Notes
to Condensed Consolidated Financial Statements
For
the Nine months ended September 30, 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.
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 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.
The par value per share of our Common Stock was not affected by the Reverse Stock Split. All shares and per share amounts have
been retroactively restated as if the reverse split occurred at the beginning of the earliest period presented.
Nature
of Business
We
are a Software-as-a-Service (“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 application, verbLEARN, our Learning Management System application, and verbLIVE, our Live Stream
eCommerce 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. We use the term “client” and “customer” interchangeably.
|
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/A for the fiscal year ended December 31, 2019 filed with the SEC on June 4, 2020. The
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., Verb Direct, LLC, its wholly owned subsidiary,
and Verb Acquisition Co, 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 nine months ended September 30, 2020, the Company incurred a net loss of $12,690,000
and used cash in operations of $9,790,000. 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 September 30, 2020, we had cash on hand of $10,772,000. We believe we have sufficient cash to sustain operations through September
2021. 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 September 30, 2020,
we had no customers that accounted for 10% of our accounts receivable individually. As of December 31, 2019, we had
one customer that accounted for 10% of our accounts receivable individually and in aggregate. As of September 30, 2020 and
2019, we had no customers who accounted for 10% or more of our revenues.
As
of September 30, 2020, we had two vendors that accounted for 10% or more of our accounts payable individually and 38%
in aggregate. As of December 31, 2019, we had one vendor that accounted for 10% or more of our accounts payable individually
and in aggregate. As of September 30, 2020 and 2019, we had one vendor that accounted 10% or more of our purchases.
Reclassifications
Certain
revenue amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
These reclassifications consist of reclassification of digital revenue between SaaS recurring subscription revenue and other digital
revenue to provide additional clarity. These reclassifications had no effect to the previously reported net loss.
Revenue
Recognition
The
Company derives its revenue primarily from subscriptions to its digital SaaS application services, though it also derives revenue
from certain non-digital services, such as printing and fulfillment services, the Company provides to some of its larger enterprise
clients. The subscription revenue from the application services are recognized over the life of the subscription contracts and
any extensions thereto. While the Company has been offering subscription services for a limited period of time, to date, the
Company estimates the life of the subscription period to be approximately 36 months. The Company also charges customers setup,
design, and installation fees for the development of websites among other associated and complimentary services. 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 non-digital revenue, and the related costs are reflected in cost
of non-digital 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 the digital delivery of access to our applications, and our performance
obligations are satisfied at that time. Shipping and handling activities for our non-digital services 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.
Design
assets of the websites and applications are recognized when the work is completed. Licensing revenue is recognized over the estimated
subscription period.
A
description of our principal revenue generating activities is as follows:
SaaS
recurring subscription revenue – represents digital subscription-based SaaS recurring revenue associated with verbCRM, verbLEARN,
and verbLIVE. The revenue is recognized over the subscription period.
Other
Digital – represents digital non-subscription-based revenue consisting of product sample revenue as well as design
fees generated through or in connection with our applications. 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.
Welcome kits and fulfilment –
We offer design and printing services to certain of our larger clients who request corporate starter kits for their
new sales reps, and fulfillment of various customer products that our clients use for their marketing needs. The revenue is
recognized upon completion and shipment of the starter kits or fulfillment products to the customer.
Shipping
– We charge our customers the costs plus a markup related to the shipping of their welcome kits and fulfillment products.
The revenue is recognized when the corresponding welcome kits or fulfillment products are shipped.
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.
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.
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.
As of September 30, 2020, and 2019, the Company had total outstanding options of 5,099,038 and 2,914,641, respectively, and warrants
of 13,351,245 and 11,132,960, respectively, outstanding restricted stock awards of 2,908,530 and 0, and 2,642,159 shares common
shares potentially issuable from our Class B Units that were issued in August 2020, were excluded from the computation of net
loss per share because they are anti-dilutive.
Goodwill
and Intangible Assets
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.
The
acquisition of Verb Acquisition Co formerly Ascend Certification, occurred on September 4, 2020. The Company will perform its
first impairment test in fiscal 2021.
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 September 30, 2020 or December 31, 2019.
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.
In
August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number
of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result
in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible
instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly
and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception
from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded
as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s
own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective July 1, 2024, for the Company.
Early adoption is permitted, but no earlier than July 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.
