Notes
to Condensed Consolidated Financial Statements
For
the three and nine months ended September 30, 2021 and 2020
(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 subsidiaries 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.
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.
On
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.
On
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 4, 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”). 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. The par
value per share of our Common Stock was not affected by the Reverse Stock Split.
On
April 12, 2019, we acquired Sound Concepts Inc. (“Sound Concepts”). The acquisition was intended to augment and diversify
Verb’s internet and Software-as-a-Service (“SaaS”) business (see Note 3).
On
September 4, 2020, Verb Acquisition Co., LLC (“Verb Acquisition”), a subsidiary of the Company, acquired Ascend Certification,
LLC, dba SoloFire (“SoloFire”) The acquisition was intended to augment and diversify Verb’s internet and SaaS business
(see Note 3).
Nature
of Business
We
are a SaaS applications platform developer. Our platform is comprised of a suite of interactive video-based 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 (“CRM”)
application, verbLEARN, our Learning Management System application, verbLIVE, our Live Stream eCommerce application, verbPULSE,
our business/augmented intelligence notification and sales coach application, and verbTEAMS, our self-onboarding video-based CRM
and content management application for small business and solopreneurs, with seamless synchronization with Salesforce, that also comes
bundled with verbLIVE, and more recently, we introduced verbMAIL, our interactive video-based sales communication tool
integrated into Microsoft Outlook.
We
provide certain non-digital services to some of our enterprise clients
such as printing and fulfillment services. We design and print welcome kits and starter kits for their marketing needs and provide
fulfillment services, which consist 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. We use the term “client” and “customer” interchangeably.
COVID-19
As
of the date of this filing, there continue to be widespread concerns regarding the ongoing impacts and disruptions caused by the COVID-19
pandemic in the regions in which the Company operates. Our sales team reported a higher level of interest in our digital products
and services during the three and nine months ended September 30, 2021 compared to the same period in 2020. However, our non-digital
services have been negatively impacted during the three and nine months ended September 30, 2021 compared to the same period in 2020.
Although the impacts of the COVID-19 pandemic have not been material to date, a prolonged downturn in economic conditions could have
a material adverse effect on our customers and demand for our services. The Company has not observed any impairments of its assets or
a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to
predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of
operations, financial condition, or liquidity.
As
of September 30, 2021, we continue to actively communicate with and listen to our customers to ensure we are responding to their needs
in the current environment with innovative solutions that will not only be beneficial now but also over the long-term. We monitor developments
related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic. To mitigate the adverse impact COVID-19
may have on our business and operations, we implemented a number of measures in the year ended December 31, 2020 to protect the health
and safety of our employees, as well as to strengthen our financial position. These efforts include eliminating, reducing, or deferring
non-essential expenditures, as well as complying with local and state government recommendations to protect our workforce.
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, 2020 filed with the SEC on March 31, 2021 (the “2020 Annual Report”). The consolidated
balance sheet as of December 31, 2020 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 (including
normal recurring adjustments) necessary to fairly present the Company’s financial position and results of operations for the interim
periods reflected. 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., Verb Direct, LLC, and Verb Acquisition Co.,
LLC. Intercompany accounts 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 nine months ended September 30, 2021, the Company incurred a net loss of $28,962,000
and used cash in operations of $18,223,000.
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. In addition, our independent registered public accounting firm, in their report on our audited
financial statements for the year ended December 31, 2020, raised substantial doubt about the Company’s ability to continue as
a going concern.
The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement
its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
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,
assumptions made in purchase price allocations, impairment testing 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.
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 is 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
Condensed Consolidated Statements.
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 is 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.
Returns from customers in the past and during the three and nine months ended September 30, 2021 and 2020 are immaterial.
A
description of our principal revenue generating activities is as follows:
|
1.
|
Digital
Revenue which is divided into two main categories:
|
|
a.
|
SaaS
recurring digital revenue based on contract-based subscriptions to our verb app products and platform services which include verbCRM,
verbLEARN, verbLIVE, verbTEAMS, and verbPULSE. The revenue is recognized over the subscription period.
|
|
|
|
|
b.
|
Non-SaaS,
non-recurring digital revenue, which is revenue generated by the use of our app products and in-app purchases, such as sampling and
other services obtained through the app. The revenue for samples is recognized upon completion and shipment, while the design fees
are recognized when the service has been rendered and the app is delivered to the customer.
|
|
2.
|
Non-digital
revenue, which is revenue we generate from non-app, non-digital sources through ancillary services we provide as an accommodation
to our clients and customers. These services, which we now outsource to a strategic partner as part of a cost reduction plan we instituted
in 2020, include:
|
|
a.
|
Design,
printing services, and fulfillment. The revenue is recognized upon completion and shipment of products or fulfillment to the customer.
|
|
|
|
|
b.
|
Shipping
services. The revenue is recognized when the corresponding products or fulfillment are shipped.
|
Revenues
during the three and nine months ended September 30, 2021 and 2020 were all generated from the United States of America.
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 revenue upon sale of products to our customers.
Assets Recognized from the Costs
to Obtain a Contract with a Customer
The Company considered certain
internal sales commissions as incremental costs of obtaining the contract with a customer. Internal sales commissions for subscription
offerings where the Company expect the benefit of those costs to continue throughout the subscription are capitalized and amortized ratably
over the period of benefit, which generally ranges over a period of one year. Total capitalized costs to obtain a contract are not significant
and are included in prepaid expenses and other current assets and other assets on our consolidated balance sheets.
Deferred
Revenue and Customer Deposits - Contract Liabilities
Contract
liabilities represents consideration received from customers under a revenue contract, but the Company has not yet delivered or completed
its performance obligation to the customer.
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 September 30, 2021, we
had two vendors that account for 20%
and 16%
of our purchases individually and 36%
in aggregate. In addition, we had one vendor that accounted
for 40%
of accounts payable individually and in aggregate as of September 30,
2021.
As
of September 30, 2021, we had one customer that accounted for
10% of our accounts receivable individually and in the aggregate.
During
the three and nine months ended September 30, 2021 and 2020, we had no customer that accounted for 10% of our revenues individually and
in the aggregate.
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.
