As
filed with the Securities and Exchange Commission on December 10 , 2018
Registration
No. 333 -226840
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
(Pre-Effective
Amendment No. 1)
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
nFüsz,
Inc.
(Exact
name of registrant as specified in its charter)
Nevada
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7200
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90-1118043
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(State
or jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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incorporation
or organization)
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Classification
Code Number)
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Identification
No.)
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344
S. Hauser Blvd., Suite 414
Los
Angeles, California 90036
(855)
250-2300
(Address,
including zip code and telephone number,
including
area code, of registrant’s principal executive offices)
Rory
J. Cutaia
Chairman
of the Board, Chief Executive Officer, President, Secretary, and Treasurer
344
S. Hauser Blvd., Suite 414
Los
Angeles, California 90036
(855)
250-2300
(Name
including zip code and telephone number,
including
area code, of agent for service)
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With
copies to:
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Randolf
W. Katz
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David
E. Danovitch
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Baker
& Hostetler LLP
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Robinson
Brog Leinwand Greene Genovese
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600
Anton Boulevard, Suite 900
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&
Gluck P.C.
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Costa
Mesa, California 92626
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875
Third Avenue, Ninth Floor
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(714)
966-8807
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New
York, New York 10022
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(212)
603-6300
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Approximate
date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared
effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act, check the following box. [ ]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the
same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
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[ ]
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Accelerated
filer
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[ ]
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Non-accelerated
filer
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[ ]
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Smaller
reporting company
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[X]
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Emerging
growth company
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[X]
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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 to Section 7(a)(2)(B) of the Securities Act. [ ]
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
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Proposed
Maximum Aggregate Offering Price
(1)(2)
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Amount
of
Registration
Fee
(3)
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Common
Stock, par value $0.0001 per share
(4)
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$
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20,000,000
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$
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2,490 .00
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Underwriter’s
Warrants
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$
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-
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$
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-
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Common
Stock issuable upon exercise of Underwriter’s Warrants
(4) (5)
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$
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1,250,000
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$
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151.50
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Total
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$
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21,250,000
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$
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2,641.50
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(6)
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(1)
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In
accordance with Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”), the number of
shares being registered and the proposed maximum offering price per share are not included in this table.
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(2)
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The proposed maximum aggregate
offering price has been estimated solely for the purpose of calculating the amount of
the registration fee pursuant to Rule 457(o) under the Securities Act, and includes shares
of common stock, par value $0.0001 per share, of nFüsz, Inc. (the “Common
Stock”), that the underwriter has an option to purchase to cover over-allotments,
if any.
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(3)
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Calculated
pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price of the securities registered
hereunder.
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(4)
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Pursuant
to Rule 416 under the Securities Act, the shares registered hereby also include an indeterminate number of additional shares
as may from time to time become issuable by reason of stock splits, distributions, recapitalizations, or other similar transactions.
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(5)
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Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities
Act. The underwriter’s warrants are exercisable at a per-share exercise price equal to 125% of the public offering price
per share of Common Stock. The proposed maximum aggregate offering price of the underwriter’s warrants is $1,250,000, or
125% of $1,000,000 (5% of $20,000,000).
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(6)
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Previously
paid $2,490.00.
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THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT, WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The
information contained in this preliminary prospectus is not complete and may be changed. We may not sell these securities until
the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION
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DATED
DECEMBER 10 , 2018
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______
Shares
Common
Stock
We
are offering ________shares of common stock, $0.0001 par value (the “Common Stock”), of nFüsz, Inc., a Nevada
corporation (the “Company”), in a firm commitment underwritten public offering. Our Common Stock is quoted on the
OTC Markets Group Inc.’s OTCQB
®
tier Venture Market (the “OTCQB”) under the symbol “FUSZ.”
On
December 7 , 2018, the last reported sale price of our Common Stock as reported on the OTCQB was $0. 3799 per share.
The actual offering price per share of Common Stock will be as determined between us and A.G.P./Alliance Global Partners Corp.
(the “Underwriter”) at the time of pricing and may be issued at a discount to the current market price of our Common
Stock. We have applied to list our Common Stock on the Nasdaq Capital Market (“NASDAQ”) under the symbol “FUSZ,”
which listing we anticipate will occur simultaneously with the closing of this offering. We have not yet received approval to
list our Common Stock on NASDAQ and there is no assurance that our Common Stock will ever be listed on NASDAQ.
If our
application is not approved, our Common Stock will continue to be quoted on the OTCQB. See “Risk Factors.”
This
prospectus contains or incorporates by reference summaries of certain provisions contained in some of the documents described
herein, but reference is made to the actual documents for complete information. All the summaries are qualified in their entirety
by the actual documents. Copies of some of the documents referred to herein have been filed or have been incorporated by reference
as exhibits to the registration statement of which this prospectus forms a part, and you may obtain copies of those documents
as described in this prospectus under the heading “Where You Can Find More Information.”
Investing
in our securities involves a high degree of risk. See “Risk Factors” on page 5 of this prospectus for a discussion
of information that should be considered in connection with an investment in our securities.
Neither
the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus or the accompanying prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
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Total
Without
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Total
With
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Exercise
of
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Exercise
of
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Over-Allotment
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Over-Allotment
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Per
Share
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Option
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Option
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Public
offering price
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$
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$
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$
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Underwriting
discounts and commissions
(1)
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$
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$
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$
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Offering
proceeds, before expenses, to us
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$
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$
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$
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(1)
See “Underwriting” on page 67 for additional information on the compensation payable to the Underwriter.
We
have granted an over-allotment option to the Underwriter as set forth below. Pursuant to this over-allotment option, the Underwriter
may elect to purchase up to a maximum of additional shares of Common Stock from us at the public offering price above, less underwriting
discounts and commissions, within 45 days of the date of this prospectus to cover over-allotments, if any. If the Underwriter
exercises the over-allotment option in full, the total underwriting discounts and commissions payable by us will be $
, and the total proceeds to us, before expenses, will be $ ,
assuming an offering price of $ per share
(the last reported sales price of our Common Stock on the OTCQB on ,
2018).
The
Underwriter expects to deliver the shares of common stock to purchasers on or before ,
2018.
A.G.P.
The
date of this prospectus is ,
2018.
TABLE
OF CONTENTS
We
and the Underwriter have not authorized anyone to provide you any information other than that contained in this prospectus or
in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for,
and can provide no assurance as to the reliability of, any other information that others may give you. We and the Underwriter
are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business,
financial condition, results of operations, and prospects may have changed since that date.
For
investors outside of the United States: we have not and the Underwriter has not done anything that would permit this offering
or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the
United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about,
and observe any restrictions relating to, the offering of the shares of Common Stock and the distribution of this prospectus outside
of the United States.
PROSPECTUS
SUMMARY
This
summary highlights certain information about us, this offering, and selected information contained in this prospectus. This summary
is not complete and does not contain all of the information that you should consider before deciding whether to invest in our
Common Stock. For a more complete understanding of the Company and this offering, we encourage you to read and consider the more
detailed information in this prospectus, including “Risk Factors” and the financial statements and related notes.
Unless we specify otherwise, all references in this prospectus to “nFüsz,” “we,” “our,”
“us,” and “the Company” refer to nFüsz, Inc. and our subsidiaries.
Company
Overview
Cutaia
Media Group, LLC (“CMG”) , was organized on December 12, 2012, as a limited liability company under the laws
of the State of Nevada. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014,
CMG merged into bBooth, Inc. and, thereafter, bBooth, Inc. changed its name to bBooth (USA), Inc., effective as of October 16,
2014. The operations of CMG and bBooth (USA), Inc. became known as, and are referred to in this prospectus as, “bBoothUSA.”
On October 16, 2014,
bBoothUSA was acquired by Global System Designs, Inc. (“GSD”), pursuant to a Share Exchange Agreement entered into
with GSD (the “Share Exchange Agreement”). GSD was incorporated in the State of Nevada on November 27, 2012. The acquisition
was accounted for as a reverse merger transaction. In connection with the closing of the transactions contemplated by the Share
Exchange Agreement, GSD’s management was replaced by bBoothUSA’s management, and GSD changed its name to bBooth, Inc.
Effective April 21, 2017,
we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary short-form
merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with and into
us. We were the surviving entity. To effectuate the name-change merger, we filed Articles of Merger and a Certificate of
Correction (relative to the effective date of the name - change merger) with the Secretary of State of the State of Nevada
on April 4, 2017 and April 17, 2017, respectively. The name-change merger became effective on April 21, 2017. Our board
of directors approved the name-change merger, which resulted in the name change on that date. In accordance with Section
92A.180 of the Nevada Revised Statutes, stockholder approval of the name-change merger was not required.
Our
Business
We are an applications
services provider marketing cloud-based business software products on a subscription basis. Our flagship product, notifiCRM, is
a Customer Relationship Management (“CRM”) application that is distinguishable from other CRM programs because it
utilizes interactive video as the primary means of communication between sales and marketing professionals and their clients or
prospects. notifiCRM allows our users to create, distribute, and post interactive videos that contain on-screen interactive icons,
buttons, and other elements, that when clicked, allow their prospects and customers to respond to our users’ call s
to action in real-time, in the video, while the video is playing, without leaving or stopping the video. Our users report increased
sales conversion rates compared to traditional, non-interactive video. We developed the proprietary interactive video technology,
which serves as the basis for our cloud -based , Software-as-a-Service (“SaaS”) products and services that we
market under the brand name “ notify. ” T hey are accessible on all mobile and desktop devices. No download
is required to access and use our applications. Our users also have access to detailed analytics in the application dashboard
that reflect when the videos were viewed, by whom, how many times, for how long, and what interactive elements were clicked-on
in the video, among other things, all of which assist our users in focusing their sales and marketing efforts by identifying which
clients or prospects have interest in the subject matter of the video.
Our
notifiCRM platform can accommodate any size campaign or sales organization, and it is enterprise-class scalable to meet the needs
of today’s global organizations. We are working with our vendors to ensure that it is so scalable based upon our current
agreements with them. We offer stand-alone versions of our notifiCRM product on a subscription basis to individual consumers,
sales-based organizations, consumer brands, marketing and advertising agencies, as well as to artists and social influencers.
We also offer notifiCRM through a network of partners and resellers that include Oracle/NetSuite and Marketo, who offer notifiCRM
to their respective clients and customers as an upgrade to their existing Oracle/NetSuite or Marketo subscriptions. notifiCRM
is fully integrated into each of their platforms and upon payment of the upgrade fee, is accessible through the respective dashboards
of Oracle/NetSuite and Marketo. We are actively developing integrations of notifiCRM into other popular marketing, CRM, and Enterprise
Resource Management (“ERP”) platforms.
Our notifiMED application
is designed for physicians and other healthcare providers to create more efficient and effective interactive communications with
patients. Patients are able to avoid unnecessary and inconvenient visits to their physicians’ or other healthcare providers’
offices by viewing and responding to interactive videos through in-video, on-screen clicks that are designed to assess the patients’
need for an office visit. If the patient’s responses to the interactive video indicate that an office visit is either necessary
or desirable, the patient can schedule the office visit right through the video in real time. Patients can also download
and print prescriptions, care instructions, and other physician distributed documents right from and through the video. notifiMED
is offered on a subscription basis.
Our notifiEDU application
is designed for teachers and school administrators for more effective communications with students, parents, and faculty. notifiEDU
allows teachers to deliver interactive lessons to students that are both more engaging and more effective. notifiEDU allows
teachers to communicate with students through their mobile devices and computers to deliver lessons and tests/quizzes on the screen
and in the video. The analytics capabilities of notifiEDU available on the dashboard of the teacher or school administrator allow
them to track which students watched the lesson, when, for how long, how many times, and track and report on test/quiz results.
notifiEDU is offered on a subscription basis.
Our
notifiTV and notifiLIVE products are also part of our proprietary interactive video platform that allows viewers to interact with
pre-recorded as well as live broadcast video content by clicking on links embedded in on-screen people, objects, graphics, or
sponsors’ signage. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most devices
available in the market today without the need to download special software or proprietary video players.
Proposed
Acquisition of Sound Concepts
On
November 8, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Sound Concepts,
Inc., a Utah corporation (“Sound Concepts”), NF Merger Sub, Inc., a Utah corporation (“Merger Sub 1”),
NF Acquisition Company, LLC, a Utah limited liability company (“Merger Sub 2”), the shareholders of Sound Concepts
(the “Sound Concepts Shareholders”), the shareholders’ representative (the “Shareholder Representative”),
and us, pursuant to which we will acquire Sound Concepts (the “Sound Concepts Acquisition”) through a two-step merger,
consisting of merging Merger 1 Sub with and into Sound Concepts, with Sound Concepts surviving the “first step” of
the merger as our wholly-owned subsidiary (and the separate corporate existence of Merger Sub 1 will cease) and, immediately thereafter,
merging Sound Concepts with and into Merger Sub 2, with Merger Sub 2 surviving the “second step” of the merger, such
that, upon the conclusion of the “second step” of the merger, the separate corporate existence of Sound Concepts will
cease and Merger Sub 2 will continue its limited liability company existence under Utah law as the surviving entity and as our
wholly-owned subsidiary (collectively, the “Merger”). On the terms and subject to the conditions set forth in the
Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Sound Concepts’
capital stock issued and outstanding immediately prior to the Effective Time (the “Sound Concepts Capital Stock”)
will be cancelled and converted into the right to receive a proportionate share of $25,000,000 of value (the “Closing Merger
Consideration”), to be payable through a combination of a cash payment by us of $15,000,000 (the “Acquisition Cash
Payment”) and the issuance of shares of our Common Stock with a fair market value of $10,000,000 (the “Acquisition
Stock”). The Closing Merger Consideration is not subject to any closing working capital adjustment or post-closing working
capital adjustment.
We expect the Sound
Concepts Acquisition to close contemporaneously with this offering, subject to the satisfaction or waiver of certain conditions
described in this prospectus under the heading “The Proposed Sound Concepts Acquisition.” However, we cannot provide
any assurance as to the actual timing of completion of the Sound Concepts Acquisition, or whether the Sound Concepts Acquisition
will be completed at all. Furthermore, we currently intend to use a portion the net proceeds from the sale of our Common Stock
under this prospectus to provide funds for all, or a portion of, the Acquisition Cash Payment. If we are unable to raise sufficient
net proceeds from this offering to provide funds for all, or a portion of, the Acquisition Cash Payment, we will need to obtain
alternative sources of financings, which may not be available at terms acceptable to us, or at all, resulting in us being unable
to consummate the Sound Concepts Acquisition. This offering is not conditioned on the consummation of the Sound Concepts Acquisition
or any other transaction. For additional information, please see the heading “Risk Factors,” for certain risks relating
to the Sound Concepts Acquisition, and “The Proposed Sound Concepts Acquisition.”
Sound
Concepts is an established 25-year-old business with approximately 8 0 employees, based in American Fork , Utah, providing
digital marketing and sales support services, including a video-based sales application, to the direct sales industry. Their
sales application, offered as a SaaS application, is marketed under the brand name Brightools and is offered as a white-labeled
application to large corporate enterprises engaged in the network marketing and affiliate marketing industry. Sound Concepts c urrently
ha s approximately 75 clients in the network marketing and affiliate marketing sector, which include Young Living Essential
Oils, LC, Isagenix International, LLC , Vasayo , LLC , Nu Skin Enterprises United States, Inc. ,
Nerium International, LLC , Forever Living Products International, LLC , Seacret Spa, LLC , among
many others. The Brightools app is a comprehensive sales, lead generation, and customer relationship management tool specifically
designed to meet the needs of direct sales representatives and others engaged in network marketing and affiliate marketing sales.
The Brightools app also incorporates recruiting tools, sales representative training, and education tools, and includes
instant notification capabilities to notify sales reps on their mobile devices when a prospect has engaged in shared
content. Brightools allows sales reps to share sales and product video content with their prospects via email and text, post
content directly to social media, access corporate sales and product training materials, and receive analytics data and other
engagement information regarding their prospects’ interactions with the digital sales content distributed through the app.
Brightools also tracks customer purchases and allows corporate to monitor field activity to track the effectiveness of campaigns ,
as well as compliance. In addition, sales reps can order physical product samples and purchase customizable brochures,
invites, thank-you cards, and more for direct delivery to customers and prospects all through the application. The synergies
of the digital and physical tools provide sales reps with unique solutions to engage their prospects, acquire customers, close
sales, and grow their businesses. Brightools is available on, and compatible with, virtually all mobile devices and is currently
in use in over 48 different countries . As of the date hereof, Sound Concepts has more than 51 0,000 current users
of its Brightools app, representing an increase of more than 147,000 users since August 2018.
We believe that Sound
Concepts’ business is highly complementary to our own, and the combination of their technology, customer base, and human
capital with our own, including the integration of our interactive video technology into Brightools, among other synergies and
enhancements, will result in increased stock holder value.
Corporate
Information
We
are a Nevada corporation. Our principal executive/administrative offices are located at 344 South Hauser Boulevard, Suite 414,
Los Angeles, California 90036, and our telephone number is (855) 250-2300. Our website address is https://www.nfusz.com. Information
on or accessed through our website is not incorporated into this prospectus and is not a part of this prospectus.
Our
Common Stock is not listed on any national stock exchange but is quoted on the OTCQB under the symbol “FUSZ.”
The
Offering
Issuer:
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nFüsz,
Inc.
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Shares
offered by us:
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shares
of Common Stock (or shares of Common Stock
if the Underwriter exercises its over-allotment option in full) .
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Offering
Price:
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$
per share
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Common
Stock outstanding prior to this offering:
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180,832,359
shares
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Common
Stock to be outstanding after this offering:
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shares,
assuming shares are issued in this offering
(or shares if the Underwriter exercises
its over-allotment option in full, assuming
shares are issued in this offering) .
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Over-allotment
option:
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We
have granted the Underwriter a 45-day over-allotment option to purchase up to an additional shares
of our Common Stock at the public offering price less estimated underwriting discounts and commissions.
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Use
of proceeds:
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We
estimate the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering
expenses payable by us, will be approximately $
million ($ million if the Underwriter’s
over-allotment option to purchase additional shares is exercised in full), assuming a public offering price of $ per
share, the last reported sale price of our Common Stock on the OTCQB on
, 2018. The actual offering price per share will be as determined between us and the Underwriter at the time of pricing, and
may be at a discount to the current market price.
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We
intend to use the net proceeds from this offering to pay for all or a portion of the Acquisition Cash Payment, as well as
transaction and integration costs incurred in connection with the Sound Concepts Acquisition. For a more complete description
of our intended use of the net proceeds from this offering, see “Use of Proceeds” and “The Proposed Sound
Concepts Acquisition.”
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Risk
Factors:
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|
This
investment involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 5 of this
prospectus for a discussion of factors you should consider carefully before making an investment decision.
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OTCQB
Symbol:
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Our
Common Stock is traded under the symbol “FUSZ.” We have applied for the listing of our Common Stock
offered hereby on NASDAQ under the symbol “FUSZ,” and anticipate such listing to occur concurrently with this
offering. If our application is not approved, our Common Stock will continue to be quoted on the OTCQB. See
“Risk Factors.”
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The
number of shares of Common Stock shown above to be outstanding after this offering is based on 1 80,832,359 shares of Common
Stock outstanding as of December 7 , 2018, which excludes: (i) 35,584,605 shares of Common Stock issuable upon exercise
of stock options with a weighted-average exercise price of approximately $0.3 6 per share; (ii) 4,554,047 shares
of Common Stock reserved for issuance under our 2014 Stock Option Plan (the “Plan”); (iii) 14,552,038 shares
of Common Stock issuable upon the exercise of all outstanding warrants with a weighted-average exercise price of approximately
$0. 23 per share; (iv) 5,603,706 shares of Common Stock issuable upon the conversion of all outstanding convertible
notes ; and (v) __________ shares of Common Stock that may be issued upon exercise of the Underwriter’s warrants.
RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, as
well as other information presented in this prospectus or in any other documents incorporated by reference into this prospectus,
in light of your particular investment objectives and financial circumstances. Moreover, the risks so described are not the only
risks we face. Additional risks not presently known to us or that we currently perceive as immaterial may ultimately prove more
significant than expected and impair our business operations. Any of these risks could adversely affect our business, financial
condition, results of operations, and prospects. The trading price of our securities could decline due to any of these risks and
you may lose all or part of your investment.
Risks
Related to Our Business
We
have incurred significant net losses and cannot assure you that we will achieve or maintain profitable operations.
To
date, we have generated limited revenues from our operations and have incurred losses since inception. Our net loss es were
$7,266,553 for the year ended December 31, 2017 and $4,274,105 for the year ended December 31, 2016. Our net loss was $ 8,192,523
for the nine months ended September 30, 2018, compared to a net loss of $ 4,849,474 for the nine
months ended September 30, 2017. As of September 30, 2018, we had a stockholders’ deficit of $2,283,422 .
We may continue to incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties,
complications, and delays, and other unknown events.
We
anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake increased technology
and production efforts to support our business and increase our marketing and sales efforts to drive an increase in the number
of customers and clients utilizing our services. These increased expenditures may make it more difficult to achieve and maintain
profitability. In addition, our efforts to grow our business may be more expensive than we expect, and we may not be able to generate
sufficient revenue to offset increased operating expenses. If we are forced to reduce our expenses, our growth strategy could
be compromised. To offset these anticipated increased operating expenses, we will need to generate and sustain significant revenue
levels in future periods in order to become profitable, and, even if we do, we may not be able to maintain or increase our level
of profitability.
Accordingly,
we cannot assure you that we will achieve sustainable operating profits as we continue to expand our infrastructure, restructure
our balance sheet, further develop our marketing efforts, and otherwise implement our growth initiatives. Any failure to achieve
and maintain profitability would have a materially adverse effect on our ability to implement our business plan, our results and
operations, and our financial condition, and could cause the value of our Common Stock to decline, resulting in a significant
or complete loss of your investment.
Our
independent registered public accounting firm’s reports for the fiscal years ended December 31, 201 7 and December
31, 201 6 ha ve raised substantial doubt as to our ability to continue as a “going concern.”
Our
independent registered public accounting firm indicated in its reports on our audited consolidated financial statements as of
and for the years ended December 31, 201 7 and December 31, 201 6 that there is substantial doubt about our ability
to continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared
assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue
as a going concern. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds
that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the
event of liquidation. The presence of the going concern note to our financial statements may have an adverse impact on the relationships
we are developing and plan to develop with third parties as we continue the commercialization of our products and could make it
challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business
and prospects and result in a significant or complete loss of your investment.
Our
ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available
on terms favorable to us.
We
have limited capital resources. To date, we have financed our operations entirely through equity investments by founders and other
investors and the incurrence of debt, and we expect to continue to do so in the foreseeable future. Our ability to continue our
normal and planned operations, to grow our business, and to compete in our industry will depend on the availability of adequate
capital.
We cannot assure you
that we will be able to obtain additional funding from those or other sources when or in the amounts needed, on acceptable terms,
or at all. If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution
to our then- existing stockholders, which could be significant depending on the price at which we may be able to sell our
securities. If we raise additional capital through the incurrence of additional indebtedness, we would likely become subject to
further covenants restricting our business activities, and holders of debt instruments may have rights and privileges senior to
those of our then-existing stockholders. In addition, servicing the interest and principal repayment obligations under
debt facilities could divert funds that would otherwise be available to support development of new programs and marketing to current
and potential new clients. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay,
reduce, or eliminate development of new programs or future marketing efforts, or reduce or discontinue our operations. Any of
these events could significantly harm our business, financial condition, and prospects.
Our business depends on customers increasing
their use of our services and/or platform, and we may experience loss of customers or decline in their use of our services and/or
platform.
Our ability to grow and
generate revenue depends, in part, on our ability to maintain and grow our relationships with existing customers and convince
them to increase their usage of our platform. If our customers do not increase their use of our platform, then our revenue may
not grow and our results of operations may be harmed. It is difficult to predict customers’ usage levels accurately
and the loss of customers or reductions in their usage levels may have a negative impact on our business, results of operations,
and financial condition. If a significant number of customers cease using, or reduce their usage of, our platform, then we may
be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase
revenue from customers. These additional expenditures could adversely affect our business, results of operations , and financial
condition. Most of our customers do not have long-term contractual financial commitments to us and, therefore, most of our customers
could reduce or cease their use of our platform at any time without penalty or termination charges.
The
market in which we operate is dominated by large, well established competitors.
The CRM industry is
currently dominated by Salesforce.com, Inc., Microsoft Corporation, Oracle Corporation, SAP SE, and Adobe Inc., which
collectively account for approximately 40% of industry sales. The CRM applications offered by these companies, as well
as by many others, have numerous differences in feature sets and functionality, but all share certain basic attributes. Most
of them were designed before the advent and proliferation of mobile phones, social media, and the technology behind the
current ubiquity of video over the internet and more recently on mobile devices. While many of our competitors have attempted
to incorporate video capabilities into their respective CRM platforms, none of them utilizes interactive video technology
similar to that of notifiCRM. In addition, notifiCRM videos are viewable on both mobile and desktop devices regardless of
operating system and without the need to download a proprietary player or program.
The
market in which we operate is intensely competitive and, if we do not compete effectively, our operating results could be harmed.
The market for CRM applications
is intensely competitive and rapidly changing, barriers to entry are relatively low, many of our competitors are larger and have
more resources than we do, and , with the introduction of new technologies and market entrants, we expect competition to
intensify in the future. If we fail to compete effectively, our operating results will be harmed.
Notwithstanding the competitive
edge that we believe notifiCRM provides, many of our competitors enjoy other substantial competitive advantages, such as greater
name recognition, longer operating histories, and larger marketing budgets, as well as substantially greater financial, technical,
and other resources. In addition, many of our potential competitors have established marketing relationships and access to larger
customer bases, and have major distribution agreements with consultants, system integrators, and resellers.
As a result, our competitors
may be able to respond more effectively than we can to new or changing opportunities, technologies, standards, or customer requirements.
Furthermore, because of these advantages, even if our products and service s are more effective than the products
and services that our competitors offer, potential customers might accept competitive products and services in lieu of
purchasing our products and service s . For all of these reasons, we may not be able to compete successfully against
our current and future competitors.
We
may not be able to increase the number of our partners or grow the revenues received from our current partnership relationships.
The
differences between notifiCRM and many of the larger, more established providers of CRM software may serve to highlight the reasons
we have chosen not only to develop our own stand - alone SaaS cloud CRM platform, but also to permit incorporation and integration
of our interactive video technology into third-party platforms. The enterprises that own or control those platforms can then offer
notifiCRM to their clients and customers as an upgrade feature. The implementation of this strategy is evidenced by the partnerships
we currently enjoy with Oracle/NetSuite and Marketo. There can be no assurance, however, that those relationships will result
in material revenues for us or that we will be able to generate any other meaningful partnerships.
We
may not be able to develop enhancements and new features to our existing service or acceptable new services that keep pace with
technological developments.
Even
though we believe that our notifiCRM is currently unsurpassed in its features and ease of use, technology invariably advances.
If we are unable to develop enhancements to, and new features for, notifiCRM that keep pace with rapid technological developments,
our business will be harmed. The success of enhancements, new features, and services depends on several factors, including the
timely completion, introduction, and market acceptance of the feature or edition. Failure in this regard may significantly impair
our revenue growth. We may not be successful in either developing these modifications and enhancements or in timely bringing them
to market at a competitive price or at all. Furthermore, notwithstanding that notifiCRM videos are currently viewable on both
mobile and desktop devices regardless of operating system, potential uncertainties about the timing and nature of new network
platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development
expenses. Any failure of our service to operate effectively with future network platforms and technologies could reduce the demand
for our service, result in customer dissatisfaction, and harm our business.
Our
ability to deliver our services is dependent on the maintenance of the infrastructure of the Internet by third parties.
The
Internet’s infrastructure is comprised of many different networks and services that, by design, are highly fragmented and
distributed. This infrastructure is run by a series of independent, third-party organizations that work together to provide the
infrastructure and supporting services of the Internet under the governance of the Internet Corporation for Assigned Numbers and
Names (ICANN) and the Internet Assigned Numbers Authority (IANA), which is now related to ICANN.
The
Internet has experienced, and will continue to experience, a variety of outages and other delays due to damages to portions of
its infrastructure, denial-of-service attacks, or related cyber incidents. These scenarios are not under our control and could
reduce the availability of the Internet to us or our customers for delivery of our services. Any resulting interruptions in our
services or the ability of our customers to access our services could result in a loss of potential or existing customers and
harm our business.
Security
breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and
reputation to suffer.
In
the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business
information and that of our customers, and personally identifiable information of our customers and employees. The secure processing,
maintenance, and transmission of this information is critical to our operations and business strategy. Despite our security measures,
our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance,
or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly
disclosed, lost, or stolen. Advanced attacks are multi-staged, unfold over time, and utilize a range of attack vectors with military-grade
cyber weapons and proven techniques , such as spear phishing and social engineering, leaving organizations and users at
high risk of being compromised. The vast majority of data breaches, whether conducted by a cyber attacker from inside or outside
of the organization, involve the misappropriation of digital identities and user credentials. These credentials are used to gain
legitimate access to sensitive systems and high-value personal and corporate data. Many large, well-known organizations have been
subject to cyber-attacks that exploited the identity vector, demonstrating that even organizations with significant resources
and security expertise have challenges securing their identities. Any such access, disclosure, or other loss of information could
result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties,
a disruption of our operations, damage to our reputation, or a loss of confidence in our business, any of which could adversely
affect our business, revenues, and competitive position.
Organizations
face growing regulatory and compliance requirements.
New
and evolving regulations and compliance standards for cyber security, data protection, privacy, and internal IT controls are often
created in response to the tide of cyber-attacks and will increasingly impact organizations. Existing regulatory standards require
that organizations implement internal controls for user access to applications and data. In addition, data breaches are driving
a new wave of regulation, such as the European Union’s General Data Protection Regulation, with stricter enforcement and
higher penalties. Regulatory and policy-driven obligations require expensive and time-consuming compliance measures. The fear
of non-compliance, failed audits, and material findings has pushed organizations to spend more to ensure they are in compliance,
often resulting in costly, one-off implementations to mitigate potential fines or reputational damage. The high costs associated
with failing to meet regulatory requirements, combined with the risk of fallout from security breaches, has elevated this topic
from the IT organization to the executive and board level.
Our
business is highly competitive and any failure to adapt to changing consumer preferences may adversely affect our business and
financial results.
We operate in a highly
competitive, consumer-driven, and rapidly changing environment. Our success will, to a large extent, be dependent on our ability
to acquire, develop, adopt, upgrade, and exploit new and existing technologies to address consumers’ changing demands and
distinguish our products and services from those of our competitors. We may not be able to accurately predict technological
trends or the success of new products and services. If we choose technologies or equipment that are less effective, cost-efficient,
or attractive to our customers than those chosen by our competitors, or if we offer products or services that fail to appeal
to consumers, are not available at competitive prices, or that do not function as expected, our competitive position could deteriorate,
and our business and financial results could suffer.
The ability of our competitors
to introduce new technologies, products, and services more quickly than we do may adversely affect our competitive position. Furthermore,
advances in technology, decreases in the cost of existing technologies, or changes in competitors’ product and service offerings
may require us in the future to increase research and development expenditures or to offer products and services at no
or a reduced additional charge or at a lower price. In addition, the uncertainty of our ability, and the costs, to obtain
intellectual property rights from third parties could impact our ability to respond to technological advances in a timely and
effective manner. If we are unable to compete with existing companies successfully and new entrants to the markets in
which we compete in, our business, results of operations, and financial condition could be adversely affected.
We
expect that the success of our business will be highly correlated to general economic conditions.
We
expect that demand for our products and services will be highly correlated with general economic conditions, as we expect a substantial
portion of our revenue will be derived from discretionary spending by individuals, which typically falls during times of economic
instability. Declines in economic conditions in the United States or in other countries in which we may operate may adversely
impact our financial results. Because such declines in demand are difficult to predict, we or our industry may have increased
excess capacity as a result. An increase in excess capacity may result in declines in prices for our products and services. Our
ability to grow or maintain our business may be adversely affected by sustained economic weakness and uncertainty, including the
effect of wavering consumer confidence, high unemployment, and other factors. The inability to grow or maintain our business would
adversely affect our business, financial conditions, and results of operations, and thereby an investment in our Common Stock.
We
do not currently have any patents to protect our technologies and thus, we may not gain market share from our competitors
and be unable to operate our business profitably.
Our success depends significantly on our
ability to protect our rights to the technologies used in our products and services . We recently filed a
patent application with the U.S. Patent and Trademark Office, or “PTO,” with respect to our interactive
video technology. Currently, we do not have any issued patents and we rely on copyright, trade secrets, and
nondisclosure, confidentiality and other contractual arrangements to protect our technology and intellectual property rights.
However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or
maintain any competitive advantage. In addition, we cannot be assured that our pending patent application , or any
future patent applications, will result in the issuance of a patent to us in a timely manner, or at all, or that
we will have the financial or operational resources successfully to prosecute any patents that we may undertake. The PTO, may
deny or require significant narrowing of claims in our currently pending or any future patent applications, and
patents issued as a result thereof , if any, may not provide us with significant commercial protection or be issued in
a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO. Our pending patent
application , and any future patent applications, may be challenged, which could reduce our ability to stop
competitors from marketing related technologies. There can also be no assurance that competitors will not be able to design
around any patents that may be issued to us in the future. In addition, we rely on unpatented proprietary technology. We
cannot assure you that we can meaningfully protect all our rights in our unpatented proprietary technology or that others
will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to
our unpatented proprietary technology.
We
seek to protect our know-how and other unpatented proprietary technology with confidentiality agreements and intellectual property
assignment agreements with our employees, our partners, independent distributors, and consultants. However, such agreements may
not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or
disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar
or identical designs or other proprietary information. We currently do not utilize any registered or common law trademarks to
protect or brand the name of any of our products.
Although
we believe that we have a proprietary platform for our technologies and products, we cannot determine with certainty whether any
existing third-party patents or the issuance of any third-party patents would require us to alter our technology,
obtain licenses , or cease certain activities. We may become subject to claims by third parties that our technology infringes
their intellectual property rights.
We
do not own any patents relating to our notifiCRM platform.
We
do not currently own any domestic or foreign patents relating to our notifiCRM platform, nor do we currently have any licenses
to use any third-party intellectual property. As such, if we are not successful in obtaining intellectual property rights covering
our products, or obtaining licenses to use a third-party’s intellectual property on reasonable and acceptable terms, it
could result in lawsuits against us for trademark and/or intellectual property infringement, and we may not be able to counterclaim
with our own infringement allegations. Any such infringement, litigation, or adverse proceeding could result in substantial costs
and diversion of resources and could seriously harm our business operations or results of operations.
If
we are unable to protect and enforce our intellectual property rights, we may be unable to compete effectively.
We
believe that our intellectual property rights are important to our success and our competitive position, and we rely on a combination
of copyright and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Although we have
devoted substantial resources to the establishment and protection of our intellectual property rights, the actions taken by us
may be inadequate to prevent imitation or improper use of our products and services by others or to prevent others from claiming
violations of their intellectual property rights by us. We also rely on confidentiality procedures and contractual provisions
with our employees, consultants, and corporate partners to protect our proprietary rights, but we cannot assure the compliance
by such parties with their confidentiality obligations, which could be very time consuming and expensive to enforce.
Legal
challenges to our intellectual property rights could adversely affect our financial results and operations.
We
rely on licenses and other agreements in respect of our intellectual property with our partners and other parties and other intellectual
property rights to conduct our operations. Legal challenges to our intellectual property rights and claims of intellectual property
infringement by third parties could require that we enter into royalty or licensing agreements on unfavorable terms, incur substantial
monetary liability, or be enjoined preliminarily or permanently from further use of the intellectual property in question or from
the continuation of our businesses as currently conducted. We may need to change our business practices if any of these events
occur, which may limit our ability to compete effectively and could have an adverse effect on our results of operations. Even
if we believe any such challenges or claims are without merit, they can be time-consuming and costly to defend and divert management’s
attention and resources away from our business.
Our
success depends, in part, on the capacity, reliability, and security of our information technology hardware and software infrastructure,
as well as our ability to adapt and expand our infrastructure.
The
capacity, reliability, and security of our information technology hardware and software infrastructure are important to the operation
of our current business, which would suffer in the event of system failures. Likewise, our ability to expand and update our information
technology infrastructure in response to our growth and changing needs is important to the continued implementation of our new
service offering initiatives. Our inability to expand or upgrade our technology infrastructure could have adverse consequences,
including the delayed provision of services or implementation of new service offerings, and the diversion of development resources.
We rely on third parties for various aspects of our hardware and software infrastructure. Third parties may experience errors
or disruptions that could adversely impact us and over which we may have limited control. Interruption and/or failure of any of
these systems could disrupt our operations and damage our reputation, thus adversely impacting our ability to provide our products
and services, retain our current users, and attract new users. In addition, our information technology hardware and software
infrastructure may be vulnerable to unauthorized access, misuse, computer viruses, or other events that could have a security
impact. If one or more of such events occur, our customer and other information processed and stored in, and transmitted through,
our information technology hardware and software infrastructure, or otherwise, could be compromised, which could result in significant
losses or reputational damage. We may be required to expend significant additional resources to modify our protective measures
or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses,
any of which could substantially harm our business and our results of operations.
We
are dependent on third parties to, among other things, maintain our servers, provide the bandwidth necessary to transmit content,
and utilize the content derived therefrom for the potential generation of revenues.
We
depend on third-party service providers, suppliers, and licensors to supply some of the services, hardware, software, and operational
support necessary to provide some of our products and services. Some of these third parties do not have a long operating history
or may not be able to continue to supply the equipment and services we desire in the future. If demand exceeds these vendors’
capacity, or if these vendors experience operating or financial difficulties or are otherwise unable to provide the equipment
or services we need in a timely manner, at our specifications and at reasonable prices, our ability to provide some products and
services might be materially adversely affected, or the need to procure or develop alternative sources of the affected materials
or services might delay our ability to serve our users. These events could materially and adversely affect our ability to retain
and attract users, and have a material negative impact on our operations, business, financial results, and financial condition.
We
may not be able to find suitable software developers at an acceptable cost.
We
currently rely on certain key suppliers and vendors in the coding and maintenance of our software. We will continue to require
such expertise in the future. Due to the current demand for skilled software developers, we run the risk of not being able to
find or retain suitable and qualified personnel at an acceptable price , or at all . Without these developers, we may not
be able to further develop and maintain our software, which is the most important aspect of our business development
Our
business may be affected by changing consumer preferences or by failure of the public to accept any new product offerings we may
pursue.
The
production and distribution of entertainment content is an inherently risky business because the revenue that may be derived depends
primarily on the content’s acceptance by the public, which is difficult to predict. Consumer and audience tastes change
frequently, and it is a challenge to anticipate what offerings will be successful at a certain point in time. In addition, competing
entertainment content, the availability of alternative forms of entertainment and leisure time activities, general economic conditions,
piracy, and increasing digital and on-demand distribution offerings may also affect the audience for our content. Our expenses
may increase as we invest in new programming ideas, and there is no guarantee that the new programming will be successful or generate
sufficient revenue to recoup the expenditures.
Our
future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.
Our
future success largely depends upon the continued services of our executive officers and management team, especially our Chief
Executive Officer and President, Mr. Rory J. Cutaia. If one or more of our executive officers are unable or unwilling to continue
in their present positions, we may not be able to replace them readily, if at all. Additionally, we may incur additional expenses
to recruit and retain new executive officers. If any of our executive officers joins a competitor or forms a competing company,
we may lose some or all of our customers. Finally, we do not maintain “key person” life insurance on any of our executive
officers. Because of these factors, the loss of the services of any of these key persons could adversely affect our business,
financial condition, and results of operations, and thereby an investment in our stock.
Our
continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need
to hire and retain additional personnel as our business grows. There can be no assurance that we will be able to attract or retain
highly qualified personnel. We face significant competition for skilled personnel in our industries. This competition may make
it more difficult and expensive to attract, hire, and retain qualified managers and employees. Because of these factors, we may
not be able to effectively manage or grow our business, which could adversely affect our financial condition or business. As a
result, the value of your investment could be significantly reduced or completely lost.
Risks
Related to an Investment in Our Securities
Our
board of directors is authorized to issue additional shares of our Common Stock that would dilute existing stockholders.
We
are authorized to issue up to 200,000,000 shares of Common Stock and 15,000,000 shares of preferred stock, par value $0.0001 per
share, of which 1 80,832,359 shares of Common Stock and no shares of preferred stock are currently issued and outstanding
as of December 7, 2018. The number of shares of Common Stock issued and outstanding as of December 7, 2018 excludes
35,584,605 shares of Common Stock issuable upon exercise of stock options, 4,554,047 shares of Common Stock reserved
for issuance under the Plan, 14,552,038 shares of Common Stock issuable upon the exercise of all outstanding warrants,
and 5,603,706 shares of Common Stock issuable upon the conversion of all outstanding convertible notes. We expect to seek
additional financing in order to provide working capital to our business. Our board of directors has the power to issue any or
all of such authorized but unissued shares of our Common Stock at any price and, in respect of the preferred stock,
at any price and with any attributes, our board of directors consider s sufficient, without stockholder approval. The
issuance of additional shares of Common Stock in the future will reduce the proportionate ownership and voting power of current
stockholders and may negatively impact the market price of our Common Stock.
Purchasers
in this offering will experience immediate and substantial dilution in the book value of their investment.
The public offering price of our Common Stock will be substantially higher than the pro forma net tangible book value per
share of our Common Stock outstanding immediately following the completion of this offering. Therefore, if you purchase shares
of Common Stock in this offering at an assumed public offering price of $________ per share, you will experience immediate dilution
of $______ per share, the difference between the price per share you pay for our Common Stock and its pro forma net tangible book
value per share as of ______, 2018, after giving effect to the issuance of shares of Common Stock in this offering. This dilution
is due in large part to the fact that our earlier investors paid substantially less than the public offering price when
they purchased shares of Common Stock.
In
addition, as of December 7, 2018, we have 14,552,038 shares of Common Stock issuable upon the exercise of
all outstanding warrants, 5,603,706 shares of Common Stock issuable upon the conversion of all outstanding convertible
notes, and 35,584,605 shares of Common Stock issuable upon the exercise of all outstanding stock options. The exercise
or conversion prices to acquire Common Stock upon the exercise or conversion of warrants, notes, or options, are at prices significantly
below the public offering price. To the extent outstanding warrants, options, or notes are ultimately exercised or converted,
there will be further dilution to investors purchasing our Common Stock in this offering. In addition, if we issue additional
equity securities, there is a vesting of employee stock grants, or there are any exercises of future stock options, you will experience
additional dilution. Our board of directors has the power to issue any or all of such authorized but unissued shares at any price
they consider sufficient, without stockholder approval. The issuance of additional shares of Common Stock in the future will reduce
the proportionate ownership and voting power of current stockholders, and may negatively impact the market price of our Common
Stock.
We
may issue additional securities with rights superior to those of our Common Stock, which could materially limit the ownership
rights of our stockholders.
We
may offer additional debt or equity securities in private and/or public offerings in order to raise working capital or to refinance
our debt. Our board of directors has the right to determine the terms and rights of any debt securities and preferred stock without
obtaining the approval of our stockholders. It is possible that any debt securities or preferred stock that we sell would have
terms and rights superior to those of our Common Stock and may be convertible into shares of our Common Stock. Any sale of securities
could adversely affect the interests or voting rights of the holders of our Common Stock, result in substantial dilution to existing
stockholders, or adversely affect the market price of our Common Stock.
Trading
on the OTCQB may be volatile and sporadic, which could depress the market price of our Common Stock and make it difficult for
our stockholders to resell their shares.
Our
Common Stock is quoted on the OTCQB. Trading in stock quoted on over-the-counter markets is often thin and characterized by wide
fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This
volatility could depress the market price of our Common Stock for reasons unrelated to operating performance. Moreover, the OTCQB
is not a stock exchange, and trading of securities on this market is often more sporadic than the trading of securities listed
on a national securities exchange , like NASDAQ or the NYSE. Accordingly, stockholders may have difficulty reselling any
of our shares.
We have applied for listing of our
Common Stock on NASDAQ. We can provide no assurance that our Common Stock will qualify to be listed, and, if listed, that our
Common Stock will thereafter always meet NASDAQ continued listing standards.
Our Common Stock is
currently quoted on the OTCQB. We anticipate that our Common Stock will be eligible to be listed on NASDAQ following this offering;
however, we can provide no assurance that our application will be approved, and that an active trading market on NASDAQ for our
Common Stock will develop and continue. If our Common Stock remains quoted on or reverts to an over-the-counter system rather
than being listed on a national securities exchange, you may find it more difficult to dispose of shares of our Common Stock or
obtain accurate quotations as to the market value of ourCommon Stock.
If
NASDAQ approves our application to list our Common Stock and we are not able to comply with the applicable continued listing standards of NASDAQ, NASDAQ could delist our Common Stock.
In
conjunction with this offering, we have applied to list our Common Stock on NASDAQ. There is no assurance that our
Common Stock will ever be listed on NASDAQ. Should our Common Stock be listed on NASDAQ, in order to maintain that listing,
we must satisfy minimum financial and other continued listing standards, including those regarding director independence and independent
committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.
There can be no assurances that we will be able to comply with such applicable continued listing standards.
The
market price of our Common Stock has been, and may continue to be, subject to substantial volatility.
The
market price of our Common Stock may fluctuate significantly in response to numerous factors, many of which are beyond our control,
including;
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trading of our Common Stock;
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or anticipated fluctuations in our results of operations;
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the
financial projections we may provide to the public, any changes in th o se projections, or our failure to meet th o se
projections;
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announcements
regarding our business or the business of our customers or competitors;
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changes
in accounting standards, policies, guidelines, interpretations, or principles;
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or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
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developments
or disputes concerning our intellectual property or our offerings, or third-party proprietary rights;
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or completed acquisitions of businesses or technologies by us or our competitors;
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new
laws or regulations or new interpretations of existing laws or regulations applicable to our business;
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major change in our board of directors or management;
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sales
of shares of our Common Stock by us or by our stockholders;
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lawsuits
threatened or filed against us; and
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other
events or factors, including those resulting from war, incidents of terrorism, or responses to these events.
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Statements of, or changes
in, opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we
operate or expect to operate could have an adverse effect on the market price of our Common Stock. In addition, the stock market
as a whole, as well as our particular market segment, ha s from time to time experienced extreme price and volume fluctuations,
which may affect the market price for the securities of many companies, and which often have appeared unrelated to the operating
performance of such companies. Any of these factors could negatively affect our stockholders’ ability to sell their shares
of Common Stock at the time and price they desire.
A decline in the price of our Common
Stock could affect our ability to raise further working capital, which could adversely impact our ability to continue our operations.
A prolonged decline
in the price of our Common Stock could result in a reduction in the liquidity of our Common Stock and a reduction in our ability
to raise capital. We may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations
through the sale of equity securities; thus, a decline in the price of our Common Stock could be detrimental to our liquidity
and our operations because the decline may adversely affect investors’ desire to invest in our securities. If we are unable
to raise the funds we require for all of our planned operations, we may be forced to reallocate funds from other planned uses
and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products
or services and continue our current operations. As a result, our business may suffer, and we may be forced to reduce or
discontinue operations. We also might not be able to meet our financial obligations if we cannot raise enough funds through the
sale of our Common Stock and we may be forced to reduce or discontinue operations.
Because we do not intend to pay any
cash dividends on our shares of Common Stock in the near future, our stockholders will not be able to receive a return on their
shares unless and until they sell them.
We intend to retain
any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on
our Common Stock in the near future. The declaration, payment, and amount of any future dividends will be made at the discretion
of our board of directors, and will depend upon, among other things, the results of operations, cash flows, and financial
condition, operating and capital requirements, and other factors as our board of directors considers relevant. There is
no assurance that future dividends will be paid, and , if dividends are paid, there is no assurance with respect to the
amount of any such dividend. Unless our board of directors determines to pay dividends, our stockholders will be required to look
to appreciation of our Common Stock to realize a gain on their investment. There can be no assurance that this appreciation will
occur.
If we are unable to establish appropriate
internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the
restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors
to lose confidence in our reported financial information, and have a negative effect on the market price for shares of our Common
Stock.
Effective internal controls
are necessary for us to provide reliable financial reports and effectively to prevent fraud. We maintain a system of internal
control s over financial reporting, which is defined as a process designed by, or under the supervision of, our principal
executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors,
management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”).
As a public company,
we have significant requirements for enhanced financial reporting and internal controls. We are required to document and test our
internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires
annual management assessments of the effectiveness of our internal controls over financial reporting. The process of designing
and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our
business and economic and regulatory environments, and to expend significant resources to maintain a system of internal controls
that is adequate to satisfy our reporting obligations as a public company.
We
cannot assure you that we will, in the future, identify areas requiring improvement in our internal control over financial reporting.
We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we
will implement and maintain adequate controls over our financial processes and reporting in the future as we continue to grow.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet
our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory
scrutiny and sanction, cause investors to lose confidence in our reported financial information, and have a negative effect on
the market price for shares of our Common Stock.
We lack sufficient internal controls
over financial reporting and implementing acceptable internal controls will be difficult with a limited number of directors
and management personnel , which will make it difficult to ensure that information required to be disclosed in our reports
filed and submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed,
summarized, and reported as and when required.
As of the date of
this filing, we currently lack certain internal controls over our financial reporting. While we have recently appointed
two independent directors to our board of directors, one of whom was appointed to chair our audit committee, have hired
a new Chief Technology Officer, and have identified and extended an offer of employment to an experienced
controller, we still have a limited number of directors and management personnel, which may make it difficult to implement such
controls at this time. The lack of such controls makes it difficult to ensure that information required to be disclosed in our
reports filed and submitted under the Exchange Act is recorded, processed, summarized, and reported as and when required.
The
reason s we believe that our disclosure controls and procedures are not fully effective are because:
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there
is a lack of segregation of duties necessary for a good system of internal control due , to insufficient accounting
staff due to our size;
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the
staffing of our accounting department is weak due to the lack of qualifications and training, and the lack of formal review
process;
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our
control environment is weak due to the lack of an effective risk assessment process, the lack of internal audit function ,
and insufficient documentation and communication of the accounting policies; and
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failure
in the operating effectiveness over controls related to recording revenue.
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We
cannot assure you that we will be able to develop and implement the necessary internal controls over financial reporting. The
absence of such internal controls may inhibit investors from purchasing our shares and may make it more difficult for us to raise
debt or equity financing.
Because
our directors and executive officers are among our largest stockholders, they can exert significant control over our business
and affairs and have actual or potential interests that may depart from those of investors.
Certain
of our directors and executive officers own a significant percentage of our outstanding capital stock. We estimate
that our executive officers and directors and their respective affiliates beneficially own approximately 3 5 .4% of our outstanding
voting stock, on a fully-diluted basis, as of December 7, 2018, and, following the completion of this offering, such persons
would beneficially own approximately _______% of our outstanding voting stock, on a fully-diluted basis, assuming that we issued
_______shares in this offering and that the number of shares outstanding as of December 7, 2018 remains unchanged. The
holdings of our directors and executive officers may increase further in the future upon vesting or other maturation of exercise
rights under any of the options or warrants they may hold or in the future be granted, or if they otherwise acquire additional
shares of our Common Stock. The interests of such persons may differ from the interests of our other stockholders. As a result,
in addition to their board seats and offices, such persons will have significant influence and control over all corporate actions
requiring stockholder approval, irrespective of how our other stockholders may vote, including the following actions:
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to
elect or defeat the election of our directors;
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to
amend or prevent an amendment to our Articles of Incorporation (“Articles of Incorporation”) or Bylaws (“Bylaws”);
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to
effect or prevent a merger, sale of assets, or other corporate transaction; and
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to
control the outcome of any other matter submitted to our stockholders for a vote.
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This
concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover, or other business consolidation,
or discouraging a potential acquirer from making a tender offer for our Common Stock, which in turn could reduce our stock price
or prevent our stockholders from realizing a premium over our stock price.
Our
Common Stock is categorized as “penny stock,” which may make it more difficult for investors to sell their shares
of Common Stock due to suitability requirements.
Our
Common Stock is categorized as “penny stock.” The SEC adopted Rule 15g-9, which generally defines “penny stock”
to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00
per share , subject to certain exceptions. The price of our Common Stock is significantly less than $5.00 per share and
we do not qualify for any of the other exceptions; therefore , our Common Stock is considered “penny stock.”
This designation imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers
and “accredited investors”. The term “accredited investor” refers generally to institutions with assets
in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
jointly with his or her spouse. The penny stock rules require a broker-dealer buying our securities, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by
the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the
customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be
given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before
or with the customer’s confirmation. In addition, the penny stock rules require that , prior to a transaction in a
penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that
is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability and/or willingness of broker-dealers
to trade our securities, either directly or on behalf of their clients, may discourage potential investor’s from purchasing
our securities, or may adversely affect the ability of our stockholders to sell their shares.
The
Financial Industry Regulatory Authority, Inc. (“FINRA”), has adopted sales practice requirements that may also limit
a stockholder’s ability to buy and sell our Common Stock, which could depress the price of our Common Stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that, in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced
securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our Common Stock, have an
adverse effect on the market for our shares, and thereby depress our price per share of Common Stock.
The
elimination of monetary liability against our directors, officers, and employees under Nevada law and the existence of indemnification
rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage
lawsuits against our directors, officers, and employees.
Our
Articles of Incorporation and Bylaws contain provisions permitting us to eliminate the personal liability of our directors and
officers to us and our stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided
by Nevada law. We may also have contractual indemnification obligations under any future employment agreements with our officers.
The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement
or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may
also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly
discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions,
if successful, might otherwise benefit us and our stockholders.
Anti-takeover
effects of certain provisions of Nevada state law hinder a potential takeover of us.
Nevada has a business
combination law that prohibits certain business combinations between Nevada corporations and “interested stockholders”
for three years after an “interested stockholder” first becomes an “interested stockholder,” unless the
corporation’s board of directors approves the combination in advance. For purposes of Nevada law, an “interested stockholder”
is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding
voting shares of the corporation or (ii) an affiliate or associate of the corporation and at any time within the three previous
years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then - outstanding
shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually
any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition
or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The potential
effect of Nevada’s business combination law is to discourage parties interested in taking control of us from doing
so if these parties cannot obtain the approval of our board of directors. Both of these provisions could limit the price
investors would be willing to pay in the future for shares of our Common Stock.
Risks
Related to the Proposed Sound Concepts Acquisition
If we fail to raise sufficient net
proceeds from this offering to fund the Acquisition Cash Payment, and cannot obtain alternative sources of financing, we will
be unable to consummate the Sound Concepts Acquisition.
If we are
unable to raise sufficient funds from this offering, we will need to seek alternative sources of financing to fund the Acquisition Cash Payment. We may not be
able to obtain alternative sources of financing sufficient to fund the Acquisition Cash Payment on terms acceptable to us, if
at all. If we are unable to obtain sufficient financing, we will be unable to consummate the Sound Concepts Acquisition. In
such event, we may terminate the Merger Agreement pursuant to its terms. See “The Proposed Sound Concepts
Acquisition,” below.
Cash
expenditures associated with the Sound Concepts Acquisition may create significant liquidity and cash flow risks for us.
We
expect to incur significant transaction costs and some integration costs in connection with the proposed Sound Concepts Acquisition.
While we have assumed that this level of expense will be incurred, there are many factors beyond our control that could affect
the total amount or the timing of the Sound Concepts Acquisition and integration expenses. Moreover, many of the expenses that
will be incurred are, by their nature, difficult to estimate accurately. To the extent these Sound Concepts Acquisition and integration
expenses are higher than anticipated, we may experience liquidity or cash flow issues.
Failure
to complete the proposed Sound Concepts Acquisition could materially and adversely affect our results of operations and the market
price of our Common Stock.
Our
consummation of the proposed Sound Concepts Acquisition is subject to many contingences and conditions, including the preparation
of audited and unaudited financial statements for Sound Concepts, the negotiation, execution, and delivery of the definitive agreements
necessary to consummate the Sound Concepts Acquisition, and raising the financing required to pay the Acquisition Cash Payment.
We cannot assure you that we will be able to successfully consummate the proposed Sound Concepts Acquisition as currently contemplated
or at all. Risks related to the failure of the proposed Sound Concepts Acquisition to be consummated include, but are not limited
to, the following:
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we
would not realize any of the potential benefits of the transaction, which could have a negative effect on our stock price;
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we
expect to incur , and have incurred, significant fees and expenses regardless of whether the proposed Sound Concepts
Acquisition is consummated, including due diligence fees and expenses, accounting fees in connection with the preparation
of Sound Concepts’ financial statements, and legal fees and expenses;
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we
may experience negative reactions to the proposed Sound Concepts Acquisition from customers, clients, business partners, lenders,
and employees;
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the
trading price of our Common Stock may decline to the extent that the current market price of our stock reflects a market assumption
that the Sound Concepts Acquisition will be completed; and
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the
attention of our management may be diverted to the Sound Concepts Acquisition rather than to our own operations and the pursuit
of other opportunities that could have been beneficial to us.