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.
|
a.
|
ACQUISITION
OF VERB DIRECT
|
On April 12, 2019, Verb completed
its acquisition of Verb Direct (formerly known as Sound Concepts, Inc.) 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 a 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 for a total purchase price of $22,820,000.
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 nine months ended September 30, 2020, the Company recorded amortization expense of $945,000. As of September 30, 2020, the
remaining unamortized balance of the intangible assets was $4,420,000.
Subsequent
to its acquisition, Verb Direct recognized revenues in the aggregate of $7.7 million and $6.6 million during the nine months
ended September 30, 2020 and 2019, respectively and $2.8 million and $2.9 million during the three months ended September 30,
2020 and 2019, respectively.
|
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 agreed to sell 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 are 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 is unsecured, bears interest at a rate of 0.14% per annum and
will mature in October 2020. The amended promissory note was paid in full on October 1, 2020.
The acquisition was intended to augment and diversify Verb’s
SaaS business. Key factors that contributed to the recorded provisional goodwill and intangible assets in the aggregate of $5,245,000
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. At the date of the acquisition and of this Quarterly Report on Form 10-Q, management has not yet finalized
its valuation analysis. The fair values of the assets acquired, as set forth below, are considered provisional and subject to
adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from
the closing date). Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company
is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of provisional goodwill
and intangible assets. The following table summarizes the provisional fair value of the assets assumed and liabilities acquired
and the provisional purchase price allocation on the date of acquisition:
|
Assets Acquired:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
229,000
|
|
|
|
|
|
|
Accounts receivable
|
|
|
219,000
|
|
|
$
|
448,000
|
|
|
Liabilities
Assumed:
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(653,000
|
)
|
|
|
|
|
|
Long-term liabilities
|
|
|
(90,000
|
)
|
|
|
(743,000
|
)
|
|
Intangible assets (provisional)
|
|
|
|
|
|
|
1,883,000
|
|
|
Goodwill (provisional)
|
|
|
|
|
|
|
3,362,000
|
|
|
Purchase Price
|
|
|
|
|
|
$
|
4,950,000
|
|
The
provisional 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
provisional intangible assets, which consist of developed technology of $1,700,000 are being amortized over 5-years, customer
relationships of $120,000 are being amortized over 3 years, non-competition clause of $60,000 is being amortized over 3 years,
and domain names of $3,000 are determined to have infinite lives but will be tested for impairment on an annual basis.
During
the nine months ended September 30, 2020, the Company recorded amortization expense of $33,000. As of September 30, 2020, the
remaining unamortized balance of the intangible assets was $1,850,000.
The
following comparative unaudited statements of operations present the Company’s results of operations after giving
effect to the purchase of Verb Direct and SoloFire based on the historical financial statements of the Company and Verb
Direct and SoloFire. The unaudited pro forma statements of operations for the nine and three months ended September 30, 2020
and 2019 give effect to the transaction to the merger as if it had occurred on January 1, 2019.
|
|
|
Three months
ended
September 30, 2020
|
|
|
Three months
ended
September 30, 2019
|
|
|
Nine
months
ended
September
30,
2020
|
|
|
Nine
months
ended
September
30,
2019
|
|
|
|
|
(Proforma
unaudited)
|
|
|
(Proforma
unaudited)
|
|
|
(Proforma
unaudited)
|
|
|
(Proforma,
unaudited)
|
|
|
SaaS recurring subscription
revenue
|
|
$
|
1,661,000
|
|
|
$
|
1,201,000
|
|
|
$
|
4,511,000
|
|
|
$
|
3,383,000
|
|
|
Other digital revenue
|
|
|
360,000
|
|
|
|
485,000
|
|
|
|
1,166,000
|
|
|
|
1,354,000
|
|
|
Welcome kits and fulfilment
|
|
|
836,000
|
|
|
|
1,164,000
|
|
|
|
2,277,000
|
|
|
|
5,213,000
|
|
|
Shipping
|
|
|
186,000
|
|
|
|
271,000
|
|
|
|
614,000
|
|
|
|
1,443,000
|
|
|
Total Revenue
|
|
|
3,043,000
|
|
|
|
3,121,000
|
|
|
|
8,568,000
|
|
|
|
11,393,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
1,344,000
|
|
|
|
1,548,000
|
|
|
|
3,661,000
|
|
|
|
5,951,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,699,000
|
|
|
|
1,573,000
|
|
|
|
4,907,000
|
|
|
|
5,442,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(9,771,000
|
)
|
|
|
(5,353,000
|
)
|
|
|
(21,615,000
|
)
|
|
|
(16,100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income,
net
|
|
|
574,000
|
|
|
|
526,000
|
|
|
|
3,550,000
|
|
|
|
1,406,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,498,000
|
)
|
|
$
|
(3,254,000
|
)
|
|
$
|
(13,158,000
|
)
|
|
$
|
(9,252,000
|
)
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following as of September 30, 2020 and December 31, 2019.