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 September 30, 2021, and 2020, the Company had total outstanding options of 5,528,405
and 5,099,038,
respectively, stock warrants of 11,008,302
and 13,351,245,
respectively, outstanding restricted stock awards of 2,109,999
and 2,908,530,
respectively, and 0
and 2,642,159
common shares issuable from our Class B Units,
respectively, which were excluded from the computation of net loss per share because they are anti-dilutive.
Capitalized
software development costs
The
Company capitalizes internal and external costs directly associated with developing internal-use software, and hosting arrangements
that include an internal-use software license, during the application development stage of its projects. The Company’s
internal-use software is reported at cost less accumulated depreciation. Depreciation begins once the project has been completed and
ready for its intended use. The Company will depreciate the asset on a straight-line basis over a period of three
years, which is the estimated useful life. Software maintenance activities or minor upgrades are expensed in the period
performed. During the three and nine months ended September 30, 2021 and 2020, the Company capitalized $2,329,000
and $0,
respectively, in software development costs and recorded as part of property and equipment.
Depreciation
expense related to capitalized software development costs will be recorded in Cost of revenue on the consolidated statements of operations.
There has been no depreciation expense related to capitalized software development costs for the three and nine months ended September
30, 2021 and 2020 as the software has not been completed and utilized.
Goodwill
In
accordance with Financial Accounting Standards Board (“FASB”) ASC Topic No. 350, Intangibles-Goodwill and Other, the
Company reviews the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a
potential impairment. The Company’s impairment testing is performed annually at December 31 (its fiscal year end). Recoverability
of goodwill is determined by comparing the fair value of Company’s reporting unit 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. As of September 30, 2021 and December 31,
2020, management determined there were no indications of impairment. The Company will perform their next impairment analysis in December
2021.
Intangible
Assets with Finite Useful Lives
We
have certain finite lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible
assets consist of developed technology. Intangible assets with finite useful lives are amortized using the straight-line method over
their estimated useful life of five years.
We
review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable.
If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair
value in our consolidated statements of operations. As of September 30, 2021, and December 31, 2020, there was no impairment of intangible
assets. The Company will perform their next impairment analysis in December 2021.
Fair
Value of Financial Instruments
The
Company follows the guidance of FASB ASC 820 and ASC 825 for disclosure and measurement of the fair value of its financial instruments.
FASB 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 acquired two operating subsidiaries, Verb Direct and Ascend Certification (dba “SoloFire”) (see Note 3)
with various revenue channels. Operations of these two subsidiaries are integrated since they have a similar customer base and the Company
has a single sales team, marketing department, customer service department, operations department, finance and accounting department
to support its operations. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating
decision maker (the Company’s Chief Executive Officer) determined that the Company has only one reporting unit or segment.
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 a 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.
In
August 2020, FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the
number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As
a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other
features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible
debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments
will require the Company to use the if-converted method. ASU 2020-06 will be effective January 1, 2024, for the Company and is to be
adopted through a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is permitted, but no earlier
than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU
2020-06 on the consolidated financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the
Company’s accounting for its convertible debt instruments. The effect will largely depend on the composition and terms of the financial
instruments at the time of adoption.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.
ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures
the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value
of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories
of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and
modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal
years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided
in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for
all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance
should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected
to have a material impact on the Company’s financial statements or disclosures.
Other
recent accounting pronouncements issued by FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management to have a material
impact on the Company’s present or future consolidated financial statements.
3.
ACQUISITIONS
The
Company made the following acquisitions in order to augment and diversify its internet and SaaS business:
a.
|
ACQUISITION
OF VERB DIRECT
|
On
April 12, 2019, Verb completed the acquisition of Verb Direct (formerly Sound Concepts, Inc.). As a result of this acquisition, the Company
recorded goodwill of $16,337,000 and intangible assets of $6,340,000. The goodwill recognized 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 mostly of developed technology of $4,700,000 are being amortized
over five years, customer relationships of $1,200,000 are being amortized on an accelerated basis over its estimated useful life of five
years and domain names of $440,000 are determined to have infinite lives but will be tested for impairment on an annual basis.
b.
|
ACQUISITION
OF ASCEND CERTIFICATION
|
On
September 4, 2020, Verb Acquisition Co., LLC (“Verb Acquisition”), a subsidiary of the Company, entered into a Membership
Interest Purchase Agreement (the “Purchase Agreement”) with Ascend Certification, LLC, dba SoloFire (“SoloFire”),
the sellers party thereto (collectively, the “Sellers”), and Steve Deverall, solely in his capacity as the seller representative,
under which Sellers sold their entire interest in SoloFire, representing all of the outstanding limited liability company membership
interests of SoloFire, to Verb Acquisition for a base purchase price of $5,700,000, subject to certain post-closing adjustments totaling
$750,000 for an adjusted purchase price of $4,950,000. As a result, Verb Acquisition issued to the Sellers an amended promissory note
of $1,885,000 and 2,642,159 Class B Units of Verb Acquisition which were exchangeable for 2,642,159 shares of Verb’s Common Stock
with an estimated fair value of $3,065,000 (see Note 16) for a total purchase price of $4,950,000. The promissory note was unsecured,
bore interest at a rate of 0.14% per annum and was paid in full at maturity on October 1, 2020.
The
acquisition was intended to augment and diversify Verb’s SaaS business. Key factors that contributed to the recorded goodwill and intangible assets in the aggregate of $4,845,000 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 SaaS business.
Verb
is required to allocate the purchase price to the acquired tangible assets, identifiable intangible assets, and assumed liabilities based
on their fair values. Pursuant to current accounting guidelines, the Company had one year to finalize the purchase price allocation.
As a result, in September 2021, management finalized the purchase price allocation. The following table summarizes the fair value
of the assets assumed and liabilities acquired and the purchase price allocation on the date of acquisition:
SCHEDULE OF FAIR VALUE OF ASSETS ASSUMED AND LIABILITIES ACQUIRED
Assets Acquired:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
229,000
|
|
|
|
|
|
Accounts receivable
|
|
|
207,000
|
|
|
$
|
436,000
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(241,000
|
)
|
|
|
|
|
Long-term liabilities
|
|
|
(90,000
|
)
|
|
|
(331,000
|
)
|
Intangible assets
|
|
|
|
|
|
|
1,419,000
|
|
Goodwill
|
|
|
|
|
|
|
3,426,000
|
|
Purchase Price
|
|
|
|
|
|
$
|
4,950,000
|
|
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 $1,400,000 are being amortized over five years, customer relationships
of $17,000 are being amortized over three years, and domain names of $2,000 are determined to have infinite lives but will be
tested for impairment on an annual basis.
