Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

FORM 10-Q

(MARK ONE)

Mark One)

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

For the quarterquarterly period ended June 30, 2022

2023

OR

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

For the transition period from

to

Commission file

number
:
File Number 001-40682
Software Acquisition Group

Nogin, Inc. III

(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)

its charter)

Delaware

86-1370703

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Number)

1980 Festival Plaza Drive, Ste. 300
Las Vegas, Nevada 89135

1775 Flight WaySTE 400

Tustin, CA92782

(949) 222-0209

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

310-991-4982
(Issuer’s telephone number)

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

Title of each class

Trading

Symbol(s)
Symbol

Name of each exchange

on which registered

Units, each consisting of one

Common stock, par value $0.0001 per share of Class A Common Stock and

one-half
of one Redeemable Warrant

SWAGU

NOGN

The Nasdaq Stock Market LLC

Class A Common Stock,
par value $0.0001 per share

Warrants to purchase common stock

SWAG

NOGNW

The Nasdaq Stock Market LLC

Warrants, each exercisable for one share
Class A Common Stock for $11.50 per share
SWAGW
The Nasdaq Stock Market LLC

Check

Indicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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(§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, anon-accelerateda non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”, and “emerging growth company” in

Rule
12b-2
of the Exchange Act
.
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 August

12
, 2022, 10, 2023, there were 22,807,86811,092,559 shares of Class Athe registrant’s common stock $0.0001outstanding, par value $0.0001 per 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 5,701,967Section 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 Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 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 Class B common stock, $0.0001 par value, issuedCommon Stock and outstandingWarrants 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

SOFTWARE ACQUISITION GROUP INC. III
our ability to fulfill the obligations and comply with the covenants under the Indenture governing our Convertible Notes; and
FORM
10-Q
FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
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

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i


PART I – FINANCIALI—FINANCIAL INFORMATION

Item 1. Interim Financial Statements.

SOFTWARE ACQUISITION GROUP INC. III
CONDENSED CONSOLIDATED BALANCE SHEETS
   
June 30,
2022
  
December 31,
2021
 
   
(Unaudited)
    
ASSETS
         
Current assets
         
Cash
  $18,159  $288,108 
Prepaid expenses
   346,878   410,111 
Other receivable-related party
   5,000   —   
   
 
 
  
 
 
 
Total Current Assets
   370,037   698,219 
Prepaid expenses,
non-current
   22,917   160,417 
Cash and Marketable securities held in Trust Account
   231,842,586   231,506,662 
   
 
 
  
 
 
 
TOTAL ASSETS
  
$
232,235,540
 
 
$
232,365,298
 
   
 
 
  
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
         
Current Liabilities
         
Accrued expenses
  $2,500,875  $1,306,281 
Income taxes payable
   9,909   —   
Advances from related parties
   7,086   —   
Promissory note – related party
   400,000   —   
   
 
 
  
 
 
 
Total Current Liabilities
   2,917,870   1,306,281 
Deferred underwriting fee payable
   7,982,754   7,982,754 
   
 
 
  
 
 
 
Total Liabilities
  
 
10,900,624
 
 
 
9,289,035
 
   
 
 
  
 
 
 
Commitments and Contingencies (Note 6)
       
Class A common stock subject to possible redemption, 22,807,868 shares at redemption value
   231,534,776   231,499,860 
Stockholders’ Deficit
         
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 0ne issued or outstanding
   —     —   
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 0ne shares issued and outstanding, and 22,807,868 subject to possible redemption
   —     —   
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 5,701,967 shares issued and outstanding
   570   570 
Additional
paid-in
capital
   —     —   
Accumulated deficit
   (10,200,430  (8,424,167
   
 
 
  
 
 
 
Total Stockholders’ Deficit
  
 
(10,199,860
 
 
(8,423,597
   
 
 
  
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  
$
232,235,540
 
 
$
232,365,298
 
   
 
 
  
 
 
 
TheFinancial Statements

Nogin, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)

 

 

June 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

3,143

 

 

$

15,385

 

Accounts receivable, net

 

 

1,908

 

 

 

1,578

 

Inventory

 

 

13,146

 

 

 

15,726

 

Prepaid expenses and other current assets

 

 

1,977

 

 

 

2,539

 

Total current assets

 

 

20,174

 

 

 

35,228

 

Property and equipment, net

 

 

1,895

 

 

 

1,595

 

Right-of-use asset, net (Note 19)

 

 

16,272

 

 

 

17,391

 

Goodwill

 

 

6,748

 

 

 

6,748

 

Intangible assets, net

 

 

5,384

 

 

 

5,493

 

Investment in unconsolidated affiliates

 

 

6,466

 

 

 

7,404

 

Other non-current asset

 

 

972

 

 

 

1,074

 

Total assets

 

$

57,911

 

 

$

74,933

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

13,936

 

 

$

19,605

 

Due to clients

 

 

3,609

 

 

 

10,891

 

Related party payables

 

 

869

 

 

 

1,033

 

Loans (Note 7)

 

 

3,155

 

 

 

 

Accrued expenses and other liabilities (Note 6)

 

 

16,281

 

 

 

17,826

 

Lease liabilities, current portion (Note 19)

 

 

4,512

 

 

 

4,367

 

Total current liabilities

 

 

42,362

 

 

 

53,722

 

Long-term note payable, net

 

 

329

 

 

 

 

Convertible notes (Note 7)

 

 

59,134

 

 

 

60,852

 

Deferred tax liabilities

 

 

407

 

 

 

394

 

Lease liabilities, net of current portion (Note 19)

 

 

13,637

 

 

 

15,223

 

Other long-term liabilities (Note 6)

 

 

23,472

 

 

 

17,766

 

Total liabilities

 

 

139,341

 

 

 

147,957

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Common stock, $0.0001 par value, 500,000,000 shares authorized; 11,092,559 and 3,334,714 shares issued and outstanding as of June 30, 2023 and December 31, 2022

 

 

1

 

 

 

 

Additional paid-in capital

 

 

22,596

 

 

 

9,270

 

Accumulated deficit

 

 

(104,027

)

 

 

(82,294

)

Total stockholders’ deficit

 

 

(81,430

)

 

 

(73,024

)

Total liabilities and stockholders’ deficit

 

$

57,911

 

 

$

74,933

 

See the accompanying notes are an integral part ofto the unaudited condensed consolidated financial statements.

1


Nogin, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statem
ents of Operations
(In thousands, except share and per share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net service revenue

 

$

7,543

 

 

$

9,254

 

 

$

16,461

 

 

$

17,787

 

Net product revenue

 

 

4,739

 

 

 

7,834

 

 

 

11,284

 

 

 

20,756

 

Net revenue from related parties

 

 

460

 

 

 

3,262

 

 

 

1,674

 

 

 

7,005

 

Total net revenue

 

 

12,742

 

 

 

20,350

 

 

 

29,419

 

 

 

45,548

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (1)

 

 

3,277

 

 

 

5,757

 

 

 

8,807

 

 

 

11,192

 

Cost of product revenue (1)

 

 

1,972

 

 

 

5,156

 

 

 

5,913

 

 

 

15,407

 

Sales and marketing

 

 

715

 

 

 

620

 

 

 

1,417

 

 

 

1,186

 

Research and development

 

 

1,163

 

 

 

1,250

 

 

 

2,126

 

 

 

2,827

 

General and administrative

 

 

15,814

 

 

 

13,140

 

 

 

33,139

 

 

 

30,362

 

Depreciation and amortization

 

 

235

 

 

 

219

 

 

 

437

 

 

 

420

 

Total operating costs and expenses

 

 

23,176

 

 

 

26,142

 

 

 

51,839

 

 

 

61,394

 

Operating loss

 

 

(10,434

)

 

 

(5,792

)

 

 

(22,420

)

 

 

(15,846

)

Interest expense

 

 

(2,777

)

 

 

(1,464

)

 

 

(4,791

)

 

 

(2,117

)

Change in fair value of promissory notes

 

 

(259

)

 

 

(2,566

)

 

 

(418

)

 

 

(2,566

)

Change in fair value of derivative instruments

 

 

3,462

 

 

 

 

 

 

4,309

 

 

 

 

Change in fair value of unconsolidated affiliates

 

 

(293

)

 

 

(949

)

 

 

(938

)

 

 

(1,982

)

Change in fair value of convertible notes

 

 

(1,296

)

 

 

 

 

 

3,295

 

 

 

 

Debt extinguishment gain

 

 

63

 

 

 

 

 

 

63

 

 

 

 

Other (loss) income, net

 

 

(259

)

 

 

(292

)

 

 

(818

)

 

 

1,661

 

Loss before income taxes

 

 

(11,793

)

 

 

(11,063

)

 

 

(21,718

)

 

 

(20,850

)

(Benefit) Provision for income taxes

 

 

39

 

 

 

(93

)

 

 

13

 

 

 

65

 

Net loss

 

$

(11,832

)

 

$

(10,970

)

 

$

(21,732

)

 

$

(20,915

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

 

$

(1.13

)

 

$

(5.54

)

 

$

(3.13

)

 

$

(10.56

)

Weighted average shares outstanding – basic and diluted

 

 

10,506,521

 

 

 

1,981,097

 

 

 

6,940,429

 

 

 

1,981,097

 

(1)
Exclusive of depreciation and amortization shown separately.
1

SOFTWARE ACQUISITION GROUP INC. III
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
   
Three Months Ended June 30,
  
Six Months
Ended
June 30,
  
For the
Period from
January 5,

2021
(Inception)
Through
June 30,
 
   
2022
  
2021
  
2022
  
2021
 
Operating and formation costs
  $864,182  $(1 $2,067,362  $999 
   
 
 
  
 
 
  
 
 
  
 
 
 
(Loss) Income from operations
  
 
(864,182
 
 
1
 
 
 
(2,067,362
 
 
(999
   
 
 
  
 
 
  
 
 
  
 
 
 
Other income:
                 
Interest earned on marketable securities held in Trust Account
   312,612   —     335,924   —   
   
 
 
  
 
 
  
 
 
  
 
 
 
Total other income
   312,612   —     335,924   —   
(Loss) Income before provision for income taxes
   (551,570  1   (1,731,438  (999
Provision for income taxes
   (9,909  —     (9,909  —   
   
 
 
  
 
 
  
 
 
  
 
 
 
Net (loss) income
  
$
(561,479
 
$
1
 
 
$
(1,741,347
 
$
(999
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic and diluted weighted average shares outstanding, Class A common stock
   22,807,868   —     22,807,868   —   
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic and diluted net loss per share, Class A
  
$
(0.02
 $—    
$
(0.06
 $—   
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic and diluted weighted average shares outstanding, Class B common stock
   5,701,967   5,000,000   5,701,967   5,000,000 
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic and diluted net (loss) income per share, Class B
  
$
(0.02
 
$
0.00
 
 
$
(0.06
 
$
(0.00
   
 
 
  
 
 
  
 
 
  
 
 
 
The

See the accompanying notes are an integral part ofto the unaudited condensed consolidated financial statements.

statements

2


SOFTWARE ACQUISITION GROUP INC. III
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
FOR THREE AND SIX MONTHS ENDED JUNE 30, 2022
   
Class A
Common Stock
   
Class B
Common Stock
   
Additional
Paid-in
   
Accumulated
   
Total
Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Deficit
 
Balance – January 1, 2022
  
 
—  
 
  
$
—  
   
 
5,701,967
 
  
$
570
 
  
$
—  
   
$
(8,424,167)
 
  
$
(8,423,597)
 
Net loss
   —      —      —      —      —      (1,179,868)    (1,179,868) 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance – March 31, 2022
   —      —     
 
5,701,967
 
  
 
570
 
   —     
 
(9,604,035)
 
  
 
(9,603,465)
 
Remeasurement of Class A common stock to redemption value
   —      —      —      —      —      (34,916)    (34,916) 
Net loss
   —      —      —      —      —      (561,479)    (561,479) 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
      
Balance – June 30, 2022
   —     $—     
 
5,701,967
 
  
$
570
 
  $—     
$
(10,200,430)
 
  
$
(10,199,860)
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
FOR THE THREE MONTHS ENDED JUNE 30, 2021, AND FOR THE PERIOD FROM JANUARY 5, 2021 (INCEPTION) THROUGH JUNE 30, 2021
   
Class A
Common Stock
   
Class B
Common Stock
   
Additional
Paid-in
   
Accumulated
  
Total
Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
  
Equity
 
Balance – January 5, 2021 (inception)
  
 
—  
   
$
 —  
   
 
—  
   
$
 —  
   
$
 —  
   
$
 —  
  
$
 —  
 
Issuance of Class B common stock to Sponsor
   —      —      5,750,000    575    24,425    —     25,000 
Net loss
   —      —      —      —      —      (1,000  (1,000
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balance – March 31, 2021
   —      —     
 
5,750,000
 
  
 
575
 
  
 
24,425
 
  
 
(1,000
 
 
24,000
 
Net income
   —      —      —          —      1   1 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balance – June 30, 2021
   —     $—     
 
5,750,000
 
  
$
575
 
  
$
24,425
 
  
$
(999
 
$
24,001
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
TheStockholders’ 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, 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

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

)

Stock and warrant issuance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

)

See the accompanying notes are an integral part ofto the unaudited condensed consolidated financial statements.

statements

3


SOFTWARE ACQUISITION GROUP INC. III
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
   
Six Months
Ended
June 30,
2022
   
For the
Period from
January 5,

2021
(Inception)
through
June 30,
2021
 
Cash Flows from Operating Activities:
          
Net loss
  $(1,741,347)   $(999) 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
          
Interest earned on marketable securities held in Trust Account
   (335,924)    —   
Changes in operating assets and liabilities:
          
Prepaid expenses
   200,733    —   
Other receivable – related party
   (5,000)    —   
Accrued expenses
   1,194,594    1,000 
Income taxes payable
   9,909    —   
   
 
 
   
 
 
 
Net cash (used in) provided by operating activities
  
 
(677,035)
 
  
 
1
 
   
 
 
   
 
 
 
Cash Flows from Financing Activities:
          
Proceeds from issuance of Class B common stock to Sponsor
   —      25,000 
Advances from related party
   7,086    —   
Proceeds from promissory note – related party
   400,000    162,637 
Payment of offering costs
   —      (162,637) 
   
 
 
   
 
 
 
Net cash provided by financing activities
  
 
407,086
 
  
 
25,000
 
   
 
 
   
 
 
 
Net Change in Cash
  
 
(269,949)
 
  
 
25,001
 
Cash – Beginning
   288,108    —   
   
 
 
   
 
 
 
Cash – Ending
  
$
18,159
 
  
$
25,001
 
   
 
 
   
 
 
 
Non-Cash
Investing and Financing Activities:
          
Offering costs included in accrued offering costs
  $—     $169,054 
   
 
 
   
 
 
 
Remeasurement of Class A common stock to redemption value
  $34,916   $—   
   
 
 
   
 
 
 
TheCash Flows
(In thousands)

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(21,732

)

 

$

(20,915

)

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

437

 

 

 

420

 

Amortization of debt issuance costs and discounts

 

 

722

 

 

 

802

 

Debt issuance costs expensed under fair value option

 

 

554

 

 

 

 

Stock-based compensation

 

 

370

 

 

 

83

 

Deferred income taxes

 

 

13

 

 

 

65

 

Change in fair value of unconsolidated affiliates

 

 

938

 

 

 

1,982

 

Change in fair value of warrant liability

 

 

(3,739

)

 

 

509

 

Change in fair value of promissory notes

 

 

878

 

 

 

2,566

 

Change in fair value of convertible notes

 

 

(3,295

)

 

 

 

Change in fair value of derivatives

 

 

(847

)

 

 

 

Settlement of deferred revenue

 

 

 

 

 

(1,611

)

Gain on extinguishment of accounts payable liabilities

 

 

(63

)

 

 

 

(Gain) loss on disposal of asset

 

 

(1

)

 

 

82

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(331

)

 

 

(546

)

Related party receivables

 

 

 

 

 

(880

)

Inventory

 

 

2,580

 

 

 

6,392

 

Prepaid expenses and other current assets

 

 

2,469

 

 

 

(2,306

)

Other non-current assets

 

 

85

 

 

 

 

Accounts payable

 

 

(3,673

)

 

 

(12

)

Due to clients

 

 

(7,280

)

 

 

(555

)

Related party payables

 

 

(164

)

 

 

1,870

 

Lease assets and liabilities

 

 

(323

)

 

 

 

Accrued expenses and other liabilities

 

 

2,187

 

 

 

(1,139

)

Net cash used in operating activities

 

 

(30,215

)

 

 

(13,193

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(613

)

 

 

(226

)

Proceeds from sale of property and equipment

 

 

4

 

 

 

 

Net cash used in investing activities

 

 

(609

)

 

 

(226

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from issuance of April 2023 Offering

 

 

22,000

 

 

 

 

Payment of issuance costs for April 2023 Offering

 

 

(1,291

)

 

 

 

Proceeds from short-term loan

 

 

3,275

 

 

 

 

Payment of short-term loan

 

 

(1,743

)

 

 

 

Proceeds from promissory notes

 

 

 

 

 

5,000

 

Proceeds from promissory notes – related parties

 

 

 

 

 

1,975

 

Payment of promissory notes

 

 

(3,478

)

 

 

 

Payment of promissory notes – related parties

 

 

(106

)

 

 

 

Payment of debt issuance costs

 

 

(75

)

 

 

(70

)

Proceeds from line of credit

 

 

 

 

 

86,905

 

Repayments of line of credit

 

 

 

 

 

(82,255

)

Net cash provided by financing activities

 

 

18,582

 

 

 

11,555

 

NET DECREASE IN CASH AND RESTRICTED CASH

 

 

(12,242

)

 

 

(1,864

)

Beginning of period

 

 

15,385

 

 

 

4,571

 

End of period

 

$

3,143

 

