.8 | % | ||||||||
| Percent of total revenue | 10.2 | % | 4.4 | % | ||||||||||||
33
Sales and marketing expense increased by $0.4 million,$192 thousand, or 75.2%20.8%, to $0.9$1.1 million for the three months ended September 30, 20222023, as compared to $0.5$925 thousand for the three months ended September 30, 2022. The increase in sales and marketing expense was primarily due to the outsourced marketing firm engagement $667 thousand, offset by the reduction of the marketing salary of $150 thousand and the marketing contractors of $324 thousand for the three months ended September 30, 2023.
Research and development
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Research and development | $ | 1,260 | $ | 1,400 | $ | (140 | ) | (10.0 | )% | |||||||
| Percent of total revenue | 11.6 | % | 6.7 | % | ||||||||||||
Research and development expense decreased by $140 thousand, or 10.0%, to $1.3 million for the three months ended September 30, 2021. The increase in sales and marketing expense in 2022 was primarily due to additional headcount and consulting to support initiatives following the Business Combination.
Research and development
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Research and development |
| $ | 1,400 |
|
| $ | 1,609 |
|
| $ | (209 | ) |
|
| (13.0 | )% |
Percent of total revenue |
|
| 6.7 | % |
|
| 6.0 | % |
|
|
|
|
|
| ||
Research and development expense decreased by $0.2 million, or 13.0%, to $1.4 million for three months ended September 30, 20222023, as compared to $1.6$1.4 million for the three months ended September 30, 2021.2022. The decrease in research and development expense in 2022 was primarily due to decreased costs followingrebalancing of the launch of Smart Ship in early 2022.technology team.
General and administrative
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
General and administrative |
| $ | 15,969 |
|
| $ | 15,658 |
|
| $ | 311 |
|
|
| 2.0 | % |
Percent of total revenue |
|
| 76.1 | % |
|
| 58.1 | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| General and administrative | $ | 11,359 | $ | 15,969 | $ | (4,610 | ) | (28.9 | )% | |||||||
| Percent of total revenue | 104.2 | % | 76.1 | % | ||||||||||||
General and administrative expense increaseddecreased by $0.3$4.6 million, or 2.0%28.9%, to $11.4 million for the three months ended September 30, 2023, as compared to $16.0 million for the three months ended September 30, 20222022. The decrease in general and administrative expense was primarily due to decrease in salary and benefits by $1.9 million and contractors by $2.3 million.
Goodwill impairment
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Goodwill impairment | $ | 6,748 | — | $ | (6,748 | ) | 100 | % | ||||||||
| Percent of total revenue | 16.7 | % | — | |||||||||||||
There was an impairment of Goodwill related to ModCloth for $6.7 million. Given the company’s constrained liquidity and working capital, the company has been unable to execute certain obligations which have raised substantial doubt regarding the future viability of the affected assets and their operations.
Depreciation and amortization
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Depreciation and amortization | $ | 318 | $ | 194 | $ | 124 | 63.9 | % | ||||||||
| Percent of total revenue | 2.9 | % | 0.9 | % | ||||||||||||
Depreciation and amortization expense increased by $124 thousand, or 63.9%, to $318 thousand for the three months ended September 30, 2023, as compared to $15.7$194 thousand for the three months ended September 30, 2022. The increase was due to a catch up depreciation of $71 thousand in the third quarter in 2023.
Interest expense
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Interest expense | $ | 2,087 | $ | 2,568 | $ | (481 | ) | (18.7 | )% | |||||||
| Percent of total revenue | 19.1 | % | 12.2 | % | ||||||||||||
Interest expense decreased by $481, or 18.7%, to $2.1 million for the three months ended September 30, 2021. The increase in general and administrative expense in 2022 was primarily due to additional headcount to support initiatives following the Business Combination.
Depreciation and amortization
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Depreciation and amortization |
| $ | 194 |
|
| $ | 144 |
|
| $ | 50 |
|
|
| 34.7 | % |
Percent of total revenue |
|
| 0.9 | % |
|
| 0.5 | % |
|
|
|
|
|
| ||
Depreciation and amortization expense increased by $0.1 million, or 34.7%, to $0.2 million for the three months ended September 30, 20222023, as compared to $0.1 million for the three months ended September 30, 2021. The increase in depreciation and amortization in 2022 was primarily due to the purchase of new hardware and equipment and capitalized software in 2022.
Interest expense
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Interest expense |
| $ | 2,568 |
|
| $ | 254 |
|
| $ | 2,314 |
|
|
| 911.0 | % |
Percent of total revenue |
|
| 12.2 | % |
|
| 0.9 | % |
|
|
|
|
|
| ||
Interest expense increased by $2.3 million, or 911.0%, to $2.6 million for the three months ended September 30, 2022 as compared2022. The decrease in interest expense was primarily due to $0.3 million forthe notes payable in the three months ended September 30, 2021. The increase in interest expense in 2022 was primarily due to interest on the Company’s notes payable issued in the third and fourth quarters of 2021 and the third quarter of 2022 and investor notes issued in the second quarter of 2022. The notes payable and investor notes were fully repaid at closing of the Business Combination.
Change in fair value of promissory notes
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Change in fair value of promissory notes |
| $ | 1,995 |
|
| $ | — |
|
| $ | 1,995 |
|
|
| 100.0 | % |
Percent of total revenue |
|
| 9.5 | % |
|
| — | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of promissory notes | $ | — | $ | 1,995 | $ | (1,995 | ) | (100.0 | )% | |||||||
| Percent of total revenue | — | % | 9.5 | % | ||||||||||||
Change in fair value of promissory notes was $2.0 million for the three months ended September 30, 2022. The Company recognized a loss of $2.0 million for the promissory notes issued in the second and third quarter of 2022, which were based on the estimated cash payment needed to repay the promissory notesfully repaid at closing of the Business Combination. The Company engaged a third party specialist to assist with the valuation of such notes.