During
the nine months ended September 30, 2021 and 2020, the Company recorded amortization expense of $180,000
and $33,000,
respectively, related to the intangibles discussed above. The following table summarizes the amortization expense for both Verb Direct
and Ascend to be recorded in future periods for intangible assets that are subject to amortization and excludes intangible assets with
infinite life (i.e., domain names) of $442,000:
SCHEDULE OF AMORTIZATION EXPENSE FOR FUTURE PERIODS FOR INTANGIBLE ASSETS
Year
ending
|
|
Amortization
|
|
2021
remaining (remaining 3 months)
|
|
$
|
416,000
|
|
2022
|
|
|
1,466,000
|
|
2023
|
|
|
1,464,000
|
|
2024
|
|
|
395,000
|
|
2025
and thereafter
|
|
|
186,000
|
|
Total
amortization
|
|
$
|
3,927,000
|
|
The
following unaudited pro forma statement of operations present the Company’s pro forma results of operations for the three and nine
months ended September 30, 2020, to give effect to the acquisition of SoloFire as if it had occurred on January 1, 2020.
SCHEDULE OF PRO FORMA STATEMENTS OF OPERATIONS
|
|
Three Months Ended
September 30, 2020
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
|
(Proforma,
unaudited)
|
|
|
(Proforma,
unaudited)
|
|
SaaS recurring subscription revenue
|
|
$
|
1,661,000
|
|
|
$
|
4,511,000
|
|
Other digital
|
|
|
360,000
|
|
|
|
1,166,000
|
|
Welcome kits and fulfilment
|
|
|
836,000
|
|
|
|
2,277,000
|
|
Shipping
|
|
|
186,000
|
|
|
|
614,000
|
|
Total revenue
|
|
|
3,043,000
|
|
|
|
8,568,000
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
1,344,000
|
|
|
|
3,661,000
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,699,000
|
|
|
|
4,907,000
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(9,771,000
|
)
|
|
|
(21,615,000
|
)
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
574,000
|
|
|
|
3,550,000
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(7,498,000
|
)
|
|
|
(13,158,000
|
)
|
|
|
|
|
|
|
|
|
|
Deemed dividends to Series A stockholders
|
|
|
-
|
|
|
|
(3,951,000
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributed to common stockholders
|
|
$
|
(7,498,000
|
)
|
|
$
|
(17,109,000
|
)
|
Pursuant
to the provisions of ASC 805, the following results of operations of Verb Acquisition subsequent to the acquisition date included in
the consolidated statement of operations for the reporting period:
SCHEDULE OF RESULTS OF OPERATION OF SUBSIDIARY
|
|
Three
Months Ended
September
30, 2020
|
|
|
Nine
Months
Ended
September
30, 2020
|
|
Revenue
|
|
$
|
276,000
|
|
|
$
|
795,000
|
|
Cost
of revenue
|
|
|
(65,000
|
)
|
|
|
(184,000
|
)
|
Operating
expenses
|
|
|
(897,000
|
)
|
|
|
(1,474,000
|
)
|
Other
income/ (expense)
|
|
|
-
|
|
|
|
-
|
|
Net
loss
|
|
$
|
(686,000
|
)
|
|
$
|
(863,000
|
)
|
4.
PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following as of September 30, 2021 and December 31, 2020.
SCHEDULE OF PROPERTY AND EQUIPMENT
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Computers
|
|
$
|
29,000
|
|
|
$
|
29,000
|
|
Furniture and fixture
|
|
|
75,000
|
|
|
|
75,000
|
|
Machinery and equipment
|
|
|
49,000
|
|
|
|
39,000
|
|
Leasehold improvement
|
|
|
1,058,000
|
|
|
|
1,058,000
|
|
Software development
|
|
|
2,329,000
|
|
|
|
-
|
|
Total property and equipment
|
|
|
3,540,000
|
|
|
|
1,201,000
|
|
Accumulated depreciation
|
|
|
(462,000
|
)
|
|
|
(339,000
|
)
|
Total property and equipment, net
|
|
$
|
3,078,000
|
|
|
$
|
862,000
|
|
During
the nine months ended September 30, 2021, the Company began developing MARKETPLACE the next generation of interactive
livestream ecommerce and capitalized $2,329,000
of internal and external development costs. The Company anticipates incurring an additional $3,900,000
of internal and external development costs to complete MARKETPLACE. In addition, the Company purchased $26,000
of machinery and equipment, sold certain machinery and equipment with a cost of $16,000 and
accumulated depreciation of $11,000 for
cash proceeds of $11,000.
As a result, the Company recognized a gain of $5,000 that
was reported as part of other income. Depreciation expense amounted to $134,000 and
$130,000 for
the nine months ended September 30, 2021 and 2020, respectively.
5.
RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
The
Company leases certain warehouse, corporate office space and equipment under an operating lease agreement. We determine if an arrangement
is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented
as lease liabilities in our consolidated balance sheets pursuant to ASC 842, Leases.
Operating
lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease
payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent
our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in lease arrangements is not readily
determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s
incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease
ROU asset includes any lease payments made and excludes lease incentives.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
SCHEDULE OF LEASE COST
|
|
Period Ended
September 30, 2021
|
|
|
Period Ended
September 30, 2020
|
|
Lease cost
|
|
|
|
|
|
|
|
|
Operating lease cost (included in general and administration in the Company’s statement of operations)
|
|
$
|
524,000
|
|
|
$
|
524,000
|
|
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
593,000
|
|
|
$
|
383,000
|
|
Weighted average remaining lease term – operating leases (in years)
|
|
|
4.15
|
|
|
|
4.70
|
|
Average discount rate – operating leases
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
SCHEDULE OF OPERATING LEASES
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
Operating
leases
|
|
|
|
|
|
|
|
|
Right-of-use
assets
|
|
$
|
2,305,000
|
|
|
$
|
2,730,000
|
|
|
|
|
|
|
|
|
|
|
Short-term
operating lease liabilities
|
|
$
|
582,000
|
|
|
$
|
596,000
|
|
Long-term
operating lease liabilities
|
|
|
2,464,000
|
|
|
|
2,943,000
|
|
Total
operating lease liabilities
|
|
$
|
3,046,000
|
|
|
$
|
3,539,000
|
|
SCHEDULE OF PRESENT VALUE OF LEASE LIABILITIES
Year
ending
|
|
Operating
Leases
|
|
2021
(remaining 3 months)
|
|
$
|
184,000
|
|
2022
|
|
|
751,000
|
|
2023
|
|
|
773,000
|
|
2024
|
|
|
472,000
|
|
2025
and thereafter
|
|
|
1,189,000
|
|
Total
lease payments
|
|
|
3,369,000
|
|
Less:
Imputed interest/present value discount
|
|
|
(323,000
|
)
|
Present
value of lease liabilities
|
|
$
|
3,046,000
|
|
6.
