The
Company has the following outstanding notes payable as of December 31, 2020:
Note
|
|
Issuance Date
|
|
Maturity Date
|
|
Interest
Rate
|
|
|
Balance at
December 31, 2020
|
|
Note A
|
|
April 17, 2020
|
|
April 17, 2022
|
|
|
1.00
|
%
|
|
$
|
1,218,000
|
|
Note B
|
|
May 15, 2020
|
|
May 15, 2050
|
|
|
3.75
|
%
|
|
|
150,000
|
|
Note C
|
|
May 1, 2020
|
|
May 1, 2022
|
|
|
3.75
|
%
|
|
|
90,000
|
|
Note D
|
|
September 4, 2020
|
|
October 1, 2020
|
|
|
0.14
|
%
|
|
|
-
|
|
Total notes payable
|
|
|
|
|
|
|
|
|
|
$
|
1,458,000
|
|
|
(A)
|
On
April 17, 2020, the Company received loan proceeds in the amount of $1,218,000 under
the Paycheck Protection Program (“PPP”). The PPP, established as part of
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides
for loans to qualifying businesses for amounts up to 2.5 times of the average monthly
payroll expenses of the qualifying business. The loans and accrued interest are forgivable
after the earlier of (i) 24 weeks after the loan disbursement date and (ii) December
31, 2020 as long as the borrower uses the loan proceeds for eligible purposes, including
payroll, benefits, rent and utilities, and maintains its payroll levels.
The
unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for
the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company
currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure
you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole
or in part. As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release
is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded. The
terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach
of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan
as of December 31, 2020.
On
January 4, 2020 the entire note and accrued interest was forgiven and will be accounted as a gain in fiscal 2021.
|
|
|
|
|
(B)
|
On
May 15, 2020, the Company executed an unsecured loan with the U.S. Small Business Administration
(SBA) under the Economic Injury Disaster Loan program in the amount of $150,000. The
loan is secured by all tangible and intangible assets of the Company and payable over
30 years at an interest rate of 3.75% per annum. Installment payments, including principal
and interest, will begin on May 15, 2021.
As
part of the loan, the Company also received an advance of $10,000 from the SBA. While the SBA refers to this program as
an advance, it was written into law as a grant. This means that the amount given through this program does not need to
be repaid. As a result, the Company accounted this $10,000 as part of “Other Income” in the accompanying Statement
of Operations.
|
|
|
|
|
(C)
|
As
a result of the acquisition of Solofire in September 2020, the Company assumed Solofire’s PPP loan of $90,000 it obtained
in May 2020 under the Paycheck Protection Program (“PPP”) (see discussion “a”). The Company is currently
in the process of applying for the forgiveness of the PPP loan.
|
|
|
|
|
(D)
|
On
September 4, 2020, Verb Acquisition issued a note payable to the owners of SoloFire, in the amount of $1,885,000, as adjusted,
as part of the consideration related to the acquisition of SoloFire. The note bears interest at a rate of 0.14% per annum, and
was paid in full on October 1, 2020.
|
10.
|
CONVERTIBLE
SERIES A PREFERRED STOCK and WARRANT OFFERING
|
On
August 14, 2019, we entered into the SPA with the Preferred Purchasers, pursuant to which we agreed to issue and sell to the Preferred
Purchasers up to an aggregate of 6,000 shares of Series A Preferred Stock (which, at the initial conversion price, are convertible
into an aggregate of up to approximately 3.87 million shares of Common Stock) and the August Warrants to purchase up to an equivalent
number of shares of Common Stock. We closed the offering on August 14, 2019, and issued 5,030 shares of Series A Preferred Stock
and granted the August Warrants to purchase up to 3,245,162 shares of Common Stock in connection therewith. We received proceeds
of $4,688,000, net of direct costs of $342,000. The offering was made in reliance upon an exemption from the registration requirements
of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereof, and Rule 506
promulgated thereunder, as a transaction by an issuer not involving any public offering.
The
SPA grants the Preferred Purchasers a right to participate, up to a certain amount, in subsequent financings for a period of 24
months. The SPA also prohibits us from entering into any agreement to issue, or announcing the issuance or proposed issuance,
of any shares of Common Stock or Common Stock equivalents for a period of 90 days after the date that the registration statement,
registering the shares issuable upon conversion of the Series A Preferred Stock and exercise of the August Warrants, is declared
effective. We are also prohibited, until the date that the Preferred Purchasers no longer collectively hold at least 20% of the
then-outstanding shares of Series A Preferred Stock issued pursuant to the SPA, from entering into an agreement to effect any
issuance by us of Common Stock or Common Stock equivalents involving certain variable rate transactions. We also cannot enter
into agreements related to “at-the-market” transactions for a period of 12 months. At the later of (i) the date that
the August Warrants are fully exercised, and (ii) 12 months from the date of the SPA, we cannot draw down on any existing or future
agreement with respect to “at-the-market” transactions if the sale of the shares in such transactions has a per share
purchase price that is less than $3.76 (two times the exercise price of the Warrants).
On
September 16, 2019, we filed a registration statement on Form S-3 with the SEC to register the shares of Common Stock underlying
the Series A Preferred Stock and the August Warrants. The registration statement was declared effective on September 19, 2019.
We have agreed to keep such registration statement continuously effective for a period of 24 months.
Each
share of Series A Preferred Stock is convertible, at any time and from time to time from and after the issuance date, at the holder’s
option in to that number of shares of Common Stock equal to the stated value per share (or $1,000) divided by the conversion price
(initially, $1.55); thus, initially, each share of Series A Preferred Stock is convertible into approximately 645 shares of Common
Stock. In certain circumstances, the Series A Preferred Stock is mandatorily convertible into shares of Common Stock after the
Company obtains stockholder approval to issue a number of shares of Common Stock in excess of 19.99% and the closing price of
the Common Stock is 100% greater than the then-base conversion price on each trading day for any 20 trading days during a consecutive
30-trading-day period.
The
holders of the Series A Preferred Stock have no voting rights. However, we cannot, without the affirmative vote of the holders
of a majority of the then-outstanding shares of the Series A Preferred Stock, (a) alter or change adversely the rights, preferences,
or restrictions given to the Series A Preferred Stock or alter or amend the Certificate of Designation, (b) authorize or create
any class of stock ranking as to dividends, redemption, or distribution of assets upon a liquidation senior to, or otherwise pari
passu with, the Series A Preferred Stock, (c) amend our Articles of Incorporation, or other charter documents in any manner that
materially and adversely affects any rights of the holders, (d) increase the number of authorized shares of Series A Preferred
Stock, or (e) enter into any agreement with respect to any of the foregoing.
