UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 001-38834
Verb Technology Company, Inc.
(Exact name of registrant as specified in its charter)
Nevada
State or other jurisdiction of
incorporation or organization
3401 North Thanksgiving Way, Suite 240
Lehi, Utah
(Address of principal executive offices)
90-1118043
(I.R.S. Employer
Identification No.)
84043
(Zip Code)
Registrant’s telephone number, including area code: (855) 250-2300
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Common Stock, $0.0001 par value
Common Stock Purchase Warrants
Trading Symbol(s)
VERB
VERBW
Name of each exchange on which registered
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the closing price of the registrant’s common stock as
quoted on The Nasdaq Capital Market as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $49,464,000.
As of April 12, 2023, there were 154,755,360 shares of common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (this “Annual Report”) includes “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by
the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not statements of historical facts and can be identified by words
such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar
expressions and the negatives of those expressions. Forward-looking statements also include the assumptions underlying or relating to such statements.
Our forward-looking statements are based on our management’s current beliefs, assumptions and expectations about future events and trends, which affect or may
affect our business, strategy, operations, financial performance or liquidity. Although we believe these forward-looking statements are based upon reasonable assumptions, they
are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Some of the risks and uncertainties that may
impact our forward-looking statements include, but are not limited to, the following factors:
● our incursion of significant net losses and uncertainty whether we will achieve or maintain profitable operations;
● our ability to continue as a going concern;
● our ability to grow and compete in the future, and to execute our business strategy;
● our ability to maintain and expand our customer base and to convince our customers to increase the use of our services and/or platform;
● the competitive market in which we operate;
● our ability to increase the number of our strategic relationships and grow the revenues from our current strategic relationships;
● our ability to develop enhancements and new features to our existing service or acceptable new services that keep pace with technological developments;
● our ability to successfully launch new product platforms, including MARKET.live, the rate of adoption of these platforms and the revenue generated from these
platforms;
● the novel coronavirus (“COVID-19”) pandemic, which has had a negative impact on our business, results of operations and financial condition;
● our ability to deliver our services, in light of our dependency on third party Internet providers;
● our ability to raise additional capital or borrow additional funds to fund our operations and execute our business strategy, and the impact of these transactions on our
business and existing stockholders;
● our ability to attract and retain qualified management personnel;
● our ability to pay our debt obligations as they become due;
● our susceptibility to security breaches and other disruptions;
● our ability to maintain compliance with the listing requirements of the Nasdaq Capital Market; and
● the impact of, and our ability to operate our business and effectively manage our growth under evolving and uncertain global economic, political, and social trends,
including inflation, rising interest rates, and recessionary concerns.
The forward-looking statements contained in this Annual Report are based on management’s current plans, estimates and expectations in light of information currently
available to us, and they are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those we have
anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market,
regulatory and other factors, many of which are beyond our control, as well as the other factors described in the section entitled “Risk Factors” within this Annual Report and in
the other reports we file with the Securities and Exchange Commission (“SEC”). These risks and uncertainties include those described in the section entitled “Risk Factors.”
You should not place undue reliance on these forward-looking statements. Our forward-looking statements are based on the information currently available to us and
speak only as of the date on which they were made. Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not
possible for us to predict all of them. Over time, our actual results, performance, or achievements may differ from those expressed or implied by our forward-looking
statements, and such difference might be significant and materially adverse to our security holders. Comparisons of results for current and any prior periods are not intended to
express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Except as required by law, we undertake
no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. We have identified some of the important
factors that could cause future events to differ from our current expectations and they are described in this Annual Report under the captions “Risk Factors,” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in other documents that we may file with the SEC, all of which you
should review carefully. We qualify all of our forward-looking statements by these disclaimers.
ITEM 1. BUSINESS
Overview
PART I
We are a Software-as-a-Service (“SaaS”) applications platform developer. We offer three platforms, each designed for a specific target customer. Our SaaS platform
for the direct sales industry is comprised of a suite of interactive video-based sales enablement business software products marketed on a subscription basis. Available in both
mobile and desktop versions, our base SaaS product is verbCRM, our Customer Relationship Management (“CRM”) application, to which our clients can add a choice of
enhanced, fully integrated application modules that include , verbLEARN, our gamified Learning Management System application; verbLIVE, our Live Stream interactive
eCommerce application; and verbPULSE, our business/augmented intelligence notification and sales coach application. verbTEAMS is our standalone, self-onboarding, video-
based CRM and content management application for life sciences companies, professional sports teams, small businesses, and solopreneurs, with seamless one-button
synchronization with Salesforce, that also comes bundled with verbLIVE. MARKET.live is our multi-vendor, multi-presenter, livestream social shopping platform, that
combines ecommerce and entertainment.
We use the term “client” and “customer” interchangeably throughout this Annual Report.
Our SaaS Technology
Our suite of SaaS applications can be distinguished from other sales enablement applications because our applications utilize our proprietary interactive video
technology as the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and
analytics capabilities of our applications inform our users on their devices in real time, when and for how long their prospects have watched a video, how many times such
prospects watched it, and what they clicked on, which allows our users to focus their time and efforts on ‘hot leads’ or interested prospects rather than on those that have not
seen such video or otherwise expressed interest in such content. Users can create their hot lead lists by using familiar, intuitive ‘swipe left/swipe right’ on-screen navigation.
Our clients report that these capabilities provide for a much more efficient and effective sales process, resulting in increased sales conversion rates. We developed the
proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending technologies that serve as the unique foundation for all our
platform applications.
Our Products
verbCRM is our baseline white-labelled product designed specifically for direct sales professionals that combines the capabilities of CRM lead-generation, content
management, and in-video ecommerce capabilities in an intuitive, yet powerful tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users
to quickly and easily create, distribute, and post videos to which they can add a choice of on-screen clickable icons that, when clicked, allow viewers to respond to the user’s
call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology allows a prospect or customer to click on
a product they see featured in a video and impulse buy it, or to click on a calendar icon in the video to make an appointment with a salesperson, among many other features and
functionalities designed to eliminate or reduce friction from the sales process for our users. The verbCRM app is designed to be easy to use and navigate and takes little time
and training for a user to begin using the app effectively. It usually takes less than four minutes for a novice user to create an interactive video from our app. Users can add
interactive icons to pre-existing videos, as well as to newly created videos shot with practically any mobile device. verbCRM interactive videos can be distributed via email,
text messaging, chat app, or posted to popular social media directly and easily from our app. No software download is required to view Verb interactive videos on virtually any
mobile or desktop device, including smart TVs. VerbCRM is designed to accommodate a suite of applications as add-on modules that integrate fully and seamlessly into the
platform. These include verbLEARN, verbLIVE, and verbPULSE, each of which is described below.
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verbLEARN is an interactive, video-based learning management system that incorporates all of the clickable in-video technology featured in our verbCRM
application and adapts them for use by educators for video-based education. verbLEARN is used by enterprises seeking to educate a large sales team or a customer base about
new products, or elicit feedback about existing products. It also incorporates Verb’s proprietary data collection and analytics capabilities that inform users in real time when and
for how long the viewers watched the video, how many times they watched it, and what they clicked on, in addition to adding gamification features that enhance the learning
aspects of the application.
verbLIVE is a next-generation interactive live-stream platform with in-video ecommerce capabilities for sales reps that allows them to utilize a variety of novel sales-
driving features, including placing interactive icons on-screen that appear on the screens of all viewers, providing in-video click-to-purchase capabilities for products or
services featured in the live video broadcast, in real-time, driving friction-free selling. verbLIVE also provides the sales reps with real-time viewer engagement data and
interaction analytics. verbLIVE is entirely browser-based, allowing it to function easily and effectively on all devices without requiring the host or the viewers to download
software, and is secured through end-to-end encryption.
verbPULSE is a business/augmented intelligence notification-based sales enablement platform feature set that tracks users’ interactions with current and prospective
customers and then helps coach users by telling them what to do next in order to close the sale, virtually eliminating the lack of skill, training and experience among sales reps
from the selling process.
verbTEAMS is our standalone interactive, video-based CRM for professional sports teams, small-and medium-sized businesses and solopreneurs. verbTEAMS also
incorporates verbLIVE as a bundled application. verbTEAMS features self-sign-up, self-onboarding, self-configuring, content management system capabilities, user level
administrative capabilities, and high-quality analytics capabilities in both mobile and desktop platforms that sync with one another. It also has a built-in one-click sync
capability with Salesforce.
MARKET.live is akin to a virtual shopping mall, a centralized online destination where shoppers could explore hundreds, and over time thousands, of shoppable
stores for their favorite brands, influencers, creators and celebrities, all of whom can host livestream shopping events from their virtual stores that can be seen by all shoppers at
the virtual mall. Every store operator can host livestream events, even simultaneously, and over time we expect there will be thousands of such events, across numerous product
and service categories, being hosted by people from all over the world, always on – 24/7 - where shoppers could communicate with the hosts and ask questions about products
directly to the host in real-time through an on-screen chat visible to all shoppers. Shoppers can invite their friends and family to join them at any of the live shopping events to
share the experience - to communicate directly with each other in real time, and then simply click on a non-intrusive - in-video overlay to place items in an on-screen shopping
cart for purchase – all without interrupting the video. Shoppers can visit any number of other shoppable events to meet up and chat with friends, old and new, and together
watch, shop and chat with the hosts, discover new products and services, and become part of an immersive entertaining social shopping experience. Throughout the experience,
the shopping cart follows shoppers seamlessly from event to event, shoppable video to shoppable video, host to host, product to product.
The MARKET.live business model is a simple but next-level B to B play. It is a multi-vendor platform, with a single follow-me style unified shopping cart, and robust
ecommerce capabilities with the tools for consumer brands, big box brick and mortar stores, boutiques, influencers and celebrities to connect with their clients, customers, fans,
followers, and prospects by providing a unique, interactive social shopping experience that we believe could keep them coming back and engaged for hours.
A big differentiator for MARKET.live is that it also provides an online meeting place for friends and family to meet, chat, shop and enjoy a fun, immersive shopping
experience in real time together from anywhere and everywhere in the world. MARKET.live will provide vendors with extensive business building analytics capabilities not
available on, and not shared by many operators of other social media sites who regard that information as valuable proprietary property. All vendors on MARKET.live will
retain this valuable intelligence for their own, unlimited use.
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MARKET.live allows vendors an opportunity to reach not only the shoppers they invite to the site from their own client and contact lists, but also those shoppers who
came to the site independently who will discover these vendors as they browse through the many other shoppable events hosted simultaneously on MARKET.live 24/7, from
around the world. We believe our revenue model will be attractive to vendors and will consist of SaaS recurring revenue as well as a share of revenue generated through sales
on the platform.
MARKET.live is simply a platform; we hold no inventory, we take no inventory risk, and each vendor manages their own packing and fulfillment, as well as returns.
Only vendors that have a demonstrated ability to manage inventory and fulfillment are selected to participate on MARKET.live.
As we continue onboarding vendors to the platform, we are seeing increased interest from product manufacturers seeking to embrace MARKET.live’s direct-to-
consumer selling capabilities, cutting-out distribution channel partners in order to reduce costs and increase profitability. As the economy tightens, we expect that trend to
accelerate.
MARKET.live will also incorporate a modified version of our verbLIVE Attribution technology, allowing vendors who so choose, to leverage extremely powerful,
built-in affiliate marketing capabilities. Non-vendor visitors to the site can search for those vendors that have activated the built-in affiliate marketing feature for their events
and be compensated when people they referred to that vendor, purchase products or services during that vendor’s shopping event. We expect that this feature, unique to
MARKET.live, will drive many more shoppers who will be referred from all over the world, producing a cross-pollination effect enhancing the revenue opportunities for all
MARKET.live vendors, while also creating an attractive income generating opportunity for non-vendor MARKET.live patrons.
MARKET.live is an entirely new platform, built wholly independently and separate from our verbLIVE sales platform, representing what we believe is the state of the
art of shoppable video technology. Whereas verbLIVE is a sales tool for sales reps that subscribe either directly or through their principal to verbCRM or verbTEAMS,
MARKET.live is a multivendor social shopping platform for retailers, brands, manufacturers, creators and influencers who seek to participate in an open market-style eco-
system environment.
Last fall we launched our “Creators on MARKET,” a new program that allows creators to monetize their content through livestream shopping and personalized
storefronts on MARKET.live. The program is being marketed to video content creators across multiple social media channels. Through this new program, creators and
influencers can choose the products they love from hundreds of brands and retailers on MARKET.live and offer their fans and followers those products through livestream
shopping events broadcast live on MARKET.live and simulcast on the creators’ existing social platforms. They can also offer their favorite products through the Creators’
personally branded storefronts they can establish quickly and easily on MARKET.live. Depending on the products chosen, Creators can earn between 5% and 20% of their
gross sales at no cost and no risk to the Creators selected to participate in the program.
With more than 12 million products from brands like Athleta, Best Buy, Target, Container Store, Banana Republic, GAP, Saks Off 5th, SSENSE, LOFT,
DERMSTORE, INTERMIX, UNCOMMON GOODS, and many more, Creators can choose to feature their favorite products and promote and sell them to their fans and
followers. All MARKET.live events are interactive so followers and fans can chat with the Creators in real time, as well as with one another, creating a more entertaining and
engaging social shopping experience. When their interest level peaks, Creators’ fans and followers can click on the screen to buy the products. Creators accepted into the
program are not required to make any investment in inventory, nor do they have the burden of managing fulfillment or shipping. The only requirement for them to remain in the
program is for them to continue to create and promote the same videos they’re already doing on YouTube and elsewhere online. Livestream events are recorded and available to
watch in the Creators’ personally branded stores on MARKET.live for those fans and followers to return 24/7 after the livestream events to browse and purchase the Creators’
featured products, as the recorded livestream videos remain shoppable.
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verbTV will launch as a feature of our MARKET.live platform, serving to draw an audience of people seeking to consume video content that is also interactive and
shoppable. We expect this additional audience will also be exposed to and enhance the eco-system of shoppers and retailers on MARKET.live. Over time it is anticipated that
verbTV will feature concerts, game shows, sports, including e-sports, sitcoms, podcasts, special events, news, including live events, and other forms of video entertainment that
is all interactive and shoppable. verbTV represents an entirely new distribution channel for all forms of content by a new generation of content creators looking for greater
freedom to explore the creative possibilities that a native interactive video platform can provide for their audience. We believe content creators may also enjoy greater revenue
opportunities through the native ecommerce capabilities the platform provides to sponsors and advertisers who will enjoy real-time monetization, data collection and analytics.
Through verbTV, sponsors and advertisers will be able to accurately measure the ROI from their marketing spend, instead of relying on imprecise viewership information
traditionally offered to television sponsors and advertisers.
Verb Partnerships and Integrations
verbMAIL for Microsoft Outlook and Salesforce Integration of verbLIVE and verbTEAMS. verbMAIL is a product of our partnership with Microsoft and is
available as an add-in to Microsoft Outlook for Outlook and Office 365 subscribers. verbMAIL allows users to create interactive videos seamlessly within Outlook by clicking
the verbMAIL icon in the Outlook toolbar. The videos are automatically added to an email and can be sent easily through Outlook using the user’s contacts they already have in
Outlook. The application allows users to easily track viewer engagement and together with other features represents an effective sales tool available for all Outlook users
worldwide. We have completed and deployed the integration of verbLIVE into Salesforce and have a verbTEAMS sync application for Salesforce users. To date, adoption of
these products has been low due in large part to management’s decision to reduce and deploy development and marketing resources to other areas of the Company’s business
that it believes can generate a greater return on investment.
Popular Enterprise Back-Office System Integrations. We have integrated verbCRM into systems offered by 19 of the most popular direct sales back-office system
providers, such as Direct Scale, Exigo, By Design, Thatcher, Multisoft, Xennsoft, Ziplingo, and Party Plan. Direct sales back-office systems provide many of the support
functions required for direct sales operations, including payroll, customer genealogy management, statistics, rankings, and earnings, among other direct sales financial tracking
capabilities. The integration into these back-office providers, facilitated through our own API development, allows single sign-on convenience for users, as well as enhanced
data analytics and reporting capabilities for all users. Our experience confirms that our integration into these back-end platforms accelerates the adoption of verbCRM by large
direct sales enterprises that rely on these systems and as such, we believe this represents a competitive advantage.
Non-Digital Products and Services
Historically, we have provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. Due to declining sales associated
with reduced or eliminated client in-person conferences and other events stemming from the COVID-19 pandemic, and consistent with management’s strategy to exit this area
of our business due to the low margins, high costs, and limited scalability, we entered into a customer referral agreement with a third party for our cart site and printing
business. Under this agreement, we earn a 10% commission for customer referrals and 8% on merchandise sales and certain cart site design fees, all of which are recognized as
non-digital revenue on a net basis.
For these reasons, management has suggested that a more accurate measure of our performance is the historical growth of our SaaS and digital business and associated
revenue, which has been the focus of our initiatives, while we have continued to exit the low margin, non-digital business. While the SaaS and digital business has grown year
over year, that growth is not readily apparent when analyzing our top-line revenue because the total revenue represents the growing SaaS and digital business upon which we
are focused, off-set by the non-digital business we are intentionally exiting.
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Our Market
Historically, our client base consisted primarily of multi-national direct sales enterprises to whom we provide white-labeled, client-branded versions of our products.
Our client base has expanded to include large enterprises in the life sciences sector, professional sports franchises, among other business sectors. During the year ended
December 31, 2022, we provided subscription-based application services to approximately 180 enterprise clients for use in over 100 countries and in over 48 languages. Since
inception, we have had more than 3.5 million downloads of our verbCRM applications across all of the white-labelled versions created for clients on our platform.
Revenue Generation
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, verbPULSE, and verbTEAMs. 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, collectability is reasonably assured, 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 include design, printing, fulfillment and shipping services. The revenue is recognized upon completion and shipment of products or
fulfillment to customers. In April 2022, we entered into a customer referral agreement with a third party for our cart site and printing business. Under the agreement,
we earn a 10% commission for customer referrals and 8% on merchandise sales and certain cart site design fees, all of which are recognized as non-digital revenue on
a net basis.
3. MARKET.live, launched at the end of July 2022, generates revenue through several sources as follows:
a. All sales run through our ecommerce facility on MARKET.live from which we deduct a platform fee that ranges from 10% to 20% of gross sales, with an average
of approximately 15%, depending upon the pricing package the vendors select as well as the product category and profit margins associated with such categories.
The revenue is derived from sales generated during livestream events, from sales realized through views of previously recorded live events available in each
vendor’s store, as well as from sales of product and merchandise displayed in the vendors’ online stores, all of which are shoppable 24/7.
b. Produced events. MARKET.live offers fee-based services that range from full production of livestream events, to providing professional hosts and event
consulting.
c. The MARKET.live site is designed to incorporate sponsorships and other advertising based on typical industry rates.