ADVANCE OF FUTURE RECEIPTS
The
Company has the following advances on future receipts as of September 30, 2021:
SCHEDULE OF ADVANCES ON FUTURE RECEIPTS
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at September 30, 2021
|
|
|
Balance
at December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
A
|
|
June
30, 2020
|
|
February
25, 2021
|
|
|
28
|
%
|
|
$
|
506,000
|
|
|
$
|
-
|
|
|
$
|
89,000
|
|
Note
B
|
|
June
30, 2020
|
|
February
25, 2021
|
|
|
28
|
%
|
|
|
506,000
|
|
|
|
-
|
|
|
|
88,000
|
|
Note
C
|
|
January
13, 2021
|
|
September
10, 2021
|
|
|
28
|
%
|
|
|
844,000
|
|
|
|
-
|
|
|
|
-
|
|
Note
D
|
|
January
13, 2021
|
|
September
10, 2021
|
|
|
28
|
%
|
|
|
844,000
|
|
|
|
-
|
|
|
|
-
|
|
Note
E
|
|
January
22, 2021
|
|
July
1, 2021
|
|
|
28
|
%
|
|
|
2,040,000
|
|
|
|
-
|
|
|
|
-
|
|
Note
F
|
|
February
18, 2021 – March 3, 2021
|
|
August
3, 2021 – August 15, 2021
|
|
|
3
|
%
|
|
|
1,696,000
|
|
|
|
-
|
|
|
|
-
|
|
Note
G
|
|
June
30, 2021
|
|
December
31, 2021
|
|
|
7
|
%
|
|
|
1,210,000
|
|
|
|
618,000
|
|
|
|
|
|
Note
H
|
|
June
30, 2021
|
|
March
1, 2022
|
|
|
28
|
%
|
|
|
2,720,000
|
|
|
|
1,750,000
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
10,366,000
|
|
|
|
2,368,000
|
|
|
|
177,000
|
|
Debt
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(515,000
|
)
|
|
|
(67,000
|
)
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,853,000
|
|
|
$
|
110,000
|
|
Note
A and B
On
June 30, 2020, 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 notes did not bear any interest, however, the average interest was imputed at a rate of 28% based on the face value of the
note and the proceeds received. As a result, the Company recorded a liability of $1,012,000 to account for the future receipts sold and
a debt discount of $284,000 to account for the difference between the future receipts sold and the cash received. The debt discount is
being amortized over the term of the agreement.
During
the nine months ended September 30, 2021, the Company paid the entire balance due of $177,000 and amortized the remaining debt discount
of $67,000.
Note
C and D
On
January 13, 2021, the Company received two secured advances from the same unaffiliated third party (see Note 1 and 2) totaling $1,213,000
for the purchase of future receipts/revenues of $1,688,000. Pursuant to the terms of the agreement the unaffiliated third-party will
auto withdraw an aggregate of $11,000 from the Company’s operating account each banking day. The term of the agreement extends
until the advances are paid in full. The notes did not bear any interest, however, the average interest was imputed at a rate of 28%
based on the face value of the note and proceeds received. The Company may pay off either note for $744,000 if paid within 30 days of
funding; for $775,000 if paid between 31 and 60 days of funding; or for $806,000 if paid within 61 to 90 days of funding. These advances
are secured by the Company’s tangible and intangible assets. As a result, the Company recorded a liability of $1,688,000 to account
for the future receipts sold and a debt discount of $475,000 to account for the difference between the future receipts sold and the cash
received. The debt discount is being amortized over the term of the agreement.
During
the nine months ended September 30, 2021, the Company paid the entire balance due of $1,688,000 and amortized $475,000 of the debt discount.
Note
E
On
January 22, 2021, the Company received proceeds from a secured advance from an unaffiliated third party totaling $1,440,000
for the purchase of future receipts/revenues
of $2,040,000.
Pursuant
to the terms of the agreement the unaffiliated third-party will auto withdraw an aggregate of $13,000
from the Company’s operating account each banking
day. The term of the agreement extends until the advances are paid in full. The notes did not bear any interest, however, the interest
was imputed at a rate of 28%
based on the face value of the note and the
proceeds received. The Company may pay off the note for $1,725,000 if paid within 30 days of funding; for $1,860,000 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 a result, the Company recorded a liability of $2,040,000
to account for the future receipts sold and a
debt discount of $600,000
to account for the difference between the future
receipts sold and the cash received. The debt discount is being amortized over the term of the agreement.
During
the nine months ended September 30, 2021, the Company paid the entire balance of $2,040,000 and amortized $600,000 of the debt discount.
Note
F
In
February and March of 2021, the Company received secured advances from an unaffiliated third party totaling $1,637,000 for the purchase
of future receipts/revenues of $1,696,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw an
average of $283,000 from the Company’s operating account each month. The term of the agreement extends until the advances are paid
in full. The notes did not bear any interest, however, the interest was imputed at a rate of 3% based on the face value of the notes
and the proceeds received. As a result, the Company recorded a liability of $1,696,000 to account for the future receipts sold and a
debt discount of $59,000 to account for the difference between the future receipts sold and the cash received. The debt discount is being
amortized over the term of the agreement.
During
the nine months ended September 30, 2021, the Company paid the entire balance of $1,696,000 and amortized $59,000 of the debt discount.
Note
G
On
June 30, 2021, the Company received secured advances from an unaffiliated third party totaling $1,118,000
for the purchase of future receipts/revenues
of $1,210,000.