 

$

2,707

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

959

 

 

$

1,288

 

Cash paid for taxes

 

 

118

 

 

 

169

 

Right-of-use assets exchanged for lease liabilities

 

 

1,120

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

SCHEDULE OF CASH AND RESTRICTED CASH

 

 

 

 

 

 

Cash

 

$

3,143

 

 

$

1,207

 

Restricted cash

 

 

 

 

 

1,500

 

Total cash and restricted cash

 

$

3,143

 

 

$

2,707

 

4


See the accompanying notes are an integral part ofto the unaudited condensed consolidated financial statements.statements

5


Nogin, Inc. and Subsidiaries
Note to Unaudited Condensed Consolidated Financial Statements

1.
DESCRIPTION OF BUSINESS
4

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,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

(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
(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 (the “Company or (“SWAG”) is), Nuevo Merger Sub, Inc., a blank check company incorporated in Delaware on
 January 5, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (a “Business Combination”).
The Company has one wholly owned subsidiary which was formed on December 20, 2021, Nuevoof SWAG (“Merger Sub”), and Branded Online, Inc. dba Nogin (“Legacy Nogin”). Pursuant to the Merger Agreement, Merger Sub Inc. (the “Merger Sub”), a Delaware corporation.
The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early stagewas merged with and emerging growth company and, as such, the Company is subject to all of the risks associatedinto Legacy Nogin, with early stage and emerging growth companies.
As of June 30, 2022, the Company had not commenced any operations. All activity from January 5, 2021 (inception) through June 30, 2022 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates
non-operating
income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Company’s Initial Public Offering was declared effective on July 28, 2021. On August 2, 2021, the Company consummated the Initial Public Offering of 20,000,000 Units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”) at $10.00 per Unit, generating gross proceeds of $200,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 9,000,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to Software Acquisition Holdings III, LLC (the “Sponsor”), generating gross proceeds of $9,000,000, which is described in Note 4.
Following the closing of the Initial Public Offering on August 2, 2021 and the close of the over-allotment on August 4, 2021, an amount of $231,499,860 ($10.15 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”) which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of
Rule2a-7
of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the distribution of the funds in the Trust Account to the Company’s stockholders, as described below.
On August 2, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment option. As such, on August 4, 2021, the Company consummated the sale of an additional 2,807,868 Units, at $10.00 per Unit, and the sale of an additional 982,754 Private Placement Warrants, at $1.00 per Private Warrant, generating total gross proceeds of $29,061,434. A total of $28,499,860 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to $231,499,860.
Transaction costs amounted to $13,056,080, consisting of $4,561,574 of underwriting fees, $7,982,754 of deferred underwriting fees and $511,752 of other offering costs.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide thatLegacy Nogin surviving the Business Combination must be with one or more target businesses that together haveas a fair market value equal to at least 80%wholly owned subsidiary of the balance inCompany (the “Business Combination” and, together with the Trust Account (net of amounts disbursed to management for working capital, if permitted, and excludingother transactions contemplated by the amount of any deferred underwriting commissions) atMerger Agreement, the time“Transactions”).

While Legacy Nogin became a wholly-owned subsidiary of the signing a definitive agreement to enter a Business Combination. The Company, will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it notLegacy Nogin was deemed to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.

The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i)acquirer in connection with a stockholder meeting called to approve 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 (ii) by meansother 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 tender offer. result of the Business Combination, equity holders of Legacy Nogin received approximately 2.7 million shares of Common Stock and cash consideration of $15.0 million, of which $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 a proposedthe Business Combination, the Company may seek stockholder approvalreceived proceeds of a Business Combination at a meeting calledapproximately $58.8 million from SWAG’s trust account, net of redemptions by SWAG’s public shareholders, as well as approximately $65.5 million in proceeds from the contemporaneous issuance of 7.00% Convertible Senior Notes due 2026 (the “Convertible Notes”). The aggregate cash raised has been used for such purpose at which stockholders may seek to redeem their shares, regardlessgeneral business purposes, the paydown of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only ifLegacy Nogin’s outstanding debt, the Company has net tangible assetspayment of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combinationtransaction costs and if the Company seeks stockholder approval, a majoritypayment of the outstanding shares voted are voted in favor of the Business Combination.cash consideration.

6


2.
5

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
If the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended and Restated Certificate of Incorporation provides that, a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 15% or more of the Public Shares without the Company’s prior written consent.
The public stockholders will be entitled to redeem their shares for a pro rata portion of the amount then in the Trust Account (initially $10.15 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The
per-share
amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter (as discussed in Note 6). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
If a stockholder vote is not required and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (the “SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Company’s Sponsor has agreed (a) to vote its Founder Shares (as defined in Note 5), the Private Shares and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Company’s Amended and Restated Certificate of Incorporation with respect to the Company’s
pre-Business
Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Founder Shares) and Private Placement Warrants (including underlying securities) into the right to receive cash from the Trust Account in connection with a stockholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek stockholder approval in connection therewith) or a vote to amend the provisions of the Amended and Restated Certificate of Incorporation relating to stockholders’ rights of
pre-Business
Combination activity and (d) that the Founder Shares and Private Placement Warrants (including underlying securities) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
If the Company is unable to complete a Business Combination by February 2, 2023 (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the public shares, at a
per-share
price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period, and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
6

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.15 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the day of liquidation of the Trust Account, if less than $10.15 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriter of Proposed Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure its stockholders that the Sponsor would be able to satisfy those obligations. None of the Company’s officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity and Capital Resources
As of June 30, 2022, the Company had $18,159 in its operating bank accounts, $231,842,586 in securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its common stock in connection therewith and working capital deficit of $2,240,023. As of June 30, 2022, approximately $342,726 of the amount on deposit in the Trust Account represented interest income, which is available to pay the Company’s tax obligations.
Until the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination.
The Company will need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
Going Concern
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”)
2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to complete a Business Combination by February 2, 2023, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 2, 2023.
Risks and Uncertainties
Management continues to evaluate the impact of the
COVID-19
pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of operations and/or search for a target business, the specific impact is not readily determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
7

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Form10-Q
Form 10-Q and Article 8 of Regulation
S-X
of the 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 consolidated 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 consolidated financial statements should be read in conjunction with the Company’s Annual Report on

Form10-K
as filed withConsolidated Financial Statements for the SEC on March 30,year ended December 31, 2022. The interim results for the three and six months ended June 30, 2022 is2023 are not necessarily indicative of the results to be expected for the period ending December 31, 20222023, or for any future annual or interim periods.

Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

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 including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

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. This may make comparison

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.

Prior to the Business Combination, the Company’s condensedavailable liquidity and operations were financed through equity contributions, a line of credit, promissory notes and cash flow from operations. Moving forward, the Company expects to fund operations through equity contributions and cash flow from operations.

Because 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 with another public company which is neither an emerging growth company nor an emerging growth company whichas of and for the six months ended June 30, 2023 have been prepared assuming the Company will continue as a going concern. The Company has opted outsustained recurring losses, negative working capital and negative cash flows from operations and had a cash balance of using$3.1 million as of June 30, 2023. These conditions provide substantial doubt about our ability to continue as a going concern for at least twelve months from the extended transition period difficult or impossible becausedate that these consolidated financial statements are issued.

In March 2023, the Company did not timely make the payment of the potential differencesaccrued interest on the Convertible Notes due on March 1, 2023 of $2.3 million, resulting in accounting standards used.a default. On March 26, 2023, the Company, the Notes Guarantors (as defined below) and the holders of the Convertible Notes (collectively, the “Holders”) entered into limited waivers and consents (each, a “Waiver” and collectively, the “Waivers”) pursuant to which, among other things, each Holder agreed to (i) waive the Specified Default (as defined below) and any payment obligation of the Company under the Indenture with respect to the March Interest Payment (as defined below), (ii) in lieu of the Interest Payments (as defined below), (a) receive a promissory note or convertible promissory note, as applicable, and (b) amend

7


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). The Supplemental Indenture, among other things, 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.

On April 4, 2023, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain investors (the “Investors”), pursuant to which the Company agreed to sell, issue, and deliver to Investors, in a registered public offering (the “April 2023 Offering”) (i) 7,333,334 shares of Common Stock and (ii) warrants to purchase 7,333,334 shares of Common Stock (the “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. The Company also entered into a Placement Agency Agreement, dated April 4, 2023, by and between the Company and the Placement Agents (the “Placement Agency Agreement”), pursuant to which the Placement Agents received a cash fee equal to a portion of the purchase price paid by the Investors.

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. Our future capital requirements and the adequacy of available funds will depend on many factors, many of which are beyond our control.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period.

Making The Company prepared these estimates requires management to exercise significant judgment. It is at least reasonably possible thatbased on the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in this financial statement is the determination of the fair value of the warrant liabilities. Such estimates may be subject to change as moremost current and best available information, becomes available and, accordingly, thebut actual results could differ significantlymaterially from those estimates.
Reclassifications
Certain reclassifications have been madethese 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, 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 judgements about the carrying value of assets and liabilities that are not readily apparent from other sources.

Accounts Receivable, Net

The allowance for credit losses was $215 thousand as of June 30, 2023 and $425 thousand as of December 31, 2022.

Inventory

Inventory is comprised entirely of finished goods for resale. The reserve for returns was $48 thousand as of June 30, 2023 and $535 thousand as of December 31, 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 statementsinstitutions. 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’s insurance limit. The Company has not experienced any losses in its cash accounts to conformdate. 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 June 30, 2023, receivables from two customers amounted to $457 thousand (or 23% of accounts receivable) and $420 thousand (or 21% of accounts receivable), respectively. As of December 31, 2022, receivables from two customers amounted to $771 thousand (or 44% of accounts receivable) and $153 thousand (or 9% of accounts receivable), respectively.

Major Customers

For the six months ended June 30, 2023, revenue from our top three customers amounted to $4.6 million (or 16% of total revenue), $3.0 million (or 10% of total revenue), and $1.8 million (or 6% of total revenue), respectively. For the six months ended June 30, 2022, revenue from our top three customers amounted to $15.1 million (or 33% of total revenue), $6.3 million (or 14% of total revenue), and $4.2 million (or 9% of total revenue), respectively.

8


Major Suppliers

For the six months ended June 30, 2023, our top three vendors accounted for operating expense of $3.4 million (or 11% of total operating expense purchases), $2.4 million (or 8% of total operating expense purchases) and $2.0 million (or 7% of total operating expense purchases), respectively. For the six months ended June 30, 2022, our top three vendors accounted for operating expense of $5.6 million (or 14% of total operating expense purchases), $4.5 million (or 11% of total operating expense purchases) and $4.1 million (or 10% 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 current year’s presentation. Such reclassifications have no effect on net income (loss) as previously reportedeffective date contain leases, nor did we reassess lease classification determinations nor whether initial direct costs qualify for capitalization;
Cash and Cash Equivalents
The Company considers all short-term investmentsWe elected the practical expedient to not capitalize any leases with an original maturityinitial terms of threetwelve months or less when purchasedon our consolidated balance sheet;
For all underlying classes of leased assets, we elected the practical expedient to benot 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 equivalents. The Company did 0tflows.

Our operating leases primarily consist of office space, distribution centers and equipment used within our operations. Most of the leases have any cash equivalentslease 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 June 30, 20222023 and December 31, 2021.

2022.

8

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Marketable Securities Held in Trust Account
Atgoodwill at June 30, 20222023 and December 31, 2021, substantially all2022.

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 held in the Trust Accountsuch as trade names are expected to generate cash flows indefinitely. Consequently, these assets were held in money market funds, which are invested primarily in U.S. Treasury securities. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securitiesindefinite-lived

9


intangibles and accordingly are presented on the balance sheetsnot amortized but reviewed for impairment annually, or sooner under certain circumstances. There was no impairment of indefinite-lived assets at fair value at the end of each reporting period. GainsJune 30, 2023 and losses resulting from the change in fair value of investments held in Trust Account are included in interest earned on marketable securities held in Trust Account in the accompanying condensed consolidated statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.

December 31, 2022.

Class A Common Stock Subject to Possible Redemption

Warrants

The Company accounts for its 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 Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ (deficit) equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2022 and December 31, 2021, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ (deficit) equity section of the Company’s condensed consolidated balance sheets.

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit.
At June 30, 2022 and December 31, 2021, the Class A common stock reflected in the balance sheets are reconciled in the following table:
Gross proceeds
  $ 228,078,680 
Less:
     
Proceeds allocated to Public Warrants
   (12,492,109
Class A common stock issuance costs
   (12,318,960
Add:
     
Adjustment of carrying value to initial redemption value
   28,232,249 
   
 
 
 
Class A common stock subject to possible redemption, December 31,
2021
  $231,499,860 
Add:
     
Adjustment of carrying value to redemption value
   —   
   
 
 
 
Class A common stock subject to possible redemption, March 31, 2022
   231,499,860 
Add:
     
Adjustment of carrying value to
 
redemption value
   34,916 
   
 
 
 
Class A common stock subject to possible redemption, June 30, 2022
   $231,534,776 
Derivative Liabilities
The Company accounts for derivative instrumentswarrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC 480 Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives“Derivatives and HedgingHedging” (“ASC 815”). The assessment considers whether the instrumentswarrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the derivative instrumentswarrants meet all of the requirements for equity classification under ASC 815, including whether theythe warrants are indexed to the Company’s own common stock,shares of 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 instrumentswarrants 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.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. The Company’s has analyzed the Public Warrants and Private Placement Warrants and determined they are considered to be freestanding instruments and do not exhibit any of the characteristics in ASC 480 and therefore are not classified as liabilities under ASC 480 (See Note 8).

Income Taxes

The Company grantedfollows the underwriters a

45-day
option at the Initial Public Offering date to purchase up to 3,300,000 additional Units to cover over-allotments. The over-allotment option was evaluated under ASC 480 “Distinguishing Liabilities from Equity.” The Company concluded that the underlying transaction (Units which include redeemable sharesasset and warrants)liability method of the over-allotment option embodies an obligation to repurchase the issuer’s equity shares. Accordingly, the option was fair valued and recorded as a liability at issuance date and applied to the offering cost of the Class A redeemable shares. On August 4, 2021, the underwriters partially exercised their over-allotment option to purchase an additional 2,807,868 Units at $10.00 per Unit and forfeited the remaining over-allotment option.
9

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Offering Costs
Deferred offering costs consist of underwriting, legal, accounting and other expenses incurred through the balance sheet date that are directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs allocated to the Public Shares were charged to stockholders’ (deficit) equity upon the completion of the Initial Public Offering. Offering costs amounted to $13,056,080, which were charged to stockholders’ (deficit) equity upon the completion of the Initial Public Offering. $12,318,960 were allocated to public shares and charged to temporary equity, and $737,120 was allocated to warrants and accounted for as equity.
Income Taxes
The Company accounts for income taxes under ASC Topic 740, “Income Taxes” (“ASC 740”), requires(ASC 740). Deferred tax assets and liabilities are recognized for the recognitionestimated 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 for bothof a change in tax rates is recognized in income in the expected impact of differences betweenperiod that included the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to beenactment date. Valuation allowances are established, when it is more likely than not that all or a portion ofnecessary, to reduce deferred tax assets will notto the amount expected to be realized. As of June 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it. The Company’s effective tax rate was
1.8
% and
0.0
% for the three months ended June 30, 2022 and 2021, respectively, and
0.6
% and
0.0
% for the six months ended June 30, 2022 and for the period from January 5, 2021 (inception) through June 30, 2021, respectively. The effective tax rate differs from the statutory tax rate of
21
% for the three and six months ended June 30, 2022 and 2021, due to changes in fair value of over-allotment option, merger and acquisition expenses, and the valuation allowance on the deferred tax assets.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and a measurement processattribute for the financial statement recognition and measurement of a tax positionpositions 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
more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were 0no unrecognized tax benefits and 0no amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021.2023. 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 has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxationtax examinations by major taxing authorities since its inception. These examinations may include questioning

Revenue Recognition

Revenue is accounted for using FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

In accordance with ASC Topic 606, the timing andCompany recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount of deductions,that reflects the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Net Loss per Common Share
consideration it expects to be entitled to in exchange for those goods or services. The Company compliesdetermines revenue recognition through the following steps:

Identification of a contract with accountinga 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 disclosure requirements
Recognition of FASB ASC Topic 260, “Earnings Per Share”. Net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Remeasurement associated with the redeemable shares of Class A common shares is excluded from earnings per sharerevenue when or as the redemption value approximates fair value.performance obligations are satisfied.
The following table reflects

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 calculationgoods that will be transferred that are both capable of basicbeing distinct and diluted net loss per ordinary share (in dollars, except per share amounts):

   
Three Months Ended

June 30, 2022
  
Three Months Ended
June 30, 2021
   
Six Months Ended
June 30, 2022
  
For the Period from
January 5, 2021
(Inception) Through
June 30, 2021
 
   
Class A
  
Class B
  
Class A
   
Class B
   
Class A
  
Class B
  
Class A
   
Class B
 
Basic and diluted net (loss) income per common share
                                    
Numerator:
                                    
Allocation of net (loss) income, as adjusted
  $(449,183 $(112,296 $—     $1   $(1,393,078 $(348,269 $—     $(999
Denominator:
                                    
Basic and diluted weighted average shares outstanding
   22,807,868   5,701,967   —      5,000,000    22,807,868   5,701,967   —      5,000,000 
   
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
Basic and diluted net (loss) income per ordinary share
  $(0.02 $(0.02 $—     $0.00   $(0.06 $(0.06 $—     $(0.00
Concentrationare distinct in the context of Credit Risk
Financial instruments that potentially subjectthe 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 concentrations of credit risk consist of cash accounts inthe separate performance obligations on a financial institution, which, at times may exceedrelative standalone selling price basis. The Company determines the Federal Depository Insurance Corporation coverage limit of $250,000. 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

10


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. The Company is acting as an agent in these arrangements and customers do not experienced losseshave 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.