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The
occurrence of any of these events individually or in combination could materially and adversely affect our results of operations
and the market price of our C ommon S tock.
If
the Sound Concepts Acquisition is consummated, the combined company may not perform as we or the market expects, which could have
an adverse effect on the price of our Common Stock.
Even
if the Sound Concepts Acquisition is consummated, the combined company may not perform as we or the market expects. Risks associated
with the combined company following the Sound Concepts Acquisition include:
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integrating
businesses is a difficult, expensive, and time-consuming process, and the failure to integrate successfully our businesses
with the business of Sound Concepts in the expected time frame would adversely affect our financial condition and results
of operation;
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the
Sound Concepts Acquisition will materially increase the size of our operations, and , if we are not able to manage our
expanded operations effectively, our Common Stock price may be adversely affected;
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it
is possible that our key employees or key employees of Sound Concepts might decide not to remain with us after the Sound Concepts
Acquisition is completed, and the loss of such personnel could have a material adverse effect on the financial condition,
results of operations, and growth prospects of the combined company;
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the
success of the combined company will also depend upon relationships with third parties and Sound Concepts’ or our pre-existing
customers, which relationships may be affected by customer preferences or public attitudes about the Sound Concepts Acquisition.
Any adverse changes in these relationships could adversely affect the combined company’s business, financial condition,
and results of operations; and
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if
government agencies or regulatory bodies impose requirements, limitations, costs, divestitures, or restrictions on the consummation
of the Sound Concepts Acquisition, the combined company’s ability to realize the anticipated benefits of the Sound Concepts
Acquisition may be impaired.
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The
obligations and liabilities of Sound Concepts, some of which may be unanticipated or unknown, may be greater than we have anticipated,
which may diminish the value of Sound Concepts to us.
Sound
Concepts’ obligations and liabilities, some of which may not have been disclosed to us or may not be reflected or reserved
for in Sound Concepts’ historical financial statements, may be greater than we have anticipated. The obligations and liabilities
of Sound Concepts could have a material adverse effect on Sound Concepts’ business or Sound Concepts’ value to us
or on our business, financial condition, or results of operations. Even in cases where we are able to obtain indemnification,
we may discover liabilities greater than the contractual limits or the financial resources of the indemnifying party. In the event
that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or
alternative remedies that might be available to us, or any applicable insurance, we could suffer severe consequences that would
substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition,
or results of operations.
You will not be entitled to protections
normally afforded to investors of blank check companies.
Even though one of
the uses of the net proceeds of this offering is to complete the Sound Concepts Acquisition, we are not deemed to be a “blank
check” company under the United States securities laws. Accordingly, we are not subject to Rule 419 promulgated under the
Securities Act. You will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings, which
would, for example, completely restrict the transferability of our securities, require us to complete the Sound Concepts Acquisition
within 18 months from the effective date of this prospectus, and restrict the use of interest earned on the funds held in a trust
account. Because we are not subject to Rule 419, our shares of Common Stock offered by this prospectus will be immediately tradable,
the net proceeds of this offering will not be held in escrow pending consummation of the Sound Concepts Acquisition, and we will
have immediate access to the net proceeds of this offering, whether the Sound Concepts Acquisition is consummated.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are not
historical facts but rather are plans and predictions based on current expectations, estimates, and projections about our industry,
our beliefs, and assumptions. We use words such as “may,” “will,” “could,” “should,”
“anticipate,” “expect,” “intend,” “project,” “plan,” “believe,”
“seek,” “estimate,” “assume,” and variations of these words and similar expressions to identify
forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties,
and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in
the section above entitled “Risk Factors.” You should not place undue reliance on these forward-looking statements
because the matters they describe are subject to certain risks, uncertainties, and assumptions that are difficult to predict.
Our forward-looking statements are based on the information currently available to us and speak only as of the date on the front
cover of this prospectus. Over time, our actual results, performance, or achievements may differ from those expressed or implied
by our forward-looking statements, and such difference might be significant and materially adverse to our security holders. Except
as required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information,
future events, or otherwise. We have identified some of the important factors that could cause future events to differ from our
current expectations and they are described in this prospectus under the captions “Risk Factors,” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and as well as in our most recent Annual Report
on Form 10-K, Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, and in other documents that we may
file with the SEC, all of which you should review carefully. Please consider our forward-looking statements in light of those
risks as you read this prospectus.
USE
OF PROCEEDS
We
estimate that the net proceeds from our issuance and sale of shares of our Common Stock in this offering will be approximately
$ million, or approximately $ million
if the Underwriter exercises its over-allotment option in full, assuming an offering price of $ per
share, the last reported sale price of our Common Stock as quoted on the OTCQB on ,
2018, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
A
$ increase or decrease in the assumed offering price of $ per
share of our Common Stock (which was the last reported sale price per share of our Common Stock on ,
2018) would increase or decrease, respectively, the net proceeds to us by approximately $ .
A n increase or decrease in the assumed number of shares sold in this offering would increase or decrease, respectively,
the net proceeds to us by approximately $ .
We
currently intend to use a portion of the net proceeds from the sale of our Common Stock under this prospectus to
provide funds for all, or a portion of, the Acquisition Cash Payment, as well as to pay transaction expenses and integration
costs in connection with the Sound Concepts Acquisition and related transactions.
We entered into the
Merger Agreement, by and among Sound Concepts, Merger Sub 1, Merger Sub 2, the Sound Concepts Shareholders, the Shareholder Representative,
and us, pursuant to which we will acquire Sound Concepts through a two-step Merger, consisting of merging Merger 1 Sub with and
into Sound Concepts, with Sound Concepts surviving the “first step” of the Merger as our wholly-owned subsidiary (and
the separate corporate existence of Merger Sub 1 will cease) and, immediately thereafter, merging Sound Concepts with and into
Merger Sub 2, with Merger Sub 2 surviving the “second step” of the Merger such that upon the conclusion of the “second
step” of the Merger, the separate corporate existence of Sound Concepts will cease and Merger Sub 2 will continue its limited
liability company existence under Utah law as the surviving entity and as our wholly-owned subsidiary. We will pay the Closing
Merger Consideration of $25,000,000 in a combination of the $15,000,000 Acquisition Cash Payment and the issuance of the Acquisition
Stock with a fair market value of $10,000,000. We intend to use a portion of the net proceeds from this offering to fund the Acquisition
Cash Payment. In addition to customary closing conditions, our obligation to complete the Sound Concepts Acquisition is conditioned
upon the consummation of this offering and receipt by us of offering proceeds that will be used to pay for all or a portion of
the Acquisition Cash Payment (the “Offering Condition”). In the event that any of the closing conditions, including
the Offering Condition, are not met, or it becomes apparent that any of such conditions will not be fulfilled by February 28,
2019, we may terminate the Merger Agreement. For additional information regarding the proposed Sound Concepts Acquisition
and terms of the Merger Agreement, see “The Proposed Sound Concepts Acquisition” below.
We intend to fund
the Acquisition Cash Payment with a portion of the net proceeds from the offering of shares of our Common Stock under this prospectus.
We do not know at this time how much of the Acquisition Cash Payment will be funded through the net proceeds of this offering.
There are several variables that could affect the amount of net proceeds we will receive from this offering, including the price
at which the shares of our Common Stock will be sold under this offering, the number of shares of our Common Stock that are likely
to be sold, and the anticipated transaction expenses and integration costs we expect to incur in connection with the Sound Concepts
Acquisition. In the event that the net proceeds from the offering of shares of our Common Stock under this prospectus are insufficient,
we will need to seek additional financing from a third-party lender; however, there is no assurance that such debt financing will
be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. If we are unable to obtain alternative
sources of financing sufficient to pay the Acquisition Cash Payment, we will be unable to consummate the Sound Concepts Acquisition
and will either (i) terminate the Merger Agreement or (ii) attempt to negotiate with Sound Concepts an amendment to the terms
of the Merger Agreement; however, there is no assurance that we will be successful in such negotiations, or that the terms will
be deemed acceptable to us.
In
the event that we have proceeds remaining after payment of the Acquisition Cash Payment and associated transaction expenses and
integration costs, which is currently anticipated, we intend to use the proceeds:
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To provide additional
funding as required for our pre-closing integration activities in connection with the Sound Concepts Acquisition;
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To fund the ongoing
costs associated with the integration of our software with the Salesforce.com, Inc., platform;
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To fund the ongoing
costs associated with the integration of our software with Microsoft Outlook, Microsoft Dynamics, and the Microsoft Office
365 platform, among other ongoing initiatives with Microsoft Corporation;
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To fund the ongoing
costs associated with the integration of our software with the Odoo platform;
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To fund our ongoing
development costs associated with the adaption of our notifiMED product for certain clinical trial initiatives;
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To fund our ongoing
development costs associated with the development and adaptation of our notifiLIVE for Facebook Live and Instagram users;
and
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To fund our general
corporate working capital needs, including the costs of additional staff to facilitate the foregoing initiatives.
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Our
expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition,
which could change in the future as our plans and business conditions evolve. As of the date of this prospectus, we cannot specify
with certainty all of the particular uses of the proceeds from this offering. Accordingly, we will retain broad discretion over
the use of such proceeds.
MARKET
PRICE AND DIVIDEND INFORMATION
Market
Information
Our
Common Stock is quoted on the OTCQB under the symbol “FUSZ.”
Set
forth below are the range of high and low closing bid prices for the periods indicated as reported by the OTC Markets Group Inc.
The market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commissions and may not necessarily represent
actual transactions.
Quarter
Ended
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High
Closing Bid Price Per
Share
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Low
Closing Bid Price Per
Share
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December
31, 2018
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$
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0.51
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(1)
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$
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0.17
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(1)
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September
30, 2018
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$
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0. 76
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$
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0. 374
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June
30, 2018
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$
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3.04
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$
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0.45
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March
31, 2018
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$
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2.10
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$
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0.08
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December
31, 2017
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$
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0.14
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$
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0.08
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September
30, 2017
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$
|
0.23
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$
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0.07
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June
30, 2017
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$
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0.51
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$
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0.09
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March
31, 2017
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$
|
0.16
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$
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0.07
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December
31, 2016
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$
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0.17
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$
|
0.05
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September
30, 2016
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|
$
|
0.20
|
|
|
$
|
0.08
|
|
June
30, 2016
|
|
$
|
0.18
|
|
|
$
|
0.05
|
|
March
31, 2016
|
|
$
|
0.10
|
|
|
$
|
0.03
|
|
(1)
Through December 7, 2018.
On
December 7, 2018, the closing bid price of our Common Stock as reported by the OTCQB was $0. 3799 per share. As of
December 7, 2018, there were approximately 84 holders of record of our Common Stock. As of such date, 1 80,832,359
shares of our Common Stock were issued and outstanding.
Dividends
We
have never declared or paid dividends. We do not intend to pay cash dividends on our Common Stock for the foreseeable future,
but currently intend to retain any future earnings to fund the development and growth of our business. The payment of dividends,
if any, on our Common Stock will rest solely within the discretion of our board of directors and will depend, among other things,
upon our earnings, capital requirements, financial condition, and other relevant factors. The Nevada Revised Statutes (the “NRS”),
however, prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:
|
●
|
we
would not be able to pay our debts as they become due in the usual course of business; or
|
|
|
|
|
●
|
our
total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights
of stockholders who have preferential rights superior to those receiving the distribution, unless otherwise permitted under
our Articles of Incorporation.
|
CAPITALIZATION
The
following table sets forth our capitalization assumed as of September 30, 2018 on an actual basis and on an as adjusted
basis to reflect our sale of shares of our Common Stock (assuming
no exercise of the Underwriter ’ s over-allotment option or exercise of the Underwriter’s warrants ) in
this offering at the assumed offering price of $ per share of our
Common Stock (which was the closing price per share of our Common Stock on ),
after deducting estimated Underwriter ’ s discounts and commissions and offering expenses payable by us, and the application
of the net proceeds from our sale of shares of our Common Stock in this offering.
You should read this
information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations
– nFüsz ” and our financial statements and the related notes appearing elsewhere in this prospectus.
|
|
As
of September 30, 2018
(unaudited)
|
|
|
|
Actual
|
|
|
As
adjusted
|
|
Cash
and cash equivalents
|
|
$
|
379,461
|
|
|
$
|
|
|
Total
Current Liabilities
|
|
$
|
2,056,095
|
|
|
$
|
|
|
Stockholder’s
Equity
|
|
|
|
|
|
|
|
|
Common Stock,
par value $0.0001 per share (200,000,000 shares authorized; 175,176,248 shares issued and outstanding, actual; shares
issued and outstanding, as adjusted)
|
|
$
|
17,518
|
|
|
$
|
|
|
Additional
paid-in capital
|
|
$
|
34,431,536
|
|
|
$
|
|
|
Accumulated
deficit
|
|
$
|
(36,732,476
|
)
|
|
$
|
|
|
Total
Stockholders’ Deficit
|
|
$
|
(2,283,422
|
)
|
|
$
|
|
|
Total
Capitalization
|
|
$
|
(
227,327
|
)
|
|
$
|
|
|
The
number of shares of our Common Stock outstanding used for existing stockholders is based on 175,176,248 shares of our Common
Stock outstanding as of September 30, 2018 and excludes as of such date: (i) 33,984,605 shares of our Common
Stock underlying outstanding stock options; (ii) 4,554,047 shares of our Common Stock reserved for issuance under
the Plan; and (iii) 19,152,038 shares of our Common Stock issuable upon the exercise of the outstanding warrants .
A
$ increase or decrease in the assumed offering price of $
per share of our Common Stock (which was the closing price per share of our Common Stock on )
would increase or decrease, respectively, each of additional paid-in capital, total stockholder’ equity, and total capitalization
by approximately $ million, assuming that the assumed offering of shares
of our Common Stock remains the same and after deducting the underwriting discounts and commissions.
DILUTION
If
you invest in our Common Stock in this offering, your ownership interest will be diluted immediately to the extent of the difference
between the public offering price per share of our Common Stock and the as-adjusted net tangible book value per share of our Common
Stock after this offering.
Our
historical net tangible book deficit as of September 30, 2018 was ($2,412,000) , or approximately ($0.014)
per share of our Common Stock. Historical net tangible book deficit per share represents the amount of our total tangible assets
less total liabilities, divided by the number of shares of our Common Stock outstanding as of September 30, 2018.
After
giving effect to the issuance and sale of shares of our Common Stock in
this offering at an assumed public offering price of $ per share, the last
reported sale price of our Common Stock on the OTCQB on , 2018, and after
deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible
book value/deficit as of September 30, 2018 would have been $ million,
or $ per share. This represents an immediate decrease in net tangible book
deficit/value per share of $ to existing stockholders and immediate dilution
of $ per share to new investors purchasing Common Stock in this offering.
Dilution per share to new investors is determined by subtracting as adjusted net tangible book value per share after this offering
from the public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:
|
|
(unaudited)
|
|
Assumed
public offering price per share of our Common Stock
|
|
$
|
|
|
|
|
|
|
Pro
forma net tangible book deficit per share as of September 30, 2018, before this offering
|
|
$
|
(0.014
|
)
|
|
|
|
|
Increase
in pro forma net tangible book value per share attributable to new investors
|
|
$
|
|
|
|
|
|
|
Pro
forma net tangible book value per share as of September 30, 2018, after this offering
|
|
|
|
|
|
$
|
|
|
Dilution
per share to investors in this offering
|
|
|
|
|
|
$
|
|
|
Each
$ increase (decrease) in the assumed public offering price of $
per share, the last reported sale price of our Common Stock on the OTCQB on ,
2018, would increase (decrease) our as adjusted net tangible book value per share after this offering by approximately $
million, and the dilution per share to new investors purchasing shares in this offering by $ ,
assuming the number of shares offered by us, as set forth on the front cover of this prospectus, remains the same
and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase
or decrease the number of shares to be issued in this offering. Each increase (decrease) of shares offered by us would (increase)
decrease our net tangible book value per share by $ and the dilution per
share to new investors purchasing shares in this offering by $ assuming
that the assumed public offering price remains the same, and after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
If
the Underwriter exercises its over-allotment option to purchase additional shares in full, the net tangible book value per share
after this offering would be $ per share, the increase in net tangible book
value per share to existing stockholders would be $ per share, and the dilution
to new investors purchasing shares in this offering would be $ per share.
The
information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms
of this offering as determined between us and the Underwriter at pricing.
The
number of shares of our Common Stock shown above to be outstanding after this offering is based on 175,176,248 shares
outstanding as of September 30, 2018 and excludes:
|
●
|
33,984,605
shares of our Common Stock issuable upon exercise
of outstanding stock options as of September 30, 2018, with a weighted-average exercise price $0. 26 per share;
|
|
|
|
|
●
|
4,554,047
shares of our Common Stock reserved for issuance
under the Plan; and
|
|
|
|
|
●
|
19,152,038
shares of our Common Stock issuable upon the exercise
of warrants outstanding as of September 30, 2018, with a weighted-average exercise price of $0. 22 per share .
|
To
the extent that these outstanding options or warrants are exercised, or we issue additional shares of our Common Stock
in the future, whether pursuant to the Plan or otherwise, there will be further dilution to investors participating in this offering.
In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe
that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity
or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
BUSINESS
Overview
CMG
was organized as a limited liability company under the laws of the State of Nevada on December 12, 2012. On May 19, 2014, bBooth,
Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG merged into bBooth, Inc. and bBooth, Inc., thereafter,
changed its name to bBooth (USA), Inc., effective as of October 16, 2014. The operations of CMG and bBooth (USA), Inc. ,
became known as, and are referred to in this prospectus as, “bBoothUSA.”
On
October 16, 2014, bBoothUSA was acquired by GSD, pursuant to the Share Exchange Agreement entered into with GSD. GSD was incorporated
in the S tate of Nevada on November 27, 2012. The acquisition was accounted for as a reverse merger transaction. In connection
with the closing of the transactions contemplated by the Share Exchange Agreement, GSD’s management was replaced by bBoothUSA’s
management, and GSD changed its name to bBooth, Inc.
Effective April 21,
2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary
short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with
and into us. We were the surviving entity. To effectuate the name-change merger, we filed Articles of Merger and a Certificate
of Correction (relative to the effective date of the name-change merger) with the Secretary of State of the State of Nevada on
April 4, 2017 and April 17, 2017, respectively. The name- merger became effective on April 21, 2017. Our board of directors
approved the name- merger, which resulted in the name change on that date. In accordance with Section 92A.180 of the Nevada
Revised Statutes, stockholder approval of the name- merger was not required.
Our Business
We are an applications
services provider marketing cloud-based business software products on a subscription basis. Our flagship product, notifiCRM, is
a CRM application that is distinguishable from other CRM programs because it utilizes interactive video as the primary means of
communication between sales and marketing professionals and their clients or prospects. notifiCRM allows our users to create,
distribute, and post interactive videos that contain on-screen interactive icons, buttons, and other elements, that when clicked,
allow their prospects and customers to respond to our users’ call s to action in real-time, in the video, while the
video is playing, without leaving or stopping the video. Our users report increased sales conversion rates compared to traditional,
non-interactive video. We developed proprietary interactive video technology, which serves as the basis for our cloud -based ,
SaaS products and services that we market under the brand name “ notify .” T hey are accessible on all
mobile and desktop devices. No download is required to access and use our applications. Our users also have access to detailed
analytics in the application dashboard that reflect when the videos were viewed, by whom, how many times, for how long, and what
interactive elements were clicked-on in the video, among other things, all of which assist our users in focusing their sales and
marketing efforts by identifying which clients or prospects have interest in the subject matter of the video.
Our notifiCRM platform
can accommodate any size campaign or sales organization, and it is enterprise-class scalable to meet the needs of today’s
global organizations. We are working with our vendors to ensure that it is so scalable based upon our current agreements with them.
We offer stand-alone versions of our notifiCRM product on a subscription basis to individual consumers, sales-based organizations,
consumer brands, marketing and advertising agencies, as well as to artists and social influencers. We also offer notifiCRM through
a network of partners and resellers that include Oracle/NetSuite and Marketo, who offer notifiCRM to their respective clients and
customers as an upgrade to their existing Oracle/NetSuite or Marketo subscriptions. notifiCRM is fully integrated into each of
their platforms and upon payment of the upgrade fee, is accessible through the respective dashboards of Oracle/NetSuite and Marketo.
We are actively developing integrations of notifiCRM into other popular marketing, CRM, and ERP platforms.
Our notifiMED application
is designed for physicians and other healthcare providers to create more efficient and effective interactive communications with
patients. Patients are able to avoid unnecessary and inconvenient visits to their physicians’ or other healthcare providers’
offices by viewing and responding to interactive videos through in-video, on-screen clicks that are designed to assess the patients’
need for an office visit. If the patient’s responses to the interactive video indicate that an office visit is either necessary
or desirable, the patient can schedule the office visit right through the video in real time. Patients can also download and print
prescriptions, care instructions, and other physician distributed documents right from and through the video. notifiMED
is offered on a subscription basis.
Our
notifiEDU application is designed for teachers and school administrators for more effective communications with students, parents,
and faculty. notifiEDU allows teachers to deliver interactive lessons to students that are both more engaging and more
effective. notifiEDU allows teachers to communicate with students through their mobile devices and computers to deliver lessons
and tests/quizzes on the screen and in the video. The analytics capabilities of notifiEDU available on the dashboard of the teacher
or school administrator allow them to track which students watched the lesson, when, for how long, how many times, and track
and report on test/quiz results. notifiEDU is offered on a subscription basis.
Our
notifiTV and notifiLIVE products are also part of our proprietary interactive video platform that allows viewers to interact with
pre-recorded as well as live broadcast video content by clicking on links embedded in on-screen people, objects, graphics, or
sponsors’ signage. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most devices
available in the market today without the need to download special software or proprietary video players.
Revenue
Generation
We
intend to generate revenue from the following sources:
|
●
|
Recurring
subscription fees paid by enterprise users for access to our stand-alone applications by enterprise employees or affiliates;
|
|
|
|
|
●
|
Recurring
subscription fees paid by non-enterprise individual users for access to our stand-alone applications;
|
|
|
|
|
●
|
In-app
and online purchases by users to access various premium services, features, functionality, and options of the platform (such
as the ability to create, edit, and send interactive videos, among several other interactive video features and functionality);
|
|
|
|
|
●
|
Recurring
subscription fees paid by enterprise users for access to our applications integrated into Oracle/NetSuite and Marketo; and
|
|
|
|
|
●
|
Recurring
subscription fees paid by enterprise users who subscribe to bundled service offerings from our partners and/or their respective
value-added resellers.
|
Our
Market/Industry
Our
market is intentionally broad and includes sales-based organizations, consumer brands, ad agencies, online marketers, advertisers,
sponsors, social media celebrities, entertainment celebrities and performance artists, enterprise users — large and small,
religious organizations, health care providers, network marketing and multi-level marketing companies, media companies, major
motion picture studios, social media companies, schools and training facilities, and virtually any other person or organization
that seeks to attract, engage, and communicate with prospects, customers, consumers, fans, followers, patients, students, friends,
and subscribers, among others, online, utilizing automated, interactive video technology.
Distribution
Methods
Our
distribution method s are :
|
1.
|
Prospective
customers and clients can subscribe to our notifiCRM software service on a monthly or annual contract through a simple, web-based
sign-up form accessible on our website (www.nF u sz.com), as well as through interactive sign-up links that we distribute
via email and text and through social media.
|
|
|
|
|
2.
|
Enterprise
users can subscribe to our notifiCRM software service and then distribute custom-branded sign-up links to their internal and
external staff via email or other electronic means.
|
|
|
|
|
3.
|
We
will enter into license and partnership agreements with other CRM providers to incorporate our notifiCRM technology
into such other CRM providers’ software platforms that they offer to their existing and prospective client base for
an additional monthly fee, which fee is shared with us. In January 2018, we entered into such an agreement with Oracle America,
Inc., to integrate our notifiCRM application into their NetSuite platform on a revenue - share basis. In addition, in
February 2018, we entered into a similar agreement with Marketo, Inc. , to integrate our notifiCRM application into
their platform on a revenue - share basis.
|
|
|
|
|
4.
|
We
will enter into license or partnership agreements with digital marketing companies and advertising agencies to resell
our notifiCRM technology to their existing and prospective client bases, for monthly fees, which fees are shared with us.
In March 2018, we entered into such an agreement with Ignite Visibility, LLC , both to utilize and to resell our notifiCRM
product to their clients on a revenue - share basis. In addition, in March 2018, we entered into a similar agreement
with DR2Marketing, LLC , both to utilize, as well as to resell, our notifiCRM product to their clients on a revenue - share
basis.
|
|
|
|
|
5.
|
We
intend to enter into partnership agreements with large cloud services providers, who wil l bundle our application with
such providers’ other applications offered to their existing and prospective global customer base in order to obtain
more data storage and bandwidth utilization fees from such customers. We are currently finalizing contract negotiations
with two such cloud services providers for similar partnership relationships.
|
|
|
|
|
6.
|
We
employ a direct sales team, as well as outside sales consultants.
|
Marketing
We
utilize our own proprietary interactive video platform as the foundation of our ongoing marketing initiatives. Our initiatives
include daily, broad-based social media engagement by a dedicated team of full-time employees and outside consultants; management
of our interactive video-based website; interactive video-based email campaigns, television commercials, among many other ongoing
initiatives designed to increase awareness of our products and services and drive conversion and adoption rates.
Competition
CRM
software generated more than $40.7 billion in sales revenue throughout the world in 2017, and has grown
to become the largest software segment, overtaking data management software. We are active in the CRM applications industry.
We believe that our proprietary notifiCRM interactive video technology provides significant competitive advantages to the CRM
applications offered by the long-term leaders in the field: Salesforce.com, Inc., Microsoft Corporation, Oracle Corporation,
SAP SE, and Adobe Inc., which collectively account for approximately 40% of industry sales. These companies, as
well as many others, have numerous differences in feature sets and functionality, but all share certain basic attributes.
Most of them were designed before the advent and proliferation of mobile phones, social media, and the technology behind the
current ubiquity of video over the internet and more recently on mobile devices. While many of them have attempted to
incorporate video capabilities into their respective CRM platforms, sometimes in ‘‘bolt-on’’ fashion,
it is our opinion that none of them have done so in an effective manner, and certainly none of them utilize interactive video
technology similar to that of notifiCRM, which places clickable calls to action right in the video, including into
users’’ pre-existing sales and product videos. In addition, notifiCRM videos are viewable on both mobile and
desktop devices regardless of operating system and without the need to download a proprietary player or program.
The
differences between notifiCRM and the applications of the larger, more established incumbent providers of CRM software serve to
highlight the reasons we have chosen not only to develop our own stand - alone SaaS cloud CRM platform, but also to permit
incorporation and integration of our interactive video technology into third-party platforms. The enterprises that own or control
those platforms can then offer notifiCRM to their clients and customers as an upgrade feature. The implementation of this strategy
is evidenced by the partnerships we currently enjoy with Oracle/NetSuite and Marketo. Nevertheless, the market share, marketing
strength, and competitive advantages of our competitors may preclude our obtaining any material share of this market.
Intellectual
Property
Our
policy is to protect our technology by, among other things, trade secret protection and copyrights. We primarily rely upon trade
secrets and copyrighted proprietary software, code, and know-how to protect our notifiCRM technology platform and associated applications.
We have taken security measures to protect our trade secrets and proprietary know-how, to the extent possible. Our means of protecting
our proprietary rights may not prove to be adequate and our competitors may independently develop technology or products that
are similar to ours or that compete with ours. Trade secret and copyright laws afford only limited protection for our technology
and products. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United
States. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain and use information
that we regard as proprietary. Third parties may also design around our proprietary rights, which may render our protected technology
and products less valuable, if the design around is favorably received in the marketplace.
We recently filed
a patent application with the PTO with respect to our interactive video technology. Our patent application may not result in an
issued patent in a timely manner, or at all. Any patents that may be issued in the future may not protect commercially important
aspects of our technology. Furthermore, the validity and enforceability of such patents issued in the future may be challenged
by third parties and could be invalidated or modified by the PTO. Third parties may independently develop technology that is not
covered by our patents, that is similar to, or competes with, our technology. In addition, our intellectual property may be infringed
or misappropriated by third parties, particularly in foreign countries where the laws and governmental authorities may not protect
our proprietary rights as effectively as those in the United States.
In addition, if any of our products
or technology is covered by third-party patents or other intellectual property rights, we could be subject to various legal actions.
We cannot assure you that our technology platform and products do not infringe patents held by others or that they will not in
the future. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine
the validity and scope of the proprietary rights of others, or to defend against claims of infringement, invalidity, misappropriation,
or other claims.
Research
and Development
We
incurred $375,220 and $257,803 of research and development expenses during the fiscal years ended December 31, 2017 and 2016,
respectively. We incurred $437,787 of research and development expenses during the nine -month period ended September
30, 2018. These funds were primarily used for development of our notifiCRM software.
Suppliers
We
currently rely on a full-time, dedicated, external team of experienced professionals for the coding and maintenance of our software.
We believe we have mitigated the associated risks of managing an external team of software development professionals by incorporating
internal management and oversight, as well as appropriate systems, protocols, controls, and procedures and ensuring that we have
access to additional qualified professionals to provide like or complementary services.
Dependence
on Key Customers
Based
on our current business and anticipated future activities as described in this prospectus, we do not have, and do not expect to
have, any significant customer concentration. Accordingly, we do not expect to be dependent on any key customers.
Government
Regulation
Government
regulation is not of significant concern for our business nor is government regulation expected to become an impediment to the
business in the near- or mid-term as management is currently unaware of any planned or anticipated government regulation that
would have a material impact on our business. Our management believes it currently possesses all requisite authority to conduct
our business as described in this prospectus.
Employees
As
of December 7, 2018, we had 11 full-time statutory employees, and 31 full-time consultants and contractors.
We also employ part-time consultants and contractors on an as-needed basis to provide specific expertise in areas of software
design, development and coding, content creation, audio and video editing, video production services, and other business functions
including marketing and accounting. None of our employees or consultants is covered by a collective bargaining agreement. We have
had no prior labor-related work stoppages and believe that our relationship with our employees, consultants, and contractors,
both full-time and part-time, is good.
Properties
Our
corporate headquarters is approximately 2,800 square feet and is located at 344 S. Hauser Blvd., Suite 414, Los Angeles, California
90036. Our headquarters houses our executive and administrative operations. The lease expires on April 30, 2019 and the monthly
base rent is $4,743. We believe that our facility is sufficient to meet our current needs and that suitable additional space
will be available as and when needed.
Legal
Proceedings
On
April 24, 2018, EMA Financial, LLC, a New York limited liability company (“EMA”), commenced an action against us,
styled
EMA Financial, LLC, a New York limited liability company, Plaintiff, against nFUSZ, Inc., Defendant
, United States
District Court, Southern District of New York, case number 1:18-cv-03634-NRB. The Complaint sets forth four causes of action and
seeks relief consisting of: (1) money damages, (2) injunctive relief, (3) liquidated damages, and declaratory relief. All of the
claims stem from our refusal to honor EMA’s exercise notice in connection with a common stock purchase warrant that we had
granted to it. We believe EMA’s allegations are entirely without merit.
The
circumstances giving rise to the dispute are as follows: on or about December 5, 2017, we issued a warrant to EMA as part of the
consideration we were required to provide in connection with a contemporaneous convertible loan EMA made to us. The loan, which
was evidenced by a convertible note, was for a term of one year. Our refusal to honor the warrant exercise notice was due to our
good faith belief that EMA’s interpretation of the cashless exercise provision of the warrant was,
inter alia
, (i)
contrary to our direct conversations and agreements made with EMA prior to, and during the preparation of the loan and warrant
agreements; (2) wholly inconsistent with industry norms, standards, and practices; (3) was contrary to the cashless exercise method
actually adopted by EMA’s co-lender in the same transaction; and (4) was the result of a single letter mistakenly transposed
in the cashless exercise formula drafted by EMA which if adopted, would result in a gross and unintended windfall in favor of
EMA and adverse to us. Moreover, as set forth in our response to EMA’s allegations, EMA’s interpretation of the cashless
exercise provision would have resulted in it being issued more shares of our Common Stock than it would have received if it exercised
the warrant for cash (instead of less), and more than the amount of shares reflected on the face of the warrant agreement itself.
The loan underlying the transaction was repaid, in full, approximately three months after it was issued, on March 8, 2018, together
with all accrued interest, prior to any conversion or attempted conversion of the n ote.
On
July 20, 2018, we filed an Answer to the Complaint, along with certain Affirmative Defenses, as well as Counterclaims seeking,
inter alia
, to void the entire transaction for violation of New York’s criminal usury laws and, alternatively, for
reformation of the warrant conversion formula set forth in the Warrant Agreement so as to be consistent with the parties’
intent and custom and practice in the industry. We intend to vigorously defend the action, as well as vigorously prosecute our
counterclaims against EMA. The action is still pending.
We
know of no other material pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our assets
or properties, or the assets or properties of any of our subsidiaries, are subject and, to the best of our knowledge, no adverse
legal activity is anticipated or threatened. In addition, we do not know of any such proceedings contemplated by any governmental
authorities.
We
know of no material proceedings in which any of our directors, officers, or affiliates, or any registered or beneficial stockholder
is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.
THE
PROPOSED SOUND CONCEPTS ACQUISITION
On November
8 , 2018, we entered into the Merger Agreement with Sound Concepts, Merger Sub 1, Merger Sub 2, the
Sound Concepts Shareholders, the Shareholder Representative, and us. Pursuant to the Merger Agreement, we will acquire Sound
Concepts through a two-step Merger, consisting of merging Merger Sub 1 with and into Sound Concepts, with Sound Concepts
surviving the “first step” of the Merger as our wholly-owned subsidiary (and the separate corporate existence of
Merger Sub 1 will cease) and, immediately thereafter, merging Sound Concepts with and into Merger Sub 2, with Merger Sub 2
surviving the “second step” of the Merger such that upon the conclusion of the “second step” of the
Merger, the separate corporate existence of Sound Concepts will cease and Merger Sub 2 will continue its limited liability
company existence under Utah law as the surviving entity and as our wholly-owned subsidiary.
Consideration
On
the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each share of the
Sound Concepts Capital Stock will be cancelled and converted into the right to receive a proportionate share of the Closing
Merger Consideration having a value of $25,000,000, which will
be payable through a combination of a cash payment by us of the $15,000,000 Acquisition Cash Payment and the issuance of
the Acquisition Stock with a fair market value of $10,000,000 . The Closing Merger Consideration is not subject to any
closing working capital adjustment or post-closing working capital adjustment.
We intend to fund the
Acquisition Cash Payment with a portion of the net proceeds from the offering of shares of our Common Stock under this
prospectus. We do not currently know how much of the Acquisition Cash Payment will be funded through the net proceeds of
this offering. There are several variables that could affect the amount of net proceeds we will receive from this offering,
including the price at which the shares of our Common Stock will be sold under this offering, the number of shares of the
Common Stock that are likely to be sold, and the anticipated transaction expenses and integration costs we expect to incur in
connection with the Sound Concepts Acquisition. In the event that the net proceeds from the offering of shares of our Common
Stock under this prospectus are insufficient, we will to seek additional financing from a third-party lender; however, there
is no assurance that such debt financing will be available to us in the amounts, on terms, and at times deemed acceptable to
us, if at all. If we are unable to obtain alternative sources of financing sufficient to pay the Acquisition Cash Payment, we
will be unable to consummate the Sound Concepts Acquisition and will either (i) terminate the Merger Agreement or (ii)
attempt to negotiate with Sound Concepts an amendment to the terms of the Merger Agreement; however, there is no assurance
that we will be successful in such negotiations, or that the terms will be deemed acceptable to us.
Escrow
Agreement
Pursuant
to the Merger Agreement, at or prior to the closing of the Sound Concepts Acquisition (the “Closing”), Sound
Concepts will deliver to us an executed escrow agreement (the “Escrow Agreement”). In accordance with the Escrow
Agreement, at the Closing, we will deposit that number of shares of our Common Stock obtained by dividing $2,500,000 by the
price of our Common Stock at the Closing pursuant to the terms of the Merger Agreement (the “Escrow Shares”) with
the escrow agent for the purpose of partially securing the indemnification obligations of the Sound Concepts Shareholders set
forth in the Merger Agreement.
Representations,
Warranties, and Indemnities
Sound
Concepts, the Sound Concepts Shareholders, Merger Sub 1, Merger Sub 2, and we made customary representations, warranties, and
indemnities subject to, in some cases, exceptions and qualifications as will be set forth in disclosure schedules to the Merger
Agreement (the “Disclosure Schedules”).
Covenants
and Other Agreements
Sound Concepts, the
Sound Concepts Shareholders, Merger Sub 1, Merger Sub 2, and we agreed to certain covenants and other agreements, including, among
others, (i) covenants requiring Sound Concepts and the Sound Concepts Shareholders not to solicit other acquisition bids or proposals,
(ii) covenants regarding non-solicitation and non-competition, and (iii) covenants, satisfied as of the date of this prospectus,
requiring Sound Concepts and the Sound Concepts Shareholders to provide us with annual financial statements for the years ended
December 31, 2017 and 2016 that have been audited by an independent certified public accounting firm that is registered under
the Public Company Accounting Oversight Board and interim financial statements for the six-month periods ended June 30, 2018 and
2017.
Conditions
to Closing the Sound Concepts Acquisition
Completion
of the Sound Concepts Acquisition is subject to the satisfaction or waiver of certain conditions. In addition to customary closing
conditions, our obligation to complete the Sound Concepts Acquisition is conditioned upon the consummation of this offering and
receipt by us of offering proceeds that will be used to pay for all or a portion of the Acquisition Cash Payment.
Closing
Subject
to the conditions of the Merger Agreement, the closing of the Sound Concepts Acquisition will occur by electronic exchange of
documents no later than three business days after the last of the closing conditions, including, without limitation, the Offering
Condition, has been satisfied or waived. Currently, we anticipate the closing of the Sound Concepts Acquisition to occur in the
first quarter of fiscal 2019; however, there can be no assurance that the Sound Concepts Acquisition will close in the first quarter
of fiscal 2019, or at all.
Termination
of the Merger Agreement
The Merger Agreement
may be terminated under certain circumstances, including, but not limited to: (i) the mutual written consent of Sound Concepts
and us; (ii) by us if there has been a breach, inaccuracy in, or failure to perform any representation, warranty, covenant, or
agreement made by Sound Concepts or the Sound Concepts Shareholders pursuant to the Merger Agreement that would give rise to the
failure of any of the closing conditions and such breach, inaccuracy, or failure has not been cured within 10 days of Sound Concepts’
receipt of written notification of such breach from us; provided, that, none of Merger Sub 1, Merger Sub 2, or we is then in material
breach of any provision of the Merger Agreement; (iii) by us if any of Merger Sub 1’s, Merger Sub 2’s, and our closing
conditions, including the Offering Condition, have not been, or if it becomes apparent that any of such conditions will not be,
fulfilled by January 31, 2019, as extended to February 28, 2019, unless such failure is due to our failure to perform or comply
with any of the covenants, agreements, or conditions required to be performed or complied with by it prior to the closing of the
Sound Concepts Acquisition; (iv) by Sound Concepts if there has been a breach, inaccuracy in, or failure to perform any representation,
warranty, covenant, or agreement made by Merger Sub 1, Merger Sub 2, or us pursuant to the Merger Agreement that would give rise
to the failure of any of the closing conditions and such breach, inaccuracy, or failure has not been cured within 10 days of our
receipt of written notice of such breach from Sound Concepts; providing, that, neither Sound Concepts or the Sound Concepts Shareholders
is then in material breach of any provision of the Merger Agreement; (v) by Sound Concepts if any of Sound Concepts’ or
the Sound Concepts Shareholders’ closing conditions have not been, or if it becomes apparent that any of such conditions
will not be, fulfilled by January 31, 2019, as extended to February 28, 2019, unless such failure is due to Sound Concepts’,
or the Sound Concepts Shareholders’, failure to perform or comply with any of the covenants, agreements, or conditions hereof
to be performed or complied with by it or them prior to the closing of the Sound Concepts Acquisition; and (vi) by Sound Concepts
or us if (1) there is any law that makes consummation of the transactions contemplated by the Merger Agreement illegal or otherwise
prohibited or (2) any governmental authority issued a governmental order restraining or enjoining the transactions contemplated
by the Merger Agreement, and such governmental order has become final and non-appealable.
Letter Agreements
Also on November 8,
2018, Merger Sub 1, Merger Sub 2, Sound Concepts, the Sound Concepts Shareholders, the Shareholders’ Representative, and
we entered into a letter agreement (the “First Letter Agreement”) with the specific intention that the provisions
thereof shall relate to and, until the Closing of the Merger, defer the effectiveness or completion of certain provisions of the
Merger Agreement, which provisions must be completed at or prior to the Closing.
The parties agreed
that (i) the Disclosure Schedules will be finalized and, we anticipate, approved by us prior to the Closing, (ii) the parties
will appoint an escrow agent to hold the Escrow Shares and, in connection therewith, the escrow agent and the parties will enter
into an Escrow Agreement, the form of which will be subsequently agreed to by the parties, prior to the Closing, (iii) each Sound
Concepts Shareholder will execute a “lock-up” agreement, the form of which will be subsequently agreed to by the parties
prior to the Closing, and (iv) the directors and officers of the surviving entity will be determined prior to Closing. The First
Letter Agreement further provides that, if we reject any part of the Disclosure Schedules, then, after reasonable and good faith
negotiations between Sound Concepts and us, either party may terminate the Merger Agreement in accordance with its terms. Similarly,
if the parties are unable to agree as to any material provisions of the Escrow Agreement and “lock-up” agreements
within a reasonable time period, then, and only then, may any Sound Concepts Shareholder or we terminate the Merger Agreement
in accordance with its terms.
On November 12, 2018,
Merger Sub 1, Merger Sub 2, Sound Concepts, the Sound Concepts Shareholders, the Shareholders’ Representative, and we entered
into an additional letter agreement (the “Second Letter Agreement”) with the intention of modifying Sections 9.01(b)(ii)
and 9.01(c)(ii) of the Merger Agreement to change each date referenced therein from January 31, 2019 to February 28, 2019.
Retention of Certain Sound Concepts
Key Employees
The parties intend
that McKinley J. Oswald, Jason Matheny, Colby Allen, and JJ Oswald will be employed by us following the Closing of the Sound Concepts
Acquisition under terms and conditions to be agreed upon and to be memorialized in written employment agreements entered into
with each such person prior to Closing.
BUSINESS
OF SOUND CONCEPTS
Sound
Concepts is an established 25-year-old business with approximately 8 0 employees, based in American Fork, Utah, providing
digital marketing and sales support services, including a video-based mobile sales application, to the direct sales industry.
Their sales application, offered as a SaaS application, is marketed under the brand name Brightools and is offered as a white-labeled
application to large corporate enterprises engaged in the network marketing and affiliate marketing industry. Sound Concepts
currently ha s approximately 75 clients in the network marketing and affiliate marketing sector, which include Young
Living Essential Oils, LC, Isagenix International, LLC , Vasayo , LLC , Nu Skin Enterprises United
States, Inc. , Nerium International, LLC , Forever Living Products International, LLC , Seacret Spa,
LLC , among many others. The Brightools app is a comprehensive sales, lead generation, and customer relationship management
tool specifically designed to meet the needs of direct sales representatives and others engaged in network marketing and affiliate
marketing sales. The Brightools app also incorporates recruiting tools, sales representative training and education tools,
and includes instant notification capabilities to notify sales reps on their mobile devices when a prospect has engaged
in shared content. Brightools allows sales reps to share sales and product video content with their prospects via email and
text, post content directly to social media, access corporate sales and product training materials, and receive analytics data
and other engagement information regarding their prospects’ interactions with the digital sales content distributed through
the app. Brightools also tracks customer purchases and allows corporate to monitor field activity to track the effectiveness
of campaigns , as well as compliance. In addition, sales reps can order physical product samples and purchase customizable
brochures, invites, thank-you cards, and more for direct delivery to customers and prospects all through the application. The
synergies of the digital and physical tools provide sales reps with unique solutions to engage their prospects, acquire customers,
close sales, and grow their business. Brightools is available on, and compatible with, virtually all mobile devices and is currently
in use in over 48 different countries. As of the date hereof, Sound Concepts has more than 510,000 current users of its
Brightools app, representing an increase of more than 147,000 users since August 2018.
Sound
Concept’s principal executive office is located at 782 South Auto Mall Drive, Suite A, American Fork, Utah 84003. Its telephone
number at that location is (801) 225-9520.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS — NFÜSZ
The
following discussion and analysis of the results of operations and financial condition of nFüsz for the fiscal years ended
December 31, 2017 and 2016 and three- and nine -month periods ended September 30, 2018 and 2017, should be read in
conjunction with the financial statements and related notes and the other financial information that are included elsewhere in
this prospectus. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements
are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to
update forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note
Regarding Forward-Looking Statements, and Business sections in this prospectus. We use words such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,”
and similar expressions to identify forward looking statements.
Overview
CMG
was organized as a limited liability company under the laws of the State of Nevada on December 12, 2012. On May 19, 2014, bBooth,
Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG merged into bBooth, Inc. and, thereafter, bBooth,
Inc. changed its name to bBooth (USA), Inc., effective October 16, 2014. The operations of CMG and bBooth (USA), Inc. ,
became known as, and are referred to in this prospectus as, “bBoothUSA.”
On
October 16, 2014, bBoothUSA was acquired by GSD, pursuant to the Share Exchange Agreement entered into with GSD. GSD was incorporated
in the S tate of Nevada on November 27, 2012. The acquisition was accounted for as a reverse merger transaction. In connection
with the closing of the transactions contemplated by the Share Exchange Agreement, GSD’s management was replaced by bBoothUSA’s
management, and GSD changed its name to bBooth, Inc.
Effective April 21,
2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary
short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with
and into us. We were the surviving entity. To effectuate the name-change merger, we filed Articles of Merger and a Certificate
of Correction (relative to the effective date of the name - change merger) with the Secretary of State of the State of Nevada
on April 4, 2017 and April 17, 2017, respectively. The name-change merger became effective on April 21, 2017. Our board
of directors approved the name-change merger, which resulted in the name change on that date. In accordance with Section
92A.180 of the Nevada Revised Statutes, stockholder approval of the name-change merger was not required.
Results
of Operation
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
10,085
|
|
|
$
|
-
|
|
|
$
|
26,327
|
|
|
$
|
-
|
|
Research
and development
|
|
|
202,054
|
|
|
|
109,350
|
|
|
|
437,787
|
|
|
|
291,190
|
|
General
and administrative
|
|
|
472,538
|
|
|
|
1,082,131
|
|
|
|
5,251,967
|
|
|
|
3,052,161
|
|
Loss
from operations
|
|
|
(664,507
|
)
|
|
|
(1,191,481
|
)
|
|
|
(5,663,427
|
)
|
|
|
(3,343,351
|
)
|
Other
expense, net
|
|
|
(805,484
|
)
|
|
|
(689,408
|
)
|
|
|
(2,529,095
|
)
|
|
|
(1,506,123
|
)
|
Net
Loss
|
|
$
|
(1,469,992
|
)
|
|
$
|
(1,880,889
|
)
|
|
$
|
(8,192,523
|
)
|
|
$
|
(4,849,474
|
)
|
Three
Months Ended September 30, 2018 as compared to the Three Months Ended September 30, 2017
Revenues
Subscription
revenues for the three months ended September 30, 2018 were $10,085 , compared to $0 for the three months ended September
30, 2017. The increase in subscription revenues were primarily attributable to the Company’s SaaS platform that was
launched during the fourth quarter of fiscal 2017. There was no similar transaction in the third quarter of 2017.
Operating
Expenses
Research
and development expenses for the three months ended September 30, 2018 were $202,054, compared to $109,350
for the three months ended September 30, 2017. The increase was primarily due to an increase in fees for coders dedicated
to software development enhancements and modifications.
General
and administrative expenses for the three months ended September 30, 2018 and 2017 were $472,538 and $1,082,131 ,
respectively. The decrease was primarily due to a decrease in stock-based compensation expense of $1,113,1167 offset by
an increase in professional services, marketing , and labor related costs associated with growth of the Company.
The significant decrease in stock-based compensation is attributed to the termination of certain consulting relationships during
the third quarter of 2018.
Other
expense, net, for the three months ended September 30, 2018 amounted t o $805,485 , which included a loss on debt
extinguishment of $1,074,602, interest expense of $58,916 , and other expense of $12,817, all offset by a change
in fair value of derivative liability of $(340,851) . The amount of other expense, net, was higher in the third
quarter of 2018 due to an increase in debt extinguishment of $650,271, all offset by a change in the fair value
of derivative liability equal to $(340,851), lower interest expense of $(146,122), and no amortization of debt discount in
the third quarter of 2018 .
Nine
Months
Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017
Revenues
Subscription
revenues for the nine months ended September 30, 2018 were $26,327 , compared to $0 for the nine months
ended September 30, 2017. The increase was primarily attributable to the Company’s SaaS platform that was
launched during the fourth quarter of fiscal 2017. There was no similar transaction in the first half of 2017.
Operating
Expenses
Research
and development expenses were $437,787 for the nine months ended September 30, 2018, as compared to $291,190
for the nine months ended September 30, 2017. The increase was primarily due to an increase in fees for coders
dedicated to software development enhancements and modifications.
General
and administrative expenses for the nine months ended September 30, 2018 and 2017 were $5,251,967 and $3,052,161 ,
respectively. The increase was primarily due to an increase in stock-based compensation expense of $1,137,489 and
an increase in labor related costs, marketing, professional services , and travel associated with the growth of
the Company. The increase in stock-based compensation was due to an increase in the price of the Company’s
Common Stock offset by the termination of certain consulting relationships . The price of our Common Stock
increased from $0.10 per share at December 31, 2017 to $0. 4 0 per share at September 30, 2018 . During the
nine-month period ended September 30, 2018, the average price of our Common Stock was $0. 7 2. In the prior nine-month
period, the average price of our Common Stock was $0. 16 per share.
Other
expense, net, for the nine months ended September 30, 2018 amounted to $2,529,096 , which represented a change
in the fair value of derivative liability of $839,872 , interest expense for amortization of debt discount of $747,623,
debt extinguishment of $423,028, interest expense of $321,637 on outstanding notes payable, $171,739 of financing
costs attributed to derivative liabilities, and other expense of $25,197 . The amount of other expense, net, was higher
in 2018 due to the payoff and conversion of debt that did not occur during the first quarter of 2017.
Modified
EBITDA
In
addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA
is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations,
or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as
a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization,
stock-based compensation, financing costs, and changes in fair value of derivative liability.
Management
considers our core operating performance to be that which our managers can affect in any particular period through their management
of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our
results prepared in accordance with GAAP are itemized below. Readers are encouraged to evaluate these adjustments and the reasons
we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, readers should be aware that in the future
we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified
EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
Net
loss
|
|
$
|
(1,469,992
|
)
|
|
$
|
(1,880,889
|
)
|
|
$
|
(8,192,523
|
)
|
|
$
|
(4,849,474
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Compensation Expense
|
|
|
(495,860
|
)
|
|
|
617,308
|
|
|
|
2,960,733
|
|
|
|
1,824,045
|
|
Change
in fair value of derivative liability
|
|
|
(340,851
|
)
|
|
|
—
|
|
|
|
839,872
|
|
|
|
—
|
|
Amortization
of debt discount
|
|
|
—
|
|
|
|
81,957
|
|
|
|
747,623
|
|
|
|
174,981
|
|
Interest
expense
|
|
|
58,916
|
|
|
|
205,040
|
|
|
|
321,637
|
|
|
|
375,862
|
|
Financing
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
171,739
|
|
|
|
—
|
|
Depreciation
|
|
|
5,329
|
|
|
|
5,422
|
|
|
|
15,823
|
|
|
|
16,090
|
|
Gain
on debt extinguishment, net
|
|
|
1,074,602
|
|
|
|
424,330
|
|
|
|
423,028
|
|
|
|
977,201
|
|
Total
EBITDA adjustments
|
|
|
302,136
|
|
|
|
1,334,057
|
|
|
|
5,480,455
|
|
|
|
3,368,179
|
|
Modified
EBITDA
|
|
$
|
(1,167,856
|
)
|
|
$
|
(546,832
|
)
|
|
$
|
(2,712,068
|
)
|
|
$
|
(1,481,295
|
)
|
The
$621,024 increase in Modified EBITDA for the three months ended September 30, 2018 compared to the same period
in 2017, resulted from the increase in labor-related costs , marketing , professional services, and travel associated
with the growth of the Company.
The
$1,230,773 increase in Modified EBITDA for the nine months ended September 30, 2018 compared to the
same period in 2017, resulted from the increase in labor-related costs, marketing , professional services , and travel
associated with the growth of the Company.
We
present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods
on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition,
we use Modified EBITDA in developing our internal budgets, forecasts, and strategic plan s ; in analyzing the effectiveness
of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with
our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes,
among others, the following:
|
●
|
Modified
EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
|
|
|
●
|
Modified
EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
|
|
|
|
●
|
Modified
EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments,
on our debts; and
|
|
|
|
|
●
|
Although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced
in the future, and the Modified EBITDA does not reflect any cash requirements for such replacements.
|
Fiscal
Year Ended December 31, 2017 compared to the Fiscal Year Ended December 31, 2016
The
following is a comparison of the results of our operations for the year ended December 31, 2017 and 2016:
|
|
For
the Year Ended
|
|
|
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
$
Change
|
|
Net
sales
|
|
$
|
5,914
|
|
|
$
|
—
|
|
|
$
|
5,914
|
|
Research
and development expense
|
|
|
375,220
|
|
|
|
257,803
|
|
|
|
117,417
|
|
General
and administrative expense
|
|
|
4,327,529
|
|
|
|
2,873,185
|
|
|
|
1,454,344
|
|
Loss
from operations
|
|
|
(4,696,835
|
)
|
|
|
(3,130,988
|
)
|
|
|
(1,565,847
|
)
|
Other
income
|
|
|
20,099
|
|
|
|
52,898
|
|
|
|
(32,799
|
)
|
Other
expense, net
|
|
|
(2,588,217
|
)
|
|
|
(1,195,149
|
)
|
|
|
(1,393,068
|
)
|
Loss
before income taxes
|
|
|
(7,264,953
|
)
|
|
|
(4,273,239
|
)
|
|
|
(2,991,714
|
)
|
Income
tax provision
|
|
|
1,600
|
|
|
|
866
|
|
|
|
734
|
|
Net
loss
|
|
$
|
(7,266,553
|
)
|
|
$
|
(4,274,105
|
)
|
|
$
|
(2,992,448
|
)
|
Revenues
Subscription
revenues for the fiscal year ended December 31, 2017 were $5,914, compared to $0 for fiscal year ended December 31, 2016. The
subscription revenues in fiscal 2017 were attributable to the Company’s SaaS platform that was launched during the fourth
quarter of fiscal 2017.
Operating
Expenses
Research
and development expenses were $375,220 in fiscal 2017, as compared to $257,803 in fiscal 2016. Research and development expenses
primarily consist of fees paid to vendors contracted to perform research projects and develop technology. In fiscal 2017 and fiscal
2016, our research and development initiatives supported our cloud-based products, or SaaS platform. Our research and development
expenses increased $117,417 in fiscal 2017, as compared to fiscal 2016, due to additional product development and testing.
General
and administrative expenses for fiscal 2017 were $4,327,529, an increase of $1,454,344 as compared to fiscal 2016. The increase
in general and administrative expenses is primarily due to an increase in stock compensation expense of $1,231,843, plus increased
labor and creative consulting fees of $241,278 due to growth in our operations.
Other
expense, net, for fiscal 2017 equaled $2,588,217, which represented $977,203 on loss from debt extinguishment, $643,481 of financing
costs driven by derivative liabilities associated with convertible debt, $555,094 of interest expense on outstanding notes payable,
and $418,339 of interest expense for amortization of debt discount. Other expense, net, for fiscal 2016 equaled $1,195,149. The
amount of other expense, net, was higher in fiscal 2017 due to financing costs of $643,481, an increase in loss on debt extinguishment
of $851,228, and increased interest expense of $214,514 due to by additional debt.
Other
Income
We
earned $20,099 in other income during fiscal 2017, compared to $52,898 for fiscal 2016. The decrease in other income in fiscal
2017 was due to the transition from the rental of interactive booths as the primary business to our current SaaS business model.
Modified
EBITDA
In
addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA
is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations,
or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as
a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization,
stock-based compensation, financing costs, and changes in the fair value of derivative liability.