The
holders of Series A Preferred Stock cannot convert the Series A Preferred Stock if, after giving effect to the conversion, the
number of shares of our Common Stock beneficially held by the holder (together with such holder’s affiliates) would be in
excess of 4.99% (or, upon election by a holder prior to the issuance of any shares, 9.99% of the number of shares of Common Stock
issued and outstanding immediately after giving effect to the issuance of any shares of Common Stock issuance upon conversion
of the Series A Preferred Stock held by the holder). The conversion price of the Series A Preferred Stock is subject to certain
customary adjustments, including upon certain subsequent equity sales and rights offerings.
We
are also prevented from issuing shares of Common Stock upon conversion of the Series A Preferred Stock or exercise of the August
Warrants, which, when aggregated with any shares of Common Stock issued on or after the issuance date and prior to such conversion
date or exercise date, as applicable (i) in connection with any conversion of the Series A Preferred Stock issued pursuant to
the SPA, (ii) in connection with the exercise of any August Warrants issued pursuant to the SPA, and (iii) in connection with
the exercise of any warrants issued to any registered broker-dealer as a fee in connection with the issuance of the securities
pursuant to the SPA, would exceed 4,459,725 shares of Common Stock (the “19.99% Cap”). This prohibition will terminate
upon the approval by our stockholders of a release from such 19.99% Cap.
The
August Warrants have an initial exercise price of $1.88 per share, subject to customary adjustments, are exercisable six months
after the date of issuance, and will expire five years from the date of issuance. The exercise price is subject to certain customary
adjustments, including upon certain subsequent equity sales and rights offerings. In addition, the August Warrants also included
a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As a result, the
August Warrants are accounted as derivative liability with a fair value upon issuance in 2019 of $6,173,000, of which,
$4,688,000 was recorded as a reduction to additional paid in capital while the remaining fair value of $1,485,000 was accounted
for as a financing cost during the year ended December 31, 2019.
During
the year ended December 31, 2020, in preparation for private placement offering, the Company separately negotiated with certain
Series A stockholders to waive their rights in order not to ratchet down the conversion price of their Series A preferred shares.
In return for the waiver, the Company granted these Series A stockholders warrants to purchase 2,303,861 shares of Common Stock
valued at $3,951,000 (see Note 12).
During
the year ended December 31, 2020 and 2019, 2,390 and 634 shares of Preferred Stock were converted into 1,768,909 and 409,032 shares
of Common Stock. As of December 31, 2020, 1,706 shares Series A Preferred stock are 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 that do not have fixed settlement provisions are deemed to be derivative instruments. The Company issued
certain convertible note whose conversion price contains reset provisions based on a discounted 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 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 feature of the notes and the fundamental transaction clause of these warrants are accounted for
as a derivative liability in accordance with ASC 815 and are being re-measured every reporting period with the change in value
reported in the statement of operations.
The
derivative liabilities were valued using a Binomial pricing model with the following average assumptions:
|
|
December 31, 2020
|
|
|
Upon
Issuance 2020
|
|
|
December 31, 2019
|
|
|
Upon
Issuance 2019
|
|
Stock Price
|
|
$
|
1.65
|
|
|
$
|
1.70
|
|
|
$
|
1.55
|
|
|
$
|
4.78
|
|
Exercise Price
|
|
$
|
1.41
|
|
|
$
|
1.55
|
|
|
$
|
1.88
|
|
|
$
|
3.76
|
|
Expected Life
|
|
|
3.17
|
|
|
|
5.0
|
|
|
|
3.53
|
|
|
|
2.75
|
|
Volatility
|
|
|
107
|
%
|
|
|
212
|
%
|
|
|
216
|
%
|
|
|
192
|
%
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-Free Interest Rate
|
|
|
0.23
|
%
|
|
|
2.47
|
%
|
|
|
1.64
|
%
|
|
|
1.99
|
%
|
Warrants
|
|
$
|
8,266,000
|
|
|
$
|
3,951,000
|
|
|
$
|
5,048,000
|
|
|
$
|
6,173,000
|
|
Convertible Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
388,000
|
|
Total Fair Value
|
|
$
|
8,266,000
|
|
|
$
|
3,951,000
|
|
|
$
|
5,048,000
|
|
|
$
|
6,561,000
|
|
The
expected life of the note and warrants was based on the remaining contractual term of the instruments. The Company uses the historical
volatility of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on
the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free
interest rate was based on rates established by the Federal Reserve Bank.
As
of December 31, 2018, the outstanding fair value of the derivative liability amounted to $2,576,000.
During
the year ended December 31, 2019, the Company recorded derivative liabilities of $388,000 as a result of the issuance of a convertible
note and $6,173,000 as a result of the issuance of the August Warrants issued as part of the Company’s Series A Preferred
Stock offering, or an aggregate of $6,561,000. The Company recorded a charge of ($1,862,000) to account for the changes in the
fair value of these derivative liabilities for the year ended December 31, 2019. In addition, the Company also recorded a gain
on debt extinguishment of $2,227,000 to account for the extinguishment of derivative liabilities associated with the settlement
of all convertible debt accounted as derivative liability. At December 31, 2019, the fair value of the derivative liability amounted
to $5,048,000.
During
the year ended December 31, 2020, the Company recorded a derivative liability of $3,951,000 as a result of the issuance of 2,303,861
warrants to acquire common stock to Series A Preferred stockholders that contained a fundamental transaction clause (see Note
12). The Company recorded a charge of ($574,000) to account for the changes in the fair value of these derivative liabilities
during year ended December 31, 2020. In addition, 95,000 shares of the Series A warrants that were accounted as derivative liability
were exercised. As result, the Company computed the fair value of the corresponding derivate liability one last time which amounted
to $159,000 and the pursuant to current accounting guidelines, the extinguishment was accounted as part of equity.
