Notes
to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
1.
|
DESCRIPTION
OF BUSINESS
|
Organization
References
in this document to the “Company,” “Verb,” “we,” “us,” or “our” are
intended to mean Verb Technology Company, Inc., individually, or as the context requires, collectively with its subsidiary on
a consolidated basis.
Cutaia
Media Group, LLC (“CMG”) was organized as a limited liability company under the laws of the State of Nevada on December
12, 2012. 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 Annual
Report 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.
Effective
February 1, 2019, we changed our corporate name from nFüsz, Inc. to Verb Technology Company, Inc. The name change was effected
through a parent/subsidiary short-form merger of Verb Technology Company, Inc., our wholly-owned Nevada subsidiary, formed solely
for the purpose of the name change, with and into us.
On
February 1, 2019, we implemented a 1-for-15 reverse stock split (the “Reverse Stock Split”) of our common stock, $0.0001
par value per share (the “Common Stock”). The Reverse Stock Split became effective upon commencement of trading of
our Common Stock on February 4, 2019. As a result of the Reverse Stock Split, every fifteen (15) shares of our pre-Reverse Stock
Split Common Stock were combined and reclassified into one share of our Common Stock. The number of shares of Common Stock subject
to outstanding options, warrants, and convertible securities were also reduced by a factor of fifteen as of February 1, 2019.
All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial information
in this Annual Report have been adjusted to reflect the Reverse Stock Split. The par value per share of our Common Stock was not
affected by the Reverse Stock Split.
Nature
of Business
We
are a Software-as-a-Service (“SaaS”) applications platform developer. Our platform is comprised of a suite of sales
enablement business software products marketed on a subscription basis. Our applications, available in both mobile and desktop
versions, are offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer
Relationship Management application, verbLEARN, our Learning Management System application, and verbLIVE, our
Live Broadcast Video Webinar application.
We
also provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed
and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing
the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences
and other events, and product sample packs that verbCRM users order through the app for automated delivery and tracking
to their customers and prospects.
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, 2019 filed with the SEC on May 14, 2020.
The condensed consolidated balance sheet as of December 31, 2019 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 Verb Technology Company, Inc. and Verb Direct, LLC, its wholly owned
subsidiary. Intercompany transactions have been eliminated in the consolidation.
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 three months ended March 31, 2020, the Company incurred a net loss of $1,946,000
and used cash in operations of $2,266,000. 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.
In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December
31, 2019 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going
concern.
As
of March 31, 2020, we had cash on hand of $1,615,000 and subsequently received $1,014,000 from a private placement offering
that closed in March 2020 and $1,218,000 from the Paycheck Protection Program. We believe we have sufficient cash to sustain
operations through September 2020. 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 revenue and
expenses during the reported periods. Significant estimates include assumptions made in analysis of reserves for allowance of
doubtful accounts, inventory, purchase price allocations, impairment of long-term assets, realization of deferred tax assets,
determining fair value of derivative liabilities, and valuation of equity instruments issued for services. Amounts could materially
change in the future.
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 at times may
be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250,000.
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. As of March 31, 2020,
we have one major customer that accounted for 11% of our accounts receivable individually and in aggregate.
Revenue
Recognition
The
Company derives its revenue primarily from providing application services through the SaaS application, digital marketing and
sales support services, from the sale of customized print products and training materials, branded apparel, and digital tools,
as demanded by its customers. The subscription revenue from the application services are recognized over the life of the estimated
subscription period. 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 revenue and amortized over the estimated life of
the agreement. Amounts related to shipping and handling that are billed to customers are reflected as part of revenue, and the
related costs are reflected in cost of revenue in the accompanying Statements of Operations.
The
Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“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. Pursuant to 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
products sold by us are distinctly individual. The products are offered for sale solely as finished goods, and there are no performance
obligations required post-shipment for customers to derive the expected value from them. Other than promotional activities, which
can vary from time to time but nevertheless are entirely within the Company’s control, contracts with customers contain
no incentives or discounts that could cause revenue to be allocated or adjusted over time.