Management
considers our core operating performance to be that which our managers can affect in any particular period through their management
of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our
results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons
we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future
we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified
EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
|
|
For
the Year Ended
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Net
loss
|
|
$
|
(7,266,553
|
)
|
|
$
|
(4,274,105
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
(20,099
|
)
|
|
|
(52,898
|
)
|
Stock
compensation expense
|
|
|
2,533,245
|
|
|
|
1,301,402
|
|
Debt
extinguishment
|
|
|
977,203
|
|
|
|
455,975
|
|
Financing
costs
|
|
|
643,481
|
|
|
|
—
|
|
Interest
expense
|
|
|
555,094
|
|
|
|
340,580
|
|
Amortization
of debt discount
|
|
|
418,339
|
|
|
|
398,594
|
|
Depreciation
|
|
|
21,512
|
|
|
|
21,301
|
|
Income
tax provision
|
|
|
1,600
|
|
|
|
866
|
|
Change
in fair value of derivative liability
|
|
|
(5,900
|
)
|
|
|
—
|
|
Total
EBITDA Adjustments
|
|
|
5,124,475
|
|
|
|
2,465,820
|
|
Modified
EBITDA
|
|
$
|
(2,142,078
|
)
|
|
$
|
(1,808,285
|
)
|
The
$333,793 decrease in Modified EBITDA for the year ended December 31, 2017 compared to the same period in 2016, resulted from the
increase in creative consulting fees of $241,278 and research and development expenses of $117,417 in fiscal 2017.
We
present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods
on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition,
we use Modified EBITDA in developing our internal budgets, forecasts, and strategic plan s ; in analyzing the effectiveness
of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with
our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes,
among others, the following:
|
●
|
Modified
EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
|
|
|
●
|
Modified
EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
|
|
|
|
●
|
Modified
EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments
on our debts; and
|
|
|
|
|
●
|
Although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced
in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.
|
Liquidity
and Capital Resources
Going
Concern
We
have incurred operating losses since inception and have negative cash flows from operations. As of September 30, 2018,
we had a stockholders’ deficit of $2,283,422 and we incurred a net loss of $ 8,192,523 during the nine-month period
ended September 30, 2018. We also utilized $2,801,405 in cash during the period ended September 30, 2018. As
a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate
sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing ,
including this underwritten public offering of our Common Stock under this prospectus, to continue our operations.
Our
condensed consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to
meet our obligations and continue our operations for the next fiscal year. The continuation of our Company as a going concern
is dependent upon our ability to obtain necessary debt or equity financing to continue operations until our Company begins generating
positive cash flow.
There
is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms,
and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant
dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available,
would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed
acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease
operations for our business, the result of which would be that our stockholders would lose some or all of their investment. The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue
as a going concern.
Liquidity
and Capital Resources Overview
As
of September 30, 2018, we had cash of $379,461 . We estimate our operating expenses for the next three months may
continue to exceed any revenues we generate, and we may need to raise capital through either debt or equity offerings to continue
operations. We are in the early stages of our business. We are required to fund growth from financing activities, and we intend
to rely on a combination of equity and debt financings. Due to market conditions and the early stage of our operations, there
is considerable risk that we will not be able to raise such financings at all, or on terms that are not overly dilutive to our
existing stockholders. We can offer no assurance that we will be able to raise such funds. If we are unable to raise the funds
we require for all of our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant
negative effect on our business plan and operations, including our ability to develop new products and continue our current operations.
As a result, our business may suffer, and we may be forced to reduce or discontinue operations.
Subsequent
to September 30, 2018, the Company issued $1,900,000 in convertible notes netting $1,614,480. As of November 14, 2018, we had
cash of $1,326,805. We expect to use the proceeds of the notes:
|
●
|
As a bridge to fund our operations prior to the consummation of this offering of our Common Stock under this
prospectus in connection with our NASDAQ listing application (although we cannot provide you with any assurance that the contemplated
public offering will close or that our Common Stock will be uplisted to NASDAQ);
|
|
|
|
|
●
|
To
provide additional funding as required for our pre-closing integration activities in connection with the Sound Concepts Acquisition;
|
|
|
|
|
●
|
To
fund the ongoing costs associated with the integration of our software with the Salesforce.com, Inc., platform;
|
|
|
|
|
●
|
To
fund the ongoing costs associated with the integration of our software with Microsoft Outlook, Microsoft Dynamics, and the
Microsoft Office 365 platform, among other ongoing initiatives with Microsoft Corporation;
|
|
|
|
|
●
|
To
fund the ongoing costs associated with the integration of our software with the Odoo platform;
|
|
|
|
|
●
|
To
fund our ongoing development costs associated with the adaption of our notifiMED product for certain clinical trial initiatives;
|
|
|
|
|
●
|
To
fund our ongoing development costs associated with the development and adaptation of our notifiLIVE for Facebook Live and
Instagram users; and
|
|
|
|
|
●
|
To
fund our general corporate working capital needs, including the costs of additional staff to facilitate the foregoing initiatives.
|
Cash
Flows — Operating
For
the nine months ended September 30, 2018, our cash flows used in operating activities amounted to $2,801,405 ,
compared to cash used during the nine months ended September 30, 2017 of $1,174,534 . The change is due to
an increase in business activity, which resulted in additional consulting expenses, salary, and various operating expenses
in the first nine months of 2018 compared to the first nine months of 2017. In addition, the Company paid accrued
interest as part of the convertible debt repayments in the first quarter of 2018 and paid down accounts payable.
Cash
Flows — Financing
Our
cash provided by financing activities for the nine months ended September 30, 2018 amounted to $3, 170,306 ,
which represented $2,978,500 of proceeds received from the issuances of our Common Stock, $1,000,000 of proceeds from the issuance
of shares of our Common Stock from the exercise of a put option, $130,000 of proceeds from the issuance of convertible debt, $34,133
of proceeds from the exercise of options, and $22,000 of proceeds from the exercise of warrants, offset by $845,000 of convertible
debt payments , $129,327 of deferred offering costs, and the repurchase of shares of our Common Stock equal
to $20,000. Our cash provided by financing activities for the nine months ended September 30, 2017 amounted to $1,186,678 ,
which represented $ 555 ,000 of proceeds received from the issuances of convertible Series A preferred stock, $ 470 ,000
of proceeds received from the issuance s of shares of our Common Stock , and $ 3 00,000 of proceeds from
the issuance of a convertible note s payable, offset by $138,322 redemption of shares of our Series A preferred stock . All
other shares of Series A preferred stock have been converted and we filed a Certificate of Withdrawal with the S tate
of Nevada on August 10, 2018 to formally withdraw the Series A preferred stock.
Warrant
Liability
As
of September 30, 2018 , total liabilities are $2,880,313 , of which $673,376 is attributable to certain
outstanding warrants to purchase up to 1.7 million shares of our Common Stock that are accounted for as a derivative
liability (see Note 7,
Derivative Liability
, to the unaudited consolidated financial statements for the period ended
September 30, 2018). Without the derivative liability, total liabilities would have been $2, 206,937 , of which $1, 383,383
is related party debt and accruals .
As
of September 30, 2018, the derivative liability of $673,376 relates to outstanding warrants to purchase up to 1.7
million shares of our Common Stock issued in December 2017 and January 2018. Due to certain adjustments that may be paid
to the exercise price of the warrants if the Company issues or sells rights, options, or warrants to holders of its Common Stock
(and not to the warrant holders) entitling them to subscribe for or purchase shares of its Common Stock at a price that is less
than the closing price at the record date of such issuance, the warrants have been classified as a liability, as opposed to equity,
in accordance with ASC 815-10 as it was determined that the warrants were not indexed to our Common Stock.
Notes
Payable
The
Company has the following outstanding notes payable to related parties at September 30, 2018 that are due in the current
year:
Payable
to:
|
|
Issuance
Date
|
|
|
Maturity
Date
|
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
September
30, 2018
|
|
Rory
Cutaia
( A )
|
|
|
December
1, 2015
|
|
|
|
February
8, 2021
|
|
|
|
12.0
|
%
|
|
$
|
1,248,883
|
|
|
$
|
824,218
|
|
Rory
Cutaia
( B )
|
|
|
December
1, 2015
|
|
|
|
February
8, 2021
|
|
|
|
12.0
|
%
|
|
|
189,000
|
|
|
|
-
|
|
Past
Director
|
|
|
December
1, 2015
|
|
|
|
April
1, 2017
|
|
|
|
12.0
|
%
|
|
|
111,901
|
|
|
|
111,901
|
|
Rory
Cutaia
( C )
|
|
|
April
4, 2016
|
|
|
|
December
4, 2018
|
|
|
|
12.0
|
%
|
|
|
343,326
|
|
|
|
240,328
|
|
Rory
Cutaia
( D )
|
|
|
A pril
4, 2016
|
|
|
|
December
4, 2018
|
|
|
|
12.0
|
%
|
|
|
121,875
|
|
|
|
-
|
|
Total
notes payable – related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,176,447
|
|
( A )
|
Pursuant
to
the terms of the note agreement, at Mr. Cutaia’s
discretion, he may convert up to $374,665 of outstanding principal, plus accrued interest thereon, into shares of our
Common Stock at a conversion rate of $0.07 per share. On August 8, 2018, the Company entered into an extension with Mr.
Cutaia to extend the maturity date of the note to and including February 8, 2021. In consideration of extending the note,
the Company issued Mr. Cutaia warrants exercisable for up to 2,446,700 shares of our Common Stock. On September 30, 2018,
Mr. Cutaia converted $374,655 of the principal balance into 5,352,357 restricted shares of our Common Stock at $0.07 per share.
|
|
|
(B)
|
The note was fully convertible into shares of our Common Stock at a per-share conversion price of $0.07. On
September 30, 2018, Mr. Cutaia converted the outstanding balance of $189,000 into 2,700,000 restricted shares of our Common Stock
at $0.07 per share.
|
|
|
( C )
|
Pursuant to the terms of the note agreement,
at Mr. Cutaia’s discretion, he may convert up to $189,000 of outstanding principal into shares of our Common
Stock at a conversion price of $0.07 per share. On September 30, 2018, Mr. Cutaia converted $102,998 of the outstanding principal
balance into 1,471,397 restricted shares of our Common Stock at $0.07 per share.
|
|
|
(D)
|
The note was fully convertible into shares of our Common Stock at a per-share conversion price of $0.07. On
September 30, 2018, Mr. Cutaia converted the outstanding balance of$121,857 into 1,741,071 restricted shares of our Common Stock
$0.07 per share.
|
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.
Contractual
Obligations
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information
under this Item.
Critical
Accounting Policies
Our
financial statements have been prepared in accordance with GAAP , which require that we make certain assumptions and estimates
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
net revenue and expenses during each reporting period.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reported periods. Significant estimates include valuation of derivative liability, valuation of debt and equity
instruments, share-based compensation arrangements, and long-lived assets. Amounts could materially change in the future.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument
could be required within 12 months of the balance sheet date.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined
by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative
liabilities are adjusted to reflect the fair value at the end of each reporting period, with any increase or decrease in the fair
value being recorded in the current period’s results of operations as adjustments to the fair value of derivatives.
Share
Based Payment
The
Company issues stock options, warrants exercisable for shares of our Common Stock, Common Stock, and equity interests as
share-based compensation to employees and non-employees.
The
Company accounts for its share-based compensation to employees in accordance with the provisions of FASB ASC 718
“Compensation — Stock Compensation.” Stock-based compensation cost is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the requisite service period.
The
Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB
ASC 505-50 “Equity — Based Payments to Non-Employees.” Measurement of share-based payment transactions with
non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b)
the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion
date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate to determine
the cumulative expense recorded.
The
Company values stock compensation based on the market price on the measurement date. As described above, for employees the measurement
date is the grant date, and for non-employees, this is the date performance is completed.
The
Company values stock options using the Black-Scholes option pricing model. Assumptions used in the Black-Scholes model to value
options issued during the years ended December 31, 2017 and 2016 are as follows:
|
|
Year
Ended
December 31, 2017
|
|
|
Year
Ended
December 31, 2016
|
|
Expected
life in years
|
|
|
2.5
to 5.0
|
|
|
|
2.5
to 5.0
|
|
Stock
price volatility
|
|
|
84.36%
– 173.92
|
%
|
|
|
87.19%
– 153.07
|
%
|
Risk
free interest rate
|
|
|
1.22%
– 2.23
|
%
|
|
|
1.22%
– 1.24
|
%
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Forfeiture
rate
|
|
|
21
|
%
|
|
|
20
|
%
|
Assumptions
used in the Black-Scholes model to value options issued during the nine months ended September 30, 2018 and 2017 are as follows:
|
|
Nine
Months Ended September 30, 2018
|
|
|
Nine
Months Ended September 30, 2017
|
|
Expected
life in years
|
|
|
5
|
|
|
|
5
|
|
Stock
price volatility
|
|
|
184%
– 190
|
%
|
|
|
157%
– 171
|
%
|
Risk
free interest rate
|
|
|
2.73%
– 2.99
|
%
|
|
|
1.77%
– 1.93
|
%
|
Expected
dividends
|
|
|
-
|
|
|
|
-
|
|
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility
of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on the fact
that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.
Concentrations
During
the year ended December 31, 2017, the Company had a single vendor that accounted for 20.7% of all purchases, and 18.1% of all
purchases in the same period in the prior year.
Recently
Issued Accounting Pronouncements
For
a summary of our recent accounting policies, refer to Note 2 of our unaudited condensed consolidated financial statements for
the three and nine months ended September 30, 2018 for a discussion of recent accounting pronouncements.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed
to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized,
and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our principal executive officer and our principal financial officer, as appropriate,
to allow timely decisions regarding required disclosure.
We
carried out an evaluation under the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d- 15(e) under the Exchange Act) as of the quarter ended September 30, 2018 . Based on this evaluation, our principal
executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as
of September 30, 2018.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – SOUND CONCEPTS
The
following discussion and analysis of the results of operations and financial condition of Sound Concepts for the fiscal years
ended December 31, 2017 and 2016 and nine-month periods ended September 30, 2018 and 2017, should be read in conjunction with
the financial statements and related notes and the other financial information that are included elsewhere in this prospectus.
Overview
Sound Concepts, a
privately held corporation, was incorporated in Utah in 1979. Sound Concepts provides digital marketing and sales support services,
including a video-based mobile sales application, to the direct sales industry. Its sales application, offered as a SaaS application,
is marketed under the brand name as Brightools and is offered as a white-labeled application to large corporate enterprises engaged
in the network marketing and affiliate marketing industry. The Brightools app is a comprehensive sales, lead generation, and customer
relationship management tool specifically designed to meet the needs of direct sales representatives and others engaged in network
marketing and affiliate marketing sales. The Brightools app also incorporates recruiting tools, sales representative training,
and education tools, and includes instant notification capabilities to notify users when a prospect has engaged in shared content.
Brightools allows sales reps to share sales and product video content with their prospects via email and text, post content directly
to social media, access corporate sales and product training materials, and receive analytics data and other engagement information
regarding their prospects’ interactions with the digital sales content distributed through the app. Brightools also tracks
customer purchases and allows corporate to monitor field activity to track the effectiveness of campaigns, as well as compliance.
In addition, sales reps can order physical product samples and purchase customizable brochures, invites, thank-you cards, and
more for direct delivery to customers and prospects all through the application. The synergies of the digital and physical tools
provide sales reps with unique solutions to engage their prospects, acquire customers, close sales, and grow their businesses.
Brightools is available on, and compatible with, virtually all mobile devices and is currently in use in over 48 different countries
and currently has more than 510,000 current users of its Brightools app.
Results
of Operations
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Revenue,
net
|
|
$
|
9,314,000
|
|
|
$
|
9,377,000
|
|
|
$
|
11,546,000
|
|
|
$
|
12,680,000
|
|
Cost
of revenue
|
|
|
5,046,000
|
|
|
|
5,365,000
|
|
|
|
6,293,000
|
|
|
|
8,613,000
|
|
Gross
margin
|
|
|
4,268,000
|
|
|
|
4,012,000
|
|
|
|
5,253,000
|
|
|
|
4,067,000
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,567,000
|
|
|
|
1,090,000
|
|
|
|
1,731,000
|
|
|
|
1,390,000
|
|
General
and administrative
|
|
|
2,077,000
|
|
|
|
2,579,000
|
|
|
|
3,530,000
|
|
|
|
3,419,000
|
|
Total
operating expenses
|
|
|
3,644,000
|
|
|
|
3,669,000
|
|
|
|
5,261,000
|
|
|
|
4,809,000
|
|
Income
(loss) from operations
|
|
|
624,000
|
|
|
|
343,000
|
|
|
|
(8,000
|
)
|
|
|
(742,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(12,000
|
)
|
|
|
(1,000
|
)
|
|
|
(7,000
|
)
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
612,000
|
|
|
$
|
342,000
|
|
|
$
|
(15,000
|
)
|
|
$
|
(745,000
|
)
|
Nine
Months Ended September 30, 2018 as compared to the Nine Months Ended September 30, 2017
Revenues
Revenue for the nine
months ended September 30, 2018 decreased slightly by approximately $63,000, or 1%, to approximately $9.3 million, as compared
to approximately $9.4 million for the nine months ended September 30, 2017. Historically, Sound Concepts primarily had two lines
of business: (1) corporate kits, which consist of “starter kits” for corporations to use for their marketing needs,
and (2) fulfillments, which consist of various custom products used for marketing purposes at conferences and other events. Recently,
Sound Concepts began moving away from the fulfillment business model to an on-demand business model. The decrease in revenues
for the nine months ended September 30, 2018 was primarily the result of a decrease in corporate kits and fulfillment orders and
was offset by an increase in digital and shipping sales. Revenues generated by corporate kits and fulfillment sales decreased
by $1.3 million, or 20%, in the nine months ended September 30, 2018, as compared to the prior year period, primarily related
to fewer corporate kits sold to a large customer that moved its business closer to its corporate headquarters and a temporary
slowdown in fulfillment orders as Sound Concepts began to shift resources from its stock-to-order fulfillment business to a higher
margin print on-demand business. However, revenue generated by digital sales increased by approximately $785,000, or 36%, in the
nine months ended September 30, 2018, as compared to the prior year period, driven by an expansion of Sound Concepts’ customer
base. Shipping revenue also increased by $481,000, or 74%, in the nine months ended September 30, 2018, as compared to the prior
year’s period, due to an increased number of sample pack fulfillments.
Cost
of Revenues
Cost
of revenues for the nine months ended September 30, 2018 decreased by approximately $319,000, or 6%, to approximately $5.1 million
as compared to approximately $5.4 million for the nine months ended September 30, 2017. The decrease in cost of revenues is primarily
attributed to a decrease in sales of corporate kits and fulfillment orders offset by increased digital and shipping costs associated
with the increase in revenue.
Gross
Profit
Gross profit for the
nine months ended September 30, 2018 increased by approximately $256,000, or 6%, to approximately $4.3 million as compared to
approximately $4.0 million for the nine months ended September 30, 2017. The gross profit percentage was 46% for the nine months
ended September 30, 2018, as compared to 43% for the nine months ended September 30, 2017.
Research and Development Expenses
Research and development
expenses for the nine months ended September 30, 2018 increased by approximately $477,000, or 44%, to approximately $1.6 million,
as compared to approximately $1.1 million for the nine months ended September 30, 2017. The increase was primarily due to increased
wages for staff and product development costs related to the growth of its digital business.
General and Administrative Expenses
General and administrative
expenses for the nine months ended September 30, 2018 decreased by approximately $502,000, or 19%, to approximately $2.1 million,
as compared to approximately $2.6 million for the nine months ended September 30, 2017. The decrease was primarily driven by the
shift from the fulfillment model to an on-demand model. The shift towards an on-demand model lowered conference and other event
costs, as well as travel expenses. In addition, Sound Concepts recovered certain bad debt expense that previously had been written-off.
Operating Income
Operating income for
the nine months ended September 30, 2018 increased by approximately $281,000, or 82%, to approximately $624,000, as compared to
approximately $343,000 for the nine months ended September 30, 2017. The increase in operating income was driven by the increase
in gross profit of $256,000 offset by a decrease in operating expenses of $25,000.
Fiscal Year Ended December 31, 2017
compared to Fiscal Year Ended December 31, 2016
Revenues
Revenue for the year
ended December 31, 2017 decreased by approximately $1.1 million, or 9%, to approximately $11.5 million, as compared to approximately
$12.7 million for the year ended December 31, 2016. The decrease primarily related to a $2.5 million decrease in sales of corporate
kits as a customer moved its business closer to its corporate headquarters. The decrease was offset by an increase in Sound Concepts’
digital revenue of $1.4 million, or 81%, driven by an expansion of its customer base.
Cost of Revenues
Cost of revenues for
the year ended December 31, 2017 decreased by approximately $2.3 million, or 27%, to approximately $6.3 million, as compared to
approximately $8.6 million for the year ended December 31, 2016. The decrease is primary attributed to fewer corporate kits sold
offset by increased digital costs associated with the increase in revenue.
Gross Profit
Gross profit for the
year ended December 31, 2017 increased by approximately $1.2 million, or 29%, to approximately $5.3 million, as compared to approximately
$4.1 million for the year ended December 31, 2016. The gross profit percentage was 46% for the year ended December 31, 2017, as
compared to 32% for the year ended December 31, 2016. The increase in gross profit was attributable to the change in revenue mix
from Sound Concepts’ historical corporate kit and fulfillment businesses to the higher margin digital business within the
network marketing vertical. Digital gross profit as a percentage total gross profit increased from 33% in 2016 to 51% in 2017.
As Sound Concepts continues to shift its business to digital, it anticipates the gross profit percentage will continue to increase.
Research
and Development Expenses
Research
and development expenses for the year ended December 31, 2017 increased by approximately $341,000, or 25%, to approximately $1.7
million as compared to approximately $1.4 million for the year ended December 31, 2016. The increase was primarily due to additional
support and product development costs related to the growth of the digital business.
General
and Administrative Expenses
General
and administrative expenses for the year ended December 31, 2017 increased by approximately $111,000, or 3%, to approximately
$3.5 million as compared to approximately $3.4 million for the year ended December 31, 2016. The increase was principally the
effect of an increase in a lease of a digital press. The digital press allows for the reduction of inventory, flexibility with
client updates and increased efficiency.
Operating
Loss
Operating
loss for the year ended December 31, 2017 decreased by approximately $734,000, or 99%, to approximately $8,000 as compared to
$742,000 for the year ended December 31, 2016. The decrease in operating loss was driven by the increase in gross profit of approximately
$1.2 million offset by an increase in operating expenses of $452,000.
Liquidity
and Capital Resources
As of September 30,
2018, Sound Concepts’ cash on hand was $441,000. Sound Concepts has relied on cash flows provided by operations to fund
operations and operating obligations. Sound Concepts has been growing its revenue, which has contributed to the growth of its
gross profit. Sound Concepts expects to incur increases in operating expenses as it further invests to develop and roll out its
technology.
On December 27, 2016,
Sound Concepts entered into a financing agreement with a financial institution, Zions National First Bank (ZB, N.A.) (“Zions”),
to obtain a line of credit. The financing agreement entered into by and between Sound Concepts and Zions provided Sound Concepts
with a revolving credit facility in an aggregate principal amount not to exceed $500,000 at any time (the “Revolving Line”).
The Revolving Line is secured by Sound Concepts’ assets, bears average interest at a rate of 4% per annum, matures every
anniversary, but automatically renews for additional one-year periods, until terminated by the parties. The Revolving Line matures
on December 27, 2018. As of September 30, 2018, the amount outstanding under the Revolving Line was $78,000. Subsequently, in
October 2018, Sound Concepts paid the entire outstanding amount of $78,000. In addition, Sound Concepts has a note payable of
$34,000 related to an outstanding car loan for an employee.
Management
believes that Sound Concepts’ cash on hand and cash flows expected to be generated from operations will be sufficient to
fund Sound Concepts’ net cash requirements through November 2019.
Net
Cash Provided by Operating Activities
Net
cash provided by operating activities was approximately $565,000 for the nine months ended September 30, 2018, compared to approximately
$120,000 used in operations for the nine months ended September 30, 2017. Cash provided by operating activities for the nine months
ended September 30, 2018 was primarily the result of net income of $612,000, an increase in customer deposits of $78,000, and
a decrease of net inventory of $60,000, offset by a decrease in accrued liabilities and payroll of $112,000 plus a decrease in
deferred revenue of $69,000. Cash used by operating activities for the nine months ended September 30, 2017 was primarily the
result of net income of $342,000, the decrease in net inventory of $297,000, and the increase in deferred revenue of $128,000,
offset by a decrease in accounts payable of $591,000 and an increase in accounts receivable of $316,000.
Net
Cash Used in Investing Activities
Net cash used in investing
activities was approximately $51,000 for the nine months ended September 30, 2018, compared to approximately $6,000 used by investing
activities for the nine months ended September 30, 2017. The net cash used in investing activities for the nine months ended September
30, 2018 and 2017 was principally attributable to the purchases of property and equipment.
Net
Cash Used in Financing Activities
Net
cash used in financing activities was approximately $151,000 for the nine months ended September 30, 2018, as compared to approximately
$90,000 provided by financing activities for the nine months ended September 30, 2017. During the nine months ended September
30, 2018, cash flows used in financing activities consisted of a decrease in the credit line of $202,000 offset by an increase
in notes payable of $28,000 and a repayment of a related party loan of $23,000. During the nine months ended September 30, 2017,
cash flows provided by financing activities consisted of an increase in its Revolving Line of $100,000, and a repayment of a related
party loan of $5,000, offset by a decrease in notes payable of $15,000.
Off-Balance
Sheet Arrangements
None.
Critical
Accounting Policies
Use
of Estimates
Sound Concepts’
financial statements were prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that
affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ
materially from these estimates. The accounting estimates and assumptions that require management’s most significant, difficult,
and subjective judgment include the collectability of accounts receivable, inventory obsolescence, assessment of useful lives
and recoverability of long-lived assets, and accruals for potential liabilities, among others. Actual results experienced by Sound
Concepts may differ from management’s estimates.
Revenue Recognition
Sound Concepts derives
its revenue primarily from providing digital marketing and sales support services, from customized print products and training
materials, to branded apparel and digital tools, as demanded by its customers. Revenue is recognized when there is persuasive
evidence of an arrangement, delivery has occurred, the fee is fixed or determinable, and collectability of the resulting receivable
is reasonably assured. Determining whether and when these criteria have been satisfied requires Sound Concepts to make assumptions
and judgments that could have a significant impact on the timing and amount of revenue it reports.
Sound Concepts also
charges certain customers setup or installation fees for the creation and development of websites and phone applications. These
fees are accounted as part of deferred revenues and amortized over the estimated life of the agreement.
Sound Concepts adopted
ASC 606 starting January 1, 2018. The adoption did not have a significant impact on Sound Concepts’ revenue recognition,
including its set-up income from customers.
Income Taxes
Sound Concepts is
a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities
and/or benefits of Sound Concepts being passed through to the member. As such, no recognition of federal or state income taxes
for Sound Concepts or its subsidiaries that are organized as limited liability companies has been provided in the accompanying
financial statements. Any uncertain tax position taken by the member is not an uncertain position of Sound Concepts.
There
was no taxable income and, therefore, there was no distributions in the years ended December 31, 2017 and 2016 respectively. Additionally,
there was no distributions in the nine months ended September 30, 2018 and 2017.
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The
following unaudited pro forma condensed combined financial statements and related notes are based on our and Sound Concepts’
historical financial statements after giving effect to the proposed Sound Concepts Acquisition, and the assumptions, reclassifications,
and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. On November
8, 2018, we entered into Merger Agreement, by and among Sound Concepts, Merger Sub 1, Merger Sub 2, the Sound Concepts Shareholders,
the Shareholder Representative, and us, pursuant to which we will acquire Sound Concepts through a two-step Merger, consisting
of merging Merger Sub 1 with and into Sound Concepts, with Sound Concepts surviving the “first step” of the Merger
as our wholly-owned subsidiary (and the separate corporate existence of Merger Sub 1 will cease) and, immediately thereafter,
merging Sound Concepts with and into Merger Sub 2, with Merger Sub 2 surviving the “second step” of the Merger such
that upon the conclusion of the “second step” of the Merger, the separate corporate existence of Sound Concepts will
cease and Merger Sub 2 will continue its limited liability company existence under Utah law as the surviving entity and as our
wholly-owned subsidiary.
The
following unaudited pro forma condensed combined balance sheet as of September 30, 2018 is presented as if the Sounds Concepts
Acquisition had occurred on September 30, 2018. The unaudited pro forma condensed combined statements of operations for the year
ended December 31, 2017 and the nine months ended September 30, 2018 is presented as if the Sound Concepts Acquisition had occurred
on January 1, 2017 with recurring acquisition-related adjustments reflected in such period. The pro forma adjustments to the unaudited
pro forma condensed combined financial statements reflect events that are directly attributable to the proposed Sound Concepts
Acquisition. We have based the pro forma adjustments upon available information and certain assumptions that we believe are reasonable
under the circumstances. We describe in greater detail the assumptions underlying the pro forma adjustments in the accompanying
notes, which you should read in conjunction with these unaudited pro forma condensed combined financial statements. In many cases,
we based these assumptions on preliminary estimates, assumptions, and information. The actual adjustments to our condensed consolidated
financial statements will depend upon a number of factors and additional information that will be available after the closing
date of this offering. Accordingly, the actual adjustments that will appear in our financial statements will differ from these
pro forma adjustments, and those differences may be material.
We
will account for the Sound Concepts Acquisition using the acquisition method of accounting for business combinations. Under the
acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible
assets, liabilities, and any non-controlling interest based on their estimated fair values as of the acquisition date. Once we
complete our final valuation processes for the Sound Concepts Acquisition, we may report changes to the value of the assets acquired,
as well as the amount of goodwill, and those changes could differ materially from what we present here.
The
following unaudited pro forma condensed combined financial statements are prepared for illustrative purposes only and are not
necessarily indicative of or intended to represent the results that would have been achieved had the transaction been consummated
as of the date indicated or that may be achieved in the future. The unaudited pro forma condensed combined financial statements
do not reflect any operating efficiencies and associated cost savings that we may achieve with respect to the combined companies.
You
should read these unaudited pro forma condensed combined financial statements in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – nFüsz,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Sound Concepts,” our historical consolidated financial
statements and accompanying notes included in this prospectus, and Sound Concepts’ historical consolidated financial statements
and accompanying notes included in this prospectus.
NFUSZ,
INC.
Unaudited
Pro Forma Condensed Combined Balance Sheet
As of September 30, 2018
|
|
nFusz,
Inc.
|
|
|
Sound
Concepts, Inc.
|
|
|
Pro
Forma Adjustments
|
|
|
|
|
|
|
|
|
|
September
30, 2018
|
|
|
September
30, 2018
|
|
|
Equity
Raise
|
|
|
Acquisition
|
|
|
Notes(4)
|
|
|
Pro
Forma
Combined
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
379,000
|
|
|
$
|
441,000
|
|
|
|
18,574,000
|
|
|
|
(15,660,000
|
)
|
|
(a)(b)
|
|
|
$
|
3,734,000
|
|
Accounts
Receivable, net
|
|
|
3,000
|
|
|
|
964,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967,000
|
|
Inventory,
net
|
|
|
-
|
|
|
|
247,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,000
|
|
Prepaid
expenses
|
|
|
63,000
|
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,000
|
|
Advance
to related party
|
|
|
-
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,000
|
|
Total
current assets
|
|
|
445,000
|
|
|
|
1,785,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,144,000
|
|
Deferred
offering costs
|
|
|
129,000
|
|
|
|
-
|
|
|
|
(129,000
|
)
|
|
|
|
|
|
|
|
|
|
-
|
|
Property
and equipment, net
|
|
|
15,000
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,000
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
24,702,000
|
|
|
(c)
|
|
|
|
24,702,000
|
|
Other
assets
|
|
|
8,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
597,000
|
|
|
$
|
1,885,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,969,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
821,000
|
|
|
$
|
735,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,556,000
|
|
Accrued
interest (including $38,000 and $99,000 payable to related parties)
|
|
|
38,000
|
|
|
|
114,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,000
|
|
Accrued
officers’ salary
|
|
|
169,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,000
|
|
Customer
deposits
|
|
|
-
|
|
|
|
223,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,000
|
|
Deferred
revenue
|
|
|
3,000
|
|
|
|
403,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406,000
|
|
Credit
line payable
|
|
|
-
|
|
|
|
78,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,000
|
|
Notes
payable - related party
|
|
|
352,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352,000
|
|
Derivative
liability
|
|
|
673,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673,000
|
|
Total
current liabilities
|
|
|
2,056,000
|
|
|
|
1,553,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,609,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
Payable
|
|
|
824,000
|
|
|
|
34,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
858,000
|
|
Total
liabilities
|
|
|
2,880,000
|
|
|
|
1,587,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,467,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Common
stock
|
|
|
18,000
|
|
|
|
3,000
|
|
|
|
6,000
|
|
|
|
|
|
|
(a)
(d)(e)
|
|
|
|
27,000
|
|
Additional
paid-in capital
|
|
|
34,432,000
|
|
|
|
465,000
|
|
|
|
18,439,000
|
|
|
|
9,532,000
|
|
|
(a)(e)(f)
|
|
|
|
62,868,000
|
|
Treasury
stock
|
|
|
-
|
|
|
|
(445,000
|
)
|
|
|
|
|
|
|
445,000
|
|
|
(g)
|
|
|
|
-
|
|
Accumulated
income / (deficit)
|
|
|
(36,733,000
|
)
|
|
|
275,000
|
|
|
|
|
|
|
|
(935,000
|
)
|
|
(b)
(d)
|
|
|
|
(37,393,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity (deficit)
|
|
|
(2,283,000
|
)
|
|
|
298,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,502,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
597,000
|
|
|
$
|
1,885,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,969,000
|
|
NFUSZ,
INC.
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the nine months ended September 30, 2018
|
|
For
the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
nFusz,
Inc.
September
30, 2018
|
|
|
Sound
Concepts
,
Inc.
September
30, 2018
|
|
|
Pro
Forma
Adjustments
|
|
|
Notes
|
|
|
Pro
Forma
Combined
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Net
Sales
|
|
$
|
26,000
|
|
|
$
|
9,314,000
|
|
|
|
|
|
|
|
|
|
$
|
9,340,000
|
|
Cost
of revenue
|
|
|
-
|
|
|
|
5,046,000
|
|
|
|
|
|
|
|
|
|
|
5,046,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
26,000
|
|
|
|
4,268,000
|
|
|
|
|
|
|
|
|
|
|
4,294,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
437,000
|
|
|
|
1,567,000
|
|
|
|
|
|
|
|
|
|
|
2,004,000
|
|
General
and administrative
|
|
|
5,252,000
|
|
|
|
2,077,000
|
|
|
|
660,000
|
|
|
(a)
|
|
|
|
7,989,000
|
|
Total
operating expenses
|
|
|
(5,689,000
|
)
|
|
|
(3,644,000
|
)
|
|
|
|
|
|
|
|
|
|
(9,993,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
/ (Loss) from operations
|
|
|
(5,663,000
|
)
|
|
|
624,000
|
|
|
|
|
|
|
|
|
|
|
(5,699,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income / (expense)
|
|
|
(25,000
|
)
|
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
|
|
(37,000
|
)
|
Change
in fair value of derivative liability
|
|
|
(840,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(840,000
|
)
|
Financing
costs
|
|
|
(171,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(171,000
|
)
|
Interest
expense (including $176,000 to related parties)
|
|
|
(322,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(322,000
|
)
|
Interest
expense - amortization of debt discount
|
|
|
(748,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(748,000
|
)
|
Gain
on debt extinguishment, net
|
|
|
(423,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(423,000
|
)
|
Total
other expense
|
|
|
(2,529,000
|
)
|
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
|
|
(2,541,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income / (Loss)
|
|
$
|
(8,192,000
|
)
|
|
$
|
612,000
|
|
|
|
|
|
|
|
|
|
$
|
(8,240,000
|
)
|
Income
per share
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.04
|
)
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
|
146,164,472
|
|
|
|
|
|
|
|
85,207,608
|
|
|
(a)
|
|
|
|
231,372,080
|
|
NFUSZ,
INC.
Combined
Statement of Operations
For the year ended December 31, 2017
|
|
For
the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
nFusz,
Inc.
December
31, 2017
|
|
|
Sound
Concepts, Inc.
December
31, 2017
|
|
|
Pro
Forma
Adjustments
|
|
|
Notes
|
|
|
Pro
Forma
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Net
Sales
|
|
$
|
6,000
|
|
|
$
|
11,975,000
|
|
|
|
|
|
|
|
|
|
$
|
11,981,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
-
|
|
|
|
5,856,000
|
|
|
|
|
|
|
|
|
|
|
5,856,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
6,000
|
|
|
|
6,119,000
|
|
|
|
|
|
|
|
|
|
|
6,125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
375,000
|
|
|
|
1,731,000
|
|
|
|
|
|
|
|
|
|
|
2,106,000
|
|
General
and administrative
|
|
|
4,328,000
|
|
|
|
4,396,000
|
|
|
|
660,000
|
|
|
(a)
|
|
|
|
9,384,000
|
|
Total
operating expenses
|
|
|
(4,703,000
|
)
|
|
|
(6,127,000
|
)
|
|
|
|
|
|
|
|
|
|
(11,490,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,697,000
|
)
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
|
(5,365,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (expense)
|
|
|
20,000
|
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
|
|
|
13,000
|
|
Change
in fair value of derivative liability
|
|
|
6,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Financing
costs
|
|
|
(643,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(643,000
|
)
|
Interest
expense (including $236,000 to related parties for six months)
|
|
|
(555,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(555,000
|
)
|
Interest
expense - amortization of debt discount
|
|
|
(418,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(418,000
|
)
|
Debt
extinguishment, net
|
|
|
(977,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(977,000
|
)
|
Total
other expense
|
|
|
(2,567,000
|
)
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
|
|
|
(2,574,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,264,000
|
)
|
|
$
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
$
|
(7,939,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
2,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,266,000
|
)
|
|
$
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
$
|
(7,941,000
|
)
|
Income
per share
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.04
|
)
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
|
106,148,101
|
|
|
|
|
|
|
|
85,207,608
|
|
|
(a)
|
|
|
|
191,355,709
|
|
NFUSZ,
INC.
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1.
BASIS OF PRESENTATION
The
adjustments to the historical financial statements give pro forma effect to events that are (i) directly attributable to each
specific transaction, (ii) factually supportable, and (iii) either expected to have a continuing impact or are nonrecurring. The
financial information included in the unaudited pro forma condensed combined balance sheet and statement of operations is prepared
in accordance with accounting principles generally accepted in the United States of America.
The
business combination will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805,
Business
Combinations
. As the acquirer for accounting purposes, we have preliminarily estimated the fair value and useful lives of
the acquired assets and assumed liabilities of Sound Concepts.
The
pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition
or results of operations would have been had the Sound Concepts Acquisition occurred on the dates indicated. They also may not
be useful in predicting the future financial condition and results of operations of the combined company. The actual financial
position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The
combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies from
the Sound Concepts Acquisition.
2.
DESCRIPTION OF ACQUISITION
On
November 8, 2018, we entered into the Merger Agreement, by and among Sound Concepts, Merger Sub 1, Merger Sub 2, the Sound
Concepts Shareholders, the Shareholder Representative, and us, pursuant to which we will acquire Sound Concepts through a two-step
Merger, consisting of merging Merger Sub 1 with and into Sound Concepts, with Sound Concepts surviving the “first step”
of the Merger as our wholly-owned subsidiary (and the separate corporate existence of Merger Sub 1 will cease) and, immediately
thereafter, merging Sound Concepts with and into Merger Sub 2, with Merger Sub 2 surviving the “second step” of the
Merger such that upon the conclusion of the “second step” of the Merger, the separate corporate existence of Sound
Concepts will cease and Merger Sub 2 will continue its limited liability existence under Utah law as the surviving entity and
as our wholly-owned subsidiary. Sound Concepts is a Utah-based digital marketing and sales support service company.
On
the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time of the Merger, each share of
the Sound Concepts Capital Stock issued and outstanding immediately prior to the Effective Time will be cancelled and converted
into the right to receive a proportionate share of the Closing Merger Consideration of $25,000,000, to be payable through a combination
of the $15,000,000 Acquisition Cash Payment and the issuance of the Acquisition Stock with a fair market value of $10,000,000.
The Closing Merger Consideration is not subject to any closing working capital adjustment or post-closing working capital adjustment.
3.
PRELIMINARY PURCHASE PRICE ALLOCATION
We
are required to allocate the purchase price to acquired tangible assets, identifiable intangible assets, and assumed liabilities
based on their fair values. Management has not yet finalized its valuation analysis and, therefore, the allocation of the purchase
price is based on fair value estimates that are still preliminary and subject to change. There can be no assurances that these
final valuations will not result in material changes to the estimated allocation.
The
following table reflects the allocation of the purchase price to the estimated fair values assigned to the acquired tangible assets,
identifiable intangible assets, and assumed liabilities, with the excess recorded as goodwill.
|
|
As
of September 30, 2018
|
|
|
|
unaudited
|
|
|
|
Fair
Value
|
|
Assets
Acquired:
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
$
|
1,785,000
|
|
|
|
|
|
Property
and equipment
|
|
|
90,000
|
|
|
|
|
|
Other
assets
|
|
|
10,000
|
|
|
$
|
1,885,000
|
|
Liabilities
Assumed:
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
(1,553,000
|
)
|
|
|
|
|
Long
term liabilities
|
|
|
(34,000
|
)
|
|
$
|
(1,587,000
|
)
|
Goodwill
|
|
|
|
|
|
|
24,702,000
|
|
Purchase
Price
|
|
|
|
|
|
$
|
25,000,000
|
|
4.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a)
The Acquisition Cash Payment of the Closing Merger Consideration is $15 million. We intend to fund the Acquisition Cash Payment,
as well as transaction and integration expenses associated with the Sound Concepts Acquisition, with a portion of the net proceeds
from the offering and sale of our Common Stock. Our determination of the number of shares of our Common Stock we will offer and
sell in connection with the Sound Concepts Acquisition is subject to a number of variables that cannot be quantified at this time.
These variables include the actual amount of transaction and integration expenses that we will incur related to the Sound Concepts
Acquisition and the number of shares of, and price at which, our Common Stock will be sold in the offering. For purposes of these
Unaudited Pro Forma Condensed Combined Financial Statements, we have estimated that we will issue 58,884,892 shares of our Common
Stock, resulting in gross proceeds of $20,000,000 and incur transaction expenses of approximately $1,426,000 in connection with
the offering, of which approximately $129,000 was deferred as of September 30, 2018, for net proceeds of approximately $18,574,000.
The estimated number of shares is based on the closing price of our Common Stock on December 7, 2018. The number of shares of
our Common Stock we will offer and sell in the offering, the gross proceeds resulting therefrom, and the amount of transaction
and integration expenses we will incur in connection with the Sound Concepts Acquisition may differ materially from these estimates.
(b)
Reflects the Acquisition Cash Payment of $15,000,000. The Closing Merger Consideration is not subject to any closing working capital
adjustment or post-closing working capital adjustment; thus, no provision was made for any working capital adjustments. For purposes
of these Unaudited Pro Forma Condensed Combined Financial Statements, we have estimated that we will incur expenses of approximately
$660,000 in connection with the Sound Concepts Acquisition.
(c)
Reflects the preliminary recognition of $24,702,000 of goodwill attributable to the Sound Concepts Acquisition. See Note 3,
Preliminary
Purchase Price Allocation
.
(d)
Reflects the elimination of historical equity balances of Sound Concepts.
(e)
Reflects the Acquisition Stock portion of the Closing Merger Consideration with a fair market value of $10 million. For purposes
of these Unaudited Pro Forma Condensed Combined Financial Statements, we have estimated that we will issue 26,322,716 shares of
our Common Stock to the Shareholders as the Acquisition Stock portion of the Closing Merger Consideration. The estimated number
of shares is based on the closing price of our Common Stock on December 7, 2018. The number of shares of our Common Stock we will
issue may differ materially from these estimates.
(f)
Reflects the elimination of Sound Concepts’ additional paid-in capital in the amount of $465,000.
(g)
Reflects the elimination of treasury stock of Sound Concepts in the amount of $445,000.
MANAGEMENT
Directors
and Executive Officers
Each
of our directors holds office until the next annual meeting of our stockholders or until his successor has been elected and qualified,
or until his death, resignation, or removal. Our executive officers are appointed by our board of directors and hold office until
their death, resignation, or removal from office.
Our
directors and executive officers, their ages, positions held, and duration of such, are as follows:
Name
|
|
Position
Held with Our Company
|
|
Age
|
|
Date
First Elected or
Appointed
|
Rory
J. Cutaia
|
|
Chairman
of the Board, President, Chief Executive Officer, Secretary, and Treasurer
|
|
62
|
|
October
16, 2014
|
|
|
|
|
|
|
|
Jeffrey
R. Clayborne
|
|
Chief
Financial Officer
|
|
47
|
|
July
15, 2016
|
|
|
|
|
|
|
|
Chad
J. Thomas
|
|
Chief
Technology Officer
|
|
47
|
|
October
12, 2018
|
|
|
|
|
|
|
|
James
P. Geiskopf
|
|
Director
|
|
59
|
|
October
16, 2014
|
|
|
|
|
|
|
|
Phillip
J. Bond
|
|
Director
|
|
62
|
|
September
10, 2018
|
|
|
|
|
|
|
|
Kenneth
S. Cragun
|
|
Director
|
|
57
|
|
September
10, 2018
|
Business
Experience
The
following is a brief overview of the education and business experience of each of our directors and executive officers during
at least the past five years, including their principal occupations or employment during the period, the name and principal business
of the organization by which they were employed, and certain of their other directorships:
Rory
J. Cutaia, Chairman of the Board, President, Chief Executive Officer, Secretary, and Treasurer
Rory
J. Cutaia has been our Chairman of the Board, Chief Executive Officer, President, Secretary, and Treasurer since the formation
of CMG, in which roles he has continued to serve through our October 2014 acquisition of bBooth USA to current. Mr. Cutaia founded
CMG in 2012 and bBooth, Inc. in 2014. In May 2014, CMG and bBooth, Inc. merged and became known as bBoothUSA, which entity was
acquired in October 2014 by GSD, our predecessor. Prior to that, from October 2006 to August 2011, he was a partner and
Entrepreneur-in-Residence
at Corinthian Capital Group, Inc. (“Corinthian”), a private equity fund based in New York City that invested in
middle-market, U.S. based companies. During his tenure at Corinthian, from June 2008 to October 2011, he was the co-founder and
Executive Chairman of Allied Fiber, Inc., a company engaged in the construction of a nation-wide fiber-optic network, and from
June 2007 to August 2011, Mr. Cutaia was the Chief Executive Officer of GreenFields Coal Company, a company engaged in the deployment
of technology to recycle coal waste and clean-up coal waste sites. Before joining Corinthian, from January 2000 to October 2006,
he founded and was the Chairman and Chief Executive Officer of The Telx Group, Inc. (“Telx”), a company engaged in
the telecom carrier inter-connection, co-location, and data center business, which he sold in 2006. Before founding Telx, he was
a practicing lawyer with Shea & Gould, a prominent New York City law firm. Mr. Cutaia obtained his Juris Doctorate degree
from the Fordham University School of Law in 1985 and his Bachelor of Science,
magna cum laude
, in business management
from the New York Institute of Technology in 1982. We believe that Mr. Cutaia is qualified to serve on our board of directors
because of his knowledge of our current operations, in addition to his education and business experiences described above.
Jeffrey
R. Clayborne, Chief Financial Officer
Jeffrey
R. Clayborne has been our Chief Financial Officer since July 15, 2016. Mr. Clayborne is an experienced finance professional with
an entrepreneurial spirit and proven record of driving growth and profit for both Fortune 50 companies, as well as start-up companies.
Prior to joining the Company, Mr. Clayborne served as Chief Financial Officer and a consultant with Breath Life Healing Center
from August 2015 to July 2016. From September 2014 to August 2015, he served as Vice President of Business Development of Incroud,
Inc and from May 2012 to September 2014, Mr. Clayborne served as President of Blast Music, LLC. Prior to this, Mr. Clayborne was
employed by Universal Music Group where he served as Vice President, Head of Finance & Business Development for Fontana, where
he managed the financial planning and analysis of the sales and marketing division and led the business development department.
He also served in senior finance positions at The Walt Disney Company, including Senior Finance Manager at Walt Disney International,
where he oversaw financial planning and analysis for the organization in 37 countries. Mr. Clayborne began his career as a CPA
at McGladrey & Pullen LLP (now, RSM US LLP), then at KPMG Peat Marwick (now, KPMG). He brings with him more than 20 years
of experience in all aspects of strategy, finance, business development, negotiation, and accounting. Mr. Clayborne earned his
Master of Business Administration degree from the University of Southern California, with high honors.
Chad
J. Thomas, Chief Technology Officer
Chad
J. Thomas was appointed as our Chief Technology Officer on October 12, 2018. Mr. Thomas has extensive engineering, technology,
programming, and software development experience, and a proven track record of innovation and building for scale. From January
2017 to September 2018, he served as the Chief Technology Officer of Swarm Engineering, where he created the technology to allow
edge IoT devices to work in a swarm to solve problems in a traditional cloud-based analytics architecture. From October 2014 to
January 2017, Mr. Thomas co-founded, and served as the Chief Technology Officer of LifeSpeed, Inc., a revolutionary health and
wellness platform that allows families, medical professionals, and caretakers to store and share medical history data safely and
participate in clinical trials. From May 2012 to October 2014, he was a System Architect at English First Shanghai China. Prior
to that Mr. Thomas was employed as an architect, designer, and coder of MySpace, where he built the platform that accommodated
rapid global growth for millions of users. Mr. Thomas began his career as an Airborne Ranger. Mr. Thomas studied electrical engineering
at the University of Nebraska, graduating in 1994, and earned an M.S. in electrical engineering and computer science from Massachusetts
Institute of Technology in 1997.
James
P. Geiskopf, Director
James
P. Geiskopf has been one of our directors since the formation of bBooth USA, in which role he has continued to serve through our
October 2014 acquisition of bBooth USA by GSD, our predecessor, to current. He also serves as our Lead Director. Mr. Geiskopf
has 32 years of experience leading companies in the services industry. From 1975 to 1986, Mr. Geiskopf served as the Chief Financial
Officer of Budget Rent a Car of Fairfield California and from 1986 to 2007, he served as its President and Chief Executive Officer.
In 2007, he sold the franchise. Mr. Geiskopf served on the Board of Directors of Suisun Valley Bank from 1986 to 1993 and also
served on the Board of Directors of Napa Valley Bancorp from 1991 to 1993, which was sold to a larger institution in 1993. Since
2014, Mr. Geiskopf has served on the board of directors of ICO X Innovations, Inc., a public company quoted on the OTC Markets
Group Inc.’s OTCPK tier. From June 2013 to March 16, 2017, the date of his resignation, Mr. Geiskopf had served as a director
of Electronic Cigarettes International Group, Ltd., a Nevada corporation, whose common stock had been quoted on the over-the-counter
market (“ECIG”). ECIG filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United
States Code on March 16, 2017.
Mr.
Geiskopf has significant and lengthy business experience including building, operating, and selling companies, serving on the
boards of directors for several banks, and serving as a director and officer of several public companies. In these roles he acquired
substantial business management, strategic, operational, human resource, financial, disclosure, compliance, and corporate governance
skills. These were the primary reasons that we concluded that he should serve as one of our directors.
Phillip
J. Bond, Director
Phillip
J. Bond was appointed as one of our directors effective September 10, 2018. On the same date, he was appointed as Chairman of
the Governance and Nominating Committee and to serve on the Audit, Compensation, and Governance and Nominating Committees. In
2018, Mr. Bond co-founded Potomac International Partners, Inc., a multidisciplinary consulting firm and currently serves as its
President. In 2009, TechAmerica, a U.S.-based technology trade association, was formed from the merger of AeA, the Cyber Security
Industry Alliance, the Government Electronics & Information Technology Association, and the Information Technology Association
of America. Mr. Bond was appointed as the President of TechAmerica at the date of the merger, and later, in 2010, was appointed
as its Chief Executive Officer. Prior to the merger, Mr. Bond served as the President and Chief Executive Officer of Information
Technology Association of America from 2006 to 2008. From 2001 to 2005, Mr. Bond served as Undersecretary of the U.S. Department
of Commerce for Technology. From 2002 to 2003, Mr. Bond served concurrently as Chief of Staff to Commerce Secretary Donald Evans.
In his dual role, he worked closely with Secretary Evans to increase market access for U.S. goods and services and further advance
America’s technological leadership at home and abroad. Mr. Bond oversaw the operations of the National Institute of Standards
and Technology (NIST), the Office of Technology Policy, and the National Technical Information Service. During his tenure, the
Technology Administration was the pre-eminent portal between the federal government and the U.S. technology. Earlier in his career,
Mr. Bond served as Senior Vice President of Government Relations for Monster Worldwide, the world’s largest online career
site, and General Manager of Monster Government Solutions. Mr. Bond also served as Director of Federal Public Policy for the Hewlett-Packard
Company; Senior Vice President for Government Affairs and Treasurer of the Information Technology Industry Council; as Chief of
Staff to the late Congresswoman Jennifer Dunn (R-WA); Principal Deputy Assistant Secretary of Defense for Legislative Affairs;
Chief of Staff and Rules Committee Associate for Congressman Bob McEwen (R-OH); and as Special Assistant to the Secretary of Defense
for Legislative Affairs. Mr. Bond is a graduate of Linfield College in Oregon.
Mr.
Bond has extensive experience in Washington D.C., where he is recognized for his leadership roles in the Executive branch of the
government of the United States, at major high technology companies, and most recently as the Chief Executive Officer of TechAmerica,
the largest technology advocacy association in the United States. Mr. Bond’s unique leadership experience and expertise
in Government Relations, were the primary reasons that we concluded that he should serve as one of our directors.
Kenneth
S. Cragun, Director
Kenneth
S. Cragun was appointed as one of our directors effective September 10, 2018. On the same date, he was appointed as Chairman of
the Audit Committee, and to serve on the Compensation and Governance and Nominating Committees. Since January 2018, Mr. Cragun
has served as the Chief Financial Officer of CorVel Corporation (“CorVel”). CorVel is an Irvine, California-based
national provider of workers’ compensation solutions for employers, third-party administrators, insurance companies, and
government agencies. Mr. Cragun also serves as a partner of Hardesty, LLC, a national executive services firm. He has been a partner
of its Southern California Practice since October 2016. Mr. Cragun is a two-time finalist for the Orange County Business Journal’s
“CFO of the Year – Public Companies” and has more than 30 years of experience, primarily in the technology industry.
He served as Chief Financial Officer of two NASDAQ-listed companies: Local Corporation (April 2009 to September 2016), formerly
based in Irvine, California, which operated a U.S. top 100 website “Local.com” and, in June 2015, filed a voluntary
petition in the United States Bankruptcy Court for the Central District of California seeking relief under the provisions of Chapter
11 of Title 11 of the United States Code (the “Bankruptcy Code”), and Modtech Holdings, Inc. (June 2006 to March 2009),
formerly based in neighboring states and, in October 2008, filed a voluntary petition in the United States Bankruptcy Court for
the Central District of California seeking relief under the provisions of Chapter 11 of the Bankruptcy Code. Mr. Cragun received
his B.S. in Accounting from Colorado State University-Pueblo.
Mr.
Cragun’s industry experience is vast with extensive experience in fast-growth environments and building teams in more than
20 countries. Mr. Cragun has led multiple financing transactions, including IPOs, PIPEs, convertible debt, term loans, and lines
of credit. For these reasons, we believe that he will provide additional breadth and depth to our board of directors.
Family
Relationships
There
are no family relationships among any of our directors or executive officers.
Significant
Employees
We
do not currently have any significant employees other than our executive officers. However, the Merger Agreement contemplates
that McKinley Oswald, Jason Matheny, Colby Allen, and JJ Oswald (each, a “key employee”) will be employed by us following
the Closing of the Sound Concepts Acquisition under terms and conditions to be agreed upon prior to Closing and as set forth in
employment agreements entered into with each key employee. The following is a brief overview of each key employee’s biographical
information.
McKinley
J. Oswald, Chief Executive Officer of Sound Concepts
McKinley
J. Oswald, age 43, has served as the Chief Executive Officer of Sound Concepts since 2014. His full-time contributions at Sound
Concepts began after graduating from the University of Utah in 1998. In 2001, Mr. Oswald and his partners purchased Sound Concepts,
and over the past 17 years have introduced numerous innovations that significantly expanded the company’s offerings and
revenue generation capabilities, including the development of the Brightools platform. Mr. Oswald has been principally responsible
for establishing the culture and direction of Sound Concepts and has helped position Sound Concepts at the forefront of the industry
by securing customer relationships with many of the leading direct sales, network marketing, and affiliate marketing companies,
and partnerships with industry experts.
Jason
Matheny, Chief Technology Officer of Sound Concepts
Jason
R. Matheny, age 48, has served as Sound Concepts’ Chief Technology Officer since 2014. After graduating with a bachelor’s
degree in accounting from the University of Utah, he went on to obtain his MBA from Brigham Young University. Coupling his education
with his versatility has allowed him to take on a variety of responsibilities during his more than 25 years at Sound Concepts.
Since Mr. Matheny and his partners purchased Sound Concepts in 2001, he has served in a variety of roles, including Chief Financial
Officer. Currently, Mr. Matheny oversees all aspects of the company’s technology team, having played an instrumental role
in launching the digital Brightools platform and leading the Brightools team in doubling its growth each of the last two years.