Pursuant
to the terms of the agreement the unaffiliated third-party will auto withdraw an average of $197,000 from the Company’s operating
account each month. The term of the agreement extends until the advances are paid in full. The notes did not bear any interest, however,
the interest was imputed at a rate of 7%
based
on the face value of the notes and the proceeds received. As
a result, the Company recorded a liability of $1,210,000
to account for the future receipts sold and a
debt discount of $92,000
to account for the difference between the future
receipts sold and the cash received. The debt discount is being amortized over the term of the agreement.
During
the nine months ended September 30, 2021, the Company paid $592,000 and amortized $50,000 of the debt discount. As of September 30, 2021,
the outstanding balance of the note amounted to $618,000 and the unamortized balance of the debt discount was $42,000.
Note
H
On
June 30, 2021, the Company received secured advances from an unaffiliated third party totaling $1,960,000 for the purchase of future
receipts/revenues of 2,720,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw an aggregate of
$15,200 from the Company’s operating account each banking day. The term of the agreement extends until the advances are paid in
full. The notes did not bear any interest, however, the interest was imputed at a rate of 28% based on the face value of the note and
the proceeds received. The Company may pay off the note for $2,200,000 if paid within 45 days of funding and for $2,380,000 if paid between
46 and 60 days of funding. These advances are secured by the Company’s tangible and intangible assets. As a result, the Company
recorded a liability of $2,720,000 to account for the future receipts sold and a debt discount of $760,000 to account for the difference
between the future receipts sold and the cash received. The debt discount is being amortized over the term of the agreement.
During
the nine months ended September 30, 2021, the Company paid $970,000 and amortized $287,000 of the debt discount. As of September 30,
2021, the outstanding balance of the note amounted to $1,750,000 and the unamortized balance of the debt discount was $473,000.
7. NOTES PAYABLE – RELATED PARTIES
The
Company had the following related party notes payable as of September 30, 2021 and December 31, 2020:
SCHEDULE OF NOTES PAYABLE TO RELATED PARTIES
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
September 30,
2021
|
|
|
Balance
at
December 31,
2020
|
|
Note
1 (A)
|
|
December
1, 2015
|
|
February
8, 2023
|
|
|
12.0
|
%
|
|
$
|
1,249,000
|
|
|
$
|
725,000
|
|
|
$
|
725,000
|
|
Note
2 (B)
|
|
December
1, 2015
|
|
April
1, 2017
|
|
|
12.0
|
%
|
|
|
112,000
|
|
|
|
-
|
|
|
|
112,000
|
|
Note
3 (C)
|
|
April
4, 2016
|
|
June
4, 2021
|
|
|
12.0
|
%
|
|
|
343,000
|
|
|
|
40,000
|
|
|
|
240,000
|
|
Total
notes payable – related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
765,000
|
|
|
|
1,077,000
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(725,000
|
)
|
|
|
-
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,000
|
|
|
$
|
1,077,000
|
|
|
(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 matured on February
8, 2021, as amended. A
total of 30%
of the original note balance
or $375,000
was convertible to common
stock and was converted in 2018 while the remaining note balance of $825,000
is not convertible.
During the year ended December 31, 2020, the Company made payments of $100,000.
On February 25, 2021 the Company extended the note to February 8, 2023 with no changes to the other terms of the note agreement.
As of December 31, 2020, the outstanding balance of the note amounted to $725,000.
|
|
|
|
|
|
In February 2021, the Mr. Cutaia and Company amended the note payable and extended the maturity date from February 8, 2021 to February 8, 2023 or an extension of two years. In exchange for the extension, the Company issued Mr. Cutaia warrants to purchase 138,889 shares of common stock with a fair value of $287,000. The warrants are fully vested, exercisable at $2.61 per share and will expire in three years. There were no other changes to the original terms of the note payable. In accordance with ASC 450-70, modifications or exchanges are considered extinguishments with gains or losses recognized in current earnings if the terms of the new debt and original instrument are substantially different. The instruments are considered “substantially different” when the present value of the cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. As the fair value of the warrants granted amounted to $287,000 for which is approximately 40% of the outstanding note payable, pursuant to ASC 470, the Company accounted the modification as an extinguishment of debt which requires the measurement of the modified debt and additional consideration to be at fair value. As a result, the Company recognized a loss on debt extinguishment of $287,000 and a corresponding credit to contributed capital. On May 19, 2021 the Board approved the ability to convert the note into equity at the discretion of the holder. The conversion price is the fair market value of the Company’s common stock on the day of conversion.
|
|
|
|
|
|
As
of September 30, 2021, the outstanding balance of the note amounted to $725,000.
|
|
|
|
|
(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 December 31, 2020, the outstanding principal balance of the note amounted to $112,000.
On
September 24, 2021 the Company settled the entire note payable and all corresponding accrued interest and accounts
payable related to the former board member for $140,000,
which resulted in a gain of $82,000.
|
|
|
|
|
(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. A total of 30% of the original note balance or $103,000
was convertible to common stock and was converted in 2018 while the remaining note balance of $240,000 is not convertible. The note
bears interest at a rate of 12% per annum, is secured by the Company’s assets, and matured on June 4, 2021, as amended. On
May 19, 2021 the Board approved the ability to convert the note into equity at the discretion of the holder. The conversion price
is the fair market value of the Company’s common stock on the day of conversion. On May 19, 2021 $200,000 was converted into
194,175 shares of common stock. The conversion price was $1.03 that was the closing price of the Company’s common stock on
the day of conversion.
|
|
|
|
|
|
As
of September 30, 2021, and December 31, 2020, the outstanding balance of the note amounted to $40,000 and $240,000, respectively.
|
Total
interest expense for notes payable to related parties was $88,000 and $106,000 for the nine months ended September 30, 2021 and 2020,
respectively. The Company paid $112,000 and $100,000 in interest for the nine months ended September 30, 2021 and 2020, respectively.
8. NOTES PAYABLE
The
Company had the following notes payable as of September 30, 2021:
SCHEDULE OF NOTES PAYABLE
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Balance
at
September 30, 2021
|
|
|
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
|
|
|
|
150,000
|
|
Note
C
|
|
May
1, 2020
|
|
May
1, 2022
|
|
|
3.75
|
%
|
|
|
-
|
|
|
|
90,000
|
|
Total
notes payable
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
1,458,000
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
(150,000
|
)
|
|
|
(1,458,000
|
)
|
Current
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(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
PPP loan was payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. As
of December 31, 2020, the outstanding balance of the PPP loan was $1,218,000.