|
|
|
September
30, 2020
(unaudited)
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
|
|
Computers
|
|
$
|
29,000
|
|
|
$
|
29,000
|
|
|
Furniture and fixture
|
|
|
75,000
|
|
|
|
75,000
|
|
|
Machinery and equipment
|
|
|
40,000
|
|
|
|
39,000
|
|
|
Leasehold improvement
|
|
|
1,057,000
|
|
|
|
741,000
|
|
|
Total property and
equipment
|
|
|
1,201,000
|
|
|
|
884,000
|
|
|
Accumulated depreciation
|
|
|
(294,000
|
)
|
|
|
(164,000
|
)
|
|
Total
property and equipment, net
|
|
$
|
907,000
|
|
|
$
|
720,000
|
|
Depreciation
expense amounted to $130,000 and $35,000 for nine months ended September 30, 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 offices
located in Newport Beach, California 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
September 30, 2020 and December 31, 2019, the Company had recorded right of use assets of $2,868,000 and $3,275,000, respectively,
net of amortization. As September 30, 2020 and December 31, 2019, the Company had recorded lease liabilities of $3,696,000 and
$3,982,000, respectively, related to these leases.
|
|
|
Period
Ended
September
30, 2020
(unaudited)
|
|
|
Period
Ended
September
30, 2019
(unaudited)
|
|
|
Lease cost
|
|
|
|
|
|
|
|
|
|
Operating lease cost (included
in general and administration in the Company’s statement of operations)
|
|
$
|
524,000
|
|
|
$
|
281,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the
measurement of lease liabilities
|
|
$
|
383.000
|
|
|
$
|
281,000
|
|
|
Weighted average remaining lease term
– operating leases (in years)
|
|
|
4.70
|
|
|
|
5.44
|
|
|
Average discount rate – operating
leases
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
|
September
30, 2020
(unaudited)
|
|
|
December
31, 2019
|
|
|
Operating
leases
|
|
|
|
|
|
|
|
|
|
Right-of-use
assets, net of amortization of $756,000 and $349,000, respectively
|
|
$
|
2,868,000
|
|
|
$
|
3,275,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term operating lease liabilities
|
|
$
|
595,000
|
|
|
$
|
391,000
|
|
|
Long-term operating
lease liabilities
|
|
|
3,101,000
|
|
|
|
3,591,000
|
|
|
Total operating
lease liabilities
|
|
$
|
3,696,000
|
|
|
$
|
3,982,000
|
|
|
6.
|
ADVANCE
OF FUTURE RECEIPTS
|
The
Company has the following advances on future receipts as of September 30, 2020:
|
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
September 30, 2020
|
|
|
Balance
at
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1
|
|
December 24, 2019
|
|
June 30, 2020
|
|
|
10
|
%
|
|
$
|
506,000
|
|
|
$
|
-
|
|
|
$
|
503,000
|
|
|
Note 2
|
|
December 24, 2019
|
|
June 30, 2020
|
|
|
10
|
%
|
|
|
506,000
|
|
|
|
-
|
|
|
|
503,000
|
|
|
Note 3
|
|
June 30, 2020
|
|
February 25, 2021
|
|
|
10
|
%
|
|
|
506,000
|
|
|
|
297,000
|
|
|
|
-
|
|
|
Note 4
|
|
June 30, 2020
|
|
February 25,
2021
|
|
|
10
|
%
|
|
|
506,000
|
|
|
|
297,000
|
|
|
|
-
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,012,000
|
|
|
|
594,000
|
|
|
|
1,006,000
|
|
|
Debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176,000
|
)
|
|
|
(274,000
|
)
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,000
|
|
|
$
|
732,000
|
|
Note
1 and 2
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 auto withdrew an
aggregate of $6,000 from the Company’s operating account each banking day. The term of the agreement extended 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. These advances were secured by the Company’s tangible and intangible assets.