CaaS revenue is recognized on these accountsa net basis from maintaining e-commerce platforms and management believesonline 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 exposedtake possession of the 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 June 30, 2023 was $0.3 million and as of December 31, 2022 was $1.4 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

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’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’ inventory or any credit risks relating to the products sold.

Product sales

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.

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 account.

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 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

11


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 share 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 net of the Company’s fees, and expenses incurred on the client’s behalf.

Fair Value Measurement

The Company applies the provisions of Financial Instruments

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 faircarrying value of the Company’s assets and liabilities, which qualify asshort-term financial instruments, under ASCsuch 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 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 820, “Fair Value Measurement,326, Financial Instruments—Credit Losses,approximateswhich clarifies the carrying amounts representedscope of guidance in the accompanying condensed consolidated balance sheets, primarily due to their short-term nature.

10
ASU 2016-13. This update is effective for interim and annual periods beginning after December 15, 2022,

12


SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Recent Accounting Standards
adoption.

In August 2020, the FASB issued ASU

No. 2020-06
“Debt — Debt—Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging — Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“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
2020-06”),
which 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
2020-06
removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and itwhich 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 fiscal yearsthe Company beginning after December 15, 2023, including interim periods within those fiscal years,January 1, 2024, with early adoption permitted.permitted as of January 1, 2021. The Company is currently assessingearly adopted the provisions of ASU 2020-06 effective January 1, 2022 and it did not have a material impact if any, that ASU
2020-06
would have on itsthe Company’s financial position, resultsstatements as a result of operations or cash flows.
Management does not believe that any otheradoption.

Other recently issued but not yet effective, accounting standards if currently adopted, wouldare not expected to have a material effect on the Company’s condensed consolidated financial statements.

3.
NOTE 3. INITIAL PUBLIC OFFERING
PROPERTY AND EQUIPMENT
Pursuant to the Initial Public Offering, the Company sold 20,000,000 Units at a purchase price of $10.00 per Unit. Each Unit consists of 1 share of Class A common stock

Property and

one-half
of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50, subject to adjustment (see Note 8).
On August 2, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment option. As such, on August 4, 2021, the Company consummated the sale of an additional 2,807,868 Units, at $10.00 per Unit, and the sale of an additional 982,754 Private Placement Warrants, at $1.00 per Private Warrant.
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing 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, for an aggregate purchase price of $9,000,000, in a private placement. Each Private Placement Warrant is exercisable to purchase one Class A common stock at a price of $11.50. A portion of the proceeds from the Private Placement Warrants were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.
On August 2, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment option. As such, on August 4, 2021, the Company consummated the sale of an additional 2,807,868 Units, at $10.00 per Unit, and the sale of an additional 982,754 Private Placement Warrants, at $1.00 per Private Warrant.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On January 22, 2021, the Sponsor purchased 5,750,000 shares (the “Founder Shares”) of the Company’s Class B common stock for an aggregate price of $25,000. The Founder Shares include an aggregate of up to 750,000 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the Sponsor will collectively own, on an
as-converted
basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor does not purchase any Public Shares in the Initial Public Offering). On August 2, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment option. As such, on August 4, 2021, the Company consummated the sale of an additional 2,807,868 Units. As a result of the underwriters’ election to partially exercise their over-allotment option and the forfeiture of the remaining over-allotment option, 48,033 Founder Shares were forfeited, and 701,967 Founder Shares are no longer subject to forfeiture resulting in an aggregate of 5,701,967 Founder Shares outstanding at August 4, 2021.
The Sponsor has agreed not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days with in
any 30-trading
day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the
lock-up.
11

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Executive Officer’s role at Nogin
Jonathan Huberman, the Chairman, CEO and CFO of the Company will become co-CEO and President of Branded Online, Inc. (d/b/a Nogin) (“Nogin”) at the close of the transaction.
Other Receivable – Related Party
On August 23, 2021, the Company paid a charge in the amount of $5,541 on behalf of an affiliated entity. This amount is included in other receivable – related party. The Company was reimbursed in full on October 25, 2021.
On April 5, 2022, the Company paid a charge in the amount of $5,000 on behalf of the affiliated entity. This amount is included in other receivable – related party on the condensed consolidated balance sheet equipment, net as of June 30, 2022.2023 and December 31, 2022, consisted of the following (in thousands):

 

 

June 30,
2023

 

 

December 31,
2022

 

Furniture and equipment

 

$

2,993

 

 

$

2,406

 

Leasehold improvements

 

 

572

 

 

 

572

 

Property and equipment, gross

 

 

3,565

 

 

 

2,978

 

Less accumulated depreciation

 

 

(1,670

)

 

 

(1,383

)

Property and equipment, net

 

$

1,895

 

 

$

1,595

 

Depreciation expense for property and equipment for the six months ended June 30, 2023 and 2022 was $310 thousand and $304 thousand, respectively.

4.
Advances from Related PartiesGOODWILL AND INTANGIBLE ASSETS

In connection with the ModCloth acquisition (Note 13), the Company recorded $6.7 million of goodwill.

In connection with the BTB (ABC), LLC (“Betabrand”) acquisition, the Company’s amortization expense for capitalized software for the six months ended June 30, 2023 and 2022 was $55 thousand and $58 thousand, respectively.

As of June 30, 2023 and December 31, 2022, affiliatesintangible assets consist of the following (in thousands):

 

 

June 30,
2023

 

 

December 31,
2022

 

Software

 

$

1,166

 

 

$

1,166

 

Trade Name

 

 

4,617

 

 

 

4,617

 

 

 

5,783

 

 

 

5,783

 

Less: Accumulated amortization

 

 

(399

)

 

 

(290

)

Intangible assets-net

 

$

5,384

 

 

$

5,493

 

As of June 30, 2023, the Company’s amortization of intangibles for the next five years are as follows (in thousands):

2023 (remaining payments)

 

$

110

 

2024

 

 

219

 

2025

 

 

219

 

2026

 

 

219

 

2027

 

 

 

Total remaining intangible amortization

 

$

767

 

5.
INVESTMENT IN UNCONSOLIDATED AFFILIATES

On April 6, 2021, the Company ha

ve
 paidand Tiger Capital Group, LLC (“Tiger Capital”) formed a joint venture, ModCloth Partners, LLC (“ModCloth”). The Company and Tiger Capital each contributed $1.5 million into ModCloth and the Company owned 50% of the outstanding membership units. Tiger Capital provided the financing for expenses totaling $7,086 on behalfthe inventory, while the Company entered into a Master

13


Services Agreement with ModCloth to provide the e-commerce services (see Note 14). The Company accounted for its investment in ModCloth under the fair value option of accounting.

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 the Company. This amount is included in advances from related partiesIn addition, the Company paid the remaining balance of approximately $1 million on the condensed consolidated balance sheet asinventory financing arrangement between ModCloth and Tiger Capital (Note 13).

On December 31, 2021, the Company and CFL Delaware, Inc. (“CFL”) formed a joint venture, IPCO, whereby Nogin contributed certain assets acquired from the Betabrand acquisition and entered into a Master Services Agreement with IPCO to provide certain e-commerce services, marketing, photography, customer service and merchant credit card monitor fraud services (Note 14). 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 June 30, 2022.

Administrative Support Agreement
The Company agreed, commencing2023 and December 31, 2022, the investment balance related to IPCO was $6.5 million and $7.4 million, respectively, and was included in investment in unconsolidated affiliates on July 28, 2021, through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Sponsor or its designee a total of up to $15,000 per month for office space, administrative and shared personnel support.consolidated balance sheets. For the three and six months ended June 30, 2022, the Company incurred $45,000recorded a loss of $1.6 million to other expense related to the settlement of deferred revenue related to sale of finished inventory to IPCO. In addition, the Company recorded a fair value loss related to its IPCO investment of $938 thousand and $90,000 in fees$41 thousand for these services, of which $15,000 werethe six months ended June 30, 2023 and June 30, 2022, respectively, included in accrued expenseschanges in fair value of unconsolidated affiliates on the accompanying balance sheetconsolidated statement of operations.

The following table presents summarized financial information for the joint venture for the six months ended June 30, 2023 and 2022, and as of June 30, 2022. For2023 and December 31, 2022 (in thousands):

 

IPCO

 

 

 

For the Six Months
Ended June 30,

 

 

For The Six Months
Ended June 30,

 

 

 

2023

 

 

2022

 

Net revenue

 

$

5,598

 

 

$

13,578

 

Gross margin

 

 

3,883

 

 

 

10,776

 

Net loss

 

 

(2,002

)

 

 

(826

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCO

 

 

 

As of June 30,
2023

 

 

As of December 31,
2022

 

Current assets

 

$

2,356

 

 

$

4,254

 

Long term assets

 

 

5,214

 

 

 

5,509

 

Current liabilities

 

 

4,299

 

 

 

6,142

 

Long term liabilities

 

 

2,762

 

 

 

1,032

 

The Company’s IPCO investments are Level 3 fair value measurements. The Company utilized the three months endedfollowing valuation methods to conclude on the fair value as of June 30, 20212023:

- Discounted Cash Flow– The key unobservable input utilized was a discount rate of 17.1% for IPCO.

- Guideline Public Company Method – The Company utilized a revenue multiple of 0.65x 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 0.70x for IPCO on current period forecasted revenues. The revenue multiple was derived from public transactions in which the target companies were similar to IPCO.

The following table summarizes the changes in the IPCO investment Level 3 fair value measurement (in thousands):

 

 

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

 

6.
CERTAIN LIABILITY ACCOUNTS

14


Accrued expenses and for the period from January 5, 2021 (inception) throughother current liabilities as of June 30, 2021, the Company did 0t incur any fees for these services.

Promissory Note — Related Party
On January 22, 2021, the Sponsor issued an unsecured promissory note to the Company (the
“IPO Promissory
 Note”), pursuant to which the Company could borrow up to an aggregate principal amount of $300,000. The
IPO
Promissory Note was
non-interest
bearing2023 and as amended effective May 28, 2021, payable on the earlier of (i) December 31, 20212022 were as follows (in thousands):

 

 

June 30,
2023

 

 

December 31,
2022

 

Business Combination consideration payable

 

$

5,000

 

 

$

5,000

 

Contract liability

 

 

4,229

 

 

 

5,058

 

Payroll and other employee costs

 

 

2,164

 

 

 

1,300

 

Sales tax payable

 

 

525

 

 

 

1,191

 

Accrued interest

 

 

8

 

 

 

1,622

 

Accrued transaction costs

 

 

 

 

 

840

 

Inventory accrual

 

 

 

 

 

503

 

Other accrued expenses and current liabilities

 

 

4,355

 

 

 

2,312

 

Total

 

$

16,281

 

 

$

17,826

 

Included in “Contract liability” are liabilities primarily related to unearned revenue and (ii)unredeemed gift cards. Unearned revenue is recorded when payments are received in advance of fulfilling our obligations and is recognized when the consummation of the Initial Public Offering. The outstanding balance under the

IPO
Promissory Note of $174,060 was repaid at the closing of the Initial Public Offering on August 2, 2021.
On February 9, 2022, the Sponsor agreed to loan the Company $300,000 pursuant to a new promissory note (the “Promissory Note”). On May 31, 2022, the Sponsor agreed to loan the Company $100,000
pursuant to a new promissory note (the “New Promissory Note”, and together with the Promissory Note, the “Promissory Notes”). Each of the Promissory Notesobligations are non-interest bearing and payable upon consummation of the Company’s initial Business Combination. fulfilled.

As of June 30, 2022, there was an aggregate2023, our liabilities for unearned revenue were $3.2 million, which included $2.6 million employee retention credits received in June 2023. As of

 $400,000
outstanding under the Promissory Notes.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s directors and officers may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants.
On February 9, 2022, the Sponsor agreed to loan the Company $300,000
pursuant to the IPO Promissory Note, and on May December 31, 2022, the Sponsor agreed to loan the Company an additional $100,000 pursuant to the New Promissory Note.
Health Insurance — Related Party
On December 15, 2021, the Company reimbursed the Sponsor $86,549 of health insurance and other benefitsour liabilities for its officers and administrative staff for the year 2022.
NOTE 6. COMMITMENTS AND CONTINGENCIES
On September 15, 2021, the Company entered into an agreement with a vendor for financial advisement services related to the Business Combination. The agreement calls for the vendor to receive a contingent fee at Business Combination in the amount of $3,000,000. If, following or in connection with the termination, abandonment or failure to occur of any proposed Business Combination in respect of which the Company entered into an agreement during the term of this Agreement or during the
12-month period following the effective date of termination of this Agreement, the Company or any affiliate is entitled to receive a
break-up,
termination, “topping,” expense reimbursement, earnest money payment or similar fee or payment (each and together, “Termination Payments”), the vendor shall be entitled to a cash fee (the
“Break-Up
Fee”), payable upon the Company’s or such affiliate’s receipt of such amount, equal to the lesser of (x) 25% of the aggregate amount of all Termination Payments paid to the Company or such affiliate or (y) $750,000. In addition, the agreement contains an additional contingent fee provision of 4% of the gross proceeds of any equity or equity-linked securities sold in connection with the Business Combination. In addition to any fees that may be payable to the vendor, the Company will reimburse the vendor for all reasonable expenses in connection with the agreement.
On October 11, 2021, the Company entered into an agreement with a vendor for financial advisement services related to the Business Combination. The agreement calls for the vendor to receive a contingent fee at Business Combination in the amount equal to (i) the aggregate principal amount of securities issued at the closing of such transaction, multiplied by (ii) 4%, multiplied by (iii) 50%. In addition to any fees that may be payable to the vendor, the Company will reimburse the vendor for all reasonable expenses in connection with the agreement.
On February 15, 2022, the Company entered into an agreement with a vendor for investment banking services related to the pending Business Combination. Specifically, the agreement relates to assisting in raising the funds as part of the PIPE financing. The agreement calls for the vendor to receive a contingent fee equal to (i) the aggregate principal amount of securities issued at the closing of such transaction as i) 2% if it is a equity or debt security or ii)
 1%
if it is a convertible debt security. In addition to any fees that may be payable to the vendor, the Company will reimburse the vendor for all reasonable expenses in connection with the agreement.
unearned revenue were $2.1 million. As of June 30, 20222023 and December 31, 2021, the Company’s contingent legal fees amounted to approximately $1,800,0002022, our liabilities for unredeemed gift cards were $1.1 million and $981,000, respectively. These fees will only become due$3.0 million.

Other long-term liabilities as of June 30, 2023 and payable upon the consummation of an initial Business Combination.

12

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,December 31, 2022
(Unaudited)
Registration Rights
Pursuant to a registration rights agreement entered into on July 28, 2021, the holders of the Founder Shares, Private Placement Units (including securities contained therein) and units (including securities contained therein) that may be issued upon conversion of Working Capital Loans, and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and any shares of Class A common stock and warrants (and underlying Class A common stock) are entitled to registration rights, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable
lock-up
period. The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements. This agreement has been subsequently amended and restated.
IPO Underwriting Agreement
The Company granted the underwriters
a
45-day
option
from the date of the Initial Public Offering to purchase up to 3,000,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. On August 2, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment option. As such, on August 4, 2021, the Company consummated the sale of an additional 2,807,868 Units.
The underwriters were paid a cash fee of $0.20 per Unit, or $4,561,574 in the aggregate. In addition, the underwriters are entitled to a deferred fee of $7,982,754 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.