Distribution Methods
We distribute our services through the following methods:
● Prospective customers and clients can subscribe to our applications on a monthly or annual contract through a simple, web-based sign-up form accessible on our
website (https://www.verb.tech), as well as through interactive sign-up links that we distribute via email, text messaging and through social media.
● Enterprise users that subscribe to our verbCRM software service can distribute custom-branded sign-up links to their internal and external staff via email or other
electronic means.
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● We have entered into partnership agreements with other CRM providers to incorporate our interactive video technology into such other CRM providers’ software
platforms to be offered to their existing and prospective client base for an additional monthly recurring fee, which fee is shared with us.
● We have entered into license and partnership agreements with digital marketing companies and advertising agencies to resell our Verb interactive video technology to
their existing and prospective client bases for monthly fees which fees are shared with us.
● We expect to enter into partnership agreements with large cloud services providers, to bundle our application with such providers’ other applications offered to their
existing and prospective global customer base in order to generate greater utilization fees from such customers’ need for more data storage and bandwidth required by
video-based applications.
● We employ a direct sales team, as well as outside non-employee sales consultants.
Marketing
We utilize our own proprietary interactive video platform as the foundation of our ongoing marketing initiatives. Historically, our initiatives have included, among
other things, daily, broad-based social media engagement by a dedicated team of full-time employees and outside consultants; management of our interactive video-based
website; and interactive video-based email campaigns and television commercials. In addition, the 19 direct sales back-office systems providers with whom we have integrated
verbCRM, market our applications to their customers and prospects in exchange for finders’ fees.
Competition
We compete in the CRM applications industry, as well as in the video conferencing/webinar industry. We believe that CRM applications that incorporate our
proprietary Verb interactive video technology provide significant competitive advantages over the CRM applications that do not. Salesforce, Microsoft, Oracle, SAP, and
Adobe, the long-term leaders in the CRM sector, collectively account for over 40% of industry sales. These companies, as well as many others, have numerous differences in
feature sets and functionality, but all share certain basic attributes. Most of them were designed before the advent and proliferation of mobile phones, social media, and the
technology behind the current ubiquity of video over the internet and more recently on mobile devices. While many of them have attempted to incorporate video capabilities
into their respective CRM platforms, sometimes in ‘‘bolt-on’’ fashion, we do not believe any of them has done so in a manner that is as effective as our interactive in-video
ecommerce platform that allows users to place clickable calls-to-action right in the video, including into users’ pre-existing sales and product videos. In addition, Verb’s
interactive videos are viewable on both mobile and desktop devices regardless of operating system and without the need to download a proprietary player or program.
We also compete in the video webinar and ecommerce solution provider sectors. The webinar sector is dominated by Zoom, WebEx, and Go2Meeting, among others.
The ecommerce solution provider sector is dominated by Shopify, among others. However, we believe our verbLIVE application provides a superior solution for users seeking
to use video webinars as a sales tool because our in-video clickable icons provide seamless in-video ecommerce capabilities that are not offered by either Zoom (or other large
webinar providers) or Shopify. We believe verbLIVE represents a unique solution that combines the best features of Zoom and Shopify in a single application, offering users a
more friction-free and effective selling experience. Notwithstanding the foregoing, the market share, marketing strength, and established positions in the marketplace of our
competitors may prevent us from obtaining a large share of these markets.
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Intellectual Property
Our policy is to protect our technology through, among other things, a combination of patents, trade secrets and copyrights. We primarily rely upon trade secrets and
copyrighted proprietary software, code, and know-how to protect our interactive video technology platform and associated applications. We have taken security measures to
protect our trade secrets and proprietary know-how, to the extent possible. Our means of protecting our proprietary rights may not prove to be adequate and our competitors
may independently develop technology or products that are similar to ours or that compete with ours. Trade secret and copyright laws afford only limited protection for our
technology and products. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights,
which may render our protected technology and products less valuable, if the design around is favorably received in the marketplace.
We filed a provisional patent application with the U.S. Patent and Trademark Office (“PTO”) with respect to providing interactive video streams involving interactive
buttons which we utilize in our video products. However, our provisional patent application may not result in the issuance of a patent, or may result in narrow claims, which
may limit the protection we are attempting to obtain. We also hold a number of granted patents in two families with pending continuations. A first family relates to systems and
methods for enhanced networking, conversion tracking, and conversion attribution. This family contains two issued patents (U.S. Pat. No. 9,792,380, issued October 17, 2017;
and U.S. Pat. No. 10,467,317, issued Nov. 5, 2019) and a pending continuation. A second family relates to systems and methods for generating a custom campaign. This family
contains one issued patent (U.S. Pat. No. 10,643,247, issued May 5, 2020) and a pending continuation. These existing patents and any future patents that may be issued to us,
may not protect commercially important aspects of our technology. Furthermore, the validity and enforceability of such patents may be challenged by third parties, which may
result in our patents being invalidated or modified by the PTO, various legal actions against us, the need to develop or obtain alternative technology or appropriate licenses
under third-party patents, which may not be available on acceptable terms or at all.
We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and
confidentiality agreements with third parties. Despite our precautions, we cannot assure you that our technology platform and products do not infringe patents held by others or
that they will not in the future. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.
Research and Development
We incurred $5.2 million and $12.3 million of research and development expenses during the years ended December 31, 2022 and 2021, respectively. In addition to the
amounts expensed in 2022 and 2021, we capitalized $2.8 million and $4.3 million, respectively, of costs associated with the development of MARKET.live. These costs consist
of expenditures for the research and development of new products and technology. They are primarily expenses to vendors contracted to perform research projects and
development of our interactive video-based sales enablement platform and associated applications.
Suppliers
While many of our design, development, and engineering team is U.S.-based, we currently utilize a group of dedicated full-time and part-time off-shore experienced
professionals for some of the coding and maintenance of our software. We believe we have mitigated the risks associated with managing an external team of software
development professionals by incorporating experienced internal management and oversight, as well as appropriate systems, protocols, controls, and procedures to ensure the
protection and integrity of all our applications. We have also ensured access to additional qualified professionals to provide like or complementary services on an as-needed
basis.
Dependence on Key Customers
Based on our current business and anticipated future activities as described in this Annual Report, we do not have any customers that represent more than 10% of our
2022 revenue.
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Government Regulation
Our software and services are subject to certain legal, regulatory and other requirements. These laws are complex and evolving. Various U.S. federal and state laws
govern many of our business activities, including, without limitation, the processing of payments and handling of consumer information. Despite our significant efforts to
comply with all applicable requirements, there can be no guarantee that our efforts will be sufficient or that existing laws, rules or other requirements will not be interpreted,
revised, augmented or rewritten in a way that adversely affects our regulated business activities, which comprise a significant majority of our overall business. For additional
information related to these risk-related issues, refer to the section entitled “Risk Factors” within this Annual Report.
Human Capital Management
As of April 12, 2023, we had 76 full-time statutory employees, one part-time employee, and 33 independent contractors. We engage independent contractors on an as-
needed basis to provide specific expertise in areas of software design, development and coding, content creation, audio and video editing, video production services, and other
business functions, including marketing and accounting. None of our employees are covered by a collective bargaining agreement. We have had no labor-related work
stoppages and believe our relationship with our employees, both full-time and part-time, consultants, and independent contractors, is satisfactory.
We believe our people are at the heart of our success and our customers’ success. We endeavor to not only attract and retain talented employees, but also to provide a
challenging and rewarding environment to motivate and develop our valuable human capital. We look to our talented employees to lead and foster various initiatives that
support our company culture including those related to diversity, equity and inclusion. In addition, we rely heavily on our talented team to execute our growth plans and achieve
our long-term strategic objectives.
We provide competitive compensation and benefits for our employees. Our compensation packages may include base salary, commission or annual performance-based
bonuses, and share-based compensation. We also offer general employee medical, dental, and vision insurance, health savings and flexible spending accounts, mental health
resources, paid time off, paid family leave, life and disability insurance, and a 401(k) plan. These programs and our overall compensation packages seek to attract and retain
talented employees.
We take the health and welfare of our employees very seriously and have encouraged safe practices designed to stem the infection and spread of COVID-19 within our
workforce and beyond and to maintain the mental health and well-being of our employees. Beginning in March 2020, in an effort to protect our employees and comply with
applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work environment. We currently expect the majority of
our employees will continue working remotely at least through the end of 2023. We are committed to our employees returning to the workplace in the long-term.
Our Historical Background
Verb Technology Company, Inc. is a SaaS application platform developer, incorporated in 2012 in the state of Nevada.
On April 12, 2019, we acquired Sound Concepts Inc. pursuant to an agreement and plan of merger. As a result of the merger, Sound Concepts merged with and into our
wholly owned subsidiary, NF Acquisition Company, LLC. Upon completion of the merger, NF Acquisition Company, LLC changed its name to Verb Direct, LLC (“Verb
Direct”).
On September 4, 2020, Verb Acquisition Co., LLC (“Verb Acquisition”), a subsidiary of Verb Technology, entered into a membership interest purchase agreement with
Ascend Certification, LLC, dba SoloFire.
On October 18, 2021, we established verbMarketplace, LLC (“Market LLC”), a Nevada limited liability company. Market LLC is a wholly owned subsidiary
established for our MARKET.live platform.
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Our common stock and common stock purchase warrants trade on The Nasdaq Capital Market under the symbols “VERB” and “VERBW,” respectively. Our Internet
website address is https://www.verb.tech.
Recent Developments
At a special meeting of stockholders on April 10, 2023 (the “Special Meeting of Stockholders”), our stockholders approved a Certificate of Amendment to our Articles
of Incorporation to increase our authorized common stock from 200,000,000 shares to 400,000,000 shares and approved the grant of discretionary authority to our board of
directors to effect a reverse stock split of our outstanding shares of common stock at a specific ratio within a range of one-for-five (1-for-5) to a maximum of a one-for-forty (1-
for-40) split.
In addition, at the Special Meeting of Stockholders, our stockholders approved an amendment to the Company’s 2019 Incentive Compensation Plan to increase the
number of shares authorized under the plan by 15,000,000 shares of common stock to be authorized for awards granted under the plan.
ITEM 1A. RISK FACTORS
Our short and long-term success is subject to numerous risks and uncertainties, many of which involve factors that are difficult to predict or beyond our control. As a
result, investing in the Company’s common stock involves substantial risk. The Company’s stockholders should carefully consider the risks and uncertainties described below, in
addition to the other information contained in or incorporated by reference into this Annual Report, as well as the other information we file with the SEC from time to time. The
risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also impair our business
operations and financial results. If any of the following risks actually occurs, our business, financial condition or results of operations could be adversely affected. In such
case, the trading price of our common stock could decline and you could lose all or part of your investment. Our filings with the SEC also contain forward-looking statements
that involve risks or uncertainties. Our actual results could differ materially from those anticipated or contemplated by these forward-looking statements as a result of a
number of factors, including the risks we face described below, as well as other variables that could affect our operating results. Past financial performance should not be
considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Risks Related to Our Business
We have incurred significant net losses and cannot assure you that we will achieve or maintain profitable operations.
We have incurred recurring losses since our inception in 2012. Our net loss was $37.4 million for the year ended December 31, 2022, of which $19.0 million was non-
cash; and $34.5 million for the year ended December 31, 2021, of which $7.3 million was non-cash. To date, we have funded our operations through cash collected from sales
of our products and services, offerings of our equity securities, and debt financing. We have devoted substantially all of our resources to the design, development and
commercialization of our products, the scaling of our technology and infrastructure, and our marketing and sales efforts. We may continue to incur significant losses in the
future for a number of reasons, including unforeseen expenses, difficulties, complications, delays, and other unknown events.
To implement our business strategy and achieve consistent profitability, we need to, among other things, continue to reduce operating expenses, increase sales of our
products and the gross profit associated with those sales, continue to reduce research and development expenses, and increase our marketing and sales efforts to drive an
increase in the number of customers and clients utilizing our services. These expenditures may make it more difficult to achieve and maintain profitability. In addition, our
efforts to grow our business may be more expensive than we expect, and we may not be able to generate sufficient revenue to offset operating expenses. If we are forced to
reduce our expenses beyond our planned cost reduction initiatives, our growth strategy could be compromised. To offset our anticipated operating expenses, we will need to
generate and sustain significant revenue levels in future periods in order to become profitable, and even if we do, we may not be able to maintain or increase our level of
profitability.
Accordingly, we cannot assure you that we will achieve sustainable operating profits as we continue to reduce operating expenses, restructure our balance sheet,
further develop our marketing efforts, and otherwise implement our growth initiatives. Any failure to achieve and maintain profitability would have a materially adverse effect
on our ability to implement our business plan, our results and operations, and our financial condition, and could cause the value of our common stock, to decline, resulting in a
significant or complete loss of your investment.
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Our independent registered public accounting firm’s report for the fiscal year ended December 31, 2022 has raised substantial doubt as to our ability to continue as a going
concern.
Our independent registered public accounting firm indicated in its report on our audited consolidated financial statements as of and for the year ended December 31,
2022 that there is substantial doubt about our ability to continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared
assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the
amounts and classification of liabilities that may result if we do not continue as a going concern. Therefore, you should not rely on our consolidated balance sheet as an
indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of
liquidation. The presence of the going concern note to our financial statements may have an adverse impact on the relationships we are developing and plan to develop with
third parties as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing, all of which could have a
material adverse impact on our business and prospects and result in a significant or complete loss of your investment.
If we are unable to generate sufficient cash flow from operations to operate our business and pay our debt obligations as they become due, we may need to seek to
borrow additional funds, dispose of our assets, or reduce or delay capital expenditures. There can be no assurance that we will ever be profitable or that debt or equity financing
will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant
dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash
commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business, as planned, and as a result
may be required to scale back or cease operations for our business, the results of which would be that our stockholders would lose some or all of their investment. Our audited
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. For additional information, please refer to the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Going Concern,” as well as Note 1 to our consolidated financial
statements included within this Annual Report.
Public health threats, such as the COVID-19 pandemic, natural disasters and other events beyond our control, have had and may continue to have a significant negative
impact on our business, sales, results of operations and financial condition.
Public health threats and other highly communicable diseases and outbreaks could adversely impact our operations, the operations of our customers, suppliers,
distributors and other business partners, as well as the healthcare system in general. For example, the COVID-19 pandemic 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 have had significant negative impacts on 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 pandemic have had, and may continue to have, a material adverse effect on our business,
sales, results of operations and financial condition. In addition, our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and
other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our
services to our customers and could decrease demand for our services.
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. 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 pandemic, or other public health threats, natural disasters or catastrophic events, 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 pandemic 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.
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Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.
We have limited capital resources. We have financed our operations entirely through equity investments by founders and other investors and the incurrence of debt,
and we expect to continue to finance our operations in the same manner in the foreseeable future. Our ability to continue our normal and planned operations, to grow our
business, and to compete in our industry will depend on the availability of adequate capital. We cannot assure you that we will be able to obtain additional funding from those
or other sources when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity, or securities convertible into equity, it would result
in dilution to our then-existing stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional capital
through the incurrence of additional indebtedness, we would likely become subject to further covenants restricting our business activities, and holders of debt instruments may
have rights and privileges senior to those of our then-existing stockholders. In addition, servicing the interest and principal repayment obligations under debt facilities could
divert funds that would otherwise be available to support development of new programs and marketing to current and potential new clients. If we are unable to raise capital
when needed or on attractive terms, we could be forced to delay, reduce, or eliminate development of new programs or future marketing efforts, or reduce or discontinue our
operations. Any of these events could significantly harm our business, financial condition, and prospects.
Our indebtedness, and the agreements governing such indebtedness, subject us to required debt service payments, as well as financial restrictions and operating covenants,
any of which may reduce our financial flexibility and affect our ability to operate our business.
From time to time, we have financed our liquidity needs in part from borrowings made under various credit agreements. As of December 31, 2022, the aggregate
outstanding principal balance of our notes payable was $9.7 million.
The agreements underlying these transactions contain certain financial restrictions, operating covenants, and debt service requirements. Our failure to comply with
obligations under these agreements, or inability to make required debt service payments, could result in an event of default under the agreements. A default, if not cured or
waived, could permit a lender to accelerate payment of the loan, which could have a material adverse effect on our business, operations, financial condition, and liquidity.
Further, if our debt is accelerated, we cannot be certain that funds will be available to pay the debt or that we will have the ability to refinance the debt on terms satisfactory to
us or at all. If we are unable to repay or refinance the accelerated debt, we could become insolvent and seek to file for bankruptcy protection, which would have a material
adverse impact on our financial condition.
In addition, the covenants in our credit agreements could limit our ability to engage in transactions that would be in our best interest, or otherwise respond to changing
business and economic conditions, and may therefore have a material impact on our business. For example, our borrowings will require debt service payments, which could
require us to divert funds identified for other purposes to such debt service payments. Further, if we cannot generate sufficient cash flow from operations to service our debt, we
may need to refinance the debt, dispose of its assets, or reduce or delay expenditures. Alternatively, we may be required to issue equity to obtain necessary funds, which would
be dilutive to our stockholders. We do not know whether we would be able to take any of these actions on a timely basis or at all.
Our current or future level of indebtedness could affect our operations in several ways, including the following:
● the covenants contained in current or future agreements governing outstanding indebtedness may limit our ability to borrow additional funds, refinance debt, dispose
of assets, and make certain investments;
● debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;
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● a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
● a significant level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage
of opportunities that our indebtedness would prevent us from pursuing; and
● a high level of debt may impair our ability to obtain additional financing in the future for working capital, debt service requirements, acquisitions, or other purposes.
For additional information refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources,” as well as Note 1 to our consolidated financial statements included elsewhere in this Annual Report.
The success of our business is dependent upon our ability to maintain and expand our customer base and our ability to convince our customers to increase the use of our
services and/or platform. If we are unable to expand our customer base and/or the use of our services and/or platform by our customers declines, our business will be
harmed.
Our ability to expand and generate revenue depends, in part, on our ability to maintain and expand our relationships with existing customers and convince them to
increase their use of our platform. If our customers do not increase their use of our platform, then our revenue may not grow and our results of operations may be harmed. It is
difficult to predict customers’ usage levels accurately and the loss of customers or reductions in their usage levels may have a negative impact on our business, results of
operations, and financial condition. If a significant number of customers cease using, or reduce their usage of, our platform, then we may be required to spend significantly
more on sales and marketing than we currently plan to spend in order to maintain or increase revenue. These additional expenditures could adversely affect our business, results
of operations, and financial condition. Most of our customers do not have long-term contractual financial commitments to us and, therefore, most of our customers could reduce
or cease their use of our platform at any time without penalty or termination charges.
The market in which we operate is intensely competitive and, if we do not compete effectively, our operating results could be harmed.