At
December 31, 2020, the fair value of the derivative liability amounted to $8,266,000. The details of derivative liability transactions
for the year ended December 31, 2020 are as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Beginning balance
|
|
$
|
5,048,000
|
|
|
$
|
2,576,000
|
|
Fair value upon issuance of notes payable and/or warrants
|
|
|
3,951,000
|
|
|
|
6,561,000
|
|
Change in fair value
|
|
|
(574,000
|
)
|
|
|
(1,862,000
|
)
|
Extinguishment
|
|
|
(159,000
|
)
|
|
|
(2,227,000
|
)
|
Ending balance
|
|
$
|
8,266,000
|
|
|
$
|
5,048,000
|
|
The
following were Common Stock transactions during the year ended December 31, 2020:
Sale
of common stock from private placement
On
February 5, 2020, the Company initiated a private placement, which is for the sale and issuance of up to five million shares of
its Common Stock at a per-share price of $1.20, which amount represents a 20% discount to the $1.50 closing price of the Company’s
Common Stock on that day.
The
Company’s private placement is exempt from the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the “Securities Act”), in reliance on Section 4(a)(2) thereof and/or Rule 506 of Regulation D and Regulation
S thereunder, each as promulgated by the SEC. The Company’s private placement was managed by the Company; however, in connection
with the closings, the Company paid a non-U.S. based consultant (i) as a cash fee, an aggregate amount of $499,000 (or 10% of
the gross proceeds of the closings), (ii) as a non-accountable expense allowance, an aggregate of $100,000 (or 2% of the gross
proceeds of the closings), (iii) five-year warrants, exercisable for an aggregate of up to 416,199 shares of the Company’s
Common stock at a cash-only exercise price of $1.92 per share, and (iv) 100,000 shares of the Company’s Common Stock. The
Company made the above-referenced payments only in respect of that portion of the gross proceeds from the closings for investors
introduced to the Company by the consultant. In addition, the Company also incurred various expenses totaling $42,000 that are
directly related to this private placement.
As
a result of this private placement, from February through April 2020, a total of 4,237,833 shares of Common Stock were sold in
exchange for cash proceeds of $4,444,000, net of direct fees and expenses in the aggregate of $641,000.
In
preparation for this private placement offering, the Company separately negotiated with certain Series A stockholders to waive
their rights in order not to ratchet down the conversion price of their Series A preferred shares (see Note 10). In return for
the waiver, the Company granted these Series A stockholders warrants to purchase 2,303,861 shares of Common Stock. The warrants
are exercisable in August 2020, expire in 5 years and are exercisable at $1.20 per share, as adjusted. The exercise price is subject
to certain customary adjustments, including subsequent equity sales and rights offerings. In addition, the warrants also included
a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As a result of this
fundamental transaction provision, the warrants were accounted as derivative liability with a fair value upon issuance of $3,951,000
upon issuance. The Company accounted the fair value of $3,951,000 as a deemed dividend since if the down round provision of the
Series A preferred shares had occurred, it would have been accounted as a deemed dividend due to it providing additional value
to the Series A stockholders.
Sale
of common stock from public offering
On
July 24, 2020, the Company concluded its public offering pursuant to a registration statement on Form S-1 (File No. 333-239055)
and issued and sold 12,545,453 shares of Common Stock (which included 1,636,363 shares of Common Stock sold pursuant to the exercise
by the underwriters of an overallotment option). The net proceeds to the Company, after deducting the underwriting discounts and
commissions and direct offering expenses was $12,337,000.
Shares
Issued for Services
During
the year ended December 31, 2020, the Company issued 1,007,583 shares of Common Stock to vendors for services rendered and to
be rendered with a fair value of $1,190,000. These shares of Common Stock were valued based on the market value of the Company’s
Common Stock price at the issuance date or the date the Company entered into the agreement related to the issuance. During the
year ended December 31, 2020 the Company expensed $1,035,000 to selling, general, and administrative for services rendered. At
December 31, 2020, common stock issued in fiscal 2020 with fair value of $155,000 was recorded as prepaid expense as the corresponding
services has not been rendered to the Company.
The
following were Common Stock transactions during the year ended December 31, 2019:
Shares
and Warrants Issued as Part of the Company’s Underwritten Public Offering
On
April 4, 2019, we entered into an Underwriting Agreement (the “Underwriter Agreement”) with A.G.P./Alliance Global
Partners, as representative of the several underwriters named therein (the “Underwriter” or “AGP”), relating
to a firm commitment public offering (the “Public Offering”) of 6,389,776 units (the “Units”) consisting
of an aggregate of (i) 6,389,776 shares (the “Firm Shares”) of Common Stock, and (ii) warrants to purchase up to 6,389,776
shares of Common Stock (the “Firm Warrants”; and the shares of Common Stock issuable from time to time upon exercise
of the Firm Warrants, the “Firm Warrant Shares”), at a public offering price of $3.13 per Unit. Pursuant to the Underwriting
Agreement, we also granted the Underwriter an option, exercisable for 45 days, to purchase up to 958,466 additional Units, consisting
of an aggregate of (x) 958,466 shares of Common Stock (the “Option Shares”; and, together with the Firm Shares, the
“Shares”) and (y) warrants to purchase up to 958,466 shares of Common Stock (the “Option Warrants”; and
together, with the Firm Warrants, the “Warrants”; and the shares of Common Stock issuable from time to time upon exercise
of the Option Warrants, the “Option Warrant Shares”; and, together with the Firm Warrant Shares, the “Warrant
Shares”). The Warrants have an initial per share exercise price of $3.443, subject to customary adjustments, are exercisable
immediately, and will expire five years from the date of issuance, or April 9, 2024.
On
April 9, 2019, we closed the Public Offering and issued 6,389,776 Units, consisting of an aggregate of 6,389,776 Firm Shares and
Firm Warrants to purchase up to an aggregate of 6,389,776 Firm Warrant Shares. In connection with the closing, the Underwriter
partially exercised its over-allotment option and purchased an additional 159,820 Units, consisting of an aggregate of 159,820
Option Shares and Option Warrants to purchase up to an aggregate of 159,820 Option Warrant Shares. In the aggregate, we issued
6,549,596 shares of common stock and received net proceeds of approximately $18,525,000, net of underwriting commissions and other
offering expenses in the aggregate of $2,138,000. Included in the offering expenses were $162,000 in various legal and professional
expenses that were incurred and paid in fiscal 2018 and accounted for as a deferred offering costs as of December 31, 2018. This
amount was derecognized upon close of the public offering in April 2019 and was recorded as a reduction to paid in capital.