The
Company accounted these advances on future receipts as a liability pursuant to current accounting guidelines. As a result, the
Company recorded a liability of $1,012,000 to account for the future receipts sold and a debt discount of $285,000 to account
for the difference between the future receipts sold and the cash received. The debt discount was being amortized over the term
of the agreement. As of December 31, 2019, outstanding balance of the advances amounted to $1,006,000 and the unamortized debt
discount of $274,000.
During
the period ended September 30, 2020, the Company paid the entire amount due of $1,006,000 and amortized the corresponding debt
discount for $274,000.
Note
3 and 4
On
June 30, 2020, the Company received two secured advances from the same 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 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 period ended September 30, 2020, the Company paid $418,000 the balance outstanding and amortized $108,000 of the debt discount.
As of September 30, 2020 outstanding balance of the notes amounted to $594,000 and the unamortized balance of the debt discount
was $176,000.
|
7.
|
NOTES
PAYABLE – RELATED PARTIES
|
The
Company has the following related parties notes payable as of September 30, 2020 and December 31, 2019:
|
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
September 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(1,065,000
|
)
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,177,000
|
|
|
$
|
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 September 30, 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 September 30, 2020, and December 31, 2019, the outstanding principal balance of the note amounted to $112,000, respectively.
As of September 30, 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 September 30, 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 $106,000 for nine months ended September 30, 2020 and 2019, respectively.
The Company paid $100,000 and $96,000 in interest for the nine months ended September 30, 2020 and 2019, respectively.
The
Company has the following notes payable as of September 30, 2020:
|
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
September 30, 2020
|
|
|
Note A
|
|
April 17, 2020
|
|
April 17, 2022
|
|
|
1.00
|
%
|
|
$
|
1,218,000
|
|
|
$
|
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
|
|
|
|
90,000
|
|
|
Note D
|
|
September 4,
2020
|
|
October 1,
2020
|
|
|
0.14
|
%
|
|
|
1,982,000
|
|
|
|
1,885,000
|
|
|
Total notes payable
|
|
|
|
|
|
|
|
|
|
|
3,440,000
|
|
|
|
3,343,000
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
1,458,000
|
|
|
|
1,458,000
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
$
|
1,982,000
|
|
|
$
|
1,885,000
|
|
|
|
(A)
|
On
April 17, 2020, the Company received loan proceeds in the amount of $1,218,000 under
the Paycheck Protection Program (“PPP”). The PPP, established as part of
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides
for loans to qualifying businesses for amounts up to 2.5 times of the average monthly
payroll expenses of the qualifying business. The loans and accrued interest are forgivable
after the earlier of (i) 24 weeks after the loan disbursement date and (ii) December
31, 2020 as long as the borrower uses the loan proceeds for eligible purposes, including
payroll, benefits, rent and utilities, and maintains its payroll levels.
The
unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for
the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company
currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure
you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole
or in part. As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release
is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded. The
terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach
of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan
as of September 30, 2020.
|
|
|
(B)
|
On
May 15, 2020, the Company executed an unsecured loan with the U.S. Small Business Administration
(SBA) under the Economic Injury Disaster Loan program in the amount of $150,000. The
loan is secured by all tangible and intangible assets of the Company and payable over
30 years at an interest rate of 3.75% per annum. Installment payments, including principal
and interest, will begin on May 15, 2021.
As
part of the loan, the Company also received an advance of $10,000 from the SBA. While the SBA refers to this program as
an advance, it was written into law as a grant. This means that the amount given through this program does not need to
be repaid. As a result, the Company accounted this $10,000 as part of “Other Income” in the accompanying Statement
of Operations.
|
|
|
|
|
|
|
(C)
|
On
May 1, 2020, SoloFire received loan proceeds in the amount of $90,000 under the
Paycheck Protection Program (“PPP”). The PPP, established as part of the
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides
for loans to qualifying businesses for amounts up to 2.5 times of the average monthly
payroll expenses of the qualifying business. The loans and accrued interest are forgivable
after the earlier of (i) 24 weeks after the loan disbursement date and (ii) December
31, 2020 as long as the borrower uses the loan proceeds for eligible purposes, including
payroll, benefits, rent and utilities, and maintains its payroll levels.