On
January 4, 2021 the entire PPP loan and accrued interest, totaling $1,226,000,
was forgiven and accounted as a gain on debt extinguishment.
|
|
|
|
|
(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, 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 fiscal 2020.
|
|
|
|
|
(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 same PPP (see discussion “A”).
On
May 17, 2021 the entire note and accrued interest, totaling $91,000, was forgiven and accounted as a gain on debt extinguishment.
|
9. DEFERRED INCENTIVE COMPENSATION TO OFFICERS
SCHEDULE OF DEFERRED INCENTIVE COMPENSATION TO OFFICERS
Note
|
|
Date
|
|
|
Payment
Date
|
|
Balance
at
September 30, 2021
|
|
|
Balance
at
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rory
Cutaia (A)
|
|
|
December
23, 2019
|
|
|
50%
on January 10, 2021 and 50% on January 10, 2022
|
|
$
|
215,000
|
|
|
$
|
430,000
|
|
Rory
Cutaia (B)
|
|
|
December
23, 2019
|
|
|
50%
on January 10, 2021 and 50% on January 10, 2022
|
|
|
161,000
|
|
|
|
324,000
|
|
Jeff
Clayborne (A)
|
|
|
December
23, 2019
|
|
|
50%
on January 10, 2021 and 50% on January 10, 2022
|
|
|
63,000
|
|
|
|
125,000
|
|
Jeff
Clayborne (B)
|
|
|
December
23, 2019
|
|
|
50%
on January 10, 2021 and 50% on January 10, 2022
|
|
|
82,000
|
|
|
|
163,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
521,000
|
|
|
|
1,042,000
|
|
Non-current
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(521,000
|
)
|
Current
|
|
|
|
|
|
|
|
$
|
521,000
|
|
|
$
|
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 these employees. The Company paid 50% of the Annual Incentive Compensation
on January 10, 2021 and will pay the remaining 50% on January 10, 2022.
During
the nine months ended September 30, 2021, the Company paid $278,000 of the outstanding balance. As of September 30, 2021, the outstanding
balance amounted to $278,000.
|
|
|
|
|
(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 $163,000,
respectively. The Company has determined that it is in its best interest and in the best interest of its stockholders to defer payments
to these employees. The Company paid 50% of the Nasdaq Up-Listing Award on January 10, 2021 and the remaining 50% will be paid on
January 10, 2022.
During
the nine months ended September 30, 2021, the Company paid $243,000 of the outstanding balance. As of September 30, 2021, the outstanding
balance amounted to $243,000.
|
10. CONVERTIBLE SERIES A PREFERRED STOCK AND WARRANT OFFERING
On
August 14, 2019, we entered into the Securities Purchase Agreement (“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, were 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.
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 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.
We are also prevented from issuing shares of Common Stock upon 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 exercise date, (i) in connection with the exercise of any August
Warrants issued pursuant to the SPA, and (ii) 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 were accounted as
a derivative liability issuance in 2019 (see Note 11).
During
the nine months ended September 30, 2021, the entire 2,006 shares of Preferred Stock were converted into 1,978,728 shares of Common Stock,
which included 155,087 shares of common stock issued as a contractual inducement to convert with a fair value of $348,000. Pursuant to
current accounting guidelines, the Company recorded the fair value of $348,000 as a deemed dividend. As of September 30, 2021, there
are no shares of Series A Preferred stock issued and outstanding.
11. DERIVATIVE LIABILITY
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. In prior years, 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 fundamental transaction clause of these warrants is 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:
SCHEDULE OF DERIVATIVE LIABILITY USING BINOMIAL PRICING MODEL ASSUMPTIONS
|
|
September 30,
2021
|
|
|
Upon
Extinguishment in 2021
|
|
|
December 31, 2020
|
|
Stock Price
|
|
$
|
1.92
|
|
|
$
|
2.47
|
|
|
$
|
1.65
|
|
Exercise Price
|
|
$
|
1.41
|
|
|
$
|
1.18
|
|
|
$
|
1.41
|
|
Expected Life
|
|
|
2.42
|
|
|
|
3.32
|
|
|
|
3.17
|
|
Volatility
|
|
|
122
|
%
|
|
|
144
|
%
|
|
|
107
|
%
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-Free Interest Rate
|
|
|
0.35
|
%
|
|
|
0.33
|
%
|
|
|
0.23
|
%
|
Total Fair Value
|
|
$
|
5,839,000
|
|
|
$
|
4,513,000
|
|
|
$
|
8,266,000
|
|
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, 2020, the outstanding fair value of the derivative liability amounted to $8,266,000.
During
the nine months ended September 30, 2021, the Company recorded a charge of $2,086,000
to account for the changes in the fair value
of these derivative liabilities. In addition, 1,829,190
of the Series A warrants that were accounted
as a derivative liability were exercised to common stock and 33,334
warrants that were accounted as a derivative
liability were forfeited as part of a legal settlement (see Note 17). As a result, the Company computed the fair value of the corresponding
derivate liabilities one last time that amounted to $4,513,000
and pursuant to current accounting guidelines,
the extinguishment was accounted as part of equity.
At
September 30, 2021, the fair value of the derivative liability amounted to $5,839,000.
The details of derivative liability transactions for the nine months
ended September 30, 2021 and 2020 are as follows:
SCHEDULE OF DERIVATIVE LIABILITY TRANSACTIONS
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
Beginning balance
|
|
$
|
8,266,000
|
|
|
$
|
5,048,000
|
|
Fair value upon issuance of notes payable and/or warrants
|
|
|
-
|
|
|
|
3,951,000
|
|
Change in fair value
|
|
|
2,086,000
|
|
|
|
(4,295,000
|
)
|
Extinguishment
|
|
|
(4,513,000
|
)
|
|
|
(159,000
|
)
|
Ending balance
|
|
$
|
5,839,000
|
|
|
$
|
4,545,000
|
|
12. COMMON STOCK
The
Company’s Common Stock activity for the nine months ended September 30, 2021 was as follows:
Common
Stock
Shares
Issued as Part of the Company’s Public Offering
On
March 15, 2021, 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 which resulted in net proceeds of $14,129,000. Included in the $14,129,000
is a refund of $144,000 from the underwriter.