On June 28, 2022, the IPO Underwriting Agreement and related engagement letters were amended to reflect the agreed upon terms of the closing fee structure.
Pursuant to the terms of the amended IPO Underwriting Agreement, SWAG, Nogin, Jefferies LLC (“Jefferies”), Stifel Nicolaus & Company, Incorporated (“Stifel”) and J.Wood Capital Advisors LLC (“JWCA”) have agreed to a revised proposed structure (the “Closing Fee Structure”) in which Jefferies, Stifel and JWCA will receive cash or a mix of cash and stock payments in satisfaction of their respective transaction fees (including Jefferies’ Deferred Discount) at Closing depending on the rate of redemptions of shares of SWAG Common Stock by stockholders of SWAG prior to the time of Closing (the “Redemption Rate”). If the Redemption Rate is less
than
80.00
%, then the respective transaction fees (including Jefferies’ Deferred Discount) will be payable in full in cash at Closing. Alternatively, if the Redemption Rate is greater than or equal to
80.0
%, then every dollar of the remaining cash funds in the Trust Account will be allocated as follows (the “Trust Account Allocation”): (i)
50.0
%, to the Post-Combination Company; (ii)
30.9
%, to Jefferies (
23.5
% attributable to the Deferred Discount (in the event of Redemption Rates greater than or equal tothousands):

 

 

June 30,
2023

 

 

December 31,
2022

 

Deferred transaction costs payable

 

$

10,979

 

 

$

10,979

 

Warrant liability

 

 

6,756

 

 

 

 

Business Combination consideration payable

 

 

3,815

 

 

 

3,355

 

Deferred PIPE issuance costs payable

 

 

1,160

 

 

 

1,160

 

PIPE principal accretion

 

 

 

 

 

617

 

Legal settlement

 

 

668

 

 

 

621

 

Standby agreement derivative liability

 

 

 

 

 

847

 

Other long-term liabilities

 

 

94

 

 

 

187

 

Total

 

$

23,472

 

 

$

17,766

 

85.0

%) and the remaining
7.
LONG-TERM DEBT
7.4
% attributable to fees pursuant to Jefferies’ engagement as financial advisor to SWAG); (iii)
14.7
%, to Stifel (
12.8
% attributable to fees pursuant to Stifel’s engagement as financial advisor to Nogin and
1.9
% attributable to fees pursuant to Stifel’s engagement as financial advisor to SWAG); and (iv)
4.4
%, to JWCA (provided that
no
financial advisor would be entitled to receive more than its respective transaction fee, and any remaining amounts would be allocated to the Post-Combination Company). The respective transaction fees (excluding Jefferies’ Deferred Discount) will be payable (A) up to
75
% in cash, subject to the Trust Account Allocation (the “Engagement Letter Closing Partial Cash Fees”), and (B) at least
25
% in shares of the Post-Combination Company (the “Post-Closing Fee Shares”). If the Redemption Rate is less than
85.0
%, then the Deferred Discount will be payable
100
% in cash. If the Redemption Rate is greater than or equal to
85.0
%, then the Deferred Discount will be payable up to
100
% in cash, subject to the Trust Account Allocation (the “Deferred Discount Closing Partial Cash Fee” and, together with the Engagement Letter Closing Partial Cash Fees, the “Closing Partial Cash Fees”). To the extent the Trust Account Allocation does not result in full satisfaction of the respective Closing Partial Cash Fees, the Post-Combination Company will owe a “Deferred Post-Closing Cash Obligation” to such financial advisor. The Deferred Post-Closing Cash Obligations shall be due to the respective financial advisors at the earliest to occur of (x) the maturity date of the

Convertible Notes (y) the date on which all Convertible Notes have been repurchased, redeemed or converted, or (z) the closing of an equity issuance of the Post-Combination Company with net proceeds to the Post-Combination Company of at least $

25
million. In addition, each of the financial advisors will have the right, in its sole discretion, to receive shares of the Post-Combination Company (“Post-Closing Stock Fee Shares”) in satisfaction of all or any portion of such financial advisor’s Deferred Post-Closing Cash Obligation, to be issued at the fair market value of the Post-Combination Company’s common stock as determined by the immediately preceding
five
-day volume weighted average price. Any portion of such financial advisor’s Post-Closing Cash Obligation that is not converted into the right to receive Post-Closing Stock Fee Shares will remain due and payable in cash. The Post-Combination Company’s payment of the Post-Closing Cash Obligation, including satisfaction of the Post-Closing Cash Obligation through the issuance of Post-Closing Stock Fee Shares, shall be subject in all respects to certain covenants under the Indenture including the following: (A) the Post-Combination Company shall not pay any financial advisory or similar costs, fees and expenses associated with the Transactions in cash unless the net indebtedness of the Post-Combination Company is less than $
10
million; and (B) regardless of the fair market value of the Post-Combination Company’s common stock, the Post-Combination Company may not issue the Post-Closing Stock Fee Shares for an amount less than $
5.00
per share of common stock. SWAG, Nogin, Jefferies, Stifel and JWCA established the percentages in the Trust Account Allocation based on the relative sizes of their fees.
Merger Agreement
On February 14, 2022, Software Acquisition Group Inc. III, a Delaware corporation (“SWAG”), and Nuevo Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of SWAG (“Merger Sub”), entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time in accordance with its terms, the “Merger Agreement”) with Branded Online, Inc. (d/b/a Nogin), a Delaware corporation (“Nogin”). If (i) the Merger Agreement is adopted and the transactions contemplated thereby, including the Merger, are approved by SWAG’s and Nogin’s stockholders and (ii) the Merger is subsequently completed, Merger Sub will merge with and into Nogin, with Nogin surviving the Merger as a wholly owned subsidiary of SWAG (the “Merger” and, along with the transactions contemplated in the Merger Agreement, the “Transactions”).
As part of the Transactions, holders of Nogin’s common stock and vested options will receive aggregate consideration of approximately $566.0 million, payable in (i) the case of Nogin’s stockholders, newly issued shares of SWAG Class A common stock, par value $0.0001 per share (“SWAG Class A common stock”), with a value ascribed to each share of SWAG Class A common stock of $10.00, and, at their election, a portion of $20.0 million of consideration payable in cash and (ii) the case of Nogin’s option holders, options of SWAG (collectively, the “merger consideration”).
Amendment to Merger Agreement
On April 20, 2022, SWAG, Merger Sub and Nogin entered into the Amendment to the Merger Agreement (the “MA Amendment”). The MA Amendment reflects the parties’ agreement to lower the cash consideration amount from $20 million to $15 million and increase the share consideration in a proportionate amount.
PIPE Subscription Agreements

On April 19, 2022, SWAG,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 SWAGthe Company agreed to issue and sell at the par value of the notes, to the Subscribers immediately prior to the closing of the MergerBusiness Combination (i) up to an aggregate principal amount of $75$75.0 million of 7.00%7.00% Convertible Senior Notes due 2026 (the “Convertible Notes”) convertible into shares of SWAG Class A common stock,at par value $0.0001 per share (“SWAG Common Stock”),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 SWAG Common Stock (the transactions described in clauses (i) and (ii), collectively,

On August 26, 2022, immediately prior to the “PIPE Investment”). The Subscribers have agreed to purchase $65 million aggregate principal amountclosing of the Convertible Notes, with a subsidiary of UBS Hedge Fund Solutions LLC (“UBS”Business Combination (the “Closing”) having, the option to purchase up to an additional $10 million aggregate principal amount of the Convertible Notes (together with additional PIPE Warrants) pursuant to an “accordion feature” included in UBS’s PIPE Subscription Agreement. Jonathan Huberman, Chief Executive Officer of SWAG, has also executed a PIPE Subscription Agreement for $0.5Company issued $65.5 million aggregate principal amount of Convertible Notes. Subscribers will also receive a pro rata portion ofNotes and, as contemplated by the PIPE Warrants in connection with their respective commitments to purchaseSubscription Agreements, the Convertible Notes.

The PIPE Investment is conditioned on (i)Company, the substantially contemporaneous closing of the Merger and the other Transactions as well as the execution of (x) an indenture governing the Convertible Notes (the “Indenture”) by and among SWAG, as issuer, the NotesNote Guarantors as 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 collateral agentwill 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 conversion price is approximately $230.00 per share of Common Stock, based on an initial conversion rate of 4.3478 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,

15


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 $150.00, the quotient of (x) $1,000 and (y) the volume weighted average sale price of shares of Common Stock sold under the Standby Agreement (as defined below) (the “Trustee”“Standby Capital VWAP Sale Price”). As of June 30, 2023, the Standby Capital VWAP Sale Price was $35.20.

Each holder of a Convertible Note has the right to cause the 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 related agreements(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 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 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 (y)related provisions for potential acceleration of the Convertible Notes.

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 million with the remaining $0.4 million of proceeds received allocated to the PIPE Warrants. As of June 30, 2023 and December 31, 2022, the fair value of the Convertible Notes were $59.1 million and $62.5 million, respectively, of which $0 million and $1.6 million, respectively, representing accrued interest, is included in accrued expenses and other current liabilities on the consolidated balance sheets. The gain on fair value of the Convertible Notes during the six months ended June 30, 2023 was $3.3 million of which $2.3 million is included in interest expense, which is recognized based on effective interest method.

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 warrant agreement (the “PIPE Warrant Agreement”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 significant assumptions used in the model are the discount rate of 13.80%, which is based on the company's credit rating, volatility of 97.67% and 38 time-nodes.

The Company did not timely make the payment of the accrued interest on the Convertible Notes due on March 1, 2023. On March 26, 2023, the Company, the Notes Guarantors and Holders entered into limited waivers and consents pursuant to which each holder agreed to (i) waive the Specified Default (as defined below) and any payment obligation of the Company 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”), (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).

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 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 between SWAG,each holder of the Convertible Notes executed unsecured promissory notes (each, a 2023 Promissory Note and collectively, the 2023 Promissory Notes), with each 2023 Promissory Note having an

16


aggregate principal amount equal to such holder's interest payments. The 2023 Promissory Notes mature on March 26, 2025 and accrue interest at seven percent (7.0%) per annum.

In addition, the 2023 Promissory Notes provide that, in the event the Company consummates the April 2023 Offering by April 30, 2023, the holder of each 2023 Promissory Note has the option to require the Company to repay a portion of the principal balance of the 2023 Promissory Note in an amount equal to or 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 Put Option). 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 provide such holders with the right to convert their respective promissory note (the 2023 Convertible Promissory Notes) into unregistered securities of the Company (the Unregistered Securities) on the same terms as issuer,the securities offered in the April 2023 Offering in the event such offering is consummated.

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 such notes. At issuance the Company recognized the fair value of the 2023 Promissory Notes and 2023 Convertible Promissory Notes of $4.8 million.

In April 2023, upon consummation of the April 2023 Offering, all holders of the 2023 Promissory Notes exercised their Put Options and the holder of the 2023 Convertible Promissory Note converted such note into Unregistered Securities. As of June 30, 2023, the 2023 Promissory Notes and 2023 Convertible Promissory Note were repaid in full.

Loans

In February 2023, the Company obtained a loan for $3 million with a third-party with an annual interest rate of 39% and debt issuance cost of $75 thousand (the “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 at the end of February 2023 for $130 thousand and will continue until the loan is fully repaid in October 2023. As of June 30, 2023, the outstanding balance of the loan was $1.6 million.

In February 2023, the Company obtained a loan for $250 thousand with a merchant third-party with an annual percentage rate of 20.17%, which are to be repaid from future cash receipts directly from the merchant. During the six months ended June 30, 2023, repayments of $186 thousand have been made and the loan is expected to be fully repaid in August 2023. As of June 30, 2023, the outstanding balance of the loan was $89 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 first day of each month commencing July 1, 2023 through and including August 1, 2024. 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 June 30, 2023, the outstanding balance of the loan was $1.8 million.

The Company calculates the interest and expenses of the debt issuance cost using the effective interest rate method.

2022 Promissory Notes

During the second quarter of 2022, the Company entered into promissory notes with various individuals, including current investors, members of management and other unrelated parties in exchange for cash in an amount equal to $7.0 million (the “2022 Promissory Notes”). The 2022 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 connection with the 2022 Promissory Notes, the Company issued warrants (“2022 Promissory Note Warrants”) to purchase up to 31,024 shares of Common Stock at an exercise price of $0.01 per share (Note 8). Upon payment in full of the 2022 Promissory Notes, the Company was required to make an additional final payment of $3.5 million.

The Company elected to account for the 2022 Promissory Notes under the fair value option of accounting upon issuance of each of the 2022 Promissory Notes. At issuance the Company recognized the fair value of the 2022 Promissory Notes of $6.3 million with the remaining $0.7 million of proceeds received allocated to the 2022 Promissory Note Warrants.

The 2022 Promissory Notes were repaid at the closing of the Business Combination.

8.
WARRANTS AND DERIVATIVES

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 at $11.50 per share. The PIPE Warrants are redeemable for $0.01 once the Company’s stock price

17


reaches $18.00 per share. The PIPE Warrants are equity classified. Approximately $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.

On March 26, 2023, the Company and Continental Stock Transfer & Trust Company (the “Warrant Agent”) entered into an Amendment to that certain Warrant Agreement, dated as of August 26, 2022, by and between the Company and the Warrant Agent (the “Warrant Agreement”). Pursuant to the Amendment to the Warrant Agreement, the exercise price of each warrant agent; (ii) certain minimum cash and liquidity requirements; (iii) representations and warrantieswas 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.

On March 28, 2023, the Company filed with the Secretary of State of the partiesState 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 PIPE Subscription Agreement being trueper share exercise price and correct in all material respects asthe number of shares of Common Stock that may be purchased upon exercise of warrants issued by the Company. As a result of the closing date1-for-20 reverse stock split, the number of PIPE Warrants outstanding was adjusted from 1,396,419 to 69,821 and the Transactions (except where qualified asexercise price was increased from $0.01 per share to materiality or otherwise); (iv) absence$0.20 per share. During the three months ended June 30, 2023, holders exercised 58,568 PIPE Warrants. As of material adverse effect with respect to SWAG or the Notes Guarantors, as applicable; and (v) other customary closing conditions. Up to $15 million of the proceeds from theJune 30, 2023, 11,253 PIPE Investment will be used to fund the cash consideration for the Merger. The Subscription Agreements provide for certain customary registration rights for the PIPE Investors.

SponsorWarrants remain outstanding.

Standby Agreement

Derivative Liability

In connection with the execution of the Merger Agreement, our sponsorBusiness 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 sponsor agreementfinancial institution (the “Sponsor Agreement”“Financial Institution”) with SWAG and Nogin, pursuant to which, whereby the sponsor agreed to, among other things, (i) vote at the special meeting to be called for approval of the Transactions anyFinancial Institution purchased SWAG Class A common stock or SWAG Class B common stock, par value $0.0001 per share (collectively, the “Sponsor Securities”), held of record or thereafter acquired in favor of the proposals presented by SWAG at such meeting, (ii) be bound by certain other covenants and agreements related to the Merger and (iii) be bound by certain transfer restrictions with respect to the Sponsor Securities, in each case, on the terms and subject to the conditions set forth in the Sponsor Agreement. The Sponsor Agreement also provides that the Sponsor has agreed to waive redemption rights in connection with the consummation of the Transactions with respect to any Sponsor Securities they may hold.

The sponsor has also agreed, subject to certain exceptions, not to transfer any of its shares of SWAG Class B common stock (the “Founder Shares”) (or any shares of SWAG common stock issuable upon conversion in connection with the Closing) until the earlier of (i) the date that is the
one-year
anniversary of the Closing and (ii) the date on which SWAG completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of SWAG’s stockholders having the right to exchange their shares of SWAG common stock for cash, securities or other property or (iii) subsequent to the consummation of the Transactions, the date on which the last reported sale price of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing Date of the Transactions (the “Founder Shares
Lock-up
Period”).
13

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The Sponsor Agreementfrom third parties have also agreed, subject to certain exceptions, not to transfer any private placement warrants purchased in connection with SWAG’s initial public offering (the “Private Placement Warrants”) (or any share of SWAG common stock issued or issuable upon the exercise of the Private Placement Warrants), until 30 days after the Closing Date of the Transactions (the “Private Placement Warrants
Lock-Up
Period” and, together with the Founder Shares
Lock-up
Period, the
“Lock-up
Periods”).
The Sponsor Agreement provides that as of immediately prior to (but subject to) the Closing, 1,710,590 (or 30%) of the Founder Shares held by the sponsor as of the Closing, or 2,565,885 (or 45%) of the Founders Shares if, immediately prior to the Closing holdersDate (the “Standby Agreement”). At the Closing Date, the Company paid the Financial Institution 80% of SWAG Class A common stock have validly elected to redeem a numberthe Financial Institution’s aggregate purchase price of such shares of SWAG Class A common stock (andstock. 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 not withdrawn such redemptions) that would result in greater than 40%recouped the remaining 20% of the funds inaggregate purchase price of the Trust Account being paid to such redeeming holders for such redemptions, will be subject to certain time and performance-based vesting provisions described below. The sponsor has agreed, subject to exceptions, not to transfer any unvested Founder Sharesshares purchased prior to the dateClosing Date. After such securities become vested. Pursuanttime, proceeds from the sale of such shares would be paid to the Sponsor Agreement, 50%Company less a liquidity fee equal to 3.5% of the unvested Founder Shares (the “First Tranche Shares”) will vest on any day followingproceeds from such sales. If the Financial Institution has not fully recouped the aggregate purchase price of the shares purchased prior to the Closing whenDate by August 26, 2026, 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 per share at the closing priceof the Business Combination and paid the Company an amount equal to 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 sharederivative 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”). The Standby Agreement Derivative was not entered into for hedging purposes. The Company accounted for the Standby Agreement Derivative acquired at fair value upon the closing of SWAG Class A common stockthe 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 fair value as of December 31, 2022 of the Standby Agreement Derivative liability was $847 thousand and was recorded in other long-term liabilities on NASDAQ (the “Closing Share Price”) equals or exceeds $12.50 (as adjusted for stock splits, stock dividends, reorganizations, recapitalizationsthe condensed consolidated balance sheets. In March 2023, all shares were resold by the Financial Institution and the like) andCompany recognized a gain to fair value of derivative instruments of $847 thousand for the remaining 50% will vest (along with any unvested First Tranche Shares) when the Closing Share Price equals or exceeds $14.50 (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like).

The Sponsor Agreement will terminatesix months ended June 30, 2023 on the latercondensed consolidated statements of (i)operations.