The market for CRM applications is intensely competitive and rapidly changing, barriers to entry are relatively low, and many of our competitors, including
Salesforce.com, Microsoft, Oracle, SAP SE, and Adobe, which collectively accounted for over 40% of industry sales in 2021, have greater name recognition, longer operating
histories, and larger marketing budgets, as well as substantially greater financial, technical, and other resources, than we do. In addition, many of our potential competitors have
established marketing relationships and access to larger customer bases, and have major distribution agreements with consultants, system integrators, and resellers. As a result,
our competitors may be able to respond more effectively than we can to new or changing opportunities, technologies, standards, customer requirements, competitive pressures,
or challenges within the financial markets. Furthermore, because of these advantages, even if our products and services are more effective than the products and services that
our competitors offer, potential customers might accept competitive products and services in lieu of purchasing our products and services. If we do not compete effectively
against our current and future competitors, our operating results could be harmed.
We may not be able to increase the number of our strategic relationships or grow the revenues received from our current strategic relationships.
We have entered into certain strategic relationships with other individuals and enterprises and are actively seeking additional strategic relationships. There can be no
assurance, however, that these strategic relationships will result in material revenues for us or that we will be able to generate any other meaningful strategic relationships. If we
are not able to increase the number of our strategic relationships or grow the revenues received from our current strategic relationships, our operating results could be harmed.
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We may not be able to develop enhancements and new features to our existing service or acceptable new services that keep pace with technological developments.
If we are unable to develop enhancements to, and new features for, our sales enablement applications that keep pace with rapid technological developments, such as
verbLIVE, our business will be harmed. The success of enhancements, new features, and services depends on several factors, including the timely completion, introduction, and
market acceptance of the feature or edition. Failure in this regard may significantly impair our revenue growth or harm our reputation. We may not be successful in either
developing these modifications and enhancements or in timely bringing them to market at a competitive price or at all. Furthermore, uncertainties about the timing and nature of
new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development expenses. Any failure of our
service to operate effectively with future network platforms and technologies could reduce the demand for our service, result in customer dissatisfaction, and harm our business.
Our ability to deliver our services is dependent on third party Internet providers.
The Internet’s infrastructure is comprised of many different networks and services that, by design, are highly fragmented and distributed. This infrastructure is run by a
series of independent, third-party organizations that work together to provide the infrastructure and supporting services of the Internet under the governance of the Internet
Corporation for Assigned Numbers and Names (“ICANN”) and the Internet Assigned Numbers Authority (“IANA”), which is now related to ICANN.
The Internet has experienced, and will continue to experience, a variety of outages and other delays due to damages to portions of its infrastructure, denial-of-service
attacks, or related cyber incidents. These scenarios are not under our control and could reduce the availability of the Internet to us or our customers for delivery of our services.
Any resulting interruptions in our services or the ability of our customers to access our services could result in a loss of potential or existing customers and harm our business.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information, proprietary business
information of our customers, including, credit card and payment information, and personally identifiable information of our customers and employees. The secure processing,
maintenance, and transmission of this information is critical to our operations and business strategy.
In addition, we are subject to numerous federal, state, provincial and foreign laws regarding privacy and protection of data. Some jurisdictions have enacted laws
requiring companies to notify individuals of data security breaches involving certain types of personal data and our agreements with certain customers require us to notify them
in the event of a security incident. Evolving regulations regarding personal data and personal information, including the General Data Protection Regulation, the California
Consumer Privacy Act of 2018 (“CCPA”), and the recently passed California Privacy Rights Act, which amends the CCPA and has many provisions that became effective on
January 1, 2023, especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or
expand our business. Such laws and regulations require or may require us or our customers to implement privacy and security policies, permit consumers to access, correct or
delete personal information stored or maintained by us or our customers, inform individuals of security incidents that affect their personal information, and, in some cases,
obtain consent to use personal information for specified purposes.
We believe that we take reasonable steps to protect the security, integrity and confidentiality of the information we collect, use, store, and disclose, and we take steps to
strengthen our security protocols and infrastructure, however, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to
employee error, malfeasance, or other disruptions. We also could be negatively impacted by software bugs or other technical malfunctions, as well as employee error or
malfeasance. Advanced cyber-attacks can be multi-staged, unfold over time, and utilize a range of attack vectors with military-grade cyber weapons and proven techniques,
such as spear phishing and social engineering, leaving organizations and users at high risk of being compromised. Any such access, disclosure, or other loss of information
could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, a disruption of our operations, damage to
our reputation, a loss of confidence in our business, early termination of our contracts and other business losses, indemnification of our customers, liability for stolen assets or
information, increased cybersecurity protection and insurance costs, financial penalties, litigation, regulatory investigations and other significant liabilities, any of which could
materially harm our business any of which could adversely affect our business, revenues, and competitive position.
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Our success depends, in part, on the capacity, reliability, and security of our information technology hardware and software infrastructure, as well as our ability to adapt
and expand our infrastructure.
The capacity, reliability, and security of our information technology hardware and software infrastructure are important to the operation of our current business, which
would suffer in the event of system failures. Likewise, our ability to expand and update our information technology infrastructure in response to our growth and changing needs
is important to the continued implementation of our new service offering initiatives. Our inability to expand or upgrade our technology infrastructure could have adverse
consequences, including the delayed provision of services or implementation of new service offerings, and the diversion of development resources. We rely on third parties for
various aspects of our hardware and software infrastructure. Third parties may experience errors or disruptions that could adversely impact us and over which we may have
limited control. Interruption and/or failure of any of these systems could disrupt our operations and damage our reputation, thus adversely impacting our ability to provide our
products and services, retain our current users, and attract new users. In addition, our information technology hardware and software infrastructure may be vulnerable to
unauthorized access, misuse, computer viruses, or other events that could have a security impact. If one or more of such events occur, our customer and other information
processed and stored in, and transmitted through, our information technology hardware and software infrastructure, or otherwise, could be compromised, which could result in
significant losses or reputational damage. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate
vulnerabilities or other exposures, and we may be subject to litigation and financial losses, any of which could substantially harm our business and our results of operations.
We are dependent on third parties to, among other things, maintain our servers, provide the bandwidth necessary to transmit content, and utilize the content derived
therefrom for the potential generation of revenues.
We depend on third-party service providers, suppliers, and licensors to supply some of the services, hardware, software, and operational support necessary to provide
some of our products and services. Some of these third parties do not have a long operating history or may not be able to continue to supply the equipment and services we
desire in the future. If demand exceeds these vendors’ capacity, or if these vendors experience operating or financial difficulties or are otherwise unable to provide the
equipment or services we need in a timely manner, at our specifications and at reasonable prices, our ability to provide some products and services might be materially
adversely affected, or the need to procure or develop alternative sources of the affected materials or services might delay our ability to serve our users. These events could
materially and adversely affect our ability to retain and attract users, and have a material negative impact on our operations, business, financial results, and financial condition.
We may not be able to find suitable software developers at an acceptable cost or at all.
We currently rely on certain key suppliers and vendors in the coding and maintenance of our software. We will continue to require such expertise in the future. Due to
the current demand for skilled software developers, we run the risk of not being able to find or retain suitable and qualified personnel at an acceptable price, or at all. These
risks may be greater now than in the past due to current general labor shortages in the United States. Without these developers, we may not be able to further develop and
maintain our software, which is the most important aspect of our business development.
The success of our business is highly correlated to general economic conditions.
Demand for our products and services is highly correlated with general economic conditions, as a substantial portion of our revenue is derived from discretionary
spending by individuals, which typically declines during times of economic instability. Declines in economic conditions in the United States or in other countries in which we
operate, including declines as a result of the COVID-19 pandemic, and may operate in the future may adversely impact our financial results. Because such declines in demand
are difficult to predict, we or our industry may have increased excess capacity as a result. An increase in excess capacity may result in declines in prices for our products and
services. Our ability to grow or maintain our business may be adversely affected by sustained economic weakness and uncertainty, including the effect of wavering consumer
confidence, high unemployment, and other factors. The inability to grow or maintain our business would adversely affect our business, financial conditions, and results of
operations, and thereby an investment in our common stock.
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Our failure to adequately protect our intellectual property rights could diminish the value of our products, weaken our competitive position and reduce our revenue, and
infringement claims asserted against us or by us, could have a material adverse effect.
We regard the protection of our intellectual property, which includes patents, trade secrets, copyrights, trademarks and domain names, as critical to our success. We
strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We enter into confidentiality and
invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to,
and disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not
prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.
We have two patents related to our system for providing access to, storing and distributing content, and we filed a provisional patent application with the U.S. Patent
and Trademark Office (“PTO”), with respect to our interactive video technology. We have one patent related to methods for generating a custom campaign, and one
continuation with respect to the same. Our provisional patent application may not result in the issuance of a patent, or certain claims may be rejected or may need to be
narrowed, which may limit the protection we are attempting to obtain. In addition, our existing patents and any future patents that may be issued to us, may not protect
commercially important aspects of our technology. Furthermore, the validity and enforceability of our patents may be opposed, challenged, or circumvented by third parties,
including our competitors, which may result in our patents being invalidated or modified by the PTO, various legal actions against us, the need to develop or obtain alternative
technology, or obtain appropriate licenses under third-party patents, which may not be available on acceptable terms or at all.
We have registered domain names and trademarks in the United States and have pursued additional registrations both in and outside the United States. Effective trade
secret, copyright, trademark, domain name and patent protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the
costs of defending our rights. Notwithstanding our efforts, third parties may independently develop technology that is not covered by our patents, or that is similar to, or
competes with, our technology. In addition, our intellectual property may be infringed or misappropriated by third parties, particularly in foreign countries where the laws and
governmental authorities may not protect our proprietary rights as effectively as those in the United States. We may be required to protect our intellectual property in an
increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location.
Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent
misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. In
addition, our competitors may independently develop similar technology. The laws in the United States and elsewhere change rapidly, and any future changes could adversely
affect us and our intellectual property. Our failure to meaningfully protect our intellectual property could result in competitors offering services that incorporate our most
technologically advanced features, which could seriously reduce demand for our products. In addition, we may in the future need to initiate infringement claims or litigation.
Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could
harm our business, whether or not such litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain, and thus we may not be able
to stop its competitors from infringing upon our intellectual property rights.
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Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have
a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control.
Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers and could
decrease demand for our services.
Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.
Our future success largely depends upon the continued services of our executive officers and management team, especially our Chief Executive Officer, Chairman of
our board of directors, and President, Mr. Rory J. Cutaia. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be
able to replace them readily, if at all. Additionally, we may incur additional expenses to recruit and retain new executive officers. If any of our executive officers joins a
competitor or forms a competing company, we may lose some or all of our customers. Finally, we do not maintain “key person” life insurance on any of our executive officers.
Because of these factors, the loss of the services of any of these key persons could adversely affect our business, financial condition, and results of operations, and thereby an
investment in our stock.
Our continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need to hire and retain additional personnel as
our business grows. There can be no assurance that we will be able to attract or retain highly qualified personnel. We face significant competition for skilled personnel in our
industries. This competition may make it more difficult and expensive to attract, hire, and retain qualified managers and employees. Because of these factors, we may not be
able to effectively manage or grow our business, which could adversely affect our financial condition or business. As a result, the value of your investment could be
significantly reduced or completely lost.
Risks Related to an Investment in Our Securities
We are not in compliance with The NASDAQ Capital Market $1.00 minimum bid price requirement and failure to maintain compliance with this standard could result in
delisting and adversely affect the market price and liquidity of our common stock.
Our common stock is currently traded on The NASDAQ Capital Market under the symbol “VERB”. If we fail to meet any of the continued listing standards of The
NASDAQ Capital Market, our common stock will be delisted from The NASDAQ Capital Market. These continued listing standards include specifically enumerated criteria,
such as a $1.00 minimum closing bid price.
On May 12, 2022, we received a letter from The NASDAQ Stock Market advising that the Company did not meet the minimum $1.00 per share bid price requirement
for continued inclusion on The NASDAQ Capital Market pursuant to NASDAQ Marketplace Listing Rule 5550(a)(2). The Company initially had a period of 180 calendar
days, or until November 8, 2022, to regain compliance. On November 9, 2022, we were granted an additional 180-day period from the Nasdaq Stock Market Listing
Qualifications Staff, through May 8, 2023, to regain compliance with the $1.00 minimum bid price requirement for continued listing on the Nasdaq Capital Market. To
demonstrate compliance with this requirement, the closing bid price of our common stock needs to be at least $1.00 per share for a minimum of 10 consecutive business days
before May 8, 2023. In order to satisfy this requirement, the Company intends to continue actively monitoring the bid price for its common stock between now and May 8,
2023 and will consider available options to resolve the deficiency and regain compliance with the minimum bid price requirement.
While we intend to regain compliance with the minimum bid price rule, there can be no assurance that we will be able to maintain continued compliance with this rule or the
other listing requirements of The NASDAQ Capital Market. If we were unable to meet these requirements, we would receive another delisting notice from the Nasdaq Capital
Market for failure to comply with one or more of the continued listing requirements. If our common stock were to be delisted from The NASDAQ Capital Market, trading of
our common stock most likely will be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the OTC Markets or in
the “pink sheets.” Such a downgrading in our listing market may limit our ability to make a market in our common stock and which may impact purchases or sales of our
securities.
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Raising additional capital, including through future sales and issuances of our common stock, warrants or the exercise of rights to purchase common stock pursuant to
our equity incentive plan could result in additional dilution of the percentage ownership of our stockholders, could cause our share price to fall and could restrict our
operations.
We expect we will need significant additional capital in the future to continue our planned operations, including any potential acquisitions, hiring new personnel and
continuing activities as an operating public company. To the extent we seek additional capital through a combination of public and private equity offerings and debt financings,
our stockholders may experience substantial dilution. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership
interest of our existing stockholders may be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt and
receivables financings may be coupled with an equity component, such as warrants to purchase shares of our common stock, which could also result in dilution of our existing
stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as
limitations on our ability to incur additional debt and other operating restrictions that could adversely impact our ability to conduct our business. A failure to obtain adequate
funds may cause us to curtail certain operational activities, including sales and marketing, in order to reduce costs and sustain the business, and would have a material adverse
effect on our business and financial condition.
In addition, we have granted options to purchase shares of our common stock pursuant to our equity incentive plans and have registered 16,000,000 shares of common
stock underlying options and shares granted pursuant to our equity incentive plans. Sales of shares issued upon exercise of options granted under our equity compensation plans
may result in material dilution to our existing stockholders, which could cause our price of our common stock to fall.
Our issuance of additional shares of preferred stock could adversely affect the market value of our common stock, dilute the voting power of common stockholders and
delay or prevent a change of control.
Our board of directors have the authority to cause us to issue, without any further vote or action by the stockholders, shares of preferred stock in one or more series, to
designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences of such series.
The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred
stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock
may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would
effectively be entitled to purchase common stock at the lower conversion price causing economic dilution to the holders of common stock.
Further, the issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by
diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an
action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock. The issuance of shares of preferred stock
may also have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are
offered a premium for their shares.
The market price of our common stock has been, and may continue to be, subject to substantial volatility.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including;
● volatility in the trading markets generally and in our particular market segment;
● limited trading of our common stock;
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● actual or anticipated fluctuations in our results of operations;
● the financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections;
● announcements regarding our business or the business of our customers or competitors;
● changes in accounting standards, policies, guidelines, interpretations, or principles;
● actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
● developments or disputes concerning our intellectual property or our offerings, or third-party proprietary rights;
● announced or completed acquisitions of businesses or technologies by us or our competitors;
● new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
● any major change in our board of directors or management;
● sales of shares of our common stock by us or by our stockholders;
● lawsuits threatened or filed against us; and
● other events or factors, including those resulting from war, incidents of terrorism, pandemics (such as the COVID-19 pandemic) or responses to these events.
Statements of, or changes in, opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we operate or
expect to operate could have an adverse effect on the market price of our common stock. In addition, the stock market as a whole, as well as our particular market segment, has
from time-to-time experienced extreme price and volume fluctuations, which may affect the market price for the securities of many companies, and which often have appeared
unrelated to the operating performance of such companies. Any of these factors could negatively affect our stockholders’ ability to sell their shares of common stock at the time
and price they desire.
A decline in the price of our common stock could affect our ability to raise further working capital, which could adversely impact our ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. We
may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities; thus, a decline in the price of
our common stock could be detrimental to our liquidity and our operations because the decline may adversely affect investors’ desire to invest in our securities. If we are unable
to raise the funds we require for all of our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our
business plan and operations, including our ability to develop new products or services and continue our current operations. As a result, our business may suffer, and we may be
forced to reduce or discontinue operations. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock
and we may be forced to reduce or discontinue operations.
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Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares
unless and until they sell them.
We intend to retain a significant portion of any future earnings to finance the development, operation and expansion of our business. We do not anticipate paying any
cash dividends on our common stock in the near future. The declaration, payment, and amount of any future dividends will be made at the discretion of our board of directors,
and will depend upon, among other things, the results of operations, cash flows, and financial condition, operating and capital requirements, and other factors as our board of
directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such
dividend. Unless our board of directors determines to pay dividends, our stockholders will be required to look to appreciation of our common stock to realize a gain on their
investment. There can be no assurance that this appreciation will occur.
Our common stock has been categorized as “penny stock,” which may make it more difficult for investors to sell their shares of common stock due to suitability
requirements.
The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions
with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The
penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a
form prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements
showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In
addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our
common stock.
The Financial Industry Regulatory Authority, Inc. has adopted sales practice requirements that historically may have limited a stockholder’s ability to buy and sell our
common stock, which could depress the price of our common stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that, in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative
low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not
be suitable for at least some customers. Thus, the FINRA requirements historically has made it more difficult for broker-dealers to recommend that their customers buy our
common stock, which could limit your ability to buy and sell our common stock, have an adverse effect on the market for our shares, and thereby depress our price per share of
common stock.
The elimination of monetary liability against our directors, officers, and employees under Nevada law and the existence of indemnification rights for our obligations to our
directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees.
Our articles of incorporation and bylaws contain provisions permitting us to eliminate the personal liability of our directors and officers to us and our stockholders for
damages for the breach of a fiduciary duty as a director or officer to the extent provided by Nevada law. In addition, we have entered into indemnification agreements with our
directors and officers to provide such indemnification rights. We may also have contractual indemnification obligations under any future employment agreements with our
officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and
officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches
of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if
successful, might otherwise benefit us and our stockholders.
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Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of us.
Nevada has a business combination law that prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after
an “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s board of directors approves the combination in advance. For purposes of Nevada
law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares
of the corporation or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent
or more of the voting power of the then-outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any
kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests
of the corporation and its other stockholders.
The potential effect of Nevada’s business combination law is to discourage parties interested in taking control of us from doing so if these parties cannot obtain the
approval of our board of directors. Both of these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.
Our bylaws contain an exclusive forum provision, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers, employees or agents.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the state and federal courts in the State of Nevada shall be the exclusive
forum for any litigation relating to our internal affairs, including, without limitation: (a) any derivative action brought on behalf of us, (b) any action asserting a claim for breach
of fiduciary duty to us or our stockholders by any current or former officer, director, employee, or agent of us, or (c) any action against us or any current or former officer,
director, employee, or agent of us arising pursuant to any provision of the Nevada Revised Statutes, the articles of incorporation, or the bylaws.