The
control of products we sell transfers to our customers upon shipment from our facilities, and our performance obligations are
satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and, therefore,
represent a fulfillment activity rather than promised goods to the customer. Payment for sales are generally made by check, credit
card, or wire transfer. Historically, we have not experienced any significant payment delays from customers.
We
allow returns within 30 days of purchase from end-users. Our customers may return purchased products to us under certain circumstances.
Customers
setup or installation fees for the creation and development of websites and phone application are recognized as revenue over the
estimated subscription period. Design assets of the websites and phone application are recognized when the work is completed.
Licensing revenue is recognized over the estimated subscription period. In addition, certain revenue is recorded based upon stand-alone
selling prices and is primarily recognized when the customer uses these services, based on the quantity of services rendered,
such as number of customer usage.
A
description of our principal revenue generating activities is as follows:
Digital
Sales – We offer cloud-based business software on a subscription basis. Subscriptions are paid in advance of the services
or billed 30 days in arrears of the subscription period. The revenue is recognized over the subscription period.
Welcome
kits – We offer design and printing services to create corporate starter kits that our clients use for their marketing needs.
The revenue is recognized upon completion and shipment of the welcome kits.
Fulfillment
– We offer print on demand and fulfilment services of various custom products our clients use for marketing purposes. The
revenue is recognized upon completion and shipment of the products.
Shipping
– We charge our customers the costs related to the shipping of their welcome kits and fulfillment products. The revenue
is recognized when the welcome kits or fulfillment products are shipped.
Cost
of Revenue
Cost
of revenue primarily consists of the salaries of certain employees, purchase price of consumer products, digital content costs,
packaging supplies, and customer shipping and handling expenses. 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.
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. Based on
Management’s assessment, there were no indicators of impairment at March 31, 2020 or December 31, 2019.
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 Binomial pricing model. 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 adjusted to fair value of derivatives.
Share
Based Payments
The
Company issues stock options and warrants, shares of 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 Financial Accounting
Standards Board’s (“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.
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 shares of Common Stock that were outstanding during the period.
Dilutive potential shares of Common Stock consist of incremental shares of Common Stock issuable upon exercise of stock options.
No dilutive potential shares of Common Stock were included in the computation of diluted net loss per share because their impact
was anti-dilutive. As of March 31, 2020, and 2019, the Company had total outstanding options of 4,417,108 and 2,457,974, respectively,
and warrants of 13,651,050 and 778,446, respectively, and outstanding restricted stock awards of 1,475,329 and 0, which
were excluded from the computation of net loss per share because they are anti-dilutive.
Goodwill
and other Intangibles
In
accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, the Company reviews the recoverability of the carrying
value of goodwill and other Intangible assets at least annually or whenever events or circumstances indicate a potential impairment.
The Company’s impairment testing will be done annually. Recoverability of goodwill is determined by comparing the fair value
of Company’s reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value
of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment
loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting
unit and the fair value of its other assets and liabilities.
The
acquisition of Verb Direct, formerly Sound Concepts, occurred on April 12, 2019. The Company will perform its first impairment
test in December 2020.
Fair
Value of Financial Instruments
The
Company follows the guidance of FASB ASC 825 for disclosures about fair value of its financial instruments and ASC
820 to measure the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements
and related disclosures, ASC 820 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.
The
three (3) levels of fair value hierarchy defined by ASC 820 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 Company’s financial assets and liabilities, such as cash and cash equivalents, prepaid expenses,
and accounts payable and accrued expenses approximate their fair value due to their short-term nature. The carrying values financing
obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing
market interest rates. The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities.