April 2023 Offering Warrants

On April 4, 2023, the vesting of all unvested Founder Shares (ii) the end of the Founder Shares

Lock-Up
Period.
Company Support Agreement
In connection with the execution of the Merger Agreement, SWAG, Nogin and certain stockholders of Nogin (collectively, the “Supporting Nogin Stockholders” and each, a “Supporting Nogin Stockholder”) entered into the Company Support Agreement. Pursuant toPurchase Agreements with the Company Support Agreement, among other things, each Supporting Nogin Stockholder agreed to (i) vote at any meeting of the stockholders of Nogin all of its Nogin common stock and/or Nogin preferred stock, as applicable (or any securities convertible into or exercisable or exchangeable for Nogin common stock or Nogin preferred stock), held of record or thereafter acquired in favor of the transactions and the adoption of the Merger Agreement; (ii) appoint the chief executive officer of Nogin as such stockholder’s proxy in the event such stockholder fails to fulfil its obligations under the Company Support Agreement, (iii) be bound by certain other covenants and agreements related to the Merger and (iv) be bound by certain transfer restrictions with respect to Nogin securities, in each case, on the terms and subject to the conditions set forth in the Company Support Agreement. The shares of Nogin capital stock that are owned by the Supporting Nogin Stockholders and subject to the Company Support Agreement represent approximately 84.8% of the outstanding shares of Nogin common stock and approximately 99.5% of the outstanding shares of Nogin preferred stock. The execution and delivery of written consents by all of the Supporting Nogin Stockholders will constitute the Nogin stockholder approval at the time of such delivery. Additionally, the Supporting Nogin Stockholders have agreed to waive any appraisal rights (including under Section 262 of the DGCL) with respect to the Merger and any rights to dissent with respect to the Merger.
Registration Rights Agreement
The Merger Agreement contemplates that, at the Closing, SWAG and certain stockholders of Nogin and SWAG will enter into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”),Investors pursuant to which SWAG will agreethe Company agreed to register for resale, pursuantsell, issue, and deliver to Rule 415 underInvestors, in the Securities Act, certainApril 2023 Offering (i) 7,333,334 shares of SWAG Class A common stockCommon Stock and other equity securities of SWAG that are held by(ii) 7,333,334 Common Warrants. Under the parties thereto from time to time. Pursuant to the Registration Rights Agreement, SWAG will agree to file a shelf registration statement registering the resaleterms of the SWAG Class A common stock (including those held as ofPurchase Agreements, the effective time or issuable upon future exercise of the Private Placement Warrants) and the Private Placement Warrants (the “Registrable Securities”) under the Registration Rights Agreement within
15
days of the Closing. Up to four times total and up to twice in any12-month period, certain legacy Nogin stockholders and legacy SWAG stockholders may requestCompany agreed to sell all or any portion of their Registrable Securities in an underwritten offering so long as the totalits Common Stock and accompanying Common Warrants at a combined offering price is reasonably expected to exceed
of $
35
million. SWAG also agreed to provide customary “piggyback” registration rights, subject to certain requirements3.00 per share of Common Stock and customary conditions. The Registration Rights Agreement also provides that SWAG will pay certain expenses relating to such registrations and indemnify the stockholders against certain liabilities.
Representations and Warranties
Under the Merger Agreement, Nogin made customary representations and warranties relating to: organization; authorization; capitalization; Nogin’s subsidiaries; consents and approvals; consolidated financial statements; absence of undisclosed liabilities; absence of certain changes; real estate; intellectual property; litigation; material contracts; taxes; environmental matters; licenses and permits; employee benefits; labor and employment matters; international trade and anti-corruption matters; certain fees; insurance policies; affiliate transactions; information supplied; customers and suppliers; compliance with laws; PPP loans; and disclaimer of warranties.
Under the Merger Agreement, SWAG and Merger Sub made customary representations and warranties relating to: organization; authorization; capitalization; consents and approvals; consolidated financial statements; business activities and absence of undisclosed liabilities; absence of certain changes; litigation; material contracts; taxes; compliance with laws; certain fees; organization of Merger Sub; Securities and Exchange Commission (“SEC”) reports, Nasdaq Stock Market LLC (“NASDAQ”) compliance and the Investment Company Act; information supplied; approvals of boards of directors and stockholders; SWAG’s Trust Account (the “Trust Account”); affiliate transactions; independent investigation; employee benefits; valid issuance of securities; takeover statutes and charter provisions; and disclaimer of warranties.
Covenants
The Merger Agreement includes customary covenants of the parties with respect to business operations prior to the consummation of the Transactions and efforts to satisfy conditions to the consummation of the Transactions. The Merger Agreement also contains additional covenants of the parties, including, among others, covenants providing for SWAG andaccompanying Common Warrant. On April 6, 2023, the Company to cooperate inconsummated the preparationApril 2023 Offering and received gross proceeds of the Registration Statement on Form S-4 required to be preparedapproximately $22 million in connection with the Transactions (the “Registration Statement”).
14

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 7. CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION
Class
 A Common Stock
 — The of the Company, is authorized to issue 100,000,000 shares of Class A common stock with a par value of $0.0001$0.0001 per share, for $3.00 per share. Holders

In April 2023, upon consummation of Class A common stock are entitled to one vote for each share. At June 30, 2022 and December 31, 2021, there were 22,807,868 shares of Class A common stock issued and outstanding, including Class A common stock subject to possible redemption which are presented as temporary equity.

Holders of Class A common stock andthe April 2023 Offering, all holders of Class B common stock will vote together as a single class on all other matters submitted to a vote of our stockholders except as otherwise required by law.
the 2023 Promissory Notes exercised their Put Options. The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a
one-for-one
basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excessholder of the amounts issued in the Initial Public Offering and related2023 Convertible Promissory Note, Tenor Metric Co-Invest Fund L.P (“Tenor”), exercised their conversion option on

18


April 25, 2023 by giving notice to the closing of a Business Combination, the ratio at which the shares of Class B common stock willCompany to convert into shares of Class A common stock will be adjusted (unless the holders of a majorityall of the issued and outstanding shares of our Class B common stock agree to waive such anti-dilution adjustment with respect to any such issuance or deemed issuance) so that thethen-outstanding principal balance plus accrued interest into a number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an

as-converted
basis, 20% of the sum of all shares of common stock issuedCommon Stock (the “Tenor Shares”) and outstanding upon the completion of the Initial Public Offering, plus all shares of our Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination, excluding any shares or equity-linked securities issued, or to be issued, to any seller in our a Business Combination.
NOTE 8. SHAREHOLDERS’ DEFICIT
Preferred Stock
 — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2022 and December 31, 2021, there were 0 shares of preferred stock issued or outstanding.
Class
 B Common Stock
 — The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock are entitled to one vote for each share. At June 30, 2022 and December 31, 2021, there were 5,701,967 shares of Class B common stock issued and outstanding.
15

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Prior to the consummation of a Business Combination, only holders of Class B common stock will have the right to vote on the election of directors.
Warrants
— Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable 30 days after the consummation of a Business Combination. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligatedwarrants to deliver any Class A common stockpurchase Common Stock (the “Tenor Warrants”) pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuanceterms of the Class A common stock issuable2023 Convertible Promissory Note. Tenor received 356,970 Tenor Shares and 356,970 Tenor Warrants upon exerciseconversion. 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.

The Company utilized the Black-Scholes valuation model to value the Common Warrants and Tenor Warrants at issuance and as of June 30, 2023. The Black-Scholes model provides the theoretical estimate of the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No Public Warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.

The Company has agreed that as soon as practicable, but in no event later than 15 business days, after the closing of a Business Combination, it will use its best efforts to file with the SEC a registration statement registering the issuance of the shares of
Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60
th
business day after the closing of a Business Combination or within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” pursuant to the exemption provided by Section 3(a)(9) of the Securities Act; provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Redemption of Warrants When the Price per share of Class
 A common stock Equals or Exceeds $18.00
— Once the warrants become exercisable, the Company may redeem the outstanding Public Warrants:
in whole and not in part;
at a price of $0.01 per Public Warrant;
upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
if, and only if,European style option, considering the reported closing price of the Class A commonunderlying stock, equals or exceeds $18.00 per share (as adjustedstrike price, time to expiration, risk-free rate, and volatility. The Company utilized the following weighted average inputs as of April issuance and June 30, 2023.

 

 

April 6, 2023

 

 

June 30, 2023

 

Underlying price

 

$

1.91

 

 

$

1.35

 

Strike price/exercise price

 

 

3.00

 

 

 

3.00

 

Expected life

 

 

5.00

 

 

 

4.77

 

Risk-free rate

 

 

3.37

%

 

 

4.17

%

Volatility

 

 

96.23

%

 

 

102.79

%

The Company utilized the following steps to establish the inputs for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within

a
30-trading
day
period ending three business days beforeBlack-Scholes model:

- Underlying price– The underlying price was based on the Company sends the notice of redemption to the warrant holders.

If and when the warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of common stock upon exerciseVWAP of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
Company.

- Strike price/exercise price The exercise price and number of shares of Class A common stock issuable upon exercisewas based on the warrant agreements.

- Expected life – The expected life is calculated as the remaining life of the Public Warrants may be adjusted in certain circumstances including inwarrants.

- Risk-free rate – Risk-free rate was the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below,linearly interpolated yield for the Public Warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price. Additionally, in no event willexpected life based on Treasury Yield.

- Volatility – The volatility was based on the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outsidevolatilities of the Trust Account with respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.

In addition if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
16

SOFTWARE ACQUISITION GROUP INC. III
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
group peer companies.

The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Proposed Public Offering, except that the Private Placement Warrants and the common shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally,

the
Private Placement Warrants will be exercisable on a cashless basis and will be
non-redeemable.
NOTE 9. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that arere-measured and reported at fair value at each reporting period, and
non-financial
assets and liabilities that arere-measured and reported at fair value at least annually.
as of June 30, 2023 of one Common Warrant or one Tenor Warrant was $0.88. The fair value of the Company’sCommon Warrants and Tenor Warrants liability was $6.8 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 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 reflects management’s estimate of amountsand 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 havebe received in connection with the sale of the assetsto sell an asset or paid in connection with theto transfer of the liabilitiesa liability in an orderly transaction between market participants at the measurement date. In connection with measuringAs 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 of itsmeasurement:

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 seeks toutilized valuation techniques that maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assetsto the extent possible as well as considers counter party credit risk and liabilities). nonperformance risk in its assessment of fair value.

19


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. The Company has elected to apply the fair value option of accounting for its warrant liability, Convertible Notes and equity investments in unconsolidated affiliates.

The following fair value hierarchy is used to classifydetails the Company’s recurring measurements for assets and liabilities at fair value (in thousands):

 

 

June 30,
2023

 

 

December 31,
2022

 

Warrant liability (Level 2) – Note 8

 

$

6,756

 

 

$

 

Investment in unconsolidated affiliates (Level 3) – Note 5

 

 

6,466

 

 

 

7,404

 

Convertible Note (Level 3) – Note 7

 

 

59,134

 

 

 

60,852

 

Standby Agreement derivative liability (Level 3) – Note 8

 

 

 

 

 

847

 

Non-current Business Combination Cash Consideration (Level 3)

 

 

3,815

 

 

 

3,355

 

Deferred Business Combination cash consideration

In connection with the Business Combination, Legacy Nogin equity holders elected to receive $15.0 million of the merger consideration in cash. In order to meet conditions to close the Transactions, the Company paid $4.1 million of the $15.0 million cash consideration at the Closing Date. Of the $10.9 million in deferred cash consideration, $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 June 30, 2023 on the condensed consolidated balance sheets (the “Current Cash Consideration”). The remaining $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 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 Common Stock with the number of shares issued determined based on the observablequotient of unpaid cash consideration divided by the 10-day volume weighted average trading price of the Common Stock on the Nasdaq Stock Market LLC (“Nasdaq”). The Company elected to account for the Non-current Cash Consideration of $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 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 million, which included the $4.1 million paid at the Closing Date, $5.0 million Current Cash Consideration and $4.2 million Non-current Cash Consideration, against accumulated deficit. As of June 30, 2023, the fair value of the Non-current Cash Consideration was $3.8 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 six months ended June 30, 2023 of $0.5 million is included in other loss on the condensed consolidated statements of operations.

The significant inputs and unobservableto the valuation of the deferred cash consideration at fair value are Level 3 inputs since they are not directly observable. The Company primarily used in ordera discounted cash flow method to value the assets and liabilities:

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

The income tax expense for the six months ended June 30, 2023 and June 30, 2022 was an expense of $13 thousand and $65 thousand, respectively. Income tax expense differs from the income taxes expected at the U.S. federal statutory tax rate of 21%, primarily due to state taxes and additional valuation allowance for the period ended June 30, 2023 and December 31, 2022.

11.
COMMON STOCK

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 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.

Common Stock will be subordinate to any preferred stock the Company issues in the future with respect to rights upon liquidation of the Company.

20


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 the 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 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 June 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 June 30, 2023 and December 31, 2022 is as follows:

Level 1:

Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Outstanding Stock Options

Outstanding at January 1, 2022

42,546

Level 2:

Granted

Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

87,323

Exercised

(9,957

)

Level 3:

Forfeited / Terminated

Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

(46,171

)

Outstanding at December 31, 2022

73,741

Granted

83,000

Exercised

Forfeited / Terminated

(46,941

)

Outstanding at June 30, 2023

109,800

The weighted average exercise price of the outstanding options was $36.50 and $255.40 per share as of June 30, 2023 and December 31, 2022, respectively. There were 61,327 and 46,660 fully vested and exercisable options as of June 30, 2023 and December 31, 2022, respectively.

The Company recognized $212 thousand and $83 thousand in stock compensation expense for the six months ending June 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 curve in effect at the time of grant.

The Company has no history or expectations of paying dividends on its Common Stock.

The following table summarizes the assumptions used in the calculation of the fair market value for awards granted during the six months ended June 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 June 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 June 30, 2023. The Company recognized $158 thousand in stock compensation expense for the six months ending June 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

21


“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

22


The fair value of ModCloth’s identifiable intangible assets and 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

Fair value measurement methodology used to estimate the fair 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 perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to 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 relationships. The goodwill recorded is not deductible for income tax purposes.

14.
RELATED PARTY TRANSACTIONS

The Company provides services to its joint venture, IPCO, under Master Services Agreements, which were entered into on December 31, 2021.

Sales under the Master Services Agreement to IPCO were $1.7 million and $3.5 million for the six months ended June 30, 2023 and June 30, 2022. In addition, the Company sold inventory to IPCO for $0.6 million during the first quarter of 2022, and such amount is included in net revenue to related parties in the consolidated statement of operations. As of June 30, 2023 and December 31, 2022, the Company had payables to IPCO of $0.9 million and $1.0 million, respectively, which were included in related party payables on the consolidated balance sheets.

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 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, and the results of ModCloth are consolidated into the results of the company post-assignment. Sales under the Master Services Agreement to ModCloth prior to the assignment were $7.0 million for the six months ended June 30, 2022.

The Company’s chief executive officer 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. In addition to the $1.5 million in Convertible Notes, the PIPE Related Parties also received 32,142 equity classified Convertible Note Warrants (Note 8). As of June 30, 2023, the fair value of the Convertible Notes with the PIPE Related Parties was $1.4 million, which is included in Convertible Notes on the 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 Note.

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 June 30, 2023, the fair value of the Common Warrants held by the PIPE Related Parties and other related parties was $1.7 million, 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.

23


The following table presents information abouta disaggregation of the Company’s assets that are measured at fair valuerevenues by revenue source for the six months ended June 30, 2023 and 2022 (in thousands):

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Commerce-as-a-Service Revenue

 

$

6,838

 

 

$

10,307

 

Product sales revenue

 

 

11,284

 

 

 

20,756

 

Marketing revenue

 

 

4,720

 

 

 

7,686

 

Shipping revenue

 

 

3,210

 

 

 

4,115

 

Other revenue

 

 

3,367

 

 

 

2,684

 

Total revenue

 

$

29,419

 

 

$

45,548

 

16.
SEGMENT REPORTING

The Company conducts business domestically and our revenue is managed on a recurringconsolidated basis. Our Chief 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.

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 were participating securities as the holders of the redeemable convertible preferred stock were entitled to participate with any dividends payable in Common Stock. In periods of net income, net income is attributed to holders 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 June 30,

 

 

Six Months Ended June 30,

 

(In thousands, except share and per share amounts)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator: Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,832

)

 

$

(10,970

)

 

$

(21,732

)

 

$

(20,915

)

Net loss attributable to common stockholders-basic

 

$

(11,832

)

 

$

(10,970

)

 

$

(21,732

)

 

$

(20,915

)

Denominator: Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding-basic

 

 

10,506,521

 

 

 

1,981,097

 

 

 

6,940,429

 

 

 

1,981,097

 

Net loss per share attributable to common stock-basic

 

$

(1.13

)

 

$

(5.54

)

 

$

(3.13

)

 

$

(10.56

)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands, except share and per share amounts)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator: Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders-diluted

 

$

(11,832

)

 

$

(10,970

)

 

$

(21,732

)

 

$

(20,915

)

Denominator: Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares of common stock outstanding-basic

 

 

10,506,521

 

 

 

1,981,097

 

 

 

6,940,429

 

 

 

1,981,097

 

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

 

 

10,506,521

 

 

 

1,981,097

 

 

 

6,940,429

 

 

 

1,981,097

 

Net loss per share attributable to common stock-diluted

 

$

(1.13

)

 

$

(5.54

)

 

$

(3.13

)

 

$

(10.56

)

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.

24


Weighted-average number of potentially anti-dilutive shares excluded from calculation of dilutive earnings per share

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2021

 

 

2023

 

 

2022

 

Series A convertible, redeemable preferred shares

 

 

 

 

 

443,224

 

 

 

 

 

 

443,224

 

Series B convertible, redeemable preferred shares

 

 

 

 

 

316,707

 

 

 

 

 

 

316,707

 

Stock-based compensation awards

 

 

651,829

 

 

 

129,869

 

 

 

602,814

 

 

 

110,088

 

Legacy Nogin Warrants

 

 

 

 

 

31,184

 

 

 

 

 

 

31,184

 

PIPE Warrants

 

 

19,620

 

 

 

 

 

 

44,582

 

 

 

 

SWAG Warrants

 

 

1,069,334

 

 

 

 

 

 

1,069,334

 

 

 

 

Shares Underlying Convertible Notes

 

 

284,783

 

 

 

 

 

 

284,783

 

 

 

 

April 2023 Offering Common Warrants

 

 

7,108,719

 

 

 

 

 

 

3,573,997

 

 

 

 

18.
MEZZANINE EQUITY AND SHAREHOLDERS’ DEFICIT

Significant changes in the Company’s mezzanine equity and shareholders’ deficit during the six months ended June 30, 2023 were as follows:

Common Stock

Subsequent to the Business Combination, the Company is authorized to issue up to 500 million shares of Common Stock with a par value of $0.0001 per share. Each share of Common 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 per share. There were no shares of preferred stock issued and outstanding as of June 30, 2023.

19.
OPERATING LEASES

The Company has entered into lease agreements for offices and warehouses located in 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 the date of adoption on January 1, 2022, the impact 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 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.