Colby
Allen, Chief Operations Officer of Sound Concepts
Colby
Allen, age 44, has served as the Chief Operating Officer of Sound Concepts since 2014. Previously, Mr. Allen served its Chief
Sales Officer. During the course of his career, Mr. Allen has utilized his skill set to focus on the creation of online and offline
tools that help companies more effectively communicate their value proposition. Mr. Allen has overseen the integration of the
Brightools platform with Sound Concepts’ on-demand marketing and sample delivery tools. His experience has helped improve
virtually every aspect of Sound Concepts’ operations and ensured that Sound Concepts’ digital tools and physical operations
operate synergistically. Mr. Allen earned a Bachelor of Science degree in Business Marketing from the University of Phoenix (magna
cum laude).
JJ
Oswald, Chief Sales Officer of Sound Concepts
JJ
Oswald, age 41, is the Chief Sales Officer of Sound Concepts, a position he has held since 2014. Prior to joining Sound Concepts,
Mr. Oswald owned an event rental company, and assisted in growing revenues by 400% before eventually selling the company. He joined
the Sound Concepts team in 2007 and brought with him a wide array of sales experience with a focus on developing and maintaining
robust and mutually beneficial relationships with clients. Mr. Oswald has played a key role in the design of many of the sales
tools contained within the Brightools platform. These tools have proven instrumental in driving significant revenue increases
and the overall growth and adoption of the Brightools platform.
Involvement
in Certain Legal Proceedings
Other
than the matter s listed above with respect to Messrs. Geiskopf and Cragun, none of our directors and executive officers
has been involved in any of the following events during the past ten years:
|
(a)
|
any
petition under the federal bankruptcy laws or any state insolvency laws filed by or against, or an appointment of a receiver,
fiscal agent or similar officer by a court for the business or property of such person, or any partnership in which such person
was a general partner at or within two years before the time of such filing, or any corporation or business association of
which such person was an executive officer at or within two years before the time of such filing;
|
|
|
|
|
(b)
|
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offences);
|
|
|
|
|
(c)
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures
commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct
or practice in connection with such activity; engaging in any type of business practice; or (ii) engaging in any activity
in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state
securities laws or federal commodities laws;
|
|
|
|
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(d)
|
being
the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described
in paragraph (c)(i) above, or to be associated with persons engaged in any such activity;
|
|
|
|
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(e)
|
being
found by a court of competent jurisdiction (in a civil action), the SEC to have violated a federal or state securities or
commodities law, and the judgment in such civil action or finding by the SEC has not been reversed, suspended, or vacated;
|
|
|
|
|
(f)
|
being
found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated
any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission
has not been subsequently reversed, suspended or vacated;
|
|
|
|
|
(g)
|
being
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law
or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
|
|
|
|
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(h)
|
being
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of
the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority
over its members or persons associated with a member.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
Related
Party Transactions
We
follow ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
When and if we contemplate entering into a transaction in which any executive officer, director, nominee, or any family member
of the foregoing would have a direct or indirect interest, regardless of the amount involved, the terms of such transaction are
to be presented to our full board of directors (other than any interested director) for approval, and documented in the board
minutes.
Other
than as disclosed below, since January 1, 2017, the beginning of our last full fiscal year, we have had no related party transactions.
Notes
Payable — Related Parties
We
had the following outstanding notes payable during the period specified above:
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Largest
Aggregate Amount Outstanding Since
January
1, 2017
|
|
|
Amount
Outstanding as of December 7 , 2018
|
|
|
Interest
Paid Since January 1, 2018
|
|
|
Interest
Paid Since January 1, 2017
|
|
Note
1
(1)
|
|
December
1, 2015
|
|
August
1, 2018
|
|
|
12.0
|
%
|
|
$
|
1,248,883
|
|
|
$
|
1,198,883
|
|
|
$
|
824,218
|
|
|
$
|
107,358
|
|
|
$
|
251,227
|
|
Note
2
(2)
|
|
December
1, 2015
|
|
August
1, 2018
|
|
|
12.0
|
%
|
|
|
189,000
|
|
|
|
189,000
|
|
|
|
-
|
|
|
|
16,839
|
|
|
|
39,519
|
|
Note
3
(3)
|
|
December
1, 2015
|
|
April
1, 2017
|
|
|
12.0
|
%
|
|
|
111,901
|
|
|
|
111,901
|
|
|
|
111,901
|
|
|
|
—
|
|
|
|
—
|
|
Note
4
(4)
|
|
April
4, 2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
343,326
|
|
|
|
343,326
|
|
|
|
240,328
|
|
|
|
76,530
|
|
|
|
102,987
|
|
Note
5
(5)
|
|
April
4, 2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
121,875
|
|
|
|
121,875
|
|
|
|
-
|
|
|
|
36,502
|
|
|
|
36,502
|
|
Total
notes payable – related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,964,985
|
|
|
$
|
1,176,447
|
|
|
$
|
237,229
|
|
|
$
|
430,235
|
|
(1)
|
On
December 1, 2015, we issued a convertible note in favor of Mr. Cutaia, our controlling
stockholder and Chief Executive Officer, to consolidate all loans and advances made
by Mr. Cutaia to us as of that date. The note bears interest at a rate of 12%
per annum, is secured by our assets, and had an original maturity date of April 1, 2017.
Pursuant to the terms of the note, Mr. Cutaia, at his election, may convert up to $374,665
of outstanding principal, plus accrued interest thereon, into shares of our Common
Stock at a conversion rate of $0.07 per share.
|
|
|
|
On
May 4, 2017, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note from April 1,
2017 to August 1, 2018. All other terms of the note remained unchanged. In connection with the extension, we granted
to Mr. Cutaia a three-year warrant to purchase up to 1,755,192 shares of our Common Stock at an exercise price
of $0.355 per share with a fair value of $517,291. Effective August 8, 2018, we entered into an extension agreement with Mr.
Cutaia to extend further the maturity date of the note from August 1, 2018 to February 8, 2021. All other terms of the note
remained unchanged. In connection with the extension, we granted to Mr. Cutaia a warrant to purchase up to 2,446,700
shares of our Common Stock at an exercise price of $0.49. On September 30, 2018, Mr. Cutaia converted the
outstanding principal balance of $374,665 into 5,352,357 restricted shares of our Common Stock, at a conversion price of $0.07
per share.
|
|
|
(2)
|
On
December 1, 2015, we issued a convertible note in favor of Mr. Cutaia in the amount of
$189,000, representing a portion of Mr. Cutaia’s accrued salary for 2015. The note
is unsecured, bears interest at a rate of 12% per annum, had an original maturity
date of April 1, 2017, and was convertible into shares of our Common Stock
at a conversion price of $0.07 per share.
|
|
|
|
On
May 4, 2017, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note from April 1,
2017 to August 1, 2018. All other terms of the note remained unchanged and there was no additional compensation or
incentive given. Effective August 8, 2018, we entered into an extension agreement with Mr. Cutaia to extend further the maturity
date of the note from August 1, 2018 to February 8, 2021. All other terms of the note remained unchanged and there
was no additional compensation or incentive given. On September 30, 2018, Mr. Cutaia converted the outstanding balance
of $189,000 into 2,700,000 restricted shares of Common Stock, at a conversion price of $0.07 per share.
|
(3)
|
On
December 1, 2015, we issued a note in favor of a former member of our board of directors, in the amount of $111,901, representing
unpaid consulting fees as of November 30, 2015. The note is unsecured, bears interest rate of 12% per annum, and had an original
maturity date of April 1, 2017. This note is currently past due.
|
|
|
(4)
|
On
April 4, 2016, we issued a convertible note in favor of Mr. Cutaia, in the amount of
$343,326, to consolidate all advances made by Mr. Cutaia to us during the December 2015
through March 2016 period. The note bears interest at a rate of 12% per annum,
is secured by our assets, and had an original maturity date of August 4, 2017. The terms
of the note permit Mr. Cutaia to convert up to $189,000 of the outstanding
principal amount into shares of our Common Stock at a conversion price $0.07
per share.
|
|
|
|
On
August 4, 2017, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note from August
4, 2017 to December 4, 2018. All other terms of the note remained unchanged. In connection with the extension, we granted
to Mr. Cutaia a five-year warrant to purchase up to 1,329,157 shares of our Common Stock at an exercise price
of $0.15 per share with a fair value of $172,456. On September 30, 2018, Mr. Cutaia converted the outstanding principal
balance of $102,998 into 1,471,397 restricted shares of our Common Stock, at a conversion price of $0.07 per share.
|
|
|
(5)
|
On
April 4, 2016, we issued a convertible note in favor of Mr. Cutaia in the amount of $121,875,
which represented his accrued salary from December 2015 through March 2016. The note
is unsecured, bears interest at a rate of 12% per annum, compounded annually,
and had an original maturity date of August 4, 2017. The note is also convertible into
shares of our Common Stock at $0.07 per share.
|
|
|
|
On
August 4, 2017, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note from August
4, 2017 to December 4, 2018. All other terms of the note remained unchanged and there was no additional compensation
or incentive given. On September 30, 2008, Mr. Cutaia converted the outstanding balance of $121,875 into 1,741,071 restricted
shares of our Common Stock at $0.07 per share.
|
During
the year ended December 31, 2017, we recorded total interest expense equal to $232,192 pursuant to the terms of the notes and
paid $196,607 in interest.
Director
Independence
Our
board of directors is currently composed of four members. Our Common Stock is not currently listed for trading on a national
securities exchange and, as such, we are not subject to any director independence standards. However, we determined that three
director s , James P. Geiskopf, Phillip J. Bond, and Kenneth S. Cragun qualif y as independent directors.
We determined that Mr. Cutaia, our Chairman of the Board, President, Chief Executive Officer, Treasurer, and Secretary, is
not independent. We evaluated independence in accordance with the rules of NASDAQ and the SEC. Mr. Geiskopf , Mr. Bond,
and Mr. Cragun also serve on our Audit, Compensation , and Governance and Nominating Committees.
Audit
Committee and Audit Committee Financial Expert
On
August 14, 2018, the board of directors amended and restated the audit committee charter (the “Audit Committee Charter”)
to govern the Audit Committee. Currently, Messrs. Geiskopf, Bond, and Cragun (Chairman) serve on the Audit Committee and
each meet s the independence requirements of NASDAQ and the SEC. Mr. Cragun qualifies as an “audit committee
financial expert.”
The
Audit Committee Charter requires that each member of the Audit Committee meet the independence requirements of NASDAQ and the
SEC and requires the Audit Committee to have at least one member that qualifies as an “audit committee financial expert.”
In addition to the enumerated responsibilities of the Audit Committee in the Audit Committee Charter, the primary function of
the Audit Committee is to assist the board of directors in its general oversight of our accounting and financial reporting processes,
audits of our financial statements, and internal control and audit functions. The Audit Committee Charter can be found online
at http://www.nfusz.com/auditcommittecharter.
Compensation
Committee
On
August 14, 2018, the board of directors approved and adopted a charter (the “Compensation Committee Charter”) to govern
the Compensation Committee. Currently, Messrs. Geiskopf (Chairman), Bond, and Cragun serve as members of the Compensation
Committee and each meets the independence requirements of NASDAQ and the SEC, qualifies as a “non-employee director”
within the meaning of Rule 16b-3 under the Exchange Act, and qualifies as an outside director within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended. In addition to the enumerated responsibilities of the Compensation Committee
in the Compensation Committee Charter, the primary function of the Compensation Committee is to oversee the compensation of our
executives, produce an annual report on executive compensation for inclusion in our proxy statement, if and when required by applicable
laws or regulations, and advise the board of directors on the adoption of policies that govern our compensation programs. The
Compensation Committee Charter may be found online at http://www.nfusz.com/compensationcommittecharter.
Governance
and Nominating Committee
On
August 14, 2018, the board of directors approved and adopted a charter (the “Nominating Committee Charter”) to govern
the Governance and Nominating Committee (the “Nominating Committee”). Currently, Messrs. Geiskopf, Bond (Chairman),
and Cragun serve as members of the Nominating Committee and each meets the independence requirements of NASDAQ and the SEC.
The Nominating Committee Charter requires that each member of the Nominating Committee meets the independence requirements of
NASDAQ and the SEC. In addition to the enumerated responsibilities of the Nominating Committee in the Nominating Committee Charter,
the primary function of the Nominating Committee is to determine the slate of director nominees for election to the board of directors,
to identify and recommend candidates to fill vacancies occurring between annual stockholder meetings, to review our policies and
programs that relate to matters of corporate responsibility, including public issues of significance to us and our stockholders,
and any other related matters required by federal securities laws. The charter of the Nominating Committee may be found online
http://www.nfusz.com/governanceandnominatingcommittecharter.
Code
of Ethics
In
2014, our board of directors approved and adopted a Code of Ethics and Business Conduct for Directors, Senior Officers, and Employees
(the “Code of Ethics”) that applies to all of our directors, officers, and employees, including our principal executive
officer and principal financial officer. The Code of Ethics addresses such individuals’ conduct with respect to, among other
things, conflicts of interests; compliance with applicable laws, rules, and regulations; full, fair, accurate, timely, and understandable
disclosure by us; competition and fair dealing; corporate opportunities; confidentiality; protection and proper use of our assets;
and reporting suspected illegal or unethical behavior. The Code of Ethics is available on our website at http://www.nfusz.com/codeofethics.
Compensation
Committee Interlocks and Insider Participation
No
interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the past.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth certain compensation awarded to, earned by, or paid to the following “named executive officers,”
which is defined as follows:
|
(a)
|
all
individuals serving as our principal executive officer during the year ended December 31, 2017; and
|
|
|
|
|
(b)
|
each
of our two other most highly compensated executive officers who were serving as executive officers at the end of the year
ended December 31, 2017.
|
We
did not have any individuals for whom disclosure would have been required but for the fact that the individual was not serving
as an executive officer as of the end of fiscal 2017.
Name
and Position
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Stock
Awards ($)
(1)
|
|
|
Option
Awards ($)
(2)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
Rory
J. Cutaia
(3)
|
|
|
2017
|
|
|
|
399,804
|
|
|
|
709,500
|
|
|
|
167,083
|
|
|
|
689,747
|
|
|
|
1,966,134
|
(4)
|
Chairman
of the Board, Chief Executive
Officer,
President, Secretary, and
|
|
|
2016
|
|
|
|
357,500
|
|
|
|
0
|
|
|
|
108,603
|
|
|
|
127,083
|
|
|
|
593,186
|
(5)
|
Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
R. Clayborne
(6)
|
|
|
2017
|
|
|
|
95,615
|
|
|
|
324,500
|
|
|
|
312,846
|
|
|
|
0
|
|
|
|
732,961
|
|
Chief
Financial Officer
|
|
|
2016
|
|
|
|
34,000
|
|
|
|
0
|
|
|
|
164,464
|
|
|
|
0
|
|
|
|
198,464
|
|
(1)
|
For
valuation purposes, the dollar amount shown is calculated based on the market price of our Common Stock on the grant
dates. The number of shares granted, the grant date, and the market price of such shares for each named executive officer
is set forth below.
|
|
|
(2)
|
For
valuation assumptions on stock option awards refer to Note 2 to the audited consolidated financial statements for the year
ended December 31, 2017 included as part of this prospectus. The disclosed amounts reflect the fair value of the stock option
awards that were earned during fiscal years ended December 31, 2017 and 2016 in accordance with FASB ASC Topic 718.
|
|
|
(3)
|
Mr.
Cutaia was appointed as Chairman of the Board, President, Chief Executive Officer, Secretary, and Treasurer on October 16,
2014.
|
|
|
(4)
|
As
of December 31, 2017, Mr. Cutaia had accrued but unpaid compensation equal to $582,333, which consists of deferred salary
in fiscal 2017 and fiscal 2016 of $399,804 and $182,529, respectively.
|
|
|
(5)
|
As
of December 31, 2016, Mr. Cutaia had accrued but unpaid compensation equal to $182,529.
|
|
|
(6)
|
Mr.
Clayborne was appointed as Chief Financial Officer on July 15, 2016.
|
Narrative
Disclosure to Summary Compensation Table
The
following is a discussion of the material information that we believe is necessary to understand the information disclosed in
the foregoing Summary Compensation Table.
Rory
J. Cutaia
On
November 1, 2014, we entered into an employment agreement with Mr. Cutaia. The employment agreement is for a five-year term, and
can be extended for additional one-year periods. In addition to certain payments due to Mr. Cutaia upon termination of employment,
the employment agreement contains customary non-competition, non-solicitation, and confidentiality provisions. Mr. Cutaia is entitled
to a base salary of $325,000 per year, with annual increases of 10%. Mr. Cutaia is also entitled to a mandatory increase of not
less than $100,000 per annum upon us achieving EBITDA break-even. In addition, Mr. Cutaia is eligible for an annual bonus in an
amount of $325,000 upon the achievement of certain performance targets established by the board of directors, as well as an annual
stock option grant of 250,000 shares of our Common Stock. Finally, Mr. Cutaia is eligible for certain other benefits such
as health, vision, and dental insurance, life insurance, and 401(k) Company matching.
Mr.
Cutaia earned total cash compensation for his services to us in the amount of $399,804 and $357,500 for fiscal years 2017 and
2016, respectively.
On
August 15, 2017, we issued Mr. Cutaia 3,750,000 shares of our Common Stock. The price per share was $0.15, as reported
by the OTCQB.
On
May 12, 2016, we granted Mr. Cutaia a stock option to purchase up to 1,250,000 shares of our Common Stock at an exercise
price of $0.0950 per share. The option was fully vested when granted and will expire on May 11, 2021. On November 1, 2016, we
granted Mr. Cutaia a stock option to purchase up to 250,000 shares of our Common Stock at an exercise price of $0.11 per
share. The option is now fully vested and will expire on October 31, 2021. On January 10, 2017, we granted Mr. Cutaia a stock
option to purchase up to 2,000,000 shares of our Common Stock at an exercise price of $0.08 per share. The option is not
currently vested, but will vest in full on January 10, 2020, and will expire on January 9, 2022. On December 19, 2017, we granted
Mr. Cutaia a stock option to purchase up to 250,000 shares of our Common Stock at an exercise price of $0.077 per share.
The option was vested as to 125,000 shares on the date of grant and will vest as to the other 125,000 shares on December 18, 2018
and will expire on December 18, 2022.
Mr.
Cutaia also received $689,747 in fiscal 2017 as “other compensation”, which was represented by warrants with 3-year
terms to purchase up to 3,084,349 shares of our Common Stock. Mr. Cutaia received “other compensation” in fiscal 2016
equal to $127,083, which was represented by warrants with 3-year terms to purchase up to 2,452,325 shares of our Common Stock.
Jeffrey
R. Clayborne
Mr.
Clayborne earned total cash compensation for his services to us in the amount of $95,615 and $34,000 for fiscal years 2017 and
2016, respectively.
On
May 4, 2017, we issued Mr. Clayborne 500,000 shares of our Common Stock. The price per share was $0.36, as reported on
the OTCQB.
On
July 15, 2016, we granted Mr. Clayborne a stock option to purchase 1,500,000 shares of our Common Stock at an exercise
price of $0.11 per share. On the grant date, 100,000 shares vested. The remaining 1,400,000 shares will vest annually in three
equal installments. As of August 14, 2018, 1,033,333 shares were vested. On January 10, 2017, we granted Mr. Clayborne a stock
option to purchase 2,000,000 shares of our Common Stock at an exercise price of $0.08 per share. All of the shares will
vest on January 10, 2020. On May 4, 2017, we granted Mr. Clayborne a stock option to purchase 500,000 shares of our Common
Stock at an exercise price of $0.36 per share. The shares will vest annually in three equal installments. As of August 14, 2018,
166,667 shares were vested.
Outstanding
Equity Awards at Fiscal Year-End
We
did not have any stock awards outstanding as of December 31, 2017. The following table sets forth, for each named executive
officer, certain information concerning outstanding option awards as of December 31, 2017:
Name
|
|
Number
of securities underlying unexercised
options
(exercisable)
(#)
|
|
|
Number
of securities underlying unexercised
options
(unexercisable) (#)
|
|
|
Option
exercise
price
($)
|
|
|
Option
expiration date
|
Rory
J. Cutaia
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
0.08
|
|
|
December
18, 2022
(1)
|
|
|
|
0
|
|
|
|
2,000,000
|
|
|
|
0.08
|
|
|
January
9, 2022
(2)
|
|
|
|
250,000
|
|
|
|
0
|
|
|
|
0.11
|
|
|
October
31, 2012
(3)
|
|
|
|
1,250,000
|
|
|
|
0
|
|
|
|
0.10
|
|
|
May
11, 2021
(4)
|
|
|
|
250,000
|
|
|
|
0
|
|
|
|
0.08
|
|
|
November
1, 2019
(5)
|
|
|
|
800,000
|
|
|
|
0
|
|
|
|
0.50
|
|
|
May
12, 2019
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
R. Clayborne
|
|
|
0
|
|
|
|
500,000
|
|
|
|
0.36
|
|
|
May
3, 2022
(7)
|
|
|
|
0
|
|
|
|
2,000,000
|
|
|
|
0.08
|
|
|
January
9, 2022
(8)
|
|
|
|
566,666
|
|
|
|
933,334
|
|
|
|
0.11
|
|
|
July
14, 2021
(9)
|
(1)
|
125,000
shares vested on the grant date, and the remaining 125,000 shares will vest on December 19, 2018.
|
|
|
(2)
|
2,000,000
shares will vest on January 10, 2020 .
|
|
|
(3)
|
All
shares have fully vested.
|
|
|
(4)
|
1,250,000
shares vested on the grant date.
|
|
|
(5)
|
All
shares have fully vested.
|
(6)
|
All
shares have fully vested.
|
|
|
(7)
|
Shares
will vest annually in three equal installments.
|
|
|
(8)
|
All
2,000,000 shares will vest on January 10, 2020.
|
|
|
(9)
|
100,000
shares vested on the grant date, and the remaining 1,400,000 shares will vest annually in three equal installments.
|
Retirement
or Similar Benefit Plans
There
are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.
Resignation,
Retirement, Other Termination, or Change in Control Arrangements
Other
than as disclosed below, we have no contract, agreement, plan, or arrangement, whether written or unwritten, that provides for
payments to our directors or executive officers at, following, or in connection with the resignation, retirement, or other termination
of our directors or executive officers, or a change in control of our company or a change in our directors’ or executive
officers’ responsibilities following a change in control.
Rory
J. Cutaia
Pursuant
to Mr. Cutaia’s employment agreement dated November 1, 2014 (the “Employment Agreement”), Mr. Cutaia is entitled
to the following severance package in the event he is “terminated without cause,” “terminated for good reason,”
or “terminated upon permanent disability:” (i) monthly payments of $27,083 or such sum equal to his monthly base compensation
at the time of the termination, whichever is higher, for a period of thirty-six (36) months from the date of such termination
or to the end of the term of the Employment Agreement, whichever is longer; and (ii) reimbursement for COBRA health insurance
costs for thirty-six (36) months from the date of such termination or to the end of the term of the Employment Agreement, whichever
is longer. In addition, Mr. Cutaia’s unvested equity will immediately vest, without restriction, and any unearned and unpaid
bonus compensation, expense reimbursement, and all accrued vacation, personal, and sick days, etc. shall be deemed earned, vested,
and paid immediately. For purposes of the Employment Agreement, “terminated without cause” means Mr. Cutaia is terminated
for any reason other than a discharge for cause or due to Mr. Cutaia’s death or permanent disability. For purposes of the
Employment Agreement, “terminated for good reason” means the voluntary termination of the Employment Agreement by
Mr. Cutaia if any of the following occurs without his prior written consent, which consent cannot be unreasonably withheld considering
our then current financial condition, and in each case, which continues uncured for 30 days following receipt by us of Mr. Cutaia’s
written notice: (i) there is a material reduction by us in (A) Mr. Cutaia’s annual base salary then in effect or (B) the
annual target bonus, as set forth in the Employment Agreement, or the maximum additional amount up to which Mr. Cutaia is eligible
pursuant to the Employment Agreement; (ii) we reduce Mr. Cutaia’s job title and position such that Mr. Cutaia (A) is no
longer our Chief Executive Officer; (B) is no longer the Chairman of our board of directors; or (C) is involuntarily removed from
our board of directors; or (iii) Mr. Cutaia is required to relocated to an office location outside of Los Angeles, California
or outside of a thirty (30) mile radius of Los Angeles, California. For purposes of the Employment Agreement, “terminated
upon permanent disability” means Mr. Cutaia is terminated because he is unable to perform his duties due to a physical or
mental condition for (i) a period of one hundred twenty (120) consecutive days or (ii) an aggregate of one-hundred eighty (180)
days in any twelve (12)-month period.
Director
Summary Compensation Table
The
table below summaries the compensation paid to our sole non-employee director for the fiscal year ended December 31, 2017:
Name
(1)
|
|
Fees
earned
or paid in
cash ($)
|
|
|
Stock
awards
($)
(2)
|
|
|
Option
awards
($)
|
|
|
Total
($)
|
|
James
P. Geiskopf
|
|
|
0
|
|
|
|
147,000
|
(3)(4)
|
|
|
148,777
|
(3)(5)
|
|
|
295,777
|
|
(1)
|
Rory
J. Cutaia, our Chairman of the Board, Chief Executive Officer, President, Secretary, and Treasurer during fiscal 2017, is
not included in this table as he was an employee, and, thus, received no compensation for his services as a director. The
compensation received by Mr. Cutaia as an employee is disclosed in the Summary Compensation Table on page 56.
|
|
|
(2)
|
Reflects
the fair value amount of the stock awards granted for fiscal 2017 in accordance with ASC Topic 718.
|
|
|
(3)
|
The
aggregate number of stock awards outstanding at the end of fiscal 2017 was 4,164,000 shares. The aggregate number of option
awards outstanding at the end of fiscal 2017 was 3,350,000 shares.
|
|
|
(4)
|
Represents
an award of 1,500,000 shares of our Common Stock valued at a price per share of $0.098, which was the closing price
as reported on the OTCQB on the grant date.
|
|
|
(5)
|
Represents
an option award of 2,000,000 shares of our Common Stock valued at a price per share of approximately $0.0744, which
was the closing price as reported on the OTCQB on the grant date.
|
Narrative
Discussion on Director Compensation
We
have no formal plan for compensating our directors for their services in their capacity as directors. Our directors are entitled
to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of
our board of directors. Our board of directors may award special remuneration to any director undertaking any special services
on their behalf other than services ordinarily required of a director.
James
P. Geiskopf
On
January 10, 2017, we granted Mr. Geiskopf a stock option to purchase up to 2,000,000 shares of our Common Stock at an exercise
price of $0.08 per share. The shares underlying the stock option will vest on January 10, 2020.
On
March 7, 2018, we granted Mr. Geiskopf a stock award of 1,500,000 shares of our Common Stock for services rendered during
fiscal year 2017.
Golden
Parachute Compensation
For
a description of the terms of any agreement or understanding, whether written or unwritten, between our company and any officer
or director concerning any type of compensation, whether present, deferred or contingent, that will be based on or otherwise will
relate to an acquisition, merger, consolidation, sale, or other type of disposition of all or substantially all assets of our
company, see above under the heading “Executive Compensation” and “Director Compensation.”
Risk
Assessment in Compensation Programs
During
fiscal 2017 and 2016, we paid compensation to our employees, including executive and non-executive officers. Due to the size and
scope of our business, and the amount of compensation, we did not have any employee compensation policies and programs to determine
whether our policies and programs create risks that are reasonably likely to have a material adverse effect on us.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of December 7 , 2018, certain information with respect to the beneficial ownership of our
Common Stock by (i) each of our current directors, (ii) each of our named executive officers, (iii) our directors and named executive
officers as a group, and (iv) each stockholder known by us to be the beneficial owner of more than 5% of our outstanding our
Common Stock. For purposes of this table, we have also included a column that relates to the potential percent owned by each
of our directors, named executive officers, and more than 5% beneficial owners following the Sound Concepts Acquisition, assuming
that shares of our Common Stock are issued in this offering, which includes the full exercise of the Underwriter’s
over-allotment option and the Underwriter’s warrants. We currently do not know how many shares of our Common
Stock will be offered and sold in the offering.
Name
and Address
(7)
|
|
Title
of Class
|
|
Amount
and Nature of Beneficial Ownership
(1)
|
|
|
Percent
Owned
(%)
(Pre- Offering)
(2)
|
|
|
Amount
and
Nature
of
Beneficial
Ownership
(1)
(Post-
Offering)
|
|
|
Percent
Owned
(%)
(Post-
Offering)
|
|
Rory
J. Cutaia c/o 344 S. Hauser Drive, Unit 414 Los Angeles, California 90036
|
|
Common
Stock
|
|
|
57,079,621
|
(3)
|
|
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
P. Geiskopf c/o 344 S. Hauser Drive, Unit 414 Los Angeles, California 90036
|
|
Common
Stock
|
|
|
5,514,000
|
(4)
|
|
|
3. 0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
R. Clayborne c/o 344 S. Hauser Drive, Unit 414 Los Angeles, California 90036
|
|
Common
Stock
|
|
|
3,393,141
|
(5)
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip
J. Bond c/o 344 S. Hauser Drive, Unit 414 Los Angeles, California 90036
|
|
Common
Stock
|
|
|
200,000
|
(6)
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth
S. Cragun c/o 344 S. Hauser Drive, Unit 414 Los Angeles, California 90036
|
|
Common
Stock
|
|
|
200,000
|
(6)
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors as a group ( 5 persons)
|
|
Common
Stock
|
|
|
66,386,762
|
|
|
|
3 5 .4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
owner of more than 5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chakradhar
Reddy 110 3rd Avenue, No. 11B New York, New York 11103
|
|
Common
Stock
|
|
|
9,300,000
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Except
as otherwise indicated, we believe that the beneficial owners of our Common Stock listed above, based on information
furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property
laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting
or investment power with respect to securities. Common Stock subject to options or warrants currently exercisable or exercisable
within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option
or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
|
|
|
(2)
|
Percentage
of Common Stock is based on 180,832,359 shares of our Common Stock issued and outstanding as of December 7 ,
2018.
|
|
|
(3)
|
Consists
of 45,064,037 shares of our Common Stock held directly, 3,603,600 shares of our Common Stock held
by Cutaia Media Group Holdings, LLC (an entity over which Mr. Cutaia has dispositive and voting authority), and 810,092 shares
of our Common Stock held by Mr. Cutaia’s spouse (as to which shares, he disclaims beneficial ownership). Also
includes 2,800,000 shares of our Common Stock underlying stock options held directly and 600,000 shares
of our Common Stock underlying stock options held by Mr. Cutaia’s spouse that are exercisable within 60 days
of the date of this prospectus (as to which underlying shares, he disclaims beneficial ownership) but excludes 2,000,000
shares of our Common Stock underlying stock options held by Mr. Cutaia, as none of such options is exercisable
within 60 days of the date of this prospectus. The total also includes 4,201,892 shares of our Common Stock
underlying warrants granted to Mr. Cutaia, which warrants are exercisable within 60 days of the date of this prospectus.
|
|
|
(4)
|
Includes
4,084,000 shares of our Common Stock held directly and 80,000 shares of our Common Stock held by Mr. Geiskopf’s
children. Also includes 1,350,000 shares of our Common Stock underlying stock options exercisable within 60 days of
the date of this prospectus. Excludes 2,000,000 shares of our Common Stock underlying stock options not exercisable
within 60 days of the date of this prospectus.
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(5)
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Includes
2,000,000 shares of our Common Stock held directly. Also, includes 1,393,141 shares of our Common Stock underlying
stock options that are exercisable within 60 days of the date of this prospectus. Excludes 2,800,000 shares of our
Common Stock underlying stock options that are not exercisable within 60 days of the date of this prospectus.
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(6)
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Includes
200,000 shares of our Common Stock underlying stock options exercisable within 60 days of the date of this prospectus. Excludes
800,000 shares of our Common Stock underlying stock options not exercisable within 60 days of the date of this prospectus.
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(7)
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Chad
J. Thomas, our Chief Technology Officer, is not included because as of the date of this filing, he does not beneficially own
any shares of our Common Stock.
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We
do not know of any arrangements that may, at a subsequent date, result in a change in control.
DESCRIPTION
OF SECURITIES
The
following is a summary of all material characteristics of our capital stock as set forth in our Articles of Incorporation, and
our Bylaws. The summary does not purport to be complete and is qualified in its entirety by reference to our Articles of Incorporation
and our Bylaws, and to the provisions of the NRS . We encourage you to review complete copies of our Articles of Incorporation
and our Bylaws. You can obtain copies of these documents by following the directions outlined in “Where You Can Find More
Information” and “Incorporation of Certain Information by Reference” elsewhere in this prospectus.
General
We
are currently authorized to issue up to 200,000,000 shares of our Common Stock and 15,000,000 shares of our preferred
stock, par value $0.0001 per share.
Common
Stock
Of
the 200,000,000 shares of our Common Stock authorized by our Articles of Incorporation, 180,832,359 shares of our
Common Stock are issued and outstanding as of December 7 , 2018. Each holder of our Common Stock is entitled
to one vote per share on all matters to be voted upon by the stockholders and are not entitled to cumulative voting for the election
of directors. Holders of our Common Stock are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available therefor subject to the rights of preferred stockholders.
We have not paid any dividends and do not intend to pay any cash dividends to the holders of our Common Stock in the foreseeable
future. We anticipate reinvesting our earnings, if any, for use in the development of our business. In the event of liquidation,
dissolution, or winding up of the Company, the holders of our Common Stock are entitled, unless otherwise provided by law
or our Articles of Incorporation, including any certificate of designations for a series of preferred stock, to share ratably
in all assets remaining after payment of liabilities and the preferences of preferred stockholders. Holders of our Common
Stock do not have preemptive, conversion, or other subscription rights. There are no redemption or sinking fund provisions applicable
to our Common Stock.
On
November 14, 2018, we filed a Preliminary Information Statement on Schedule 14C with the SEC relating to the receipt of written
consents from the holders of a majority of the issued and outstanding shares of our Common Stock (the “Majority Stockholders”)
authorizing one or more reverse stock splits of the Company’s issued and outstanding shares of our Common Stock at an aggregate
ratio of not less than one-for-five and not more than one-for-40, within the discretion of our board of directors, at any time
and from time-to-time prior to September 30, 2019 (individually or collectively, the “Reverse Stock Split”). If our
board of directors implements one or more Reverse Stock Splits, its primary objective will be to increase the per-share market
price of our Common Stock in order for us to satisfy certain quantitative standards for listing on NASDAQ. We believe that listing
our Common Stock on NASDAQ would provide better support for and maintain the liquidity of our Common Stock and increase recognition
for our Company and our stockholders. Effecting one or more Reverse Stock Splits would reduce the then-issued and outstanding
number of shares of our Common Stock, which reduction, our board of directors believes, would increase the price per-share of
our Common Stock to a level sufficient to meet the price per share quantitative standards for listing on NASDAQ.
Although
we have applied to have our Common Stock listed on NASDAQ and have received our first set of questions and comments from NASDAQ,
we cannot assure you that our listing application will be approved whether or not our Common Stock meets the per-share market
price listing standard. Further, we cannot assure you that the implementation of any Reverse Stock Split will result in the per-share
market price of our Common Stock then meeting the relevant quantitative listing standards of any securities exchange, nor can
we assure you that we will be able to meet the other quantitative listing standards or any other listing standards required to
become listed on any such securities exchange.
While
there can be no assurance, our board of directors believes that implementing one or more Reverse Stock Splits is in our best interest
and the best interests of our stockholders in order to realize the potential benefits discussed above. The effect of a Reverse
Stock Split upon the market price of our Common Stock cannot be predicted with any certainty, and the history of similar stock
splits for companies in similar circumstances is varied. The market price of our Common Stock may vary based on other factors
unrelated to the number of shares of our Common Stock outstanding, including our future performance. However, we believe that
the ability to implement one or more Reverse Stock Splits, and thereby have successive reductions in the number of outstanding
shares of our Common Stock, provides our Board with maximum flexibility to react to prevailing market conditions and future changes
to the market price of our Common Stock in order to realize these potential benefits.
Preferred
Stock
Of
the 15,000,000 shares of preferred stock, par value $0.001 per share, authorized in our Articles of Incorporation, all of which
are undesignated. The board of directors is authorized, without further approval from our stockholders, to create one or more
series of preferred stock, and to designate the rights, privileges, preferences, restrictions, and limitations of any given series
of preferred stock. Accordingly, the board of directors may, without stockholder approval, issue shares of preferred stock with
dividend, liquidation, conversion, voting, or other rights that could adversely affect the voting power or other rights of the
holders of our Common Stock. The issuance of preferred stock could have the effect of restricting dividends payable to
holders of our Common Stock, diluting the voting power of our Common Stock, impairing the liquidation rights of our Common Stock,
or delaying or preventing a change in control of us, all without further action by our stockholders.
Options
As
of December 7 , 2018, we had 35,584,605 shares of our Common Stock underlying outstanding stock options, having a
weighted-average exercise price of approximately $0.3 6 per share.
Warrants
As
of December 7 , 2018, we had 14,552,038 shares of our Common Stock underlying outstanding warrants, having a weighted-average
exercise price of approximately $0. 23 per share.
Anti-Takeover
Effects of Nevada Law and Our Articles of Incorporation and Bylaws
Some
provisions of Nevada law, our Articles of Incorporation, and our Bylaws contain provisions that could make the following transactions
more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise;
or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish
or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including
transactions that provide for payment of a premium over the market price for our shares.
These
provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe
that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these
proposals could result in an improvement of their terms.
Undesignated
Preferred Stock.
The ability of our board of directors, without action by the stockholders, to issue up to 15,000,000 shares
of preferred stock, which was previously authorized but remain undesignated, with voting or other rights or preferences as designated
by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or management of us.
Stockholder
Meetings.
Our Bylaws provide that a special meeting of stockholders may be called only by our president, by all of the directors
provided that there are no more than three directors, or if more than three, by any three directors, or by the holder of a majority
of our capital stock.
Stockholder
Action by Written Consent.
Our Bylaws allow for any action that may be taken at any annual or special meeting of the stockholders
to be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed
by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Stockholders
Not Entitled to Cumulative Voting.
Our Bylaws do not permit stockholders to cumulate their votes in the election of directors.
Accordingly, the holders of a majority of the outstanding shares of our Common Stock entitled to vote in any election of directors
can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock
may be entitled to elect.
Nevada
Business Combination Statutes
. The “business combination” provisions of Sections 78.411 to 78.444, inclusive,
of the Nevada Revised Statutes, or NRS, generally prohibit a Nevada corporation with at least 200 stockholders from engaging in
various “combination” transactions with any interested stockholder for a period of two years after the date of the
transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors
prior to the date the interested stockholder obtained such status or the combination is approved by the board of directors and
thereafter is approved at a meeting of the stockholders by the affirmative vote of stockholders representing at least 60% of the
outstanding voting power held by disinterested stockholders, and extends beyond the expiration of the two-year period, unless:
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the
combination was approved by the board of directors prior to the person becoming an interested stockholder or the transaction
by which the person first became an interested stockholder was approved by the board of directors before the person became
an interested stockholder or the combination is later approved by a majority of the voting power held by disinterested stockholders;
or
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if
the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per
share paid by the interested stockholder within the two years immediately preceding the date of the announcement of the combination
or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of
common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever
is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.
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A
“combination” is generally defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge,
transfer, or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having:
(a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate
market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, (c) 10% or more of
the earning power or net income of the corporation, and (d) certain other transactions with an interested stockholder or an affiliate
or associate of an interested stockholder.
In
general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within two
years, did own) 10% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover
or change in control attempts and, accordingly, may discourage attempts to acquire us even though such a transaction may offer
our stockholders the opportunity to sell their stock at a price above the prevailing market price.
Nevada
Control Share Acquisition Statutes
. The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of
the NRS apply to “issuing corporations” that are Nevada corporations with at least 200 stockholders, including at
least 100 stockholders of record who are Nevada residents, and that conduct business directly or indirectly in Nevada. The control
share statute prohibits an acquirer, under certain circumstances, from voting its shares of a target corporation’s stock
after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s
disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less
than a majority, and a majority or more, of the outstanding voting power. Generally, once an acquirer crosses one of the above
thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and
such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also
provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all
voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled
to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’
rights.
A
corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in
its articles of incorporation or bylaws, provided that the opt-out election must be in place on the 10th day following the date
an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. We have
not opted out of the control share statutes, and will be subject to these statutes if we are an “issuing corporation”
as defined in such statutes.
The
effect of the Nevada control share statutes is that the acquiring person, and those acting in association with the acquiring person,
will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders at an annual or
special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of us.
Amendment
of Charter Provisions.
The amendment of any of the above provisions would require approval by holders of at least a majority
of the total voting power of all of our outstanding voting stock.
The
provisions of Nevada law, our Articles of Incorporation, and our Bylaws could have the effect of discouraging others from attempting
hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our Common Stock
that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes
in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish
transactions that stockholders may otherwise deem to be in their best interests.
Transfer
Agent and Register
Our
transfer agent and registrar for our Common Stock is V Stock Transfer, LLC, 18 Lafayette Place, Woodmere, New York 11598. Its
telephone number is 855-9VSTOCK.
MATERIAL
U.S. FEDERAL INCOME AND
ESTATE
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The
following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of our Common Stock
to Non-U.S. Holders (defined below), but does not purport to be a complete analysis of all the potential tax considerations relating
thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations
promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed
or subject to differing interpretations, possibly with retroactive effect, so as to result in United States federal income tax
consequences different from those set forth below. We have not sought and will not seek any ruling from the Internal Revenue Service,
or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance
that the IRS or a court will agree with such statements and conclusions.
This
summary also does not address the tax considerations arising under the laws of any United States state or local or any non-United
States jurisdiction, the 3.8% Medicare tax on net investment income or any alternative minimum tax consequences. In addition,
this discussion does not address tax considerations applicable to a Non-U.S. Holder’s particular circumstances or to a Non-U.S.
Holder that may be subject to special tax rules, including, without limitation:
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banks,
insurance companies or other financial institutions;
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tax-exempt
or government organizations;
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brokers
of or dealers in securities or currencies;
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traders
in securities that elect to use a mark-to-market method of accounting for their securities holdings;
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persons
that own, or are deemed to own, more than five percent of our capital stock;
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certain
United States expatriates, citizens or former long-term residents of the United States;
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persons
who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction,”
synthetic security, other integrated investment, or other risk reduction transaction;
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persons
who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment
purposes);
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persons
deemed to sell our common stock under the constructive sale provisions of the Code;
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real
estate investment trusts or regulated investment companies;
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pension
plans;
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partnerships,
or other entities or arrangements treated as partnerships for United States federal income tax purposes, or investors in any
such entities;
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persons
for whom our stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code;
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integral
parts or controlled entities of foreign sovereigns;
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tax-qualified
retirement plans;
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controlled
foreign corporations;
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passive
foreign investment companies and corporations that accumulate earnings to avoid United States federal income tax; or
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persons
that acquire our Common Stock as compensation for services.
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In
addition, if a partnership, including any entity or arrangement classified as a partnership for United States federal income tax
purposes, holds our common stock, the tax treatment of a partner generally will depend on the status of the partner, the activities
of the partnership, and certain determinations made at the partner level. Accordingly, partnerships that hold our Common Stock,
and partners in such partnerships, should consult their tax advisors regarding the United States federal income tax consequences
to them of the purchase, ownership, and disposition of our common stock.
You
are urged to consult your tax advisor with respect to the application of the United States federal income tax laws to your particular
situation, as well as any tax consequences of the purchase, ownership, and disposition of our Common Stock arising under the U.S.
federal estate or gift tax rules or under the laws of any United States state or local or any non-United States or other taxing
jurisdiction or under any applicable tax treaty.
Definition
of a Non-U.S. holder
For
purposes of this summary, a “Non-U.S. Holder” is any beneficial owner of our common stock that is not a “U.S.
person,” and is not a partnership, or an entity disregarded from its owner, each for U.S. federal income tax purposes. A
U.S. person is any person that, for United States federal income tax purposes, is or is treated as any of the following:
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an
individual who is a citizen or resident of the United States;
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a
corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the
laws of the United States, any state thereof, or the District of Columbia;
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an
estate, the income of which is subject to United States federal income tax regardless of its source; or
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a
trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons (within the
meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a U.S. person for U.S.
federal income tax purposes.
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Distributions
As
discussed in the section entitled “Market Price and Dividend Information” beginning on page 19 of this prospectus,
we do not anticipate paying any dividends on our capital stock in the foreseeable future. If we make distributions on our Common
Stock, those payments will constitute dividends for United States income tax purposes to the extent we have current or accumulated
earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our
current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce a Non-U.S. Holder’s
basis in our Common Stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below
under the “Gain on Sale or Other Disposition of Common Stock” section. Any such distributions would be subject to
the discussions below regarding back-up withholding and Foreign Account Tax Compliance Act, or FATCA.
Subject
to the discussion below on effectively connected income, any dividend paid to a Non-U.S. Holder generally will be subject to U.S.
withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable
income tax treaty. To receive a reduced treaty rate, a Non-U.S. Holder must provide us or our agent with an IRS Form W-8BEN (generally
including a United States taxpayer identification number), IRS Form W-8-BEN-E or another appropriate version of IRS Form W-8 (or
a successor form), which must be updated periodically, and which, in each case, must certify qualification for the reduced rate.
Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
Dividends
paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a United States trade or
business within the United States and that are not eligible for relief from United States (net basis) income tax under the business
profits article of an applicable income tax treaty, generally are exempt from the (gross basis) withholding tax described above.
To obtain this exemption from withholding tax, the Non-U.S. Holder must provide the applicable withholding agent with an IRS Form
W-8ECI or successor form or other applicable IRS Form W-8 certifying that the dividends are effectively connected with the Non-U.S.
Holder’s conduct of a trade or business within the United States. Such effectively connected dividends, if not eligible
for relief under the business profits article of a tax treaty, would not be subject to a withholding tax, but would be taxed at
the same graduated rates applicable to U.S. persons, net of certain deductions and credits and if, in addition, the Non-U.S. Holder
is a corporation, may also be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable
income tax treaty).
If
you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may be able to obtain a refund of any excess
amounts currently withheld if you timely file an appropriate claim for refund with the IRS.
Gain
on Sale or Other Disposition of Our Common Stock
Subject
to the discussion below regarding backup withholding and FATCA, a Non-U.S. Holder generally will not be required to pay United
States federal income tax on any gain realized upon the sale or other disposition of our Common Stock unless:
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the
gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States and
not eligible for relief under the business profits article of an applicable income tax treaty, in which case the Non-U.S.
Holder will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates,
and for a Non-U.S. Holder that is a corporation, such Non-U.S. Holder may be subject to the branch profits tax at a 30% rate
(or such lower rate as may be specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted
for certain items;
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the
Non-U.S. Holder is an individual who is present in the United States for a period or periods aggregating 183 days or more
during the calendar year in which the sale or disposition occurs and certain other conditions are met, in which case the Non-U.S.
Holder will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S. source capital
losses (even though the Non-U.S. Holder is not considered a resident of the United States) (subject to applicable income tax
or other treaties); or
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our
Common Stock constitutes a U.S. real property interest by reason of our status as a “U.S. real property holding corporation”
for U.S. federal income tax purposes, or a USRPHC, at any time within the shorter of the five-year period preceding the disposition
or the Non-U.S. Holder’s holding period for our Common Stock. We believe we are not currently and do not anticipate
becoming a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our United
States real property interests relative to the fair market value of our other business assets, there can be no assurance that
we will not become a USRPHC in the future. Even if we become a USRPHC, however, gain arising from the sale or other taxable
disposition by a Non-U.S. Holder of our C ommon S tock will not be subject to United States federal income tax
as long as our Common Stock is regularly traded on an established securities market and such Non-U.S. Holder does not, actually
or constructively, hold more than five percent of our Common Stock at any time during the applicable period that is specified
in the Code. If the foregoing exception does not apply, then if we are or were to become a USRPHC a purchaser may be required
to withhold 15% of the proceeds payable to a Non-U.S. Holder from a sale of our Common Stock and such Non-U.S. Holder generally
will be taxed on its net gain derived from the disposition at the graduated United States federal income tax rates applicable
to U.S. persons (as defined in the Code).
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Backup
Withholding and Information Reporting
Generally,
we must file information returns annually to the IRS in connection with any dividends on our Common Stock paid to a Non-U.S. Holder,
regardless of whether any tax was actually withheld. A similar report will be sent to the Non-U.S. Holder. Pursuant to applicable
income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the Non-U.S. Holder’s
country of residence.
Payments
of dividends or of proceeds on the disposition of stock made to a Non-U.S. Holder may be subject to additional information reporting
and backup withholding at a current rate of 24% unless such Non-U.S. Holder establishes an exemption, for example by properly
certifying its non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8ECI, or another appropriate version of IRS
Form W-8 (or a successor form). Notwithstanding the foregoing, backup withholding and information reporting may apply if either
we or our paying agent has actual knowledge, or reason to know, that a holder is a U.S. person.
Backup
withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained
from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign
Account Tax Compliance Act
FATCA
imposes withholding tax on certain types of payments made to foreign financial institutions and certain other non-United States
entities. The legislation imposes a 30% withholding tax on dividends on, or, on or after January 1, 2019, gross proceeds from
the sale or other disposition of, our Common Stock paid to a “foreign financial institution” or to certain “non-financial
foreign entities” (each as defined in the Code), unless (i) the foreign financial institution undertakes certain diligence
and reporting obligations, (ii) the non-financial foreign entity either certifies it does not have any “substantial United
States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner,
or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules.
If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (i) above, it must
enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by “specified
United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report
certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying
with these reporting and other requirements. If the country in which a payee is resident has entered into an “intergovernmental
agreement” with the United States regarding FATCA, that agreement may permit the payee to report to that country rather
than to the U.S. Department of the Treasury. Prospective investors should consult their own tax advisors regarding the possible
impact of these rules on their investment in our Common Stock, and the possible impact of these rules on the entities through
which they hold our C ommon S tock, including, without limitation, the process and deadlines for meeting the applicable
requirements to prevent the imposition of this 30% withholding tax under FATCA.
Federal
Estate Tax
Common
Stock owned (or treated as owned) by an individual who is not a citizen or a resident of the United States (as defined for United
States federal estate tax purposes) at the time of death will be included in the individual’s gross estate for United States
federal estate tax purposes unless an applicable estate or other tax treaty provides otherwise, and therefore may be subject to
United States federal estate tax.
The
preceding discussion of United States federal tax considerations is for general information only. It is not tax advice. Each prospective
investor should consult its tax advisor regarding the particular United States federal, state, and local and non-United States
tax consequences of purchasing, holding, and disposing of our Common Stock, including the consequences of any proposed change
in applicable laws.
SHARES
AVAILABLE FOR FUTURE SALES
Future
sales of our Common Stock in the public market, or the availability of such shares for sale in the public market, could adversely
affect market prices prevailing from time to time. As described below, the sale of a portion of our shares will be limited after
this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our Common Stock in the public market
after such restrictions, lapse, or the perception that those sales may occur, could adversely affect the prevailing market price
at such time and our ability to raise equity capital in the future.
Based
on the number of shares of our Common Stock outstanding as of ,
2018, upon the completion of this offering, shares of our Common
Stock will be outstanding, assuming shares of our Common Stock are issued in this offering and assuming no exercise of
the Underwriter’s over-allotment option, or shares of
our Common Stock will be outstanding, assuming shares of our Common Stock are issued in this offering and the Underwriter’s
over-allotment option is exercised in full.
Except
for shares subject to lock-up agreement, substantially all of our outstanding shares will be freely tradable except that any shares
held by our affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the
limitations described below.
Rule
144
In
general, under Rule 144 of the Securities Act, as in effect on the date of this prospectus, any person who is not our affiliate
at any time during the preceding three months, and who has beneficially owned the relevant shares of our Common Stock for
at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell
an unlimited number of shares of our Common Stock into the public markets provided current public information about us is available,
and, after owning such shares for at least one year, including the holding period of any prior owner other than one of our affiliates,
would be entitled to sell an unlimited number of shares of our Common Stock into the public markets without restriction.
A
person who is our affiliate or who was our affiliate at any time during the preceding three months, and who has beneficially owned
restricted securities for at least six months, including the affiliates, is entitled to sell within any three-month period a number
of shares that does not exceed the greater of:
|
●
|
1%
of the number of shares of our Common Stock then outstanding, which will equal approximately shares,
or shares if the Underwriter’s
exercise their over-allotment option in full, immediately following this offering, based on the number of shares of our Common
Stock outstanding as of , 2018;
or
|
|
|
|
|
●
|
the
average weekly trading volume of our Common Stock during the four calendar weeks preceding the filing of a Form 144 notice
by such person with respect to such sale, if our class of Common Stock is listed on the NYSE, the NYSE American, or the Nasdaq
Stock Market.
|
Sales
under Rule 144 by our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability
of current public information about us.
Lock-up
Agreements
See
the section entitled “Underwriting” below for a detailed discussion.
UNDERWRITING
We
and the Underwriter intend to enter into an underwriting agreement, pursuant to which we will agree to sell to the Underwriter,
and the Underwriter will agree to purchase from us, shares of our Common Stock as indicated in the following table.
Underwriter
|
|
Number
of Shares
|
|
A.G.P./Alliance
Global Partners Corp.
|
|
|
|
|
Total
|
|
|
|
|
The
underwriting agreement will provide that the obligation of the Underwriter to purchase the shares of our Common Stock included
in this offering are subject to approval of legal matters by counsel and to other conditions. The Underwriter will be obligated
to purchase all of the shares of our Common Stock (other than those covered by the Underwriter’s over-allotment
option to purchase additional shares of our Common Stock described below) if it purchases any of such shares.
Shares
of our Common Stock sold by the Underwriter to the public will initially be offered at the public offering price set forth
on the front cover of this prospectus. Any shares of our Common Stock sold by the Underwriter to securities dealers
may be sold at a discount from the initial public offering price not to exceed $ ___ per share. If all the shares of our
Common Stock are not sold at the public offering price, the Underwriter may change such price and the other selling terms
in agreement with the Company.
Underwriting
Discounts and Commissions
The
following table shows the underwriting discounts and commissions that we are to pay to the Underwriter in connection with this
offering, as well as the proceeds to us, before expenses. These amounts are shown assuming both no exercise and full exercise
of the Underwriter’s over-allotment option to purchase additional shares of our Common Stock.
|
|
|
|
|
|
|
Paid
by the Company
|
|
|
|
|
|
|
|
No
Exercise of Over- allotment option
|
|
|
|
|
|
|
|
Full
Exercise of Over- allotment option
|
|
|
|
|
Per
Share
|
|
|
|
Total
|
|
|
|
Per
Share
|
|
|
|
Total
|
|
Public
Offering Price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting
discounts and commissions paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
to us, before expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
We
estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately
$ .
Over-Allotment
Option to Purchase Additional Shares
If
the Underwriter sells more shares of our Common Stock than the total number set forth in the table above, we have granted
to the Underwriter an over-allotment option, exercisable for 45 days after the closing of the offering, to purchase up to
additional shares of our Common Stock at the public offering price less the underwriting discount. To the extent such option
is exercised, the Underwriter must purchase the full amount of the shares of Common Stock subject to the over-allotment
option. Any shares of Common Stock issued or sold under such option will be issued and sold on the same terms and conditions as
the other shares of Common Stock that are the subject of this offering.
Underwriter
Warrants
We
have also agreed to issue to the Underwriter or its designees, at the closing of this offering, warrants to purchase that number
of shares of our Common Stock equal to five percent (5%) of the aggregate number of shares of our Common Stock sold in this offering.
The Underwriter’s warrants will be exercisable at any time, and from time to time, in whole or in part, during the four-year
period commencing one year from the effective date of this offering. The Underwriter’s warrants will be exercisable at a
price equal to $______, or 125% of the public offering price of the shares of our Common Stock in this offering. The Underwriter’s
warrants and the shares of our Common Stock underlying the warrants have been deemed compensation by FINRA and are, therefore,
subject to a 180-day lock-up pursuant to FINRA Rule 5110(g)(1). The Underwriter (or its permitted assignees under Rule 5110(g)(1))
shall not sell, transfer, assign, pledge, or hypothecate the Underwriter’s warrants or the shares of our Common Stock underlying
the warrants, nor engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic
disposition of the Underwriter’s warrants or the shares of our Common Stock underlying the warrants, for a period of 180
days from the effective date of the registration statement relating to this offering. In addition, the Underwriter’s warrants
provide for registration rights upon request, in certain cases. The demand registration right provided will expire five years
from the effective date of the registration statement relating to this offering in compliance with FINRA Rule 5110(f)(2)(G)(iv).
The piggyback registration right provided will expire seven years from the effective date of the registration statement relating
to this offering in compliance with FINRA Rule 5110(f)(2)(G)(v). We will bear all fees and expenses attendant to registering the
shares of our Common Stock issuable upon exercise of the Underwriter’s warrants. The exercise price and number of shares
issuable upon exercise of the Underwriter’s warrants may be proportionately adjusted in the event of a stock split, stock
dividend, recapitalization, reorganization, or similar event involving the company in compliance with FINRA Rule 5110(f)(2)(G)(vi).