Segments
The
Company has various revenue channels. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s
chief operating decision maker (the Company’s Chief Executive Officer) reviews operating results to make decisions about
allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach
to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide
disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports
revenue. All material operating units qualify for aggregation under “Segment Reporting” due to (i) their similar customer
base and (ii) the Company having a single sales team, marketing department, customer service department, operations department,
finance department, and accounting department to support all revenue channels. Since the Company operates in one segment, all
financial information required by “Segment Reporting” can be found in the accompanying condensed consolidated financial
statements.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC
326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts
and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss”
model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the
standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective. As small business filer, the standard will be effective for us for interim and annual
reporting periods beginning after December 15, 2022. Management is currently assessing the impact of adopting this standard on
the Company’s financial statements and related 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.
|
ACQUISITION
OF VERB DIRECT
|
On
April 12, 2019, Verb completed its acquisition of Verb Direct on the terms set forth in the Merger Agreement, at the effective
time of the merger, each share of Sound Concepts Capital Stock issued and outstanding immediately prior to the effective time,
was cancelled in exchange for cash payment by Verb of an aggregate of $15,000,000, and the issuance of an aggregate of 3,327,791
restricted shares of Verb’s Common Stock with a fair value of $7,820,000 at the closing date of the transaction.
The
acquisition was intended to augment and diversify Verb’s internet and SaaS business. Key factors that contributed to the
recorded goodwill and intangible assets in the aggregate of $22,677,000 were the opportunity to consolidate and complement existing
operations of Verb, certain software and customer list, and the opportunity to generate future synergies within the internet and
SaaS business. The following table summarizes the assets acquired, liabilities assumed and purchase price allocation:
Assets Acquired:
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
2,004,000
|
|
|
|
|
|
Property and equipment
|
|
|
58,000
|
|
|
|
|
|
Other assets
|
|
|
1,302,000
|
|
|
$
|
3,364,000
|
|
Liabilities
Assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(2,153,000
|
)
|
|
|
|
|
Long-term liabilities
|
|
|
(1,068,000
|
)
|
|
|
(3,221,000
|
)
|
Intangible assets
|
|
|
|
|
|
|
6,340,000
|
|
Goodwill
|
|
|
|
|
|
|
16,337,000
|
|
Purchase Price
|
|
|
|
|
|
$
|
22,820,000
|
|
The
goodwill recognized in connection with the acquisition is primarily attributable to anticipated synergies from future growth and
is not expected to be deductible for tax purposes. Goodwill is not amortized but will be tested for impairment on an annual basis.
The
intangible assets, which consist of developed technology of $4,700,000 are being amortized over 5-years, customer relationships
of $1,200,000 are being amortized on an accelerated basis over its estimated useful life of 5 years and domain names of $440,000
are determined to have infinite lives but will be tested for impairment on an annual basis.
During
the period ended March 31, 2020, the Company recorded amortization expense of $325,000. As of March 31, 2020, the
remaining unamortized balance of the intangible assets was $5,040,000.
The
following comparative unaudited statements of operations present the Company’s results of operations after giving
effect to the purchase of Verb Direct based on the historical financial statements of the Company and Verb Direct. The unaudited
pro forma statements of operations for the periods ended March 31, 2020 and 2019 give effect to the transaction to the
merger as if it had occurred on January 1, 2019.
|
|
Three
Months Ended
March
31, 2020
|
|
|
Three
Months Ended
March
31, 2019
|
|
|
|
(unaudited)
|
|
|
(Proforma,
unaudited)
|
|
Digital
|
|
$
|
1,457,000
|
|
|
$
|
1,059,000
|
|
Welcome kits and fulfilment
|
|
|
728,000
|
|
|
|
2,265,000
|
|
Shipping
|
|
|
169,000
|
|
|
|
677,000
|
|
Total Revenue
|
|
|
2,354,000
|
|
|
|
4,001,000
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
1,063,000
|
|
|
|
2,248,000
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,291,000
|
|
|
|
1,753,000
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
5,151,000
|
|
|
|
4,782,000
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense), net
|
|
|
1,914,000
|
|
|
|
(251,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(1,946,000
|
)
|
|
|
(3,280,000
|
)
|
|
|
|
|
|
|
|
|
|
Deemed dividends to Series A stockholders
|
|
|
(3,951,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss attributed
to common stockholders
|
|
$
|
(5,897,000
|
)
|
|
$
|
(3,280,000
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(0.23
|
)
|
|
$
|
(0.21
|
)
|
Weighted average
number of common shares outstanding - basic and diluted
|
|
|
25,992,426
|
|
|
|
15,566,835
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following as of March 31, 2020 and December 31, 2019.