25


The following schedule represents the components of the Company’s operating lease assets and liabilities as of June 30, 2023 (in thousands):

Leases

 

Classification

 

June 30, 2023

 

Assets

 

 

 

 

 

Operating

 

Operating lease right-of-use assets

 

$

16,272

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Operating lease liabilities (current)

 

Operating lease liabilities, current

 

$

4,512

 

Operating lease liabilities (non-current)

 

Operating lease liabilities, non-current

 

 

13,637

 

The following schedule represents the components of lease expense for the fiscal year ended June 30, 2023 (in thousands):

 

 

June 30, 2023

 

Lease Costs:

 

 

 

Operating lease costs

 

$

3,010

 

Variable lease costs

 

 

460

 

Short-term lease costs

 

 

 

Sublease income

 

 

 

Total lease costs

 

$

3,470

 

As of June 30, 2023, the Company’s maturity of operating lease liabilities for the next five years and thereafter are as follows (in thousands):

 

 

Operating Leases

 

2023 (remaining payments)

 

$

2,664

 

2024

 

 

5,238

 

2025

 

 

5,310

 

2026

 

 

3,453

 

2027

 

 

2,222

 

Thereafter

 

 

899

 

Total lease payments

 

 

19,786

 

Less: imputed interest

 

 

(2,404

)

Total operating lease payments

 

$

17,382

 

Other operating leases information:

Cash paid for amounts included in the measurement of lease liabilities

 

$

3,165

 

Right-of-use assets obtained in exchange for new lease liabilities

 

$

1,120

 

Weighted-average remaining term (in years)

 

 

3.9

 

Weighted-average discount rate

 

 

6.5

%

In accordance with ASC 840, the following is a schedule by years of future minimum lease payments required under the operating leases that have initial or noncancelable lease terms in excess of one year as of June 30, 2022.

As of June 30, 2022:

 

 

 

2022 (remaining payments)

 

$

1,353

 

2023

 

 

1,272

 

2024

 

 

873

 

2025

 

 

900

 

2026

 

 

927

 

Thereafter

 

 

1,853

 

Total minimum lease payments

 

$

7,178

 

In July 2018, the Company assumed the operating lease for office space of the entity with which an asset purchase agreement was executed. The monthly lease payment was $75 thousand and expired in May 2023. The future minimum lease payments are included

26


in the table above. The Company subleased the office space to a third-party in December 2018 for approximately $87 thousand per month. The sublease agreement expired in May 2023. Future rental income is as follows: approximately $1.0 million per year during 2022 and approximately $435 thousand in 2023.

Rent expense for the six months ended June 30, 2022 was approximately $2.7 million, and December 31, 2021,is included in general and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

Description
  
Level
   
June 30,
2022
   
December 31,
2021
 
Assets:
               
Marketable securities held in Trust Account
   1   $231,842,586   $231,506,662 
NOTE 10. SUBSEQUENT EVENTS
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. Based upon this review, other than described below, the Company did not identify any subsequent events that would have required adjustment or disclosureadministrative expenses in the condensed consolidated financial statements.statements of operations.

20.
SUBSEQUENT EVENTS
17

Table

Notice of ContentsNoncompliance from Nasdaq

On July 10, 2023, the Company received a letter (the “Letter”) from the Listing Qualifications Department of Nasdaq notifying the Company that, for the last 30 consecutive business days prior to the date of the Letter, the Company's Market Value of Publicly Held Shares (“MVPHS”) was below the $15 million minimum requirement for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(b)(2)(C) (the “Listing Rule”). The Letter is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities.

In accordance with Nasdaq Listing Rule 5810(c)(3)(D), the Company has 180 calendar days, or until January 8, 2024 (the “Compliance Date”), to regain compliance with the Listing Rule. To regain compliance with the Listing Rule, the Company’s MVPHS must equal or exceed $15 million for a minimum of 10 consecutive business days at any time prior to the Compliance Date. If the Company regains compliance with the Listing Rule, Nasdaq will provide the Company with written confirmation and will close the matter.

In the event that the Company does not regain compliance with the Listing Rule by the Compliance Date, it will receive written notification that its securities are subject to delisting. At that time, the Company may appeal the delisting determination to a Hearings Panel. The Company is monitoring its MVPHS and will consider its available options to regain compliance with the Listing Rule; however, there can be no assurance that the Company will be able to regain compliance with the Listing Rule.

Loan Refinancing

On July 25, 2023, the Company refinanced the February 2023 Loan (the “Refinanced February 2023 Loan”). The Refinanced February 2023 Loan has an annual interest rate of 34% and debt issuance cost of $25 thousand, which are to be paid from future cash receipts. Weekly repayments on the Refinanced February 2023 Loan of $74 thousand began at the end of July 2023 and will continue until the loan is fully paid in April 2024.

27


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this report (this “Quarterly Report”) to “we,” “us” or the “Company” refer to Software Acquisition Group Inc. III. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Software Acquisition Holdings III, LLC.

The following discussion and analysis of the Company’sour financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related notes thereto containedof Nogin, Inc. and its subsidiaries included elsewhere in this Quarterly Report. CertainSome of the information contained in thethis discussion and analysis set forth below includescontains forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements
This Quarterly As a result of many factors, such as those set forth in the section captioned “Risk Factors” in our Annual Report includes “forward-looking statements” withinon Form 10-K filed with the meaning of Section 27A of the Securities Act of 1933SEC on March 23, 2023 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could causeelsewhere in this Report, actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including that the conditions of the Proposed Business Combination are not satisfied. For information identifying important factors that could cause actual results tomay differ materially from those anticipated in these forward-looking statements.

Unless the forward-looking statements, pleasecontext otherwise requires, references in this subsection to “we,” “our,” “Nogin” and the “Company” refer to the Risk Factors sectionbusiness 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-cost SaaS e-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

Registered Equity Offering

On April 6, 2023, the Company closed its public offering of 7,333,334 shares of Common Stock and 7,333,334 common warrants to purchase 7,333,334 shares of Common Stock at a combined price of $3.00 per share and common warrant for aggregate gross proceeds of approximately $22 million, before deducting placement agent fees and other offering expenses.

Notice of Noncompliance from Nasdaq

On July 10, 2023, the Company received the Letter from the Listing Qualifications Department of Nasdaq notifying the Company that, for the last 30 consecutive business days prior to the date of the Letter, the Company's MVPHS was below the $15 million minimum requirement for continued listing on the Nasdaq Global Market under the Listing Rule. The Letter is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s Annual Report on Form10-K filedsecurities.

In accordance with Nasdaq Listing Rule 5810(c)(3)(D), the Company has 180 calendar days, or until January 8, 2024, to regain compliance with the U.S. SecuritiesListing Rule. To regain compliance with the Listing Rule, the Company’s MVPHS must equal or exceed $15 million for a minimum of 10 consecutive business days at any time prior to the Compliance Date. If the Company regains compliance with the Listing Rule, Nasdaq will provide the Company with written confirmation and Exchange Commissionwill close the matter.

In the event that the Company does not regain compliance with the Listing Rule by the Compliance Date, it will receive written notification that its securities are subject to delisting. At that time, the Company may appeal the delisting determination to a Hearings Panel. The Company is monitoring its MVPHS and will consider its available options to regain compliance with the Listing Rule; however, there can be no assurance that the Company will be able to regain compliance with the Listing Rule.

2023 Annual Meeting

On July 26, 2023, the Company held its 2023 annual meeting of stockholders (the “SEC”“2023 Annual Meeting”). At the 2023 Annual Meeting, the Company’s stockholders (i) elected Andrew Pancer, Geoffrey Van Haeren and Arthur Stark to serve as Class I directors of the Board for a term ending at the 2026 annual meeting of stockholders, (ii) approved an amendment (the “2022 Plan Amendment”) on March 30, 2022. to the 2022 Plan to, among other things, (a) increase the number of shares of Common Stock available under the 2022 Plan by 4,442,943 shares reserved for issuance, (b) increase the number of shares of Common Stock which may be granted as incentive stock options, such that an aggregate of 5,199,298 shares of Common Stock may be granted as incentive stock options, (c) revised the formula for calculating the maximum annual increase in the number of shares of Common Stock available under the 2022 Plan and (d)

28


extended the right to grant awards under the Plan through June 15, 2033, and (iii) ratified the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023.

Geoffrey Van Haeren Resignation

On July 28, 2023, Geoffrey Van Haeren, Chief Technologist and member of the Board, resigned as the Company’s Chief Technologist and as a member of the Board, effective as of August 4, 2023.

Components of Our Results of Operations

Revenue

The Company’s securities filings can be accessedsources of revenue are summarized as follows:

Product revenue
o
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.
Service revenue
o
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 EDGAR sectionCompany’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 SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaimscustomers’ inventories or any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated in Delaware on January 5, 2021, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, share purchase, reorganization or other similar Business Combination with one or more businesses. We intend to effectuate our Business Combination using cash derived from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, our shares, debt or a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
On February 15, 2022, the Company entered into an agreement with a vendor for investment banking services relatedcredit risks relating to the pending Business Combination. Specifically,products sold.
o
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 agreement relatesservice is complete, while monthly storage services are recognized over the service period.
o
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 assisting in raisingend customers.
o
Other service revenueRevenue for other services such as photography, B2C fulfillment, customer service, development and web design are reimbursable costs and recognized on the fundsgross basis, and are services rendered as part of the PIPE financing. 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.
o
Set up and implementation service revenue—The agreement callsCompany 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

29


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'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'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 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 vendorcustomer and the Company does not take possession of the customers' inventory or any credit risks related to receivethe 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 contingent fee equalshort 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.

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 Convertible Notes.

30


Change in Fair Value of Unconsolidated Affiliates

Change in fair value of unconsolidated affiliates represents the fair value adjustments associated with the Company’s joint 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.

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.

Results of Operations

The following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for the periods presented (in thousands):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net service revenue

 

$

7,543

 

 

$

9,254

 

 

$

16,461

 

 

$

17,787

 

Net product revenue

 

 

4,739

 

 

 

7,834

 

 

 

11,284

 

 

 

20,756

 

Net revenue from related parties

 

 

460

 

 

 

3,262

 

 

 

1,674

 

 

 

7,005

 

Total net revenue

 

 

12,742

 

 

 

20,350

 

 

 

29,419

 

 

 

45,548

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (1)

 

 

3,277

 

 

 

5,757

 

 

 

8,807

 

 

 

11,192

 

Cost of product revenue (1)

 

 

1,972

 

 

 

5,156

 

 

 

5,913

 

 

 

15,407

 

Sales and marketing

 

 

715

 

 

 

620

 

 

 

1,417

 

 

 

1,186

 

Research and development

 

 

1,163

 

 

 

1,250

 

 

 

2,126

 

 

 

2,827

 

General and administrative

 

 

15,814

 

 

 

13,140

 

 

 

33,139

 

 

 

30,362

 

Depreciation and amortization

 

 

235

 

 

 

219

 

 

 

437

 

 

 

420

 

Total operating costs and expenses

 

 

23,176

 

 

 

26,142

 

 

 

51,839

 

 

 

61,394

 

Operating loss

 

 

(10,434

)

 

 

(5,792

)

 

 

(22,420

)

 

 

(15,846

)

Interest expense

 

 

(2,777

)

 

 

(1,464

)

 

 

(4,791

)

 

 

(2,117

)

Change in fair value of promissory notes

 

 

(259

)

 

 

(2,566

)

 

 

(418

)

 

 

(2,566

)

Change in fair value of derivative instruments

 

 

3,462

 

 

 

 

 

 

4,309

 

 

 

 

Change in fair value of unconsolidated affiliates

 

 

(293

)

 

 

(949

)

 

 

(938

)

 

 

(1,982

)

Change in fair value of convertible notes

 

 

(1,296

)

 

 

 

 

 

3,295

 

 

 

 

Debt extinguishment gain

 

 

63

 

 

 

 

 

 

63

 

 

 

 

Other (loss) income, net

 

 

(259

)

 

 

(292

)

 

 

(818

)

 

 

1,661

 

Loss before income taxes

 

 

(11,793

)

 

 

(11,063

)

 

 

(21,718

)

 

 

(20,850

)

(Benefit) Provision for income taxes

 

 

39

 

 

 

(93

)

 

 

13

 

 

 

65

 

Net loss

 

$

(11,832

)

 

$

(10,970

)

 

$

(21,732

)

 

$

(20,915

)

31


 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(as a percentage of total revenue*)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net service revenue

 

 

59.2

%

 

 

45.5

%

 

 

56.0

%

 

 

39.1

%

Net product revenue

 

 

37.2

%

 

 

38.5

%

 

 

38.4

%

 

 

45.6

%

Net revenue from related parties

 

 

3.6

%

 

 

16.0

%

 

 

5.7

%

 

 

15.4

%

Total net revenue

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (1)

 

 

25.7

%

 

 

28.3

%

 

 

29.9

%

 

 

24.6

%

Cost of product revenue (1)

 

 

15.5

%

 

 

25.3

%

 

 

20.1

%

 

 

33.8

%

Sales and marketing

 

 

5.6

%

 

 

3.0

%

 

 

4.8

%

 

 

2.6

%

Research and development

 

 

9.1

%

 

 

6.1

%

 

 

7.2

%

 

 

6.2

%

General and administrative

 

 

124.1

%

 

 

64.6

%

 

 

112.6

%

 

 

66.7

%

Depreciation and amortization

 

 

1.8

%

 

 

1.1

%

 

 

1.5

%

 

 

0.9

%

Total operating costs and expenses

 

 

181.9

%

 

 

128.5

%

 

 

176.2

%

 

 

134.8

%

Operating loss

 

 

-81.9

%

 

 

-28.5

%

 

 

-76.2

%

 

 

-34.8

%

Interest expense

 

 

-21.8

%

 

 

-7.2

%

 

 

-16.3

%

 

 

-4.6

%

Change in fair value of promissory notes

 

 

-2.0

%

 

 

-12.6

%

 

 

-1.4

%

 

 

-5.6

%

Change in fair value of derivative instruments

 

 

27.2

%

 

 

0.0

%

 

 

14.6

%

 

 

0.0

%

Change in fair value of unconsolidated affiliates

 

 

-2.3

%

 

 

-4.7

%

 

 

-3.2

%

 

 

-4.4

%

Change in fair value of convertible notes

 

 

-10.2

%

 

 

0.0

%

 

 

11.2

%

 

 

0.0

%

Debt extinguishment gain

 

 

0.5

%

 

 

0.0

%

 

 

0.2

%

 

 

0.0

%

Other (loss) income, net

 

 

-2.0

%

 

 

-1.4

%

 

 

-2.8

%

 

 

3.6

%

Loss before income taxes

 

 

-92.6

%

 

 

-54.4

%

 

 

-73.8

%

 

 

-45.8

%

(Benefit) Provision for income taxes

 

 

0.3

%

 

 

-0.5

%

 

 

0.0

%

 

 

0.1

%

Net loss

 

 

-92.9

%

 

 

-53.9

%

 

 

-73.9

%

 

 

-45.9

%

* Percentages may not sum due to rounding

(1) Exclusive of depreciation and amortization shown separately.

Comparison of the Six Months Ended June 30, 2023 and 2022

Net service revenue

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Net service revenue

 

$

16,461

 

 

$

17,787

 

 

$

(1,326

)

 

 

(7.5

)%

Percent of total revenue

 

 

56.0

%

 

 

39.1

%

 

 

 

 

 

 

Net service revenue decreased by $1.3 million, or 7.5%, to $16.5 million for the six months ended June 30, 2023, as compared to $17.8 million for the six months ended June 30, 2022. 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 56.0% for the aggregate principal amount of securities issued atsix months ended June 30, 2023 compared to 39.1% for the six months ended June 30, 2022.

Net product revenue

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Net product revenue

 

$

11,284

 

 

$

20,756

 

 

$

(9,472

)

 

 

(45.6

)%

Percent of total revenue

 

 

38.4

%

 

 

45.6

%

 

 

 

 

 

 

Net product revenue decreased by $9.5 million, or 45.6%, to $11.3 million for the six months ended June 30, 2023, as compared to $20.8 million for the six months ended June 30, 2022. The decrease in product revenue is primarily due to the closing of one product line and lower sales in the other product lines. Net product revenue as a percentage of total revenue was 38.4% for the six months ended June 30, 2023, compared to 45.6% for the six months ended June 30, 2022.

Net revenue from related parties

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Net revenue from related parties

 

$

1,674

 

 

$

7,005

 

 

$

(5,331

)

 

 

(76.1

)%

Percent of total revenue

 

 

5.7

%

 

 

15.4

%

 

 

 

 

 

 

32


Net revenue from related parties decreased by $5.3 million, or 76.1%, to $1.7 million for the six months ended June 30, 2023, as compared to $7.0 million for the six months ended June 30, 2022. The Company provides services to its joint ventures under Master Services Agreements that are classified as related party revenue. On 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, transactionthe decrease in revenue from related parties is due to ModCloth's revenue being recorded in product revenue starting in the first quarter of 2023, as i) 2% if itcompared to being recorded in revenue from related parties in the same quarters last year. Net service revenue from related parties as a percentage of total revenue was 5.7% for the six months ended June 30, 2023, compared to 15.4% for the six months ended June 30, 2022.

Cost of services

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Cost of services

 

$

8,807

 

 

$

11,192

 

 

$

(2,385

)

 

 

(21.3

)%

Percent of total revenue

 

 

29.9

%

 

 

24.6

%

 

 

 

 

 

 

Cost of services decreased by $2.4 million, or 21.3%, to $8.8 million for the six months ended June 30, 2023, as compared to $11.2 million for the six months ended June 30, 2022. The decrease in cost of services followed the similar trend of the decrease in service revenue for the same period. Service revenue, including revenue from related parties, decreased 26.9% while the cost of services decreased 21.3%. Cost of services as a percentage of total revenue was 29.9% for the six months ended June 30, 2023, compared to 24.6% for the six months ended June 30, 2022.