For the avoidance of doubt, the exclusive forum provision described above does not apply to any claims arising under the Securities Act or Exchange Act. Section 27
of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the
Securities Act or the rules and regulations thereunder.
The choice of forum provision in our bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our
directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful,
might benefit our stockholders. The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering
an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. With respect to the
provision making the state and federal courts in the State of Nevada the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the state and
federal courts in the State of Nevada could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Nevada. Finally, if a court
were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional
costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Our California office is approximately 6,700 square feet and is located at 2210 Newport Blvd., Suite 200, Newport Beach, California 92663. Our office houses our
executive and administrative operations under an operating lease that expires on May 31, 2027 for monthly rent of approximately $35,000. We believe that our facility is
sufficient to meet our current needs and that suitable additional space will be available as and when needed.
On April 12, 2019, we acquired 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. 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 Verb Direct. On January 3, 2022, we entered into a termination agreement for such offices and warehouse leases. Under the terms of the agreement, two of the
building leases terminated on January 15, 2022 and the other two terminated on April 30, 2022.
On April 26, 2022, we entered into an office space sub-lease agreement in Lehi, Utah. The agreement requires us to pay $12,000 per month for an initial term of
eighteen months, which increases by 3% per annum after twelve months.
ITEM 3. LEGAL PROCEEDINGS
For a discussion of our legal proceedings, refer to Note 16 “Commitments and Contingencies,” in the notes to our audited consolidated financial statements of this
Annual Report.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
PART II
Market Information
Our common stock trades on The Nasdaq Capital Market under the symbol “VERB.”
Holders of Common Stock
As of April 12, 2023, there were approximately 83 holders of record of our common stock. These holders of record include depositories that hold shares of stock for
brokerage firms which, in turn, hold shares of stock for numerous beneficial owners.
Dividends
We have never declared or paid dividends. We do not intend to pay cash dividends on our common stock for the foreseeable future, but currently intend to retain any
future earnings to fund the development and growth of our business. The payment of dividends, if any, on our common stock will rest solely within the discretion of our board
of directors and will depend, among other things, upon our earnings, capital requirements, financial condition, and other relevant factors. Pursuant to a Securities Purchase
Agreement we entered into on January 12, 2022 with three institutional investors, which we disclosed on a Form 8-K filed with the SEC on January 13, 2022, we were
prohibited from declaring or paying a cash dividend or distribution on any of our common stock. On January 26, 2023, the Company repaid in full all of the outstanding
obligations associated with the securities purchase agreement at which time the prohibition against the declaration or paying of a dividend was extinguished.
Recent Sales of Unregistered Securities
During our fiscal year ended December 31, 2022, all sales of equity securities that were not registered under the Securities Act of 1933, as amended, were previously
reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and financial condition for the fiscal years ended December 31, 2022 and 2021, should be read in
conjunction with our consolidated financial statements and the related notes and the other financial information that are included elsewhere in this Annual Report. This
discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions.
The following discussion contains forward-looking statements that involve risks and uncertainties such as our plans, estimates, and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements below. Factors that could cause or contribute to those differences in our actual results include, but are not
limited to, those discussed below and those discussed elsewhere within this Annual Report, particularly in the section entitled “Cautionary Note Regarding Forward-Looking
Statements” and the Item entitled “Risk Factors.”
Overview
We are a Software-as-a-Service (“SaaS”) applications platform developer. We offer three platforms, each designed for a specific target customer. Our SaaS platform
for the direct sales industry is comprised of a suite of interactive video-based sales enablement business software products marketed on a subscription basis. Available in both
mobile and desktop versions, our base SaaS product is verbCRM, our Customer Relationship Management (“CRM”) application, to which our clients can add a choice of
enhanced, fully integrated application modules that include verbLEARN, our gamified Learning Management System application; verbLIVE, our Live Stream interactive
eCommerce application; and verbPULSE, our business/augmented intelligence notification and sales coach application; verbTEAMS is our standalone, self-onboarding video-
based CRM and content management application for life sciences companies, professional sports teams, small businesses and solopreneurs, with seamless one-button
synchronization with Salesforce, that also comes bundled with verbLIVE. MARKET.live is our multi-vendor, multi-presenter, livestream social shopping platform, that
combines ecommerce and entertainment.
We use the term “client” and “customer” interchangeably throughout this Annual Report.
Our SaaS Technology
Our suite of applications can be distinguished from other sales enablement applications because our applications utilize our proprietary interactive video technology as
the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and analytics
capabilities of our applications inform our users on their devices in real time, when and for how long their prospects have watched a video, how many times such prospects
watched it, and what they clicked on, which allows our users to focus their time and efforts on ‘hot leads’ or interested prospects rather than on those that have not seen such
video or otherwise expressed interest in such content. Users can create their hot lead lists by using familiar, intuitive ‘swipe left/swipe right’ on-screen navigation. Our clients
report that these capabilities provide for a much more efficient and effective sales process, resulting in increased sales conversion rates. We developed the proprietary patent-
pending interactive video technology, as well as several other patent-issued and patent-pending technologies that serve as the unique foundation for all our platform
applications.
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Our Products
verbCRM is our baseline white-labelled product designed specifically for direct sales professionals that combines the capabilities of CRM lead-generation, content
management, and in-video ecommerce capabilities in an intuitive, yet powerful tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users
to quickly and easily create, distribute, and post videos to which they can add a choice of on-screen clickable icons which, when clicked, allow viewers to respond to the user’s
call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology allows a prospect or customer to click on
a product they see featured in a video and impulse buy it, or to click on a calendar icon in the video to make an appointment with a salesperson, among many other features and
functionalities designed to eliminate or reduce friction from the sales process for our users. The verbCRM app is designed to be easy to use and navigate and takes little time
and training for a user to begin using the app effectively. It usually takes less than four minutes for a novice user to create an interactive video from our app. Users can add
interactive icons to pre-existing videos, as well as to newly created videos shot with practically any mobile device. verbCRM interactive videos can be distributed via email,
text messaging, chat app, or posted to popular social media directly and easily from our app. No software download is required to view Verb interactive videos on virtually any
mobile or desktop device, including smart TVs. verbCRM is designed to accommodate a suite of applications as add-on modules that integrate fully and seamlessly into the
platform. These include verbLEARN, verbLIVE, and verbPULSE, each of which is described below.
verbLEARN is an interactive, video-based learning management system that incorporates all of the clickable in-video technology featured in our verbCRM
application and adapts them for use by educators for video-based education. verbLEARN is used by enterprises seeking to educate a large sales team or a customer base about
new products, or elicit feedback about existing products. It also incorporates Verb’s proprietary data collection and analytics capabilities that inform users in real time when and
for how long the viewers watched the video, how many times they watched it, and what they clicked on, in addition to adding gamification features that enhance the learning
aspects of the application.
verbLIVE is a next-generation interactive live-stream platform with in-video ecommerce capabilities for sales reps that allows them to utilize a variety of novel sales-
driving features, including placing interactive icons on-screen that appear on the screens of all viewers, providing in-video click-to-purchase capabilities for products or
services featured in the live video broadcast, in real-time, driving friction-free selling. verbLIVE also provides the sales reps with real-time viewer engagement data and
interaction analytics. verbLIVE is entirely browser-based, allowing it to function easily and effectively on all devices without requiring the host or the viewers to download
software, and is secured through end-to-end encryption.
verbPULSE is a business/augmented intelligence notification-based sales enablement platform feature set that tracks users’ interactions with current and prospective
customers and then helps coach users by informing them what to do next in order to close the sale, virtually eliminating the lack of skill, training and experience among sales
reps from the selling process.
verbTEAMS is our standalone interactive, video-based CRM for life sciences companies, professional sports teams, small-and medium-sized businesses and
solopreneurs. verbTEAMS also incorporates verbLIVE as a bundled application. verbTEAMS features self-sign-up, self-onboarding, self-configuring, content management
system capabilities, user level administrative capabilities, and high-quality analytics capabilities in both mobile and desktop platforms that sync with one another. It also has a
built-in one-click sync capability with Salesforce.
MARKET.live is akin to a virtual shopping mall, a centralized online destination where shoppers could explore hundreds, and over time thousands, of shoppable
stores for their favorite brands, influencers, creators and celebrities, all of whom can host livestream shopping events from their virtual stores that can be seen by all shoppers at
the virtual mall. Every store operator can host livestream events, even simultaneously, and over time we expect there will be thousands of such events, across numerous product
and service categories, being hosted by people from all over the world, always on – 24/7 - where shoppers could communicate with the hosts and ask questions about products
directly to the host in real-time through an on-screen chat visible to all shoppers. Shoppers can invite their friends and family to join them at any of the live shopping events to
share the experience - to communicate directly with each other in real time, and then simply click on a non-intrusive - in-video overlay to place items in an on-screen shopping
cart for purchase – all without interrupting the video. Shoppers can visit any number of other shoppable events to meet up and chat with friends, old and new, and together
watch, shop and chat with the hosts, discover new products and services, and become part of an immersive entertaining social shopping experience. Throughout the experience,
the shopping cart follows shoppers seamlessly from event to event, shoppable video to shoppable video, host to host, product to product.
The MARKET.live business model is a simple but next-level B to B play. It is a multi-vendor platform, with a single follow-me style unified shopping cart, and robust
ecommerce capabilities with the tools for consumer brands, big box brick and mortar stores, boutiques, influencers and celebrities to connect with their clients, customers, fans,
followers, and prospects by providing a unique, interactive social shopping experience that we believe could keep them coming back and engaged for hours.
23
A big differentiator for MARKET.live is that it also provides an online meeting place for friends and family to meet, chat, shop and enjoy a fun, immersive shopping
experience in real time together from anywhere and everywhere in the world. MARKET.live will provide vendors with extensive business building analytics capabilities not
available on, and not shared by many operators of other social media sites who regard that information as valuable proprietary property. All vendors on MARKET.live will
retain this valuable intelligence for their own, unlimited use.
MARKET.live allows vendors an opportunity to reach not only the shoppers they invite to the site from their own client and contact lists, but also those shoppers who
came to the site independently who will discover these vendors as they browse through the many other shoppable events hosted simultaneously on MARKET.live 24/7, from
around the world. We believe our revenue model will be attractive to vendors and will consist of SaaS recurring revenue as well as a share of revenue generated through sales
on the platform.
MARKET.live is simply a platform; we hold no inventory, we take no inventory risk, and each vendor manages their own packing and fulfillment, as well as returns.
Only vendors that have a demonstrated ability to manage inventory and fulfillment are selected to participate on MARKET.live.
As we continue onboarding vendors to the platform, we are seeing increased interest from product manufacturers seeking to embrace MARKET.live’s direct-to-
consumer selling capabilities, cutting-out distribution channel partners in order to reduce costs and increase profitability. As the economy tightens, we expect that trend to
accelerate.
MARKET.live will also incorporate a modified version of our verbLIVE Attribution technology, allowing vendors who so choose, to leverage extremely powerful,
built-in affiliate marketing capabilities. Non-vendor visitors to the site can search for those vendors that have activated the built-in affiliate marketing feature for their events
and be compensated when people they referred to that vendor, purchase products or services during that vendor’s shopping event. We expect that this feature, unique to
MARKET.live, will drive many more shoppers who will be referred from all over the world, producing a cross-pollination effect enhancing the revenue opportunities for all
MARKET.live vendors, while also creating an attractive income generating opportunity for non-vendor MARKET.live patrons.
MARKET.live is an entirely new platform, built wholly independently and separate from our verbLIVE sales platform, representing what we believe is the state of the
art of shoppable video technology. Whereas verbLIVE is a sales tool for sales reps that subscribe either directly or through their principal to verbCRM or verbTEAMS,
MARKET.live is a multivendor social shopping platform for retailers, brands, manufacturers, creators and influencers who seek to participate in an open market-style eco-
system environment. More recently, we are beginning to see interest from existing verbLIVE clients who see the value of MARKET.live as a corporate communications tool for
use in sales, marketing, lead-generation, training and recruitment initiatives.
Last fall we launched our “Creators on MARKET.live,” a new program that allows creators to monetize their content through livestream shopping and personalized
storefronts on MARKET.live. The program is being marketed to video content creators across multiple social media channels. Through this new program, creators and
influencers can choose the products they love from hundreds of brands and retailers on MARKET.live and offer their fans and followers those products through livestream
shopping events broadcast live on MARKET.live and simulcast on the creators’ existing social platforms. They can also offer their favorite products through the Creators’
personally branded storefronts they can establish quickly and easily on MARKET.live. Depending on the products chosen, Creators can earn between 5% and 20% of their
gross sales at no cost and no risk to the Creators selected to participate in the program.
With more than 12 million products from brands like Athleta, Best Buy, Target, Container Store, Banana Republic, GAP, Saks Off 5th, SSENSE, LOFT,
DERMSTORE, INTERMIX, UNCOMMON GOODS, and many more, Creators can choose to feature their favorite products and promote and sell them to their fans and
followers. All MARKET.live events are interactive so followers and fans can chat with the Creators in real time, as well as with one another, creating a more entertaining and
engaging social shopping experience. When their interest level peaks, Creators’ fans and followers can click on the screen to buy the products. Creators accepted into the
program are not required to make any investment in inventory, nor do they have the burden of managing fulfillment or shipping. The only requirement for them to remain in the
program is for them to continue to create and promote the same videos they’re already doing on YouTube and elsewhere online. Livestream events are recorded and available to
watch in the Creators’ personally branded stores on MARKET.live for those fans and followers to return 24/7 after the livestream events to browse and purchase the Creators’
featured products, as the recorded livestream videos remain shoppable.
24
verbTV will launch as a feature of our MARKET.live platform, serving to draw an audience of people seeking to consume video content that is also interactive and
shoppable. We expect this additional audience will also be exposed to and enhance the eco-system of shoppers and retailers on MARKET.live. Over time it is anticipated that
verbTV will feature concerts, game shows, sports, including e-sports, sitcoms, podcasts, special events, news, including live events, and other forms of video entertainment that
is all interactive and shoppable. verbTV represents an entirely new distribution channel for all forms of content by a new generation of content creators looking for greater
freedom to explore the creative possibilities that a native interactive video platform can provide for their audience. We believe content creators may also enjoy greater revenue
opportunities through the native ecommerce capabilities the platform provides to sponsors and advertisers who will enjoy real-time monetization, data collection and analytics.
Through verbTV, sponsors and advertisers will be able to accurately measure the ROI from their marketing spend, instead of relying on imprecise viewership information
traditionally offered to television sponsors and advertisers.
Verb Partnerships and Integrations
verbMAIL for Microsoft Outlook and Salesforce Integration of verbLIVE and verbTEAMS. verbMAIL is a product of our partnership with Microsoft and is
available as an add-in to Microsoft Outlook for Outlook and Office 365 subscribers. verbMAIL allows users to create interactive videos seamlessly within Outlook by clicking
the verbMAIL icon in the Outlook toolbar. The videos are automatically added to an email and can be sent easily through Outlook using the user’s contacts they already have in
Outlook. The application allows users to easily track viewer engagement and together with other features represents an effective sales tool available for all Outlook users
worldwide. We have completed and deployed the integration of verbLIVE into Salesforce and have a verbTEAMS sync application for Salesforce users. To date, adoption of
these products has been low due in large part to management’s decision to reduce and deploy development and marketing resources to other areas of the Company’s business
that it believes can generate a greater return on investment.
Popular Enterprise Back-Office System Integrations. We have integrated verbCRM into systems offered by 19 of the most popular direct sales back-office system
providers, such as Direct Scale, Exigo, By Design, Thatcher, Multisoft, Xennsoft, Ziplingo, and Party Plan. Direct sales back-office systems provide many of the support
functions required for direct sales operations, including payroll, customer genealogy management, statistics, rankings, and earnings, among other direct sales financial tracking
capabilities. The integration into these back-office providers, facilitated through our own API development, allows single sign-on convenience for users, as well as enhanced
data analytics and reporting capabilities for all users. Our experience confirms that our integration into these back-end platforms accelerates the adoption of verbCRM by large
direct sales enterprises that rely on these systems and as such, we believe this represents a competitive advantage.
Non-Digital Products and Services
Historically, we have provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. Due to declining sales associated
with reduced or eliminated client in-person conferences and other events stemming from the COVID-19 pandemic, and consistent with management’s strategy to exit this area
of our business due to the low margins, high costs, and limited scalability, we entered into a customer referral agreement with a third party for our cart site and printing
business. Under this agreement, we earn a 10% commission for customer referrals and 8% on merchandise sales and certain cart site design fees, all of which are recognized as
non-digital revenue on a net basis.
For these reasons, management has suggested that a more accurate measure of our performance is the historical growth of our SaaS and digital business and associated
revenue, which has been the focus of our initiatives, while we have continued to exit the low margin, non-digital business. While the SaaS and digital business has grown year
over year, that growth is not readily apparent when analyzing our top-line revenue because the total revenue represents the growing SaaS and digital business upon which we
are focused, off-set by the non-digital business we are intentionally exiting.
25
Our Market
Historically, our client base consisted primarily of multi-national direct sales enterprises to whom we provide white-labeled, client-branded versions of our products.
Over the past couple of years, our client base has expanded to include large enterprises in the life sciences sector, professional sports franchises, among other business sectors.
During the year ended December 31, 2022, we provided subscription-based application services to approximately 180 enterprise clients for use in over 100 countries and in
over 48 languages. Since inception, we have had more than 3.5 million downloads of our verbCRM applications across all of the white-labelled versions created for clients on
our platform.
Revenue Generation
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, verbPULSE, and verbTEAMs. 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, collectability is reasonably assured, 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 include design, printing, fulfillment and shipping services. The revenue is recognized upon completion and shipment of products or
fulfillment to customers. In April 2022, we entered into a customer referral agreement with a third party for our cart site and printing business. Under the agreement,
we earn a 10% commission for customer referrals and 8% on merchandise sales and certain cart site design fees, all of which are recognized as non-digital revenue on
a net basis.
3. MARKET.live, launched at the end of July 2022, generates revenue through several sources as follows:
a. All sales run through our ecommerce facility on MARKET.live from which we deduct a platform fee that ranges from 10% to 20% of gross sales, with an average
of approximately 15%, depending upon the pricing package the vendors select as well as the product category and profit margins associated with such categories.
The revenue is derived from sales generated during livestream events, from sales realized through views of previously recorded live events available in each
vendor’s store, as well as from sales of product and merchandise displayed in the vendors’ online stores, all of which are shoppable 24/7.
b. Produced events. MARKET.live offers fee-based services that range from full production of livestream events, to providing professional hosts and event
consulting.
c. The MARKET.live site is designed to incorporate sponsorships and other advertising based on typical industry rates.