Shares
Issued as Part of the Company’s At-The Market Issuances
In
August 2021, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) (“ATM”)
with Truist Securities, Inc. (the “Sales Agent”), pursuant to the Company’s Registration Statement on Form S-3
(File No. 333-252167). The ATM offering is a follow-on offering of securities utilized by the Company in order to raise capital
over a period of time. In an ATM offering, the Company sells newly issued shares into the trading market through a designated sales
agent at prevailing market prices.
During
the nine months ended September 30, 2021, the Company received net proceeds of $4,722,000.
The Company terminated the Sales Agreement in October 2021.
Shares
Issued for Services
During
the nine months ended September 30, 2021, the Company issued 1,198,610 shares of Common Stock to certain employees and vendors for services
rendered and to be rendered with a fair value of $2,057,000. 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. In
addition, 104,790 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 $131,000. Pursuant to current accounting guidelines, the Company accounted the
return of the 104,790 shares and the payment of $131,000 for income and payroll taxes paid on behalf the employees as a reduction in
additional paid in capital, or a net balance of $1,926,000.
Shares
Issued for Debt
During
the nine months ended September 30, 2021, the Company issued 182,397 shares of Common Stock to employees as settlement
of payroll of $281,000 that was previously recorded as accrued payroll as of December 31, 2020 or March 31, 2021. These shares of Common
Stock were valued based on the market value of the Company’s Common Stock price at the issuance date and approximates the carrying
value of the accrued payroll.
Shares
Issued for Accounts Payable
During the nine months ended, the
Company converted an aggregate of $19,000 in accounts payable to Kimerling & Wisdom, LLC into 10,500 shares of its restricted Common
Stock. Such securities were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Shares
Issued from Conversion of Note Payable – Related Party
During
the nine months ended, the Company issued 194,175 shares of Common Stock upon a partial conversion of a note payable of the Company’s
Chief Executive Officer totaling $200,000. The conversion price was $1.03, which was closing price of the Company’s common stock
on the day of conversion.
Shares
Issued for Settlement of Litigation
During
the nine months ended September 30, 2021, the Company issued 600,000 shares to EMA Financial to settle a litigation. The
fair market value of the shares issued was based on the closing price of Company’s stock on the day of settlement which amounted
to $678,000. As of the settlement date the Company had previously accrued $585,000 and as a result the Company recorded an additional
$93,000 in general and administrative expenses to account for the difference between the fair value of the common shares issued and amount
accrued.
13. RESTRICTED STOCK AWARDS
On
December 20, 2019, the Company approved and adopted the Verb Technology Company, Inc. 2019 Omnibus Incentive Plan (the “Plan”).
A
summary of restricted stock unit activity for the nine months ended September 30, 2021 is presented below.
SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2020
|
|
|
2,185,946
|
|
|
$
|
1,943,000
|
|
|
$
|
1.17
|
|
Granted
|
|
|
813,265
|
|
|
|
1,374,000
|
|
|
|
1.69
|
|
Vested/deemed vested
|
|
|
(889,212
|
)
|
|
|
(1,285,000
|
)
|
|
|
1.09
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested at September 30, 2021
|
|
|
2,109,999
|
|
|
$
|
2,032,000
|
|
|
$
|
1.41
|
|
On
January 4, 2021, 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 up to January 2025. 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.
The
total fair value of restricted stock units that vested or deemed vested for the nine months ended September 30, 2021 was $1,285,000
and is included in general and administrative
expenses in the accompanying condensed consolidated statements of operations. In addition, during the nine months ended September
30, 2021, the Company issued 889,212
shares of its restricted stock based upon its
vesting. As of September 30, 2021 the amount of unvested compensation related to issuances of restricted stock units was $2,032,000
which will be recognized as an expense in future
periods as the shares vest. When calculating basic net loss per share, these shares are included in weighted average common shares outstanding
from the time they vest. When calculating diluted net loss per share, these shares are included in weighted average common shares outstanding
as of their grant date.
14. STOCK OPTIONS
On
December 20, 2019, the Company adopted its 2019 Omnibus Incentive Plan (the “Plan”).
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 nine months ended September 30, 2021 is presented below.
SCHEDULE OF STOCK OPTION ACTIVITY
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
6,031,775
|
|
|
$
|
1.55
|
|
|
|
2.68
|
|
Granted
|
|
|
2,150,833
|
|
|
|
1.69
|
|
|
|
-
|
|
Forfeited
|
|
|
(2,078,473
|
)
|
|
|
2.52
|
|
|
|
-
|
|
Exercised
|
|
|
(575,730
|
)
|
|
|
1.28
|
|
|
|
-
|
|
Outstanding at September 30, 2021
|
|
|
5,528,405
|
|
|
$
|
1.70
|
|
|
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested September 30, 2021
|
|
|
2,685,732
|
|
|
$
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2021
|
|
|
2,013,888
|
|
|
$
|
2.01
|
|
|
|
|
|
At
September 30, 2021, the intrinsic value of the outstanding options was $1,939,000.
During
the nine months ended September 30, 2021, the Company granted stock options to employees to purchase a total of 2,150,833
shares of Common Stock for services rendered.
The options have an average exercise price of $1.69
per share, expire in five years, vesting one
and four years from grant date. The total fair value of these options at grant date was approximately $3,563,000
using the Black-Scholes Option Pricing model.
The total stock compensation expense recognized relating to the vesting of stock options for the nine months ended September 30, 2021
amounted to $1,234,000.
As of September 30, 2021, the total unrecognized stock-based compensation
expense was $2,940,000,
which is expected
to be recognized as part of operating expense through September 2025. In
addition, a total of 575,730
shares of stock options were exercised. As a
result of the exercise of the option, the Company issued 509,465
shares of common stock and received cash of $569,000.
The
fair value of share option award is estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:
SCHEDULE OF FAIR VALUE ASSUMPTIONS USING BLACK-SCHOLES METHOD
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Risk-free interest rate
|
|
|
0.10% - 0.92
|
%
|
|
|
0.17%
- 0.39
|
%
|
Average expected term
|
|
|
5 years
|
|
|
|
1 to 5 years
|
|
Expected volatility
|
|
|
232.84 -240.03
|
%
|
|
|
270.10 - 270.57
|
%
|
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.