Cost of product revenue

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Cost of product revenue

 

$

5,913

 

 

$

15,407

 

 

$

(9,494

)

 

 

(61.6

)%

Percent of total revenue

 

 

20.1

%

 

 

33.8

%

 

 

 

 

 

 

Cost of product revenue decreased by $9.5 million, or 61.6%, to $5.9 million for the six months ended June 30, 2023, as compared to $15.4 million for the six months ended June 30, 2022. The decrease is in line with the decrease in product revenue. Sales of our top two product lines decreased 69.0% while the associated cost decreased 72.1%. Cost of product revenue as a equitypercentage of total revenue was 20.1% for the six months ended June 30, 2023, compared to 33.8% for the six months ended June 30, 2022.

Sales and Marketing

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Sales and marketing

 

$

1,417

 

 

$

1,186

 

 

$

231

 

 

 

19.5

%

Percent of total revenue

 

 

4.8

%

 

 

2.6

%

 

 

 

 

 

 

Sales and marketing expense increased by $231 thousand, or debt security19.5%, to $1.4 million for the six months ended June 30, 2023, as compared to $1.2 million for the six months ended June 30, 2022. The increase in sales and marketing expense was primarily due to rebuilding of the sales team to support the Company’s growth initiatives.

Research and development

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Research and development

 

$

2,126

 

 

$

2,827

 

 

$

(701

)

 

 

(24.8

)%

Percent of total revenue

 

 

7.2

%

 

 

6.2

%

 

 

 

 

 

 

Research and development expense decreased by $701 thousand, or ii) if it is24.8%, to $2.1 million for the six months ended June 30, 2023, as compared to $2.8 million for the six months ended June 30, 2022. The decrease in research and development expense was primarily due to rebalancing of the technology team.

33


General and administrative

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

General and administrative

 

$

33,139

 

 

$

30,362

 

 

$

2,777

 

 

 

9.1

%

Percent of total revenue

 

 

112.6

%

 

 

66.7

%

 

 

 

 

 

 

General and administrative expense increased by $2.8 million, or 9.1%, to $33.1 million for the six months ended June 30, 2023, as compared to $30.4 million for the six months ended June 30, 2022. General and administrative expenses increased as a convertible debt security. In additionpercentage of revenue from 66.7% for the six months ended June 30, 2022, to any112.6% for the six months ended June 30, 2023, which was primarily due to severance expense of $1.5 million, increase in directors and officer insurance of $0.9 million, increase in stock compensation expense of $0.2 million and director fees that may be payableof $0.2 million in the current fiscal period compared to the vendor,prior period.

Depreciation and amortization

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Depreciation and amortization

 

$

437

 

 

$

420

 

 

$

17

 

 

 

4.0

%

Percent of total revenue

 

 

1.5

%

 

 

0.9

%

 

 

 

 

 

 

Depreciation and amortization expense remained relatively flat at $437 thousand and $420 thousand for the six months ended June 30, 2023, and June 30, 2022, respectively.

Interest expense

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Interest expense

 

$

4,791

 

 

$

2,117

 

 

$

2,674

 

 

 

126.3

%

Percent of total revenue

 

 

16.3

%

 

 

4.6

%

 

 

 

 

 

 

Interest expense increased by $2.7 million, or 126.3%, to $4.8 million for the six months ended June 30, 2023, as compared to $2.1 million for the six months ended June 30, 2022. The increase in interest expense was primarily due to interest on the Convertible Notes entered into in the third quarter of 2022, and the two loans entered into in the first quarter of 2023, as compared to interest on the notes payable in the first half of 2022. The notes payable were fully repaid at closing of the Business Combination.

Change in fair value of promissory notes

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Change in fair value of promissory notes

 

$

418

 

 

$

2,566

 

 

$

(2,148

)

 

 

(83.7

)%

Percent of total revenue

 

 

1.4

%

 

 

5.6

%

 

 

 

 

 

 

Change in fair value of promissory notes was $2.1 million for the six months ended June 30, 2023. The Company will reimburserecognized a loss of $418 thousand for the vendor for all reasonable expensessix months ended June 30, 2023 that were related to the 2023 Promissory Notes and 2023 Convertible Promissory Notes in connection with the agreement.

On June 28, 2022, the underwriters executed their respective amendments to their engagement lettersthe Convertible Notes. The Company engaged a third party specialist to assist with SWAG, Stifel executed its amended engagement letterthe valuation of such notes.

Change in fair value of derivatives

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

(in thousands, except percentages)

Change in fair value of derivatives

 

$

(4,309

)

 

$

 

 

$

(4,309

)

 

100.0%

Percent of total revenue

 

 

(14.6

)%

 

 

%

 

 

 

 

 

Change in fair value of derivatives notes was a gain of $4.3 million for the six months ended June 30, 2023. The Company recognized a change in fair value of derivatives notes in connection with Nogin,the Standby Agreement and Jefferies executed its amended IPO UnderwritingApril 2023 Offering. All shares from the Standby Agreement in each case, reflecting the agreed upon terms of the closing fee structure.

Aswere resold as of June 30, 2023.

34


Change in fair value of unconsolidated affiliate

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Change in fair value of unconsolidated affiliates

 

$

938

 

 

$

1,982

 

 

$

(1,044

)

 

 

(52.7

)%

Percent of total revenue

 

 

3.2

%

 

 

4.4

%

 

 

 

 

 

 

Change in fair value of unconsolidated affiliates decreased by $1.0 million, or 52.7%, to a loss of $938 thousand for the six months ended June 30, 2023, as compared to a loss of $2.0 million for the six months ended June 30, 2022. The decrease in the first half of 2023 is attributable to the Company's consolidation of ModCloth. On 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 December 31, 2021, the Company’s contingent legal fees amountedresults of ModCloth are consolidated into the results of the Company and no longer valued at fair value. The Company elected to approximately $1,800,000apply the fair value option of accounting to the joint 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 six months ended June 30, 2023 and $981,000, respectively. These fees will only become duerecorded a fair value adjustment for the investment in connection with its 50% interest on IPCO and payable uponModCloth during the consummationsix months ended June 30, 2022.

Change in fair value of convertible notes

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Change in fair value of convertible notes

 

$

(3,295

)

 

$

 

 

$

(3,295

)

 

 

100.0

%

Percent of total revenue

 

 

(11.2

)%

 

 

%

 

 

 

 

 

 

Change in fair value of the Convertible Notes was a gain of $3.3 million for the six months ended June 30, 2023. 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.

Debt extinguishment gain

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Debt extinguishment gain

 

$

63

 

 

$

 

 

$

63

 

 

 

100.0

%

Percent of total revenue

 

 

0.2

%

 

 

%

 

 

 

 

 

 

Debt extinguishment was a gain of $63 thousand for the six months ended June 30, 2023. The debt extinguishment gain is attributable to the payment plan agreement entered into in June 2023 with an initial Business Combination.

Resultsexisting vendor.

Other (loss) income

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Other (loss) income

 

$

(818

)

 

$

1,661

 

 

$

(2,479

)

 

 

(149.2

)%

Percent of total revenue

 

 

(2.8

)%

 

 

3.6

%

 

 

 

 

 

 

Other (loss) income decreased by $2.5 million, or 149.2%, to a loss of Operations

We have neither engaged in any operations nor generated any revenues$818 thousand for the six months ended June 30, 2023, as compared to date. Our only activities from January 5, 2021 (inception) througha gain of $1.7 million for the six months ended June 30, 2022. The other income during the six months ended June 30, 2022, were organizational activities, those necessaryincluded IPCO inventory sale in the amount of $1.6 million. The other income during the six months ended June 30, 2023, included the fair value changes of the deferred cash consideration in the amount of $460 thousand, and the fair value adjustment of the PIPE warrants due to preparethe PIPE amendment in the amount of $430 thousand.

Provision for income tax

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

% Change

 

 

 

(in thousands, except percentages)

 

Provision for income tax

 

$

13

 

 

$

65

 

 

$

(52

)

 

(80.0

)%

Percent of total revenue

 

 

0.0

%

 

 

0.1

%

 

 

 

 

 

35


The provision for income tax decreased $52 thousand, or 80.0%, to a benefit of $13 thousand during the six months ended June 30, 2023, as compared to an expense of $65 thousand for the Initial Public Offering, described below,six months ended June 30, 2022. The increase was primarily due to a full valuation allowance for differences related to GAAP and subsequenttax income related to the Initial Public Offering, identifyingCompany’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 June 30, 2023 and 2022

Net service revenue

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Net service revenue

 

$

7,543

 

 

$

9,254

 

 

$

(1,711

)

 

 

(18.5

)%

Percent of total revenue

 

 

59.2

%

 

 

45.5

%

 

 

 

 

 

 

Net service revenue decreased by $1.7 million, or 18.5%, to $7.5 million for the three months ended June 30, 2023, as compared to $9.3 million for the three months ended June 30, 2022. 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 target companypercentage of total revenue was 59.2% for a Business Combination. We do not expectthe three months ended June 30, 2023 compared to generate any operating revenues until after45.5% for the completionthree months ended June 30, 2022.

Net product revenue

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Net product revenue

 

$

4,739

 

 

$

7,834

 

 

$

(3,095

)

 

 

(39.5

)%

Percent of total revenue

 

 

37.2

%

 

 

38.5

%

 

 

 

 

 

 

Net product revenue decreased by $3.1 million, or 39.5%, to $4.7 million for the three months ended June 30, 2023, as compared to $7.8 million for the three months ended June 30, 2022. The decrease in product revenue is primarily due to the closing of our Business Combination, at the earliest. We will generate

non-operating
incomeone product line and lower sales in the formother product lines. Net product revenue as a percentage of total revenue was 37.2% for the three months ended June 30, 2023, compared to 38.5% for the three months ended June 30, 2022.

Net revenue from related parties

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Net revenue from related parties

 

$

460

 

 

$

3,262

 

 

$

(2,802

)

 

 

(85.9

)%

Percent of total revenue

 

 

3.6

%

 

 

16.0

%

 

 

 

 

 

 

Net revenue from related parties decreased by $2.8 million, or 85.9%, to $460 thousand for the three months ended June 30, 2023, as compared to $3.3 million for the three months ended June 30, 2022. The Company provides services to its joint ventures under Master Services Agreements that are classified as related party revenue. On December 1, 2022, the Company acquired the remaining 50% equity interest income on marketable securities held in the Trust Account. We will incur expensesModCloth; 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 first quarter of 2023, as compared to being recorded in revenue from related parties in the same quarters last year. Net service revenue from related parties as a percentage of total revenue was 3.6% for the three months ended June 30, 2023, compared to 16.0% for the three months ended June 30, 2022.

Cost of services

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Cost of services

 

$

3,277

 

 

$

5,757

 

 

$

(2,480

)

 

 

(43.1

)%

Percent of total revenue

 

 

25.7

%

 

 

28.3

%

 

 

 

 

 

 

Cost of services decreased by $2.5 million, or 43.1%, to $3.3 million for the three months ended June 30, 2023, as compared to $5.8 million for the three months ended June 30, 2022. 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 36.1% while the cost of services decreased 43.1%. Cost of services as a percentage of total revenue was 29.9% for the three months ended June 30, 2023, compared to 24.6% for the three months ended June 30, 2022.

36


Cost of product revenue

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Cost of product revenue

 

$

1,972

 

 

$

5,156

 

 

$

(3,184

)

 

 

(61.8

)%

Percent of total revenue

 

 

15.5

%

 

 

25.3

%

 

 

 

 

 

 

Cost of product revenue decreased by $3.2 million, or 61.8%, to $2.0 million for the three months ended June 30, 2023, as compared to $5.2 million for the three months ended June 30, 2022. The decrease is in line with the decrease in product revenue. The sales of the top two product lines decreased 78.9% while the associated cost decreased 74.9%. During the three months ended June 30, 2022, the Company also faced supply chain issues, which caused the higher shipping costs. Cost of product revenue as a percentage of total revenue was 15.5% for the three months ended June 30, 2023, compared to 25.3% for the three months ended June 30, 2022.

Sales and Marketing

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Sales and marketing

 

$

715

 

 

$

620

 

 

$

95

 

 

 

15.3

%

Percent of total revenue

 

 

5.6

%

 

 

3.0

%

 

 

 

 

 

 

Sales and marketing expense increased by $95 thousand, or 15.3%, to $715 thousand for the three months ended June 30, 2023, as compared to $620 thousand for the three months ended June 30, 2022. The increase in sales and marketing expense was primarily due to rebuilding of the sales team to support the Company's growth initiatives.

Research and development

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Research and development

 

$

1,163

 

 

$

1,250

 

 

$

(87

)

 

 

(7.0

)%

Percent of total revenue

 

 

9.1

%

 

 

6.1

%

 

 

 

 

 

 

Research and development expense remained relatively flat at $1.2 million and $1.3 million for the three months ended June 30, 2023, and June 30, 2022, respectively.

General and administrative

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

General and administrative

 

$

15,814

 

 

$

13,140

 

 

$

2,674

 

 

 

20.4

%

Percent of total revenue

 

 

124.1

%

 

 

64.6

%

 

 

 

 

 

 

General and administrative expense increased by $2.7 million, or 20.4%, to $15.8 million for the three months ended June 30, 2023, as compared to $13.1 million for the three months ended June 30, 2022. General and administrative expenses increased as a percentage of revenue from 64.6% for the six months ended June 30, 2022, to 124.1% for the three months ended June 30, 2023, which was primarily due to legal expense of $2.3 million, public company (for legal, financial reporting, accountingfiling expense $260 thousand, increase in directors and auditing compliance)officer insurance of $448 thousand, increase in stock compensation expense of $93 thousand and director fees of $83 thousand in the current fiscal period compared to the prior period.

Depreciation and amortization

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Depreciation and amortization

 

$

235

 

 

$

219

 

 

$

16

 

 

 

7.3

%

Percent of total revenue

 

 

1.8

%

 

 

1.1

%

 

 

 

 

 

 

Depreciation and amortization expense remained relatively flat at $235 thousand and $219 thousand for the three months ended June 30, 2023, and June 30, 2022, respectively.

37


Interest expense

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Interest expense

 

$

2,777

 

 

$

1,464

 

 

$

1,313

 

 

 

89.7

%

Percent of total revenue

 

 

21.8

%

 

 

7.2

%

 

 

 

 

 

 

Interest expense increased by $1.3 million, or 89.7%, to $2.8 million for the three months ended June 30, 2023, as wellcompared to $1.5 million for the three months ended June 30, 2022. The increase in interest expense was primarily due to the interest on the Convertible Notes entered into in the third quarter of 2022, and the two loans entered into in the first quarter of 2023, as compared to interest on the notes payable in the three months ended June 30, 2022. The notes payable were fully repaid at closing of the Business Combination.

Change in fair value of promissory notes

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Change in fair value of promissory notes

 

$

259

 

 

$

2,566

 

 

$

(2,307

)

 

 

(89.9

)%

Percent of total revenue

 

 

2.0

%

 

 

12.6

%

 

 

 

 

 

 

Change in fair value of promissory notes was $2.3 million for due diligence expenses.

the three months ended June 30, 2023. For the three months ended June 30, 2022, we had2023, the Company recognized a net loss of $561,479, which consisted$259 thousand related to the 2023 Promissory Notes and 2023 Convertible Promissory Notes in connection with the amendments to the Convertible Notes. The Company engaged a third party specialist to assist with the valuation of formationsuch notes.

Change in fair value of derivatives

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Change in fair value of derivatives

 

$

(3,462

)

 

$

 

 

$

(3,462

)

 

 

100.0

%

Percent of total revenue

 

 

(27.2

)%

 

 

%

 

 

 

 

 

 

Change in fair value of derivatives notes was a gain of $3.5 million for the three months ended June 30, 2023. The Company recognized a change in fair value of derivatives notes in connection with the April 2023 Offering.

Change in fair value of unconsolidated affiliate

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Change in fair value of unconsolidated affiliates

 

$

(293

)

 

$

(949

)

 

$

656

 

 

 

(69.1

)%

Percent of total revenue

 

 

(2.3

)%

 

 

(4.7

)%

 

 

 

 

 

 

Change in fair value of unconsolidated affiliates decreased by $656 thousand, or 69.1%, to a gain of $293 thousand for the three months ended June 30, 2023, as compared to a gain of $949 thousand for the three months ended June 30, 2022. The decrease is attributable to the Company's consolidation of ModCloth. On 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 operating coststhe results of $864,182ModCloth are consolidated into the results of the Company and provisionno longer valued at fair value. The Company elected to apply the fair value option of accounting to the joint 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 income taxes of $9,909, offset bythe investment in connection with its 50% interest earned on marketable securities heldIPCO during the three months ended June 30, 2023 and recorded a fair value adjustment for the investment in Trust Account of $312,612.

Forconnection with its 50% interest on IPCO and ModCloth during the six months ended June 30, 2022, we had2022.

Change in fair value of convertible notes

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Change in fair value of convertible notes

 

$

1,296

 

 

$

 

 

$

1,296

 

 

 

100.0

%

Percent of total revenue

 

 

10.2

%

 

 

%

 

 

 

 

 

 

38


Change in fair value of the Convertible Notes was a net loss of $1,741,347, which consisted of formation and operating costs of $2,067,362 and provision$1.3 million for income taxes of $9,909, offset by interest earned on marketable securities held in Trust Account of $335,924.

For the three months ended June 30, 2021, we had2023. The change is attributable to fair value of the Convertible Notes, which the Company engaged a net incomethird-party valuation specialist to assist with the fair value assessment.

Debt extinguishment gain

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Debt extinguishment gain

 

$

63

 

 

$

 

 

$

63

 

 

 

100.0

%

Percent of total revenue

 

 

0.5

%

 

 

%

 

 

 

 

 

 

Debt extinguishment was a gain of $1.

For$63 thousand for the period from January 5, 2021 (inception) throughthree months ended June 30, 2021, we had2023. The debt extinguishment gain is attributable to the payment plan agreement entered into in June 2023 with an existing vendor.