In
connection with the Public Offering, we also issued the Underwriter warrants to purchase up to 319,488 shares of our Common Stock
(the “Underwriter Warrants”), at an exercise price of $3.913. The Underwriter Warrants are 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 the Registration
Statement.
Shares
Issued for the Acquisition of Verb Direct – In April 2019, we issued 3,327,791 shares of Common Stock with a fair
value of $7,820,000 as part of our acquisition of Verb Direct. See Note 3, Acquisition of Verb Direct, for additional information.
Shares
Issued for Services – During the year ended December 31, 2019, the Company issued 579,334 shares of Common Stock
to vendors for services rendered with a fair value of $1,162,000. These shares of Common Stock were valued based on the market
value of the Company’s Common Stock price at the issuance date or the date the Company entered into the agreement related
to the issuance.
Shares
Issued Upon Issuance of Convertible Note – During the year ended December 31, 2019, the Company issued to a note
holder 25,272 shares of Common Stock with a fair value of $182,000 as an inducement for the issuance of a note payable. See Note
9, Convertible Notes Payable, for additional information.
Conversion
of Notes Payable – During the year ended December 31, 2019, the Company issued 780,619 shares of Common Stock upon
conversion of notes payable and accrued interest. See Note 6, Notes Payable, and Note 9, Convertible Notes Payable,
for additional information.
Conversion
of Accounts Payable – On April 30, 2019, the Company converted accounts payable in the amount of $10,000 into 4,142
shares of Common Stock with a fair value of $10,000 at the date of conversion.
13.
|
RESTRICTED
STOCK UNITS
|
On
December 20, 2019, we held the 2019 Annual Meeting of Stockholders (the “Meeting”), at which our stockholders approved
and adopted the Verb Technology Company, Inc. 2019 Omnibus Incentive Plan (the “Plan”).
A
summary of restricted stock unit activity for the years ended December 31, 2020 and 2019 are presented below.
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
1,923,001
|
|
|
|
2,615,000
|
|
|
|
1.36
|
|
Vested
|
|
|
(436,647
|
)
|
|
|
(616,000
|
)
|
|
|
1.36
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Non-vested at December 31, 2019
|
|
|
1,486,354
|
|
|
$
|
1,999,000
|
|
|
$
|
1.36
|
|
Granted
|
|
|
2,871,471
|
|
|
|
3,391,000
|
|
|
|
1.18
|
|
Vested/deemed vested, net of 336,533 returned shares for payroll taxes
|
|
|
(1,773,440
|
)
|
|
|
(3,355,000
|
)
|
|
|
1.31
|
|
Forfeited
|
|
|
(61,906
|
)
|
|
|
(92,000
|
)
|
|
|
1.47
|
|
Non-vested at December 31, 2020
|
|
|
2,185,946
|
|
|
$
|
1,943,000
|
|
|
$
|
1.17
|
|
A
summary of activity for the year ended December 31, 2020:
On
April 10, 2020, the board of directors of the Company, approved management’s COVID-19 Full Employment and Cash Preservation
Plan (the “Plan”), pursuant to which all directors and senior level management would reduce their cash compensation
by 25%, and all other employees and consultants would reduce their cash compensation by 20% (the “Cash Reduction Amount”)
for a period of three months from April 16, 2020 through July 15, 2020 for one category of plan participants, and April 26, 2020
through July 18, 2020 for the other category of participants. The Plan was designed to promote the continued growth of the Company
and avoid the lay-offs and staff cut-backs experienced by many companies affected by the COVID-19 economic crisis. The Cash Reduction
Amount is to be paid in shares of the Company’s common stock (the “Shares”) through an allocation of shares
from the Company’s 2019 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and granted pursuant to stock
unit agreements entered into effective as of April 10, 2020 (the “Grant Date”) between the Company and each of the
Company’s directors, executive officers, employees, and consultants. The stock unit agreements provide that the Shares will
vest on July 18, 2020 (the “Vesting Date”) as long as the recipient remains in continuous service to the Company during
the time from the Grant Date through the Vesting Date. The number of Shares issued were determined in accordance with the provisions
of the Omnibus Incentive Plan, which provides that the value shall be determined based on the volume weighted average price of
the Company’s common stock during a period of up to the 30-trading days prior to the Grant Date. Total Common Stock granted
as part of the Cash Preservation Plan on April 10, 2020 was 589,098 shares with a fair value of $866,000. The shares were valued
based on the market value of the Company’s stock price on the grant date and will be amortized over its vesting term.
During
the year ended December 31, 2020, the Company granted an additional 2,282,373 shares of its restricted stock to employees and
members of Board of Directors. The Restricted Stock Units vest in various dates, starting on grant date up to July 2024. These
Restricted Stock Units were valued based on market value of the Company’s stock price at the respective date of grant and
had aggregate fair value of $2,525,000, which is being amortized as stock compensation expense over its vesting term.
During
the year ended December 31, 2020, 336,533 shares granted to various employees that vested were returned to the Company in exchange
for the Company paying the corresponding income and payroll taxes of these employees amounting $485,000. Pursuant to current accounting
guidelines, the Company accounted the return of the 336,533 shares and the payment of $485,000 for income and payroll taxes paid
on behalf the employees as a reduction in additional paid in capital.
The
total fair value of restricted stock unit that vested or deemed vested for the year ended December 31, 2020 was $3,355,000 and
is included in selling, general and administrative expenses in the accompanying statements of operations. As of December 31, 2020
the amount of unvested compensation related to issuances of restricted stock unit was $1,943,000 which will be recognized as an
expense in future periods as the shares vest. When calculating basic net income (loss) per share, these shares are included in
weighted average common shares outstanding from the time they vest. When calculating diluted net income (loss) per share, these
shares are included in weighted average common shares outstanding as of their grant date.
A
summary of activity for the year ended December 31, 2019:
On
December 23, 2019, the Company granted 1,923,001 restricted stock units to employees and directors. The restricted stock units
vest starting on grant date through January 10, 2022. These restricted stock units were valued based on market value of the Company’s
stock price at the date of grant and had aggregate fair value of $2,615,000.
The
total fair value of restricted stock unit vested during the year ended December 31, 2019 was $616,000 respectively, and is included
in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.
On
December 20, 2019, the Company adopted its 2019 Omnibus Incentive Plan (the “Plan”).
A
summary of option activity for the years ended December 31, 2020 and 2019 are presented below.