The
unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for
the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company
currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure
you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole
or in part. As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release
is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded. The
terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach
of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan
as of September 30, 2020.
|
|
|
|
|
|
|
(D)
|
On September 4, 2020, Verb Acquisition issued a note payable to the owners of SoloFire,
in the amount of $1,982,000, as part of the consideration related to the acquisition
of SoloFire. The note bears interest at a rate of 0.14% per annum, with a maturity
date of October 1, 2020.
Effective
September 30, 2020,
the note was amended to $1,885,000 to account for contractual working capital adjustments.
All other terms remain the same. On October 1, 2020, Verb Acquisition paid off
the note in full.
|
|
9.
|
DEFERRED INCENTIVE
COMPENSATION TO OFFICERS
|
|
Note
|
|
Date
|
|
|
Payment
Date
|
|
Balance
at
September 30, 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 these 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 a bonus for the successful up-listing to Nasdaq
and the 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 these Employees.
The Company will pay 50% of the Nasdaq up-listing award on January 10, 2021 and
the remaining 50% on January 10, 2022.
|
|
10.
|
CONVERTIBLE
SERIES A PREFERRED STOCK AND WARRANT OFFERING
|
On
August 14, 2019, we entered into a Securities Purchase Agreement (the “SPA”) with certain accredited
investors (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 warrants (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 three months ended September 30, 2020, 1,990 shares of Preferred Stock were converted into 1,405,274 shares of Common
Stock. As of September 30, 2020, 2,406 shares Series A Preferred stock are outstanding and potentially convertible into
approximately 2.2 million shares of Common Stock.
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. As of December 31, 2019, the Company had recorded a derivative liability of $5,048,000.
During the period ended September
30, 2020, the Company recorded a derivative liability of $3,951,000 as a result of the issuance of 2,303,861 warrants to acquire
common stock to Series A Preferred stockholders (see Note 12). The Company also recorded a change in fair value of ($4,295,000)
to account for the changes in the fair value of these derivative liabilities during the nine months ended September 30, 2020.
In addition, 95,000 shares of the Series A warrants that were accounted as derivative liability were exercised. As result,
the Company computed the fair value of the corresponding derivate liability one last time which amounted to $159,000 and the pursuant
to current accounting guidelines, the extinguishment was accounted as part of equity.
At September 30, 2020, the fair
value of the derivative liability amounted to $4,545,000. The details of derivative liability transactions as of and for the periods
ended September 30, 2020 and 2019 are as follows:
|
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
|
Beginning Balance
|
|
$
|
5,048,000
|
|
|
$
|
2,576,000
|
|
|
Fair value upon issuance of notes
payable and warrants
|
|
|
3,951,000
|
|
|
|
6,561,000
|
|
|
Change in fair value
|
|
|
(4,295,000
|
)
|
|
|
(3,320,000
|
)
|
|
Extinguishment
|
|
|
(159,000
|
)
|
|
|
(2,227,000
|
)
|
|
Ending Balance
|
|
$
|
4,545,000
|
|
|
$
|
3,591,000
|
|
The
derivative liabilities were valued using a Binomial pricing model with the following average assumptions:
|
|
|
September
30, 2020
|
|
|
Upon
Issuance
|
|
|
December
31, 2019
|
|
|
Stock Price
|
|
$
|
1.08
|
|
|
$
|
1.70
|
|
|
$
|
1.55
|
|
|
Exercise Price
|
|
$
|
1.62
|
|
|
$
|
1.55
|
|
|
$
|
1.88
|
|
|
Expected Life
|
|
|
2.78
|
|
|
|
5.0
|
|
|
|
3.53
|
|
|
Volatility
|
|
|
107
|
%
|
|
|
212
|
%
|
|
|
216
|
%
|
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Risk-Free Interest Rate
|
|
|
0.14
|
%
|
|
|
2.47
|
%
|
|
|
1.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
4,545,000
|
|
|
$
|
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.
The
Company’s Common Stock activity for the nine months ended September 30, 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.