Other (loss) income

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Other (loss) income

 

$

(259

)

 

$

(292

)

 

$

33

 

 

 

(11.3

)%

Percent of total revenue

 

 

(2.0

)%

 

 

(1.4

)%

 

 

 

 

 

 

Other (loss) income decreased by $33 thousand, or 11.3%, to a loss of $259 thousand for the three months ended June 30, 2023, as compared to a loss of $292 thousand for the three months ended June 30, 2022. The other income during the three months ended June 30, 2022 included the income from the warehouse sublease, offset by the fair value changes on the Legacy Nogin Warrants. The other income during the three months ended June 30, 2023 included the fair value changes of the deferred cash consideration in the amount of $259 thousand.

Provision for income tax

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

 

 

(in thousands, except percentages)

 

Provision for income tax

 

$

39

 

 

$

(93

)

 

$

132

 

 

 

(141.9

)%

Percent of total revenue

 

 

0.3

%

 

 

(0.5

)%

 

 

 

 

 

 

The provision for income tax increased $132 thousand, or 141.9%, to a benefit of $39 thousand during the three months ended June 30, 2023, as compared to an expense of $93 thousand for the three months ended June 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.

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, (3) depreciation and 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 $999, which consistedour historical operating performance on a more consistent basis by excluding certain items that may not be indicative of formationour 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 costs.

performance, as well as for internal planning and forecasting purposes.

39


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
June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net Loss

 

$

(11,832

)

 

$

(10,970

)

 

$

(21,732

)

 

$

(20,915

)

Interest expense

 

 

2,777

 

 

 

1,464

 

 

 

4,791

 

 

 

2,117

 

(Benefit) Provision for income taxes

 

 

39

 

 

 

(93

)

 

 

13

 

 

 

65

 

Depreciation and amortization

 

 

235

 

 

 

219

 

 

 

437

 

 

 

420

 

Severance pay

 

 

108

 

 

 

105

 

 

 

1,548

 

 

 

117

 

Stock based compensation

 

 

117

 

 

 

25

 

 

 

370

 

 

 

83

 

Facility consolidation expenses

 

 

864

 

 

 

 

 

 

864

 

 

 

 

Restructuring cost

 

 

163

 

 

 

 

 

 

163

 

 

 

 

Adjusted EBITDA

 

$

(7,529

)

 

$

(9,250

)

 

$

(13,546

)

 

$

(18,113

)

Liquidity and Capital Resources

On August 2, 2021,

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 consummateddevelop and grow our business. Our future capital requirements will depend on many factors, including our levels of revenue, the Initial Public Offeringexpansion of 20,000,000 Units, generating gross proceedssales and marketing activities, successful customer acquisitions, the results of $200,000,000. Simultaneously withbusiness initiatives, the closingtiming of new product introductions and overall economic conditions.

Prior to the Initial Public Offering, we consummatedBusiness Combination, the saleCompany’s available liquidity and operations were financed through equity contributions, a line of 9,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Unit in a private placement to our Sponsor, generating gross proceeds of $9,000,000. On August 2, 2021, the underwriters notifiedcredit, promissory notes and cash flow from operations. Moving forward, the Company of their intentionexpects to partially exercise their over-allotment option. As such, on August 4, 2021, the Company consummated the sale of an additional 2,807,868 Units, at $10.00 per Unit,fund operations through equity contributions and the sale of an additional 982,754 Private Placement Warrants, at $1.00 per Private Warrant, generating total gross proceeds of $29,061,434.

Following the Initial Public Offering, the sale of the Private Placement Units, and the exercise of the over-allotment option by the underwriters, a total of $231,499,860 ($10.15 per Unit) was placedcash flow from operations.

Because we are in the Trust Account.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 incurred $13,056,080are 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 Initial Public Offering related costs, including $4,561,574either 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 underwriting fees, $7,982,754 of deferred underwriting fees and $511,752 of other costs.

18

Forfor the six months ended June 30, 2022, cash used in operating activities was $677,035. Net loss of $1,741,347 was affected by the interest earned on marketable securities held in Trust Account of $335,924 and changes in operating assets and liabilities which provided $1,400,236 of cash for operating activities.
For the period from January 5, 2021 (inception) through June 30, 2021, cash provided by operating activities was $1. Net loss of $999 was affected by changes in operating liabilities which provided $1,000 of cash for operating activities.
We intend to use the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less taxes payable), to complete our Business Combination. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we will repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants upon consummation of the Business Combination at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants.
On February 9, 2022, the Sponsor agreed to loan the Company $300,000 pursuant to the IPO Promissory Note, and on May 31, 2022, the Sponsor agreed to loan the Company an additional $100,000 pursuant to the New Promissory Note.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may2023 have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s ASU
2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to complete a Business Combination by February 2, 2023, thenbeen prepared assuming the Company will cease allcontinue to operate as a going concern. The Company has sustained recurring losses, negative working capital, and negative cash flows from operations except for the purposeand had a cash balance of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise$3.1 million as of June 30, 2023. These conditions provide substantial doubt about the Company’sour ability to continue as a going concern. Noconcern for at least twelve months from the date that these consolidated financial statements are issued.

In March 2023, the Company did not timely make the payment of the accrued interest on the Convertible Notes due on March 1, 2023 of $2.3 million, resulting in a default. On March 26, 2023, the Company, the Notes Guarantors and Holders entered into the Waivers pursuant to which, among other things, each Holder agreed to (i) waive the Specified Default and any payment obligation of the Company under the Indenture with respect to the March Interest Payment, (ii) in lieu of the Interest Payments, (a) receive a promissory note or convertible promissory note, as applicable, and (b) amend the Warrant Agreement 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, 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.

40


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.

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. 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 conversion price is approximately $230.00 per share of Common Stock, based on conversion rate of 4.3478 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 has the right to cause the 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 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 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.

41


The Company did not timely make the payment of the accrued interest on the Convertible Notes due on March 1, 2023, resulting in a default. Such default for thirty (30) consecutive days of the payment on interest due constitutes an Event of Default (as defined in the Indenture).

On March 26, 2023, the Company, the Notes Guarantors and Holders entered into limited waivers and consents pursuant to which each holder agreed to (i) waive the Specified Default and any payment obligation of the Company under 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 Event 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 of proceeds to the Company 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 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 consummates the April 2023 Offering by April 30, 2023, the holder of each 2023 Promissory Note has the option to require the Company to prepay a portion of the principal balance of the 2023 Promissory Note in an amount equal to or 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 provide such holders with the right to convert the 2023 Promissory Note into Unregistered Securities on the same terms as the securities offered in the April 2023 Offering in the event such offering takes place.

In April 2023, upon consummation of the April 2023 Offering, all holders of the 2023 Promissory Notes exercised their Put Options and the holder of the 2023 Convertible Promissory Note converted the note into Unregistered Securities. As of June 30, 2023, the 2023 Promissory Notes and 2023 Convertible Promissory Notes were repaid in full.

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 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 maderequired 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 Tranche Notes and Second Tranche Notes, the Company was required to pay exit fees of $600 thousand and $300 thousand, respectively.

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 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 was 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. Upon 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 Stock (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 value 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 amountsamount of assets or liabilities shouldthe related debt.

42


In addition, the Company beissued additional notes payable in July 2022 for proceeds of $3.0 million. Such notes payable matured on the earlier of (a) December 31, 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.

2022 Promissory Notes

During the second quarter of 2022, the Company entered into the 2022 Promissory Notes with various individuals, including current investors, members of management and other unrelated parties in exchange for cash in an amount equal to $7.0 million. The 2022 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 liquidate after February 2, 2023.

Off-Balance
Sheet Financing Arrangements
make nine interest-only payments, followed by three principal and interest payments. In connection with the 2022 Promissory Notes, the Company issued warrants (“the 2022 Promissory Note Warrants”) to purchase up to 31,024 shares of Common Stock at an exercise price of $0.01 per share (Note 8). Upon payment in full of the 2022 Promissory Notes, the Company was required to make an additional final payment of $3.5 million.

The Company elected to account for the 2022 Promissory Notes under the fair value option of accounting upon issuance of each of the 2022 Promissory Notes. At issuance the Company recognized the fair value of the 2022 Promissory Notes of $6.3 million with the remaining $0.7 million of proceeds received allocated to the 2022 Promissory Note Warrants.

The 2022 Promissory Notes were repaid at the closing of the Business Combination.

Cash Flows

The following table summarizes our cash flows for the periods presented:

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Cash flow used in operating activities

 

$

(30,215

)

 

$

(13,193

)

Cash flow used in investing activities

 

 

(609

)

 

 

(226

)

Cash flow provided by financing activities

 

 

18,582

 

 

 

11,555

 

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 have no obligations, assets or liabilities, which would be considered

off-balance
sheet arrangementstypically 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 six months ended June 30, 2023, net cash used in operating activities increased by $17.0 million to $30.2 million, compared to net cash used in operating activities of $13.2 million during the six months ended June 30, 2022. The primary drivers 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 $3.6 million as of June 30, 2023. Accounts payable decreased by $5.7 million, from $19.6 million as of December 31, 2022, to $13.9 million as of June 30, 2023. Among the $5.7 million decrease, $3.7 million was attributed to the changes in operating activities.

Investing Activities

Our primary investing activities have consisted of purchases of property and equipment and software.

During the six months ended June 30, 2023, net cash used in investing activities increased by $383 thousand to $609 thousand compared to net cash used in investing activities of $226 thousand during the six months ended June 30, 2022. The primary driver of the increase was cash used in the investment on the warehouse improvement and software development.

Financing Activities

Our financing activities consisted primarily of borrowings and repayments of debt as well as activity related to the Business Combination.

During the six months ended June 30, 2023, net cash provided by financing activities increased by $7.0 million to $18.6 million, compared to net cash provided by financing activities of $11.6 million for the six months ended June 30, 2022. The change was primarily driven by the proceeds from the April 2023 Offering.

43


Off-Balance Sheet Arrangements

We do not participate in transactions that createhave any relationships with unconsolidatedother entities or financial partnerships, such as entities often referred to as variable intereststructured finance or special purpose entities which wouldthat have been established for the purpose of facilitating

off-balance
sheet arrangements.arrangements or other contractually narrow or limited purposes. We have not entered into any
off-balance
sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any
non-financial
assets.
Contractual obligations
We dodid not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliateoff-balance sheet arrangements as of the Sponsor a monthly fee of $15,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on the date the Public Shares were first listed on NASDAQ and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per share, or $7,982,754 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement, as amended.
On June 28, 2022, the underwriters executed their respective amendments to their engagement letters with SWAG, Stifel executed its amended engagement letter with Nogin, and Jefferies executed its amended IPO Underwriting Agreement, in each case, reflecting the agreed upon terms of the Closing Fee Structure.
30, 2023.

Critical Accounting Policies

The preparation and Estimates

Management’s Discussion and Analysis of condensedOur Financial Condition and Results of Operations are based upon our consolidated financial statements, and related disclosureswhich have been prepared in conformityaccordance with accounting principles generally accepted in the United StatesU.S. (“GAAP”). The preparation of Americathese financial statements requires managementus to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and liabilities,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, “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

44


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 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, 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 financialestimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed consolidated statements and income and expenses during the periods reported. Actual results could materially differof operations.

Revenue

Revenue is accounted for using ASC Topic 606, Revenue from those estimates.

Class A Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion inContracts with Customers.

In accordance with ASC Topic 606, the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is 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 theCompany recognizes revenue when control of the holderpromised goods or subjectservices is transferred to redemption upon the occurrenceCompany’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 uncertain events not solely within our control)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 classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rightsa 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 consideredboth 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 be outsidethe 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 controlcustomers 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 subjectcustomary allowances.

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 occurrencethe products sold.

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 uncertain future events. Accordingly, common stock subjectvariable 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 possible redemption is presented at redemption value as temporary equity,factors outside of the stockholders’ (deficit) equity sectionCompany’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 our condensed consolidated balance sheets.

19
customers and evaluates the need for allowances for potential credit losses based on historical experience, as well as current and expected general economic conditions.

45


Net Loss Per Common Share
Net loss per common share is computed by dividing

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net loss by the weighted average number of common shares outstanding during the period. We apply the

two-class
method in calculating earnings per share. Accretion associated with the redeemable shares of Class A common stock isbasis and, therefore, are excluded from net loss per sharesales in the statements of operations.

Commerce-as-a-Service

The Company’s main revenue stream is 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 redemption value approximates fair value.

Recent Accounting Standards
In August 2020, the FASB issued ASU
No. 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 ContractsCompany is engaged in an Entity’s Own Equity” (“ASU
2020-06”),
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU
2020-06
removes certain settlement conditions that are required for equity contracts to qualifyagency relationship with its customers and earns defined amounts based on the individual contractual terms for the derivative scope exception,customer and it also simplifies the diluted earnings per share calculationCompany 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 certain areas. ASU

2020-06
sales to end customers and records these revenues on a gross basis a point in time.

Fulfillment

Revenue for B2B fulfillment services is effectiverecognized 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 fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. 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, 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 currently assessingrecognized 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 operations.

Recently Issued Accounting Pronouncements

We discuss the potential impact if any, that ASU

2020-06
would have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective,recent accounting standards, if currently adopted, would have a material effect onpronouncements in Note 2 to our condensed consolidated financial statements.
“Notes to Consolidated Financial Statements” under the caption “Summary of Significant Accounting Policies”.

46


Item 3. QuantitativeQuantitative and Qualitative Disclosures About Market Risk

Not required for

The Company is a smaller reporting companies.

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

Disclosure

Our management has established and maintains a system of disclosure controls and procedures that are designed to ensureprovide reasonable assurance that information required to be disclosed by us in ourthe reports that we file or submit under the Exchange Act, reportssuch as this Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms,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 principal executive officerChief Executive Officer and principal financial officer or persons performing similar functions,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As requiredof the end of the period covered by Rules13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation ofthis 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 June 30, 2022. Based on thisthe Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, Chief Executive Officer hasand Chief Financial Officer have concluded that, as of June 30, 2023, our disclosure controls and procedures were not effective due solely to the material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments. As a result, we performed additional analysis as deemed necessary to ensure that our condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the condensed consolidated financial statements included in this Form10-Q present fairly in all material respects our financial position, resultsprovide reasonable assurance of operations and cash flows for the period presented.

Management intends to implement remediation steps to improve our disclosure controls and procedures and our internal control over financial reporting. Specifically, we intend to expand and improve our review process for complex securities and related accounting standards. We have improved this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
achieving their objectives.

Changes in Internal Control over Financial Reporting

There were nohave not been any changes in our internal control over financial reporting (as such term is defined in Rules

13a-15(f)
and15d-15(f)
of and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter to which this Report relates that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
20

47


PART II—II - OTHER INFORMATION

Item 1. LegalLegal Proceedings

None
Item

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 June 30, 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 1A. Risk Factors

Factors that could cause

We are subject to various risks and uncertainties in the course of our actual results to differ materially from those in this report includebusiness. For a discussion of such risks and uncertainties, please see the risk factors describedsection in our Annual Report on Form

10-K
filed with the SEC on March 30, 2022. As of the date of this Report, there23, 2023 titled “Risk Factors.” There have been no material changes to the risk factors disclosed in our Annual Report on Form
10-K
filed with the SEC on March 30, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
therein.

Item 2. UnregisteredUnregistered Sales of Equity Securities, and Use of Proceeds.

Proceeds, and Issuer Purchases of Equity Securities

None.

Item 3. DefaultsDefaults Upon Senior Securities

None
21

None.

Item 4. Mine Safety Disclosures

None

Not applicable.

Item 5. OtherOther Information

None

None.

48


Item 6. Exhibits

 

 

 

 

Incorporated by Reference

Exhibit

 

Exhibit Description

 

Form

 

Exhibit

 

Filing Date

3.1

 

Amended and Restated Certificate of Incorporation of Nogin, Inc.

 

8-K

 

3.1

 

9/01/2022

3.2

 

Amended and Restated Bylaws of Nogin, Inc.

 

8-K

 

3.2

 

9/01/2022

3.3

 

Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Nogin, Inc.

 

8-K

 

3.1

 

3/28/2023

4.1

 

Form of Common Warrant.

 

8-K

 

4.1

 

4/4/2023

10.1

 

Form of Purchase Agreement.

 

8-K

 

10.1

 

4/4/2023

10.2

 

Placement Agency Agreement, dated as of April 4, 2023, by and among Nogin, Inc. and A.G.P./Alliance Global.

 

8-K

 

10.2

 

4/4/2023

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

 

 

 

31.2

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

 

 

 

32.1

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

 

 

 

32.2

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

 

 

 

99.1

 

Recast Financial Statements Originally Included in the Annual Report on Form 10-K of Nogin, Inc. for the year ended December 31, 2022.

 

8-K

 

99.1

 

4/3/2023

101

 

The following financial information from Nogin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, 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).

 

 

 

 

 

 

104

 

Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101).

 

 

 

 

 

 

* Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The followingCompany agrees to furnish a copy of all omitted exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on

Form10-Q.
No.
Description of Exhibit
    1.1*Amendment to IPO Underwriting Agreement, dated June 28, 2022, by and between Software Acquisition Group Inc. III and Jefferies LLC.
  31.1*Certification of Principal Executive Officer and Principal Financial Officer and schedules to the SEC upon its request.

49


SIGNATURES

Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  32.1**Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*Inline XBRL Instance Document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
Filed herewith.
**
Furnished.
22

SIGNATURES
In accordance with 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.
authorized:

SOFTWARE ACQUISITION GROUP

NOGIN, INC. III

Date: August 12, 2022

By:

By:

/s/ Jonathan S. Huberman

Name:

Jonathan S. Huberman

Title:

Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)

August 14, 2023

By:

/s/ Shahriyar Rahmati

Shahriyar Rahmati

Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

(Principal Executive and Financial Officer)

August 14, 2023

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