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
2,478,974
|
|
|
$
|
5.25
|
|
|
|
2.93
|
|
|
$
|
-
|
|
Granted
|
|
|
2,531,971
|
|
|
|
2.07
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(777,223
|
)
|
|
|
6.42
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
4,233,722
|
|
|
|
1.73
|
|
|
|
2.54
|
|
|
|
995,000
|
|
Granted
|
|
|
2,111,308
|
|
|
|
1.35
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(313,255
|
)
|
|
|
2.53
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2020
|
|
|
6,031,775
|
|
|
$
|
1.55
|
|
|
|
2.68
|
|
|
$
|
1,932,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested December 31, 2020
|
|
|
2,979,724
|
|
|
$
|
1.71
|
|
|
|
|
|
|
$
|
945,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
|
|
2,036,652
|
|
|
$
|
2.00
|
|
|
|
|
|
|
$
|
522,000
|
|
At
December 31, 2020 and December 31, 2019, the intrinsic value was $1,935,000 and $995,000, respectively.
The
following were stock options transactions during the year ended December 31, 2020:
During
the year ended December 31, 2020, the Company granted stock options to employees and consultants to purchase a total 2,111,308
shares of Common Stock for services rendered. The options have an average exercise price of $1.35 per share, expire between four
and five years, vesting from 0.43 and four years from grant date. The total fair value of these options at grant date was approximately
$2,438,000 using the Black-Scholes Option Pricing model. The total stock compensation expense recognized relating to the vesting
of stock options for the year ended December 31, 2020 amounted to $1,728,000. As of December 31, 2020, the total unrecognized
stock-based compensation expense was $4,146,000, which is expected to be recognized as part of operating expense through December
2024.
The
following were stock options transactions during the year ended December 31, 2019:
On
December 23, 2019, the Company amended the exercise price of stock options of certain employees and consultants granted in prior
period to purchase 1,340,333 shares of common stock to $1.36 per share. As a result of this amendment, the Company determined
the fair value of these stock options before and after the amendment using the Black-Scholes Option Pricing model. The incremental
difference of the fair value before and after the amendment amounted to $32,000, of which, $12,000 was recorded as part of stock
based compensation expenses and the remaining $20,000 will be recognized as part of operating expense through July 2023 based
upon its vesting.
During
the year ended December 31, 2019, the Company granted stock options to employees and consultants to purchase a total 2,531,971
shares of Common Stock for services rendered. The options have an average exercise price of $2.07 per share, expire between one
and five years, vest starting from grant date through four years. The total fair value of these options at grant date was approximately
$4,564,000 using the Black-Scholes Option Pricing model. The total stock compensation expense recognized relating to the vesting
of stock options for the year ended December 31, 2019 amounted to $1,961,000.
The
fair value of the share option awards was estimated using the Black-Scholes method based on the following weighted-average assumptions:
|
|
|
Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
Risk-free
interest rate
|
|
|
0.17%
- 0.39
|
%
|
|
1.51%-2.75
|
%
|
Average
expected term (years)
|
|
|
5
years
|
|
|
5
years
|
|
Expected
volatility
|
|
|
255.23
- 270.57
|
%
|
|
180%-413.83
|
%
|
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.
The
Company has the following warrants as of December 31, 2020 and 2019 are presented below:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2018
|
|
|
940,415
|
|
|
$
|
3.60
|
|
|
|
2.32
|
|
|
$
|
1,806,000
|
|
Granted
|
|
|
10,386,181
|
|
|
|
2.97
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(46,667
|
)
|
|
|
7.29
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(348,938
|
)
|
|
|
1.17
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2019
|
|
|
10,930,991
|
|
|
|
3.07
|
|
|
|
4.25
|
|
|
|
-
|
|
Granted
|
|
|
4,630,654
|
|
|
|
1.17
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(244,800
|
)
|
|
|
4.58
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(1,965,594
|
)
|
|
|
1.10
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2020, all vested
|
|
|
13,351,251
|
|
|
$
|
2.48
|
|
|
|
3.38
|
|
|
$
|
3,022,000
|
|
At
December 31, 2020 and December 31, 2019 the intrinsic value was $3,022,000 and $0, respectively.
The
following were stock warrant transactions during the year ended December 31, 2020:
During
the year ended December 31, 2020, the Company granted 416,199 warrants to a consultant as part of a private placement offering
and 2,303,861 warrants to Series A stockholders (see Note 12). In addition, the Company also granted warrants to certain shareholders
to purchase 1,910,594 shares of common stock as part of settlement with regards to the Company’s public offering that occurred
in July 2020 (see Note 12). The warrants are fully vested upon grant, have an average exercise price of $1.17 per share, expire
between 0.01 and 5 years with an estimated fair value of $248,000 using the Black-Scholes Option pricing model. The Company accounted
the estimated fair value of $248,000 as a financing cost.
During
the year ended December 31, 2020, a total of 1,965,594 warrants were exercised into 1,965,594 shares of Common Stock at a weighted
average exercise price of $1.10. The Company received cash of $2,165,000 upon exercise of the warrants.
The
following were stock warrant transactions during the year ended December 31, 2019:
On
April 9, 2019, the Company granted warrants to purchase a total of 6,869,084 shares of Common Stock as part of a public offering.
The warrants are exercisable at an average price of $3.46 per share and will expire in April 2024. See Note 12, Common Stock,
for additional information.
On
April 11, 2019, the Company granted fully vested warrants to purchase a total of 163,739 shares of Common Stock for services rendered.
The warrants are exercisable at an average price of $3.76 per share and will expire in April 2024. The total fair value of these
warrants at the grant date was approximately $439,000 using the Black-Scholes Option pricing model and was expensed upon grant.
On
July 8, 2019, the Company granted fully vested warrants to purchase a total of 108,196 shares of Common Stock as partial consideration
for the conversion of notes payable. The warrants are exercisable at an average price of $3.44 per share and will expire in July
2024. The total fair value of these warrants at the grant date was approximately $217,000 using the Black-Scholes Option pricing
model and was expensed upon grant. See Note 6, Notes Payable, for additional information.
On
August 15, 2019, the Company granted warrants to purchase a total of 3,245,162 shares of Common Stock as part of a preferred stock
offering. The warrants are exercisable at a price of $1.88 per share and will expire in August 2024. See Note 12, Common Stock,
for additional information.