The
Company’s private placement is exempt from the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the “Securities Act”), in reliance on Section 4(a)(2) thereof and/or Rule 506 of Regulation D and Regulation
S thereunder, each as promulgated by the SEC. The Company’s private placement was managed by the Company; however, in connection
with the closings, the Company paid a non-U.S. based consultant (i) as a cash fee, an aggregate amount of $499,000 (or 10% of
the gross proceeds of the closings), (ii) as a non-accountable expense allowance, an aggregate of $100,000 (or 2% of the gross
proceeds of the closings), (iii) five-year warrants, exercisable for an aggregate of up to 416,199 shares of the Company’s
Common stock at a cash-only exercise price of $1.92 per share, and (iv) 100,000 shares of the Company’s Common Stock. The
Company made the above-referenced payments only in respect of that portion of the gross proceeds from the closings for investors
introduced to the Company by the consultant. In addition, the Company also incurred various expenses totaling $42,000 that are
directly related to this private placement.
As
a result of this private placement, from February through April 2020, a total of 4,237,833 shares of Common Stock were sold in
exchange for cash proceeds of $4,444,000, net of direct fees and expenses in the aggregate of $641,000.
In
preparation for this private placement offering, the Company separately negotiated with certain Series A stockholders to waive
their rights in order not to ratchet down the conversion price of their Series A preferred shares (see Note 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 as Part of the Company’s Public Offering
On
July 24, 2020, the Company concluded its public offering pursuant to a registration statement on Form S-1 (File No. 333-239055)
and issued and sold 12,545,453 shares of Common Stock (which included 1,636,363 shares of Common Stock sold pursuant to the exercise
by the underwriters of an overallotment option). The net proceeds to the Company, after deducting the underwriting discounts and
commissions and direct offering expenses was $12,337,000.
Shares
Issued for Services
During
the nine months ended September 30, 2020, the Company issued 962,583 shares of Common Stock to vendors for services rendered and
to be rendered with a fair value of $1,126,000. 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.
|
13.
|
RESTRICTED
STOCK AWARDS
|
Pursuant
to the Company’s December 2019 Omnibus Incentive Plan, a summary of restricted stock award activity for the nine months
ended September 30, 2020 is presented below.
|
|
|
|
|
|
|
|
|
Weighted-
Average Grant Date
|
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2019
|
|
|
1,486,354
|
|
|
$
|
2,021,000
|
|
|
$
|
1.36
|
|
|
Granted
|
|
|
2,871,471
|
|
|
|
3,379,000
|
|
|
|
1.18
|
|
|
Vested/deemed vested
|
|
|
(1,050,856
|
)
|
|
|
(2,696,000
|
)
|
|
|
1.26
|
|
|
Returned
|
|
|
(336,533
|
)
|
|
|
485,000
|
|
|
|
1.31
|
|
|
Forfeited
|
|
|
(61,906
|
)
|
|
|
(91,000
|
)
|
|
|
1.47
|
|
|
Non-vested at September 30, 2020
|
|
|
2,908,530
|
|
|
$
|
3,544,000
|
|
|
$
|
1.22
|
|
On
April 10, 2020, the board of directors of the Company, approved management’s COVID-19 Full Employment and Cash Preservation
Plan (the “Plan”), pursuant to which all directors and senior level management would reduce their cash compensation
by 25%, and all other employees and consultants would reduce their cash compensation by 20% (the “Cash Reduction Amount”)
for a period of three months from April 16, 2020 through July 15, 2020 for one category of plan participants, and April 26, 2020
through July 18, 2020 for the other category of participants. The Plan was designed to promote the continued growth of the Company
and avoid the lay-offs and staff cut-backs experienced by many companies affected by the COVID-19 economic crisis. The Cash Reduction
Amount is to be paid in shares of the Company’s common stock (the “Shares”) through an allocation of shares
from the Company’s 2019 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and granted pursuant to stock
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 number of Shares issued were determined in accordance with the
provisions of the Omnibus Incentive Plan, which provides that the value shall be determined based on the volume weighted average
price of the Company’s common stock during a period of up to the 30-trading days prior to the Grant Date. Total Common Stock
granted as part of the Cash Preservation Plan on April 10, 2020 was 589,098 with a fair value of $866,000. The shares were valued
based on the market value of the Company’s stock price on the grant date and will be amortized over its vesting term.
During
the period ended September 30, 2020, the Company granted an additional 2,871,471 shares of its restricted stock to employees
and members of Board of Directors. The Restricted Stock Awards vest in various dates, starting on grant date up to July 2024.
These Restricted Stock Awards were valued based on market value of the Company’s stock price at the respective date of grant
and had aggregate fair value of $3,379,000, which is being amortized as stock compensation expense over its vesting term.