34
Change in fair value of derivatives
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Change in fair value of derivatives |
| $ | (64 | ) |
| $ | — |
|
| $ | (64 | ) |
|
| 100.0 | % |
Percent of total revenue |
|
| (0.3 | )% |
|
| — | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of derivatives | $ | (4,732 | ) | $ | (64 | ) | $ | (4,668 | ) | 7293.8 | % | |||||
| Percent of total revenue | (43.4 | )% | (0.3 | )% | ||||||||||||
Change in fair value of derivatives notes was a gain of $4.7 million for the three months ended September 30, 2023, and $64 thousand for the three months ended September 30, 2022. The Company recognized a change in fair value of derivatederivatives notes in connection with the April 2023 Offering in 2023, and in connection with the Standby Agreement.Agreement in 2022. All shares from the Standby Agreement were resold as of March 31, 2023.
Change in fair value of unconsolidated affiliatesaffiliate
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Change in fair value of unconsolidated affiliates |
| $ | 87 |
|
| $ | — |
|
| $ | 87 |
|
|
| 100.0 | % |
Percent of total revenue |
|
| 0.4 | % |
|
| — | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of unconsolidated affiliates | $ | 1,922 | $ | 87 | $ | 1,835 | 2109.2 | % | ||||||||
| Percent of total revenue | 17.6 | % | 0.4 | % | ||||||||||||
Change in fair value of unconsolidated affiliates was $0.1decreased by $1.8 million, or 2,109.2%, to a gain of $1.9 million for the three months ended September 30, 2023, as compared to a gain of $87 thousand for the three months ended September 30, 2022. The increase is attributable to the Company’s investment in ModCloth, which was formed in April 2021, and IPCO which was formed in December 2021.valuation. The Company elected to apply the fair value option of accounting to the joint ventures.venture and engaged a third-party valuation specialist to assist with the fair value assessment.
Change in fair value of convertible notes
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Change in fair value of convertible notes | $ | 1,250 | $ | 9,182 | $ | (7,932 | ) | (86.4 | )% | |||||||
| Percent of total revenue | 11.5 | % | 43.8 | % | ||||||||||||
Change in fair value of the Convertible Notes was a gain of $1.3 million for the three months ended September 30, 2023, and $9.2 million for the three months ended September 2022. The change is attributable to fair value of the Convertible Notes, which the Company engaged a third-party valuation specialist to assist with the fair value assessment. As
Debt extinguishment gain
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Debt extinguishment gain | $ | — | $ | (1,885 | ) | $ | 1,885 | 100.0 | % | |||||||
| Percent of total revenue | — | % | (9.0 | )% | ||||||||||||
Debt extinguishment was a result, the Company recorded a fair value adjustment for the investment in connection with its 50% interest during the three months ended September 30, 2022 and 2021.
Change in fair valueloss of convertible notes
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Change in fair value of convertible notes |
| $ | 9,182 |
|
| $ | — |
|
| $ | 9,182 |
|
|
| 100.0 | % |
Percent of total revenue |
|
| 43.8 | % |
|
| — | % |
|
|
|
|
|
| ||
Change in fair value of convertible notes was $9.2 million for the three months ended September 30, 2022. The change is attributable to fair value of the convertible notes. The Company engaged a third-party valuation specialist to assist with the fair value assessment.
Debt Extinguishment Loss
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Debt extinguishment loss |
| $ | 1,885 |
|
| $ | — |
|
| $ | 1,885 |
|
|
| 100.0 | % |
Percent of total revenue |
|
| 9.0 | % |
|
| — | % |
|
|
|
|
|
| ||
Debt Extinguishment loss was $1.9 million for the three months ended September 30, 2022. The Company recognized a loss of $1.9 million for the extinguishment of debt2022 as part of the closing of the Business Combination.
Other (loss) income
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Other (loss) income |
| $ | (1,574 | ) |
| $ | 2,660 |
|
| $ | (4,234 | ) |
|
| (159.2 | )% |
Percent of total revenue |
|
| (7.5 | )% |
|
| 9.9 | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Other (loss) income | $ | (45 | ) | $ | (1,574 | ) | $ | 1,529 | (97.1 | )% | ||||||
| Percent of total revenue | (0.4 | )% | (7.5 | )% | ||||||||||||
Other (loss) income decreasedincreased by $4.2$1.5 million, or 159.2%97.1%, to a loss of $45 thousand for the three months ended September 30, 2023, as compared to a loss of $1.6 million for the three months ended September 30, 2022 as compared to a gain of $2.7 million for2022. The other income during the three months ended September 30, 2021. The decrease in other2022 included the income was primarily related tofrom the forgiveness of PPP loan inwarehouse sublease, offset by the third quarter of 2021fair value changes on the Legacy Nogin Warrants and costs related to issuance of PIPE convertible notes that are expensed due to fair value option election of accounting. The other income during the three months ended September 30, 2023 included the fair value changes of the deferred cash consideration in the amount of $102 thousand, offset by the sale of a web URL for $55 thousand
35
Provision for income tax
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Provision for income tax |
| $ | 69 |
|
| $ | 366 |
|
| $ | (297 | ) |
|
| (81.1 | )% |
Percent of total revenue |
|
| 0.3 | % |
|
| 1.4 | % |
|
|
|
|
|
| ||
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Provision for income tax | $ | 178 | $ | 69 | $ | 109 | 158.0 | % | ||||||||
| Percent of total revenue | 1.6 | % | 0.3 | % | ||||||||||||
The provision for income tax expense decreased $0.3 million,increased $109 thousand, or 81.1%158%, to $0.1 million$178 thousand during the three months ended September 30, 2023, as compared to $69 thousand for the three months ended September 30, 2022 as compared to $0.4 million for the three months ended September 30, 2021. The decrease was primarily due to a full valuation allowance for differences related to GAAP and tax income related to the Company’s joint ventures due to election of accounting for the joint ventures using the equity method fair value option.2022.
Non-GAAP Financial Measures
We prepare and present our consolidated financial statements in accordance with U.S. GAAP. However, management believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional useful information in evaluating our performance, as these measures are regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. This non-GAAP measure is not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.
We calculate and define Adjusted EBITDA as net loss, adjusted to exclude: (1) interest expense, (2) income tax expense, and (3) depreciation and amortization.amortization, (4) severance pay, (5) stock based compensation, (6) facility consolidation expenses, and (7) restructuring cost.
Adjusted EBITDA is a financial measure that is not required by or presented in accordance with U.S. GAAP. We believe that Adjusted EBITDA, when taken together with our financial results presented in accordance with U.S. GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations, or outlook. In particular, we believe that the use of Adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business and evaluating our operating performance, as well as for internal planning and forecasting purposes.
Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. Some of the limitations of Adjusted EBITDA include that (1) it does not reflect capital commitments to be paid in the future, (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and adjusted EBITDA does not reflect these capital expenditures, (3) it does not reflect tax payments that may represent a reduction in cash available to us and (4) does not include certain non-recurring cash expenses that we do not believe are representative of our business on a steady-state basis. In addition, our use of Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial measures, including our net loss and other results stated in accordance with U.S. GAAP.
The following table presents a reconciliation of net loss, the most directly comparable financial measure stated in accordance with U.S. GAAP, to Adjusted EBITDA, for each of the periods presented (in thousands):
|
| Three Months ended |
|
| Nine Months ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net (loss) income |
| $ | (28,896 | ) |
| $ | (251 | ) |
| $ | (49,812 | ) |
| $ | 2,074 |
|
Interest expense |
|
| 2,568 |
|
|
| 254 |
|
|
| 4,685 |
|
|
| 374 |
|
Provision for income taxes |
|
| 69 |
|
|
| 366 |
|
|
| 134 |
|
|
| 82 |
|
Depreciation and amortization |
|
| 194 |
|
|
| 144 |
|
|
| 614 |
|
|
| 384 |
|
Adjusted EBITDA |
| $ | (26,065 | ) |
| $ | 513 |
|
| $ | (44,379 | ) |
| $ | 2,914 |
|
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Loss | $ | (14,235 | ) | $ | (28,896 | ) | $ | (35,966 | ) | $ | (49,812 | ) | ||||
| Interest expense | 2,087 | 2,568 | 6,878 | 4,685 | ||||||||||||
| (Benefit) Provision for income taxes | 178 | 69 | 191 | 134 | ||||||||||||
| Depreciation and amortization | 318 | 194 | 755 | 614 | ||||||||||||
| Severance pay | 108 | 105 | 1,548 | 117 | ||||||||||||
| Stock based compensation | 117 | 25 | 370 | 83 | ||||||||||||
| Facility consolidation expenses | — | — | 864 | — | ||||||||||||
| Restructuring cost | 179 | — | 342 | — | ||||||||||||
| Adjusted EBITDA | $ | (11,248 | ) | $ | (25,935 | ) | $ | (25,018 | ) | $ | (44,179 | ) | ||||
Liquidity and Capital Resources
Our primary requirements for short-term liquidity and capital are working capital, inventory management, capital expenditures, public company costs and general corporate needs. We expect these needs to continue as we develop and grow our business. Our future capital requirements will depend on many factors, including our levels of revenue, the expansion of sales and marketing activities, successful customer acquisitions, the results of business initiatives, the timing of new product introductions and overall economic conditions.
36
Prior to the Business Combination, the Company’s available liquidity and operations were financed through equity contributions, a line of credit, promissory notes and cash flow from operations. Subsequent to the Business Combination,Moving forward, the Company expects to fund operations through equity contributions and cash flow from operations.
In the third quarter of 2022, the impacts from the Company's inventory purchases, which began in 2021, were adversely affected by supply chain challenges which have led to lower revenue and cash flow from operating activities. To address the resulting cash flow challenges, the Company has implemented a comprehensive cost reduction and performance improvement program, including reduced headcount and elimination of certain discretionary and general and administrative expenses.
As of September 30, 2022, we had cash of $15.8 million and restricted cash of $1.5 million, which consists of amounts held as bank deposits. The Company believes its existing cash and restricted cash, together with the cash we expect to generate from future operations, will be sufficient to support working capital and capital expenditure requirements for at least the next twelve months. The Company believes it has the ability to continue as a going concern. However, because
Because we are in the growth stage of our business and operate in anemerging field of technology, we expect to continue to invest in research and development and expand our sales and marketing teams worldwide. We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In particular,
The accompanying consolidated financial statements as of and for the widespread COVID-19 pandemic has resulted in, and maynine months ended September 30, 2023 have been prepared assuming the Company will continue to result in, significant disruptionoperate as a going concern. The Company has sustained recurring losses, negative working capital, and negative cash flows from operations and had a cash balance of global financial markets, reducing$1.9 million as of September 30, 2023. These conditions provide substantial doubt about our ability to access capital. If wecontinue as a going concern for at least twelve months from the date that these consolidated financial statements are unableissued.
On April 4, 2023, the Company entered into the Purchase Agreements with the Investors pursuant to raise additional funds when or onwhich the Company agreed to sell, issue, and deliver to Investors, in the April 2023 Offering (i) 7,333,334 shares of Common Stock and (ii) 7,333,334 Common Warrants. Under the terms desired,of the Purchase Agreements, the Company agreed to sell its Common Stock and accompanying Common Warrants at a combined offering price of $3.00 per share of Common Stock and accompanying Common Warrant. On April 6, 2023, the Company consummated the April 2023 Offering and received gross proceeds of approximately $22 million in connection with the offering before deducting placement agent fees and other offering expenses.
In addition, the Company is currently executing on various strategies to improve available cash balances, liquidity and cash generated from operations, including strategic growth plans, ongoing comprehensive cost reduction and performance improvement programs, reduced headcount and elimination of certain discretionary and general and administrative expenses, and taking steps to improve the operational efficiency of our fulfillment operations. However, our failure to obtain financing as and when needed could have significant negative consequences for our business, financial condition and results of operations could be adversely affected.operations. Our future capital requirements and the adequacy of available funds will depend on many factors, many of which are beyond our control.
Indebtedness
Convertible Notes and Indenture
On April 19, 2022, the Company, the Notes Guarantors and the Subscribers entered into the PIPE Subscription Agreements pursuant to which the Company agreed to issue and sell to the Subscribers immediately prior to the closing of the Business Combination (i) up to an aggregate principal amount of $75.0 million of Convertible Notes at the par value of the notes and (ii) up to an aggregate of 1.5 million PIPE Warrants with each whole PIPE Warrant entitling the holder thereof to purchase one share of Common Stock.