16.
|
ISSUANCE
OF CLASS A and B UNITS
|
|
a.
|
Class
A Units – During the year ended December 31, 2020, the Company created an separate class of equity instrument called
Class A Units. Concurrently, the Company formed a wholly owned subsidiary, Verb Acquisition, and issued 100 Class A units
as part of the organization of Verb Acquisition. The Class A Units have the following rights and privileges:
|
|
1.
|
Class
A units are a standalone financial instrument;
|
|
2.
|
Priority
on distributions;
|
|
3.
|
Ability
to remove the manager;
|
|
4.
|
Drag-along
rights;
|
|
5.
|
Power
to dissolve Verb Acquisition provided that a majority of the Class B Units also approve the dissolution;
|
|
6.
|
Ability
to appoint a liquidator to wind up the affairs of Verb Acquisition;
|
|
7.
|
Entitled
to distributions;
|
|
8.
|
Approve
board appointments; and
|
|
9.
|
Approve
any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class B Units also approve
the amendment.
|
|
b.
|
Class
B Units – During the year ended December 31, 2020, the Company created a separate class of an equity instrument called
Class B Units. Concurrently, our wholly owned subsidiary, Verb Acquisition, issued 2,642,159 Class B Units as part of its
acquisition of SoloFire (see Note 3). The Class B Units have the following rights and privileges:
|
|
1.
|
Class
B units are a standalone financial instrument;
|
|
2.
|
Exchangeable
for shares of the Company’s Common Stock at a conversion rate of 1 to 1;
|
|
3.
|
Power
to dissolve Verb Acquisition, provided that a majority of the Class A Units also approve the dissolution;
|
|
4.
|
Entitled
to profit distributions;
|
|
5.
|
Approve
board appointments made by the Class A Units; and
|
|
6.
|
Approve
any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class A Units also approve
the amendment.
|
As
the Class B Units are exchangeable for the Company’s Common Stock, for valuation purposes, the Company determined to use
the trading price of the Company’s Common Stock at the date of the acquisition of SoloFire which amounted to $3,065,000.
Subsequent to December 31, 2020 all Class B units were exchanged into Verb Technology Common Stock.
Significant
components of the Company’s deferred tax assets and liabilities are as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Net operating loss carry-forwards
|
|
$
|
13,350,000
|
|
|
$
|
7,591,000
|
|
Share based compensation
|
|
|
(457,000
|
)
|
|
|
(635,000
|
)
|
Non-cash interest and financing expenses
|
|
|
(177,000
|
)
|
|
|
(472,000
|
)
|
Other temporary differences
|
|
|
(569,000
|
)
|
|
|
(63,000
|
)
|
Less: Valuation allowance
|
|
|
(12,147,000
|
)
|
|
|
(6,421,000
|
)
|
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, 2020
|
|
|
December
31, 2019
|
|
Statutory
federal income tax rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
State
taxes, net of federal benefit
|
|
|
(6.9
|
)%
|
|
|
(6.9
|
)%
|
Non-deductible
items
|
|
|
(1.0
|
)%
|
|
|
(1.0
|
)%
|
Change
in valuation allowance
|
|
|
28.9
|
%
|
|
|
28.9
|
%
|
|
|
|
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, 2020 or 2019.
The Company has not accrued for interest or penalties associated with unrecognized tax liabilities.
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 2019 may differ from management’s estimate.
As
of December 31, 2020, the Company had federal and state net operating loss carry forwards of approximately $28.7 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. IRS Section 382 places limitations (the
“Section 382 Limitation”) on the amount of taxable income which can be offset by net operating loss carry forwards
after a change in control (generally greater than 50% change in ownership) of a loss corporation. Generally, after a change in
control, a loss corporation cannot deduct operating loss carry forwards in excess of the Section 382 Limitation. Due to these
“change in ownership” provisions, utilization of the net operating loss may be subject to an annual limitation regarding
their utilization against taxable income in future periods. The Company has not concluded its analysis of Section 382 through
December 31, 2020 but believes the provisions will not limit the availability of losses to offset future income.
The
Company is subject to income taxes in the U.S. federal jurisdiction and the state of Nevada. The tax regulations within each jurisdiction
are subject to interpretation of related tax laws and regulations and require significant judgment to apply. As of December 31,
2020, tax years 2015 through 2018 remain open for IRS audit. The Company has received no notice of audit from the IRS for any
of the open tax years.
18.
|
ACCRUED
OFFICERS’ SALARY
|
Accrued
officers’ salary consists of unpaid salaries for the Company’s Chief Executive Officer and Chief Financial Officer,
who are also the owner of approximately 8.3% of the Company’s outstanding shares of Common Stock.
As
of December 31, 2020, and 2019, accrued officers’ salary amounted to $822,000 and $207,000, respectively.
19.
|
COMMITMENTS
AND CONTINGENCIES
|
Employment
Agreements
On
December 20, 2019, we entered into an Executive Employment Agreement with Mr. Cutaia (the “Employment Agreement”),
which terminates and replaces his original employment agreement dated November 1, 2014, as subsequently amended by an amendment
dated October 30, 2019. The Employment Agreement sets forth the terms and conditions of Mr. Cutaia’s employment. The Employment
Agreement is for a four-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 an annual base salary of $430,000, which shall not be subject to reduction
during the initial term, but will be subject to annual reviews and increases, if and as approved in the sole discretion of our
Board, after it has received and reviewed advice from the Compensation Committee (who may or may not utilize the services of its
outside compensation consultants, as it shall determine under the circumstances). In addition, Mr. Cutaia is eligible to receive
performance-based cash and/or stock bonuses upon attainment of performance targets established by our Board in its sole discretion,
after it has received and reviewed advice from the Compensation Committee (who may or may not utilize the services of its outside
compensation consultants, as it shall determine under the circumstances). The Company shall make annual equity grants to Mr. Cutaia
as determined by our Board in its sole discretion, after it has received and reviewed advice from the Compensation Committee (who
may or may not utilize the services of its outside compensation consultants, as it shall determine under the circumstances). Finally,
Mr. Cutaia is eligible for certain other benefits, such as health, vision, and dental insurance, life insurance, and 401(k) matching.