Indemnification
Pursuant
to the underwriting agreement, we will agree to indemnify the Underwriter against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriter or such other indemnified parties may be required to make because
of any of those liabilities.
Lock-Ups
We,
our officers and directors, and certain of our other stockholders intend to agree that, for a period of three months from the
date of this prospectus, we and they will not, subject to limited exceptions, without the prior written consent of
and , dispose of or hedge any shares or any securities convertible
into or exchangeable for our Common Stock.
Expenses
and Reimbursements
We
estimate that our portion of the total expenses of this offering will be $ .
We have agreed to reimburse the Underwriter up to $125,000 for expenses related to any filing with, and any clearance of
this offering by, FINRA.
Electronic
Distribution
This
prospectus may be made available in electronic format on websites or through other online services maintained by the Underwriter
or by their affiliates. In those cases, prospective investors may view offering terms online and prospective investors may be
allowed to place orders online. Other than this prospectus in electronic format, the information on the Underwriter’s website
or our website and any information contained in any other websites maintained by the Underwriter or by us is not part of this
prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or
the Underwriter in its capacity as underwriter, and should not be relied upon by investors.
Price
Stabilization, Short Positions, and Penalty Bids
In
connection with the offering, the Underwriter may purchase and sell shares of our Common Stock in the open market. Purchases
and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant
to the Underwriter’s over-allotment option to purchase additional shares of our Common Stock, and stabilizing purchases.
|
●
|
Short
sales involve secondary market sales by the Underwriter of a greater number of shares of our Common Stock than it is
required to purchase in the offering.
|
|
|
|
|
●
|
“Covered”
short sales are sales of shares of our Common Stock in an amount up to the number of shares of our Common Stock
represented by the Underwriter’s over-allotment option to purchase additional shares of our Common Stock.
|
|
|
|
|
●
|
“Naked”
short sales are sales of shares of our Common Stock in an amount in excess of the number of shares of our Common
Stock represented by the Underwriter’s over-allotment option to purchase additional shares of our Common Stock.
|
|
|
|
|
●
|
Covering
transactions involve purchases of shares of our Common Stock either pursuant to the Underwriter’s over-allotment
option to purchase additional shares of our Common Stock or in the open market in order to cover short positions.
|
|
|
|
|
●
|
To
close a naked short position, the Underwriter must purchase shares of our Common Stock in the open market. A naked
short position is more likely to be created if the Underwriter is concerned that there may be downward pressure on the price
of the shares of our Common Stock in the open market after pricing that could adversely affect investors who purchase
in the offering.
|
|
|
|
|
●
|
To
close a covered short position, the Underwriter must purchase shares of our Common Stock in the open market or must
exercise its over-allotment option to purchase additional shares of our Common Stock. In determining the source of
shares of our Common Stock to close the covered short position, the Underwriter will consider, among other things,
the price of shares of our Common Stock available for purchase in the open market as compared to the price at which
it may purchase shares of our Common Stock through the Underwriter’s over-allotment option to purchase additional
shares of our Common Stock.
|
|
|
|
|
●
|
Stabilizing
transactions involve bids to purchase shares of our Common Stock so long as the stabilizing bids do not exceed a specified
maximum.
|
Purchases
to cover short positions and stabilizing purchases, as well as other purchases by the Underwriter for its own account, may have
the effect of preventing or retarding a decline in the market price of the shares of our Common Stock. The Underwriter
may also cause the price of the shares of our Common Stock to be higher than the price that would otherwise exist in the
open market in the absence of these transactions. The Underwriter may conduct these transactions on NASDAQ (if our Common Stock
is so listed), the OTCQB (if our Common stock is not listed on NASDAQ), or otherwise. If the Underwriter commences any of these
transactions, it may discontinue them at any time.
Other
Relationships
The
Underwriter is a full-service financial institution engaged in various activities, which may include securities trading, investment
banking, financial advisory, investment management, principal investment, hedging, financing, and brokerage activities. In the
ordinary course of its various business activities, the Underwriter and its affiliates may make or hold a broad array of investments
and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include
bank loans and/or credit default swaps) for its own account and for the accounts of its customers and may at any time hold long
and short positions in such securities and instruments. Such investments and securities activities may involve securities and/or
instruments of ours or our affiliates. The Underwriter and its affiliates may also make investment recommendations and/or publish
or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients
that it acquires, long and/or short positions in such securities and instruments.
Passive
Market Making
In
connection with this offering, the Underwriter may also engage in passive market making transactions in the shares. Passive market
making consists of displaying bids limited by the prices of independent market makers and effecting purchases limited by those
prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each
passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of the
shares at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
Sales
Outside the United States
No
action has been taken in any jurisdiction (except in the United States) that would permit a public offering of our Common Stock,
or the possession, circulation, or distribution of this prospectus or any other material relating to us or our Common Stock in
any jurisdiction where action for that purpose is required. Accordingly, the shares of Common Stock may not be offered or sold,
directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with our Common
Stock may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules
and regulations of any such country or jurisdiction.
The
Underwriter may arrange to sell our Common Stock offered hereby in certain jurisdictions outside the United States, either
directly or through affiliates, where it is permitted to do so.
European
Economic Area
In
relation to each Member State of the European Economic Area that has implemented the Prospectus Directive (each, a “Relevant
Member State”) an offer to the public of shares of our Common Stock may not be made in that Relevant Member State, except
that an offer to the public in that Relevant Member State of shares of our Common Stock may be made at any time under the following
exemptions under the Prospectus Directive:
|
(a)
|
to
any legal entity which is a qualified investor as defined in the Prospectus Directive;
|
|
|
|
|
(b)
|
to
fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to
obtaining the prior consent of the representative for any such offer; or
|
|
|
|
|
(c)
|
in
any other circumstances falling within Article 3(2) of the Prospectus Directive,
|
provided
that no such offer of shares of our Common Stock shall result in a requirement for the publication by us or any underwriter of
a prospectus pursuant to Article 3 of the Prospectus Directive.
For
the purposes of this provision, the expression an “offer to the public” in relation to the shares of our
Common Stock in any Relevant Member State means the communication in any form and by any means of sufficient information on
the terms of the offer and the shares of our Common Stock to be offered so as to enable an investor to decide to
purchase the shares of our Common Stock, as the same may be varied in that Member State by any measure implementing
the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as
amended), including by Directive 2010/73/EU, and includes any relevant implementing measure in the Relevant Member State.
This
European Economic Area selling restriction is in addition to any other selling restrictions set out below.
United
Kingdom
The
Underwriter has represented and agreed that:
|
(a)
|
it
has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with
the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
|
|
|
|
|
(b)
|
it
has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to
the shares in, from or otherwise involving the United Kingdom.
|
Hong
Kong
The
shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute
an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the
Laws of Hong Kong) (“Companies (Winding Up and Miscellaneous Provisions) Ordinance”) or which do not constitute an
invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“Securities
and Futures Ordinance”), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance
and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus”
as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document
relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether
in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in
Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares that
are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong
Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This
prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and
any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares
may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription
or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under
Section 4A of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA) under Section 274 of the SFA, (ii) to a relevant
person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A)
of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance
with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where
the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not
an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire
share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined
in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the
shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person
(as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities
pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer
is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities
and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (“Regulation 32”).
Where
the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is
not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary
of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall
not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional
investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer
arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than $200,000
(or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of
securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation
of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
Japan
The
securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948,
as amended), or the FIEA. The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit
of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of
Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan,
except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws
and regulations of Japan.
Canada
The
securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors,
as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are
permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations.
Any resale of the securities must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus
requirements of applicable securities laws.
Securities
legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this
offering memorandum (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission
or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s
province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s
province or territory of these rights or consult with a legal advisor.
Pursuant
to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the Underwriter is not required to comply with
the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
LEGAL
MATTERS
The
legality of the securities offered hereby has been passed on for us by Baker & Hostetler LLP, Costa Mesa, California. Certain
legal matters in connection with this offering will be passed on for the Underwriter by Robinson Brog Leinwand Greene Genovese
& Gluck P.C., New York, New York.
EXPERTS
Financial
statements for nFüsz, Inc. as of December 31, 2017 and 2016 and for each of the two years in the period ended December 31,
2017 included in this prospectus, which constitutes a part of the registration statement, have been so included in reliance on
the report of Weinberg & Company, P.A
.
, an independent registered public accounting firm, appearing elsewhere herein
and in the registration statement, given on the authority of said firm as an expert in auditing and accounting. Weinberg &
Company, P.A.’s report, includes an explanatory paragraph related to nFüsz, Inc.’s ability to continue as a going
concern.
Financial
statements for Sound Concepts, Inc. as of December 31, 2017 and 2016 and for each of the two years in the period ended December
31, 2017 included in this prospectus, which constitutes a part of the registration statement, have been so included in reliance
on the report of Weinberg & Company, P.A., an independent registered public accounting firm, appearing elsewhere herein and
in the registration statement, given on the authority of said firm as an expert in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
file quarterly and current reports, proxy statements, and other information with the SEC. You can inspect and copy these reports,
proxy statements, and other information that we file at the public reference facilities of the SEC at the SEC’s Public Reference
Room located at the SEC’s principal office at Room 1580, 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates.
You may obtain information on the operation of this public reference room by calling 1-800-SEC-0330. The SEC also maintains a
website that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC. Our filings are available free of charge at the SEC’s website at www.sec.gov.
You
can obtain copies of any of the documents incorporated by reference in this prospectus from us, or as described above, through
the SEC or the SEC’s website. Documents incorporated by reference are available from us, without charge, excluding all exhibits
unless specifically incorporated by reference in the documents. You may obtain documents incorporated by reference in this prospectus
by writing to us at the following address 344 South Hauser Boulevard, Suite 414, Los Angeles, California 90036, Attention: Investor
Relations, by emailing us at info@nfusz.com, or by calling us at 855.250.2300. We also maintain a website, http://www.m2compliance.com/hosting/company/FUSZ/filings.html
through which you can obtain copies of the documents that we have filed with the SEC. We use our website as a channel of distribution
for material company information. Important information, including financial information, analyst presentations, financial news
releases, and other material information about us is routinely posted on and accessible at https://nfusz.com/. The information
set forth on, or accessible from, our website is not part of this prospectus.
INDEX
TO FINANCIAL STATEMENTS
Unaudited
Consolidated Financial Statements of nFüsz, Inc.:
|
|
Unaudited
Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
|
F-2
|
Unaudited
Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017
|
F-3
|
Unaudited
Consolidated Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2018
and 2017
|
F-4
|
Unaudited
Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2018 and 2017
|
F-5
|
Notes
to Consolidated Financial Statements
|
F-6
|
|
|
Consolidated
Financial Statements of nFüsz, Inc.:
|
|
Report
of Independent Registered Public Accounting Firm
|
F-19
|
Consolidated
Balance Sheets as of December 31, 2017 and 2016
|
F-20
|
Consolidated
Statements of Operations for the years ended December 31, 2017 and 2016
|
F-21
|
Consolidated
Statements of Stockholders’ Deficit for the years ended December 31, 2017 and 2016
|
F-22
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2017 and 2016
|
F-23
|
Notes
to Consolidated Financial Statements
|
F-24
|
|
|
Financial Statements of Sound Concepts, Inc.:
|
|
Report
of Independent Registered Public Accounting Firm
|
F-45
|
Consolidated
Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 and 2016
|
F-46
|
Consolidated
Statements of Operations for the nine months ended September 30, 2018 and 2017 (unaudited) and for the years ended December
31, 2017 and 2016
|
F-47
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the nine September months ended September 30, 2018 and 2017 (unaudited)
and for the years ended December 31, 2017 and 2016
|
F-48
|
Consolidated
Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited) and for the years ended December
31, 2017 and 2016
|
F-49
|
Notes
to Consolidated Financial Statements
|
F-50
|
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
|
|
(
Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
379,461
|
|
|
$
|
10,560
|
|
Prepaid
expenses
|
|
|
63,378
|
|
|
|
40,909
|
|
Accounts
receivable
|
|
|
2,500
|
|
|
|
-
|
|
Total
current assets
|
|
|
445,339
|
|
|
|
51,469
|
|
Deferred
offering costs
|
|
|
129,327
|
|
|
|
-
|
|
Property
and equipment, net
|
|
|
14,731
|
|
|
|
30,554
|
|
Other
assets
|
|
|
7,494
|
|
|
|
8,780
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
596,891
|
|
|
$
|
90,803
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
820,860
|
|
|
$
|
663,506
|
|
Accrued
officers’ salary
|
|
|
168,895
|
|
|
|
607,333
|
|
Accrued
interest (including $38,041 and $99,425 payable to related parties)
|
|
|
38,041
|
|
|
|
248,120
|
|
Deferred
revenue
|
|
|
2,694
|
|
|
|
-
|
|
Note
payable
|
|
|
-
|
|
|
|
125,000
|
|
Notes
payable - related party
|
|
|
352,229
|
|
|
|
1,964,985
|
|
Convertible
notes payable, net of discount of $0 and $675,443, respectively
|
|
|
-
|
|
|
|
1,020,315
|
|
Derivative
liability
|
|
|
673,376
|
|
|
|
1,250,581
|
|
Total
current liabilities
|
|
|
2,056,095
|
|
|
|
5,879,840
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable - related party
|
|
|
824,218
|
|
|
|
-
|
|
Total
long-term liabilities
|
|
|
824,218
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,880,313
|
|
|
|
5,879,840
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value, 15,000,000 shares authorized, none issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.0001 par value, 200,000,000 shares authorized, 175,176,248 and 119,118,513 shares issued and outstanding as of September
30, 2018 and December 31, 2017
|
|
|
17,518
|
|
|
|
11,912
|
|
Additional
paid-in capital
|
|
|
34,431,536
|
|
|
|
22,738,574
|
|
Common
stock issuable, 4,500,000 shares
|
|
|
-
|
|
|
|
430
|
|
Accumulated
deficit
|
|
|
(36,732,476
|
)
|
|
|
(28,539,953
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(2,283,422
|
)
|
|
|
(5,789,037
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
596,891
|
|
|
$
|
90,803
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
10,085
|
|
|
$
|
-
|
|
|
$
|
26,327
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
202,054
|
|
|
|
109,350
|
|
|
|
437,787
|
|
|
|
291,190
|
|
General
and administrative
|
|
|
472,538
|
|
|
|
1,082,131
|
|
|
|
5,251,967
|
|
|
|
3,052,161
|
|
Total
operating expenses
|
|
|
(674,592
|
)
|
|
|
(1,191,481
|
)
|
|
|
(5,689,754
|
)
|
|
|
(3,343,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(664,507
|
)
|
|
|
(1,191,481
|
)
|
|
|
(5,663,427
|
)
|
|
|
(3,343,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
(12,818
|
)
|
|
|
21,920
|
|
|
|
(25,197
|
)
|
|
|
21,921
|
|
Change
in fair value of derivative liability
|
|
|
340,851
|
|
|
|
-
|
|
|
|
(839,872
|
)
|
|
|
-
|
|
Financing
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(171,739
|
)
|
|
|
-
|
|
Interest
expense (including $58,916 and $59,434 to related parties for three months and $175,846 and $176,364 to related parties for
nine months)
|
|
|
(58,916
|
)
|
|
|
(205,038
|
)
|
|
|
(321,637
|
)
|
|
|
(375,862
|
)
|
Interest
expense - amortization of debt discount
|
|
|
-
|
|
|
|
(81,959
|
)
|
|
|
(747,623
|
)
|
|
|
(174,981
|
)
|
Debt
extinguishment, net (including $1,074,602 and $172,456 to related parties for three months and $1,074,602 and $689,747 to
related parties for nine months)
|
|
|
(1,074,602
|
)
|
|
|
(424,331
|
)
|
|
|
(423,028
|
)
|
|
|
(977,201
|
)
|
Total
other expense
|
|
|
(805,485
|
)
|
|
|
(689,408
|
)
|
|
|
(2,529,096
|
)
|
|
|
(1,506,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,469,992
|
)
|
|
$
|
(1,880,889
|
)
|
|
$
|
(8,192,523
|
)
|
|
$
|
(4,849,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
|
153,322,179
|
|
|
|
108,542,493
|
|
|
|
146,164,472
|
|
|
|
102,376,462
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Common
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Issuable
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
119,118,513
|
|
|
$
|
11,912
|
|
|
$
|
22,738,574
|
|
|
$
|
430
|
|
|
|
(28,539,953
|
)
|
|
$
|
(5,789,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued upon exercise of warrants
|
|
|
11,917,705
|
|
|
|
1,191
|
|
|
|
20,809
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000
|
|
Common
shares issued upon exercise of options
|
|
|
487,620
|
|
|
|
49
|
|
|
|
34,084
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,133
|
|
Proceeds
from sale of common stock
|
|
|
17,459,067
|
|
|
|
1,746
|
|
|
|
2,976,754
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,978,500
|
|
Fair
Value of warrants issued for debt extension
|
|
|
-
|
|
|
|
-
|
|
|
|
1,074,602
|
|
|
|
|
|
|
|
|
|
|
|
1,074,602
|
|
Fair
value of common shares issued for services
|
|
|
4,790,181
|
|
|
|
479
|
|
|
|
1,547,380
|
|
|
|
(430
|
)
|
|
|
-
|
|
|
|
1,547,429
|
|
Fair
value of common stock issued upon conversion of debt
|
|
|
18,647,831
|
|
|
|
1,865
|
|
|
|
3,063,972
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,065,837
|
|
Fair
value of common stock issued upon conversion of accrued expenses
|
|
|
407,226
|
|
|
|
41
|
|
|
|
582,292
|
|
|
|
-
|
|
|
|
-
|
|
|
|
582,333
|
|
Common
shares issued upon exercise of put option
|
|
|
3,048,105
|
|
|
|
305
|
|
|
|
999,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Fair
value of vested stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
1,413,304
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,413,304
|
|
Stock
repurchase
|
|
|
(700,000
|
)
|
|
|
(70
|
)
|
|
|
(19,930
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,000
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,192,523
|
)
|
|
|
(8,192,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2018
|
|
|
175,176,248
|
|
|
$
|
17,518
|
|
|
$
|
34,431,536
|
|
|
$
|
-
|
|
|
|
(36,732,476
|
)
|
|
$
|
(2,283,422
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,192,523
|
)
|
|
$
|
(4,849,474
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
2,960,733
|
|
|
|
1,824,045
|
|
Change
in fair value of derivative liability
|
|
|
839,872
|
|
|
|
-
|
|
Amortization
of debt discount
|
|
|
747,623
|
|
|
|
174,981
|
|
Conversion
of Series A
|
|
|
-
|
|
|
|
118,698
|
|
Debt
extinguishment costs, net
|
|
|
423,028
|
|
|
|
977,201
|
|
Financing
costs
|
|
|
171,739
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
15,823
|
|
|
|
16,090
|
|
Effect
of changes in assets and liabilities:
|
|
|
|
|
|
|
-
|
|
Accounts
payable, accrued expenses, and accrued interest
|
|
|
253,289
|
|
|
|
569,881
|
|
Deferred
revenue
|
|
|
2,694
|
|
|
|
-
|
|
Other
assets
|
|
|
1,286
|
|
|
|
7,256
|
|
Accounts
receivable
|
|
|
(2,500
|
)
|
|
|
2,468
|
|
Prepaid
expenses
|
|
|
(22,469
|
)
|
|
|
(15,680
|
)
|
Net
cash used in operating activities
|
|
|
(2,801,405
|
)
|
|
|
(1,174,534
|
)
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
2,978,500
|
|
|
|
470,000
|
|
Proceeds
from exercise of put option
|
|
|
1,000,000
|
|
|
|
-
|
|
Proceeds
from convertible note payable
|
|
|
130,000
|
|
|
|
-
|
|
Proceeds
from option exercise
|
|
|
34,133
|
|
|
|
-
|
|
Proceeds
from warrant exercise
|
|
|
22,000
|
|
|
|
-
|
|
Proceeds
from series A preferred stock
|
|
|
-
|
|
|
|
555,000
|
|
Proceeds
/ (payment) of convertible notes payable
|
|
|
(845,000
|
)
|
|
|
300,000
|
|
Redemption
of series A preferred stock
|
|
|
-
|
|
|
|
(138,322
|
)
|
Repurchase
common stock
|
|
|
(20,000
|
)
|
|
|
-
|
|
Deferred
offering costs
|
|
|
(129,327
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
3,170,306
|
|
|
|
1,186,678
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
368,901
|
|
|
|
12,144
|
|
|
|
|
|
|
|
|
|
|
Cash -
beginning of period
|
|
|
10,560
|
|
|
|
16,762
|
|
|
|
|
|
|
|
|
|
|
Cash
- end of period
|
|
$
|
379,461
|
|
|
$
|
28,906
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
369,597
|
|
|
$
|
171,375
|
|
Cash
paid for income taxes
|
|
$
|
800
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion
of note payable and accrued interest to common stock
|
|
$
|
3,065,837
|
|
|
$
|
-
|
|
Common
stock issued to settle accrued officers salary
|
|
$
|
582,333
|
|
|
$
|
-
|
|
Fair
value of derivative liability, common shares, warrants and beneficial conversion feature of issued convertible note
|
|
$
|
150,000
|
|
|
$
|
196,953
|
|
Conversion
of notes payable to common stock
|
|
$
|
-
|
|
|
$
|
181,845
|
|
Common
stock issued to settle accounts payable
|
|
$
|
-
|
|
|
$
|
56,000
|
|
Conversion
of series A preferred stock
|
|
$
|
|
|
|
$
|
263,876
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
Notes
to Condensed Consolidated Financial Statements
For the Nine months Ended September 30, 2018 and 2017
(Unaudited)
1.
|
DESCRIPTION
OF BUSINESS
|
Organization
Cutaia
Media Group, LLC (“CMG”) was organized on December 12, 2012, as a limited liability company under the laws of the
State of Nevada. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG merged
into bBooth, Inc. and, thereafter, bBooth, Inc. changed its name to bBooth (USA), Inc., effective as of October 16, 2014.
On
October 16, 2014, bBoothUSA was acquired by Global System Designs, Inc. (“GSD”), pursuant to a Share Exchange Agreement
entered into with GSD (the “Share Exchange Agreement”). GSD was incorporated in the state of Nevada on November 27,
2012. The acquisition was accounted for as a reverse merger transaction. In connection with the closing of the transactions contemplated
by the Share Exchange Agreement, GSD’s management was replaced by bBoothUSA’s management, and GSD changed its name
to bBooth, Inc. The operations of CMG and bBooth (USA), Inc. became known as, and are referred to herein as, “bBooth USA.”
Effective
April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary
short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with
and into us. We were the surviving entity. To effectuate the merger, we filed Articles of Merger and a Certificate of Correction
(relative to the effective date of the name change merger) with the Secretary of State of the State of Nevada on April 4, 2017,
and April 17, 2017, respectively. The merger became effective on April 21, 2017. Our board of directors approved the merger, which
resulted in the name change on that date. In accordance with Section 92A.180 of the Nevada Revised Statutes, stockholder approval
of the merger was not required.
Our
Business
We
are an applications services provider marketing cloud-based business software products on a subscription basis. Our flagship product,
notifiCRM, is a Customer Relationship Management (“CRM”) application that is distinguishable from other CRM programs
because it utilizes interactive video as the primary means of communication between sales and marketing professionals and their
clients or prospects. notifiCRM allows our users to create, distribute, and post interactive videos that contain on-screen interactive
icons, buttons, and other elements, that when clicked, allow their prospects and customers to respond to our users’ call
to action in real-time, in the video, while the video is playing, without leaving or stopping the video. Our users report increased
sales conversion rates compared to traditional, non-interactive video. We developed the proprietary interactive video technology,
which serves as the basis for our cloud, Software-as-a-Service (SaaS) products and services that we market under the brand name
“notifi” and they are accessible on all mobile and desktop devices. No download is required to access and use our
applications. Our users also have access to detailed analytics in the application dashboard that reflect when the videos were
viewed, by whom, how many times, for how long, and what interactive elements were clicked-on in the video, among other things,
all of which assist our users in focusing their sales and marketing efforts by identifying which clients or prospects have interest
in the subject matter of the video.
Our
notifiCRM platform can accommodate any size campaign or sales organization, and it is enterprise-class scalable to meet the needs
of today’s global organizations. We are working with our vendors to ensure that it is so scalable based upon our current
agreements with them. We offer stand-alone versions of our notifiCRM product on a subscription basis to individual consumers,
sales-based organizations, consumer brands, marketing and advertising agencies, as well as to artists and social influencers.
We also offer notifiCRM through a network of partners and resellers that include Oracle/NetSuite and Marketo, who offer notifiCRM
to their respective clients and customers as an upgrade to their existing Oracle/NetSuite or Marketo subscriptions. notifiCRM
is fully integrated into each of their platforms and upon payment of the upgrade fee, is accessible through the respective dashboards
of Oracle/NetSuite and Marketo. We are actively developing integrations of notifiCRM into other popular marketing, CRM, and Enterprise
Resource Management (ERP) platforms.
Our
notifiMED application is designed for physicians and other healthcare providers to create more efficient and effective interactive
communications with patients. Patients are able to avoid unnecessary and inconvenient visits to their physicians’ or other
healthcare providers’ offices by viewing and responding to interactive videos through in-video, on-screen clicks that are
designed to assess the patients’ need for an office visit. If the patient’s responses to the interactive video indicate
that an office visit is either necessary or desirable, the patient can schedule the office visit right in through video in real
time. Patients can also download and print prescriptions, care instructions, and other physician distributed documents right from
and through the video. notifiMED is offered on a subscription basis.
Our
notifiEDU application is designed for teachers and school administrators for more effective communications with students, parents,
and faculty. notifiEDU allows teachers to deliver interactive lessons to students which are both more engaging and more effective.
notifiEDU allows teachers to communicate with students through their mobile devices and computers to deliver lessons and tests/quizzes
on the screen and in the video. The analytics capabilities of notifiEDU available on the dashboard of the teacher or school administrator
allows them to track which students watched the lesson, when, for how long, how many times, and track and report on test/quiz
results. notifiEDU is offered on a subscription basis.
Our
notifiTV and notifiLIVE products are also part of our proprietary interactive video platform that allows viewers to interact with
pre-recorded as well as live broadcast video content by clicking on links embedded in on-screen people, objects, graphics, or
sponsors’ signage. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most devices
available in the market today without the need to download special software or proprietary video players.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial
reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC. The condensed consolidated
balance sheet as of December 31, 2017 included herein was derived from the audited consolidated financial statements as of that
date.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary
to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as
noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented
herein are not necessarily indicative of fiscal year-end results.
Principles
of Consolidation
The
consolidated financial statements include the accounts of nFüsz, Inc., (formerly bBooth, Inc.) and Songstagram, Inc., our
wholly owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation.
Going
Concern
We
have incurred operating losses since inception and have negative cash flows from operations. We had a stockholders’ deficit
of $2,283,422 as of September 30, 2018 and incurred a net loss of $8,192,523 and utilized $2,801,405 of cash during the nine-month
period then ended September 30, 2018. These factors raise substantial doubt about the Company’s ability to continue as a
going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise
additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. In addition, the Company’s independent registered public accounting
firm, in its report on the Company’s December 31, 2017 consolidated financial statements, has raised substantial doubt about
the Company’s ability to continue as a going concern.
Our
continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash
flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our
operations. There is no assurance that we will ever be profitable or that debt or equity financing will be available to us. The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue
as a going concern.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reported periods. Significant estimates include assumptions made in valuing derivative liabilities, valuation
of debt and equity instruments, share-based compensation arrangements and realization of deferred tax assets. Amounts could materially
change in the future.
Revenue
Recognition
We
generate substantially all of our revenue from subscription services, which are comprised of subscription fees from customer accounts.
Subscription service arrangements are generally non-cancelable and do not provide for refunds to customers in the event of cancellations
or any other right of return. We record revenue net of sales or excise taxes.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and (ASC 606). The underlying principle
of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.
ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which
includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract
or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations,
and (5) recognizing revenue as each performance obligation is satisfied.
Under
ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the
Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control
is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products
or services to a customer.
The
Company adopted the guidance of ASC 606 on January 1, 2018. The implementation of ASC 606 had no impact on the prior period financial
statements and no cumulative effect adjustment was recognized.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument
could be required within 12 months of the balance sheet date.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined
by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative
liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded
in results of operations as adjustments to fair value of derivatives.
Share
Based Payments
The
Company issues stock options, common stock, and equity interests as share-based compensation to employees and non-employees. The
Company accounts for its share-based compensation to employees in accordance with FASB ASC 718 “Compensation – Stock
Compensation.” Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award,
and is recognized as expense over the requisite service period.
The
Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB
ASC 505-50
“
Equity - Based Payments to Non-Employees
.”
Measurement of share-based payment transactions
with non-employees is based on the fair value of whichever is more reliably measurable: (
a
) the goods or services received;
or (
b
) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the
performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to
that estimate to determine the cumulative expense recorded.
The
Company values stock compensation based on the market price on the measurement date. As described above, for employees this is
the date of grant, and for non-employees, this is the date of performance completion. The Company values stock options and warrants
using the Black-Scholes option pricing model.
Net
Loss Per Share
Basic
net loss per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted net
loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental common shares issuable upon exercise of stock options. No dilutive potential common
shares were included in the computation of diluted net loss per share because their impact was anti-dilutive. As of September
30, 2018, the Company had a total of 33,984,605 options and 19,152,038 warrants outstanding. These shares were excluded from the
computation of net loss per share because they are anti-dilutive. As of September 30, 2017, the Company had a total of 22,030,953
options and 24,461,413 warrants outstanding. These shares were excluded from the computation of net loss per share because they
are anti-dilutive.
Deferred
Offering Costs
Deferred
offering costs consist principally of legal, accounting and underwriters’ fees incurred related to the contemplated underwritten
public offering of the Company’s common stock. These deferred offering costs will be charged against the gross proceeds
received or will be charged to expense if the offering is not completed.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires
a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease
payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about
leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that
the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification
of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount,
timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has
not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s financial statement presentation or disclosures.
In
July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11
allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature)
is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with
down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value
of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income
available to common stockholders in computing basic earnings per share. For convertible instruments with embedded conversion features
containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be
amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective
approach. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on the Company’s financial statement
presentation or disclosures.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
3.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following as of September 30, 2018 and December 31, 2017.
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
56,890
|
|
|
$
|
56,890
|
|
Office
equipment
|
|
|
50,669
|
|
|
|
50,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,559
|
|
|
|
107,559
|
|
Less:
accumulated depreciation
|
|
|
(92,828
|
)
|
|
|
(77,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,731
|
|
|
$
|
30,554
|
|
Depreciation
expense amounted to $15,823 and $16,090 for nine months ended September 30, 2018 and 2017, respectively.
|
On
March 21, 2015, the Company entered into an agreement with DelMorgan Group LLC (“DelMorgan”), pursuant to which
DelMorgan acted as the Company’s exclusive financial advisor. In connection with the agreement, the Company paid DelMorgan
$125,000, which was advanced by a third-party lender in exchange for an unsecured note payable issued by the Company bearing
interest at the rate of 12% per annum payable monthly beginning on April 20, 2015.
|
|
|
|
Effective
March 20, 2017, for no additional consideration the Company entered into an extension
agreement with the third-party lender to extend the maturity date of the Note to March
21, 2018. All other terms of the Note remain unchanged. As of December 31, 2017, the
balance due under the note was $125,000.
On
January 29, 2018, the Company settled the debt of $125,000 in exchange for 1,250,000 shares of its Common Stock. There
was no gain or loss recognized as the fair value of the common shares issued approximates the note payable settled.
|
5.
|
NOTES
PAYABLE – RELATED PARTIES
|
The
Company has the following related parties notes payable as of September 30, 2018 and December 31, 2017:
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
September 30,
2018
|
|
|
Balance
at
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Note
1 (A)
|
|
December
1, 2015
|
|
February
8, 2021
|
|
|
12.0
|
%
|
|
$
|
1,248,883
|
|
|
$
|
824,218
|
|
|
$
|
1,198,883
|
|
Note 2
(B)
|
|
December
1, 2015
|
|
February
8, 2021
|
|
|
12.0
|
%
|
|
|
189,000
|
|
|
|
-
|
|
|
|
189,000
|
|
Note 3
(C)
|
|
December
1, 2015
|
|
April 1,
2017
|
|
|
12.0
|
%
|
|
|
111,901
|
|
|
|
111,901
|
|
|
|
111,901
|
|
Note 4
(D)
|
|
April 4,
2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
343,326
|
|
|
|
240,328
|
|
|
|
343,326
|
|
Note
5 (E)
|
|
April
4, 2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
121,875
|
|
|
|
-
|
|
|
|
121,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable – related parties, net
|
|
|
|
|
|
|
|
|
|
|
1,176,447
|
|
|
|
1,964,985
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
(824,218
|
)
|
|
|
-
|
|
Current
|
|
|
|
|
|
|
|
|
|
$
|
352,229
|
|
|
$
|
1,964,985
|
|
(A)
|
On
December 1, 2015, the Company issued a convertible note payable to Mr. Rory J. Cutaia,
the Company’s majority stockholder and Chief Executive Officer (CEO), to consolidate
all loans and advances made by Mr. Cutaia to the Company as of that date. The note bears
interest rate of 12% per annum, secured by the Company’s assets and matured on
August 1, 2018, as amended. Per the terms of the agreement, at Mr. Cutaia’s discretion,
he may convert up to $374,665 of outstanding principal, plus accrued interest thereon,
into shares of common stock at a conversion rate of $0.07 per share. As of December 31,
2017, total outstanding balance of the note amounted to $1,198,883.
On
August 8, 2018, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note to February
8, 2021. All other terms of the note remain unchanged. In connection with the extension, we granted to Mr. Cutaia a three-year
warrant to purchase up to 2,446,700 shares of Common Stock at a price of $0.49 per share with a fair value of $1,074,602.
We determined that the extension of the note’s maturity date resulted in a debt extinguishment for accounting purposes
because the fair value of the warrants granted was more than 10% of the original value of the note. As result, we recorded
the fair value of the “new” note, which approximates the then-current carrying value of $1,198,833 of the
then-current note and expensed the entire fair value of the warrants granted of $1,074,602 as part of debt extinguishment.
On September 30, 2018, Mr. Cutaia converted the principal balance that was convertible ($374,665) into 5,352,357 shares
of Restricted Common Stock at $0.07 per share.
As
of September 30, 2018, outstanding balance of the note amounted to $824,218.
|
(B)
|
On
December 1, 2015, the Company issued a convertible note with Mr. Cutaia in the amount
of $189,000 representing a portion of Mr. Cutaia’s accrued salary for 2015. The
note was unsecured, bears interest rate of 12% per annum, matured in August 1, 2018,
as amended, and convertible to shares of common stock at a conversion price of $0.07
per share. As of December 31, 2017, outstanding balance of the note amounted to $189,000.
On
September 30, 2018, Mr. Cutaia converted the entire unpaid balance of $189,000 into 2,700,000 restricted shares of our
Common Stock at $0.07 per share.
|
(C)
|
On
December 1, 2015, the Company issued a note payable to a former member of the Company’s
Board of Directors, in the amount of $111,901 representing unpaid consulting fees as
of November 30, 2015. The note is unsecured, bears interest rate of 12% per annum and
matured in April 2017.
As
of September 30, 2018, and the date of this report, the note is past due. The Company is currently in negotiations with
the note holder to settle the note payable.
|
|
|
(D)
|
On
April 4, 2016, the Company issued a convertible note to Mr. Cutaia, in the amount of
$343,326, to consolidate all advances made by Mr. Cutaia to the Company from December
2015 through March 2016. The note bears interest rate of 12% per annum, secured by the
Company’s assets and will mature on December 4, 2018, as amended. A total of 30%
of the note principal or $102,998 can be converted to shares of common stock at a conversion
price $0.07 per share. As of December 31, 2017, outstanding balance of the note amounted
to $343,326
On
September 30, 2018 Mr. Cutaia converted the 30% of the principal balance that was convertible ($102,998) into 1,471,397
restricted shares of our Common Stock at $0.07 per share.
As
of September 30, 2018, outstanding balance of the note amounted to $240,328.
|
(E)
|
On
April 4, 2016, the Company issued a convertible note payable to Mr. Cutaia in the amount
of $121,875, representing his unpaid salary from December 2015 through March 2016. The
note was unsecured, bears interest at the rate of 12% per annum, matures on December
4, 2018, as amended, and convertible to common stock at a conversion price of $0.07 per
share. As of December 31, 2017, outstanding balance of the note amounted to $121,8750.
For
the period ended September 30, 2018 Mr. Cutaia converted $121,875 of debt into 1,741,071 shares of Restricted Common Stock.
|
Total
interest expense for notes payable to related parties was $175,846 and $176,364 for nine months ended September 30, 2018 and 2017,
respectively.
6.
|
CONVERTIBLE
NOTES PAYABLE
|
The
Company has the following convertible notes payable as of September 30, 2018 and December 31, 2017:
Note
|
|
Note
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
September 30,
2018
|
|
|
Balance
at
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Note
payable
|
|
April
3, 2016
|
|
April
4, 2018
|
|
|
12
|
%
|
|
$
|
600,000
|
|
|
$
|
-
|
|
|
$
|
680,268
|
|
Note
payable
|
|
June and
August 2017
|
|
February
and March 2018
|
|
|
5
|
%
|
|
$
|
220,500
|
|
|
|
-
|
|
|
|
220,500
|
|
Note
payable
|
|
Various
|
|
Various
|
|
|
5
|
%
|
|
$
|
320,000
|
|
|
|
-
|
|
|
|
320,000
|
|
Note
payable
|
|
December
8, 2017
|
|
December
8, 2018
|
|
|
8
|
%
|
|
$
|
370,000
|
|
|
|
-
|
|
|
|
370,000
|
|
Note
payable
|
|
December
13, 2017
|
|
September
20, 2018
|
|
|
8
|
%
|
|
$
|
105,000
|
|
|
|
-
|
|
|
|
105,000
|
|
Total
notes payable
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,695,768
|
|
Debt
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(675,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net of debt discount
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,020,315
|
|
During
2016 through 2017, the Company issued convertible notes payable to unrelated, third-party creditors/investors totaling $1,695,768.
The notes bore an average interest rate of 8% per annum, secured by the Company’s assets, mature starting February 2018
through January 2019 and are convertible to shares of common stock based upon a discounted market price. As of December 31, 2017,
outstanding balance of the notes payable and unamortized debt discount amounted to $1,695,768 and $675,453, respectively.
During
the period ended September 30, 2018, the Company issued similar convertible notes payable totaling $150,000 in exchange for cash
of $130,000. The notes were secured by the Company’s assets, bore interest of 8% per annum, matures in January 2019 and
convertible to common shares at a conversion price equal to 70% of the Company’s 10-day VWAP. The Company determined that
since the conversion floor had no limit to the conversion price, that the Company could no longer determine if it had enough authorized
shares to fulfill the conversion obligation. As such, pursuant to current accounting guidelines, the Company determined that the
conversion feature of the notes created a derivative with a fair value of $252,778 at the date of issuance. The Company accounted
for the fair value of the derivative up to the face amount of the note of $150,000 as a valuation discount to be amortized over
the life of the note, and the excess of $102,778 being recorded as financing cost (see Note 7 for discussion of derivative liability).
In addition, the Company also recorded the notes’ original issue discount of $20,000 as a financing cost.
As
part of the convertible note offering during the period ended September 30, 2018, the Company also granted a five-year warrant
to acquire 1,000,000 shares of the Company’s common stock with an exercise price of $0.14 per share. A total of 500,000
warrants that were granted included a full ratchet reset provision in case of a future offering at a price below $0.14 per share
and a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder and a reset. As
such, pursuant to current accounting guidelines, the Company determined that the warrant exercise price and fundamental transaction
clause created a derivative with a fair value of $48,961 at the date of issuance. The Company accounted for the fair value of
the derivative as financing cost. See Note 7 for discussion of derivative liability.
During
the period ended September 30, 2018, the Company settled outstanding debt of $845,000 through the payment of cash. In addition,
Company issued 6,133,006 shares of common stock with fair value of $2,151,297 in settlement of outstanding convertible notes of
$900,760 and accrued interest of $161,475 ($1,062,235 in the aggregate) The Company recorded a loss of $1,067,242 to account the
difference in the fair value of the shares issued in excess of the aggregate amount of debt converted.
Furthermore,
upon settlement of the debt, the Company amortized the remaining debt discount of $747,623 to interest expense. As of September
30, 2018, all convertible notes payable and unpaid interest had been paid or settled.
Total
interest expense for convertible notes payable for the nine months ended September 30, 2018 and 2017 was $144,541 and $40,481,
respectively.
Under
authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s
own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. The Company has issued
certain convertible notes whose conversion prices contains reset provisions based on a future offering price and/or whose conversion
prices are based on future market prices. However, since the number of shares to be issued is not explicitly limited, the Company
is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. In addition,
the Company also granted certain warrants that included a fundamental transaction provision that could give rise to an obligation
to pay cash to the warrant holder.
As
a result, the conversion option and warrants are classified as liabilities and are bifurcated from the debt host and accounted
for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the
change in value reported in the statement of operations.
The
derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following
average assumptions:
|
|
September
30, 2018
|
|
|
Upon
Issuance
|
|
|
December
31, 2017
|
|
Stock
Price
|
|
$
|
0.40
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
Exercise
Price
|
|
$
|
0.13
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
Expected
Life
|
|
|
4.23
|
|
|
|
2.33
|
|
|
|
1.26
|
|
Volatility
|
|
|
221
|
%
|
|
|
193
|
%
|
|
|
189
|
%
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-Free
Interest Rate
|
|
|
1.89
|
%
|
|
|
1.18
|
%
|
|
|
1.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
$
|
673,376
|
|
|
$
|
301,739
|
|
|
$
|
1,250,581
|
|
The
expected life of the conversion feature of the notes and warrants was based on the remaining contractual term of the notes and
warrants. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock.
The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay
dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank. As of December
31, 2017, the Company had recorded a derivative liability of $1,250,581.
During
the period ended September 30, 2018, the Company recorded an additional derivative liability totaling $301,739 as a result of
the issuance of convertible notes and warrants. The Company also extinguished derivative liability of $1,718,816 upon the conversion
and payment of outstanding convertible notes payable, which was recorded as part of gain on extinguishment of debt. In addition,
the Company also recorded a change in fair value of $839,872 to account the change in fair value of these derivative liabilities
up to the dates of the extinguishment and at September 30, 2018. At September 30, 2018, the fair value of the derivative liability
amounted to $673,376.
The
Company’s common stock activity for the nine months ended September 30, 2018 is as follows:
Common
Stock
Shares
Issued from Stock Subscription
– During the period ended September 30, 2018, the Company issued 17,459,067 shares
of common stock to investors for net cash proceeds of $2,978,500 at prices ranging from $0.06 per share to $1.00 per share.
Shares
Issued for Services
– During the period ended September 30, 2018, the Company issued 4,790,181 shares of common
stock to employees and vendors for services rendered with a fair value of $1,547,429. These shares of common stock were valued
based on market value of the Company’s stock price at the date of grant or agreement. Included in these issuances were 4,500,000
shares of common stock with a fair value of $1,539,000 granted to officers and a director of the Company for services rendered.
Shares
Issued from Conversion of Note Payable
– During the period ended September 30, 2018, the Company issued 18,647,831
shares of common stock upon conversion of notes payable and accrued interest (see Notes 4, 5 and 6).
Shares
Issued for Accrued Salary
– On March 28, 2018, the Company converted $582,333 of the CEO’s accrued salary
into 407,226 shares of common stock with a fair value of $582,333 at the date of conversion.
Shares
Issued Upon Exercise of Put Option
– In January and February 2018, the Company issued Put Notices to Kodiak and
issued 3,048,105 shares of common stock in exchange for cash of $1,000,000. In addition, the Company also issued Kodiak the prorated
warrants to purchase 2,000,000 shares of common stock at $0.25 per share.
Shares
Repurchased
. For the period ended September 30, 2018, the Company repurchased 700,000 shares of common stock from investors
for $20,000.
Stock
Options
Effective
October 16, 2014, the Company adopted the 2014 Stock Option Plan (the “Plan”) under the administration of the board
of directors to retain the services of valued key employees and consultants of the Company.
At
its discretion, the Company grants share option awards to certain employees and non-employees, as defined by ASC 718, Compensation—Stock
Compensation, under the 204 Stock Option Plan (the “Plan”) and accounts for its share-based compensation in accordance
with ASC 718.
A
summary of option activity for the nine months ended September 30, 2018 is presented below.
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2017
|
|
|
21,840,953
|
|
|
$
|
0.33
|
|
|
|
4.03
|
|
|
|
|
|
Granted
|
|
|
16,831,272
|
|
|
|
0.46
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(487,620
|
)
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(4,200,000
|
)
|
|
|
0.34
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2018
|
|
|
33,984,605
|
|
|
$
|
0.26
|
|
|
|
3.06
|
|
|
$
|
3,992,194
|
|
Exercisable
at September 30, 2018
|
|
|
11,304,808
|
|
|
$
|
0.35
|
|
|
|
|
|
|
$
|
2,994,627
|
|
During
the nine months ended September 30, 2018, the Company granted stock options to employees and consultants to purchase a total 16,831,272
shares of common stock for services rendered. The options have an average exercise price of $0.46 per share, expire in five years
and vest on grant date or over a period of three years from grant date. Total fair value of these options at grant date was approximately
$8,019,558 using the Black-Scholes Option Pricing model.
During
the period ended September 30, 2018, 487,620 options were exercised resulting in the issuance of 487,620 shares of common stock.
The Company received cash of $34,133 upon exercise of the options.
The
total stock compensation expense recognized relating to vesting of stock options for the nine months ended September 30, 2018
amounted to $1,413,304. As of September 30, 2018, total unrecognized stock-based compensation expense was $5,944,834, which is
expected to be recognized as part of operating expense through September 2021.
The
fair value of share option award is estimated using the Black-Scholes method based on the following weighted-average assumptions:
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Risk-free
interest rate
|
|
|
2.73%
- 2.99
|
%
|
|
|
1.77%
- 1.93
|
%
|
Average
expected term (years)
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected
volatility
|
|
|
184%
-190
|
%
|
|
|
157
%-171
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the
expected term of the share option award; the expected term represents the weighted-average period of time that share option awards
granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior;
the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield
is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future.
Warrants
The
Company has the following warrants outstanding as of September 30, 2018 all of which are exercisable:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2017
|
|
|
28,436,413
|
|
|
$
|
0.13
|
|
|
|
2.79
|
|
|
$
|
-
|
|
Granted
|
|
|
5,446,700
|
|
|
|
0.34
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(48,000
|
)
|
|
|
0.10
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(14,683,075
|
)
|
|
|
0.09
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at September 30, 2018
|
|
|
19,152,038
|
|
|
$
|
0.22
|
|
|
|
3.03
|
|
|
$
|
3,827,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2018
|
|
|
19,152,038
|
|
|
|
|
|
|
|
|
|
|
$
|
3,827,516
|
|
During
the period ended September 30, 2018, 14,683,075 warrants were exercised resulting in the issuance of 11,917,705 shares of common
stock. The Company received cash of $22,000 upon exercise of the warrants.
During
the nine months ended September 30, 2018, the Company granted warrants to note holders to purchase a total of 1,000,000 shares
of common stock. The warrants are exercisable at an average price of $0.14 per share and will expire in January 2023. A total
of 500,000 warrants that had been granted were accounted as derivative liability (see Note 6).
On
February 21, 2018, the Company granted 2,000,000 warrants as part of the exercise of our put option with Kodiak. The exercise
price of the 2,000,000 warrants is $0.25 per share and they expire on February 20, 2023.
On
August 8, 2018 the Company granted 2,446,700 warrants to extend the maturity date of the $1,248,833 Secured note (see note 5).
The fair market value of the warrants totaling $1,074,602 was accounted as part of debt extinguishment.
During
the nine months ended September 30, 2018, a total of 14,683,075 warrants were exercised in cash and cashless exercises for 11,917,705
shares of common stock at a weighted average exercise price of $0.09. As part of these exercises, the Company also received $22,000
upon the exercise of these warrants.
9.
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
On
April 24, 2018, EMA Financial, LLC, a New York limited liability company (“EMA”), commenced an action against us,
styled
EMA Financial, LLC, a New York limited liability company, Plaintiff, against nFUSZ, Inc., Defendant
, United States
District Court, Southern District of New York, case number 1:18-cv-03634-NRB. The Complaint sets forth four causes of action and
seeks relief consisting of: (1) money damages, (2) injunctive relief, (3) liquidated damages; and declaratory relief. All of the
claims stem from our refusal to honor EMA’s exercise notice in connection with a common stock purchase warrant that we had
granted to it. We believe EMA’s allegations are entirely without merit.
The
circumstances giving rise to the dispute are as follows: On or about December 5, 2017, we issued a warrant to EMA as part of the
consideration we were required to provide in connection with a contemporaneous convertible loan EMA made to us. The loan, which
was evidenced by a convertible Note, was for a term of one year. Our refusal to honor the warrant exercise notice was due to our
good faith belief that EMA’s interpretation of the cashless exercise provision of the warrant was,
inter alia
, (i)
contrary to our direct conversations and agreements made with EMA prior to, and during the preparation of the loan and warrant
agreements; (2) wholly inconsistent with industry norms, standards, and practices; (3) was contrary to the cashless exercise method
actually adopted by EMA’s co-lender in the same transaction; and (4) was the result of a single letter mistakenly transposed
in the cashless exercise formula drafted by EMA which if adopted, would result in a gross and unintended windfall in favor of
EMA and adverse to us. Moreover, as set forth in our response to EMA’s allegations, EMA’s interpretation of the cashless
exercise provision would have resulted in it being issued more
shares of our common stock than it would have received if
it exercised the warrant for cash (instead of less), and more than the amount of shares reflected on the face of the warrant agreement
itself. The loan underlying the transaction was repaid, in full, approximately three months after it was issued, on March 8, 2018,
together with all accrued interest, prior to any conversion or attempted conversion of the Note.
On
July 20, 2018, we filed an Answer to the Complaint, along with certain Affirmative Defenses, as well as Counterclaims seeking,
inter alia
, to void the entire transaction for violation of New York’s criminal usury laws and, alternatively, for
reformation of the warrant conversion formula set forth in the Warrant Agreement so as to be consistent with the parties’
intent and custom and practice in the industry. We intend to vigorously defend the action, as well as vigorously prosecute our
counterclaims against EMA. The action is still pending.
We
know of no other material pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our assets
or properties, or the assets or properties of any of our subsidiaries, are subject and, to the best of our knowledge, no adverse
legal activity is anticipated or threatened. In addition, we do not know of any such proceedings contemplated by any governmental
authorities.
Board
of Directors
The
Company has committed an aggregate of $270,000 in annual compensation to its three independent board members commencing on the
date the Company is listed on the NASDAQ. The members will serve on the board until the annual meeting for the year in which their
term expires or until their successors have been elected and qualified.
Subsequent
to September 30, 2018, a total of 4,600,000 warrants were exercised in cashless exercises for 4,206,111 shares of common stock
at a weighted average exercise price of $0.21.
Subsequent
to September 30, 2018, the Company granted stock options to employees and consultants to purchase a total 2,125,000 shares of
common stock for services rendered. The options have an average exercise price of $0.50 per share, expire in five years and vest
on grant date or over a period of three years from grant date. Total fair value of these options at grant date was $1,021,764
using the Black-Scholes Option Pricing model.
On
October 19, 2018, we issued an unsecured convertible note (the “Note”) to an otherwise unaffiliated third-party entity
in the aggregate principal amount of $1,500,000 in exchange for net proceeds of $1,241,500, after an Original Issue Discount of
$150,000 and legal and financing expenses of $108,500. In addition, we issued 1,450,000 shares of our Common Stock. The Note is
convertible into shares of our Common Stock only on or after the occurrence of an uncured “Event of Default.” Primarily,
we will be in default if we do not repay the principal amount of the Note, as required. The other Events of Default are standard
for the type of transaction represented by the related Securities Purchase Agreement and the Note. The conversion price in effect
on any date on which some or all of the principal of the Note is to be converted shall be a price equal to 70% of the lowest VWAP
during the ten trading days immediately preceding the date on which the third party provided its notice of conversion. Upon an
Event of Default, we will owe the third party an amount equivalent to 110% of the then-outstanding principal amount of the Note
in addition to of all other amounts, costs, expenses, and liquidated damages that might also be due in respect thereof. We have
agreed that, on or after the occurrence of an Event of Default, we will reserve and keep available that number of shares of our
Common Stock that is at least equal to 200% of the number of such shares that
potentially
would be issuable pursuant to the terms of the SPA and the Note (assuming conversion in full of the Note and on any date of determination).
As of the issue date, the Note was convertible into an aggregate of 5,603,706 shares of Common Stock. The Company determined
that, because the conversion price is unknown, the Company could not determine if it had enough authorized shares to fulfill the
conversion obligation. As such, pursuant to current accounting guidelines, the Company determined that the conversion feature
of the Note created a derivative with a fair value of $1,674,106 at the date of issuance. The Company accounted for the fair value
of the derivative up to the face amount of the note of $1,500,000 as a valuation discount to be amortized over the life of the
Note, and the excess of $174,106 being recorded as financing cost. In addition, the Company also recorded the Note’s original
issue discount of $285,500 as a financing cost.
On
October 30, 2018, we issued two unsecured convertible notes to one current investor and one otherwise unaffiliated third-party
in the aggregate principal amount of $400,000 in exchange for net proceeds of $400,000. The notes bear interest at a rate of 5%
per annum and will mature on April 29, 2019. These notes, upon the Company’s consummation of the contemplated underwritten
public offering of the Company’s common stock, all, and not less than all, of (i) the principal and (ii) the accrued interest
hereunder shall be converted into shares of the Company’s common stock that shall have been registered therein. The per-share
conversion price shall be seventy-five percent (75%) of the offering price of the Common Stock, as reflected on the cover of the
definitive prospectus that the Company shall file with the Securities and Exchange Commission upon its acceleration of effectiveness
of the contemplated underwritten public offering of the Company’s common stock. As of the issue date, the notes were convertible
into an aggregate of 1,523,809 shares of Common Stock. The Company determined that, because the conversion price is unknown, that
the Company could not determine if it had enough authorized shares to fulfill the conversion obligation. As such, pursuant to
current accounting guidelines, the Company determined that the conversion feature of the notes created a derivative with a fair
value of $383,966 at the date of issuance. The Company accounted for the fair value of the derivative as a financing cost.
On
November 8, 2018, we, and our two wholly-owned merger subsidiaries, entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Sound Concepts, Inc., a Utah corporation, its shareholders, and a shareholders’ representative, pursuant
to which we will acquire Sound Concepts through a two-step merger, consisting of merging one of our merger subsidiaries with and
into Sound Concepts (with Sound Concepts surviving the “first step” of the merger) and, immediately thereafter, merging
Sound Concepts with and into our other merger subsidiary (with that subsidiary surviving the “second step” of the
merger). We will pay $25,000,000 of value to the shareholders of Sound Concepts, payable through a combination of a $15,000,000
cash payment by us and the issuance of shares of our common stock with a fair market value of $10,000,000. The purchase price
is not subject to any closing working capital adjustment or post-closing working capital adjustment.
Each
of the parties to the Merger Agreement made customary representations, warranties, and indemnities subject to, in some cases,
exceptions and qualifications as will be set forth in a disclosure schedule to the Merger Agreement. Each of the parties also
agreed to certain covenants and other agreements, including, among others, (i) covenants requiring Sound Concepts and its shareholders
to not solicit other acquisition bids or proposals and (ii) covenants regarding non-solicitation and non-competition.
Completion
of the acquisition is subject to the satisfaction or waiver of certain conditions. In addition to customary closing conditions,
our obligation to complete the acquisition is conditioned upon the consummation of an underwritten public offering of our common
stock and receipt by us of offering proceeds that will be used to pay for all or a portion of the cash portion of the merger consideration.
Nothing herein shall constitute an offer to sell or the solicitation of an offer to buy any of the securities in our anticipated
offering of shares of our Common Stock.
Currently,
we anticipate the closing of the Sound Concepts acquisition to occur in the first quarter of fiscal 2019; however, there can be
no assurance that it will close in the first quarter of fiscal 2019, or at all.