26
Economic Disruption and the COVID-19 Pandemic
Our business is dependent in part on general economic conditions. Many jurisdictions in which our customers are located and our products are sold have experienced
and could continue to experience unfavorable general economic conditions, such as inflation, increased interest rates and recessionary concerns, which could negatively affect
demand for our products. Under difficult economic conditions, customers may seek to cease spending on our current products or fail to adopt our new products. We cannot
predict the timing or impact of an economic slowdown, or the timing or strength of any economic recovery. These and other economic factors could have a material adverse
effect on our business, financial condition, and results of operations.
Governments and businesses around the world continue to take actions to mitigate the spread of COVID-19 and its variants. Uncertainty with respect to the economic
effects of the pandemic has introduced significant volatility in the financial markets.
Despite increased vaccine distribution programs and loosening of COVID-19 related restrictions in the regions in which we operate during the year ended December
31, 2022, both the pandemic and ongoing containment and mitigation measures have had, and are likely to continue to have, an adverse impact on the global and U.S.
economies, the severity and duration of which are uncertain. As such, our business, operations and financial condition has been, and we anticipate will continue to be, adversely
impacted by reduced demand for our applications and non-digital services, as well as reduced access to capital. To mitigate the adverse impact COVID-19 may have on our
business and operations, we implemented a number of measures to strengthen our financial position, including eliminating, reducing, or deferring non-essential expenditures.
However, the extent to which the COVID-19 pandemic will impact our business, financial conditions, and results of operations in the future remains uncertain and will be
affected by a number of factors, including the duration and extent of the pandemic, the emergence of variants to COVID-19 the duration and extent of imposed or
recommended containment and mitigation measures, the extent, duration, and effective execution of government stabilization and recovery efforts, including those from the
successful distribution of effective vaccines.
The COVID-19 pandemic may have long-term effects on the nature of the office environment and remote working. This may present operational and workplace
culture challenges that may adversely affect our business. Throughout the year ended December 31, 2022, we have encouraged safe practices designed to stem the infection and
spread of COVID-19 within our workforce and beyond and to maintain the mental health and well-being of our employees.
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.
Recent Developments
At a special meeting of stockholders on April 10, 2023, our stockholders approved a Certificate of Amendment to our Articles of Incorporation to increase our
authorized common stock from 200,000,000 shares to 400,000,000 shares and approved the grant of discretionary authority to our board of directors to effect a reverse stock
split of our outstanding shares of common stock at a specific ratio within a range of one-for-five (1-for-5) to a maximum of a one-for-forty (1-for-40) split.
27
Results of Operations
Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended December 31, 2021
The following is a comparison of the results of our operations for the years ended December 31, 2022 and 2021 (in thousands):
2022
Years Ended December 31,
2021
Change
Revenue
Digital revenue
SaaS recurring subscription revenue
Other digital revenue
Total digital revenue
Non-digital revenue
Total revenue
Cost of revenue
Digital
Non-digital
Total cost of revenue
Gross margin
Operating expenses
Research and development
Depreciation and amortization
General and administrative
Impairment loss
Total operating expenses
Loss from operations
Other income (expense), net
Interest expense
Change in fair value of derivative liability
Other income, net
Debt extinguishment, net
Total other income (expense) , net
Net loss
Deemed dividend to Series A preferred stockholders
Deemed dividend due to warrant reset
$
$
7,663
611
8,274
1,161
9,435
2,306
1,005
3,311
6,124
5,188
2,529
25,234
11,965
44,916
(38,792)
(2,947)
2,933
1,369
-
1,355
(37,437)
-
(246)
$
6,831
1,347
8,178
2,346
10,524
2,249
2,255
4,504
6,020
12,345
1,677
25,710
-
39,732
(33,712)
(2,575)
598
91
1,112
(774)
(34,486)
(348)
-
Net loss to common stockholders
$
(37,683)
$
(34,834)
$
Revenue
832
(736)
96
(1,185)
(1,089)
57
(1,250)
(1,193)
104
(7,157)
852
(476)
11,965
5,184
(5,080)
(372)
2,335
1,278
(1,112)
2,129
(2,951)
348
(246)
(2,849)
Our primary focus is on the growth of our SaaS business and its associated recurring subscription revenue. Over the past several years we have continued the exit and
winding-down of our non-digital services business based on our determination that the non-digital services business (printing, fulfillment, and shipping) is a low margin legacy
business and not scalable.
For the year ended December 31, 2022, our SaaS recurring subscription revenue was $7.7 million, a 12% increase of $832 thousand over the $6.8 million for the year
ended December 31, 2021. The increase was driven primarily from the SaaS recurring subscription-based revenue associated with our verbCRM, verbLIVE, verbLEARN, and
verbPULSE suite of applications, and our verbTEAMS platform.
For the year ended December 31, 2022, non-digital revenue was $1.0 million, representing a planned 51% decrease from the $2.2 million for the year ended December
31, 2021.
SaaS recurring revenue as a percentage of total revenue for the year ended December 31, 2022, was 81%, compared to 65% for the year ended December 31, 2021.
Total digital revenue for the year ended December 31, 2022 increased to 88% of total revenue, compared with 78% for the year ended December 31, 2021.
28
Cost of Revenue
Total cost of revenue for the year ended December 31, 2022 was $3.3 million, representing almost a 27% improvement compared to $4.5 million for the year ended
December 31, 2021. The improvement in cost of revenue is primarily attributed to a planned reduction in low-margin non-digital services, partially offset by a slight increase in
digital costs to support additional enterprise customers on the platform and increased users within our existing customer base.
Gross Margin
Total gross margin of $6.1 million for the year ended December 31, 2022 increased to 65%, compared to $6.0 million for the year ended December 31, 2021 and a
total gross margin of 57%. Gross margins improved as a result of our strategy to focus on higher margin digital revenue and systematic reduction in non-digital services.
Operating Expenses
We reduced research and development expenses by 58% to $5.2 million for the year ended December 31, 2022, as compared to $12.3 million for the year ended
December 31, 2021. Research and development expenses primarily consisted of fees paid to employees and vendors contracted to perform research projects and develop
technology. As our product development continues to move from research and development stage to deployment stage, we expect our research and development cost reductions
to continue through Q1 2023 and beyond.
General and administrative expenses of $23.3 million for our SaaS business for the year ended December 31, 2022 represents an improvement of $2.4 million or 9%
year over year, as compared to $25.7 million for the year ended December 31, 2021. General and administrative expenses for the year ended December 31, 2022 for our
MARKET.live business was $1.9 million, which includes $0.7 million of labor costs, $0.5 million for professional services, and $0.7 million of other MARKET.live related
expenses.
Our Statement of Operations for the year ended December 31, 2022 reflects a loss from operations of $38.8 million. However, this sum includes $19.0 million of non-
cash expenses. These non-cash items include $2.5 million in depreciation and amortization expenses, $4.5 million in stock-based compensation, and a $12.0 million impairment
charge to goodwill and intangible assets. The $2.5 million non-cash depreciation and amortization expenses for the year ended December 31, 2022, represent an increase over
the $1.7 million amortization expenses for the year ended December 31, 2021. However, the $0.8 million increase in depreciation and amortization expense is attributed to
amortization of our capitalized software development costs associated with our MARKET.live platform. The $12 million non-cash impairment charge recorded for the year
ended December 31, 2022 was due to the results of the annual impairment testing of goodwill, intangible assets, and other long-lived assets. Refer to the section below, “Use of
Non-GAAP Measures – Modified EBITDA” for more details on non-cash items discussed above.
Other Income, net
Other income, net, for the year ended December 31, 2022 was $1.4 million, which was primarily attributable to an Employee Retention Credit (“ERC”) receivable of
$1.5 million. We, through our Professional Employer Organization, filed for federal government assistance for the second and third quarters of 2021 in the aggregate amount of
approximately $1.5 million through ERC provisions of the Consolidated Appropriations Act of 2021. The purpose of the ERC is to encourage employers to keep employees on
the payroll, even if they are not working during the covered period due to the effects of the COVID-19 pandemic. As of December 31, 2022, we have yet to receive the funds.
Use of Non-GAAP Measures – Modified EBITDA
In addition to our results under generally accepted accounting principles (“GAAP”), we present Modified EBITDA as a supplemental measure of our performance.
However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other
performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as
net income (loss), plus depreciation and amortization expense, share-based compensation expense, interest expense, change in fair value of derivative liability, other (income)
expense, debt extinguishment costs, net, MARKET.live startup costs, and other non-recurring charges.
29
Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources
that impact our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below.
You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be
aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not
be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Net loss
Adjustments
Depreciation and amortization
Share-based compensation
Impairment loss
Interest expense
Change in fair value of derivative liability
Other income
Debt extinguishment, net
MARKET.live non-recurring startup costs*
Other non-recurring
Total EBITDA adjustments
Modified EBITDA
Years Ended December 31,
2022
2021
$
(37,437)
$
(34,486)
2,529
4,455
11,965
2,947
(2,933)
(1,369)
-
802
126
$
18,522
(18,915)
$
1,677
5,668
-
2,575
(598)
(91)
(1,112)
-
-
8,119
(26,367)
* Includes general and administrative and R&D expenses that are directly related to the launch of our MARKET.live platform and are not expected to be recurring in future
periods.
The $7.5 million or 28% increase in Modified EBITDA for the year ended December 31, 2022, compared to the same period in 2021, resulted from increased digital
revenues, decreases in cost of revenue, research and development, and professional services, offset by an increase in labor related costs to support future growth.
We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by
excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts
and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications
with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:
● Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
● Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
● Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified
EBITDA does not reflect any cash requirements for such replacements.
30
Liquidity and Capital Resources
Going Concern
We have incurred operating losses and negative cash flows from operations since inception. During the fiscal year ended December 31, 2022, we incurred a net loss of
$37.4 million and used cash in operations of $19.4 million. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date
these financial statements were issued. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient
cash flows from operations to meet our obligations. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s consolidated
financial statements for the year ended December 31, 2022, raised substantial doubt about the Company’s ability to continue as a going concern. We intend to continue to seek
additional debt or equity financing, as well as certain strategic opportunities to continue our operations.
Equity financing:
On January 12, 2022, we entered into a common stock purchase agreement (the “January Purchase Agreement”) with Tumim Stone Capital LLC (the “Investor”).
Pursuant to the agreement, we have the right, but not the obligation, to sell to the Investor, and the Investor is obligated to purchase, up to $50.0 million of newly issued shares
of our common stock, par value $0.0001 per share (the “common stock”) from time to time during the term of the agreement, subject to certain limitations and conditions. The
Total Commitment is inclusive of 607,287 shares of common stock issued to the Investor as consideration for its commitment to purchase shares of common stock under the
January Purchase Agreement. In connection with the January Purchase Agreement, we are restricted from entering into an agreement to effect any issuance of common stock
involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions set forth therein. On January 26, 2023, we terminated
the January Purchase Agreement.
On April 20, 2022, we entered into a securities purchase agreement, which provides for the sale and issuance by us of an aggregate of (i) 14,666,667 shares of common
stock, and (ii) warrants to purchase 14,666,667 shares of common stock at an exercise price of $0.75 per share, for aggregate gross proceeds of $11.0 million before deducting
placement agent commissions and other offering expenses (the “April Registered Direct Offering”). As a result of this transaction, certain warrants which previously had
exercise prices ranging from $1.10 to $2.10 per share had the exercise price reduced to $0.75 per share. We used a portion of the proceeds from the April Registered Direct
Offering to repay $1.6 million in principal amount related to the January Note Purchase Agreement dated January 12, 2022.
On October 25, 2022, we entered into a securities purchase agreement (the “October Purchase Agreement”), which provides for the sale and issuance by us of an
aggregate of (i) 12,500,000 shares of common stock at a purchase price of $0.32 per share, and (ii) warrants to purchase 12,500,000 shares of common stock at an exercise
price of $0.34 per share, for aggregate gross proceeds of $4.0 million before deducting placement agent commissions and other offering expenses (the “October Registered
Direct Offering”). As a result of this transaction, certain warrants which previously had an exercise price of $0.75 per share had the exercise price reduced to $0.34 per share.
Further, in connection with the October Purchase Agreement, we are restricted from (i) issuing or filing any registration statement to offer the sale of any common stock or
securities convertible into or exercisable for shares of common stock until 75 days after the date thereof; and (ii) entering into an agreement to effect any issuance of common
stock involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions set forth therein.
On January 24, 2023, we entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp. (“Aegis”) as underwriter (the
“Underwriter”), relating to the offering, issuance and sale of 36,051,000 shares of our common stock at a public offering price of $0.20 per share. The net proceeds to us were
approximately $6.6 million, after deducting discounts, commissions and estimated offering expenses. Aegis acted as the sole underwriter for the offering and received 6% of the
gross proceeds as commission for the offering. They were also reimbursed by us for certain expenses, in an amount of up to $75,000, including legal fees. As a result of this
transaction, certain warrants which previously had an exercise price of $0.34 per share, had the exercise price reduced to $0.20 per share.
31
Debt financing:
On January 12, 2022, we entered into a securities purchase agreement (the “January Note Purchase Agreement”) with three institutional investors (collectively, the
“January Note Holders”) providing for the sale and issuance of an aggregate original principal amount of $6.3 million in Convertible Notes Due 2023 (each, a “Note,” and,
collectively, the “Notes,” and such financing, the “January Note Offering”). The Company and the January Note Holders also entered into a security agreement, dated January
12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the January Note Holders in substantially all of its assets.
The January Note Purchase Agreement prohibits us from entering into an agreement to effect any issuance of common stock involving a Variable Rate Transaction (as defined
therein) during the term of the agreement, subject to certain exceptions set forth therein. The January Note Purchase Agreement also gives the January Note Holders the right to
require the Company to use up to 15% of the gross proceeds raised from future debt or equity financings to redeem the Notes, which redemptions have been elected by the
January Note Holders. On January 26, 2023, we repaid in full all outstanding obligations under the January Note Offering dated January 12, 2022.
In September, 2022, the U.S. Small Business Administration (“SBA”) approved an additional loan of $0.35 million. As of April 12, 2023, we have not received these
funds.
On November 7, 2022, we entered into a note purchase agreement (the “November Note Purchase Agreement”) and promissory note with an institutional investor
providing for the sale and issuance of an unsecured, non-convertible promissory in the original principal amount of $5.5 million, which has an original issue discount of $0.5
million, resulting in gross proceeds to us of approximately $5.0 million (the “November Note,” and such financing, the “November Note Offering”). The November Note
matures eighteen months following the date of issuance. Commencing six months from the date of issuance, we are required to make monthly cash redemption payments in an
amount not to exceed $0.6 million. The November Note may be repaid in whole or in part prior to the maturity date for a 10% premium. The November Note requires us to use
20% of the gross proceeds raised from future equity or debt financings, or the sale of any subsidiary or material asset, to prepay the November Note, subject to a cap on the
aggregate prepayment amount. Until all obligations under the November Note have been paid in full, we are not permitted to grant a security interest in any of its assets, or to
issue securities convertible into shares of common stock, subject in each case to certain exceptions. Our wholly owned subsidiary verbMarketplace, LLC entered into a
guaranty, dated November 7, 2022, in connection with the November Note Offering, pursuant to which it guaranteed the obligations on our behalf under the November Note in
exchange for receiving a portion of the loan proceeds. At a special meeting of stockholders on April 10, 2023, our shareholders approved for purposes of Nasdaq Listing Rule
5635, the issuance of shares of common stock in partial or full satisfaction of the November Note. However, there is no current agreement or understanding with the November
Note holder with respect to repayment of the November Note through the issuance of shares of common stock.
Other:
We, through our Professional Employer Organization, filed for federal government assistance for the second and third quarters of 2021 in the aggregate amount of
approximately $1.5 million through ERC provisions of the Consolidated Appropriations Act of 2021. As of December 31, 2022, we recorded a long-term receivable of $1.5
million.
In November 2022, a cost savings plan was approved and implemented to improve liquidity and preserve cash for operations (the “Cost Savings Plan”). This plan is
expected to further reduce expenses moving forward through such actions as a reduction in force, elimination of certain services provided by various vendors, and a 25%
reduction in cash compensation by senior management over a four-month period in exchange for shares of common stock.
If we are unable to generate sufficient cash flow from operations to operate our business and pay our debt obligations as they become due, we will need to seek to raise
additional capital, borrow additional funds, dispose of subsidiaries or assets, reduce or delay capital expenditures, or change our business strategy. However, in light of the
restrictive covenants imposed by certain of our prior financings and the recent decline in the price of common stock, we may be unable to raise additional capital when needed
to operate our business or service our debt. Further, notwithstanding such restrictions, there can be no assurance that debt or equity financing will be available in the amounts,
on terms, or at times deemed acceptable by us. The issuance of additional equity securities would result in significant dilution in the equity interests of our current stockholders
and could include rights or preferences senior to those the current stockholders. Obtaining commercial loans would increase our liabilities and future cash commitments and
potentially impose significant operational or financial restrictions. If we are unable to obtain financing in the amounts and on terms deemed acceptable, we may be unable to
continue to operate our business or pay our obligations as they become due and as a result may be required to curtail or cease operations, which may result in stockholders or
noteholders losing some or all of their investment.
32
For additional information, refer to Note 1, “Description of Business,” and Note 2, “Summary of Significant Accounting Policies and Supplemental Disclosures,” to the
consolidated financial statements, and the section titled “Risk Factors,” within this Annual Report.
Overview
As of December 31, 2022, we had cash of $2.4 million. On January 24, 2023, we closed a public offering of our common stock for net proceeds of approximately $6.6
million. We estimate our operating expenses for the next twelve months will exceed any revenue we generate, and we will need to seek to raise additional capital, borrow
additional funds, dispose of subsidiaries or assets, reduce or delay capital expenditures, or change our business strategy.
The following is a summary of our cash flows from operating, investing, and financing activities for the years ended December 31, 2022 and 2021 (in thousands):
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Increase/(decrease) in cash
Cash Flows – Operating
Years Ended December 31,
2022
2021
$
$
(19,406) $
(4,748)
25,646
1,492 $
(25,862)
(2,263)
27,247
(878)
For the year ended December 31, 2022, our cash flows used in operating activities amounted to $19.4 million, compared to cash used for the year ended December 31,
2021 of $25.9 million. We generated $6.5 million additional cash from operations due to higher digital revenues combined with decreases in research and development
expenses.
Cash Flows – Investing
For the year ended December 31, 2022, our cash flows used from investing activities amounted to $4.7 million, primarily due to our investment in capitalized software
development costs related to MARKET.live.
Cash Flows – Financing
Our cash provided by financing activities for the year ended December 31, 2022 amounted to $25.6 million, which represented $24.0 million of net proceeds from the
issuance of shares of our common stock, $11.0 million of gross proceeds from the issuance of notes payable, $2.7 million of gross proceeds from advances on future receipts
and proceeds from option exercises of $0.4 million, all offset by $6.7 million of payments on advances on future receipts, $4.9 million of payments on notes payable and
payments for debt issuance costs of $0.9 million.