The
Employment Agreement provides that 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 $35,833 or such sum equal to his monthly base compensation at the time of the termination, whichever is higher, for
a period of 36 months from the date of such termination and (ii) reimbursement for COBRA health insurance costs for 18 months
from the date of such termination and, thereafter, reimbursement for health insurance costs for Mr. Cutaia and his family during
the immediately subsequent 18-month period. In addition, all of Mr. Cutaia’s then-unvested RSAs or other awards will immediately
vest, without restriction, and any unearned and unpaid bonus compensation, expense reimbursement, and all accrued vacation, personal,
and sick days, and related items shall be deemed earned, vested, and paid immediately. For purposes of the Employment Agreement,
“terminated without cause” means if Mr. Cutaia were to be 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 were to occur
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 our Chairman of the Board; or (C) is involuntarily removed from our Board; or (iii) Mr. Cutaia is required
to relocate to an office location outside of Orange County, California, or outside of a 30-mile radius of Newport Beach, California.
For purposes of the Employment Agreement, “terminated upon permanent disability” means if Mr. Cutaia were to be terminated
because he is then unable to perform his duties due to a physical or mental condition for (i) a period of 120 consecutive days
or (ii) an aggregate of 180 days in any 12-month period.
On July 29, 2020, the Compensation Committee
approved a 3% salary increase for Mr. Cutaia resulting in an annual salary of $490,000.
Litigation
On
April 24, 2018, EMA Financial, LLC, or EMA, commenced an action against the Company, styled as 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 set forth four causes of action and sought money damages, injunctive relief, liquidated
damages, and declaratory relief related to the Company’s refusal to agree to EMA’s interpretation of a cashless exercise
provision in a common stock warrant it granted to EMA in December 2017. The Company interposed several counterclaims, including
a claim for reformation of the underlying agreements to reflect the Company’s interpretation of the cashless exercise provision.
Both parties moved for summary judgment. On March 16, 2020, the United States District Court entered a decision agreeing with
the Company’s position, denying EMA’s motion for declaratory judgement on its interpretation of the cashless exercise
formula, and stating, inter alia, that “the Agreements read in their entirety reveal that nFUSZ, Inc.’s position
regarding the proper cashless exercise formula is the only sensible one and that the cashless exercise formula must be enforced
accordingly.” On December 22, 2020, the court entered a Memorandum and Order partly granting, and partly denying, EMA’s
motion for summary judgment on damages, awarding damages only in respect to the value of the warrant shares EMA would have received
if it had used the proper formula in its March 2018 warrant exercise notice, plus certain prejudgment interest and per diem interest.
On January 21, 2021, the court entered a final judgment in favor of EMA, in the amount of $463,571.98. The court did not award
EMA any attorneys’ fees or expenses. While the court ruled in the Company’s favor by dismissing the majority of EMA’s
suit, the Company does not agree with the court’s finding that EMA’s March 28, 2018 notice of exercise was not defective.
On February 17, 2021, the Company’s counsel filed a notice of appeal to appeal the court’s judgment to the United
States District Court for the Second Circuit. EMA filed a notice of cross-appeal and a hearing or briefing for this case is
scheduled in June 2021. The Company has established an appropriate reserve to pay for the approximately $464,000 judgment
entered against it in this litigation.
The
Company is currently in a dispute with a former employee of its predecessor bBooth, Inc. who has interposed a breach of contract
claim in which he alleges that he is entitled to approximately $300,000 in unpaid bonus compensation from 2015. The Company does
not believe his claims have any merit as they are contradicted by documentary evidence, and barred by the applicable statute of
limitations, and barred by a release executed by the former employee when the Company purchased all of his shares of stock more
than 4 years ago in January 2016. On February 9, 2021, the former employee’s counsel filed a motion for summary judgment,
or in the alternative, summary adjudication against the Company. The Company does not believe the court will grant this motion
and it has instructed its counsel to continue its efforts in seeking a dismissal of the former employee’s claims.
On
July 9, 2019, a purported class action complaint was filed in the United States District Court, Central District of California,
styled SCOTT C. HARTMANN, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. VERB TECHNOLOGY COMPANY,
INC., and RORY J. CUTAIA, Defendant, Case Number 2:19-CV-05896 (the “Hartmann Class Action”). The complaint
purported to be brought on behalf of a class of persons or entities who purchased or otherwise acquired the Company’s common
stock between January 3, 2018 and May 2, 2018, and alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, arising out of the January 3, 2018, announcement by the Company of its agreement with Oracle America, Inc. The complaint
sought unspecified costs and damages. The Company believes the complaint is without merit.
On
May 15, 2020, we executed a binding Memorandum of Understanding with the lead plaintiff in the class action lawsuit to settle
that action and release the claims asserted therein, the terms of which were confidential and subject to several contingencies,
including, without limitation, court approval. On October 27, 2020, the court granted preliminary approval of the class action
settlement. On February 18, 2021, the court entered a final order and judgment approving the class action settlement and dismissed
the Hartmann Class Action with prejudice. The stipulation of settlement approved (the “Stipulation of Settlement”)
by the court on February 18, 2021 provided for, amongst other things, a full and final release, settlement, and discharge of all
claims arising from the Hartmann Class Action in consideration of the Company’s payment of a $640,000 settlement amount,
which is payable over 12 months. Furthermore, amongst other things, the Stipulation of Settlement provided that (1) the Company
denied each and all of the claims alleged by plaintiffs, (2) the Company denied any allegation of wrongdoing, fault, liability,
violation of the law, or damage whatsoever arising out of its conduct, (3) the Company denied that it or any of its officers,
directors, or employees made any material misstatements or omissions, (4) the Company maintained that it had a meritorious defense
to all claims alleged in the Hartmann Class Action, and (5) the Company agreed that the basis of us entering into the Stipulation
of Settlement was to avoid the uncertainties, burden, and expense of further litigation and to put the claims arising from the
Hartmann Class Action to rest, finally and forever. The Company believes that the settlement of the Hartmann Class Action approved
by the court is favorable to the Company and ultimately benefits its shareholders.
The
Company has established an appropriate reserve to account for the $75,000 settlement of the Hartmann Class Action.