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Computers
|
|
$
|
29,000
|
|
|
$
|
29,000
|
|
Furniture
and fixture
|
|
|
75,000
|
|
|
|
75,000
|
|
Machinery
and equipment
|
|
|
39,000
|
|
|
|
39,000
|
|
Leasehold
improvement
|
|
|
862,000
|
|
|
|
741,000
|
|
Total
property and equipment
|
|
|
1,005,000
|
|
|
|
884,000
|
|
Accumulated
depreciation
|
|
|
(202,000
|
)
|
|
|
(164,000
|
)
|
Total
property and equipment, net
|
|
$
|
803,000
|
|
|
$
|
720,000
|
|
Depreciation
expense amounted to $38,000 and $4,000 for three months ended March 31, 2020 and 2019, respectively.
5.
|
RIGHT-OF-USE
ASSETS AND OPERATING LEASE LIABILITIES
|
The
Company has entered into several leases that are accounted for as operating leases in accordance with ASC 842. The Company currently
has four office and warehouse leases in American Fork, Utah related to the operation of Verb Direct with an aggregate lease payment
of $31,000 per month. Each lease expires in December 2023. The lessor of the office and warehouse area is JMCC Properties, which
is an entity owned and controlled by the former shareholders and certain current officers of the Company’s subsidiary, Verb
Direct.
In
addition, the Company leases its corporate headquarters located at 2210 Newport Boulevard, Suite 200, Newport Beach, California
92663 under a lease with a term of 94 months. The average monthly base rent for the first 12 months of the Lease is approximately
$7,000 after rent abatement. For the next 82 months of the Lease, the average monthly base rent will be approximately $39,000.
As part of the agreement, the landlord provided leasehold incentive of $572,000 for the construction of the leasehold improvements.
Pursuant to ASC 842, the lease incentive of $572,000 was recorded as a part of leasehold improvements and a reduction to the right
of use assets. The Lease commenced in August 2019.
As
March 31, 2020 and December 31, 2019, the Company had recorded right of use assets of $3,140,000 and $3,275,000, respectively,
net of amortization. As March 31, 2020 and December 31, 2019, the Company had recorded lease liabilities of $3,937,000 and
$3,982,000, respectively, related to these leases.
|
|
Period
Ended
March
31, 2020
|
|
Lease
cost
|
|
|
|
|
Operating
lease cost (included in general and administration in the Company’s statement of operations)
|
|
$
|
175,000
|
|
|
|
|
|
|
Other
information
|
|
|
|
|
Cash
paid for amounts included in the measurement of lease liabilities
|
|
$
|
—
|
|
Weighted
average remaining lease term – operating leases (in years)
|
|
|
5.11
|
|
Average
discount rate – operating leases
|
|
|
4.0
|
%
|
|
|
March
31, 2020
|
|
Operating
leases
|
|
|
|
|
Right-of-use
assets, net of amortization of $484,000
|
|
$
|
3,140,000
|
|
|
|
|
|
|
Short-term
operating lease liabilities
|
|
$
|
505,000
|
|
Long-term
operating lease liabilities
|
|
|
3,432,000
|
|
Total
operating lease liabilities
|
|
$
|
3,937,000
|
|
6.