During
the period ended September 30, 2020 336,533 shares granted to various employees that vested were returned to the Company
in exchange for the Company paying the corresponding income and payroll taxes of these employees amounting $485,000. Pursuant
to current accounting guidelines, the Company accounted the return of the 336,533 shares and the payment of $485,000 for
income and payroll taxes paid on behalf the employees as a reduction in additional paid in capital.
The
total fair value of restricted stock award that vested or deemed vested during the nine months ended September 30, 2020 was $2,696,000
and is included in selling, general and administrative expenses in the accompanying statements of operations. As of September
30, 2020, the amount of unvested compensation related to issuances of restricted stock award was $3,544,000 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 “2014 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 nine months ended September 30, 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
|
|
|
$
|
1.73
|
|
|
|
2.54
|
|
|
$
|
995,000
|
|
|
Granted
|
|
|
1,035,637
|
|
|
|
1.37
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(170,321
|
)
|
|
|
3.53
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at September 30, 2020
|
|
|
5,099,038
|
|
|
$
|
1.59
|
|
|
|
2.54
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested September 30, 2020
|
|
|
2,563,321
|
|
|
$
|
1.89
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2020
|
|
|
1,644,015
|
|
|
$
|
2.16
|
|
|
|
|
|
|
$
|
-
|
|
At
September 30, 2020, there was no intrinsic value as the exercise price of these stock options were greater than the market price.
During
the nine months ended September 30, 2020 the Company granted stock options to employees to purchase a total of 1,035,637 shares
of Common Stock for services to be rendered. The options have an average exercise price of $1.37 per share, expire in five years,
and cliff vest over a period of 0.4 to 4 years from the grant date. The total fair value of these options at the grant date was
approximately $1,242,000 using the Black-Scholes Option pricing model.
The
total stock compensation expense recognized relating to vesting of stock options for the nine months ended September 30, 2020
amounted to $1,215,000. As of September 30, 2020, total unrecognized stock-based compensation expense was $3.8 million, which
is expected to be recognized as part of operating expense through August 2024.
The
fair value of share option award is estimated using the Black-Scholes option pricing method based on the following weighted-average
assumptions:
|
|
|
|
Nine
months ended September 30,
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Risk-free interest rate
|
|
|
0.17% - 0.39
|
%
|
|
|
1.55% - 2.75
|
%
|
|
Average expected term
|
|
|
1 to 5 years
|
|
|
|
3.6 to 5 years
|
|
|
Expected volatility
|
|
|
270.10 - 270.57
|
%
|
|
|
180 – 275.29
|
%
|
|
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 September 30, 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
|
|
|
10,930,991
|
|
|
$
|
3.07
|
|
|
|
4.25
|
|
|
$
|
-
|
|
|
Granted
|
|
|
4,630,654
|
|
|
|
1.17
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(244,800
|
)
|
|
|
3.53
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
(1,965,594
|
)
|
|
|
1.10
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at
September 30, 2020, all vested
|
|
|
13,351,251
|
|
|
$
|
2.50
|
|
|
|
3.63
|
|
|
$
|
-
|
|
At
September 30, 2020, there was no intrinsic value as the exercise price of these stock warrants were greater than the market price.
During
the period ended September 30, 2020, the Company granted 416,199 warrants to a consultant as part of a private placement offering
and 2,303,861 warrants to Series A stockholders (see Note 12). In addition, the Company also granted warrants to certain shareholders
to purchase 1,910,594 shares of common stock as part of settlement with regards to the Company’s public offering that occurred
in July 2020 (see Note 12) . The warrants are fully vested upon grant, exercisable at $1.10 per share, expire in 0.01 year with
an estimated fair value of $248,000 using the Black-Scholes Option pricing model. The Company accounted the estimated fair value
of $248,000 as a financing costs.
During
the period ended September 30, 2020, a total of 1,965,594 warrants were exercised into 1,965,594 shares of Common Stock at a weighted
average exercise price of $1.10. The Company received cash of $2,165,000 upon exercise of the warrants.
|
16.
|
ISSUANCE
OF CLASS A and B UNITS
|
|
|
a.
|
Class
A Units – during the period ended September 30, 2020, Verb Acquisition issued 100 Class A units to the
Company as part of the organization of Verb Acquisition. The Class A Units have the following rights and
privileges:
|
|
|
1.
|
Priority
on distributions;
|
|
|
2.
|
Ability
to remove the manager;
|
|
|
3.
|
Drag-along rights;
|
|
|
4.
|
Power
to dissolve Verb Acquisition provided that a majority of
the Class B Units also approve the dissolution;
|
|
|
5.
|
Ability
to appoint a liquidator to wind up the affairs of Verb Acquisition;
|
|
|
6.
|
Entitled
to distributions;
|
|
|
7.
|
Approve
board appointments; and
|
|
|
8.
|
Approve
any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class B Units also approve
the amendment.
|
|
|
b.
|
Class
B Units – during the period ended September 30, 2020, 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.
|
Exchangeable
for shares of the Company’s Common Stock at a conversion rate of 1 to 1;
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|
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2.