On August 26, 2022, immediately prior to the Closing, the Company issued $65.5 million aggregate principal amount of Convertible Notes and, as contemplated by the PIPE Subscription Agreements, the Company, the Note Guarantors and U.S. Bank Trust Company, National Association, as trustee, entered into the Indenture. The Convertible Notes were offered in a private placement under the Securities Act, pursuant to the PIPE Subscription Agreements. The Convertible Notes will mature on September 1, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms, and will accrue interest at a rate of 7.00% per annum, payable in cash. The Convertible Notes may be converted at any time (in whole or in part) into shares of Common Stock, at the option of the holder of such Convertible Note, based on the applicable conversion rate at such time. The initial conversion price is approximately $11.50$230.00 per share of Common Stock, based on an initial conversion rate of 86.95654.3478 shares of Common Stock per $1,000 principal amount of Convertible Notes. For conversions with a conversion date on or after the first anniversary of the closing of the Transactions and prior to the regular record date immediately preceding the Maturity Date, the conversion consideration will also include an interest make-whole payment equal to the remaining scheduled payments of interest on the Convertible Note being converted through the Maturity Date. The Company will be able to elect to make such interest make-whole payment in cash or in Common Stock, subject to certain conditions. The conversion rate is subject to adjustments set forth in the Indenture, including conversion rate resets (x) on August 27, 2023, September 26, 2023 and September 26, 2024 and (y) following the consummation of certain equity and equity-linked offerings by the Company and sales of certain equity and equity-linked securities by certain shareholders of the Company. Each holder of a Convertible Note will havehas the right to cause the Post-Combination Company to repurchase for cash all or a portion of the Convertible Notes held by such holder upon the occurrence of a “Fundamental Change” (as defined in the Indenture) at a price equal to (i) on or before September 26, 2023, 100% of the original principal amount of such Convertible Note, and (ii) from and after September 26, 2023, 100% of the accreted principal amount applicable at such time pursuant to the terms of the Indenture, in each case, plus accrued and unpaid interest.
The Indenture includes restrictive covenants that, among other things, require the Company to maintain a minimum level of liquidity on a consolidated basis and limit the ability of the Company and its subsidiaries to incur indebtedness above certain thresholds or to issue preferred stock, to make certain restricted payments, to dispose of certain material assets and engage in other asset sales, subject to reinvestment rights, to pay certain advisory fees in connection to the Transactions and the transactions contemplated by the PIPE Subscription Agreements above a certain threshold, and other customary covenants with respect to the collateral securing the obligations created by the Convertible Notes and the Indenture, including the entry into security documents (in each case, subject to certain exceptions set forth in the Indenture); provided that the covenants with respect to (i) the making of restricted payments, (ii) the incurrence of indebtedness, (iii) the disposition of certain material assets and asset sales, (iv) liquidity, (v) the payment of advisory fees and (vi) the collateral securing the obligations created by the Convertible Notes and the Indenture shall terminate once less than
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15% of the aggregate principal amount of the Convertible Notes are outstanding. The liquidity covenant would terminate if the Company achieves $175 million in consolidated revenue in the preceding four fiscal quarters. Certain of the Company’s subsidiaries will serve as Notes Guarantors that jointly and severally, fully and unconditionally guarantee the obligations under the Convertible Notes and the Indenture. The Indenture also requires certain future subsidiaries of the Post-Combination Company, if any, to become Notes Guarantors. This covenant will terminate once less than 15% of the aggregate principal amount of the Convertible Notes are outstanding. The Indenture also includes customary events of default and related provisions for potential acceleration of the Convertible Notes.
Line of credit
Effective January 14, 2015, the Company entered into a Revolving Credit Agreement with a financial institution that provided maximum borrowing under a revolving loan commitment of up to $2 million, bearing an interest rate of 2% plus prime rate as published by the Wall Street Journal. Effective July 3, 2020, the Company renewed the line of credit with the financial institution through May 31, 2021 that provided maximum borrowing under a revolving loan commitment of up to $5 million. In May 2021 the maturity date was extended to June 30, 2021 and then further extended to July 31, 2021. The line was then renewed on July 21, 2021 with an expanded credit limit of $8 million, a new maturity date of June 30, 2023 and an amended per annum interest rate of the greater of 2.25% plus prime rate as published by the Wall Street Journal or 5.50%. The line of credit was repaid at the closing of the Business Combination.
Notes Payable
On August 11, 2021, the Company entered into a loan and security agreement (the “Note Agreement”) with a financial institution that provided for a borrowing commitment of $15 million in the form of promissory notes. In August 2021, the Company borrowed $10 million under the first tranche (“First Tranche Notes”). The Note Agreement had a commitment for additional second tranche borrowings of $5 million through June 30, 2022 (“Second Tranche Notes”). In October 2021 the Company borrowed the remaining $5 million committed under the Note Agreement. The borrowings under the Note Agreement were secured by substantially all assets of the Company.
The First Tranche Notes and Second Tranche Notes were due to mature on September 1, 2026 and November 1, 2026, respectively, and bore interest at a rate per annum of 6.25% plus the greater of 3.25% or the prime rate as published by the Wall Street Journal. The Company was required todid not timely make interest-only payments on the firstpayment of each month beginning October 1, 2021 and December 1, 2021, respectively. Beginning October 1, 2023 and December 1, 2023, respectively, the Company would have been required to make principal payments of $278 thousand and $139 thousand, respectively, plus accrued interest on the first of each month through maturity. Upon paymentConvertible Notes due on March 1, 2023, resulting in fulla default. Such default for thirty (30) consecutive days of the First Tranche Notes and Second Tranche Notes,payment on interest due constitutes an Event of Default (as defined in the Indenture).
On March 26, 2023, the Company, was requiredthe Notes Guarantors and Holders entered into limited waivers and consents pursuant to pay exit feeswhich each holder agreed to (i) waive the Specified Default and any payment obligation of $600 thousand and $300 thousand, respectively.
In December 2021, the Company borrowedunder the Indenture with respect to the March Interest Payment, (ii) in lieu of the Interest Payments, (a) receive a promissory note and (b) amend the Warrant Agreement (as defined below) to reduce the exercise price of the warrants governed thereby from $11.50 to $0.01, and (iii) consent to the entry into the Supplemental Indenture.
The Supplemental Indenture, among other things, (i) lowered the minimum amounts of liquidity the Company must maintain on a consolidated basis for each quarter in 2023 and the first quarter of 2024, (ii) added restrictions on the Company’s ability to make payments relating to certain restricted investments, (iii) decreased the maximum amount of equity interests that the Company may repurchase, redeem, acquire or retire, (iv) removed the Company’s ability to issue preferred stock or incur certain unsecured indebtedness or junior lien indebtedness, (v) decreased other permitted debt baskets, (vi) decreased the threshold for a cross-default for purposes of determining an additional $1Event of Default and (vii) added a new Event of Default in the event the Company does not consummate an underwritten primary equity offering providing at least $10 million fromof proceeds to the same financial institution, which was repaid in fullCompany by April 30, 2023.