|
ADVANCE
OF FUTURE RECEIPTS
|
The
Company has the following advances on future receipts as of March 31, 2020:
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
Original
Borrowing
|
|
Balance
at
March 31, 2020
|
|
Balance
at
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1
|
|
December 24, 2019
|
|
June 30, 2020
|
|
|
10
|
%
|
|
$
|
506,000
|
|
|
$
|
297,000
|
|
|
$
|
503,000
|
|
Note 2
|
|
December 24, 2019
|
|
June 30, 2020
|
|
|
10
|
%
|
|
|
506,000
|
|
|
|
297,000
|
|
|
|
503,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,012,000
|
|
|
|
594,000
|
|
|
|
1,006,000
|
|
Debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137,000
|
)
|
|
|
(274,000
|
)
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
457,000
|
|
|
$
|
732,000
|
|
On
December 24, 2019, the Company received two secured advances from an unaffiliated third party totaling $728,000 for the purchase
of future receipts/revenues of $1,012,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw
an aggregate of $6,000 from the Company’s operating account each banking day. The term of the agreement extends until the
advances are paid in full. The Company may pay off either note for $446,000 if paid within 30 days of funding; for $465,000 if
paid between 31 and 60 days of funding; or for $484,000 if paid within 61 to 90 days of funding. These advances are secured
by the Company’s tangible and intangible assets.
As
of December 31, 2019, the balance outstanding was $1,006,000 and the unamortized balance of the debt discount was $274,000.
During
the period ended March 31, 2020, the Company repaid $411,000 and amortized the debt discount of $137,000. As of March 31, 2020,
the outstanding balance of advances amounted to $594,000 and unamortized debt discount of $137,000.
7.
|
NOTES
PAYABLE – RELATED PARTIES
|
The
Company has the following related parties notes payable as of March 31, 2020 and December 31, 2019:
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
Original
Borrowing
|
|
Balance
at
March 31, 2020
|
|
Balance
at
December 31, 2019
|
Note 1 (A)
|
|
December 1, 2015
|
|
February 8, 2021
|
|
|
12.0
|
%
|
|
$
|
1,249,000
|
|
|
$
|
825,000
|
|
|
$
|
825,000
|
|
Note 2 (B)
|
|
December 1, 2015
|
|
April 1, 2017
|
|
|
12.0
|
%
|
|
|
112,000
|
|
|
|
112,000
|
|
|
|
112,000
|
|
Note 3 (C)
|
|
April 4, 2016
|
|
June 4, 2021
|
|
|
12.0
|
%
|
|
|
343,000
|
|
|
|
240,000
|
|
|
|
240,000
|
|
Total notes payable –
related parties
|
|
|
|
|
|
|
|
|
|
|
1,177,000
|
|
|
|
1,177,000
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240,000
|
)
|
|
|
(1,065,000
|
)
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
937,000
|
|
|
$
|
112,000
|
|
|
(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, to consolidate all loans and advances made by Mr. Cutaia to the Company as of that date. The
note bears interest at a rate of 12% per annum, secured by the Company’s assets, and will mature on February 8, 2021,
as amended.
|
As
of March 31, 2020, and December 31, 2019, the outstanding balance of the note amounted to $825,000, respectively.
|
(B)
|
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 $112,000, 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 March 31, 2020, and December 31, 2019, the outstanding principal balance of the
note was equal to $112,000, respectively. As of March 31, 2020, the note was past due, and remains past due. The Company is
currently in negotiations with the noteholder to settle the past due note.
|
|
|
|
|
(C)
|
On
April 4, 2016, the Company issued a convertible note to Mr. Cutaia, in the amount of
$343,000, to consolidate all advances made by Mr. Cutaia to the Company during the period
December 2015 through March 2016. The note bears interest at a rate of 12% per annum,
is secured by the Company’s assets, and will mature on June 4, 2021, as amended.
As
of March 31, 2020, and December 31, 2019, the outstanding balance of the note amounted to $240,000, respectively.
|
Total
interest expense for notes payable to related parties was $35,000 for three months ended March 31, 2020 and 2019, respectively.
The Company paid $10,000 and $32,000 in interest for the three months ended March 31, 2020 and 2019, respectively.
8.