On
September 27, 2019, a derivative action was filed in the United States District Court, Central District of California, styled
Richard Moore, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. Verb Technology Company, Inc., and
Rory J. Cutaia, James P. Geiskopf, and Jeff Clayborne, Defendants, Case Number 2:19-CV-08393-AB-SS (the “Moore Derivative
Action”). The Moore Derivative Action also arises out of the January 3, 2018, announcement by the Company of
its agreement with Oracle America, Inc. The Moore Derivative Action alleges claims for breach of fiduciary duty, unjust enrichment,
and waste of corporate assets due to the costs associated with the defense of the above referenced class action complaint. The
derivative complaint seeks a declaration that the individual defendants have breached their duties, unspecified damages, and certain
purportedly remedial measures. The Company contends that the class action is without merit and as such, this derivative action,
upon which it relies, is likewise without merit.
On
November 5, 2020, the Company executed a binding settlement term sheet with the lead plaintiff in the derivative action to settle
that action and release all claims asserted therein, the terms of which were confidential and subject to several contingencies,
including, without limitation, court approval. On March 1, 2021, the court preliminarily approved the settlement of the Moore
Derivative Action. The stipulation and agreement of settlement preliminarily approved (the “Stipulation and Agreement of
Settlement”) by the court on March 1, 2021 provided for, amongst others things, a full and final release, settlement, and
discharge of all claims arising from the Moore Derivative Action in consideration of the Company’s agreement to institute
certain changes and/or modifications to its corporate governance and business ethics practices and plaintiff’s counsel receiving
its attorneys’ fees and expenses, which amounted to $75,000. Furthermore, amongst other things, the Stipulation and Agreement
of Settlement preliminarily approved by the court provided that (1) the Company denied each and every claim alleged by plaintiff,
and (2) the Company denied any allegation of wrongdoing, fault, and liability, (3) the Company denied committing any violation
of the law or breach of fiduciary duty, and (4) the Company concluded that it is desirable that the Moore Derivative Action be
settled on the terms and subject to the conditions of the Stipulation and Settlement Agreement to avoid the ongoing cost and distraction
of litigation. The Company believes that the settlement of the Moore Derivative Action preliminarily approved by the court is
favorable to the Company and ultimately benefits its shareholders. The court intends to set a hearing for the final approval of
the settlement of the Moore Derivative Action approximately 60 days after March 1, 2021.
The
Company knows of no material proceedings in which any of its directors, officers, or affiliates, or any registered or beneficial
stockholder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or
any of its subsidiaries.
The
Company believes it has adequately reserved for all litigation within its financial statements.
Board
of Directors
The
Company has committed an aggregate of $450,000 in board fees to its five board members over the term of their appointment for
services to be rendered. Board fees are accrued and paid monthly. The members will serve on the board until the annual meeting
for the year in which their term expires or until their successors has been elected and qualified.
Total
board fees expensed and paid in 2020 totaled $426,000. As of December 31, 2020, total board fees to be recognized in 2021 amounted
to $450,000 and will be recognized once the service has been rendered.
Issuances
of Common Stock
Subsequent
to December 31, 2020 the Company completed a registered direct offering with institutional investors for the purchase and sale
of 9,375,000 shares of common stock at a purchase price of $1.60 per share. Net proceeds were approximately $14,000,000.
Subsequent
to December 31, 2020, the Company issued 935,994 shares of Common Stock to vendors for services rendered with a fair value
of $1,638,000 These shares of Common Stock were valued based on the market value of the Company’s stock price at
the issuance date or the date the Company entered into the agreement related to the issuance.
Subsequent
to December 31, 2020, the Company issued 272,728 shares of Common Stock upon conversion of 300 Series A Preferred shares.
Subsequent
to December 31, 2020, the Company issued 247,703 shares of Common Stock to an employee associated with the vesting of a Restricted
Stock Unit.
Subsequent
to December 31, 2020, 4,641 shares granted to employees that vested were returned to the Company in exchange for the Company paying
the corresponding income and payroll taxes of these employees amounting $8,200. Pursuant to current accounting guidelines, the
Company accounted the return of the 4,641 shares and the payment of $8,200 for income and payroll taxes paid on behalf the employees
as a reduction in additional paid in capital.
Exchange
of Verb Acquisition Class B Shares
Subsequent
to December 31, 2020, 2,642,159 of Verb Acquisition Class B Shares were exchanged for 2,642,159 shares of common stock.
After the exchange there are no Verb Acquisition Class B Shares outstanding.
Exercise
of Warrants
Subsequent
to December 31, 2020, a total of 1,067,578 warrants were exercised into 855,148 shares of Common Stock at a weighted average exercise
price of $1.10. The Company received cash of $1,103,000 upon exercise of the warrants.
Exercise
of Options
Subsequent
to December 31, 2020, a total of 332,730 options were exercised into 332,730 shares of Common Stock at a weighted average exercise
price of $1.13. The Company received cash of $377,000 upon exercise of the options.
Issuance
of Restricted Stock Units
Subsequent
to December 31, 2020, the Company granted an additional 813,265 shares of its restricted stock to employees and members of Board
of Directors. The Restricted Stock Units vest in various dates, starting on January 4, 2021 up to January 4, 2024. These Restricted
Stock Units were valued based on market value of the Company’s stock price at the respective date of grant and had aggregate
fair value of $1,374,000, which is being amortized as stock compensation expense over its vesting term.
Issuances
of Warrants
Subsequent
to December 31, 2020, the Company issued warrants to purchase 138,889 shares of Common Stock to an officer for extending a note
payable until February 8, 2023. The warrants have an exercise price of $2.61, expire in three years, and vested on grant date.
The total fair value of these options at the grant date was $361,000 using the Black-Scholes option pricing model.
Issuances
of Stock Options
Subsequent
to December 31, 2020, the Company granted stock options to employees and consultants to purchase a total of 659,000 stock options
for services to be rendered. The options have an average exercise price of $1.68 per share, expire in five years, and vest between
one and four years from grant date. The total fair value of these options at the grant date was $1,101,000 using the Black-Scholes
option pricing model.
Advance
on Future Receipts
Subsequent
to December 31, 2020, the Company received advances from unaffiliated third parties totaling $4,387,000 for the purchase of future
receipts/revenues of $5,423,000. Pursuant to the terms of the agreement the unaffiliated third-parties will auto withdraw an aggregate
of $24,000 from the Company’s operating account each banking day plus an average monthly payment of $283,000 over the next
six months. The term of the agreement extends until the advances are paid in full. The Company may pay off the advances for $4,908,000
if paid within 30 days of funding; for $5,106,000 if paid between 31 and 60 days of funding; or for $5,228,000 if paid within
61 to 90 days of funding.