The
Merger Agreement may be terminated under certain circumstances, including, but not limited to: (i) the mutual written consent
of Sound Concepts and us; (ii) by us if there has been a breach, inaccuracy in, or failure to perform any representation, warranty,
covenant, or agreement made by Sound Concepts or its shareholders pursuant to the Merger Agreement that would give rise to the
failure of any of the closing conditions and such breach, inaccuracy, or failure has not been cured within 10 days of Sound Concepts’
receipt of written notification of such breach from us; provided, that, we (or our merger subsidiaries) are not then in material
breach of any provision of the Merger Agreement; (iii) by us if our closing conditions have not been, or if it becomes apparent
that any of such conditions will not be, fulfilled by February 14, 2019, unless such failure is due to our failure to perform
or comply with any of the covenants, agreements, or conditions required to be performed or complied with by it prior to the closing
of the acquisition; (iv) by Sound Concepts if there has been a breach, inaccuracy in, or failure to perform any representation,
warranty, covenant, or agreement made by us (or our merger subsidiaries) pursuant to the Merger Agreement that would give rise
to the failure of any of the closing conditions and such breach, inaccuracy, or failure has not been cured within 10 days of our
receipt of written notice of such breach from Sound Concepts; provided, that neither Sound Concepts or its shareholders is then
in material breach of any provision of the Merger Agreement; (v) by Sound Concepts if any of Sound Concepts’ or its shareholders’
closing conditions have not been, or if it becomes apparent that any of such conditions will not be, fulfilled by January 31,
2019, unless such failure is due to Sound Concepts’, or its shareholders’, failure to perform or comply with any of
the covenants, agreements, or conditions to be performed or complied with by it or them prior to the Closing of the acquisition;
and (vi) by Sound Concepts or us if (1) there is any law that makes consummation of the transactions contemplated by the Merger
Agreement illegal or otherwise prohibited or (2) any governmental authority issued a governmental order restraining or enjoining
the transactions contemplated by the Merger Agreement, and such governmental order has become final and non-appealable.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and the Board of Directors
nFüsz,
Inc.
Los
Angeles, California
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of nFüsz, Inc. (the “Company”) as of December 31, 2017
and 2016, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years
then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1, the Company has a stockholders’ deficit at December 31, 2017, has no recurring source of revenue
and has experienced negative operating cash flows since inception. These matters raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the
financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
/
s/
Weinberg & Company, P.A.
We
have served as the Company’s auditor since January 26, 2017.
Los
Angeles, CA
April
2, 2018
nFÜSZ,
INC.
CONSOLIDATED
BALANCE SHEETS
As
of December 31,
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,560
|
|
|
$
|
16,762
|
|
Accounts
receivable
|
|
|
—
|
|
|
|
8,468
|
|
Prepaid
expenses
|
|
|
40,909
|
|
|
|
10,871
|
|
Total
current assets
|
|
|
51,469
|
|
|
|
36,101
|
|
Property
and equipment, net
|
|
|
30,554
|
|
|
|
52,066
|
|
Other
assets
|
|
|
8,780
|
|
|
|
16,036
|
|
Total
assets
|
|
$
|
90,803
|
|
|
$
|
104,203
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
663,506
|
|
|
$
|
431,650
|
|
Accrued
interest (including $99,425 and $56,628 payable to related parties)
|
|
|
248,120
|
|
|
|
118,137
|
|
Accrued
officers’ salary
|
|
|
607,333
|
|
|
|
200,028
|
|
Notes
payable, net of discount of $0 and $48,942, respectively
|
|
|
125,000
|
|
|
|
177,358
|
|
Notes
payable - related party
|
|
|
1,964,985
|
|
|
|
1,964,985
|
|
Convertible
note payable, net of discount of $675,453 and $0, respectively
|
|
|
1,020,315
|
|
|
|
680,268
|
|
Derivative
liability
|
|
|
1,250,581
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
5,879,840
|
|
|
|
3,572,426
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
deficit
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value, 15,000,000 shares authorized, none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $0.0001 par value, 200,000,000 shares authorized, 119,118,513 and 94,661,566 shares issued and outstanding as of December
31, 2017 and 2016, respectively
|
|
|
11,912
|
|
|
|
9,465
|
|
Additional
paid in capital
|
|
|
22,738,574
|
|
|
|
17,815,732
|
|
Common
stock issuable, 4,500,000 shares
|
|
|
430
|
|
|
|
(20,020
|
)
|
Accumulated
deficit
|
|
|
(28,539,953
|
)
|
|
|
(21,273,400
|
)
|
Total
stockholders’ deficit
|
|
|
(5,789,037
|
)
|
|
|
(3,468,223
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
90,803
|
|
|
$
|
104,203
|
|
The
accompanying notes are an integral part of these consolidated financial statements
nFÜSZ,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31,
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
5,914
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
375,220
|
|
|
|
257,803
|
|
General
and administrative
|
|
|
4,327,529
|
|
|
|
2,873,185
|
|
Total
operating expenses
|
|
|
(4,702,749
|
)
|
|
|
(3,130,988
|
)
|
Loss
from operations
|
|
|
(4,696,835
|
)
|
|
|
(3,130,988
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
20,099
|
|
|
|
52,898
|
|
Change
in fair value of derivative liability
|
|
|
5,900
|
|
|
|
—
|
|
Debt
extinguishment
|
|
|
(977,203
|
)
|
|
|
(455,975
|
)
|
Financing
costs
|
|
|
(643,481
|
)
|
|
|
—
|
|
Interest
expense (including $235,798 and $232,076 to related parties)
|
|
|
(555,094
|
)
|
|
|
(340,580
|
)
|
Interest
expense - amortization of debt discount
|
|
|
(418,339
|
)
|
|
|
(398,594
|
)
|
Total
other expense
|
|
|
(2,568,118
|
)
|
|
|
(1,142,251
|
)
|
Loss
before income tax provision
|
|
|
(7,264,953
|
)
|
|
|
(4,273,239
|
)
|
Income
tax provision
|
|
|
1,600
|
|
|
|
866
|
|
Net
loss
|
|
$
|
(7,266,553
|
)
|
|
$
|
(4,274,105
|
)
|
Loss
per share - basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
|
106,148,101
|
|
|
|
79,602,170
|
|
The
accompanying notes are an integral part of these consolidated financial statements
nFÜSZ,
INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For
the Years Ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
Additional
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Issuable
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2015
|
|
|
63,859,000
|
|
|
$
|
6,386
|
|
|
$
|
14,650,519
|
|
|
$
|
—
|
|
|
$
|
(16,999,295
|
)
|
|
$
|
(2,342,390
|
)
|
Fair
value vested options
|
|
|
—
|
|
|
|
—
|
|
|
|
457,881
|
|
|
|
—
|
|
|
|
—
|
|
|
|
457,881
|
|
Fair
value of common shares, warrants and beneficial conversion feature on issued convertible notes
|
|
|
240,000
|
|
|
|
24
|
|
|
|
33,067
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,091
|
|
Fair
value of warrants and conversion feature of debt extension
|
|
|
—
|
|
|
|
—
|
|
|
|
455,975
|
|
|
|
—
|
|
|
|
—
|
|
|
|
455,975
|
|
Stock
repurchase
|
|
|
(8,311,324
|
)
|
|
|
(831
|
)
|
|
|
(165,395
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(166,226
|
)
|
Proceeds
from sale of common stock
|
|
|
31,335,556
|
|
|
|
3,133
|
|
|
|
1,540,917
|
|
|
|
(20,020
|
)
|
|
|
—
|
|
|
|
1,524,030
|
|
Share
based compensation - shares issued for vendor services
|
|
|
6,388,334
|
|
|
|
638
|
|
|
|
726,201
|
|
|
|
—
|
|
|
|
—
|
|
|
|
726,839
|
|
Share
based compensation - shares issued for BOD services
|
|
|
1,150,000
|
|
|
|
115
|
|
|
|
116,567
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116,682
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,274,105
|
)
|
|
|
(4,274,105
|
)
|
Balance
at December 31, 2016
|
|
|
94,661,566
|
|
|
|
9,465
|
|
|
|
17,815,732
|
|
|
|
(20,020
|
)
|
|
|
(21,273,400
|
)
|
|
|
(3,468,223
|
)
|
Fair
value vested options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
445,085
|
|
|
|
—
|
|
|
|
—
|
|
|
|
445,085
|
|
Proceeds
from sale of common stock
|
|
|
11,182,143
|
|
|
|
1,118
|
|
|
|
774,882
|
|
|
|
20,000
|
|
|
|
—
|
|
|
|
796,000
|
|
Fair
value of common shares issued for services
|
|
|
8,280,435
|
|
|
|
829
|
|
|
|
2,086,881
|
|
|
|
450
|
|
|
|
—
|
|
|
|
2,088,160
|
|
Fair
value of common stock issued upon conversion Preferred Series A
|
|
|
2,862,006
|
|
|
|
286
|
|
|
|
303,355
|
|
|
|
—
|
|
|
|
|
|
|
|
303,641
|
|
Fair
value of common stock issued upon conversion of debt
|
|
|
1,026,195
|
|
|
|
103
|
|
|
|
181,742
|
|
|
|
—
|
|
|
|
|
|
|
|
181,845
|
|
Common
shares issued upon exercise of put option
|
|
|
656,168
|
|
|
|
66
|
|
|
|
49,934
|
|
|
|
—
|
|
|
|
|
|
|
|
50,000
|
|
Fair
value of shares of common stock issued to settle accounts payable
|
|
|
400,000
|
|
|
|
40
|
|
|
|
55,960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,000
|
|
Fair
value of common shares, warrants and beneficial conversion feature of issued notes
|
|
|
50,000
|
|
|
|
5
|
|
|
|
154,345
|
|
|
|
—
|
|
|
|
|
|
|
|
154,350
|
|
Fair
value of warrants issued to extinguish debt and accounts payable
|
|
|
—
|
|
|
|
—
|
|
|
|
870,658
|
|
|
|
—
|
|
|
|
|
|
|
|
870,658
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,266,553
|
)
|
|
|
(7,266,553
|
)
|
Balance
at December 31, 2017
|
|
|
119,118,513
|
|
|
$
|
11,912
|
|
|
$
|
22,738,574
|
|
|
$
|
430
|
|
|
$
|
(28,539,953
|
)
|
|
$
|
(5,789,037
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements
nFÜSZ,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31,
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,266,553
|
)
|
|
$
|
(4,274,105
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
2,533,245
|
|
|
|
1,301,402
|
|
Change
in fair value of derivative liability
|
|
|
(5,900
|
)
|
|
|
—
|
|
Financing
costs
|
|
|
643,481
|
|
|
|
—
|
|
Debt
extinguishment
|
|
|
977,203
|
|
|
|
455,975
|
|
Amortization
of debt discount
|
|
|
418,339
|
|
|
|
404,041
|
|
Loss
on conversion of series A preferred
|
|
|
217,106
|
|
|
|
—
|
|
Depreciation
and amortization
|
|
|
21,512
|
|
|
|
21,301
|
|
|
|
|
|
|
|
|
|
|
Effect
of changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
799,144
|
|
|
|
456,774
|
|
Accounts
receivable
|
|
|
8,468
|
|
|
|
(8,417
|
)
|
Other
assets
|
|
|
7,256
|
|
|
|
(16,036
|
)
|
Prepaid
expenses
|
|
|
(30,038
|
)
|
|
|
55,052
|
|
Net
cash used in operating activities
|
|
|
(1,676,737
|
)
|
|
|
(1,604,013
|
)
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
—
|
|
|
|
(2,494
|
)
|
Other
|
|
|
—
|
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
—
|
|
|
|
(2,494
|
)
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from convertible note payable
|
|
|
813,000
|
|
|
|
—
|
|
Proceeds
from sale of common stock
|
|
|
796,000
|
|
|
|
1,524,030
|
|
Proceeds
from series A preferred stock
|
|
|
555,000
|
|
|
|
—
|
|
Proceeds
from Put Shares
|
|
|
50,000
|
|
|
|
|
|
Redemption
of series A preferred
|
|
|
(543,465
|
)
|
|
|
—
|
|
Proceeds
from note payable
|
|
|
—
|
|
|
|
80,000
|
|
Proceeds
from notes payable - related parties
|
|
|
—
|
|
|
|
92,446
|
|
Payment
of notes payable - related parties
|
|
|
—
|
|
|
|
(10,000
|
)
|
Repurchases
of common stock
|
|
|
—
|
|
|
|
(166,226
|
)
|
Net
cash provided by financing activities
|
|
|
1,670,535
|
|
|
|
1,520,250
|
|
Net
change in cash
|
|
|
(6,202
|
)
|
|
|
(86,257
|
)
|
Cash
- beginning of period
|
|
|
16,762
|
|
|
|
103,019
|
|
Cash
- end of period
|
|
$
|
10,560
|
|
|
$
|
16,762
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
326,221
|
|
|
$
|
129,869
|
|
Cash
paid for income taxes
|
|
$
|
1,600
|
|
|
$
|
800
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Fair
value of derivative liability from issuance of convertible debt and warrant features
|
|
$
|
1,256,481
|
|
|
$
|
—
|
|
Fair
value of warrants issued and beneficial conversion feature to extinguish debt
|
|
$
|
860,601
|
|
|
$
|
—
|
|
Conversion
of series A Preferred to common stock
|
|
$
|
303,641
|
|
|
$
|
—
|
|
Fair
value of common shares, warrants and beneficial conversion feature of issued convertible note
|
|
$
|
154,350
|
|
|
$
|
—
|
|
Conversion
of note payable to common stock
|
|
$
|
181,845
|
|
|
$
|
—
|
|
Common
stock issued to settle accounts payable
|
|
$
|
56,000
|
|
|
$
|
—
|
|
Conversion
of accrued interest on notes payable to related parties note
|
|
$
|
—
|
|
|
$
|
10,900
|
|
Conversion
of accrued payroll to related party note
|
|
$
|
—
|
|
|
$
|
121,875
|
|
Conversion
of accrued interest on notes payable to convertible notes payable
|
|
$
|
—
|
|
|
$
|
80,268
|
|
Conversion
of accrued interest to accrued officers’ salary
|
|
$
|
—
|
|
|
$
|
180,686
|
|
The
accompanying notes are an integral part of these consolidated financial statements
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
1.
|
DESCRIPTION
OF BUSINESS
|
Organization
Cutaia
Media Group, LLC (“CMG”) was a limited liability company formed on December 12, 2012 under the laws of the State of
Nevada. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG was merged
into bBooth, Inc. and bBooth, Inc. changed its name to bBooth (USA), Inc. The operations of CMG and bBooth (USA), Inc. became
known as “bBoothUSA”.
On
October 16, 2014, bBoothUSA completed a Share Exchange Agreement with Global System Designs, Inc. (“GSD”) which was
accounted for as a reverse merger transaction. In connection with the closing of the Share Exchange Agreement, GSD management
was replaced by bBoothUSA management, and GSD changed its name to bBooth, Inc.
Effective
April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary
short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with
and into us. We were the surviving entity. To effectuate the merger, we filed Articles of Merger with the Secretary of State of
the State of Nevada on April 4, 2017 and a Certificate of Correction with the Secretary of State of the State of Nevada on April
17, 2017. The merger became effective on April 21, 2017. Our board of directors approved the merger, which resulted in the name
change on that date. In accordance with Section 92A.180 of the Nevada Revised Statutes, stockholder approval of the merger was
not required.
On
the effective date of the merger, our name was changed to “nFüsz, Inc.” and our Articles of Incorporation, as
amended (the “Articles”), were further amended to reflect our new legal name. With the exception of the name change,
there were no other changes to our Articles.
Nature
of Business
We
have developed proprietary interactive video technology which serves as the basis for certain products and services that we market
under the brand name “notifi”. Our notifiCRM, notifiADS, notifiLINKS, and notifiWEB products are cloud-based, software-as-a-service
(“SaaS”), customer relationship management (“CRM”), sales lead generation, advertising and social engagement
software, accessible on mobile and desktop platforms, that we license to individual consumers, sales-based organizations, consumer
brands, marketing and advertising agencies, as well as to artists and social influencers. Our notifiCRM platform is an enterprise
scalable, subscription-based customer relationship management program that incorporates proprietary, interactive audio/video messaging
and interactive on-screen “virtual salesperson” communications technology. Our notifiCRM is distinguished from other
CRM programs because it utilizes interactive video as the primary means of communication between the subscribers and their clients
or prospects. Such clients and prospects can respond to notifiCRM subscribers’ calls to action in real time by clicking
on links embedded in the video, all without leaving or stopping the video. Subscribers also have access to detailed analytics
that reflect when the videos were viewed, by whom, how many times, for how long, and what items were clicked-on in the video to
assist subscribers in determining the possible interest level of that particular client or prospect in the subject matter of the
video. Our notifiTV and notifiLIVE products are also part of our proprietary interactive video platform that allows viewers to
interact with pre-recorded as well as live broadcast video content by clicking on links embedded in on-screen people, objects,
graphics or sponsors’ signage. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on
most devices available in the market today without the need to download special software or proprietary video players.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Going
Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying
consolidated financial statements, during the year ended December 31, 2017, the Company incurred a net loss of $7,266,553 used
cash in operations of $1,676,737 and had a stockholders’ deficit of $5,789,037 as of December 31, 2017. These factors raise
substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial
statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability
to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
At
December 31, 2017, the Company had cash on hand in the amount of $10,560. The Company raised an additional $3.4 million from January
2018 through March 2018 through the sale of its debt and equity securities (see Note 15). Management estimates that the current
funds on hand will be sufficient to continue operations through December 2018. The continuation of the Company as a going concern
is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive
cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that
are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions
on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in the case o f
equity financing.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of nFüsz, Inc., (formerly bBooth, Inc.) and Songstagram, Inc. (“Songstagram”)
our wholly owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reported periods. Significant estimates include assumptions
made in analysis of impairment of long term assets, realization of deferred tax assets, determining fair value of derivative liabilities,
and value of equity instruments issued for services. Amounts could materially change in the future.
Property
and Equipment
Property
and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives of approximately
five years once the individual assets are placed in service.
Long-Lived
Assets
The
Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value
may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash
flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying
amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available,
or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. No impairment
of long-lived assets was required for the years ended December 31, 2017 and 2016.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Income
Taxes
The
Company accounts for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 740 “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities
are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse. The deferred tax assets of the Company relate primarily to operating loss carry-forwards for federal income tax purposes.
A full valuation allowance for deferred tax assets has been provided because the Company believes it is not more likely than not
that the deferred tax asset will be realized. Realization of deferred tax assets is dependent on the Company generating sufficient
taxable income in future periods.
The
Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be
sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their
technical merits. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income
tax provision in the accompanying consolidated statements of operations. As of December 31, 2017, and 2016, the Company has not
established a liability for uncertain tax positions.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument
could be required within 12 months of the balance sheet date.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined
by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative
liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded
in results of operations as adjustments to fair value of derivatives.
Share
Based Payment
The
Company issues stock options, common stock, and equity interests as share-based compensation to employees and non-employees.
The
Company accounts for its share-based compensation to employees in accordance FASB ASC 718 “Compensation – Stock Compensation.”
Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized
as expense over the requisite service period.
The
Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB
ASC 505-50
“
Equity – Based Payments to Non-Employees
.”
Measurement of share-based payment transactions
with non-employees is based on the fair value of whichever is more reliably measurable: (
a
) the goods or services received;
or (
b
) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the
performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to
that estimate to determine the cumulative expense recorded.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
The
Company values stock compensation based on the market price on the measurement date. As described above, for employees this is
the date of grant, and for non-employees, this is the date of performance completion.
The
Company values stock options using the Black-Scholes option pricing model. Assumptions used in the Black-Scholes model to value
options issued during the years ended December 31, 2017 and 2016 are as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Expected
life in years
|
|
|
2.5
to 5.0
|
|
|
|
2.5
to 5.0
|
|
Stock price
volatility
|
|
|
84.36%
- 173.92
|
%
|
|
|
84.36%
- 153. 07
|
%
|
Risk
free interest rate
|
|
|
1.22%
- 2.23
|
%
|
|
|
1.22%
- 1.24
|
%
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Forfeiture
rate
|
|
|
21
|
%
|
|
|
20
|
%
|
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility
of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the
notes was based on the remaining term of the notes. The expected dividend yield was based on the fact that the Company has not
customarily paid dividends in the past and does not expect to pay dividends in the future.
Research
and Development Costs
Research
and development costs consist of expenditures for the research and development of new products and technology. These costs are
primarily expenses to vendors contracted to perform research projects and develop technology for the Company’s notifiCRM
cloud-based, Software-as-a-Service (SaaS) platform.
Net
Loss Per Share
Basic
net loss per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted net
loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental common shares issuable upon exercise of stock options. No dilutive potential common
shares were included in the computation of diluted net loss per share because their impact was anti-dilutive. As of December 31,
2017, and 2016, the Company had total outstanding options of 21,840,953 and 10,530,953, respectively and warrants of 28,436,413
and 18,455,264, respectively, which were excluded from the computation of net loss per share because they are anti-dilutive.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
(3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
The
three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
|
Level
1:
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
Level 2:
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
|
|
Level 3:
|
Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
The
carrying amount of the Compa
n
y
’
s
f
inanci
a
l assets and li
a
bilitie
s
,
such as cash and cash equ
i
v
a
lent
s
,
p
r
epaid
e
xpense
s
,
and accounts p
a
y
a
b
le
and accrued
e
xpenses
a
pp
r
o
xim
a
te
their fair
v
a
lue due to their short-te
r
m
n
a
tu
r
e
.
The carrying
v
a
lues
f
inancing
o
b
lig
a
tions
a
pp
r
o
xim
a
te
their fair
v
a
lues due to the fact th
a
t
the inte
r
est r
a
tes on these o
b
lig
a
tions
a
r
e based on p
re
v
ailing
ma
r
k
et inte
r
est
r
a
tes. The Company uses L
eve
l 2 inputs
for its
v
a
lu
a
tion
methodol
o
gy for the der
i
v
a
t
iv
e
li
a
bilities.
Concentrations
During
the year ended December 31, 2017, the Company had a single vendor that accounted for 20.7% of all purchases, and 18.1% of all
purchases in the same period in the prior year.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts
with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition
guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09
will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract.
The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Entities
will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures
but does not believe adoption of such pronouncement will have a material effect, if any.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires
a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease
payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about
leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that
the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification
of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount,
timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has
not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s financial statement presentation or disclosures.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
In
July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11
allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature)
is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with
down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value
of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income
available to common stockholders in computing basic earnings per share. For convertible instruments with embedded conversion features
containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be
amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective
approach. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on the Company’s financial statement
presentation or disclosures.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
|
3.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following as of December 31, 2017 and 2016.
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
56,890
|
|
|
$
|
56,890
|
|
Office
equipment
|
|
|
50,670
|
|
|
|
50,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,560
|
|
|
|
107,560
|
|
Less:
accumulated depreciation
|
|
|
(77,006
|
)
|
|
|
(55,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,554
|
|
|
$
|
52,066
|
|
Depreciation
expense amounted to $21,512 and $21,301 for the year ended December 31, 2017 and 2016, respectively.
The
Company had the following outstanding notes payable as of December 31, 2017 and 2016:
Note
|
|
Note
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
December 31, 2017
|
|
|
Balance
at
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable
(a)
|
|
March
21, 2015
|
|
March
20, 2018
|
|
|
12
|
%
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
Note
payable
(b)
|
|
December
15, 2016
|
|
June
15, 2017
|
|
|
5
|
%
|
|
$
|
101,300
|
|
|
|
—
|
|
|
|
101,300
|
|
Total
notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
226,300
|
|
Debt
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
(48,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125,000
|
|
|
$
|
177,358
|
|
(a)
|
On
March 21, 2015, the Company issued a note payable to a third-party lender for the benefit of DelMorgan Group LLC (“DelMorgan”),
financial consultant. The note is unsecured, bears interest rate of 12% per annum payable monthly beginning on April 20, 2015
and matured in March 2017. As of December 31, 2016, outstanding balance of the note amounted to $125,000.
|
|
|
|
On
March 20, 2017, the Company entered into an extension agreement with the third-party
lender to extend the maturity date of the Note to March 20, 2018. All other terms of
the Note remained unchanged and there was no additional compensation or incentive given.
As of December 31, 2017, outstanding balance of the note amounted to $125,000.
In January 2018, the note was satisfied through the issuance of 1,250,000 shares
of common stock.
|
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(b)
|
On
December 15, 2016, the Company issued a note payable to a third-party creditor amounting
to $101,300 in exchange for cash of $80,000, original issue discount of $8,800 and guaranteed
interest of $12,500. The note was unsecured, bore an effective interest rate of 5% per
annum and matured in May 2017. In addition, the Company also granted a three-year warrant
to acquire 176,000 shares of the Company’s common stock with an exercise price
of $0.25 per share, and 240,000 shares of the Company’s common stock. As a result,
the Company recorded a debt discount totaling $53,659 to account for the origin original
issue discount of $8,800, guaranteed interest of $12,500, the relative fair value of
the warrants of $10,759 and fair value of the common shares of $21,600. The debt discount
was amortized over the term of the note. As of December 31, 2016, outstanding balance
of the note amounted to $101,300 and unamortized debt discount of $48,942.
|
|
|
|
During
the year ended December 31, 2017, the Company settled the debt in exchange for 1,026,195 shares of its Common Stock (the “Shares”)
with a fair value of $181,845. As a result of the note settlement, the Company recorded a loss on debt extinguishment of $80,544
to account the difference between the face value of the note payable settled and the fair value of the common shares issued.
In addition, the Company recorded interest expense of $48,942 to amortize the remaining note discount.
|
|
5.
|
NOTES
PAYABLE – RELATED PARTIES
|
The
Company has the following related parties outstanding notes payable as of December 31, 2017 and 2016:
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
December 31, 2017
|
|
|
Balance
at
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
1
|
|
December
1, 2015
|
|
August
1, 2018
|
|
|
12.0
|
%
|
|
$
|
1,203,242
|
|
|
$
|
1,198,883
|
|
|
$
|
1,198,883
|
|
Note 2
|
|
December
1, 2015
|
|
August
1, 2018
|
|
|
12.0
|
%
|
|
|
189,000
|
|
|
|
189,000
|
|
|
|
189,000
|
|
Note 3
|
|
December
1, 2015
|
|
April
1, 2017
|
|
|
12.0
|
%
|
|
|
111,901
|
|
|
|
111,901
|
|
|
|
111,901
|
|
Note 4
|
|
August
4, 2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
343,326
|
|
|
|
343,326
|
|
|
|
343,326
|
|
Note
5
|
|
August
4, 2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
121,875
|
|
|
|
121,875
|
|
|
|
121,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable – related parties
|
|
|
|
|
|
|
|
|
$
|
1,964,985
|
|
|
$
|
1,964,985
|
|
|
(1)
|
On
December 1, 2015, the Company issued a convertible note payable to Mr. Rory J. Cutaia,
the Company’s majority stockholder and Chief Executive Officer (CEO), to consolidate
all loans and advances made by Mr. Cutaia to the Company as of that date. The note bears
interest rate of 12% per annum, secured by the Company’s assets and matured on
April 1, 2017. Per the terms of the agreement, at Mr. Cutaia’s discretion, he may
convert up to $374,665 of outstanding principal, plus accrued interest thereon, into
shares of common stock at a conversion rate of $0.07 per share. As of December 31, 2016,
total outstanding balance of the note amounted to $1,198,883.
|
On
May 4, 2017, the Company entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note from April
1, 2017 to August 1, 2018. In consideration, the Company issued Mr. Cutaia a three-year warrant to purchase 1,755,192 shares of
common stock at a price of $0.355 per share with a fair value of $517,291. All other terms of the Note remain unchanged. The Company
determined that the extension of the note’s maturity resulted in a debt extinguishment for accounting purposes since the
fair value of the warrants granted was more than 10% of the original value of the convertible note. As result, Company recorded
the fair value of the new note which approximates the original carrying value $1,198,833 and expensed the entire fair value of
the warrants granted of $517,291 as part of loss on debt extinguishment.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
As
of December 31, 2017, outstanding balance of the note amounted to $1,198,883.
|
(2)
|
On
December 1, 2015, the Company issued a convertible note with Mr. Cutaia in the amount of $189,000 representing a portion of
Mr. Cutaia’s accrued salary for 2015. The note is unsecured, bears interest rate of 12% per annum, matured in April
2017 and convertible to shares of common stock at a conversion price of $0.07 per share. As of December 31, 2016, outstanding
balance of the note amounted to $189,000.
|
|
|
|
|
|
On
May 4, 2017, the Company entered into an extension agreement with Mr. Cutaia to extend
the maturity date of the note from April 1, 2017 to August 1, 2018. All other terms of
the Note remain unchanged and there were no additional compensation or incentive given.
As
of December 31, 2017, outstanding balance of the note amounted to $189,000.
|
|
|
|
|
(3)
|
On
December 1, 2015, the Company issued a note payable to a former member of the Company’s
Board of Directors, in the amount of $111,901 representing unpaid consulting fees as
of November 30, 2015. The note is unsecured, bears interest rate of 12% per annum and
matured in April 2017. As of December 31, 2016, outstanding balance of the note amounted
to $111,901 and accrued interest of $14,569.
As
of December 31, 2017, outstanding balance of the note amounted to $111,901 and accrued interest of $27,997.
As
of December 31, 2017, and the date of this report, the note is past due.
|
|
(4)
|
On
April 4, 2016, the Company issued a convertible note to Mr. Cutaia, in the amount of
$343,326, to consolidate all advances made by Mr. Cutaia to the Company during the period
December 2015 through March 2016. The note bears interest rate of 12% per annum, secured
by the Company’s assets and matured on August 4, 2017. A total of 30% of the note
principal can be converted to shares of common stock at a conversion price $0.07 per
share. As of December 31, 2016, outstanding balance of the note amounted to $343,326
and accrued interest of $31,040.
On
August 4, 2017, the Company entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note
from August 4, 2017 to December 4, 2018. In consideration for extending the Note’s maturity, the Company issued
Mr. Cutaia 1,329,157 warrants to purchase shares of common stock at a price of $0.15 per share with a fair value of $172,456.
All other terms of the Note remain unchanged. The Company determined that the extension of the note’s maturity resulted
in a debt extinguishment for accounting purposes since the fair value of the warrants granted was more than 10% of the
recorded value of the original convertible note. As a result, Company recorded the fair value of the new note which approximates
the original carrying value $343,326 and expensed the entire fair value of the warrants granted of $172,456 as part of
loss on debt extinguishment. As of December 31, 2017, outstanding balance of the note amounted to $343,326 and accrued
interest of $45,783.
|
|
|
|
|
(5)
|
On
April 4, 2016, the Company issued a convertible note payable to Mr. Cutaia in the amount of $121,875, representing his unpaid
salary from December 2015 through March 2016. The note is unsecured, bears interest at the rate of 12% per annum, compounded
annually and matured on August 4, 2017. The note is also convertible into shares of the Company’s common stock at $0.07
per share. As of December 31, 2016, outstanding balance of the note amounted to $121,875 and accrued interest of $11,019.
|
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
On
August 4, 2017, the Company entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note
from August 4, 2017 to December 4, 2018. All other terms of the Note remain unchanged and there were no additional compensation
or incentive given.
As
of December 31, 2017, outstanding balance of the note amounted to $121,875 and accrued interest of $25,644.
|
During
the year ended December 31, 2017, the Company recorded total interest expense totaling $232,192 pursuant to the terms of the notes
and paid $196,607.
|
6.
|
CONVERTIBLE
NOTES PAYABLE
|
The
Company has the following outstanding convertible notes payable as of December 31, 2017 and 2016:
Note
|
|
Note
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
December 31, 2017
|
|
|
Balance
at
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable
(a)
|
|
April
3, 2016
|
|
April
4, 2018
|
|
|
12
|
%
|
|
$
|
600,000
|
|
|
$
|
680,268
|
|
|
$
|
680,268
|
|
Note
payable
(b)
|
|
June
and August 2017
|
|
February
and March 2018
|
|
|
5
|
%
|
|
$
|
220,500
|
|
|
|
220,500
|
|
|
|
—
|
|
Note
payable
(c)
|
|
Various
|
|
Various
|
|
|
5
|
%
|
|
$
|
320,000
|
|
|
|
320,000
|
|
|
|
—
|
|
Note
payable
(d)
|
|
December
8, 2017
|
|
December
8, 2018
|
|
|
8
|
%
|
|
$
|
370,000
|
|
|
|
370,000
|
|
|
|
—
|
|
Note
payable
(e)
|
|
December
13, 2017
|
|
September
20, 2018
|
|
|
8
|
%
|
|
$
|
105,000
|
|
|
|
105,000
|
|
|
|
—
|
|
Total
notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,695,768
|
|
|
|
680,268
|
|
Debt
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(675,453
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net of debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,020,315
|
|
|
$
|
680,268
|
|
(a)
|
On
April 3, 2016, the Company issued a convertible note payable to Oceanside, a third party-lender, in the amount of $680,268
to consolidate all notes payable and accrued interest due to Oceanside as of that date. This note superseded and replaced
all previous notes and liabilities due to Oceanside from fiscals 2014 and 2015. The note is unsecured, bears interest at the
rate of 12% per annum, compounded annually and matured on December 30, 2016. In consideration, the Company granted Oceanside
the right to convert up to 30% of the amount of such note into shares of the Company’s common stock at $0.07 per share
and issued 2,429,530 warrants to purchase share of common stock at $0.07 per share until April 4, 2019. The Company determined
that the issuance of the warrants and the conversion feature that arose as part of the issuance of note, resulted in a debt
extinguishment for accounting purposes since the fair value of the warrants granted amounted to $164,344, which was more than
10% of the original value of the convertible note. As a result, on April 3, 2016, Company recorded the fair value of the new
note which approximates the original carrying value $680,268 and expensed the entire fair value of the warrants granted of
$164,344 as part of loss on debt extinguishment.
|
|
|
|
On
December 30, 2016, the Company entered into an extension agreement with Oceanside to extend the maturity date of the Note from
December 30, 2016 to August 4, 2017. All other terms of the Note remain unchanged. In consideration for Oceanside’s agreement
to extend the maturity date to August 4, 2017, the Company issued Oceanside 2,429,530 share purchase warrants, exercisable at
$0.08 per share until December 29, 2019 with a fair value of $159,491. The Company determined that the extension of the note’s
maturity resulted in a debt extinguishment for accounting purposes since the fair value of the warrants granted was more than
10% of the recorded value of the original convertible note. As a result, Company recorded the fair value of the new note which
approximates the original carrying value $680,260 and expensed the entire fair value of the warrants granted of $159,491 as part
of loss on debt extinguishment.
|
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
On
August 4, 2017, the Company entered into an extension agreement with Oceanside to extend
the maturity date of the Note to from August 4, 2017 to April 4, 2018. All other terms
of the Note remain unchanged. In consideration for Oceanside’s agreement to extend
the maturity date to August 4, 2018, the Company issued Oceanside 1,316,800 share purchase
warrants, exercisable at $0.15 per share until August 3, 2022 with a fair value of $170,855.
The Company determined that the extension of the note’s maturity resulted in a
debt extinguishment for accounting purposes since the fair value of the warrants granted
was more than 10% of the recorded value of the original convertible note. As a result,
Company recorded the fair value of the new note which approximates the original carrying
value $680,268 and expensed the entire fair value of the warrants granted of $170,855
as part of loss on debt extinguishment.
|
|
|
|
In
March 2018, the note was satisfied through the issuance of 4,589,506 shares of common stock .
|
|
|
(b)
|
In
June and August of 2017, the Company issued unsecured convertible notes to Lucas Holdings
in the amount of $220,500 in exchange cash of $200,000, original discount (OID) of $10,500
and prepaid interest of $10,000. The notes bear interest rate of 5% per annum, matures
in February and March 2018, convertible to shares of common stock at a conversion price
of $0.25 per share and $0.10 per share. As part of the issuance, the Company also issued
warrants to purchase 330,000 shares of common stock at $0.30 per share and 50,000 shares
of common stock with a fair value $12,500. As a result, the Company recorded a debt discount
of $174,850 to account the OID and prepaid interest of $20,500 the relative fair value
of the warrants of $40,180, the fair value of the common shares of $12,500 and the beneficial
conversion feature of $101,670. The debt discount is being amortized to interest expense
over the term of the note.
|
|
|
|
As
of December 31, 2017, outstanding balance of the note amounted to $220,500 and unamortized debt discount of $40,247.
|
|
|
|
In
March 2018, the entire notes were settled and converted to 1,543,000 shares of common stock.
|
|
|
(c)
|
On
September 26, 2017, we entered into the Purchase Agreement, dated September 15, 2017,
with Kodiak Capital Group, LLC (“Kodiak”). Under the Purchase Agreement,
the Company may from time to time, in our discretion, sell shares of our common stock
to Kodiak for aggregate gross proceeds of up to $2,000,000. Unless terminated earlier,
Kodiak’s purchase commitment will automatically terminate on the earlier of the
date on which Kodiak shall have purchased our shares pursuant to the Purchase Agreement
for an aggregate purchase price of $2,000,000, or September 15, 2019. We have no obligation
to sell any shares under the Purchase Agreement.
|
|
From
September 2017 through November 2017, the Company issued three convertible notes payable
totaling $320,000 in exchange for cash of $200,000, original issue discount (OID) of
$20,000 and settlement of financing expenses of $100,000 incurred by Kodiak pursuant
to the agreement. The notes are unsecured, maturities starting in March 2018 through
June 2018 and bear interest at a rate of 5% per annum. The notes are also convertible
to shares of common stock at price of $0.25 per share or 70% of 10-day VWAP prior to
conversion, whichever is lower. As part of the issuances, the Company also granted Kodiak
a five year, fully vested warrants to purchase 2,000,000 shares of common stock exercisable
at $0.15 and $0.20 per share.
|
|
|
|
The
Company determined that since the conversion floor of these notes had no limit to the
conversion price, the Company could no longer determine if it had enough authorized shares
to fulfil its conversion obligation. As such, pursuant to current accounting guidelines,
the Company determined that the conversion feature of these three notes created a derivative
with a fair value totaling $412,214 at the date of issuances. The Company accounted for
the fair value of the derivative up to the face amount of the notes of $320,000 as a
valuation discount to be amortized over the life of the note, and the excess of $92,214
being recorded as part of financing cost (see Note 8 further discussion). In addition,
the Company also recorded the notes’ original issue discount totaling $20,000 and
the $100,000 note payable issued to settle financing expenses related to Kodiak agreement
as part of financing costs.
|
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
As
of December 31, 2017, outstanding balance of the note amounted to $320,000, accrued interest
of $3,281 and unamortized debt discount of $191,740.
|
(d)
|
On
December 8, 2017, the Company issued unsecured convertible notes to EMA Financial and
Auctus Fund totaling $370,000 in exchange for cash of $323,000 and an original issue
discount of $47,000. The notes bear interest rate of 8% per annum and will mature on
December 8, 2018. The notes are also convertible to common shares at a conversion price
equal to the lower of: (i) the closing sale price of the Common Stock on the Principal
Market on the Trading Day immediately preceding the Closing Date, and (ii) 70% of either
the lowest sale price for the Common Stock on the Principal Market during the ten (10)
consecutive Trading Days including and immediately preceding the Conversion Date, or
the closing bid price.
|
|
|
|
The
Company determined that since the conversion floor had no limit to the conversion price,
that the Company could no longer determine if it had enough authorized shares to fulfil
the conversion obligation. As such, pursuant to current accounting guidelines, the Company
determined that the conversion feature of the note created a derivative with a fair value
of $565,252 at the date of issuance. The Company accounted for the fair value of the
derivative up to the face amount of the note of $370,000 as a valuation discount to be
amortized over the life of the note, and the excess of $195,252 being recorded as part
of financing cost. See Note 8 for discussion of derivative liability. In addition, the
Company also recorded the notes’ original issue discount of $47,000 as part of
financing costs.
|
As
part of the offering, the Company also granted EMA and Auctus a five-year warrant to acquire 2,400,000 shares of the Company’s
common stock with an exercise price of $0.11 per share. A total of 1,200,000 of these warrants contained full ratchet reset provision
in case a future offering at a price below $0.11 per share and included a fundamental transaction provision that could give rise
to an obligation to pay cash to the warrant holder. As such, pursuant to current accounting guidelines, the Company determined
that the warrant exercise price and fundamental transaction clause created a derivative with a fair value of $118,589 at the date
of issuance. The Company accounted for the fair value of the derivative as part of finance cost. See Note 8 for discussion of
derivative liability.
As
of December 31, 2017, outstanding balance of the notes amounted to $370,000, accrued interest of $1,866 and unamortized debt discount
of $343,636.
(e)
|
On
December 14, 2017, the Company issued an unsecured convertible note to PowerUp Lending
in the amount of $105,000 in exchange for cash of $90,000 or an original issue discount
of $15,000. The note matures on September 20, 2018 and bears interest rate of 8% per
annum. The note is convertible to common shares at a conversion price equal to the Variable
Conversion Price, which is 70% multiplied by the Market Price. “Market Price”
means the lowest Trading Price (as defined below) for the Common Stock during the ten
(10) Trading Day period ending on the latest complete Trading Day prior to the Conversion
Date.
The
Company determined that since the conversion floor had no limit to the conversion price, that the Company could no longer
determine if it had enough authorized shares to fulfil the conversion obligation. As such, pursuant to current accounting
guidelines, the Company determined that the conversion feature of the note created a derivative with a fair value of $160,426
at the date of issuance. The Company accounted for the fair value of the derivative up to the face amount of the note
of $105,000 as a valuation discount to be amortized over the life of the note, and the excess of $55,426 being recorded
as part of financing cost. See Note 8 for discussion of derivative liability. In addition, the Company also recorded the
note’s original issue discount of $15,000 as part of financing costs.
As
of December 31, 2017, outstanding balance of the note amounted to $105,000, accrued interest of $414 and unamortized debt
discount of $99,822.
|
During
the year ended December 31, 2017, the Company amortized to interest expense a total of $294,397 related to the notes’ debt
discount and accrued interest of $143,145 pursuant to the terms of the note agreement.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
7.
|
CONVERTIBLE
SERIES A PREFERRED STOCK
|
On
February 14, 2017, the Company entered into a Securities Purchase Agreement, (the “Purchase Agreement”) with an unaffiliated,
accredited investor (the “Purchaser”) for the sale and issuance of our Series A Preferred Stock (Series A PS). As
part of the agreement, the investor agreed to purchase a total of 1,050,000 shares of Series A Preferred Stock valued at $1,050,000
in exchange for cash of $1,000,000 or a discount of $50,000 in various tranches.
The
Series A PS has the following rights and privileges:
|
●
|
25%
redemption premium;
|
|
|
|
|
●
|
Senior
rights in terms preference as to dividends, distributions and payments upon the liquidation, dissolution and winding up of
the Company;
|
|
|
|
|
●
|
Accrues
dividends at a rate of 5% per annum;
|
|
|
|
|
●
|
Mandatorily
redeemable at an installment basis starting August 13, 2017 in the amount of $63,000 plus accrued interest. The Company has
the option to redeem the Series A shares in cash or in shares of common stock based upon the Company’s 5-day Volume
Weighted Average Price (“VWAP”).
|
The
Company considered the guidance of ASC 480-10, Distinguishing Liabilities From Equity to determine the appropriate treatment of
the Series A shares. Pursuant to ASC 480-10, the Company determined that the Series A shares was an obligation to be settled,
at the option of the Company, in cash or in variable number of shares with a fixed monetary value that should be recorded as a
liability under ASC 480-10.
During
the year ended December 31, 2017, the Company issued 630,000 Series A shares in exchange for cash of $555,000 and a discount of
$75,000. Subsequent to the issuance of the Series A PS, the Company redeemed the entire Series A shares totaling $630,000 in exchange
for 2,862,006 shares of common stock with a fair value of $303,641 and cash payments totaling $543,465 for a total redemption
price of $847,106. As a result of this redemption, the Company recognized interest expenses of $217,106 to account for the 25%
redemption premium of $157,500, excess of the fair value of the common shares issued over the Series A shares of $45,607 and the
5% interest due of $13,999. In addition, the Company also amortized the entire $75,000 discount to interest expense. As of December
31, 2017, the entire Series A was fully redeemed, and no shares remained outstanding.
Under
authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s
own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has
issued certain convertible notes whose conversion price contains reset provisions based on a future offering price and/or whose
conversion price is based on a future market price. However, since the number of shares to be issued is not explicitly limited,
the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option.
In addition, the Company also granted certain warrants whose exercise price is subject to reset based on a future market price.
As
a result, the conversion option and warrants are classified as a liability and bifurcated from the debt host and accounted for
as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change
in value reported in the statement of operations.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Upon
issuance and at December 31, 2017, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton
pricing model with the following average assumptions:
|
|
Upon
Issuance
|
|
|
December
31, 2017
|
|
Stock
Price
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
Exercise Price
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Expected
Life
|
|
|
1.37
|
|
|
|
1.26
|
|
Volatility
|
|
|
183
|
%
|
|
|
189
|
%
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk
Free Interest Rate
|
|
|
1.56
|
%
|
|
|
1.72
|
%
|
Fair
Value
|
|
$
|
1,256,481
|
|
|
$
|
1,250,581
|
|
The
expected life of the conversion feature of the notes and warrants was based on the remaining contractual term of the notes and
warrants. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock.
The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay
dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank.
During
the year ended, the Company recorded derivative liability totaling $1,256,481 as a result of the issuance of convertible notes
and warrants. At December 31, 2017, the estimated fair value of the derivative liability amounted to $1,250,581, as such, the
Company recognized a gain of $5,900 to account the change in fair value between the reporting periods.
9.
COMMON STOCK
The
following were common stock transactions during the year ended December 31, 2017:
Shares
Issued from Stock Subscription
— The Company issued stock subscription to investors. For the year ended December
31, 2017, the Company issued 11,182,143 common shares for a net proceed of $796,000. As part of the offering, the Company granted
an investor warrants to purchase 100,000 shares of common stock. The exercise price of the 100,000 share purchase warrants is
$0.40 per share, expire on May 21, 2019, and were fully vested on grant date.
Shares
Issued for Services
— The Company issued common shares to vendors for services rendered and are expensed based on
fair market value of the stock price at the date of grant. For the year ended December 31, 2017, the Company issued 8,280,435
shares of common stock to vendors and recorded stock compensation expense of $1,647,160.
The
Company granted its two officers and lead director a total of 4,500,000 common shares for services rendered since January 1, 2017
through the date of grant in March 2018. Approximately $441,000 has been recognized as part of stock compensation expense related
to this award for the year ended December 31, 2017.
Shares
Issued for Preferred Stock
— During the year ended December 31, 2017, the Company redeemed 630,000 shares of Series
A Preferred stock with a value of $630,000 in exchange for 2,862,006 shares of common stock with a fair value of $303,641 (see
Note 7).
Shares
Issued for Conversion of Debt
— During the year ended December 31, 2017, the Company issued 1,026,195 shares of
common stock with fair value of $181,845 as settlement of a note payable (see Note 4).
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Shares
Issued as Part of Put Notice
— In September 2017, the Company entered into the Purchase Agreement with Kodiak Capital
Group, LLC (“Kodiak”). As provided in the Purchase Agreement, from time to time, in our own discretion, we may require
Kodiak to purchase shares of common stock from time to time by delivering a put notice (“Put Notice”) to Kodiak specifying
the total number of shares to be purchased (such number of shares multiplied by the Purchase Price described below, equals the
“Investment Amount”); provided there must be a minimum of ten trading days between delivery of each Put Notice. We
may determine the Investment Amount provided that such amount may not be less than $25,000. Our ability to issue Put Notices to
Kodiak and require Kodiak to purchase our common stock is not contingent on the trading volume of our common stock. Kodiak will
have no obligation to purchase shares under the applicable Purchase Agreement to the extent that such purchase would cause Kodiak
to own more than 9.99% of our then-issued and outstanding common stock (the “Beneficial Ownership Limitation”). Under
the Purchase Agreement, the Company may sell shares of its common stock to Kodiak at a discounted rate of 80% based upon a 5-day
average trading price prior to sale, for aggregate gross proceeds of up to $2,000,000.
The
Company also agreed to grant Kodiak warrants to purchase shares of common stock up to 4 million shares at $0.25 per share. The
warrants will only be granted to Kodiak in proportion to the proceeds received from the exercise of the Put Notice.
In
November 2017, the Company issued a Put Notice to Kodiak and issued 656,168 shares of common stock in exchange for cash of $50,000.
In addition, the Company also issued Kodiak the prorated warrants to purchase 100,000 shares of common stock at $0.25 per share.
Shares
Issued for Accounts Payable
— The Company amended an agreement with a vendor and issued 400,000 shares of common
stock as full and final payment to the vendor on accounts payable owed of $30,000. The fair value of the shares was $56,000 at
the date of issuance, and as such, the Company recorded a loss on debt extinguishment of $26,000.
Shares
Issued with Note Payable
— In June 2017, as part of a note payable issuance, the Company granted the note holder
50,000 shares of common stock with a fair value of $12,500 (see Note 6).
The
following were common stock transactions during the year ended December 31, 2016.
Shares
Issued with Note Payable
— In December 2016, as part of a note payable issuance, the Company granted the note holder
240,000 shares of common stock with a fair value of $21,600.
Stock
Repurchases
— On January 28, 2016, the Company entered into stock repurchase agreements with three former employees
and consultants to acquire an aggregate total of 9,011,324 shares of the Company’s common stock at a price of $0.02 per
share on or before April 15, 2016. In accordance with the terms of the Repurchase Agreements, the Company repurchased 8,311,324
shares for total of $166,226 during the year ended December 31, 2016.
Shares
Issued from Stock Subscription
— The Company issued stock subscription to investors. For the year ended December
3, 2016, the Company issued 31,335,556 common shares for a net proceed of $1,524,030.
Shares
Issued for Services
— The Company issued common shares to consultants and vendors for services rendered and are
expensed based on fair market value of the stock on the date of grant, or as the services were performed. For the year ended December
31, 2016, the Company issued 6,388,334 shares of common stock for services and recorded stock compensation expense of $726,789.
Shares
Issued to Board of Directors
— The Company issued common shares to board of directors for services rendered and
are expensed based on fair market value of the stock price at the date of grant. For the year ended December 31, 2016, the Company
issued 1,150,000 shares to board of directors and recorded stock compensation expense of $116,682.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
10.
STOCK OPTIONS
Effective
October 16, 2014, the Company adopted the 2014 Stock Option Plan (the “Plan”) under the administration of the Board
of Directors to retain the services of valued key employees and consultants of the Company.
A
summary of option activity for the years ended December 31, 2017 and 2016 are presented below.
|
|
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2015
|
|
|
7,656,250
|
|
|
$
|
0.66
|
|
|
|
4.87
|
|
|
$
|
—
|
|
Granted
|
|
|
5,860,000
|
|
|
|
0.09
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(2,985,297
|
)
|
|
|
0.93
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 31, 2016
|
|
|
10,530,953
|
|
|
$
|
0.33
|
|
|
|
4.03
|
|
|
$
|
—
|
|
Granted
|
|
|
13,210,000
|
|
|
|
0.17
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(1,900,000
|
)
|
|
|
0.16
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 31, 2017
|
|
|
21,840,953
|
|
|
$
|
0.26
|
|
|
|
2.09
|
|
|
$
|
137,403
|
|
Vested December
31, 2017
|
|
|
12,286,613
|
|
|
$
|
0.28
|
|
|
|
|
|
|
$
|
44,030
|
|
Exercisable
at December 31, 2017
|
|
|
9,357,620
|
|
|
$
|
0.36
|
|
|
|
|
|
|
$
|
24,166
|
|
The
following were stock options transactions during the year ended December 31, 2017:
During
the year ended December 31, 2017, the Company granted stock options to employees and consultants to purchase a total 13,210,000
shares of common stock for services rendered. The options have an average exercise price of $0.17 per share, expire in five years
and vest over a period of three years from grant date. Total fair value of these options at grant date was approximately $1,781,000
using the Black-Scholes Option Pricing model with the following average assumptions: life of 4 years; risk free interest rate
of 1.92%; volatility of 230% and dividend yield of 0%.
The
total stock compensation expense recognized relating to vesting of these stock options for the years ended December 31, 2017 amounted
to $418,389. As of December 31, 2017, total unrecognized stock-based compensation expense was $837,120 which is expected to be
recognized as an operating expense through August 2020.
The
following were stock options transactions during the year ended December 31, 2016:
During
the year ended December 31, 2016, the Company granted stock options to employees and consultants to purchase a total 5,860,000
shares of common stock for services rendered. The options have an average exercise price of $0.09 per share, expire in five years
and vest over a period of three years from grant date. Total fair value of these options at grant date was approximately $462,000
using the Black-Scholes Option Pricing model with the following average assumptions: life of 5 years; risk free interest rate
of 1.23%; volatility of 123% and dividend yield of 0%.
The
total stock compensation expense recognized relating to the vesting of these stock options for the years ended December 31, 2016
amounted to $457,881.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
11.
STOCK WARRANTS
The
Company has the following warrants as of December 31, 2017 and 2016 :
|
|
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2015
|
|
|
10,967,879
|
|
|
$
|
0.12
|
|
|
|
3.57
|
|
|
$
|
—
|
|
Granted
|
|
|
7,487,385
|
|
|
|
0.08
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 31, 2016
|
|
|
18,455,264
|
|
|
$
|
0.10
|
|
|
|
2.62
|
|
|
$
|
—
|
|
Granted
|
|
|
9,981,149
|
|
|
|
0.19
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 31, 2017
|
|
|
28,436,413
|
|
|
$
|
0.13
|
|
|
|
2.79
|
|
|
$
|
457,530
|
|
Vested December
31, 2017
|
|
|
28,436,413
|
|
|
|
|
|
|
|
|
|
|
$
|
457,530
|
|
Exercisable
at December 31, 2017
|
|
|
28,436,413
|
|
|
|
|
|
|
|
|
|
|
$
|
457,530
|
|
The
following were stock warrant transactions during the year ended December 31, 2017:
On
April 1, 2017, Company granted warrants to a consultant to purchase 375,000 shares of common stock at an exercise price of $0.12
per share. The warrants expire on March 31, 2019 and were fully vested on the grant date. The total share-based compensation expense
recognized relating to these warrants for the year ended December 31, 2017 amounted to $26,696.
On
May 22, 2017, the Company issued warrants to purchase 100,000 shares of common stock as part of an equity offering (see Note 9).
The exercise price of the 100,000 share purchase warrants is $0.40 per share, expire on May 21, 2019, and were fully vested on
grant date.
In
May and August 2017, the Company entered into extension agreements with Mr. Cutaia to extend the maturity date of Secured Notes.
In consideration for Mr. Cutaia’s agreement to extend the maturity dates, the Company granted Mr. Cutaia a total of 3,084,349
share purchase warrants, exercisable at $0.15 per share and $0.36 per share that will expire starting May 2020 (see Note 5).
In
August 2017, the Company entered into extension agreement with a noteholder to extend the maturity date of note payable. In consideration,
the Company granted the note holder 1,316,800 share purchase warrants, exercisable at $0.15 per share that will expire in August
2020 (see Note 6).
From
June 2017 through December 2017, the Company issued warrants to note holders to purchase a total of 4,830,000 shares of
common stock. The warrants are exercisable at an average price of $0.15 per share and will expire starting June 2020 up to December
2022. A total 1.2 million of these warrants were accounted as derivative liability (see Note 6 and 8).
On
September 16, 2017, the Company issued 275,000 share purchase warrants in full settlement and release of a disputed, unasserted
claim. The exercise price of the 275,000 share purchase warrants is $0.08 per share and expire on March 15, 2018. The warrants
were fully vested on grant date with a fair value of
$10,057 which
was recorded as part of loss on debt extinguishment.
The
total expense recognized relating to the vesting of these stock warrants for the year ended December 31, 2017 amounted to $26,696.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
The
following were stock warrant transactions during the year ended December 31, 2016:
On
April 4, 2016, the Company issued a secured convertible note to Mr. Cutaia, in the amount of $343,326, which represents additional
sums that the he advanced to the Company during the period from December 2015 through March 2016, and is addition to all pre-existing
loans made by, and notes held by the CEO. In consideration for this agreement the Company issued 2,452,325 share purchase warrants,
exercisable at $0.07 per share until April 4, 2019.
On
April 4, 2016, the Company issued an unsecured convertible note payable to Oceanside Strategies, Inc. (“Oceanside”)
in the amount of $680,268. In consideration for Oceanside’s agreement to convert the prior notes from current demand notes
and extend the maturity date to December 4, 2016, we granted Oceanside d 2,429,530 share purchase warrants, exercisable at $0.07
per share until April 4, 2019.
On
December 30, 2016, the Company entered into an extension agreement with Oceanside to extend the maturity date of the April 2016
Note to August 4, 2017. In consideration for Oceanside’s agreement to extend the maturity date to August 4, 2017 the Company
issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08 per share until December 29, 2019.
12.
INCOME TAXES
Significant
components of the Company’s deferred tax assets and liabilities are as follows:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Net
operating loss carry-forwards
|
|
$
|
3,464,000
|
|
|
$
|
4,149,000
|
|
Share based
compensation
|
|
|
(704,000
|
)
|
|
|
(518,000
|
)
|
Non-cash
interest and financing expenses
|
|
|
(833,000
|
)
|
|
|
(343,000
|
)
|
Other
temporary differences
|
|
|
(108,000
|
|
|
|
(55,000
|
)
|
Less:
Valuation allowance
|
|
|
(1,819,000
|
)
|
|
|
(3,233,000
|
)
|
Deferred
tax assets, net
|
|
$
|
—
|
|
|
$
|
—
|
|
The
items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes
were as follows:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Statutory
federal income tax rate
|
|
|
(34.0
|
%)
|
|
|
(34.0
|
%)
|
State
taxes, net of federal benefit
|
|
|
(5.8
|
%)
|
|
|
(5.8
|
%)
|
Non-deductible
items
|
|
|
(0.1
|
%)
|
|
|
(0.1
|
%)
|
Effect
of change in tax rate
|
|
|
12
|
%
|
|
|
—
|
|
Change
in valuation allowance
|
|
|
27.9
|
%
|
|
|
39.9
|
%
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
ASC
740 requires that the tax benefit of net operating losses carry forwards be recorded as an asset to the extent that management
assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s
ability to generate sufficient taxable income within the carry forward period. Because of the Company’s recent history of
operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax
benefits is currently not likely to be realized and, accordingly, has provided a 100% valuation allowance against the asset amounts.