DEFERRED INCENTIVE COMPENSATION TO OFFICERS
Note
|
|
Date
|
|
Payment
Date
|
|
Balance
at
March 31, 2020
|
|
Balance
at
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Rory Cutaia (A)
|
|
December 23, 2019
|
|
50% on January 10, 2021 and 50% on January
10, 2022
|
|
$
|
430,000
|
|
|
$
|
430,000
|
|
Rory Cutaia (B)
|
|
December
23, 2019
|
|
50% on January 10, 2021 and 50% on January 10, 2022
|
|
|
324,000
|
|
|
|
324,000
|
|
Jeff Clayborne (A)
|
|
December
23, 2019
|
|
50% on January 10, 2021 and 50% on January 10, 2022
|
|
|
125,000
|
|
|
|
125,000
|
|
Jeff Clayborne (B)
|
|
December
23, 2019
|
|
50% on January 10, 2021 and 50%
on January 10, 2022
|
|
|
163,000
|
|
|
|
163,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,042,000
|
|
|
|
1,042,000
|
|
Non-current
|
|
|
|
|
|
|
(521,000
|
)
|
|
|
(1,042,000
|
)
|
Current
|
|
|
|
|
|
$
|
521,000
|
|
|
$
|
-
|
|
(A)
|
On
December 23, 2019, the Company awarded Rory Cutaia, Chief Executive Officer and Jeff Clayborne, Chief Financial Officer Annual
Incentive Compensation of $430,000 and 125,000, respectively for services rendered. The Company has determined that it is
in its best interest and in the best interest of its stockholders to defer payments to the Employees. The Company will pay
50% of the Annual Incentive Compensation on January 10, 2021 and the remaining 50% on January 10, 2022.
|
|
|
(B)
|
On
December 23, 2019, the Company awarded Rory Cutaia, Chief Executive Officer and Jeff Clayborne, Chief Financial Officer received
a bonus for the successful Up-Listing to Nasdaq and Acquisition of Verb Direct during fiscal 2019, totaling $324,000 and $162,000,
respectively. The Company has determined that it is in its best interest and in the best interest of its stockholders
to defer payments to the Employees. The Company will pay 50% of the Nasdaq Up-Listing Award on January 10, 2021 and the remaining
50% on January 10, 2022.
|
9.
|
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
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
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.
During
the period ended March 31, 2020, 1,150 shares of Preferred Stock were converted into 741,933 shares of Common Stock. As
of March 31, 2020, 3,246 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
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 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 Binomial pricing model with the following average assumptions:
|
|
March
31, 2020
|
|
|
Upon
Issuance
|
|
|
December
31, 2019
|
|
Stock
Price
|
|
$
|
1.26
|
|
|
$
|
1.70
|
|
|
$
|
1.55
|
|
Exercise
Price
|
|
$
|
1.66
|
|
|
$
|
1.55
|
|
|
$
|
1.88
|
|
Expected
Life
|
|
|
3.27
|
|
|
|
5.0
|
|
|
|
3.53
|
|
Volatility
|
|
|
211
|
%
|
|
|
212
|
%
|
|
|
216
|
%
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-Free
Interest Rate
|
|
|
2.22
|
%
|
|
|
2.47
|
%
|
|
|
1.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
$
|
6,907,000
|
|
|
$
|
3,951,000
|
|
|
$
|
5,048,000
|
|
The
expected life of the warrants was based on the remaining contractual term. 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, 2019, the Company had recorded a derivative liability of $5,048,000.
During
the period ended March 31, 2020, the Company recorded derivative liability of $3,951,000 as a result of the issuance of
warrants to Series A Preferred stockholders (see Note 11). The Company also recorded a change in fair value of ($2,092,000)
to account for the changes in the fair value of these derivative liabilities during the period ended March 31, 2020.
At March 31, 2020, the fair value of the derivative liability amounted to $6,907,000. The details of derivative liability transactions
as of and for the periods ended March 31, 2020 and 2019 are as follows:
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Beginning
Balance
|
|
$
|
5,048,000
|
|
|
$
|
2,576,000
|
|
Fair
value upon issuance of notes payable and warrants
|
|
|
3,951,000
|
|
|
|
388,000
|
|
Change
in fair value
|
|
|
(2,092,000
|
)
|
|
|
(944,000
|
)
|
Ending
Balance
|
|
$
|
6,907,000
|
|
|
$
|
2,020,000
|
|
The
Company’s Common Stock activity for the three months ended March 31, 2020 is as follows:
Common
Stock
Shares
Issued as Part of the Company’s 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, and is memorialized by a subscription agreement.