On March 26, 2023, the Company, the Notes Guarantors and each holder of the Convertible Notes executed unsecured promissory notes, with each 2023 Promissory Note having an aggregate principal amount equal to such holder’s interest payments. The 2023 Promissory Notes mature on December 31, 2021. March 26, 2025 and accrue interest at seven percent per annum (7.0%).
In addition, the 2023 Promissory Notes provide that, in the event the Company borrowed an additional $5 million (“Third Tranche Notes”) that bore interest at a rate per annum of 6.25% plusconsummates the greater of 3.25% orApril 2023 Offering by April 30, 2023, the prime rate as published by the Wall Street Journal. The Company was required to make interest-only payments on the firstholder of each month beginning February 1, 2022, with2023 Promissory Note has the full principal amount due on July 1, 2023. Upon payment in full,option to require the Company is required to pay exit fees of $50 thousand.
In connection with the Note Agreement, the Company issued warrants to purchase up to 33,357 shares of common stockprepay a portion of the Company (the “Legacy Liability Warrants”) at an exercise price of $0.01 per share (Note 8). On the date of issuance, the Company recorded the fair valueprincipal balance of the Legacy Liability Warrants as a discount to the First Tranche Notes which was being amortized into interest expense over the term of the First Tranche Notes using the effective interest method. The issuance costs were deferred over the repayment term of the debt. Deferred issuance costs relate to the Company’s debt instruments, the short-term and long-term portions are reflected as a deduction from the carrying amount of the related debt.
In addition, the Company issued additional notes payable in July 2022 for proceeds of $3.0 million. Such notes payable matured on the earlier of (a) December 30, 2022 or (b) the close of the Business Combination. The amount due at maturity was $4.5 million. The Company elected to account for the additional notes payable under the fair value option of accounting.
The notes payable were repaid at the closing of the Business Combination.
2023 Promissory Notes
During the second quarter of 2022, the Company entered into promissory notes with various individuals (the “Promissory Notes”), including current investors, members of management and other unrelated parties in exchange for cashNote in an amount equal to $7.0 million (the “Promissory Notes”). Theor less than the gross proceeds to the Company from any purchases by the Holder of the Company’s securities in the April 2023 Offering. Each holder may exercise its Put Option within ten business days following the closing and funding of the April 2023 Offering. In addition, certain of the 2023 Promissory Notes were dueprovide such holders with the right to matureconvert the 2023 Promissory Note into Unregistered Securities on the earlier of (a) one year from issuance or (b)same terms as the closingsecurities offered in the April 2023 Offering in the event such offering takes place.
In April 2023, upon consummation of the Business Combination (Note 1) and bore per annum interest atApril 2023 Offering, all holders of the rate of 7.75% plus the greater of 3.50% or the prime rate as published by the Wall Street Journal. The Company was required to make nine interest-only payments, followed by three principal and interest payments. In connection with the2023 Promissory Notes exercised their Put Options and the Company issued warrants (“holder of the 2023 Convertible Promissory Note Warrants”) to purchase up to 31,024 sharesconverted the note into Unregistered Securities. As of common stock ofSeptember 30, 2023, the Company at an exercise price of $0.01 per share (Note 7). Upon
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payment in full of the2023 Promissory Notes the Company was required to make an additional final payment (“Final Payment”) of $3.5 million.
The Company elected to account for the Promissory Notes under the fair value option of accounting upon issuance of each of the Promissory Notes. At issuance the Company recognized the fair value of the Promissory Notes of $6.3 million with the remaining $0.7 million of proceeds received allocated to the Promissory Note Warrants.
Theand 2023 Convertible Promissory Notes were repaid at the closing of the Business Combination.
Paycheck Protection Program Loan
On April 14, 2020, the Company received loan proceeds of $2.3 million pursuant to the Paycheck Protection Program (the “PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The PPP Loan had a maturity date of April 22, 2022 and bore interest at a rate of 1% per annum. The balance as of December 31, 2020 of $2.3 million is included in Paycheck Protection Program loan payable on the condensed consolidated balance sheets. On September 17, 2021, the PPP Loan was forgiven in full including accrued interest thereon. As such, the Company recorded a gain on loan forgiveness during the nine months ended September 30, 2021 of $2.3 million included in other income in the consolidated statement of operations.full.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
| Nine Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flow used in operating activities |
| $ | (25,287 | ) |
| $ | (22,605 | ) |
Cash flow used in investing activities |
|
| (1,744 | ) |
|
| (2,058 | ) |
Cash flow provided by financing activities |
|
| 39,787 |
|
|
| 14,875 |
|
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flow used in operating activities | $ | (35,758 | ) | $ | (25,287 | ) | ||
| Cash flow used in investing activities | (769 | ) | (1,744 | ) | ||||
| Cash flow provided by financing activities | 23,027 | 39,787 | ||||||
Operating Activities
Our cash flows from operating activities are primarily driven by the activities associated with our CaaS revenue stream, offset by the cash cost of operations, and are significantly influenced by the timing of and fluctuations in receipts from buyers and related payments to our clients. We typically receive cash from the end users of products sold prior to remitting back to our clients. Our collection and payment cycles can vary from period to period. In addition, seasonality may impact cash flows from operating activities on a sequential quarterly basis during the year.
During the nine months ended September 30, 2022,2023, net cash used in operating activities increased by $2.7$10.5 million to $25.3$35.8 million, compared to net cash used in operating activities of $22.6$25.3 million during the nine months ended September 30, 2021.2022. The primary driverdrivers of the change were the timing of payment for clients and vendors. Due to clients decreased by $7.3 million, from $10.9 million as of December 31, 2022, to $5.6 million as of September 30, 2023. Accounts payable decreased by $4.2 million, from $19.6 million as of December 31, 2022, to $15.4 million as of September 30, 2023. Among the $4.2 million decrease, $3.7 million was attributed to the increasechanges in net loss and the sale of existing inventory.operating activities.
Investing Activities
Our primary investing activities have consisted of purchases of property and equipment and software.