Any
uncertain tax positions would be related to tax years that remain open and subject to examination by the relevant tax authorities.
The Company has no liabilities related to uncertain tax positions or unrecognized benefits as of the year end December 31, 2017
or 2016. The Company has not accrued for interest or penalties associated with unrecognized tax liabilities.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
On
December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The TCJ Act provides for significant
changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), that impact corporate taxation requirements,
such as the reduction of the federal tax rate for corporations from 35% to 21% and changes or limitations to certain tax deductions.
The
Company is currently assessing the extensive changes under the TCJ Act and its overall impact on the Company; however, based on
its preliminary assessment of the reduction in the federal corporate tax rate from 35% to 21% to become effective on January 1,
2018, the Company currently expects that its effective tax rate for 2018 will be between 20% and 23%. Such estimated range is
based on management’s current assumptions with respect to, among other things, the Company’s earnings, state income
tax levels, and tax deductions. The Company’s actual effective tax rate in 2018 may differ from management’s estimate.
As
of December 31, 2017, the Company had federal and state net operating loss carry forwards of approximately $12.8 million, which
may be available to offset future taxable income for tax purposes. These net operating losses carry forwards begin to expire in
2034. This carry forward may be limited upon the ownership change under IRC Section 382.
13.
ACCRUED OFFICERS SALARY
Accrued
Officers Salary at December 31, 2017 and 2016 consist of unpaid salaries of $607,333 and $200,028, respectively to the Company’s
Chief Executive Officer (CEO), who is also the owner of approximately 32% of the Company’s outstanding common shares, and
the Company’s Chief Financial Officer.
14.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company leased office space in West Hollywood, California under an operating lease which provided for monthly rent of $6,700 through
July 31, 2016. In June 2016, the Company moved its offices to a new location in Los Angeles, California under a new operating
lease which provides for monthly rent of $2,950 through June 25, 2017. In June 2017, the Company moved its offices to larger space
within the same complex under a new operating lease which provides for monthly rent of $4,743 through April 30, 2018. The Company
had total rent expense for the year ended December 31, 2017 and 2016 of $51,734 and $68,328, respectively which is recorded as
part of General and Administrative expenses in the Statement of Operations.
Employment
Agreements
On
November 21, 2014, we entered into an executive employment agreement effective November 1, 2014 with Rory J. Cutaia, our president,
chief executive officer, secretary and treasurer. Pursuant to the terms of the employment agreement, we have agreed to pay Mr.
Cutaia an annual salary of $325,000, which will be increased each year by 10%, subject to the annual review and approval of our
board of directors. Notwithstanding the foregoing, a mandatory increase of not less than $100,000 per annum will be implemented
on our company achieving EBITDA break-even. In addition to the base salary, Mr. Cutaia will be eligible to receive an annual bonus
in an amount up to $325,000, based upon the attainment of performance targets to be established by our board of directors, in
its discretion.
The
initial term of the employment agreement is five years, and, upon expiration of the initial five-year term, it may be extended
for additional one-year periods on ninety days prior notice.
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
In
the event that: (i) Mr. Cutaia’s employment is terminated without cause, (ii) Mr. Cutaia is unable to perform his duties
due to a physical or mental condition for a period of 120 consecutive days or an aggregate of 180 days in any 12 month period;
or (iii) Mr. Cutaia voluntarily terminates the employment agreement upon the occurrence of a material reduction in his salary
or bonus, a reduction in his job title or position, or the required relocation of Mr. Cutaia to an office outside of a 30 mile
radius of Los Angeles, California, Mr. Cutaia will:
|
(a)
|
receive
monthly payments of $27,083, or such sum as is equal to Mr. Cutaia’s monthly base compensation at the time of such termination,
whichever is higher, and
|
|
|
|
|
(b)
|
be
reimbursed for COBRA health insurance costs, in each case for 36 months from the date of such termination or to the end of
the term of the agreement, whichever is longer.
|
In
addition, Mr. Cutaia will have any and all of his unvested stock options immediately vest, with full registration rights; and
any unearned and unpaid bonus compensation, expense reimbursement, and all accrued vacation, personal sick days, etc., be deemed
earned, vested and paid immediately. As a condition to receiving the foregoing, Mr. Cutaia will be required to execute a release
of claims, and a non-competition and non-solicitation agreement having a term which is the same as the term of the monthly severance
payments described above.
Litigation
We
do not have any pending litigation. On September 19, 2016 an action captioned Multicore Technologies, an Indian Corporation, plaintiff,
v. Rocky Wright, an individual, bBooth, Inc., a Nevada corporation, and Blabeey, Inc., a Nevada corporation, defendants was filed
in the United States District Court for the Central District of California, Case No. 2:16-cv-7026 DSF (AJWx).
On
September 15, 2017, the litigation was dismissed by plaintiff as against us in exchange for our guarantee of two payments to be
made by another defendant in the action totaling $5,000, for which we have a right of off-set against any sums we may owe such
party for services currently being rendered to us by such party. That defendant made the two payments and we have no further obligations,
actual or contingent in this matter.
We
know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or any of our subsidiaries or has a material interest adverse to our company or any of our subsidiaries.
15.
SUBSEQUENT EVENTS
(i)
|
In
January 2018, the Company issued unsecured convertible notes to Auctus Fund (Auctus) and EMA Financial (EMA) that total $150,000
in exchange for cash of $130,000 or an original issue discount of $20,000. The notes mature in January 2019 and bear interest
at a rate of 8% per annum. The notes are also convertible to common shares at a conversion price equal to the lower of: (i)
the closing sale price of the Common Stock on the Principal Market on the Trading Day immediately preceding the Closing Date,
and (ii) 70% of either the lowest sale price for the Common Stock on the Principal Market during the ten (10) consecutive
Trading Days including and immediately preceding the Conversion Date, or the closing bid price. As part of the offering, the
Company also granted Auctus and EMA five-year warrants to acquire a total of 1,000,000 shares of the Company’s common
stock with an exercise price of $0.14 per share.
|
|
|
|
The
Company determined that the conversion feature of the notes and the warrants issued are subject to derivative liability accounting
with a fair value of $301,739 at the date of issuance. The Company will account the fair value of the derivative up to the
face amount of the notes of $150,000 as a valuation discount to be amortized over the life of the note, and the excess of
$151,739 being recorded as a finance cost. In addition, the Company will also record financing costs of $20,000 to account
the original issue discount of the notes.
|
nFÜSZ,
INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(ii)
|
From
January 2018 through March 2018, the Company granted 106,847 shares of common stock and stock options to purchase 906,272
shares of common stock with a total fair value of $181,157. These equity instruments were granted to employees for services
to be rendered and settlement of debt. The stock options granted vest over a period of 3 years with an average exercise price
of $0.26 per share.
|
|
|
(iii)
|
From
January 2018 through March 2018, the Company issued 7,383,006 shares of common stock and paid $976,120 in cash to settle outstanding
notes payable totaling $1,870,769 and accrued interest of $147,097. As a result, the Company will record interest expense
of $893,120 to expense the unamortized debt discount and prepayment interest, gain of $1,248,809 to extinguish the corresponding
derivative liability related to these notes payable and loss on debt extinguishment of $1,090,057.
|
|
|
(iv)
|
From
January 2018 through March 2018, the Company issued 20,469,028 shares of common stock in exchange for cash of $3,300,500 or
an average selling price of $0.16 per share. As part of the sale, one investor and current note holder agreed to cancel a
note payable amounting to $100,000 that was issued in November 2017. As a result, the Company will record a gain on extinguishment
of $158,396 to account the extinguishment of derivative liability of $136,226 and unamortized debt discount of $77,830. In
connection with certain of such sales of shares of common stock, the referenced cancellation of a note payable, and the above-referenced
settlement in cash of certain outstanding notes, we may be in a dispute with such investor in respect of the applicability
of that cash settlement, as distinguished from such investor’s desire to convert one or both of such settled notes into
shares of common stock. In connection therewith, we have reserved 200,000 shares of common.
|
|
|
(v)
|
On
March 28, 2018 the Company converted the CEO’s accrued salary of $582,333 into 407,226 restricted shares of common stock
at a price of $1.43 per share, which represents the closing price of the Company’s shares as reported on OTC markets
on March 28, 2018.
|
|
|
(vi)
|
Subsequent
to December 31, 2017, 4,641,667 shares of common stock that were subject to vesting schedules and previously accounted for
were issued.
|
The
effect of the transactions discussed above are summarized and presented in the following unaudited proforma balance sheet:
nFÜSZ,
INC.
CONSOLIDATED
PROFORMA BALANCE SHEET
|
|
December
31, 2017
As Reported
|
|
|
Proforma
As Adjusted
|
|
|
|
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,560
|
|
|
$
|
2,464,940
|
|
Other
current assets
|
|
|
40,909
|
|
|
|
40,909
|
|
Total
long term assets
|
|
|
39,334
|
|
|
|
39,334
|
|
Total
Assets
|
|
$
|
90,803
|
|
|
$
|
2,545,183
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,518,959
|
|
|
$
|
789,529
|
|
Notes
payable
|
|
|
125,000
|
|
|
|
—
|
|
Notes
payable – Related Party
|
|
|
1,964,985
|
|
|
|
1,964,985
|
|
Convertible
notes payable
|
|
|
1,020,315
|
|
|
|
—
|
|
Derivative
liability
|
|
|
1,250,581
|
|
|
|
167,285
|
|
Total
Current Liabilities
|
|
|
5,879,840
|
|
|
|
2,921,799
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
11,912
|
|
|
|
14,704
|
|
Additional
Paid In Capital
|
|
|
22,738,574
|
|
|
|
28,915,290
|
|
Common
Stock Issuable
|
|
|
430
|
|
|
|
430
|
|
Accumulated
Deficit
|
|
|
(28,539,953
|
)
|
|
|
(29,307,039
|
)
|
Total
Stockholders’ Deficit
|
|
|
(5,789,037
|
)
|
|
|
(376,616
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
$
|
90,803
|
|
|
$
|
2,545,183
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders of
Sound
Concepts, Inc.
American
Fork, UT
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Sound Concepts, Inc. (the “Company”) as of December 31, 2017 and 2016,
the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations
and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of
America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits. We are a public accounting firm registered with the Public Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement, whether due to error fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/
Weinberg & Company, P.A.
|
|
Weinberg
& Company, P.A.
|
|
|
|
Los
Angeles, California
|
|
November
14, 2018
|
|
We
have served as the Company’s auditor since 2018
Sound
COncepts, inc.
Balance
Sheets
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
441,000
|
|
|
$
|
78,000
|
|
|
$
|
226,000
|
|
Accounts
receivable, net
|
|
|
964,000
|
|
|
|
911,000
|
|
|
|
647,000
|
|
Inventory,
net
|
|
|
247,000
|
|
|
|
307,000
|
|
|
|
485,000
|
|
Prepaid
expenses
|
|
|
110,000
|
|
|
|
95,000
|
|
|
|
84,000
|
|
Advances
to related party
|
|
|
23,000
|
|
|
|
46,000
|
|
|
|
32,000
|
|
Total
current assets
|
|
|
1,785,000
|
|
|
|
1,437,000
|
|
|
|
1,474,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
90,000
|
|
|
|
46,000
|
|
|
|
100,000
|
|
Other
assets
|
|
|
10,000
|
|
|
|
11,000
|
|
|
|
21,000
|
|
Total
Assets
|
|
$
|
1,885,000
|
|
|
$
|
1,494,000
|
|
|
$
|
1,595,000
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
735,000
|
|
|
$
|
679,000
|
|
|
$
|
1,191,000
|
|
Accrued
expenses and payroll
|
|
|
114,000
|
|
|
|
226,000
|
|
|
|
166,000
|
|
Customer
deposits
|
|
|
223,000
|
|
|
|
145,000
|
|
|
|
224,000
|
|
Deferred
revenue
|
|
|
403,000
|
|
|
|
472,000
|
|
|
|
287,000
|
|
Credit
line payable
|
|
|
78,000
|
|
|
|
280,000
|
|
|
|
-
|
|
Total
current liabilities
|
|
|
1,553,000
|
|
|
|
1,802,000
|
|
|
|
1,868,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable
|
|
|
34,000
|
|
|
|
6,000
|
|
|
|
26,000
|
|
Total
liabilities
|
|
|
1,587,000
|
|
|
|
1,808,000
|
|
|
|
1,894,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 129,000 shares authorized; 122,000 shares issued and outstanding
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
3,000
|
|
Additional
paid-in capital
|
|
|
465,000
|
|
|
|
465,000
|
|
|
|
465,000
|
|
Treasury
stock
|
|
|
(445,000
|
)
|
|
|
(445,000
|
)
|
|
|
(445,000
|
)
|
Retained
earnings (accumulated deficit)
|
|
|
275,000
|
|
|
|
(337,000
|
)
|
|
|
(322,000
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
298,000
|
|
|
|
(314,000
|
)
|
|
|
(299,000
|
)
|
Total
liabilities and Stockholders’ equity (deficit)
|
|
$
|
1,885,000
|
|
|
$
|
1,494,000
|
|
|
$
|
1,595,000
|
|
The
accompanying notes are an integral part of these financial statements.
Sound
Concepts, inc.
Statements
of Operations
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Revenue,
net
|
|
$
|
9,314,000
|
|
|
$
|
9,377,000
|
|
|
$
|
11,546,000
|
|
|
$
|
12,680,000
|
|
Cost
of revenue
|
|
|
5,046,000
|
|
|
|
5,365,000
|
|
|
|
6,293,000
|
|
|
|
8,613,000
|
|
Gross
margin
|
|
|
4,268,000
|
|
|
|
4,012,000
|
|
|
|
5,253,000
|
|
|
|
4,067,000
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,567,000
|
|
|
|
1,090,000
|
|
|
|
1,731,000
|
|
|
|
1,390,000
|
|
General
and administrative
|
|
|
2,077,000
|
|
|
|
2,579,000
|
|
|
|
3,530,000
|
|
|
|
3,419,000
|
|
Total
operating expenses
|
|
|
3,644,000
|
|
|
|
3,669,000
|
|
|
|
5,261,000
|
|
|
|
4,809,000
|
|
Income
(loss) from operations
|
|
|
624,000
|
|
|
|
343,000
|
|
|
|
(8,000
|
)
|
|
|
(742,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(12,000
|
)
|
|
|
(1,000
|
)
|
|
|
(7,000
|
)
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
612,000
|
|
|
$
|
342,000
|
|
|
$
|
(15,000
|
)
|
|
$
|
(745,000
|
)
|
The
accompanying notes are an integral part of these financial statements.
Sound
Concepts, inc.
Statements
of Stockholders’ Equity (Deficit)
|
|
|
|
|
Additional
|
|
|
|
|
|
Retained
Earnings
|
|
|
Total
Stockholders’
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
(Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit)
|
|
|
(Deficit)
|
|
Balance—December
31, 2015
|
|
|
122,000
|
|
|
$
|
3,000
|
|
|
$
|
465,000
|
|
|
$
|
(445,000
|
)
|
|
$
|
423,000
|
|
|
$
|
446,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(745,000
|
)
|
|
|
(745,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2016
|
|
|
122,000
|
|
|
|
3,000
|
|
|
|
465,000
|
|
|
|
(445,000
|
)
|
|
|
(322,000
|
)
|
|
|
(299,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,000
|
)
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2017
|
|
|
122,000
|
|
|
|
3,000
|
|
|
|
465,000
|
|
|
|
(445,000
|
)
|
|
|
(337,000
|
)
|
|
|
(314,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
612,000
|
|
|
|
612,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—September
30, 2018 (unaudited)
|
|
|
122,000
|
|
|
$
|
3,000
|
|
|
$
|
465,000
|
|
|
$
|
(445,000
|
)
|
|
$
|
275,000
|
|
|
$
|
298,000
|
|
The
accompanying notes are an integral part of these financial statements.
Sound
Concepts, Inc.
Statements
of Cash Flows
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
612,000
|
|
|
$
|
342,000
|
|
|
$
|
(15,000
|
)
|
|
$
|
(745,000
|
)
|
Adjustments
to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
40,000
|
|
|
|
9,000
|
|
|
|
(24,000
|
)
|
|
|
7,000
|
|
Inventory
reserve
|
|
|
(57,000
|
)
|
|
|
66,000
|
|
|
|
(76,000
|
)
|
|
|
95,000
|
|
Gain
from disposal of property and equipment
|
|
|
(20,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation
of property and equipment
|
|
|
27,000
|
|
|
|
67,000
|
|
|
|
59,000
|
|
|
|
67,000
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(93,000
|
)
|
|
|
(316,000
|
)
|
|
|
(240,000
|
)
|
|
|
(15,000
|
)
|
Inventory
|
|
|
117,000
|
|
|
|
231,000
|
|
|
|
254,000
|
|
|
|
(373,000
|
)
|
Prepaid
expenses
|
|
|
(15,000
|
)
|
|
|
28,000
|
|
|
|
(11,000
|
)
|
|
|
(16,000
|
)
|
Other
assets
|
|
|
1,000
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
(1,000
|
)
|
Accounts
payable
|
|
|
56,000
|
|
|
|
(591,000
|
)
|
|
|
(512,000
|
)
|
|
|
755,000
|
|
Accrued
liabilities and payroll
|
|
|
(112,000
|
)
|
|
|
(11,000
|
)
|
|
|
60,000
|
|
|
|
70,000
|
|
Customer
deposits
|
|
|
78,000
|
|
|
|
(83,000
|
)
|
|
|
(79,000
|
)
|
|
|
88,000
|
|
Deferred
revenue
|
|
|
(69,000
|
)
|
|
|
128,000
|
|
|
|
185,000
|
|
|
|
40,000
|
|
Net
cash provided by (used in) operating activities
|
|
|
565,000
|
|
|
|
(120,000
|
)
|
|
|
(389,000
|
)
|
|
|
(28,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(51,000
|
)
|
|
|
(6,000
|
)
|
|
|
(5,000
|
)
|
|
|
(8,000
|
)
|
Net
cash used in investing activities
|
|
|
(51,000
|
)
|
|
|
(6,000
|
)
|
|
|
(5,000
|
)
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
to related party
|
|
|
23,000
|
|
|
|
5,000
|
|
|
|
(14,000
|
)
|
|
|
(32,000
|
)
|
Credit
line payable
|
|
|
(202,000
|
)
|
|
|
100,000
|
|
|
|
280,000
|
|
|
|
-
|
|
Notes
payable
|
|
|
28,000
|
|
|
|
(15,000
|
)
|
|
|
(20,000
|
)
|
|
|
(19,000
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(151,000
|
)
|
|
|
90,000
|
|
|
|
246,000
|
|
|
|
(51,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase
in Cash
|
|
|
363,000
|
|
|
|
(36,000
|
)
|
|
|
(148,000
|
)
|
|
|
(87,000
|
)
|
Cash —
beginning of period
|
|
|
78,000
|
|
|
|
226,000
|
|
|
|
226,000
|
|
|
|
313,000
|
|
Cash —
end of period
|
|
$
|
441,000
|
|
|
$
|
190,000
|
|
|
$
|
78,000
|
|
|
$
|
226,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
9,000
|
|
|
$
|
1,000
|
|
|
$
|
2,000
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial statements.
sound
concepts, inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
1. Description of Business and Basis of Presentation
Nature
of Business
Sound
Concepts, Inc. provides digital marketing and sales support services, including a video-based sales application, to the direct
sales industry. Currently, we service approximately 75 clients in the network marketing and affiliate marketing sector, which
include Isagenix, Vasayo, Nu Skin, Nerium, Forever Living, Seacret, among many others. Our sales application, offered as a SaaS
application, is known as Brightools and is designed specifically to meet the needs of direct sales representatives. Brightools
provides recruiting tools, sales representative training, and education tools, as well as instant notification capabilities to
notify users when a prospect has engaged in shared content. Brightools also tracks customer purchases and allows corporate to
monitor field activity to track the effectiveness of campaigns as well as compliance. Brightools is currently in use in over 48
different countries and has more than 360,000 current users.
Sound
Concepts was founded in year 1979 and has been a privately held company. Its headquarters is in American Fork, Utah, with 87 employees
as of September 30, 2018.
Note
2. Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”).
The
unaudited financial statements of the Company for the nine months ended September 30, 2018 and 2017 have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management,
reflect all normal and recurring adjustments necessary to fairly present the interim periods of unaudited financial results of
operations and cash flows of the Company for the periods presented. Operating results for interim periods are not necessarily
indicative of operating results for the entire fiscal year or any other future periods.
Use
of Estimates
The
Company’s financial statements are prepared in conformity with GAAP, which requires management to make estimates and assumptions
that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ
materially from these estimates. The accounting estimates and assumptions that require management’s most significant, difficult,
and subjective judgment include the collectability of accounts receivable, inventory obsolescence, assessment of useful lives
and recoverability of long-lived assets, and accruals for potential liabilities, among others. Actual results experienced by the
Company may differ from management’s estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase
to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.
sound
concepts, inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
2. Summary of Significant Accounting Policies, continued
Concentration
of Credit and Other Risks
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash
is deposited with a limited number of financial institutions. The balances held at any one financial institution may be in excess
of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accounts are insured by the FDIC up to $250,000.
As of September 30, 2018, December 31, 2017 and 2016, the Company held cash balances in excess of federally insured limits.
The
Company extends limited credit to customers based on an evaluation of their financial condition and other factors. The Company
generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations
of its customers and maintains an allowance for doubtful accounts and sales credits. The Company believes that any concentration
of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short
collection terms and the high level of credit worthiness of its customers.
The
Company’s concentration of credit risk includes its concentrations from key customers and vendors. The details of these
significant customers and vendors are presented in the following table for the years ended December 31, 2017 and 2016, as well
as for the nine months ended September 30, 2018 and 2017:
|
|
Nine
Months Ended September 30, 2018
|
|
Nine
Months Ended September 30, 2017
|
|
Year
Ended
December
31,2017
|
|
Year
Ended
December
31,2016
|
|
|
Unaudited
|
|
Unaudited
|
|
|
|
|
Sound
Concept’s largest customers are presented below as a percentage of Sound Concept’s aggregate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
16%
and 11% of revenue, or 27% of revenue in the aggregate
|
|
19%,
16% and 12% of revenue, or 47% of revenue in the aggregate
|
|
17%,
17% and 11% of revenue, or 45% of revenue in the aggregate
|
|
38%
and 12% of revenue, or 50% of revenue in the aggregate
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
17%
of accounts receivable from one customer
|
|
13%,
15% and 12% of accounts receivable, or 40% of accounts receivable in the aggregate
|
|
24%,
13% and 13% of accounts receivable, or 50% of accounts receivable in the aggregate
|
|
38%
and 10% of accounts receivable, or 48% of accounts receivable in the aggregate
|
|
|
|
|
|
|
|
|
|
Sound
Concept’s largest vendors are presented below as a percentage of Sound Concept’s aggregate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
11%,
10%of purchase, or 21% of purchases in the aggregate
|
|
10%
of purchase from one vendor
|
|
None
over 10%
|
|
15%
of purchase from one vendor
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
13%
and 12% of accounts payable, or 25% of accounts payable in the aggregate
|
|
23%
of accounts payable to one vendor
|
|
14%
of accounts payable to one vendor
|
|
21%,
16% and 11% of accounts payable, or 48% of accounts payable in the aggregate
|
sound
concepts, inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
2. Summary of Significant Accounting Policies, Continued
Allowance
for Doubtful Accounts
Accounts
receivable are stated at a gross invoice amount less an allowance for doubtful accounts. The Company continually monitors customer
payments and maintains a reserve for estimated losses resulting from its customers’ inability to make required payments.
In determining the reserve, the Company evaluates the collectability of its accounts receivable based upon a variety of factors.
In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial
obligations, the Company records a specific allowance against amounts due. For all other customers, the Company recognizes allowances
for doubtful accounts based on its historical write-off experience in conjunction with the length of time the receivables are
past due, customer creditworthiness, geographic risk and the current business environment. Actual future losses from uncollectible
accounts may differ from the Company’s estimates.
The
allowance for doubtful accounts was $50,000 as of September 30, 2018, $10,000 and $34,000 as of December 31, 2017 and 2016, respectively.
Inventory
Inventory
is recorded at lower of cost or market as determined on a first-in, first-out basis. The valuation of inventory requires us to
estimate obsolete and excess inventory, as well as inventory that is not of saleable quality. We compare the estimate of future
demand to work in process and finished goods inventory levels to determine the amount, if any, of obsolete or excess inventory.
If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly,
we could be required to write off inventory.
For
customized inventory per customer requests, the Company reserved certain portion based on the inventory purchase time and the
reminder inventory balance.
Inventory
reserves was $40,000 as of September 30, 2018, and were $97,000 and $173,000 as of December 31, 2017 and 2016 respectively.
Property
and Equipment
Property
and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over
the related assets’ estimated useful lives:
Computers
|
|
3
years
|
Furniture
and fixture
|
|
5
years
|
Machinery
and equipment
|
|
5
years
|
Software
|
|
3
years
|
Vehicles
|
|
5
years
|
Expenditures
that materially increase asset life are capitalized, while ordinary maintenance and repairs are expensed as incurred. The Company
capitalizes the costs of purchased software licenses and consulting costs to implement the software for internal use. These costs
are included in the caption “property and equipment” in the balance sheets.
Depreciation
expense is included as part of “general and administrative expense” in the accompanying statements of operations.
sound
concepts, inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
2. Summary of Significant Accounting Policies, continued
Fair
Value of Financial Instruments
The
Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for
disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value
in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
(3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
|
Level
1
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
|
Level
2
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
|
|
|
|
|
Level
3
|
Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expense, accounts payable and
accrued payables, approximate their fair values because of the short maturity of these instruments.
Impairment
of long-lived assets
Long-lived
assets primarily include property and equipment. In accordance with the provision of ASC 360, the Company generally conducts its
annual impairment evaluation of its long-lived assets in the fourth quarter of each year, or more frequently if indicators of
impairment exist, such as a significant sustained change in the business climate.
As
of September 30, 2018, December 31, 2017 and 2016, the Company determined there were no indicators of impairment of its property
and equipment.
Revenue
Recognition
The
Company derives its revenue primarily from providing digital marketing and sales support services, from customized print products
and training materials, to branded apparel and digital tools, as demanded by its customers. Revenue is recognized when there is
persuasive evidence of an arrangement, delivery has occurred, the fee is fixed or determinable, and collectability of the resulting
receivable is reasonably assured. Determining whether and when these criteria have been satisfied requires the Company to make
assumptions and judgments that could have a significant impact on the timing and amount of revenue it reports.
The
Company also charges certain customers setup or installation fees for the creation and development of websites and phone application.
These fees are accounted as part of deferred revenues and amortized over the estimated life of the agreement.
The
Company adopted ASC 606 starting January 1
st
, 2018. The adoption did not have a significant impact on the Company’s
revenue recognition including its set-up income from customers. Refer to “Note 3 - Recent Accounting Pronouncements”
for a detailed discussion.
sound
concepts, Inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
2. Summary of Significant Accounting Policies, continued
Cost
of Revenues
Cost
of revenues primarily consists of the purchase price of consumer products, digital content costs, packaging supplies, and inbound
and outbound shipping costs. Shipping costs to receive products from our suppliers are included in our inventory, and recognized
as cost of sales upon sale of products to our customers.
Research
and Development Costs
Research
and development costs consist primarily of salaries and fees paid to both employees and third parties for the development of Company’s
platform to upgrade its functionality and to provide better service to its customers. We seek to invest efficiently in numerous
areas of technology and content so we may continue to enhance the customer experience and improve our process efficiency through
rapid technology developments, while operating at an ever increasing scale. We expect spending in technology and content to increase
over time as we continue to add employees and technology infrastructure.
Advertising
Costs
Advertising
costs consists of trade shows and marketing expenses. Agreements do not provide for guaranteed renewal and may be terminated by
the Company without cause. Such advertising costs are charged to expense as incurred and reported as part of general and administrative
expenses in the accompanying statement of operations.
During
the periods ended September 30, 2018 and 2017, advertising costs amounted to $1,000 respectively and was recorded as part of general
and administrative expense in the accompanying statements of operations.
During
the years ended December 31, 2017 and 2016, advertising costs amounted to $24,000 and $19,000 respectively, and was recorded as
part of general and administrative expense in the accompanying statements of operations.
Income
Taxes
The
Company is a limited liability company treated as a partnership for federal and state income tax purposes with all income tax
liabilities and/or benefits of the Company being passed through to the member. As such, no recognition of federal or state income
taxes for the Company or its subsidiaries that are organized as limited liability companies have been provided for in the accompanying
financial statements. Any uncertain tax position taken by the member is not an uncertain position of the Company.
There
was no taxable income and therefore no distributions in the years ended December 31, 2017 and 2016 respectively, as well as in
the nine months ended September 30, 2018 and 2017 respectively.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015,
the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays
the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the
original effective date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation
guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether
it controls a specified good or service before it is transferred to the customers. The new standard further requires new disclosures
about contracts with customers, including the significant judgments the company has made when applying the guidance. The Company
adopted the new standard effective January 1, 2018, using the modified retrospective transition method. The adoption of this guidance
did not have a material impact on our financial statements and our internal controls over financial reporting.
sound
concepts, Inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
2. Summary of Significant Accounting Policies, continued
Recent
Accounting Pronouncements, continued
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally requires
companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This
guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted.
We will adopt the new standard effective January 1, 2019. While we continue to evaluate the effect of adopting this guidance on
our financial statements and related disclosures, we expect our operating leases, as disclosed in “Note 7 — Commitments
and Contingencies”, will be subject to the new standard. We will recognize right-of-use assets and operating lease liabilities
on our balance sheets upon adoption, which will increase our total assets and liabilities.
Note
3. Accounts Receivable
Accounts
receivable, net consisted of the following:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
1,014,000
|
|
|
$
|
921,000
|
|
|
$
|
681,000
|
|
Less
allowance for doubtful accounts
|
|
|
(50,000
|
)
|
|
|
(10,000
|
)
|
|
|
(34,000
|
)
|
Total
accounts receivable, net
|
|
$
|
964,000
|
|
|
$
|
911,000
|
|
|
$
|
647,000
|
|
During
the period ended September 30, 2018, the Company recovered bad debt expense of $3,000 and recognized bad debt expense of $107,000,
respectively, which was reported as part of Operating Expenses in the accompanying statement of operations. During the period
ended September 30, 2017, the Company recognized bad debt expense of $9,000, which was reported as part of Operating Expenses
in the accompanying statement of operations.
During
the year ended December 31, 2017 and 2016, the Company recognized bad debt expense of $81,000 and $78,000, respectively, which
was reported as part of Operating Expenses in the accompanying statement of operations.
Note
4. Inventory
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
50,000
|
|
|
$
|
64,000
|
|
|
$
|
23,000
|
|
Finished
goods
|
|
|
237,000
|
|
|
|
340,000
|
|
|
|
635,000
|
|
Total
inventory
|
|
|
287,000
|
|
|
|
404,000
|
|
|
|
658,000
|
|
Less
inventory reserve
|
|
|
(40,000
|
)
|
|
|
(97,000
|
)
|
|
|
(173,000
|
)
|
Total
inventory, net
|
|
$
|
247,000
|
|
|
$
|
307,000
|
|
|
$
|
485,000
|
|
sound
concepts, Inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
5. Property and Equipment
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
Computers
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
|
$
|
42,000
|
|
Furniture
and fixture
|
|
|
26,000
|
|
|
|
26,000
|
|
|
|
26,000
|
|
Machinery
and equipment
|
|
|
141,000
|
|
|
|
127,000
|
|
|
|
127,000
|
|
Software
|
|
|
113,000
|
|
|
|
113,000
|
|
|
|
142,000
|
|
Vehicles
|
|
|
123,000
|
|
|
|
110,000
|
|
|
|
110,000
|
|
Total
property and equipment
|
|
|
423,000
|
|
|
|
396,000
|
|
|
|
447,000
|
|
Accumulated
Depreciation
|
|
|
(333,000
|
)
|
|
|
(350,000
|
)
|
|
|
(347,000
|
)
|
Total
property and equipment, net
|
|
$
|
90,000
|
|
|
$
|
46,000
|
|
|
$
|
100,000
|
|
Depreciation
expense for the years ended December 31, 2017 and 2016 amounted to $59,000 and $67,000, respectively. Depreciation expense for
the nine months ended September 30, 2018 and 2017 amounted to $27,000 and $67,000, respectively.
During
the year ended December 31, 2017, the Company disposed certain fully depreciated property and equipment with an aggregate cost
of $56,000.
During
the nine months ended September 30, 2018, the Company disposed a fully depreciated vehicle with a cost of $45,000 and as a result,
incurred gain of $20,000 which was recorded as part of other income (expense) in the accompanying financial statements
Note
6. Debt
Note
Payable
In
February 2014, the Company entered into a promissory note with Ford Motor Credit in the aggregate of $80,000 for the purchase
of the Company’s vehicles. The notes had a 4-year term that matured in February 2018, bore interest at an average rate of
5% per annum and were secured by the vehicles purchased. As of December 31, 2017 and 2016, the notes’ obligation outstanding
was $6,000 and $26,000 respectively. As of September 30, 2018, the note was fully paid.
On
February 17, 2018, the Company entered into a promissory note with Ally Auto for $36,000 for the purchase of the Company’s
vehicle. The note has a 75-month term with recurring monthly payments of principal and interest of $400 with a maturity on June
2024, bears interest at rate of 5.5% per annum and secured by the vehicle purchased by the Company. As of September 30, 2018,
the note obligation outstanding was $34,000.
Credit
Line Payable
On
December 27, 2016, the Company entered into a financing agreement with a financial institution, Zions National First Bank (ZB,
N.A.), to obtain a line of credit. The Financing Agreement provided the Company with a revolving credit facility in an aggregate
principal amount not to exceed $500,000 at any time outstanding.
The
line of credit is secured by the Company’s assets, bears average interest rate of 5% per annum, matures every anniversary
but is automatically renewed for one year, until terminated by the parties. The line of credit currently will mature on December
27, 2018.
As
of September 30, 2018 and December 31, 2017, the line of credit outstanding was $78,000 and $280,000 respectively. There was no
outstanding balance as of December 31, 2016.
sound
concepts, inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
7. Commitments and Contingencies
Operating
Leases
The
Company’s principal executive offices are leased from related-parties (see Note 8) and are located in 782 S. Auto Mall Drive,
Suite A, American Fork, Utah, which includes approximately 12,534 square feet. In addition, it leased 3,650 square feet in 767
S. Auto Mall Drive, Suite 3, American Fork, Utah. The lease term for both buildings is month-by-month, with a total monthly rental
fee of $21,000.
Rent
expense was $256,000 and $239,000 for the years ended December 31, 2017 and 2016, respectively, and was $197,000 and $190,000
for the nine months ended September 30, 2018 and 2017, respectively.
The
Company has two separate operating leases. One of the operating leases was for its copier with Xerox, with monthly payment of
$5,000 starting September 26, 2016 on a 5-year term. The other is for the Amazon software license from Western Digital Equipment,
with monthly payment of $4,000 starting August 16, 2016 on a 3-year term.
The
following is the Company’s operating lease commitments for the next four fiscal years:
Year
Ending
|
|
Lease
|
|
December
31,
|
|
Obligation
|
|
2018
|
|
$
|
27,000
|
|
2019
|
|
|
90,000
|
|
2020
|
|
|
60,000
|
|
2021
|
|
|
44,000
|
|
Total
|
|
$
|
221,000
|
|
Note
8. Related Party
Lease
The
Company’s lessor is JMCC Properties, which is an entity owned and controlled by the same owners and officers of the Company
During the years ended December 31, 2017 and 2016, the Company has incurred $256,000 and $239,000, respectively, representing
the rental expenses of the office building. During the nine months ended September 30, 2018 and 2017, the Company has incurred
a total of $197,000 and $190,000, respectively, representing the rental expenses of the office building.
The
balance due to JMCC Properties was $0 as of September 30, 2018, and was $21,000 and $0 as of December 31, 2017 and 2016, respectively.
The balance was included within accrued expenses in the balance sheet.
Advances
The
Company periodically extends advances to officers, employees and related parties of the Company. There are no formal agreements
for these advances, are unsecured and due on demand and accordingly are included as a current asset on the accompanying balance
sheet.
As
of September 30, 2018, December 31, 2017 and 2016, the balance due from the officer/related party was $23,000, $46,000, and $32,000,
respectively.
sound
concepts, inc.
Notes
to Financial Statements
Years
ended december 31, 2017 and 2016
and
NINE months ended SEPTEMBER 30, 2018 and 2017 (unaudited)
Note
9. Equity
The
Company is authorized to issue 126,000 shares of common stock, $0.001 par value per share of which 122,000 shares are currently
issued and outstanding as of September 30, 2018, December 31, 2017 and 2016, respectively.
During
the year ended December 31, 2011, the Company purchased back 6,000 shares of common stock from a prior owner at $74.17 per share
or $445,000
Note
10 – Subsequent Events
Pursuant
to FASB ASC 855, Management has evaluated all events and transactions that occurred from December 31, 2017 through November 30,
2018, the date of issuance of these financial statements. During this period, we did not have any significant subsequent events.
___________Shares
Common
Stock
PROSPECTUS
A.G.P.
Through
and including , 2018 (the
25
th
day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or subscription.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth the various expenses that will be paid by us in connection with the securities being registered. With
the exception of the SEC registration fee and FINRA filing fee, all amounts shown are estimates:
SEC Registration Fee
|
|
$
|
2,641.50
|
|
FINRA Filing Fee
|
|
|
3,687.50
|
|
Legal Fees and Expenses
|
|
|
150,000 .00
|
|
Printing Expenses
|
|
|
30,000 .00
|
|
Accounting Fees and Expenses
|
|
|
75,000 .00
|
|
Transfer Agent Fees and Expenses
|
|
|
3,000 .00
|
|
Miscellaneous Expenses
|
|
|
1,000 .00
|
|
TOTAL
|
|
$
|
265,329.00
|
|
Item
14. Indemnification of Directors and Officers.
We
are a Nevada corporation and generally governed by the Nevada Private Corporations Code, Title 78 of the Nevada Revised Statutes
(the “NRS”).
Section
78.138 of the NRS provides that, unless the corporation’s articles of incorporation provide otherwise, a director or officer
will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted
a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud, or a knowing violation of
the law.
Section
78.7502 of the NRS permits a company to indemnify its directors and officers against expenses, judgments, fines, and amounts paid
in settlement actually and reasonably incurred in connection with a threatened, pending, or completed action, suit, or proceeding,
if the officer or director (i) is not liable pursuant to Section 78.138 of the NRS, or (ii) acted in good faith and in a manner
the officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal
action or proceeding, had no reasonable cause to believe the conduct of the officer or director was unlawful. Section 78.7502
of the NRS also precludes indemnification by the corporation if the officer or director has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals, to be liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court determines that in view of all the circumstances, the person is fairly and reasonably
entitled to indemnity for such expenses and requires a corporation to indemnify its officers and directors if they have been successful
on the merits or otherwise in defense of any claim, issue, or matter resulting from their service as a director or officer.
Section
78.751 of the NRS permits a Nevada corporation to indemnify its officers and directors against expenses incurred by them in defending
a civil or criminal action, suit, or proceeding as they are incurred and in advance of final disposition thereof, upon determination
by the stockholders, the disinterested board members, or by independent legal counsel. Section 78.751 of the NRS provides that
the articles of incorporation, the bylaws, or an agreement may require a corporation to advance expenses as incurred upon receipt
of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of
competent jurisdiction that such officer or director is not entitled to be indemnified by the corporation if so provided in the
corporation’s articles of incorporation, bylaws, or other agreement. Section 78.751 of the NRS further permits the corporation
to grant its directors and officers additional rights of indemnification under its articles of incorporation, bylaws, or other
agreement.
Section
78.752 of the NRS provides that a Nevada corporation may purchase and maintain insurance or make other financial arrangements
on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or
other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director,
officer, employee, or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify
him against such liability and expenses. We have obtained insurance policies insuring our directors and officers against certain
liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on our behalf, may also
pay amounts for which we have granted indemnification to the directors or officers.
The
foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference
to the above discussed sections of the NRS.
Our
bylaws provide that we must indemnify our directors and officers and may indemnify our employees and other agents to the fullest
extent permitted by the NRS.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or paid by our director, officer, or controlling person
in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. See also the section
entitled “Undertakings” set forth below.
Item
15. Recent Sales of Unregistered Securities.
Fiscal
2018
Common
Stock Issuances
On
January 22, 2018, we issued 1,428,571 shares of Common Stock to an investor at a price of $0.07 per share for net proceeds of
$100,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2)
of the Securities Act. We used the proceeds to repay debt and for operations.
On
January 26, 2018, we issued 68,182 shares of Common Stock to a vendor as payment for services rendered. The shares had an aggregate
value of $7,295, which was based on the closing price of our Common Stock as reported by the OTCQB on the date of issuance, or
$0.11 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of
the Securities Act.
On
January 26, 2018, we issued 2,500,000 shares of Common Stock to an investor at a price of $0.06 per share for net proceeds of
$150,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2)
of the Securities Act. We used the proceeds to repay debt and for operations.
On
January 27, 2018, we issued 50,000 shares of Common Stock to a consultant as payment for services rendered. The shares had an
aggregate value of $5,350 , which was based on the closing price of our Common Stock as reported by the OTCQB on the date
of issuance, or $0.11 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act.
On
January 29, 2018, we issued 41,667 shares of Common Stock to a former advisory board member as payment for services rendered.
The shares had an aggregate value of $5,667, which was based on the closing price of our Common Stock as reported by the OTCQB
on the date of issuance, or $0.14 per share. We offered and sold the shares in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act.
On
January 30, 2018, we issued 31,250 shares of Common Stock to a vendor as payment for services rendered. The shares had an aggregate
value of $7,594, which was based on the closing price of our Common Stock as reported by the OTCQB on the date of issuance, or
$0.24 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of
the Securities Act.
On
January 30, 2018, we issued 2,142,857 shares of Common Stock to an investor at a price of $0.07 per share for net proceeds of
$150,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2)
of the Securities Act. We used the proceeds to repay debt and for operations.
On
January 31, 2018, we issued 1,000,000 shares of Common Stock to an investor at a price of $0.07 per share for net proceeds of
$70,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2)
of the Securities Act. We used the proceeds to repay debt and for operations.
On
February 7, 2018, we issued 1,650,000 shares of Common Stock to an investor at a price of $0.10 per share for net proceeds of
$165,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2)
of the Securities Act. We used the proceeds for working capital and general corporate purposes.
On
February 12, 2018, we issued 625,000 shares of Common Stock to an investor at a price of $0.08 per share for net proceeds of $50,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
February 16, 2018, we issued 1,312,500 shares of Common Stock to two investors at a weighted average price of $0.1714 per share
for net proceeds of $225,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act. We used the proceeds for working capital and general corporate purposes.
On
February 20, 2018, we issued 615,000 shares of Common Stock to three investors at a weighted average price of $0.1919 per share
for net proceeds of $118,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act. We used the proceeds for working capital and general corporate purposes.
On
February 21, 2018, we issued 7,415 shares of Common Stock to a vendor as payment for services rendered. The shares had an aggregate
value of $4,375, which was based on the closing price of our Common Stock as reported by the OTCQB on the date of issuance, or
$0.59 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of
the Securities Act.
On
February 21, 2018, we issued 875,000 shares of Common Stock to four investors at a weighted average price of $0.1857 per share
for net proceeds of $162,500. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act. We used the proceeds for working capital and general corporate purposes.
On
February 22, 2018, we issued 275,000 shares of Common Stock to an investor at a price of $0.20 per share for net proceeds of $55,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
February 23, 2018, we issued 1,608,333 shares of Common Stock to three investors at a weighted average price of $0.1554 per share
for net proceeds of $250,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act. We used the proceeds for working capital and general corporate purposes.
On
February 27, 2018, we issued 50,000 shares of Common Stock to a consultant as payment for services rendered. The shares had an
aggregate value of $23,500, which was based on the closing price of our Common Stock as reported by the OTCQB on the date of issuance,
or $0.47 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2)
of the Securities Act.
On
February 27, 2018, we issued 200,000 shares of Common Stock to an investor at a price of $0.20 per share for net proceeds of $40,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 1, 2018, we issued 125,000 shares of Common Stock to an investor at a price of $0.20 per share for net proceeds of $25,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 8, 2018, we issued 3,000,000 restricted shares of our Common Stock to two officers and 1,500,000 restricted shares of our
Common Stock to a director with an aggregate fair market value of $1,980,000, which was based on the closing price of our Common
Stock as reported by the OTCQB on the date of issuance, or $0.44 per share. We issued the shares in reliance on the exemption
from registration pursuant to Section 4(a)(2) of the Securities Act.
On
March 15, 2018, we issued 333,333 shares of Common Stock to an investor at a price of $0.30 per share for net proceeds of $100,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 16, 2018, we issued 1,000,000 shares of Common Stock to an investor at a price of $0.25 per share for net proceeds of $250,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 19, 2018, we issued 25,000 shares of Common Stock to an investor at a price of $0.20 per share for net proceeds of $5,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 21, 2018, we issued 55,556 shares of Common Stock to an investor at a price of $0.45 per share for net proceeds of $25,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 23, 2018, we issued 162,917 shares of Common Stock to two investors at a weighted average price of $0.3253 per share for
net proceeds of $53,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 26, 2018, we issued 25,000 shares of Common Stock to an investor at a price of $0.60 per share for net proceeds of $15,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 27, 2018, we issued 58,334 shares of Common Stock to two investors at a price of $0.60 per share for net proceeds of $35,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 28, 2018, we converted our Chief Executive Officer’s accrued salary of $582,333 into 407,226 restricted shares of
Common Stock at a price of $1.43 per share, which represents the closing price of our Common Stock as reported by the OTCQB
on March 28, 2018. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities
Act.
On
March 28, 2018, we issued 100,000 shares of Common Stock to an investor at a price of $0.60 per share for net proceeds of $60,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 29, 2018, we issued 16,667 shares of Common Stock to an investor at a price of $0.60 per share for net proceeds of $10,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 30, 2018, we issued 16,667 shares of Common Stock to an investor at a price of $0.60 per share for net proceeds of $10,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
March 31, 2018, we issued 258,333 shares of Common Stock to an investor at a price of $0.60 per share for net proceeds of $155,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
April 13, 2018, we issued 307,692 shares of Common Stock to an investor at price of $0.65 per share for net proceeds of $200,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
April 20, 2018, we issued 692,308 shares of Common Stock to an investor at a price of $0.65 per share for net proceeds of $450,000.
We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the
Securities Act. We used the proceeds for working capital and general corporate purposes.
On
April 29, 2018, we issued 41,667 shares of Common Stock to a former advisory board member as payment for services rendered. The
shares had an aggregate value of $53,333, which was based on the closing price of our Common Stock as reported by the OTCQB on
the date of issuance, or $1.28 per share. We offered and sold the shares in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act.
O
n
May 2, 2018, we issued 50,000 shares of Common Stock to an investor at a price of $1.00 per share for net
proceeds of $50,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to
Section 4(a)(2) of the Securities Act. We used the proceeds to repay debt and for operations.
On
August 4, 2018, we issued to our Chief Executive Officer 3,750,000 restricted shares of Common Stock with a fair value of $562,500
based on a price per share of $0.15, which was the closing price of our Common Stock as reported by the OTCBQ on the issuance
date. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
Common
Stock Issued Upon Conversion of Notes Payable
On
January 29, 2018, we issued 1,250,000 shares of Common Stock upon the conversion of an outstanding convertible note. The aggregate
principal amount of the note that was converted was $125,000. We issued the shares in reliance on the exemption from registration
pursuant to Section 3(a)(9) of the Securities Act.
On
February 14, 2018, we issued 441,000 shares of Common Stock upon the conversion of an outstanding convertible note. The aggregate
principal amount of the note that was converted was $110,250. We issued the shares in reliance on the exemption from registration
pursuant to Section 3(a)(9) of the Securities Act.
On
February 21, 2018, we issued 1,102,500 shares of Common Stock upon the conversion of an outstanding convertible note. The aggregate
principal amount of the note that converted was $110,250. We issued the shares in reliance on the exemption from registration
pursuant to Section 3(a)(9) of the Securities Act.
On
March 27, 2018, we issued 4,589,506 shares of Common Stock upon the conversion of an outstanding convertible note. The aggregate
principal amount of the note that converted was $841,743. We issued the shares in reliance on the exemption from registration
pursuant to Section 3(a)(9) of the Securities Act.
On
September 30, 2018, we issued 5,352,357 shares of Common Stock upon the partial conversion of an outstanding convertible note.
The aggregate principal amount of the note that converted was $374,665. We issued the shares in reliance on the exemption from
registration pursuant to Section 3(a)(9) of the Securities Act.
On
September 30, 2018, we issued 1,471,397 shares of Common Stock upon the partial conversion of an outstanding convertible note.
The aggregate principal amount of the note that converted was $102,998. We issued the shares in reliance on the exemption from
registration pursuant to Section 3(a)(9) of the Securities Act.
On
September 30, 2018, we issued 2,700,000 shares of Common Stock upon the conversion of an outstanding convertible note. The aggregate
principal amount of the note that converted was $189,000. We issued the shares in reliance on the exemption from registration
pursuant to Section 3(a)(9) of the Securities Act.
On
September 30, 2018, we issued 1,741,397 shares of Common Stock upon the conversion of an outstanding convertible note. The aggregate
principal amount of the note that converted was $121,875. We issued the shares in reliance on the exemption from registration
pursuant to Section 3(a)(9) of the Securities Act.
Common
Stock Issued Upon Exercise of Options
On
April 19, 2018, we issued a total of 487,620 shares of Common Stock issued in connection with the exercise of options at a weighted
average exercise price of $0.07. We received proceeds of $34,133 in connection with the exercises. We issued the shares in reliance
on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act. We used the proceeds for operations.
Common
Stock Issued Upon Exercise of Warrants
On
February 8, 2018, we issued a total of 275,000 shares of Common Stock in connection with the exercise of warrants at an exercise
price of $0.08 per share. We received $22,000 in proceeds in connection with the exercises of these warrants. We issued the shares
in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act. We used the proceeds for operations.
On
February 19, 2018, we issued a total of 105,021 shares of Common Stock in connection with the cashless exercise of warrants. We
issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
February 19, 2018, we issued a total of 170,297 shares of Common Stock in connection with the cashless exercise of warrants. We
issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
March 28, 2018, we issued a total of 1,154,007 shares of Common Stock in connection with the cashless exercise of warrants. We
issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
September 30, 2018, we issued a total of 10,213,380 shares of Common Stock in connection with the cashless exercise of warrants.
We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
October 11, 2018, we issued a total of 3,812,172 shares of Common Stock in connection with the cashless exercise of warrants.
We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
October 12, 2018, we issued a total of 393,939 shares of Common Stock in connection with the cashless exercise of warrants. We
issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
Grants
of Warrants
On
January 10, 2018, we granted warrants to a certain note holder to purchase up to 500,000 shares of Common Stock. The warrants
are exercisable at an average price of $0.14 per share and will expire in January 2023. The grant of the warrants and the shares
of Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
January 11, 2018, we granted warrants to a certain note holder to purchase up to 500,000 shares of Common Stock. The warrants
are exercisable at an average price of $0.14 per share and will expire in January 2023. The grant of the warrants and the shares
of Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
February 21, 2018, we granted warrants to a certain note holder to purchase up to 2,000,000 shares of Common Stock. The warrants
are exercisable at an average price of $0.25 per share and will expire in February 2023. The grant of the warrants and the shares
of Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
August 8, 2018, Mr. Cutaia and we agreed to extend the maturity date of a convertible note previously issued in favor of Mr. Cutaia.
As of May 8, 2018, the aggregate outstanding principal amount of the note was $1,198,883. In consideration for extending the maturity
date of the note, we granted to Mr. Cutaia a warrant to purchase up to 2,446,700 shares of Common Stock at an exercise price of
$0.49 per share. The grant of the warrants and the shares of Common Stock underlying the warrants is and will be exempt from the
registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
Grants
of Stock Options
On
January 1, 2018, we granted stock options to an employee to purchase up to 1,0 00,000 shares of Common Stock for services
rendered. The options have an exercise price of $0.25 per share, have a five-year term, and vest over a period of three years
from the grant date. The total fair value of these options at the grant date was approximately $ 94,226 , which was based
upon the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
January 22, 2018, we granted stock options to an employee and a consultant to purchase up to 256,272 shares of Common Stock for
services rendered. The options have an exercise price of $0.09 per share, have a five-year term, and vest on the grant date. The
total fair value of these options at the grant date was approximately $22,215, which was based upon the closing price of our Common
Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common Stock underlying
the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the
Securities Act.
On
February 1, 2018, we granted stock options to a consultant to purchase up to 50,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.25 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $8,122, which was based upon the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
February 22, 2018, we granted stock options to consultants to purchase up to 200,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.50 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $96,138, which was based upon the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
April 3, 2018, we granted stock options to an employee to purchase up to 50,000 shares of Common Stock for services rendered.
The options have an exercise price of $1.00 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $48,434, which was based upon the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
May 14, 2018, we granted stock options to consultants to purchase up to 50,000 shares of Common Stock for services rendered. The
options have an exercise price of $0.96 per share, have a five-year term, and vest over a period of three years from grant date.
The total fair value of these options at the grant date was approximately $46,506, which was based upon the closing price of our
Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common Stock
underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2)
of the Securities Act.
On
July 1, 2018, we granted stock options to employees to purchase up to 4,800,000 shares of Common Stock for services rendered.