As
a result of this private placement, from February 25 through March 31, 2020, a total of 4,237,833 shares of Common Stock were
subscribed. Total subscribed shares of 3,392,833 shares of Common Stock were issued with net cash proceeds of $3,430,000 after
direct costs received as of March 31, 2020. The remaining subscribed shares of 845,000 shares of Common Stock were issued in April
and May 2020 upon receipt of cash proceeds of $1,014,000.
The
Company’s private placement is exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, 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.
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 9). 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.
Shares
Issued for Services
During
the period ended March 31, 2020, the Company issued 220,601 shares of Common Stock to vendors for services rendered with
a fair value of $321,000. 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. As previously discussed,
the Company also issued 100,000 shares of common stock to a consultant for services rendered as a result of a private placement
offering in February and March 2020.
12.
|
RESTRICTED
STOCK AWARDS
|
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 award activity for the three months ended March 31, 2020 is presented below.
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Non-vested
at December 31, 2019
|
|
|
1,486,354
|
|
|
$
|
1.36
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(11,025
|
)
|
|
|
1.36
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested
at March 31, 2020
|
|
|
1,475,329
|
|
|
$
|
1.36
|
|
The
total fair value of restricted stock award that vest during the three months ended March 31, 2020 was $241,000 and is included
in selling, general and administrative expenses in the accompanying statements of operations. As of March 31, 2020, the amount
of unvested compensation related to issuances of restricted stock award was $1,758,000 which will be recognized as an expense
in future periods as the shares vest.
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 under the Plan and accounts for
it in accordance with ASC 718, Compensation – Stock Compensation.
A
summary of option activity for the three months ended March 31, 2020 is presented below.
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2019
|
|
|
4,233,722
|
|
|
$
|
1.75
|
|
|
|
2.54
|
|
|
$
|
995,000
|
|
Granted
|
|
|
185,887
|
|
|
|
1.39
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(2,501
|
)
|
|
|
1.36
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at March 31, 2020
|
|
|
4,417,108
|
|
|
$
|
1.72
|
|
|
|
2.54
|
|
|
$
|
143,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
March 31, 2020
|
|
|
1,820,725
|
|
|
$
|
1.75
|
|
|
|
|
|
|
$
|
28,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2020
|
|
|
1,337,946
|
|
|
$
|
2.19
|
|
|
|
|
|
|
$
|
26,000
|
|
During
the three months ended March 31, 2020 the Company granted stock options to employees to purchase a total of 185,887 shares of
Common Stock for services to be rendered. The options have an average exercise price of $1.39 per share, expire in five years,
and vests in 4 equal installments during the four years from the grant date. The total fair value of these options at the grant
date was approximately $246,000 using the Black-Scholes Option pricing model.
The
total stock compensation expense recognized relating to vesting of stock options for the three months ended March 31, 2020 amounted
to $381,000. As of March 31, 2020, total unrecognized stock-based compensation expense was $4.0 million, which is expected to
be recognized as part of operating expense through March 2024.
The
fair value of share option award is estimated using the Black-Scholes option pricing method based on the following weighted-average
assumptions:
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Risk-free
interest rate
|
|
|
0.39
|
%
|
|
|
2.75
|
%
|
Average
expected term
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected
volatility
|
|
|
270.1
|
%
|
|
|
201.3
|
%
|
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 outstanding as of March 31, 2020, all of which are exercisable:
|
|
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2019
|
|
|
10,930,990
|
|
|
$
|
3.07
|
|
|
|
4.25
|
|
|
$
|
-
|
|
Granted
|
|
|
2,720,060
|
|
|
|
1.31
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at March 31, 2020, all vested
|
|
|
13,651,050
|
|
|
$
|
2.72
|
|
|
|
4.12
|
|
|
$
|
-
|
|
At
March 31, 2020, the intrinsic value of these stock options was $0 as the exercise price of these stock warrants were greater than
the market price.