During the nine months ended September 30, 2022,2023, net cash used in investing activities decreased by $0.4 million$975 thousand to $1.7 million$769 thousand compared to net cash used in investing activities of $2.1$1.7 million during the nine months ended September 30, 2021.2022. The primary driversdriver of the decrease werewas cash used in the prior year for the Modcloth joint venture investment, offset by an increase in property and equipment purchases of $1.1 million.purchases.
Financing Activities
Our financing activities consisted primarily of borrowings and repayments of debt as well as activity related to the business combination.Business Combination.
During the nine months ended September 30, 2022,2023, net cash provided by financing activities increaseddecreased by $24.9$16.8 million to $39.8$23.0 million, compared to net cash provided by financing activities of $14.9$39.8 million for the nine months ended September 30, 2021.2022. The change was primarily driven by the prior year activity related to the Business Combination.
Off-Balance Sheet Arrangements
We do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any other off-balance sheet arrangements during the periods presented other than the indemnification agreements.
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Contractual Obligations and Known Future Cash Requirements
Our principal commitments consist of operating lease for the office and warehouses located in California and Pennsylvania. Our five monthly lease commitment payments range from approximately $36 thousand to approximately $124 thousand. Each of our five lease commitments expire at various times through November 2028. Some of the leases contain renewal options. Minimum rent payments under all operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent.
Asas of September 30, 2022, the expected future obligations of the Company are as follows:2023.
|
| Total |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
| |||||||
Operating lease obligations |
| $ | 6,395 |
|
| $ | 570 |
|
| $ | 1,272 |
|
| $ | 873 |
|
| $ | 900 |
|
| $ | 927 |
|
| $ | 1,853 |
|
Rent expense for the nine months ended September 30, 2022 and 2021 was approximately $4.1 million and $2.7 million, respectively, and is included in general and administrative expenses in the consolidated statements of operations.
In addition, we anticipate to have future cash requirements related to investment in new products, technology, sales and marketing. Our budgeted expenditure is approximately $3.7 million for the year ended December 31, 2022.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Our Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses as well as the disclosure of contingent assets and liabilities. We regularly review our estimates and assumptions. These estimates and assumptions, which are based upon historical experience and on various other factors believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented. Below is a discussion of the policies that we believe may involve a high degree of judgment and complexity.
We believe that the accounting policies disclosed below include estimates and assumptions critical to our business and their application could have a material impact on our consolidated financial statements. In addition to these critical policies, our significant accounting policies are included within Note 2 of our “Notes to Consolidated Financial Statements” included elsewhere in this filing.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount, do not bear interest, and primarily represent receivables from consumers and credit card receivables from merchant processors, after performance obligations have been fulfilled. Amounts collected on accounts receivable are included in operating activities in the statements of cash flows.
The Company maintains an allowance for credit losses, as deemed necessary, for estimated losses inherent in its accounts receivable portfolio. In estimating this reserve, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any customers with off-balance-sheet credit exposure. The Company writes off accounts receivable balances once the receivables are no longer deemed collectible.
Fair value measurements
Joint Ventures
The Company accounts for joint ventures in accordance with ASC 810-10, “Consolidations,” ASC 323-10, “Investments-Equity Method and Joint Ventures” and ASC 825-10, “Finance“Financial Instruments,” under which the Company’s joint ventures meet the criteria to be accounted for as an equity method investment using the fair value method. As such, the difference between fair value and cash contribution is recorded as a gain to other income in the Company’s consolidated statement of operations. The joint ventures are subject to fair value assessment each reporting period and the changes in fair value is booked to the Company’s consolidated statement of operations. In valuing joint venture investments, we utilized the valuation from an independent third-party specialist, with input from management, which used a combination of net income and market approaches, with 50% weight to the discounted cash flow method and 25% weigh to each of the guideline public company and transaction methods. Changes in these estimates and assumptions or the relationship between those assumptions impact our valuation as of the valuation date and may have a material impact on the valuation.
Convertible notes
The Company accounts for the Convertible Notes in accordance with ASC 825-10, “Financial Instruments,” under which the Convertible Notes meet the criteria to be accounted for using the fair value method. The Convertible Notes are subject to fair value assessment each reporting period. As such, changes to fair value are recorded in the consolidated income statements to change in fair value of the Convertible Notes. In valuing the Convertible Notes, we utilized the valuation from an independent third-party specialist, which uses a binomial lattice valuation model. Changes in these estimates and assumptions or the relationship between those assumptions impact our valuation as of the valuation date and may have a material impact on the valuation.
Standby Agreement
The Company has entered into a Standby Agreement and the Equity PIPE Subscription Agreement with a Financial Institution (Note 8) which is accounted for as a derivative in its entirety in accordance with ASC 815-10, and the structured payments within the Equity PIPE Subscription Agreement was considered an embedded feature in the Equity PIPE Subscription Agreement that met the definition of a derivative and required bifurcation from the Equity PIPE Subscription Agreement, as it is not clearly and closely related to the Equity PIPE Subscription Agreement and would be accounted for in accordance with ASC 815-10. The Company accounted for the Standby Agreement Derivative acquired at fair value upon the closing of the Business Combination. The Company will continue to account for the Standby Agreement Derivative at fair value each reporting period in accordance with ASC 815-10. The Company engages a third-party valuation specialist to assist with the fair value assessment. The fair value changes is recorded in change in fair value of derivatives on the consolidated statements of operations.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480 and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”).815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the
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definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares of common stock,Common Stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter until settlement. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed consolidated statements of operations.
Class A Common Stock Subject to Possible Redemption
We accounted for shares of SWAG Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of SWAG Class A common stock subject to mandatory redemption were classified as a liability instrument and measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) was classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, the SWAG Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our unaudited condensed balance sheet.Revenue
Net Loss per Common Share
We applied the two-class method in calculating earnings per share. Net income per common share, basic and diluted for Class A redeemable common stock was calculated by dividing the interest income earned on the Trust Account, net of applicable taxes, by the weighted average number of shares of Class A redeemable common stock outstanding for the periods. Net income (loss) per common share, basic and diluted, for Class B non-redeemable common stock is calculated by dividing net income (loss) less income attributable to Class A redeemable common stock, by the weighted average number of shares of Class B non-redeemable common stock outstanding for the periods presented.