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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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|
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3.
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Entitled
to profit distributions;
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4.
|
Approve
board appointments made by the Class A Units; and
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|
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5.
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Approve
any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class A Units also approve
the amendment.
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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.
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17.
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COMMITMENTS
AND CONTINGENCIES
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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.
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.
On
May 15, 2020, we executed a binding Memorandum of Understanding with the lead plaintiff in the class action lawsuit to settle
that action and release the claims asserted therein. The terms of the settlement are confidential pending submission to the court,
and subject to several contingencies, including but not limited to court approval. We believe we have established an appropriate
reserve to account for the potential settlement.
By
Order dated October 27, 2020, the court granted preliminary approval of the class action settlement.
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.
On
November 5, 2020, we executed a binding settlement term sheet with the lead plaintiff in the derivative action to settle that
action and release all claims asserted therein. The terms of the settlement are confidential pending submission to the court,
and subject to several contingencies, including but not limited to court approval.
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 financial statements.
Board
of Directors
The
Company has committed an aggregate of $475,000 in annual 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 September 30, 2020 was $309,000 As of September 30, 2020, total board fees to be recognized
in future period amounted to $90,000 and will be recognized once the service has been rendered.
COVID-19
In March 2020, the World Health
Organization declared that the rapidly spreading COVID-19 outbreak was a global pandemic (the “COVID-19 pandemic”).
In response to the COVID-19 pandemic, many governments around the world have implemented, and continue to implement, a variety
of measures to reduce the spread of COVID-19, including travel restrictions and bans, instructions to residents to practice social
distancing, quarantine advisories, shelter-in place orders and required closures of non-essential businesses.
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 Common Stock
Subsequent
to September 30, 2020, the Company issued 30,000 shares of Common Stock to vendors for services rendered with a fair value of
$33,000. 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.
Grant
of Stock Options
Subsequent
to September 30, 2020, the Company granted stock options to an employee to purchase a total of 914,171 shares of Common Stock
for services rendered. The options have an average exercise price of $1.33 per share, expire in five years, and vest over a period
of 0.5 to 4 years from grant date. The total fair value of these options at the grant date was $1,016,000 using the Black-Scholes
option pricing model.
Restricted
Stock Awards
Subsequent
to September 30, 2020, the Company issued a 60,000 Restricted Stock Awards to an advisory board member that cliff vest quarterly
over one year from grant date with an aggregate fair value of $68,000.
Registration
of Common Stock, Options of Common Stock, and Shares of Common Stock Underlying Warrants
On October 20, 2020, the Company
filed a registration statement on Form S-3 with the SEC. The prospectus contained in the registration statement to the proposed
resale by the selling security holders named in the prospectus or their permitted assigns of an aggregate of up to 8,393,387
shares of our Common Stock held by the selling security holders, which amount consists of (i) 5,087,326 shares of Common Stock
outstanding as of the date of the registration statement, (ii) an aggregate of 416,199 shares of Common Stock issuable upon exercise
of Common Stock purchase warrants issued to a non-U.S. consultant in connection with a private placement of Common Stock to certain
of the Company’s selling security holders, (iii) 247,703 restricted stock units granted pursuant to a Restricted Stock Award
Agreement, and (iv) an aggregate of 2,642,159 shares of Common Stock which will be issued
in the future from time to time to those of the Company’s selling security holders that are holders of Class B Units of
Verb Acquisition under an exchange agreement among the holders of Class B Units pursuant to which the holders of Class B Units
may exchange their Class B Units for shares of the Company’s Common Stock on a one-for-one basis.
Payment of Note Payable
In October 2020, the Company
paid in full the note payable of $1,885,000 issued in September 2020 for the acquisition of SoloFire (see Note 3 and 8).