Advances on Future Receipts
The Company has the following advances on future receipts as of December 31, 2022 (in thousands):
Note
Issuance Date
Maturity Date
Interest Rate
Original Borrowing
Note 1
Note 2
Total
Debt discount
Debt issuance costs
Net
August 25, 2022
October 25, 2022
May 11, 2023
April 26, 2023
26%
30%
$
3,400
322
3,722
Balance at December
31, 2022
1,782
207
1,989
(311)
(37)
1,641
$
33
On August 25, 2022 and October 25, 2022, we received secured advances from an unaffiliated third party totaling $2.5 million and $0.2 million, respectively, for the
purchase of future receipts/ revenues of $3.4 million and $0.3 million, respectively. As of December 31, 2022, the outstanding balance of the notes was $2.0 million.
On February 16, 2023, we modified the advances on future receipts. Under the modification we agreed to extend the payment of the note over a period of 10 months.
As a result, our monthly payments were reduced by approximately 50%.
Convertible Notes Payable and Note Payable
We have the following outstanding notes payable as of December 31, 2022 (in thousands):
Note
Issuance Date
Maturity Date
Interest Rate
Original Borrowing
Balance at December
31, 2022
December 1, 2015
April 4, 2016
May 15, 2020
January 12, 2022
November 7, 2022
Related party convertible note
payable (A)
Related party convertible note
payable (B)
Note payable (C)
Convertible notes due 2023 (D)
Promissory note payable (E)
Debt discount
Debt issuance costs
Total notes payable
Non-current
Current
April 1, 2023
June 4, 2021
May 15, 2050
January 12, 2023
May 7, 2024
12.0%
$
1,249
$
12.0%
3.75%
6.0%
9.0%
343
150
6,300
5,470
$
725
40
150
1,350
5,470
(408)
(309)
7,018
(1,215)
5,803
(A) On December 1, 2015, we issued a convertible note payable to Mr. Cutaia, our Chief Executive Officer and a director, to consolidate all loans and advances made by
Mr. Cutaia to us as of that date. On May 19, 2021, we amended the note to allow for conversion of the note at any time at the discretion of the holder at a fixed
conversion price of $1.03, which was the closing price of the common stock on the amendment date. On May 12, 2022, the maturity date of the note was extended to
April 1, 2023. As of December 31, 2022, the outstanding balance under the note was $0.7 million.
(B) On April 4, 2016, we issued a convertible note to Mr. Cutaia, in the amount of $0.3 million, to consolidate all advances made by Mr. Cutaia to us during the period
December 2015 through March 2016. On May 19, 2021, we amended the note to allow for conversion of the note at any time at the discretion of the holder at a fixed
conversion price of $1.03, which was the closing price of the common stock on the amendment date. As of December 31, 2022, the outstanding balance under the note
was less than $0.1 million.
34
(C) On May 15, 2020, we executed an unsecured loan with the SBA under the Economic Injury Disaster Loan program in the amount of $0.15 million. Installment
payments, including principal and interest, began on October 26, 2022. In September 2022, the SBA approved an additional loan of $0.35 million. As of April 12,
2023, we have not received these funds. As of December 31, 2022, the outstanding balance of the note amounted to $0.15 million.
(D) On January 12, 2022, we entered into the January Note Offering, which provided for the sale and issuance of an aggregate original principal amount of $6.3 million of
the Notes. We also entered into a security agreement, dated January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a
security interest to the January Note Holders in substantially all of its assets. There are no financial covenants related to these notes payable.
We received $6.0 million in gross proceeds from the sale of the Notes. The Notes bear interest of 6.0% per annum, have an original issue discount of 5.0%, mature 12
months from the closing date, and have an initial conversion price of $3.00, subject to adjustment in certain circumstances as set forth in the Notes.
In connection with the January Note Offering, we incurred $0.5 million of debt issuance costs. The debt issuance costs and the debt discount of $0.3 million are being
amortized over the term of the Notes using the effective interest rate method. As of December 31, 2022, the amount of unamortized debt discount and debt issuance
costs was $0.1 million and $0.1 million, respectively.
As of December 31, 2022, the outstanding balance of the Notes amounted to $1.3 million. We have repaid $5.0 million in principal and $0.4 million of accrued
interest.
On January 26, 2023, we repaid in full all outstanding obligations under the January Note Offering date January 12, 2022.
(E) On November 7, 2022, we entered into the November Note Offering, which provided for the sale and issuance of an aggregate original principal amount of $5.5
million in November Notes.
We received $5.0 million in gross proceeds from the sale of the November Notes. The November Notes bear interest of 9.0% per annum, have an original issue
discount of 8.6%, and mature 18 months from the closing date.
In connection with the November Note Offering, we incurred $0.3 million of debt issuance costs. The debt issuance costs and the debt discount of $0.5 million are
being amortized over the term of the November Notes using the effective interest rate method. As of December 31, 2022, the amount of unamortized debt discount and
debt issuance costs was $0.4 million and $0.3 million, respectively.
As of December 31, 2022, the outstanding balance of the Notes amounted to $5.5 million.
Critical Accounting Policies
Our financial statements have been prepared in accordance with GAAP, which require that we make certain assumptions and estimates that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Management bases these estimates and
assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has
considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business
and operations.
35
Significant estimates include assumptions made for reserves of uncollectible accounts receivable, assumptions made in valuing assets acquired in business
combinations, impairment testing of goodwill and other long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities,
assumptions used in valuing share-based compensation, and accruals for potential liabilities. Some of those assumptions can be subjective and complex, and therefore, actual
results could differ materially from those estimates under different assumptions or conditions.
Revenue Recognition
The Company derives its revenue primarily from providing application services through the SaaS application, digital marketing and sales support services.
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) ASC 606, Revenue from Contracts with Customers (“ASC
606”). 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.
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 straight-line 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, collectability is reasonably assured, 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 include design, printing, fulfillment and shipping services. The revenue is recognized upon completion and shipment of products or
fulfillment to customers. Effective April 1, 2022, we entered into a customer referral agreement with a third party for our cart site and printing business. Under the
agreement, we earn a 10% commission for customer referrals and 8% on merchandise sales and certain cart site design fees, all of which are recognized as non-digital
revenue on a net basis.
Derivative Financial Instruments
We evaluate our 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 consolidated balance sheets 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.
We use Level 2 inputs for our valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. Our
derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to
fair value of derivatives.
36
Share-Based Compensation
The Company issues stock options and warrants, shares of common stock and restricted stock units as share-based compensation to employees and non-employees.
The Company accounts for its share-based compensation in accordance with FASB ASC 718, Compensation – Stock Compensation. Share-based compensation cost is
measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. The fair value of restricted stock units
is determined based on the number of shares granted and the quoted price of our common stock and is recognized as expense over the service period. Recognition of
compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.
Goodwill
In accordance with FASB ASC 350, Intangibles-Goodwill and Other, we review goodwill and indefinite lived intangible assets for impairment at least annually or
whenever events or circumstances indicate a potential impairment. Our impairment testing is performed annually at December 31 (our fiscal year end). Impairment of goodwill
and indefinite lived intangible assets is determined by comparing the fair value of our 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.
Our annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing a qualitative
assessment, we reviewed events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of goodwill. As a
result of this qualitative assessment, we determined that a triggering event had occurred to necessitate performing the quantitative impairment test. After performing the
quantitative impairment test in accordance with ASC 350-20-35-3C, we determined that goodwill was impaired by $10.2 million. We did not record any impairment charges for
the year ended December 31, 2021.
Intangible Assets
We have certain intangible assets that were initially recorded at their fair value at the time of acquisition. The finite-lived intangible assets consist of developed
technology and customer contracts. Indefinite-lived intangible assets consist of domain names. 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. In addition to the
goodwill impairment loss, the Company recognized an additional impairment loss of $1.8 million on its intangible assets that is primarily attributable to the Sound Concepts
acquisition in 2019.
Recently Issued Accounting Pronouncements
For a summary of our recent accounting policies, please refer to Note 2, Summary of Significant Accounting Policies and Supplemental Disclosures, of the Notes to
Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, which begin on page F-1 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
37
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information
required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms,
and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d- 15(e) under the Exchange Act) as of December 31, 2022. Based on
this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Internal control over financial reporting is a process, including policies and procedures, designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Our
management assessed our internal control over financial reporting using the criteria in Internal Control — Integrated Framework (2013), issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Based on the results of our evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2022 to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with
generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months
ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any
system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
38
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors and executive officers, their ages, positions held, and duration of such, are as follows:
PART III
Name
Position Held with Our Company
Age
Date First Elected or Appointed
Rory J. Cutaia
Chairman of the Board, President, Chief Executive Officer, Secretary, and
Salman H. Khan
James P. Geiskopf
Philip J. Bond
Kenneth S. Cragun
Judith Hammerschmidt
Edmund C. Moy
Business Experience
Director
Chief Financial Officer and Treasurer
Lead Director
Director
Director
Director
Director
67
44
63
66
62
68
65
October 16, 2014
January 20, 2022
October 16, 2014
September 10, 2018
September 10, 2018
December 20, 2019
October 21, 2022
The following is a brief account of the education and business experience of directors and executive officers during at least the past five years, indicating their
principal occupation during the period, the name and principal business of the organization by which they were employed, and certain of their other directorships:
Rory J. Cutaia, Chairman of the Board, President, Chief Executive Officer, and Secretary
Rory J. Cutaia has served as our Chairman of the Board, President, Chief Executive Officer, and Secretary, since December 2012 upon the formation of Cutaia Media
Group, LLC, in which roles he has continued to serve through our October 2014 acquisition of bBooth USA to the present, and served as our Treasurer from December 2012 to
January 2022. Mr. Cutaia founded CMG in 2012 and bBooth, Inc. in 2014. In May 2014, CMG and bBooth, Inc. merged and became known as bBoothUSA, which entity was
acquired in October 2014 by GSD, our predecessor. Prior to that, from October 2006 to August 2011, he was a partner and Entrepreneur-in-Residence at Corinthian Capital
Group, Inc. (“Corinthian”), a private equity fund based in New York City that invested in middle-market, U.S. based companies. During his tenure at Corinthian, from June
2008 to October 2011, Mr. Cutaia was the co-founder and Executive Chairman of Allied Fiber, Inc., a company engaged in the construction of a nation-wide fiber-optic
network, and from June 2007 to August 2011, Mr. Cutaia was the Chief Executive Officer and member of the board of directors of GreenFields Coal Company, a company
engaged in the deployment of technology to recycle coal waste and clean-up coal waste sites. Before joining Corinthian, from January 2000 to October 2006, he founded and
was the Chairman of the Board and Chief Executive Officer of The Telx Group, Inc. (“Telx”), a company engaged in the telecom carrier inter-connection, co-location, and data
center business, which he sold in 2006. Before founding Telx, he was a practicing lawyer with Shea & Gould, a prominent New York City law firm. Mr. Cutaia obtained his
Juris Doctorate degree from the Fordham University School of Law in 1985 and his Bachelor of Science, magna cum laude, in business management from the New York
Institute of Technology in 1982.
We believe that Mr. Cutaia is qualified to serve on our board of directors because of his education and business experience described above, including over 23 years of
board of director experience, as well as his knowledge of our current operations.
39
Salman H. Khan, Chief Financial Officer and Treasurer
Salman H. Khan was appointed as Interim Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Treasurer on January 20, 2022 after
having joined the company in May 2021 as Executive Vice President of Corporate Development and Strategic Planning where he worked closely with the Company’s CEO in
connection with mergers and acquisitions and capital market activities. On March 30, 2022, the Company’s Board of Directors approved Mr. Khan’s appointment as the
Company’s permanent Chief Financial Officer. Prior to joining Verb, Mr. Khan served as business division chief financial officer, among other senior executive level positions
with Occidental Petroleum Corporation and its spinoff, California Resources Corporation, a NYSE listed company with a market capitalization of approximately $3.5 billion.
Mr. Khan has more than 20 years of finance and accounting experience with eight years at Arthur Andersen, PricewaterhouseCoopers and Ernst & Young, where he served
domestic and international clients in technology, media, telecommunications, entertainment, and biotechnology industries. Mr. Khan holds a Masters in Business
Administration from the University of Michigan, Ross School of Business and is a licensed chartered certified accountant (UK).
James P. Geiskopf, Lead Director
James P. Geiskopf has served as one of our directors since the formation of bBooth USA, in which role he has continued to serve through our October 2014 acquisition
of bBooth USA by GSD, our predecessor, to the present. He also serves as our Lead Director. Mr. Geiskopf has 32 years of experience leading companies in the services
industry. From 1975 to 1986, Mr. Geiskopf served as the Chief Financial Officer of Budget Rent a Car of Fairfield California and from 1986 to 2007, he served as its President
and Chief Executive Officer. In 2007, he sold the franchise. Mr. Geiskopf served on the Board of Directors of Suisun Valley Bank from 1986 to 1993 and also served on the
Board of Directors of Napa Valley Bancorp from 1991 to 1993, which was sold to a larger institution in 1993. Since 2014, Mr. Geiskopf has served on the board of directors of
MetaWorks Platforms, Inc. (formerly Currency Works, Inc.) where he is the chairman of the audit committee. MetaWorks Platforms, Inc. is a public company that trades on the
OTCQB. From June 2013 to March 16, 2017, the date of his resignation, Mr. Geiskopf served as a director of Electronic Cigarettes International Group, Ltd., or ECIG, a
Nevada corporation, whose common stock was quoted on the over-the-counter market. ECIG filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of
the United States Code on March 16, 2017.
Mr. Geiskopf has significant and lengthy business experience including building, operating, and selling companies, serving on the boards of directors for several
banks, and serving as a director and officer of several public companies. In these roles he acquired substantial business management, strategic, operational, human resource,
financial, disclosure, compliance, and corporate governance skills. These were the primary reasons that we concluded that he should serve as one of our directors.
Philip J. Bond, Director
Philip J. Bond was appointed as one of our directors effective September 10, 2018. On the same date, he was appointed as Chairman of the Governance and
Nominating Committee and to serve on the Audit, Compensation, and Governance and Nominating Committees. In 2018, Mr. Bond co-founded Potomac International Partners,
Inc., a multidisciplinary consulting firm and currently serves as its President of Government Affairs. In 2009, TechAmerica, a U.S.-based technology trade association, was
formed from the merger of AeA, the Cyber Security Industry Alliance, the Government Electronics & Information Technology Association, and the Information Technology
Association of America. Mr. Bond was appointed as the President of TechAmerica at the date of the merger, and later, in 2010, was appointed as its Chief Executive Officer.
Prior to the merger, Mr. Bond served as the President and Chief Executive Officer of Information Technology Association of America from 2006 to 2008. From 2001 to 2005,
Mr. Bond served as Undersecretary of Technology in the U.S. Department of Commerce for Technology. From 2002 to 2003, Mr. Bond served concurrently as Chief of Staff to
Commerce Secretary Donald Evans. In his dual role, he worked closely with Secretary Evans to increase market access for U.S. goods and services and further advance
America’s technological leadership at home and abroad. Mr. Bond oversaw the operations of the National Institute of Standards and Technology, the Office of Technology
Policy, and the National Technical Information Service. During his tenure, the Technology Administration was the pre-eminent portal between the federal government and U.S.
technology. Earlier in his career, Mr. Bond served as Senior Vice President of Government Relations for Monster Worldwide, the world’s largest online career site, and General
Manager of Monster Government Solutions. Mr. Bond also served as Director of Federal Public Policy for the Hewlett-Packard Company; Senior Vice President for
Government Affairs and Treasurer of the Information Technology Industry Council; as Chief of Staff to the late Congresswoman Jennifer Dunn (R-WA); Principal Deputy
Assistant Secretary of Defense for Legislative Affairs; Chief of Staff and Rules Committee Associate for Congressman Bob McEwen (R-OH); and as Special Assistant to the
Secretary of Defense for Legislative Affairs. Mr. Bond is a graduate of Linfield College in Oregon and now serves on the school’s board of trustees.
40
Mr. Bond has extensive experience in Washington D.C., where he is recognized for his leadership roles in the Executive branch of the government of the United States,
at major high technology companies, and most recently as the Chief Executive Officer of TechAmerica, the largest technology advocacy association in the United States. Mr.
Bond’s unique leadership experience and expertise in government relations, were the primary reasons that we concluded that he should serve as one of our directors.
Kenneth S. Cragun, Director
Kenneth S. Cragun was appointed as one of our directors effective September 10, 2018. On the same date, he was appointed as Chairman of the Audit Committee, and
to serve on the Compensation and Governance and Nominating Committees. Mr. Cragun was appointed as Chief Financial Officer of Ault Alliance, Inc. (formally known as
BitNile Holdings, Inc.) a diversified holding company, on August 19, 2020. Prior to his appointment as Chief Financial Officer, Mr. Cragun served as Ault Alliance’s Chief
Accounting Officer since October 1, 2018, and since January 2019, as the Senior Vice President of Finance for Alzamend Neuro, Inc., a biopharma company. Mr. Cragun also
served as a partner of Hardesty, LLC, a national executive services firm. He was a partner of its Southern California Practice from October 2016 to October 2018. From January
2018 to September 2018, Mr. Cragun served as the Chief Financial Officer of CorVel Corporation, or CorVel. CorVel is an Irvine, California-based national provider of
workers’ compensation solutions for employers, third-party administrators, insurance companies, and government agencies. Mr. Cragun is a two-time finalist for the Orange
County Business Journal’s “CFO of the Year – Public Companies” and has more than 30 years of experience, primarily in the technology industry. He served as Chief Financial
Officer of two NASDAQ-listed companies: Local Corporation (April 2009 to September 2016), formerly based in Irvine, California, which operated a U.S. top 100 website
“Local.com” and, in June 2015, filed a voluntary petition in the United States Bankruptcy Court for the Central District of California seeking relief under the provisions of
Chapter 11 of Title 11 of the United States Code, or Bankruptcy Code, and Modtech Holdings, Inc. (June 2006 to March 2009), formerly based in Perris, California Mr. Cragun
received his B.S. in Accounting from Colorado State University-Pueblo.
Mr. Cragun’s industry experience is vast with extensive experience in fast-growth environments and building teams in more than 20 countries. Mr. Cragun has led
multiple financing transactions, including IPOs, PIPEs, convertible debt, term loans, and lines of credit. For these reasons, we believe that he will provide additional breadth
and depth to our board of directors.