Revenue
Revenue is accounted for using Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)ASC Topic 606, Revenue from Contracts with Customers.
In accordance with ASC Topic 606, the Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer, |
| ● | Identification of the performance obligations in the contract, |
| ● | Determination of the transaction price, |
| ● | Allocation of the transaction price to the performance obligations in the contract, and |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
A performance obligation is a promise in a contract to transfer a distinct product. Performance obligations promised in a contract are identified based on the goods that will be transferred that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. Performance obligations include establishing and maintaining customer online stores, providing access to the Company’s e-commerce platform, customer service support, photography services, warehousing, and fulfillment. The Company has concluded the sale of goods and related shipping and handling on behalf of our customers are accounted for as a single performance obligation, while the expenses incurred for actual shipping charges are included in cost of sales.
The Company’s revenue is mainly commission fees derived from contractually committed gross revenue processed by customers on the Company’s e-commerce platform. Customers do not have the contractual right to take possession of the Company’s software. Revenue is recognized in an amount that reflects the consideration that the Company expects to ultimately receive in exchange for those promised goods, net of expected discounts for sales promotions and customary allowances.
Commerce-as-a-Service Revenue
CaaS revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged primarily in an agency relationship with its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers’ inventory or any credit risks relating to the products sold.
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Variable consideration is included in revenue for potential product returns. The Company uses a reserve to constrain revenue for the expected variable consideration at each period end. The Company reviews and updates its estimates and related accruals of variable consideration each period based on the terms of the agreements, historical experience, and expected levels of returns. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe therefore not requiring any additional constraint on the variable consideration.
Payment terms and conditions are generally consistent for customers, including credit terms to customers ranging from seven days to 60 days, and the Company’s contracts do not include any significant financing component. The Company performs credit evaluations of customers and evaluates the need for allowances for potential credit losses based on historical experience, as well as current and expected general economic conditions.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the statements of operations.
Commerce-as-a-Service
The Company’s main revenue stream is “Commerce-as-a-Service”CaaS revenue in which they receive commission fees derived from contractually committed gross revenue processed by customers on the Company’s e-commerce platform. Consideration for online sales is collected directly from the shopper by the Company and amounts not owed to the Company are remitted to the client. Revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged in an agency relationship with its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers’ inventory or any credit risks relating to the products sold.
Product revenue
Under one of the Company’s Master Services Agreements, the Company is the owner of inventory and reseller of record. As a result, the Company is the principal in sales to end customers and records these revenues on a gross basis a point in time.
Fulfillment
Revenue for business-to-business (“B2B”)B2B fulfillment services is recognized on a gross basis either at a point in time or over a point in time. For example, inbound and outbound services are recognized when the service is complete, while monthly storage services are recognized over the service period.
Marketing
Revenue for marketing services is recognized on a gross basis as marketing services are complete. Performance obligations include providing marketing and program management such as procurement and implementation.
Shipping
Revenue for shipping services is recognized on a gross basis as shipments are completed and products are shipped to end customers.
Other services
Revenue for other services such as photography, business to customer (“B2C”)B2C fulfillment, customer service, development and web design are reimbursable costs and recognized on the gross basis, and are services rendered as part of the performance obligations to clients for which an online platform and online orders are managed. All reimbursable costs are the responsibility of the Company as the Company uses such services to fulfill its performance obligations.
Set up and implementation
The Company provides set up and implementation services for new clients. The revenue is recognized on a gross basis at the completion of the service, with the unearned amounts received for incomplete services recorded as deferred revenue, if any.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the statements of operationsoperations.
Recently Issued Accounting Pronouncements
We discuss the potential impact of recent accounting pronouncements in Note 2 to our “Notes to Consolidated Financial Statements” under the caption “Summary of Significant Accounting Policies”.
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Item 3. QuantitativeQuantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. The disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Co-ChiefChief Executive OfficersOfficer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this Report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act, as such disclosure controls and procedures are defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our co-ChiefChief Executive OfficersOfficer and Chief Financial Officer. Based on this evaluation, these officersChief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2022,2023, our disclosure controls and procedures were effective to provide reasonable assurance of achieving their objectives.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to which this Report relates that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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Part
PART II - Other InformationOTHER INFORMATION
Item 1. LegalLegal Proceedings
We are and may become, from time to time, involved in legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at September 30, 2022,2023, will not materially affect the Company’s consolidated results of operations, financial position or cash flows. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on our financial results.
Item
Item 1A. Risk Factors
We are subject to various risks and uncertainties in the course of our business. AsFor a resultdiscussion of such risks and uncertainties, please see the closing offollowing paragraph and the Business Combination, the risk factors previously disclosedsection in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 no longer apply. For a discussion of risks and uncertainties relating to our business following the Business Combination, please see the section in our Registration Statement on Form S-1 filed with the SEC on September 16, 2022March 23, 2023 titled “Risk Factors.” There
We have been no material changesentered into a support agreement which contemplates our filing for Chapter 11 bankruptcy protection
As described in Item 5 below. We have entered into a support agreement which contemplates our filing for bankruptcy protection to implement the risk factors disclosed therein.transactions contemplated thereby. Under the contemplated transactions, our common stock would be worthless.
Item 2. UnregisteredUnregistered Sales of Equity Securities, and Use of Proceeds,
Unregistered Sales and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other thanInformation
On October 5th, 2023, the Company entered into a contribution agreement to contribute its interest in Modcloth and IPCO to a newly established joint venture entity, BiCoastal Alliance, LLC, of which the Company will have 50% ownership interest. Subject to certain closing conditions, the contribution is expected to be completed in the 4th quarter of 2023.