During
the period ended March 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 11).
15.
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
On
April 24, 2018, EMA Financial, LLC (“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 sets forth four causes of action and seeks 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 we 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.” The court went on to order that in light of this
finding, the parties should submit a proposal for future proceedings. Accordingly, the Company has instructed its
counsel to prosecute the Company’s claims for reimbursement of all of the costs it incurred in connection
with this action, including all attorneys’ fees as well as all damages it incurred as a result of EMA’s
conduct.
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. The Company intends to seek dismissal of the former employee’s claims through arbitration.
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 complaint purports 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 alleges 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 seeks unspecified
costs and damages. The Company believes the complaint is without merit and the Company intends to vigorously defend the
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 derivative action
also arises out of the January 3, 2018, announcement by the Company of its agreement with Oracle America, Inc. The 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 and the
Company intends to vigorously defend this suit.
The
Company knows of no other material pending legal proceedings
to which the Company or any of its subsidiaries is a party or to which any of its assets or properties, or
the assets or properties of any of its subsidiaries, are subject and, to the best of its knowledge, no adverse legal
activity is anticipated or threatened. In addition, the Company does not know of any such proceedings contemplated by any
governmental authorities.
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 financials.
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 during the period ended March 31, 2020 was $105,000. As of March 31, 2020, total board
fees to be recognized in future period amounted to $322,000 and will be recognized once the service has been rendered.
The recent outbreak of
COVID-19 may have a significant negative impact on our business, sales, results of operations and financial condition.
The global outbreak of COVID-19
has led to severe disruptions in general economic activities, as businesses and federal, state, and local governments take increasingly
broad actions to mitigate this public health crisis. We have experienced disruption to our business, both in terms of disruption
of our operations and the adverse effect on overall economic conditions. These conditions will significantly negatively impact
all aspects of our business. Our business is dependent on the continued health and productivity of our employees, including our
software engineers, sales staff and corporate management team. Individually and collectively, the consequences of the COVID-19
outbreak could have a material adverse effect on our business, sales, results of operations and financial condition.
Additionally, our liquidity
could be negatively impacted if these conditions continue for a significant period of time and we may be required to pursue additional
sources of financing to obtain working capital, maintain appropriate inventory levels, and meet our financial obligations. Currently,
capital and credit markets have been disrupted by the crisis and our ability to obtain any required financing is not guaranteed
and largely dependent upon evolving market conditions and other factors. Depending on the continued impact of the crisis, further
actions may be required to improve our cash position and capital structure.
The extent to which the COVID-19
outbreak ultimately impacts our business, sales, results of operations and financial condition will depend on future developments,
which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its
severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating
conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience significant impacts to our
business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur
in the future.
Issuance
of Restricted Stock Awards
On
April 10, 2020, the board of directors of Verb Technology Company, Inc., a Nevada corporation (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 award 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 award 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 Shares were valued at $1.198 per share 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 589,099 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 the life of the agreements and recorded as stock compensation expense. As
of the date of this report the restricted shares have not been issued to the respective employees.
Issuance
of Common Stock
Subsequent
to March 31, 2020, the Company issued 87,032 shares of Common Stock to vendors for services rendered with a fair value
of $123,000. 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 March 31, 2020, as part of the Company’ private placement offering, subscribed shares of 845,000 shares of common stock
were issued in April and May 2020 upon receipt of cash proceeds of $1,014,000 (see Note 11).
Grant
of Stock Options
Subsequent
to March 31, 2020, the Company granted stock options to an employee to purchase a total of 138,000 shares of Common Stock
for services rendered. The options have an average exercise price of $1.38 per share, expire in five years, and vest over a period
of one to four years from grant date. The total fair value of these options at the grant date was $191,000 using the Black-Scholes
option pricing model.
Paycheck
Protection Program
On
April 17, 2020, the Company received loan proceeds in the amount of approximately $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 eight weeks as long as the borrower uses the loan proceeds for eligible
purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will
be reduced if the borrower terminates employees or reduces salaries during the eight-week period.
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.