15.
STOCK WARRANTS
The
Company had the following warrants outstanding as of September 30, 2021, all of which are exercisable:
SCHEDULE OF WARRANTS OUTSTANDING
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Average
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|
|
Remaining
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|
|
|
|
|
|
Exercise
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|
|
Contractual
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|
Warrants
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|
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Price
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Life (Years)
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|
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|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
13,351,251
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|
|
$
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2.48
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|
|
|
3.38
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|
Granted
|
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138,889
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|
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2.61
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|
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-
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Forfeited
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(196,449
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)
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6.38
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|
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-
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Exercised
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(2,285,389
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)
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1.25
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-
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Outstanding at September 30, 2021, all vested
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|
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11,008,302
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|
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$
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2.67
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|
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2.63
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At
September 30, 2021 the intrinsic value of the outstanding warrants was $2,996,000.
During
the nine ended September 30, 2021, the Company granted 138,889
warrants with a fair value of $287,000
to an officer as part of a note payable modification
(see Note 7).
During
the nine months ended September 30, 2021, a total of 2,285,389
warrants were exercised into a cash and cashless
basis, which resulted in the issuance of 2,254,411
shares of Common Stock at a weighted average
exercise price of $1.25.
The Company received cash of $2,784,000
upon exercise of the warrants.
16. ISSUANCE OF CLASS A and B UNITS
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a.
|
Class
A Units – During the year ended December 31, 2020, the Company created a 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:
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|
1.
|
Class
A units are a standalone financial instrument;
|
|
2.
|
Priority
on distributions;
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|
3.
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Ability
to remove the manager;
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|
4.
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Drag-along
rights;
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|
5.
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Power
to dissolve Verb Acquisition provided that a majority of the Class B Units also approve the dissolution;
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6.
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Ability
to appoint a liquidator to wind up the affairs of Verb Acquisition;
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7.
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Entitled
to distributions;
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|
8.
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Approve
board appointments; and
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9.
|
Approve
any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class B Units also approve the amendment.
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There
were 100 issued and outstanding shares of Class A Unit as of September 30, 2021 and December 31, 2020.
|
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.
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Power
to dissolve Verb Acquisition, provided that a majority of the Class A Units also approve the dissolution;
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|
4.
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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. As of December 31,
2020, Class B shares issued and outstanding totaled 2,642,159 shares.
During
the period ended September 30, 2021, pursuant to the terms of the Class B shares, all holders of the Company’s Class B shares converted
their shares to common stock. As a result of these conversions, the Company reclassified the recorded fair value of the Class B shares
of $3,065,000 as part of additional paid in capital. As of the September 30, 2021, all 2,642,159 Class B units were converted into 2,642,159
shares of Verb Technology common stock.
17. COMMITMENTS AND CONTINGENCIES
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. This
former employee filed his complaint in the Superior Court of California for the County of Los Angeles on November 20, 2019, styled Meyerson
v. Verb Technology Company, Inc., et al. (Case No. 19STCV41816). 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.
On October 13, 2021, the court issued an order (i) denying the former employee’s motion for summary judgment, (ii) partly granting
the former employee’s motion for summary adjudication, and (iii) partly denying the former employee’s motion for summary
adjudication. The court has not set a definitive trial date for this matter but expects it to occur in the first half of 2022. The Company
believes that the resolution of this matter will have no material effect on the Company or its operations.
|
b.
|
Legal
Malpractice Action
|
The Company is currently in a dispute
with Baker Hostetler LLP (“BH”) relating to corporate legal services provided by BH to the Company. The Company filed its
complaint in the Superior Court of California for the County of Los Angeles on May 17, 2021, styled Verb Technology Company, Inc.
v. Baker Hostetler LLP, et al. (Case No. 21STCV18387). The Company’s complaint arises from BH’s alleged legal malpractice,
breach of fiduciary duties owed to the Company, breach of contract, and violations of California’s Business and Professions Code
Section 17200 et seq. On October 5, 2021, BH filed a cross-complaint against the Company alleging, amongst other things, that the Company
owes it approximately $915,000 in legal fees. The Company disputes owing this amount to BH. The Company believes that the resolution
of these matters will have no material effect on the Company or its operations.
The
Company believes it has adequately reserved for all litigation within its financial statements.
Board
of Directors
The
Company has committed an aggregate of $475,000 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 nine months ended September 30, 2021 was $356,000. As of September 30, 2021, total board fees to be recognized
in future period amounted to $119,000 and will be recognized once the service has been rendered.
18. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through November 10, 2021, the date these financial statements are available to be issued. The
Company believes there were no material events or transactions discovered during this evaluation that requires recognition or disclosure
in the financial statements other than the items discussed below.
Issuance
of Common Stock
Subsequent
to September 30, 2021, the Company issued 33,499
shares of Common Stock with average fair
market value of $2.06
per share to vendors for services rendered.
Subsequent
to September 30, 2021, a total of 167,250
options were exercised into 167,250
shares of Common Stock at an average exercise
price of $1.42.
The Company received cash of $232,000
upon exercise of the options.
Grant
of Stock Options
Subsequent
to September 30, 2021, the Company granted stock options to employees to purchase a total of 62,500
shares of Common Stock for services to be
rendered. The options have an average exercise price of $2.00
per share, expire in five
years, and vest over a period of 4
years from grant date. The total fair value of
these options at the grant date was $124,000
using the Black-Scholes option pricing model.
Shares Issued as Part of the
Company’s At-The Market Issuances
Subsequent to September 30, 2021,
the Company received $185,000 of net proceeds associated with an At-The-Market Issuance.
Advance
on Future Receipts
Subsequent
to September 30, 2021, the Company received advances from unaffiliated third parties totaling $4,815,000 for the purchase of future receipts/revenues
of $5,928,000. Pursuant to the terms of the agreement the unaffiliated third parties will auto withdraw an aggregate of $19,000 from
the Company’s operating account each banking day plus an average monthly payment of $353,000 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 $5,228,000 if paid within 45 days
of funding or for $5,452,000 if paid between 46 and 60 days of funding.