On November 16, 2023, Nogin, Inc. (“Nogin”) entered into a promissory note with B. Riley Securities, Inc., in its capacity as the lender (the “Lender”) pursuant to which Nogin borrowed $8,530,000. Borrowings thereunder must be paid on the earliest to occur of (i) June 30, 2025 and (ii) the date on which acceleration occurs thereunder as a result of certain events of default. Interest on the amounts borrowed accrues at 15% per annum and is payable quarterly. The promissory note contains covenants that must be performed by Nogin including those that are contained in the indenture governing Nogin’s existing convertible secured notes with respect to (i) Exchange Act Reports; (ii) compliance and default certificates); (iii) restricted payments; (iv) collateral; (v) incurrence of indebtedness and issuance of preferred stock; and (vi) additional guarantees. The borrowings are secured pursuant to a security agreement between Nogin and the PIPE InvestmentLender dated November 16, 2023 pursuant to which the Lender was granted a security interest in all right, title, and interest of each grantor in certain of each grantor’s assets including all accounts, chattel paper, commercial tort claims, deposit accounts, documents, equipment, inventory, fixtures, goods, general intangibles (including, without limitation, patents, trademarks, service marks, trade names, and copyrights, and all grantor’s rights in and under any registrations or applications to register any of the foregoing, and all grantor’s goodwill, instruments, investment property, letter of credit rights and money, and all other assets of such grantor, then owned and existing or thereafter acquired or arising and wherever located, and all proceeds of the foregoing.
On November 16, 2023, Nogin, the Lender, B. Riley Principal Investments, LLC, as plan sponsor, holders of 90% of Nogin’s convertible secured notes entered into a restructuring support agreement (the “Agreement”).
The Agreement provides for the sale of Nogin and contemplates that Nogin will file a voluntary petition for bankruptcy no later than December 1, 2023. In connection therewith it is contemplated that the plan sponsor would provide a debtor-in-possession loan which, together with the loan described above, would be equitized into 100% ownership of Nogin or be used to acquire substantially all of Nogin’s assets. The parties have agreed to support the proposed restructuring including debtor-in-possession financing. The contemplated restructuring would result in a payment of $15,000,000 to the Company’s Current Reportconvertible note holders in satisfaction of their claims together with a priority claim on the proceeds of any litigation proceeds up to the amount of their secured claim.
Nogin and its board of directors may refrain from taking any actions or take any actions inconsistent with the Agreement if there is a determination that acting or refraining to act would be inconsistent with applicable law including any fiduciary duty obligations.
The contemplated restructuring is unlikely to result in any distribution to holders of Nogin’s common stock in their capacity as such and Nogin’s existing common stock and warrants are likely to become worthless.
On November 16, 2023, Nogin received a notice of noncompliance from Nasdaq regarding its listing standards given Nogin did not file its quarterly report on Form 8-K filed with10-Q for the SEC on September 1, 2022, we sold no securities during the three monthsquarter ended September 30, 2022 that were not registered2023 on its original due date as required pursuant to Nasdaq listing rule 5250(c)(1). On November 15, 2023, Nogin did file a Notification of Late Filing on Form 12b-25 within the prescribed time period under the rules promulgated by the United States Securities Act.
Use of Proceeds
On August 2, 2021, SWAG consummated its initial public offering of 20,000,000 units. The units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $200,000,000. Jefferies LLC served as the manager for the initial public offering. The securities in the offering were registered under the Securities Act on registration statement on Form S-1 (No. 333-253230).
The SEC declared the registration statements effective on July 30, 2021. Simultaneous with the consummation of the initial public offering, the Sponsor purchased an aggregate of 9,000,000 private placement warrants at a price of $1.00 per private placement warrant, generating total proceeds of $9,000,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Of the gross proceeds received from the initial public offering, an aggregate of $203,000,000 ($10.15 per unit) was placed in SWAG’s trust account.
On August 4, 2021, the underwriters partially exercised their over-allotment option, resulting in an additional 2,807,868 units issued for an aggregate amount of $28,078,680. In connection with the underwriters’ partial exercise of their over-allotment option, the Company also consummated the sale of an additional 982,754 private placement warrants at $1.00 per private placement warrant, generating total proceeds of $982,754. A total of $28,499,860 was deposited into SWAG’s trust account, bringing the aggregate proceeds held in SWAG’s trust account to $231,499,860.
After deducting payments to existing stockholders of approximately $173.0 million in connection with their exercise of redemption rights, the remainder of SWAG’s trust account was used to pay fees and expenses and to pay cash consideration to Legacy Nogin stockholders, in each case, in connection with the Business Combination.Exchange Commission.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
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| Incorporated by Reference | ||||
Exhibit |
| Exhibit Description |
| Form |
| Exhibit |
| Filing Date |
2.1* |
|
| S-4 |
| 2.1 |
| 2/14/2022 | |
2.2 |
|
| S-4 |
| 2.2 |
| 5/16/2022 | |
2.3 |
|
| 8-K |
| 2.3 |
| 9/01/2022 | |
3.1 |
| Amended and Restated Certificate of Incorporation of Nogin, Inc. |
| 8-K |
| 3.1 |
| 9/01/2022 |
3.2 |
|
| 8-K |
| 3.2 |
| 9/01/2022 | |
4.1 |
|
| 8-K |
| 4.4 |
| 9/01/2022 | |
4.2 |
| Form of 7.00% Convertible Senior Notes due 2026 (included in Exhibit 4.4). |
| 8-K |
| 4.5 |
| 9/01/2022 |
4.3 |
|
| 8-K |
| 4.6 |
| 9/01/2022 | |
10.1 |
|
| 8-K |
| 10.1 |
| 9/01/2022 | |
10.2 |
|
| 8-K |
| 10.7 |
| 9/01/2022 | |
10.3 |
|
| 8-K |
| 10.8 |
| 9/01/2022 | |
10.4 |
|
| 8-K |
| 10.9 |
| 9/01/2022 | |
10.5 |
|
| 8-K |
| 10.10 |
| 9/01/2022 | |
31.1 |
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31.2 |
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31.3 |
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| |
32.1 |
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32.2 |
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32.3 |
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101 |
| The following financial information from Nogin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets - Unaudited, (ii) the Condensed Consolidated Statement of Operations - Unaudited, (iii) the Condensed Consolidated Statements of Convertible Redeemable Preferred Stock and Stockholders’ Deficit - Unaudited, (iv) the Condensed Consolidated Statement of Cash Flows - Unaudited and (v) the Notes to Condensed Consolidated Financial Statements - Unaudited (submitted electronically herewith). |
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104 |
| Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101). |
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| * | Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
* Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
45
SIGNATURESSIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
| NOGIN, INC. | ||
| ||
By: | /s/ Jonathan S. Huberman | |
|
| Jonathan S. Huberman |
| ||
(Principal Executive Officer) | ||
| November | ||
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By: |
| |
| ||
| ||
| /s/ Shahriyar Rahmati | |
| Shahriyar Rahmati | ||
| Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer) | ||
| November | ||
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