Judith Hammerschmidt, Director
Judith Hammerschmidt was appointed as one of our directors effective December 20, 2019. Ms. Hammerschmidt has spent the last 37 years as an international
attorney. She began her career as a Special Assistant to two Attorneys General of the United States, focusing on international matters of interest to the U.S. government,
including negotiating treaties and agreements with foreign governments. She then joined Dickstein, Shapiro & Morin, LLP, a Washington, D.C. firm, where she represented
companies around the world as they expanded internationally in highly regulated environments. Her clients included Guess? Inc., Pfizer Inc., Merck & Co., Inc., the Receiver
for Bank of Credit and Commerce International of the United Arab Emirates, Recycled Paper Products, Inc., and Herbalife Nutrition Ltd. (“Herbalife”). She provided
structuring, growth, and regulatory advice for these and other companies. She joined Herbalife as Vice President and General Counsel of Europe in 1994, becoming Executive
Vice President and International Chief Counsel in 1996. In 2002, she was part of the management group that sold Herbalife. Since that time, she has served as outside counsel
to a series of entrepreneurial companies looking to expand internationally, primarily in the food and drug/nutritional supplements space. In addition, Ms. Hammerschmidt was a
Principal in JBT, LLC, a privately held company that owned “mindful dining” restaurants in the Washington, D.C. area. Those properties were sold in 2010. She expects to
continue to act as outside counsel for small companies while serving on our board of directors. Ms. Hammerschmidt received her AB in Political Science and Public Policy
from Duke University, and J.D. from the University of Pittsburgh School of Law.
We believe that Ms. Hammerschmidt’s legal experience, her client relationships, and her more than 30 years of experience in the direct sales industry, will provide a
benefit to us, our stockholders, and our board of directors.
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Edmund C. Moy, Director
Edmund C. Moy was appointed as one of our directors effective October 21, 2022. From 2001 through 2006, Mr. Moy served as special assistant to the President of
the United States at The White House, after which he was appointed as director of the United States Mint at the U.S. Department of the Treasury, a position he held until 2011.
Mr. Moy began his career as a sales and marketing executive with Blue Cross Blue Shield United of Wisconsin, was appointed head of the regulatory agency Office of Prepaid
Health Care, and was then selected to head the Office of Managed Care at the Centers for Medicare and Medicaid Services. Thereafter, he became an exclusive advisor to
private equity firm Welsh, Carson, Anderson & Stowe. Mr. Moy currently serves as a director and member of the audit committee of MetaWorks Platforms, Inc. (formerly
Currency Works, Inc.), audit committee of Parsec Capital Acquisitions Corp. (PCXCU:NASDAQ), and as an advisory board member of Draganfly Inc. (DPRO:NASDAQ). He
also advises and consults with several privately held companies, is an exclusive provider of autographs to Numismatic Guaranty Corp., and serves on the Board of Regents for
Trinity International University. His prior board service includes privately held Emerald Health Network and L&L Energy, Inc. (LLEN:NASDAQ). He earned his Bachelor of
Arts in Economics, International Relations, and Political Science in 1979 from the University of Wisconsin - Madison.
We believe that Mr. Moy is qualified to serve on our Board because he has extensive and unique leadership experience in Washington D.C., where he is recognized for
his leadership roles in the Executive Branch of the government of the United States, as well as the experience gained from serving on the boards of several public companies.
Family Relationships
To our management’s knowledge, there are neither any family relationships among any of our directors or executive officers nor have any of our directors been
involved in a legal proceeding that would be required to be disclosed pursuant to Item 401(f) of Regulation S-K of the Exchange Act.
Corporate Governance
Agreements with Directors
None of our directors or director nominees were selected pursuant to any arrangement or understanding, other than with our directors acting within their capacity as
such.
Meetings of the Board and its Committees
Our Board has a standing Audit Committee, a Compensation Committee, a Governance and Nominating Committee, and a Risk and Disclosure Committee. Our Board
met 9 times, including telephonic meetings, during fiscal year 2022. All six directors attended 100% of the Board meetings. Messrs. Geiskopf, Bond, and Cragun and Mses.
Hammerschmidt attended 100% of the meetings held by committees of the Board on which they served. Mses. Heinen did not seek re-election to the board and her term ended
on October 21, 2022. Mr. Moy was elected to the Board on October 21, 2022. All board members attended all of the meetings, this includes Mses. Heinen and Mr. Moy for the
meetings when they were active members.
It is our policy that all of our directors are required to make a concerted and conscientious effort to attend our annual meeting of stockholders in each year during
which that director serves as a member of our Board. At the date of our 2022 annual meeting of stockholders, we had five members on our Board and one director nominee, all
of whom attended the meeting.
42
Audit Committee and Audit Committee Financial Expert
On June 10, 2021, our Board amended and restated the Audit Committee charter that governs the Audit Committee. The Audit Committee charter requires that each
member of the Audit Committee meet the independence requirements of Nasdaq and the SEC and requires the Audit Committee to have at least one member that qualifies as an
“audit committee financial expert.” Currently, Messrs. Geiskopf, Bond, and Cragun (Chairman) serve on the Audit Committee and each meets the independence requirements
of Nasdaq and the SEC. Mr. Cragun qualifies as an “audit committee financial expert.” In addition to the enumerated responsibilities of the Audit Committee in the Audit
Committee charter, the primary function of the Audit Committee is to assist the Board in its general oversight of our accounting and financial reporting processes, audits of our
financial statements, and internal control and audit functions. The Audit Committee charter can be found online at https://www.verb.tech/investor-relations/governance/audit.
Compensation Committee
On August 14, 2018, our Board approved and adopted a charter to govern the Compensation Committee, which was amended and restated on June 10, 2021. Currently,
Messrs. Geiskopf (Chairman), Bond, Cragun, and Moy and Mses. Hammerschmidt serve as members of the Compensation Committee and each meets the independence
requirements of Nasdaq and the SEC, qualifies as a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, and qualifies as an outside director
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. In addition to the enumerated responsibilities of the Compensation Committee in the
Compensation Committee charter, the primary function of the Compensation Committee is to oversee the compensation of our executives, produce an annual report on
executive compensation for inclusion in our proxy statement, if and when required by applicable laws or regulations, and advise our Board on the adoption of policies that
govern our compensation programs. The Compensation Committee has the authority to form and delegate any of its responsibilities, along with the authority to take action in
relation to such responsibilities, to one or more subcommittees or to one or more designated members of the Compensation Committee, as the Compensation Committee may
deem appropriate in its sole discretion. For the development of our compensation program, the Compensation Committee retained Compensation Advisory Partners LLC, or
CAP, during the year ended December 31, 2020. CAP provided the Committee with advisory services only with respect to executive and Board compensation. CAP reviewed
the compensation paid to our executive officers and Board and compared our compensation with certain companies CAP identified as peer companies. The Committee’s
recommendation and the Board’s approval of the 2021 compensation program was based on various factors, including, among others, recommendations made by CAP. The
Compensation Committee charter may be found online at https://www.verb.tech/investor-relations/governance/compensation-committee.
Governance and Nominating Committee
On August 14, 2018, our Board approved and adopted a charter to govern the Governance and Nominating Committee, which was amended and restated on June 10,
2021. Currently, Messrs. Geiskopf, Bond (Chairman), Cragun, and Moy and Mses. Hammerschmidt serve as members of the Governance and Nominating Committee and each
meets the independence requirements of Nasdaq and the SEC. The Governance and Nominating Committee charter requires that each member of the Governance and
Nominating Committee meet the independence requirements of Nasdaq and the SEC. In addition to the enumerated responsibilities of the Governance and Nominating
Committee in the Governance and Nominating Committee charter, the primary function of the Governance and Nominating Committee is to determine the slate of director
nominees for election to the Board, to identify and recommend candidates to fill vacancies occurring between annual stockholder meetings, to review our policies and programs
that relate to matters of corporate responsibility, including public issues of significance to us and our stockholders, and any other related matters required by federal securities
laws. The charter of the Governance and Nominating Committee may be found online at https://www.verb.tech/investor-relations/governance/governance-and-nominating-
committee.
Risk and Disclosure Committee
On June 10, 2021, our Board approved and adopted a charter to govern the Risk and Disclosure Committee. Currently, Messrs. Geiskopf, Bond, Cragun (Chairman),
and Moy serve as members of the Risk and Disclosure Committee and each meets the independence requirements of Nasdaq and the SEC. The Risk and Disclosure Committee
charter requires that each member of the Risk and Disclosure Committee meet the independence requirements of Nasdaq and the SEC. In addition to the enumerated
responsibilities of the Risk and Disclosure Committee in the Risk and Disclosure Committee charter, the primary function of the Risk and Disclosure Committee is to assist our
Chief Executive Officer and Chief Financial Officer in fulfilling their responsibility for oversight of the accuracy and timeliness of the disclosures made by us. The charter of
the Risk and Disclosure Committee may be found online at https://www.verb.tech/investor-relations/governance/risk-and-disclosure.
43
Nominations Process and Criteria
As of April 12, 2023, we had not effected any material changes to the procedures by which our stockholders may recommend nominees to our Board. Our Board does
not have a formal policy with regard to the consideration of any director candidates recommended by our stockholders. Our Board has determined that it is in the best position
to evaluate our requirements, as well as the qualifications of each candidate when it considers a nominee for a position on our Board. Accordingly, we do not currently have any
specific or minimum criteria for the election of nominees to our Board and we do not have any specific process or procedure for evaluating such nominees. Our Board assesses
all candidates, whether submitted by management or stockholders, and makes recommendations for election or appointment.
In recommending director nominees for appointment to our board of directors, our nominating and corporate governance committee also actively considers diversity
characteristics, including diversity of professional experience, race, ethnicity, gender, age, education, cultural background and personal background. However, we have not
adopted a formal policy regarding the consideration of specific diversity characteristic, and instead prefer to rely on the judgment of our highly qualified committee in
recommending candidates with the most appropriate mix of experiences, skills and expertise.
Director Independence
Our Board is currently composed of six members. We have determined that the following five directors qualify as independent: James P. Geiskopf, Phillip J. Bond,
Kenneth S. Cragun, Judith Hammerschmidt, and Edmund C Moy. We determined that Mr. Cutaia, our Chairman of the Board, President, Chief Executive Officer and Secretary,
is not independent. We evaluated independence in accordance with the rules of Nasdaq and the SEC. Messrs. Geiskopf, Bond and Cragun also serve on our Audit,
Compensation, Governance and Nominating, and Risk and Disclosure Committees. Ms. Hammerschmidt serves on our Compensation, and Governance and Nominating
Committees. Mr. Moy serves on our Compensation, Governance and Nominating, and Risk and Disclosure Committees.
Stockholder Communications with the Board
Stockholders and other parties interested in communicating directly with our Board, a committee thereof, or any individual director, may do so by sending a written
communication to the attention of the intended recipient(s) in care of the Corporate Secretary, Verb Technology Company, Inc., 3401 N. Thanksgiving Way, Suite 240, Lehi,
Utah 84043. The Corporate Secretary will forward all appropriate communications to the Chairman of our Audit Committee.
Investment in Human Capital
We believe our people are at the heart of our success and our customers’ success. We endeavor to not only attract and retain talented employees, but also to provide a
challenging and rewarding environment to motivate and develop our valuable human capital. We look to our talented employees to lead and foster various initiatives that
support our company culture including those related to diversity, equity and inclusion. In addition, we rely heavily on our talented team to execute our growth plans and achieve
our long-term strategic objectives.
Orientation and Continuing Education
We have an informal process to orient and educate new directors to the Board regarding their role on the Board, our committees and our directors, as well as the nature
and operations of our business. This process provides for an orientation with key members of the management staff, and further provides access to materials necessary to
inform them of the information required to carry out their responsibilities as a Board member. This information includes the most recent board approved budget, the most recent
annual report, copies of the audited financial statements and copies of the interim quarterly financial statements.
The Board does not provide continuing education for our directors. Each director is responsible to maintain the skills and knowledge necessary to meet his or her
obligations as a director.
44
Assessments
The board intends that individual director assessments be conducted by other directors, taking into account each director’s contributions at board meetings, service on
committees, experience base, and their general ability to contribute to one or more of our major needs. We conducted our first director assessment in December 2021 and intend
to conduct such assessments on an annual basis. An assessment was conducted in December 2022.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
Code of Ethics
In 2014, our Board approved and adopted a code of ethics and business conduct for directors, senior officers, and employees, or code of ethics, that applies to all of our
directors, officers, and employees, including our principal executive officer and principal financial officer. The code of ethics addresses such individuals’ conduct with respect
to, among other things, conflicts of interests; compliance with applicable laws, rules, and regulations; full, fair, accurate, timely, and understandable disclosure by us;
competition and fair dealing; corporate opportunities; confidentiality; protection and proper use of our assets; and reporting suspected illegal or unethical behavior. The code of
ethics is available on our website at https://www.verb.tech/investor-relations/governance/code-of-ethics.
Board Leadership Structure and Role in Risk Oversight
Board Leadership Structure
We currently combine the positions of Chairman and Chief Executive Officer into one position. We believe that this structure is appropriate at this time and is a
leadership model that has served our stockholders well since our inception. We believe that this combined model has certain advantages over other leadership structures. This
combined role allows Mr. Cutaia to drive execution of our strategic plans and facilitates effective communication between management and our Board to bring key issues to its
attention, and to see that our Board’s guidance and decisions are implemented effectively by management. Further, our Board has designated Mr. Geiskopf as its Lead Director.
Our Board believes that Mr. Geiskopf’s strong leadership and qualifications, including his prior experience as a chief executive officer and chief financial officer and his tenure
on our Board, among other factors, contribute to his ability to fulfill the role of Lead Director effectively.
Role of the Board in Risk Oversight
Our Board is responsible for the oversight of our operational risk management process. Our Board has delegated authority for addressing certain risks, and accessing
the steps management has taken to monitor, control, and report such risks to our Audit Committee. Such risks include risks relating to execution of our growth strategy, the
effects of the economy and general financial condition and outlook, our ability to expand our client base, communication with investors, certain actions of our competitors, the
protection of our intellectual property, sufficiency of our capital, security of information systems and data, integration of new information systems, credit risk, product liability,
and costs of reliance on external advisors. Our Audit Committee then reports such risks as appropriate to our Board, which then initiates discussions with appropriate members
of our senior management if, after discussion of such risks, our Board determines that such risks raise questions or concerns about the status of operational risks then facing us.
Our Board relies on our Compensation Committee to address significant risk exposures that we may face with respect to compensation, including risks relating to
retention of key employees, protection of partner relationships, management succession, and benefit costs, and, when appropriate, reports these risks to the full Board.
45
Change-of-Control Arrangements
We do not know of any arrangements, which may, at a subsequent date, result in a change-of-control.
Other Board Committees
Other than our Audit Committee, Compensation Committee, Governance and Nominating Committee, and Risk and Disclosure Committee, we have no committees of
our board of directors. We do not have any defined policy or procedure requirements for our stockholders to submit recommendations or nominations for directors.
Board Diversity Matrix
In accordance with the rules of the Nasdaq Stock Market, the following table reflects our Board diversity matrix as of April 12, 2023:
Total Number of Directors
Part I: Gender Identity
Directors
Part II: Demographic Background
African American or Black
Alaskan Native or Native American
Asian
Hispanic or Latinx
Native Hawaiian or Pacific Islander
White
Two or More Races or Ethnicities
LGBTQ+
Did Not Disclose Demographic Background
Involvement in Certain Legal Proceedings
Female
Male
1
-
-
-
-
-
1
-
-
-
5
-
-
1
-
-
4
-
-
-
6
Non-
Binary
-
-
-
-
-
-
-
-
-
-
Did Not Disclose Gender
-
-
-
-
-
-
-
-
-
-
Except as set forth below, during the last ten years, none of our directors and executive officers have been involved in any of the following events:
1.
2.
3.
4.
any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person
practicing in banking or securities activities;
being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
46
5.
6.
being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated,
relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or
insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or
any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
On June 23, 2015, Local Corporation, a Delaware corporation, filed a voluntary petition for reorganization under Chapter 11 of the US Bankruptcy Code. Mr. Cragun,
a Director of the Company, was chief financial officer of Local Corporation at the time of filing.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The table and discussion below present compensation information for our executive officers as of December 31, 2022, which we refer to as our “named executive
officers” (in thousands):
● Rory J. Cutaia, our Chairman of the Board, President, Chief Executive Officer, and Secretary; and
● Salman H. Khan, our Chief Financial Officer and Treasurer.
Name and Principal Position
Rory J. Cutaia(3)
Salman H. Khan(11)
Jeffrey R. Clayborne(15)
Salary
($)
Bonus
($)
Stock
Awards(1)
($)
Option
Awards(2)
($)
All Other
Compensation
($)
Total ($)
480(4)
490
245(4)
-
25
250
-(5)
350(8)
31(12)
-
-
-
563(6)
537(9)
342(13)
-
-
322(17)
15(7)
-
27(14)
-
-
-
-
-
1,058(10)
1,377(10)
-
-
186(16)
-
645
-
211(18)
572(18)
Year
2022
2021
2022
2021
2022
2021
(1) For valuation purposes, the dollar amount shown is calculated based on the market price of our common stock on the grant dates. The number of shares granted, the grant
date, and the market price of such shares for each named executive officer is set forth below.
(2) For valuation assumptions on stock option awards, refer to Note 2 of our audited consolidated financial statements for the year ended December 31, 2022 of this Annual
Report. The disclosed amounts reflect the fair value of the stock option awards that were granted during fiscal years ended December 31, 2022 and 2021 in accordance
with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718.
(3) Mr. Cutaia was appointed as Chairman of the Board, President, Chief Executive Officer, Secretary, and Treasurer on October 16, 2014.
(4) On November 17, 2022, certain executive officers and directors agreed to accept a 25% reduction in cash compensation over a four-month period commencing December
1, 2022 in exchange for equity award grants.
(5) Due to the Company’s cost savings plan, Mr. Cutaia was not paid his annual incentive target bonus of $490 for 2022.
(6) Represents an annual incentive bonus of 404,432 restricted stock units with a fair market value of $1.19 per share. Represents 371,208 restricted stock units with a fair
market value of $0.22 per share associated with the 25% reduction in cash compensation.
(7) Represents the return of 117,924 vested restricted stock units with a fair market value of $0.165 per share that were replaced by a grant of 235,848 stock options with an
exercise price of $0.22 per share and a fair market value of $34.
(8) Represents an annual incentive bonus of $350.
(9) Represents an annual incentive bonus of 317,682 restricted stock units.
(10) As of December 31, 2022 and 2021, Mr. Cutaia had accrued but unpaid compensation equal to $764 and $1,031, respectively.
47
(11) Mr. Khan was appointed as Chief Financial Officer and Treasurer on March 30, 2022. In connection with this appointment as the Company’s Chief Financial Officer, the
Company has agreed to provide Mr. Khan the following compensation: (1) annual base salary of $250,000 and (2) 300,601 restricted shares of the Company’s common
stock granted, 75,150 of which shall vest on March 30, 2023, 75,150 of which shall vest on March 30, 2024, 75,150 of which shall vest on March 30, 2025, and 75,151 of
which shall vest on March 30, 2026. Mr. Khan will also be eligible to receive an annual performance bonus of up to 50% of his base salary.
(12) Due to the Company’s cost savings plan, Mr. Khan was not paid his annual incentive target bonus of $125 for 2022. A one-time incentive bonus of $31 was paid in 27,212
shares of common stock with a fair market value of $1.13 per share.
(13) Represents an annual incentive bonus of 300,601 restricted stock units with a fair market value of $0.998 per share. Represents 189,390 restricted stock units with a fair
market value of $0.22 per share associated with the 25% reduction in cash compensation.