The options have an average exercise price of $0.36 per share and have a five-year term. On the grant date, 1,500,000 shares immediately
vested, with the remaining 3,300,000 to vest over a period of three years from grant date. The total fair value of these options
at the grant date was approximately $2, 892,419 , which was based on the closing price of our Common Stock as reported by
the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common Stock underlying the options is
and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
July 12, 2018, we granted stock options to consultants to purchase up to 50,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $27,953 , which was based on the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
July 16, 2018, we granted stock options to consultants to purchase up to 150,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $85,714, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
July 20, 2018, we granted stock options to a consultant to purchase up to 25,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $13,977 , which was based on the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
July 23, 2018, we granted stock options to consultants to purchase up to 25,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $13,487 , which was based on the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
July 27, 2018, we granted stock options to an employee to purchase up to 250,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $127,507 , which was based on the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
July 30, 2018, we granted stock options to a consultant to purchase up to 25,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $13,389 , which was based on the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
August 1, 2018, we granted stock options to a consultant to purchase up to 25,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $12,015 , which was based on the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
August 13, 2018, we granted stock options to a consultant to purchase up to 25,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $13,240, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
August 15, 2018, we granted stock options to an employee to purchase up to 200,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $88,270, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
August 16, 2018, we granted stock options to consultants to purchase up to 50,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $20,599, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
August 31, 2018, we granted stock options to an advisory board member to purchase a up to 1,000,000 shares of Common Stock for
services rendered. The options have an exercise price of $0.62 per share, have a five-year term, and vest over a period of four
years from the grant date. The total fair value of these options at the grant date was approximately $598,031, which was based
on the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
August 27, 2018, we granted stock options to board members to purchase a up to 2,000,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.50 per share, have a five-year term, 200,000 vest on grant date, and remainder vest over
a period of four years from the grant date. The total fair value of these options at the grant date was approximately $964,511,
which was based on the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options
and the issuance of the shares of Common Stock underlying the options is and will be exempt from the registration requirements
of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 7, 2018, we granted stock options to advisory board members to purchase a up to 2,000,000 shares of Common Stock for
services rendered. The options have an exercise price of $0.50 per share, have a five-year term, and vest over a period of four
years from the grant date. The total fair value of these options at the grant date was approximately $964,547, which was based
on the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 11, 2018, we granted stock options to an advisory board member to purchase a up to 1,000,000 shares of Common Stock
for services rendered. The options have an exercise price of $0.45 per share, have a five-year term, and vest over a period of
four years from the grant date. The total fair value of these options at the grant date was approximately $434,066, which was
based on the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 13, 2018, we granted stock options to an advisory board member to purchase a up to 1,000,000 shares of Common Stock
for services rendered. The options have an exercise price of $0.42 per share, have a five-year term, and vest over a period of
four years from the grant date. The total fair value of these options at the grant date was approximately $405,117, which was
based on the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 17, 2018, we granted stock options to an employee and a consultant to purchase a up to 525,000 shares of Common Stock
for services rendered. The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of
three years from the grant date. The total fair value of these options at the grant date was approximately $226,605, which was
based on the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 25, 2018, we granted stock options to consultants to purchase up to 75,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $27,606, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
September 25, 2018, we granted stock options to an advisory board member to purchase a up to 1,000,000 shares of Common Stock
for services rendered. The options have an exercise price of $0.39 per share, have a five-year term, and vest over a period of
four years from the grant date. The total fair value of these options at the grant date was approximately $371,423, which was
based on the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 27, 2018, we granted stock options to an employee to purchase a up to 1,000,000 shares of Common Stock for services
rendered. The options have an exercise price of $0.50 per share, have a five-year term, and vest over a period of three years
from grant date. The total fair value of these options at the grant date was approximately $403,819, which was based on the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
October 1, 2018, we granted stock options to consultants to purchase up to 50,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.60 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $28,941, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
October 12, 2018, we granted stock options to an employee to purchase up to 2,000,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.50 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $964,743, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
October 29, 2018, we granted stock options to an employee to purchase up to 75,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.50 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $28,079, which was based on the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common
Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
Convertible
Notes Issuances
On
January 10, 2018 and January 11, 2018, we issued unsecured convertible notes to EMA and Auctus Fund in the aggregate principal
amount of $150,000, net of an Original Issue Discount (“OID”) of $20,000. The notes bear interest at a rate of 8%
per annum and will mature in January 2019. The notes are convertible into shares of Common Stock at a conversion price equal to
the lower of: (i) the closing sale price of the Common Stock on the principal market on the trading day immediately preceding
the closing date, and (ii) 70% of either the lowest sale price of the Common Stock on the principal market during the ten (10)
consecutive trading days including and immediately preceding the conversion date, or the closing bid price. As of the issue dates,
the notes were convertible into an aggregate of 2,819,549 shares of Common Stock. The issuance of the notes and the issuance of
shares of Common Stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
October 19, 2018, we issued an unsecured convertible note to Bellridge Capital, LP in the aggregate principal amount of $1,500,000
in exchange for net proceeds of $1,241,500, after an OID of $150,000 and legal and financing expenses of $108,500. In addition,
we issued 1,450,000 shares of our Common Stock in connection with the note issuance. The notes are convertible into shares of
Common Stock at a conversion price equal to 70% of the lowest VWAP during the ten (10) trading days immediately preceding the
date of the notice of conversion. As of the issue dates, the notes were convertible into an aggregate of 5,603,706 shares of Common
Stock. The issuance of the notes and the issuance of shares of Common Stock underlying the notes is and will be exempt from the
registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
Fiscal
2017
Common
Stock Issuances
From
January to March 2017, we issued 1,034,167 shares of Common Stock to vendors as payment for services rendered. The shares had
an aggregate fair market value of $145,506, based upon a weighted average of $0.14 per share. The fair market value was based
on the closing price of our Common Stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares
in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
From
April to June 2017, we issued 1,690,166 shares of Common Stock to vendors as payment for services rendered. The shares had an
aggregate fair market value of $384,943, based upon a weighted average of $0.023 per share. The fair market value was based on
the closing price of our Common Stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares
in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
April 1, 2018, we offered and sold 375,000 shares of Common Stock to an investor at a price of $0.08 per share for net proceeds
of $30,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act. We used the proceeds to repay debt and for operations.
On
April 24, 2017, we offered and sold 5,000,000 shares of Common Stock to an investor at a price of $0.06 per share for net proceeds
of $300,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act. We used the proceeds to repay debt and for operations.
On
April 25, 2017, we offered and sold 500,000 shares of Common Stock to an investor at a price of $0.10 per share for net proceeds
of $50,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act. We used the proceeds to repay debt and for operations.
On
April 30, 2017, we offered and sold 300,000 shares of Common Stock to an investor at a price of $0.10 per share for net proceeds
of $30,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act. We used the proceeds to repay debt and for operations.
On
May 4, 2017, we issued to our Chief Financial Officer 500,000 restricted shares of our Common Stock with a fair value of $177,500
based on a price per share of $0.36, which was the market price of our Common Stock as reported by the OTCQB on the issuance date.
We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
May 22, 2017, we offered and sold 100,000 shares of Common Stock to an investor at a price of $0.20 per share for net proceeds
of $20,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act. We used the proceeds to repay debt and for operations.
On
June 16, 2017, we issued 462,000 shares of Common Stock in connection with the conversion of a note with an aggregate principal
amount of $101,300 and conversion price of $0.22 per share. We issued the shares of Common Stock in reliance on the exemption
from registration pursuant to Section 3(a)(9) of the Securities Act.
In
June 2017, we issued 50,000 shares of Common Stock, with a fair value of $12,500, upon the conversion of a note. The shares of
Common Stock were issued in reliance on the exemptions from registration pursuant to Section 3(a)(9) of the Securities
Act.
From
July to August 2017, we issued 729,435 shares of Common Stock to vendors as payment for services rendered. The shares had an aggregate
fair market value of $98,884, based upon a weighted average of $0.14 per share. The fair market value was based on the closing
price of our Common Stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares in reliance
on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
August 29, 2017, in connection with the conversion of a note, we issued 403,739 make whole shares of Common Stock and on September
25, 2017, we issued an additional 160,456 make whole shares of Common Stock. The average conversion price was $0.10 per share.
We issued the shares of Common Stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities
Act.
From
September to October 2017, we issued 576,667 shares of Common Stock to vendors as payment for services rendered. The shares had
an aggregate fair market value of $54,527, based upon a weighted average of $0.09 per share. The fair market value was based on
the closing price of our Common Stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares
in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
September 26, 2017, we entered into a Purchase Agreement with Kodiak Capital Group, LLC (“Kodiak”), effective September
15, 2017. Pursuant to the purchase agreement, we may from time to time, in our discretion, sell shares of our Common Stock to
Kodiak for aggregate gross proceeds of up to $2,000,000. Unless terminated earlier, Kodiak’s purchase commitment automatically
terminates on the earlier of the date on which Kodiak shall have purchased our shares pursuant to the purchase agreement for an
aggregate purchase price of $2,000,000, or September 15, 2019. We have no obligation to sell any shares under the purchase agreement.
In November 2017, pursuant to the purchase agreement with Kodiak, we issued 656,168 shares of Common Stock in exchange for cash
in the amount of $50,000. We issued the shares of Common Stock in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act.
On
November 3, 2017, we offered and sold 4,907,000 shares of Common Stock to three investors at a price of $0.08 per share for net
proceeds of $346,000. We offered and sold the shares of Common Stock in reliance on the exemption from registration pursuant to
Section 4(a)(2) of the Securities Act. We used the proceeds to repay debt and for operations.
Common
Stock Issuances – Accounts Payable
We
issued 400,000 shares of Common Stock in exchange for the cancellation of approximately $30,000 of certain accounts payable owed
by us to one of our vendors. The fair value of the shares of Common Stock was $56,000 at the date of issuance, and as such, we
recorded a loss on debt extinguishment of $26,000. The shares of Common Stock were offered and sold in reliance on the exemptions
from registration pursuant to Section 4(a)(2) of the Securities Act.
Convertible
Notes Issuances
On
June 19, 2017, we issued an unsecured convertible note in the original principal amount of $100,000. In addition, we issued 50,000
shares of our Common Stock and granted a three-year warrant to acquire 330,000 additional shares of our Common Stock at an exercise
price of $0.25 per share. As of June 19, 2017, the issue date, the note was convertible into 441,000 shares of Common Stock. The
offer and sale of the shares of Common Stock, the note, the shares of Common Stock underlying the note, the warrant, and the shares
of Common Stock underlying the warrant is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
From
September 2017 through November 2017, we issued three convertible notes in the aggregate principal amount of $320,000 in exchange
for net proceeds of $200,000, after an OID of $20,000 and financing expenses of $100,000. The notes are unsecured, have maturity
dates between March 2018 and June 2018, and bear interest at a rate of 5% per annum. As of the respective issuance dates, the
notes were convertible into and aggregate of 7,030,478 shares of Common Stock at price of $0.25 per share or 70% of 10-day VWAP
prior to conversion, whichever is lower. The offer and sale of the notes and the issuance of the shares of Common Stock
underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2)
of the Securities Act.
On
August 21, 2017, we issued an unsecured convertible note in the original principal amount of $110,250, with a five percent OID.
The note had a maturity date of March 21, 2018 and was subject to a one-time interest charge equal to five percent (5%) of the
original principal amount. The note was convertible into shares of Common Stock at a conversion price per share of $0.10. As of
August 21, 2017, the note was convertible into 1,102,500 shares of Common Stock. The offer and sale of the notes and the issuance
of the shares of Common Stock underlying the notes is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
December 8, 2017, we issued unsecured convertible notes to EMA and Auctus Fund in the aggregate principal amount of $370,000,
net of an OID of $47,000. The notes bear interest at a rate of 8% per annum and will mature on December 8, 2018. The notes are
convertible into shares of Common Stock at a conversion price equal to the lower of: (i) the closing sale price of the Common
Stock on the principal market on the trading day immediately preceding the closing date, and (ii) 70% of either the lowest sale
price of the Common Stock on the principal market during the ten (10) consecutive trading days including and immediately preceding
the conversion date, or the closing bid price. As of December 8, 2017, the notes were convertible into 7,444,668 shares of Common
Stock. The offer and sale of the notes and the issuance of the shares of Common Stock underlying the notes is and will be exempt
from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
December 14, 2017, we issued an unsecured convertible note to PowerUp Lending in the aggregate principal amount of $105,000, net
of an OID of $15,000. The note matures on September 20, 2018 and bears interest at a rate of 8% per annum. The note is convertible
to shares of Common Stock at a conversion price equal to the variable conversion price, which is 70% multiplied by the lowest
trading price of the Common Stock during the ten (10) trading day period ending on the latest complete trading day prior to the
conversion date. As of December 1, 2017, the note was convertible into 2,112,676 shares of Common Stock. The offer and sale of
the notes and the issuance of the shares of Common Stock underlying the notes is and will be exempt from the registration requirements
of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
Grants
of Warrants
On
April 1, 2017, we granted warrants to a consultant to purchase up to 375,000 shares of Common Stock at an exercise price of $0.12
per share, with a fair value of $26,696. The grant of the warrants and the shares of Common Stock underlying the warrants is and
will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
May 4, 2017, Mr. Cutaia and we agreed to extend the maturity date of a convertible note previously issued in favor of Mr. Cutaia.
As of May 4, 2017, the aggregate outstanding principal amount of the note was $1,198,883. In consideration for extending the maturity
date of the note, we granted to Mr. Cutaia a warrant to purchase up to 1,755,192 shares of Common Stock at an exercise price of
$0.355 per share. The grant of the warrants and the shares of Common Stock underlying the warrants is and will be exempt from
the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
May 22, 2017, we granted warrants to purchase up to 100,000 shares of Common Stock at an exercise price of $0.40 per share, to
one investor in connection with an offering. The grant of the warrants and the shares of Common Stock underlying the warrants
is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
June 19, 2017, we granted warrants to a note holder to purchase up to 330,000 shares of Common Stock. The warrants are exercisable
at an average price of $0.30 per share and will expire starting June 2020. The grant of the warrants and the shares of Common
Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section
4(a)(2) of the Securities Act.
On
August 4, 2017, Mr. Cutaia and we agreed to extend the maturity date of a convertible note previously issued in favor of Mr. Cutaia
from August 4, 2017 to December 4, 2018. As of August 4, 2017, the aggregate outstanding principal amount of the note was $343,326.
In consideration for extending the maturity date of the note, we granted to Mr. Cutaia a warrant to purchase up to 1,329,157 shares
of Common Stock at an exercise price of $0.15 per share. The grant of the warrants and the shares of Common Stock underlying the
warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities
Act.
On
August 4, 2017, Oceanside Strategies, Inc. (“Oceanside”) and we agreed to extend the maturity date of a convertible
note previously issued in favor of Oceanside. As of August 4, 2017, the aggregate outstanding principal amount of the note was
$680,286. In consideration for Oceanside’s agreement to extend the maturity date of the note, we granted to Oceanside a
warrant to purchase up to 1,316,800 shares of Common Stock at an exercise price of $0.15 per share. The grant of the warrants
and the shares of Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 16, 2017, we granted a warrant to purchase up to 275,000 shares of Common Stock at an exercise price of $0.08 per share
to Brian Manduca, in full settlement and release of a disputed, unasserted claim. The value of the warrant was
$10,057.
The grant of the warrants and the shares of Common Stock underlying the warrants is and will be exempt from the registration requirements
of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
September 25, 2017, we granted warrants to a note holder to purchase up to 1,000,000 shares of Common Stock. The warrants are
exercisable at an average price of $0.15 per share and will expire starting in September 2022. The grant of the warrants and the
shares of Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act
pursuant to Section 4(a)(2) of the Securities Act.
On
October 13, 2017, we granted warrants to a note holder to purchase up to 1,000,000 shares of Common Stock. The warrants are exercisable
at an average price of $0.20 per share and will expire starting in September 2022. The grant of the warrants and the shares of
Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to
Section 4(a)(2) of the Securities Act.
On
November 28, 2017, we granted warrants to a note holder to purchase up to 100,000 shares of Common Stock. The warrants are exercisable
at an average price of $0.25 per share and will expire starting in September 2022. The grant of the warrants and the shares of
Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to
Section 4(a)(2) of the Securities Act.
On
December 5, 2017, we granted warrants to note holders to purchase up to 2,400,000 shares of Common Stock. The warrants are exercisable
at an average price of $0.11 per share and will expire starting in December 2022. The grant of the warrants and the shares of
Common Stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to
Section 4(a)(2) of the Securities Act.
Grants
of Stock Options
On
January 10, 2017, we granted non-qualified stock options to employees to purchase up to 5,000,000 shares of Common Stock, and
granted a stock option to a director to purchase up to 2,000,000 shares of Common Stock for services rendered. The total fair
value of these options at the grant date was approximately $520,718, which was based upon the closing price of our Common Stock
as reported by the OTCQB on the grant date. The options have an exercise price of $0.08 per share and vest upon the third anniversary
of the grant date. The grant of the options and the issuance of the shares of Common Stock underlying the options is and will
be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
On
April 28, 2017, we granted stock options to a consultant to purchase up to 1,000,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.24 per share, have a five-year term, and vest on performance. The total fair value of
these options at the grant date was approximately $220,852, which was based upon the closing price of our Common Stock as reported
by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common Stock underlying the
options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities
Act.
On
May 4, 2017, we granted stock options to an employee to purchase up to 500,000 shares of Common Stock for services rendered. The
options have an exercise price of $0.36 per share, have a five-year term, and vest over a period of three years from the grant
date. The total fair value of these options at the grant date was approximately $164,069, which was based upon the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
June 1, 2017, we granted stock options to a consultant to purchase up to 2,000,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.32 per share, have a five-year term, and vest based on performance. The total fair value
of these options at the grant date was approximately $1591,408, which was based upon the closing price of our Common Stock as
reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of Common Stock underlying
the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the
Securities Act.
On
August 1, 2017, we granted stock options to an employee and a consultant to purchase up to 700,000 shares of Common Stock for
services rendered. The options have an exercise price of $0.25 per share, have a five-year term, and vest over a period of three
years from grant date. The total fair value of these options at the grant date was approximately $97,834, which was based upon
the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
August 15, 2017, we granted stock options to an employee and a consultant to purchase up to 1,300,000 shares of Common Stock for
services rendered. The options have an exercise price of $0.25 per share, have a five-year term, and vest over a period of three
years from grant date. The total fair value of these options at the grant date was approximately $131,706, which was based upon
the closing price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance
of the shares of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act.
On
October 2, 2017, we granted stock options to an employee to purchase a total of 400,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.25 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $30,424, which was based upon the closing price
of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
November 22, 2017, we granted stock options to a consultant to purchase a total of 60,000 shares of Common Stock for services
rendered. The options have an exercise price of $0.25 per share, have a five-year term, and vest over a period of six-months from
grant date. The total fair value of these options at the grant date was approximately $6,174, which was based upon the closing
price of our Common Stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares
of Common Stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant
to Section 4(a)(2) of the Securities Act.
On
December 19, 2017, we granted stock options to an employee to purchase a total of 250,000 shares of Common Stock for services
rendered. The options have an exercise price of $0.08 per share, have a five-year term. At the grant date, 50% of the shares immediately
vested, with the remaining 50% of the shares vesting on the anniversary of the grant date. The total fair value of these options
at the grant date was approximately $18,306, which was based upon the closing price of our Common Stock as reported by the OTCQB
on the grant date. The grant of the options and the issuance of the shares of Common Stock underlying the options is and
will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.
Preferred
Stock Issuances
On
February 14, 2017, we entered into a securities purchase agreement with an unaffiliated, accredited investor (the “Series
A Purchaser”) for the sale and issuance of our Series A preferred stock. Pursuant to the terms of the securities purchase
agreement, the Series A Purchaser agreed to purchase up to 1,050,000 shares of Series A preferred stock valued at $1,050,000.
The aggregate amount of consideration to be received by us in exchange for the issuance of 1,050,000 shares Series A preferred
stock was $1,000,000. During the year ended December 31, 2018, we issued 630,000 shares Series A preferred stock pursuant to the
securities purchase agreement and received consideration of $555,000, representing a discount of $75,000. We offered and sold
the shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act. At various times
during fiscal 2017, we issued 2,862,006 shares of Common Stock upon the conversion of these shares of Series A preferred stock.
The 2,862,006 shares of Common Stock had a fair value of $303,641. The shares of Common Stock were offered and sold in reliance
on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.
Fiscal
2016
Common
Stock Issuances
On
May 2, 2016, we granted 600,000 shares of our Common Stock to each Dan Fleyshman and Branden Hampton as compensation for joining
our advisory board. In issuing the shares to these individuals, we relied on the exemption from the registration requirements
of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.
On
April 4, 2016, we issued 500,000 shares of our Common Stock to James P. Geiskopf, one of our directors, as compensation for services
provided and to be provided to us during 2016. Mr. Geiskopf is an accredited investor (as that term is defined in Regulation D
of the Securities Act), and in issuing the shares to him, we relied on the exemption from the registration requirements of the
Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.
On
April 4, 2016, we sold pursuant to private placement subscription agreement, an aggregate of 5,722,222 shares of Common Stock,
at a price of $0.045 per share, for aggregate gross proceeds of $257,500 to four purchasers. One of the purchasers was a U.S.
Person (as that term is defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”))
and an accredited investor (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such person,
we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated
thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard
to the issuance and sale of these securities and did not offer the securities to the public. Three of the purchasers were non-U.S.
persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the securities were offered in
an offshore transaction in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or
Section 4(a)(2) of the Securities Act.
In
May 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 1,224,777 shares of Common Stock, at
a price of $0.045 per share, for aggregate gross proceeds of $77,600 to five purchasers, two of which were U.S. Persons (as that
term is defined in Regulation S of the Securities Act) and accredited investors (as that term is defined in Regulation D of the
Securities Act). In issuing the shares to such persons, we relied on the exemption from the registration requirements of the Securities
Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage
in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities
to the public.
On
May 16, 2016, we sold pursuant to private placement subscription agreements, an aggregate of 12,375,555 shares of Common Stock,
at a price of $0.045 per share, for aggregate gross proceeds of $556,900 to nine purchasers. Six of the purchasers were U.S. Persons
(as that term is defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”)) and accredited
investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on
the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder
and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the
issuance and sale of these securities and did not offer the securities to the public. Three of the purchasers were non-U.S. persons
(as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the securities were offered in an offshore
transaction in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section
4(a)(2) of the Securities Act.
In
June 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 1,100,000 shares of Common Stock, at
a price of $0.045 per share, for aggregate gross proceeds of $49,500 to three purchasers. All of the purchasers were accredited
investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on
the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder
and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the
issuance and sale of these securities and did not offer the securities to the public.
In
July 2016 we sold, pursuant to private placement subscription agreements, an aggregate of 1,650,000 shares of Common Stock, at
a price of $0.045 per share, for aggregate gross proceeds of $74,250 to two purchasers. All of the purchasers were accredited
investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on
the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder
and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the
issuance and sale of these securities and did not offer the securities to the public.
On
July 12, 2016, we granted a stock award of 5,000,000 restricted shares of Common Stock to a consultant. The stock award vests
over a 3-year term in annual increments of 1,666,667 shares of Common Stock. The shares were valued at the trading price of our
Common Stock as of the date the shares vest. During the year ended December 31, 2016, we recognized a cost of $90,500 related
to the 765,000 shares of Common Stock earned during the period.
On
August 15, 2016, we issued 800,000 restricted shares of our Common Stock, as that term is defined by Rule 144 under the Securities
Act, to International Monetary for investor relations services as well as certain corporate finance advisory services rendered.
International Monetary is a U.S. Person (as that term is defined in Regulation S of the Securities Act) and an accredited investor
(as that term is defined in Regulation D of the Securities Act), and in issuing securities to such person, we relied on the exemption
from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section
4(a)(2) of the Securities Act.
On
September 14, 2016, we issued 750,000 shares of our Common Stock to James P. Geiskopf, one of our directors, as compensation for
additional services provided and to be provided to us by Mr. Geiskopf in his role of lead director. Mr. Geiskopf is an accredited
investor (as that term is defined in Regulation D of the Securities Act), and in issuing the shares to him, we relied on the exemption
from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section
4(a)(2) of the Securities Act.
On
September 16, 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 8,763,001 shares of Common
Stock, at a price of $0.06 per share, for aggregate gross proceeds of $525,780 to five purchasers. All of the purchasers were
accredited investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we
relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated
thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard
to the issuance and sale of these securities and did not offer the securities to the public.
On
September 16, 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 500,000 shares of Common Stock,
at a price of $0.05 per share, for aggregate gross proceeds of $25,000 to two purchasers. All of the purchasers were accredited
investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on
the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder
and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the
issuance and sale of these securities and did not offer the securities to the public.
On
December 30, 2016, Oceanside and we agreed to extend the maturity date of a note we previously issued in favor of Oceanside. In
consideration for Oceanside’s agreement to extend the maturity date to August 4, 2017, we granted Oceanside a warrant to
purchase up to 2,429,530 shares of Common Stock at an exercise price of $0.08 per share. The grant of the warrants and the issuance
of the shares of Common Stock is and will be exempt from the registration requirements of the Securities Act in Section 4(a)(2)
of the Securities Act.
At
various dates through fiscal 2016, we issued shares of Common Stock to consultants and vendors as payment for services rendered
that were expensed based on fair market value of the stock on the date of grant, or as the services were performed. We issued
an aggregate of 6,388,334 shares of our Common Stock for services and recorded stock compensation expense of $726,789. The shares
of Common Stock were issued in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
Convertible
Note Issuances
Effective
April 4, 2016, we issued an unsecured convertible note payable to Oceanside in the original principal amount of $680,268.50. The
note superseded and replaced all previous notes and liabilities due to Oceanside for sums Oceanside loaned to us in 2014 and 2015.
The note bears interest at the rate of 12% per annum, compounded annually and had a maturity date of December 4, 2016. In consideration
for Oceanside’s agreement to convert all prior notes from current demand notes and extend the maturity date to December
4, 2016, we granted Oceanside the right to convert up to 30% of the principal amount of the note into shares of Common Stock at
$0.07 per share and we granted a warrant to purchase up to 2,429,530 shares of Common Stock at an exercise price of $0.07 per
share until April 4, 2019. The warrants represent 25% of the amount of the note. The note and warrant was issued to Oceanside,
a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in an offshore transaction
in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(a)(2) of
the Securities Act.
Effective
April 4, 2016, we issued a secured convertible note to Mr. Cutaia in the original principal amount of $343,325.56, which represents
additional sums that Mr. Cutaia advanced to us during the period from December 2015 through March 2016, and is addition to all
pre-existing loans made by, and notes held by Mr. Cutaia. This note bears interest at the rate of 12% per annum, compounded annually.
In consideration for Mr. Cutaia’s agreement to extend the repayment date to August 4, 2017, we granted Mr. Cutaia the right
to convert up to 30% of the amount of the such note into shares of Common Stock at $0.07 per share and granted a warrant to purchase
up to 2,452,325 shares of Common Stock at an exercise price of $0.07 per share, which warrants represent 50% of the amount of
such note. Mr. Cutaia is an accredited investor (as that term is defined in Regulation D of the Securities Act), and in issuing
the note and warrant to him, we relied on the exemption from the registration requirements of the Securities Act provided by Rule
506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. In connection with the issuance of this
note, we entered into a security agreement whereby we granted security over all of our assets as security for repayment of the
note.
Effective
April 4, 2016, we also issued an unsecured convertible note payable to Mr. Cutaia in the amount of $121,875.00, which represents
the amount of the accrued but unpaid salary owed to Mr. Cutaia for the period from December 2015 through March 2016. In consideration
for Mr. Cutaia’s agreement to extend the payment date to August 4, 2017, we granted Mr. Cutaia the right to convert the
amount of the such note into shares of Common Stock at $0.07 per share. This note bears interest at the rate of 12% per annum,
compounded annually. Mr. Cutaia is an accredited investor (as that term is defined in Regulation D of the Securities Act), and
in issuing the note to him, we relied on the exemption from the registration requirements of the Securities Act provided by Rule
506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.
On
December 15, 2016, we entered into an agreement with an investor, whereby we agreed to issue and sell to the investor: (i) a non-interest
bearing note in the principal amount of $250,000, the purchase of which was expected to occur in tranches, (ii) warrants to purchase
shares of Common Stock, and (iii) shares of Common Stock. A one-time interest charge of five percent (5%) of the aggregate principal
amount of the note was incurred on the date of issuance. In addition, there is a 10% OID that is to be prorated based on the consideration
paid by the investor. On December 16, 2016, the first tranche of $80,000 closed and we issued (i) a note in the aggregate principal
amount of $80,000, (ii) a warrant, with a three-year term, to acquire up to 176,000 shares of Common Stock with an exercise price
of $0.25 per share, and (iii) 240,000 shares of our Common Stock. The issuance of the note, the warrant, the shares of Common
Stock underlying the warrant, and the shares of Common Stock is and will be exempt from the registration requirements of the Securities
Act pursuant to Section 4(a)(2) of the Securities Act, in that the notes, the warrant, the shares of Common Stock underlying the
warrant, and the shares of Common Stock were sold or will be sold in transactions not involving any public offering.
Grants
of Stock Options
On
April 4, 2016, we granted stock options to a consultant to purchase up to 1,800,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.07 per share and have a five-year term. At the grant date, 16.67% of the shares immediately
vested, with the remaining shares vesting over 3 years from the grant date. The total fair value of these options at the grant
date was approximately $109,913. We granted these options in reliance on the exemption from registration pursuant to Section
4(a)(2) of the Securities Act.
Effective
May 12, 2016, we issued options to purchase up to 750,000 shares of Common Stock at an exercise price equal to $0.095 per share,
representing the then-current closing price of the stock on the date of issuance, to James P. Geiskopf, a director of our company,
as compensation for services to be provided to us through 2017. The options were subject to a vesting schedule, and fully vested
on December 31, 2017. Mr. Geiskopf is an accredited investor (as that term is defined in Regulation D of the Securities Act),
and in issuing the options to him, we relied on the exemption from the registration requirements of the Securities Act provided
by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.
Effective
May 12, 2016, we issued options to purchase up to 1,250,000 shares of Common Stock at an exercise price equal to $0.095 per share,
representing the then-current closing price of the stock on the date of issuance, to Mr. Cutaia, as additional compensation for
services to be provided to us through 2017 and in consideration for the deferment of agreed-to cash compensation. The options
were subject to a vesting schedule, and became fully vested on December 31, 2017. Mr. Cutaia is an accredited investor (as that
term is defined in Regulation D of the Securities Act), and in issuing the options to him, we relied on the exemption from the
registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2)
of the Securities Act.
On
June 31, 2016, we granted stock options to an employee to purchase up to 300,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.12 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $26,829. We granted these options in reliance
on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
July 15, 2016, we granted stock options to an employee to purchase up to 1,500,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.11 per share, have a five-year term, and vest over a period of three years from grant
date. The total fair value of these options at the grant date was approximately $165,464. We granted these options in reliance
on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
On
August 15, 2016, we granted stock options to a consultant to purchase up to 10,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.11 per share, have a five-year term, and vest on grant date. The total fair value of
these options at the grant date was approximately $1,103. We granted these options in reliance on the exemption from registration
pursuant to Section 4(a)(2) of the Securities Act.
On
November 1, 2016, we granted stock options to an employee to purchase up to 250,000 shares of Common Stock for services rendered.
The options have an exercise price of $0.11 per share and have a five-year term. At the grant date, 50% of the shares immediately
vested on the grant date, with the remaining 50% on the anniversary of the grant date. The total fair value of these options at
the grant date was approximately $24,974. We granted these options in reliance on the exemption from registration pursuant
to Section 4(a)(2) of the Securities Act.
Fiscal
2015
Common
Stock Issuances
On
March 10, 2015, we issued 500,000 shares of Common Stock to Jeff Franklin, at a price of $0.50 per share, in full settlement and
release of a claim he had on certain assets acquired from Songstagram, Inc. The shares were issued pursuant to Rule 506 of Regulation
D promulgated under the Securities Act, as Mr. Franklin was an “accredited investor” as such term is defined in Regulation
D.
We did not engage in any general solicitation
or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.
On
April 29, 2015, we issued 320,000 shares of Common Stock to Art Malone Jr., at a price of $0.50 per share, in full settlement
and release of a claim he had on certain assets acquired from Songstagram, Inc. The shares were issued pursuant to Rule 506 of
Regulation D promulgated under the Securities Act of 1933 as Mr. Malone was an “accredited investor” as such term
is defined in Regulation D.
We did not engage
in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities
to the public.
On
July 18, 2015, we issued an aggregate of 1,215,000 shares of restricted Common Stock as compensation to certain employees, which
were fully vested as of December 31, 2015. We recorded a total of $607,500 of share-based compensation expense during the year
ended December 31, 2015 for these issuances. The issuance of the shares of Common Stock was made pursuant to an exemption from
registration afforded by Section 4(a)(2).
On
July 21, 2015, we issued an aggregate of 600,000 shares of restricted Common Stock as compensation to members of our board of
directors. The shares vest over an 18-month period from the issuance date. On December 1, 2015, we granted an additional 500,000
shares of restricted Common Stock as compensation to a board member, which was immediately fully vested. We recorded a total of
$123,909 of share-based compensation expense during the year ended December 31, 2015 for these grants. In October 2015, we issued
100,000 shares of Common Stock to a vendor for services to be provided pursuant to a services contract extending for 6 months
through April 9, 2016. We also issued a vendor 24,000 shares of Common Stock as compensation. We recorded a total of $34,678 of
share-based compensation expense during the year ended December 31, 2015 for this contract. The issuance of the shares of Common
Stock was made pursuant to an exemption from registration afforded by Section 4(a)(2).
Issuances
of Convertible Notes
Effective
March 20, 2015, we issued a note in the principal amount of $125,000 and a warrant to purchase up to 24,000 shares of Common Stock
to a third-party lender, and a warrant to purchase up to 24,000 shares of Common Stock to DelMorgan Group LLC. The securities
were issued pursuant to Rule 506 of Regulation D promulgated under the Securities Act and/or Section 4(a)(2) of the Securities
Act, as the lender and DelMorgan Group LLC were both “accredited investors” as such term is defined in Regulation
D.
We did not engage in any general solicitation
or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.
On
December 1, 2015, we entered into an Unsecured Convertible Note in favor of Mr. Cutaia in the amount of $189,000, bearing interest
at 12% per annum, representing a portion of Mr. Cutaia’s accrued salary for 2015. The note extends the payment terms to
a new maturity date of on April 1, 2017. The outstanding principal and accrued interest may be converted at Mr. Cutaia’s
discretion into shares of Common Stock at a conversion rate of $0.07. The securities were issued pursuant to Rule 506 of Regulation
D promulgated under the Securities and/or Section 4(a)(2) of the Securities Act, as Mr. Cutaia is an “accredited investor”
as such term is defined in Regulation D.
On
various dates during our fiscal year ended December 31, 2015, Mr. Cutaia loaned to us an aggregate principal amount of $1,203,242.
The loans were unsecured, due on demand, and bore interest at 12% per annum. On December 1, 2015, we entered into a Secured Convertible
Note in favor of Mr. Cutaia, whereby all outstanding principal and accrued interest owed to Mr. Cutaia from previous loans, which
amounted to an aggregate of $1,248,883, were consolidated under a note payable agreement, bearing interest at 12% per annum, and
with a new maturity date of April 1, 2017. In consideration for Mr. Cutaia’s agreement to consolidate the loans and extend
the maturity date, we granted Mr. Cutaia a senior security interest in substantially all current and future assets of ours. Per
the terms of the agreement, at Mr. Cutaia’s discretion, he may convert up to $374,665 of outstanding principal, plus accrued
interest thereon, into shares of Common Stock at a conversion rate of $0.07 per share. On April 4, 2016, $50,000 of this note
was converted into another note (see below). The securities were issued pursuant to Rule 506 of Regulation D promulgated under
the Securities and/or Section 4(a)(2) of the Securities Act, as Mr. Cutaia is an “accredited investor” as such term
is defined in Regulation D.
Grants
of Warrants
On
October 30, 2015, we granted warrants to a consultant to purchase up to 600,000 shares of Common Stock at an exercise price of
$0.50 per share. The warrants expire on October 30, 2020 and were fully vested on the grant date. The total share based compensation
expense recognized relating to these warrants for the year ended December 31, 2015 amounted to $20,719. The grant of the warrants
was made pursuant to an exemption from registration afforded by Section 4(a)(2).
In
2015, we granted warrants to purchase up to 8,920,593 shares of Common Stock to Mr. Cutaia and warrants to purchase up to 799,286
shares of Common Stock to Mr. Psomas as consideration for their extension of their respective notes payable balances to a maturity
date of April 1, 2017. The warrants are immediately vested and have an exercise price of $0.07 and expire on November 30, 2018.
The warrants have been valued using the Black-Scholes valuation model and have an aggregate value of $424,758. The value has been
recorded as a discount to the outstanding notes payable – related parties on the accompanying consolidated balance sheet,
and was being amortized into interest expense over the extended maturity periods of April 1, 2017. The securities were issued
pursuant to Rule 506 of Regulation D promulgated under the Securities and/or Section 4(a)(2) of the Securities Act, as Mr. Cutaia
and Mr. Psomas are “accredited investors” as such term is defined in Regulation D.
Item
16. Exhibits and Financial Statement Schedules.
The
exhibits filed with this registration statement or incorporated by reference from other filings are as follows:
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
|
|
|
|
1.1**
|
|
Form
of Underwriting Agreement by and between A.G.P./Alliance Global Partners
|
2.1
|
|
Share
Exchange Agreement dated as of August 11, 2014 by and among Global System Designs, Inc., bBooth (USA), Inc. (formerly bBooth,
Inc.), and the stockholders of bBooth (USA), Inc. (formerly bBooth, Inc.), which was filed as Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on August 15, 2014, and is incorporated herein by reference thereto.
|
3.1
|
|
Articles
of Incorporation as filed with the Secretary of State of the State of Nevada on November 27, 2012, which was filed as Exhibit
3.1 to our Registration Statement on Form S-1 (File No. 333-187782) filed with the SEC on April 8, 2013, and is incorporated
herein by reference thereto.
|
3.2
|
|
Bylaws,
which was filed as Exhibit 3.2 to our Registration Statement on Form S-1 (File No. 333-187782) filed with the SEC on April
8, 2013, and is incorporated herein by reference thereto.
|
3.3
|
|
Certificate
of Change as filed with the Secretary of State of the State of Nevada on October 6, 2014, which was filed as Exhibit 3.3 to
our Current Report on Form 8-K filed with the SEC on October 22, 2014, and is incorporated herein by reference thereto.
|
3.4
|
|
Articles
of Merger as filed with the Secretary of State of the State of Nevada on October 6, 2014, which was filed as Exhibit 3.4 to
our Current Report on Form 8-K filed with the SEC on October 22, 2014, and is incorporated herein by reference thereto.
|
3.5
|
|
Articles
of Merger as filed with the Secretary of State of the State of Nevada on April 4, 2017, which was filed as Exhibit 3.5 to
our Current Report on Form 8-K filed with the SEC on April 24, 2017, and is incorporated herein by reference thereto.
|
3.6
|
|
Certificate
of Correction as filed with the Secretary of State of the State of Nevada on April 17, 2017, which was filed as Exhibit 3.6
to our Current Report on Form 8-K filed with the SEC on April 24, 2017, and is incorporated herein by reference thereto.
|
4.1
|
|
Common
Stock Purchase Warrant (First Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC, which was filed as Exhibit
4.1 to our Current Report on Form 8-K filed with the SEC on October 2, 2017, and is incorporated herein by reference thereto.
|
4.2
|
|
Common
Stock Purchase Warrant (Second Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC, which was filed as
Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on October 2, 2017, and is incorporated herein by reference
thereto.
|
Exhibit
No.
|
|
Description
|
4.3
|
|
Common
Stock Purchase Warrant (Third Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC, which was filed as Exhibit
4.3 to our Current Report on Form 8-K filed with the SEC on October 2, 2017, and is incorporated herein by reference thereto.
|
4.4
|
|
Promissory
Note (Commitment Note), dated September 15, 2017, issued by the Company in favor of Kodiak Capital Group, LLC, which was filed
as Exhibit 4.4 to our Current Report on Form 8-K filed with the SEC on October 2, 2017, and is incorporated herein by reference
thereto.
|
4.5
|
|
Promissory
Note (First Note), dated September 15, 2017, issued by the Company in favor of Kodiak Capital Group, LLC, which was filed
as Exhibit 4.5 to our Current Report on Form 8-K filed with the SEC on October 2, 2017, and is incorporated herein by reference
thereto.
|
4.6
|
|
Promissory
Note (Second Note), dated September 15, 2017, issued by the Company in favor of Kodiak Capital Group, LLC, which was filed
as Exhibit 4.6 to our Current Report on Form 8-K filed with the SEC on October 2, 2017, and is incorporated herein by reference
thereto.
|
4.7
|
|
Form
of Warrant Certificate dated March 20, 2015, which was filed as Exhibit 10.3 to our Current Report on Form 8-K filed with
the SEC on March 27, 2015, and is incorporated herein by reference thereto.
|
4.8
|
|
12%
Secured Convertible Note dated December 1, 2015, issued by the Company in favor of Rory J. Cutaia, which was filed as Exhibit
10.1 to our Current Report on Form 8-K filed with the SEC on December 7, 2015, and is incorporated herein by reference thereto.
|
4.9
|
|
12%
Unsecured Convertible Note dated December 1, 2015, issued by the Company in favor of Rory J. Cutaia, which was filed as Exhibit
10.3 to our Current Report on Form 8-K filed with the SEC on December 7, 2015, and is incorporated herein by reference thereto.
|
4.10
|
|
12%
Unsecured Note dated December 1, 2015, issued by the Company in favor of Audit Prep Services, LLC, which was filed as Exhibit
10.4 to our Current Report on Form 8-K filed with the SEC on December 7, 2015, and is incorporated herein by reference thereto.
|
4.11
|
|
Form
of 12% Secured Convertible Note dated April 4, 2016, issued by the Company in favor of Rory J. Cutaia, which was filed as
Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on April 11, 2016, and is incorporated herein by reference
thereto.
|
4.12
|
|
Form
of Warrant Certificate dated April 4, 2016 issued to Rory J. Cutaia, which was filed as Exhibit 10.4 to our Current Report
on Form 8-K filed with the SEC on April 11, 2016, and is incorporated herein by reference thereto.
|
4.13
|
|
Form
of 12% Unsecured Convertible Note dated April 4, 2016, issued by the Company in favor of Rory J. Cutaia, which was filed as
Exhibit 10.5 to our Current Report on Form 8-K filed with the SEC on April 11, 2016, and is incorporated herein by reference
thereto.
|
4.14
|
|
Form
of 12% Unsecured Convertible Note dated April 4, 2016, issued by the Company in favor of Oceanside Strategies, Inc., which
was filed as Exhibit 10.6 to our Current Report on Form 8-K filed with the SEC on April 11, 2016, and is incorporated herein
by reference thereto.
|
4.15
|
|
Form
of Warrant Certificate dated April 4, 2016 issued to Oceanside Strategies, Inc., which was filed as Exhibit 10.7 to our Current
Report on Form 8-K filed with the SEC on April 11, 2016, and is incorporated herein by reference thereto.
|
4.16
|
|
Amendment
to 12% Unsecured Convertible Note dated December 30, 2016, issued by the Company in favor of Oceanside Strategies, Inc., which
was filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on January 9, 2017, and is incorporated herein
by reference thereto.
|
Exhibit
No.
|
|
Description
|
4.17
|
|
Warrant
Certificate dated December 30, 2016 issued to Oceanside Strategies, Inc., which was filed as Exhibit 10.3 to our Current Report
on Form 8-K filed with the SEC on January 9, 2017, and is incorporated herein by reference thereto.
|
4.18
|
|
Certificate
of Designations, Preferences and Rights of the Series A Convertible Preferred Stock as filed with the Secretary of State of
the State of Nevada on February 13, 2017, which was filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the
SEC on February 21, 2017, and is incorporated herein by reference thereto.
|
4.19
|
|
Amendment
to Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock as filed with the Secretary
of State of the State of Nevada on July 28, 2017, which was filed as Exhibit 10.37 to our Quarterly Report on Form 10-Q filed
with the SEC on August 10, 2017, and is incorporated herein by reference thereto.
|
4.20
|
|
8%
Unsecured Convertible Note dated December 5, 2017 issued by the Company in favor of EMA Financial, LLC, which was filed as
Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein by reference
thereto.
|
4.21
|
|
Common
Stock Purchase Warrant dated December 5, 2017 issued to EMA Financial, LLC, which was filed as Exhibit 10.3 to our Current
Report on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein by reference thereto.
|
4.22
|
|
8%
Unsecured Convertible Note dated December 5, 2017 issued by the Company in favor of Auctus Fund, LLC, which was filed as Exhibit
10.5 to our Current Report on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein by reference thereto.
|
4.23
|
|
Common
Stock Purchase Warrant dated December 5, 2017 issued to Auctus Fund, LLC, which was filed as Exhibit 10.6 to our Current Report
on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein by reference thereto.
|
4.24
|
|
8%
Unsecured Convertible Note dated December 13, 2017 issued by the Company in favor of PowerUp Lending Group, LTD., which was
filed as Exhibit 10.8 to our Current Report on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein
by reference thereto.
|
4.25
|
|
8%
Unsecured Convertible Note dated January 11, 2018 issued by the Company in favor of EMA Financial, LLC, which was filed as
Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on January 26, 2018, and is incorporated herein by reference
thereto.
|
4.26
|
|
Common
Stock Purchase Warrant dated January 11, 2018 issued to EMA Financial, LLC, which was filed as Exhibit 10.3 to our Current
Report on Form 8-K filed with the SEC on January 26, 2018, and is incorporated herein by reference thereto.
|
4.2 7
|
|
8%
Unsecured Convertible Note dated January 10, 2018 issued by the Company in favor of Auctus Fund, LLC, which was filed as Exhibit
10.5 to our Current Report on Form 8-K filed with the SEC on January 26, 2018, and is incorporated herein by reference thereto.
|
4.2 8
|
|
Common
Stock Purchase Warrant dated January 10, 2018 issued to Auctus Fund, LLC, which was filed as Exhibit 10.6 to our Current Report
on Form 8-K filed with the SEC on January 26, 2018, and is incorporated herein by reference thereto.
|
4.2 9
|
|
Amendment
to Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock as filed with the Secretary
of State of the State of Nevada on September 1, 2017
, which was filed as Exhibit 4.27 to our Registration Statement
on Form S-1 (File No. 333-226840) filed with the SEC on August 14, 2018, and is incorporated herein by reference thereto.
|
4. 30
|
|
Certificate
of Withdrawal of Certificate of Designation of Series A Convertible Preferred Stock as filed with the Secretary of State of
the State of Nevada on August 10, 2018
, which was filed as Exhibit 4.28 to our Registration Statement on Form S-1
(File No. 333-226840) filed with the SEC on August 14, 2018, and is incorporated herein by reference thereto.
|
5.1**
|
|
Opinion
of Baker & Hostetler LLP as to the legality of the securities registered hereby
|
10.1
|
|
2014
Stock Option Plan, which is filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 22, 2014,
and is incorporated herein by reference thereto.
|
Exhibit
No.
|
|
Description
|
10.3
|
|
Employment
Agreement dated November 1, 2014, by and between the Company and Rory Cutaia, which was filed as Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on November 24, 2014, and is incorporated herein by reference thereto.
|
10.4
|
|
Secured
Promissory Note dated December 11, 2014 issued by Songstagram, Inc. in favor of the Company, which was filed as Exhibit 10.1
to our Current Report on Form 8-K filed with the SEC on December 17, 2014, and is incorporated herein by reference thereto.
|
10.5
|
|
Secured
Promissory Note dated December 11, 2014 issued by Rocky Wright in favor of the Company, which was filed as Exhibit 10.2 to
our Current Report on Form 8-K filed with the SEC on December 17, 2014, and is incorporated herein by reference thereto.
|
10.6
|
|
Security
Agreement dated December 11, 2014 executed by Songstagram, Inc. in favor of the Company, which was filed as Exhibit 10.3 to
our Current Report on Form 8-K filed with the SEC on December 17, 2014, and is incorporated herein by reference thereto.
|
10.7
|
|
Security
Agreement dated December 11, 2014 executed Rocky Wright in favor of the Company, which was filed as Exhibit 10.4 to our Current
Report on Form 8-K filed with the SEC on December 17, 2014, and is incorporated herein by reference thereto.
|
10.8
|
|
Acquisition
Agreement dated January 20, 2015 among Songstagram, Inc., Rocky Wright, and us, which was filed as Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on January 26, 2015, and is incorporated herein by reference thereto.
|
10.9
|
|
Surrender
of Collateral, Consent to Strict Foreclosure and Release Agreement dated January 20, 2015, by and between Songstagram, Inc.
and the Company, which was filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on January 26, 2015,
and is incorporated herein by reference thereto.
|
10.10
|
|
Form
of Termination Agreement and Release dated January 20, 2015, which was filed as Exhibit 10.3 to our Current Report on Form
8-K filed with the SEC on January 26, 2015, and is incorporated herein by reference thereto.
|
10.11
|
|
Settlement
and Release Agreement dated February 6, 2015, by and among Songstagram, Inc., Jeff Franklin, and the Company, which was filed
as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 9, 2015, and is incorporated herein by reference
thereto.
|
10.12
|
|
Engagement
letter dated March 20, 2015, by and among DelMorgan Group LLC, Globalist Capital, LLC, and the Company, which was filed as
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 27, 2015, and is incorporated herein by reference
thereto.
|
10.13
|
|
Form
of Note Purchase Agreement dated March 20, 2015, which was filed as Exhibit 10.2 to our Current Report on Form 8-K filed with
the SEC on March 27, 2015, and is incorporated herein by reference thereto.
|
10.14
|
|
Security
Agreement issued by the Company in favor of Rory J. Cutaia, which was filed as Exhibit 10.2 to our Current Report on Form
8-K filed with the SEC on December 7, 2015, and is incorporated herein by reference thereto.
|
10.15
|
|
Form
of Stock Repurchase Agreement, which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on February
16, 2016, and is incorporated herein by reference thereto.
|
10.16
|
|
Form
of Private Placement Subscription Agreement, which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with
the SEC on April 11, 2016, and is incorporated herein by reference thereto.
|
10.17
|
|
Form
of Security Agreement issued by the Company in favor of Rory J. Cutaia, which was filed as Exhibit 10.3 to our Current Report
on Form 8-K filed with the SEC on April 11, 2016, and is incorporated herein by reference thereto.
|
Exhibit
No.
|
|
Description
|
10.18
|
|
Form
of Private Placement Subscription Agreement, which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with
the SEC on May 19, 2016, and is incorporated herein by reference thereto.
|
10.19
|
|
Form
of Option Agreement for Messrs. Geiskopf and Cutaia, which was filed as Exhibit 10.2 to our Current Report on Form 8-K filed
with the SEC on May 19, 2016, and is incorporated herein by reference thereto.
|
10.20
|
|
Term
Sheet dated July 12, 2016, between Nick Cannon and the Company, which was filed as Exhibit 10.1 to our Current Report on Form
8-K filed with the SEC on May 19, 2016, and is incorporated herein by reference thereto.
|
10.21
|
|
Form
of Stock Option Agreement between Jeffrey R. Clayborne and the Company, which was filed as Exhibit 10.2 to our Current Report
on Form 8-K filed with the SEC on May 19, 2016, and is incorporated herein by reference thereto.
|
10.22
|
|
Form
of Consulting Agreement dated August 8, 2016, by and between International Monetary and the Company, which was filed as Exhibit
10.1 to our Current Report on Form 8-K filed with the SEC on August 15, 2016, and is incorporated herein by reference thereto.
|
10.23
|
|
Form
of Private Placement Subscription Agreement, which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with
the SEC on September 19, 2016, and is incorporated herein by reference thereto.
|
10.24
|
|
Securities
Purchase Agreement dated February 13, 2017, by and between the Company and certain purchasers named therein, which was filed
as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on February 21, 2017, and is incorporated herein by reference
thereto.
|
10.25
|
|
Equity
Purchase Agreement, as corrected, dated September 15, 2017, by and between the Company and Kodiak Capital Group, LLC, which
was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 27, 2017, and is incorporated herein
by reference thereto.
|
10.26
|
|
Registration
Rights Agreement dated September 15, 2017, by and between the Company and Kodiak Capital Group, LLC, which was filed as Exhibit
10.2 to our Current Report on Form 8-K filed with the SEC on October 2, 2017, and is incorporated herein by reference thereto.
|
10.27
|
|
Securities
Purchase Agreement dated December 5, 2017, by and between the Company and EMA Financial, LLC, which was filed as Exhibit 10.1
to our Current Report on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein by reference thereto.
|
10.28
|
|
Securities
Purchase Agreement, dated December 5, 2017, by and between the Company and Auctus Fund, LLC, which was filed as Exhibit 10.4
to our Current Report on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein by reference thereto.
|
10.29
|
|
Securities
Purchase Agreement dated December 13, 2017, by and between the Company and PowerUp Lending Group, LTD, which was filed as
Exhibit 10.7 to our Current Report on Form 8-K filed with the SEC on December 14, 2017, and is incorporated herein by reference
thereto.
|
10.30
|
|
Securities
Purchase Agreement dated January 11, 2018, by and between the Company and EMA Financial, LLC, which was filed as Exhibit 10.1
to our Current Report on Form 8-K filed with the SEC on January 26, 2018, and is incorporated herein by reference thereto.
|
10.31
|
|
Securities
Purchase Agreement, dated January 10, 2018, by and between the Company and Auctus Fund, LLC, which was filed as Exhibit 10.4
to our Current Report on Form 8-K filed with the SEC on January 26, 2018, and is incorporated herein by reference thereto.
|
10.32
|
|
SuiteCloud
Developer Network Agreement, dated January 2, 2018, by and between the Company and Oracle America, Inc., which was filed as
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on April 23, 2018, and is incorporated herein by reference
thereto.
|
10.33
|
|
Lease
Agreement, dated June 22, 2017, by and between La Park La Brea B LLC and the Company
, which was filed as Exhibit
10.33 to our Registration Statement on Form S-1 (File No. 333-226840) filed with the SEC on August 14, 2018, and is incorporated
herein by reference thereto.
|
10.34
|
|
Renewal
Amendment of Lease Agreement, dated May 1, 2018, by and between La Park La Brea B LLC and the Company
, which was
filed as Exhibit 10.34 to our Registration Statement on Form S-1 (File No. 333-226840) filed with the SEC on August 14, 2018,
and is incorporated herein by reference thereto.
|
Exhibit
No.
|
|
Description
|
10.35
|
|
Marketo
LaunchPoint Accelerate Program Agreement, dated April 1, 2018, by and between the Company and Marketo, Inc.
, which
was filed as Exhibit 10.35 to our Registration Statement on Form S-1 (File No. 333-226840) filed with the SEC on August 14,
2018, and is incorporated herein by reference thereto.
|
10.36
|
|
Securities
Purchase Agreement, dated October 19, 2018, which was filed as Exhibit 10.36 to our Current Report on Form 8-K filed with
the SEC on October 25, 2018, and is incorporated herein by reference thereto.
|
10.37
|
|
10%
Original Issue Discount Promissory Note, dated October 19, 2018, which was filed as Exhibit 10.37 to our Current Report on
Form 8-K filed with the SEC on October 25, 2018, and is incorporated herein by reference thereto.
|
10.38
|
|
Agreement
and Plan of Merger, dated November 8, 2018, by and among the Company, Sound Concepts, Inc., NF Merger Sub, Inc., NF Acquisition
Company, LLC, the shareholders of Sound Concepts, Inc., and the shareholders’ representative, which was filed as Exhibit
10.1 to our Current Report on Form 8-K filed with the SEC on November 14, 2018, and is incorporated herein by reference thereto.
|
10.39
|
|
Letter
Agreement dated November 8, 2018, by and among the Company, Sound Concepts, Inc., NF Merger Sub, Inc., NF Acquisition Company,
LLC, the shareholders of Sound Concepts, Inc., and the shareholders’ representative, which was filed as Exhibit 10.2
to our Current Report on Form 8-K filed with the SEC on November 14, 2018, and is incorporated herein by reference thereto.
|
10.40
|
|
Letter
Agreement dated November 12, 2018, by and among the Company, Sound Concepts, Inc., NF Merger Sub, Inc., NF Acquisition Company,
LLC, the shareholders of Sound Concepts, Inc., and the shareholders’ representative, which was filed as Exhibit 10.2
to our Current Report on Form 8-K filed with the SEC on November 14, 2018, and is incorporated herein by reference thereto.
|
14.1
|
|
Code
of Ethics and Business Conduct for Directors, Senior Officers and Employees of Corporation, which was filed as Exhibit 14.1
to our Current Report on Form 8-K filed with the SEC on October 22, 2014, and is incorporated herein by reference thereto.
|
21.1
|
|
Subsidiaries
of the Registrant
, which was filed as Exhibit 21.1 to our Registration Statement on Form S-1(File No. 333-226840)
filed with the SEC on August 14, 2018, and is incorporated herein by reference thereto.
|
23.1*
|
|
Consent
of Weinberg & Company, P.A.
(with respect to the financial statements of nFüsz,
Inc. as of December 31, 2017 and 2016 and for the years then ended)
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23.2*
|
|
Consent
of Weinberg & Company, P.A. (with respect to the financial statements of Sound Concepts,
Inc. as of December 31, 2017 and 2016 and for the years then ended)
|
23.3**
|
|
Consent
of Baker & Hostetler LLP (included on Exhibit 5.1)
|
24
|
|
Power
of Attorney (included on signature page)
|
101.INS*
|
|
XBRL
Instance Document
|
101.SCH*
|
|
XBRL
Taxonomy Extension Schema
|
101.CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
101.DEF*
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
101.LAB*
|
|
XBRL
Taxonomy Extension Label Linkbase
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
*
|
Filed
herewith.
|
|
|
**
|
To
the extent applicable, to be filed by an amendment to this registration statement or incorporated by reference pursuant to
a Current Report on Form 8-K in connection with the offering of securities registered hereunder.
|
Item
17. Undertakings.
(b)
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(i)
The undersigned registrant hereby undertakes that:
|
(1)
|
the
information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time it was declared effective; and
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|
|
|
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(2)
|
each
post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bone fide
offering thereof.
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SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, nFüsz, Inc. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in Los Angeles, California, on December 10 , 2018.
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NFÜSZ,
INC.
|
|
|
|
|
By:
|
/s/
Rory J. Cutaia
|
|
|
Rory
J. Cutaia
|
|
|
Chairman
of the Board, Chief Executive Officer, President, Secretary, and Treasurer (Principal Executive Officer)
|
|
|
|
|
By:
|
/s/
Jeffrey R. Clayborne
|
|
|
Jeffrey
R. Clayborne Chief Financial Officer (Principal Financial and Accounting Officer)
|
SIGNATURES
AND POWER OF ATTORNEY
NOW
ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Rory J. Cutaia, as
his true and lawful attorney-in-fact and agents with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and
to sign any registration statement for the same offering covered by this registration statement that is to be effective on filing
pursuant to Rule 462(b) promulgated under the Securities Act and all post-effective amendments thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of the, full power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Rory J. Cutaia
|
|
Chairman
of the Board,
|
|
December
10
, 2018
|
Rory
J. Cutaia
|
|
Chief
Executive Officer, President, Secretary, and Treasurer (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Jeffrey R. Clayborne
|
|
Chief
Financial Officer
|
|
December
10
, 2018
|
Jeffrey
R. Clayborne
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
James P. Geiskopf
|
|
Lead
Director
|
|
December
10
, 2018
|
James
P. Geiskopf
|
|
|
|
|
|
|
|
|
|
/s/
Phillip J. Bond
|
|
Director
|
|
December
10, 2018
|
Phillip
J. Bond
|
|
|
|
|
|
|
|
|
|
/s/
Kenneth S. Cragun
|
|
Director
|
|
December
10, 2018
|
Kenneth
S. Cragun
|
|
|
|
|