(14) Represents a grant of 100,000 stock options.
(15) Mr. Clayborne resigned as Chief Financial Officer and Treasurer effective January 20, 2022.
(16) Represents a severance payment of $60 paid in 48,532 shares of common stock with a fair market value of $1.24 per share and $126 as part of a consulting agreement to be
paid over a twelve (12) month period.
(17) Represents the grant of an aggregate of 190,609 restricted stock units.
(18) As of December 31, 2022 and 2021, Mr. Clayborne had accrued but unpaid compensation equal to $28 and $77, respectively. On February 14, 2022, Mr. Clayborne
executed a separation agreement which settled all accrued and unpaid compensation as of January 20, 2022.
Narrative Disclosure to Summary Compensation Table
The following is a discussion of the material information that we believe is necessary to understand the information disclosed in the foregoing Summary
Compensation Table.
Rory J. Cutaia
On December 20, 2019, we entered into an executive employment agreement with Mr. Cutaia. The employment agreement is for a four-year term and can be extended
for additional one-year periods. In addition to certain payments due to Mr. Cutaia upon termination of employment, the employment agreement contains customary non-
competition, non-solicitation, and confidentiality provisions. Mr. Cutaia is entitled to an annual base salary of $430, which shall not be subject to reduction during the initial
term, but will be subject to annual reviews and increases, if and as approved in the sole discretion of our board of directors, after it has received and reviewed advice from the
Compensation Committee (who may or may not utilize the services of its outside compensation consultants, as it shall determine under the circumstances). In addition, Mr.
Cutaia is eligible to receive performance-based cash and/or stock bonuses upon attainment of performance targets established by our board of directors in its sole discretion,
after it has received and reviewed advice from the Compensation Committee (who may or may not utilize the services of its outside compensation consultants, as it shall
determine under the circumstances). We must make annual equity grants to Mr. Cutaia as determined by our board of directors in its sole discretion, after it has received and
reviewed advice from the Compensation Committee (who may or may not utilize the services of its outside compensation consultants, as it shall determine under the
circumstances). Finally, Mr. Cutaia is eligible for certain other benefits, such as health, vision, and dental insurance, life insurance, and 401(k) matching.
Mr. Cutaia earned total cash compensation for his services to us in the amount of $480 and $490 for the fiscal years ending December 31, 2022 and 2021, respectively.
The lower amount in fiscal 2022 includes a 25% reduction in the cash compensation component over a four-month period starting December 1, 2022.
On January 20, 2022, we granted Mr. Cutaia a restricted stock unit totaling $481 payable in 404,432 shares of our common stock. The restricted stock unit is subject to
a four-year vesting period, with 25% of the award vesting on the first, second, third, and fourth anniversaries from the grant date. The price per share as reported by The Nasdaq
Capital Market on the day of issuance was $1.19 and was used to calculate fair market value.
48
On November 17, 2022, we granted Mr. Cutaia a restricted stock unit totaling $82 payable in 371,208 shares of our common stock. The restricted stock unit is subject
to a four-month vesting period beginning December 1, 2022, with 25% of the award vesting on the last day of each month beginning December 31, 2022. The price per share as
reported by The Nasdaq Capital Market on the day of issuance was $0.22 and was used to calculate fair market value.
On November 17, 2022, Mr. Cutaia returned 117,924 shares that had been issued to him during the year. In exchange for those shares, we granted Mr. Cutaia 235,848
stock options with an exercise price of $0.22 per share. The shares vested on grant.
In fiscal 2021, Mr. Cutaia earned an annual incentive bonus totaling $350.
On January 4, 2021, we granted Mr. Cutaia a restricted stock unit totaling $537 payable in 317,682 shares of our common stock. The restricted stock unit is subject to a
four-year vesting period, with 25% of the award vesting on the first, second, third, and fourth anniversaries from the grant date. The price per share as reported by The Nasdaq
Capital Market on the day of issuance was $1.69 and was used to calculate fair market value.
As of December 31, 2022 and 2021, Mr. Cutaia had accrued but unpaid compensation equal to $764 and $1,031, respectively.
Salman H. Khan
Mr. Khan was appointed as Chief Financial Officer and Treasurer on March 30, 2022. Mr. Khan earned total cash compensation for his services to us in the amount of
$245 for the fiscal year ending December 31, 2022. The lower amount includes a 25% reduction in the cash compensation component over a four-month period starting
December 1, 2022.
In fiscal 2022, Mr. Khan received a one-time incentive bonus of $31 which was paid in 27,212 shares of common stock with a fair market value of $1.13 per share.
On March 30, 2022, we granted Mr. Khan a restricted stock unit totaling $300,000 payable in 300,601 shares of our common stock. The restricted stock unit is subject
to a four-year vesting period, with 25% of the award vesting on the first, second, third, and fourth anniversaries from the grant date. The price per share as reported by The
Nasdaq Capital Market on the day of issuance was $0.998 and was used to calculate fair market value.
On May 15, 2022, we granted Mr. Khan 100,000 stock options that vest annually over four years. The options have an exercise price of $0.30 per share and a fair
market value of $27.
On November 17, 2022, we granted Mr. Khan a restricted stock unit totaling $42 payable in 189,390 shares of our common stock. The restricted stock unit is subject to
a four-month vesting period beginning December 1, 2022, with 25% of the award vesting on the last day of each month beginning December 31, 2022. The price per share as
reported by The Nasdaq Capital Market on the day of issuance was $0.22 and was used to calculate fair market value.
Jeffrey R. Clayborne
Mr. Clayborne resigned as Chief Financial Officer and Treasurer effective January 20, 2022.
Mr. Clayborne was paid $25 in salary in 2022 for time worked up to his resignation and $60 as part of a severance agreement. Pursuant to a consulting agreement, Mr.
Clayborne continued as a consultant to assist with transition matters and will be paid $126 as part of that agreement.
Mr. Clayborne earned a base salary of $250 for the fiscal year ended December 31, 2021.
On January 4, 2021, we granted Mr. Clayborne restricted stock units valued at $322 payable in 190,609 shares of our common stock. The restricted stock units were
subject to a four-year vesting period, with 25% of the award vesting on the first, second, third, and fourth anniversaries of the grant date. The price per share as reported by
Nasdaq on the day of issuance was $1.69 and was used to calculate fair market value.
As of December 31, 2022 and 2021, Mr. Clayborne had accrued but unpaid compensation equal to $28 and $77, respectively.
2019 Omnibus Incentive Plan
On November 11, 2019, our board of directors approved our 2019 Omnibus Incentive Plan, or Incentive Plan, and on December 20, 2019, our stockholders approved
and adopted the Incentive Plan. The material terms of the Incentive Plan are summarized below.
On September 2, 2020, our board of directors approved an additional 8,000,000 shares of our common stock to be authorized for awards granted under the Incentive
Plan, and on October 16, 2020, our stockholders approved the additional 8,000,000 shares of our common stock to be authorized for awards granted under the Incentive Plan.
On February 17, 2023, our board of directors approved an additional 15,000,000 shares of common stock to be authorized under the Incentive Plan, and on April 10,
2023, our stockholders approved the additional 15,000,000 shares of our common stock to be authorized for awards granted under the Incentive Plan.
General
The purpose of the Incentive Plan is to enhance stockholder value by linking the compensation of our officers, directors, key employees, and consultants to increases
in the price of our common stock and the achievement of other performance objections and to encourage ownership in our company by key personnel whose long-term
employment is considered essential to our continued progress and success. The Incentive Plan is also intended to assist us in recruiting new employees and to motivate, retain,
and encourage such employees and directors to act in our stockholders’ interest and share in our success.
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Term
The Incentive Plan became effective upon approval by our stockholders and will continue in effect from that date until it is terminated in accordance with its terms.
Administration
The Incentive Plan may be administered by our board of directors, a committee designated by it, and/or their respective delegates. Currently, our Compensation
Committee administers the Incentive Plan. The administrator has the power to determine the directors, employees, and consultants who may participate in the Incentive Plan
and the amounts and other terms and conditions of awards to be granted under the Incentive Plan. All questions of interpretation and administration with respect to the Incentive
Plan will be determined by the administrator. The administrator also will have the complete authority to adopt, amend, rescind, and enforce rules and regulations pertaining to
the administration of the Incentive Plan; to correct administrative errors; to make all other determinations deemed necessary or advisable for administering the Incentive Plan
and any award granted under the Incentive Plan; and to authorize any person to execute, on behalf of us, all agreements and documents previously approved by the
administrator, among other items.
Eligibility
Any of our directors, employees, or consultants, or any directors, employees, or consultants of any of our affiliates (except that with respect to incentive stock options,
only employees of us or any of our subsidiaries are eligible), are eligible to participate in the Incentive Plan.
Available Shares
Subject to the adjustment provisions included in the Incentive Plan, a total of 16,000,000 shares of our common stock are authorized for awards granted under the
Incentive Plan. On February 17, 2023, our board of directors approved an additional 15,000,000 shares of common stock to be authorized under the Incentive Plan, and on April
10, 2023, our stockholders approved the additional 15,000,000 shares of our common stock to be authorized for awards granted under the Incentive Plan. Shares subject to
awards that have been canceled, expired, settled in cash, or not issued or forfeited for any reason (in whole or in part), will not reduce the aggregate number of shares that may
be subject to or delivered under awards granted under the Incentive Plan and will be available for future awards granted under the Incentive Plan.
Types of Awards
We may grant the following types of awards under the Incentive Plan: stock awards; options; stock appreciation rights; stock units; or other stock-based awards.
Stock Awards. The Incentive Plan authorizes the grant of stock awards to eligible participants. The administrator determines (i) the number of shares subject to the
stock award or a formula for determining such number, (ii) the purchase price of the shares, if any, (iii) the means of payment for the shares, (iv) the performance criteria, if
any, and the level of achievement versus these criteria, (v) the grant, issuance, vesting, and/or forfeiture of the shares, (vi) restrictions on transferability, and such other terms
and conditions determined by the administrator.
Options. The Incentive Plan authorizes the grant of non-qualified and/or incentive options to eligible participants, which options give the participant the right, after
satisfaction of any vesting conditions and prior to the expiration or termination of the option, to purchase shares of our common stock at a fixed price. The administrator
determines the exercise price for each share subject to an option granted under the Incentive Plan, which exercise price cannot be less than the fair market value (as defined in
the Incentive Plan) of our common stock on the grant date. The administrator also determines the number of shares subject to each option, the time or times when each option
becomes exercisable, and the term of each option (which cannot exceed ten (10) years from the grant date).
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Stock Appreciation Rights. The Incentive Plan authorizes the grant of stock appreciation rights to eligible participants, which stock appreciation rights give the
participant the right, after satisfaction of any vesting conditions and prior to the expiration or termination of the stock appreciation right, to receive in cash or shares of our
common stock the excess of the fair market value (as defined in the Incentive Plan) of our common stock on the date of exercise over the exercise price of the stock
appreciation right. All stock appreciation rights under the Incentive Plan shall be granted subject to the same terms and conditions applicable to options granted under the
Incentive Plan. Stock appreciation rights may be granted to awardees either alone or in addition to or in tandem with other awards granted under the Incentive Plan and may,
but need not, relate to a specific option granted under the Incentive Plan.
Stock Unit Awards and Other Stock-Based Awards. In addition to the award types described above, the administrator may grant any other type of award payable by
delivery of our common stock in such amounts and subject to such terms and conditions as the administrator determines in its sole discretion, subject to the terms of the
Incentive Plan. Such awards may be made in addition to or in conjunction with other awards under the Incentive Plan. Such awards may include unrestricted shares of our
common stock, which may be awarded, without limitation (except as provided in the Incentive Plan), as a bonus, in payment of director fees, in lieu of cash compensation, in
exchange for cancellation of a compensation right, or upon the attainment of performance goals or otherwise, or rights to acquire shares of our common stock from us.
Award Limits
Subject to the terms of the Incentive Plan, the aggregate number of shares that may be subject to all incentive stock options granted under the Incentive Plan cannot
exceed the total aggregate number of shares that may be subject to or delivered under awards under the Incentive Plan. Notwithstanding any other provisions of the Incentive
Plan to the contrary, the aggregate grant date fair value (computed as specified in the Incentive Plan) of all awards granted to any non-employee director during any single
calendar year shall not exceed 300,000 shares during 2019 and, thereafter, 200,000 shares.
New Plan Benefits
The amount of future grants under the Incentive Plan is not determinable, as awards under the Incentive Plan will be granted at the sole discretion of the administrator.
We cannot determine at this time either the persons who will receive awards under the Incentive Plan or the amount or types of any such awards.
Transferability
Unless determined otherwise by the administrator, an award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by
beneficiary designation, will, or by the laws of descent or distribution, including but not limited to any attempted assignment or transfer in connection with the settlement of
marital property or other rights incident to a divorce or dissolution, and any such attempted sale, assignment, or transfer shall be of no effect prior to the date an award is vested
and settled.
Termination of Employment or Board Membership
At the grant date, the administrator is authorized to determine the effect a termination from membership on the board of directors by a non-employee director for any
reason or a termination of employment (as defined in the Incentive Plan) due to disability (as defined in the Incentive Plan), retirement (as defined in the Incentive Plan), death,
or otherwise (including termination for cause (as defined in the Incentive Plan)) will have on any award. Unless otherwise provided in the award agreement:
● Upon termination from membership on our board of directors by a non-employee director for any reason other than disability or death, any option or stock
appreciation right held by such director that (i) has not vested and is not exercisable as of the termination effective date will be subject to immediate cancellation
and forfeiture or (ii) is vested and exercisable as of the termination effective date shall remain exercisable for one year thereafter, or the remaining term of the
option or stock appreciation right, if less. Any unvested stock award, stock unit award, or other stock-based award held by a non-employee director at the time of
termination from membership on our board of directors for a reason other than disability or death will immediately be cancelled and forfeited.
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● Upon termination from membership on our board of directors by a non-employee director due to disability or death will result in full vesting of any outstanding
option or stock appreciation rights and vesting of a prorated portion of any stock award, stock unit award, or other stock-based award based upon the full months
of the applicable performance period, vesting period, or other period of restriction elapsed as of the end of the month in which the termination from membership
on our board of directors by a non-employee director due to disability or death occurs over the total number of months in such period. Any option or stock
appreciation right that vests upon disability or death will remain exercisable for one year thereafter, or the remaining term of the option or stock appreciation right,
if less. In the case of any stock award, stock unit award, or other stock-based award that vests on the basis of attainment of performance criteria (as defined in the
Incentive Plan), the pro rata vested amount will be based upon the target award.
● Upon termination of employment due to disability or death, any option or stock appreciation right held by an employee will, if not already fully vested, become
fully vested and exercisable as of the effective date of such termination of employment due to disability or death, or, in either case, the remaining term of the
option or stock appreciation right, if less. Termination of employment due to disability or death shall result in vesting of a prorated portion of any stock award,
stock unit award, or other stock-based award based upon the full months of the applicable performance period, vesting period, or other period of restriction
elapsed as of the end of the month in which the termination of employment due to disability or death occurs over the total number of months in such period. In the
case of any stock award, stock unit award, or other stock-based award that vests on the basis of attainment of performance criteria, the pro-rata vested amount will
be based upon the target award.
● Any option or stock appreciation right held by an awardee at retirement that occurs at least one year after the grant date of the option or stock appreciation right
will remain outstanding for the remaining term of the option or stock appreciation right and continue to vest; any stock award, stock unit award, or other stock
based award held by an awardee at retirement that occurs at least one year after the grant date of the award shall also continue to vest and remain outstanding for
the remainder of the term of the award.
● Any other termination of employment shall result in immediate cancellation and forfeiture of all outstanding awards that have not vested as of the effective date of
such termination of employment, and any vested and exercisable options and stock appreciation rights held at the time of such termination of such termination of
employment shall remain exercisable for 90 days thereafter or the remaining term of the option or stock appreciation right, if less. Notwithstanding the foregoing,
all outstanding and unexercised options and stock appreciation rights will be immediately cancelled in the event of a termination of employment for cause.
Change of Control
In the event of a change of control (as defined in the Incentive Plan), unless other determined by the administrator as of the grant date of a particular award, the
following acceleration, exercisability, and valuation provisions apply:
● On the date that a change of control occurs, all options and stock appreciation rights awarded under the Incentive Plan not previously exercisable and vested will,
if not assumed, or substituted with a new award, by the successor to us, become fully exercisable and vested, and if the successor to us assumes such options or
stock appreciation rights or substitutes other awards for such awards, such awards (or their substitutes) shall become fully exercisable and vested if the
participant’s employment is terminated (other than a termination for cause) within two years following the change of control.
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● Except as may be provided in an individual severance or employment agreement (or severance plan) to which an awardee is a party, in the event of an awardee’s
termination of employment within two years after a change of control for any reason other than because of the awardee’s death, retirement, disability, or
termination for cause, each option and stock appreciation right held by the awardee (or a transferee) that is vested following such termination of employment will
remain exercisable until the earlier of the third anniversary of such termination of employment (or any later date until which it would have remained exercisable
under such circumstances by its terms) or the expiration of its original term. In the event of an awardee’s termination of employment more than two years after a
change of control, or within two years after a change of control because of the awardee’s death, retirement, disability, or termination for cause, the regular
provisions of the Incentive Plan regarding employment termination (described above) will govern (as applicable).
● On the date that a change of control occurs, the restrictions and conditions applicable to any or all stock awards, stock unit awards, and other stock-based awards
that are not assumed, or substituted with a new award, by the successor to us will lapse and such awards will become fully vested. Unless otherwise provided in an
award agreement at the grant date, upon the occurrence of a change of control without assumption or substitution of the awards by the successor, any
performance-based award will be deemed fully earned at the target amount as of the date on which the change of control occurs. All stock awards, stock unit
awards, and other stock-based awards shall be settled or paid within 30 days of vesting. Notwithstanding the foregoing, if the change of control would not qualify
as a permissible date of distribution under Section 409A(a)(2)(A) of the Internal Revenue Code, and the regulations thereunder, the awardee shall be entitled to
receive the award from us on the date that would have applied, absent this provision. If the successor to us does assume (or substitute with a new award) any stock
awards, stock unit awards, and other stock-based awards, all such awards shall become fully vested if the participant’s employment is terminated (other than a
termination for cause) within two years following the change of control, and any performance based award will be deemed fully earned at the target amount
effective as of the termination of employment.
● The administrator, in its discretion, may determine that, upon the occurrence of a change of control of us, each option and stock appreciation right outstanding will
terminate within a specified number of days after notice to the participant, and/or that each participant receives, with respect to each share subject to such option
or stock appreciation right, an amount equal to the excess of the fair market value of such share immediately prior to the occurrence of such change of control over
the exercise price per share of such option and/or stock appreciation right; such amount to be payable in cash, in one or more kinds of stock or property (including
the stock or property, if any, payable in the transaction), or in a combination thereof, as the administrator, in its discretion, determines and, if there is no excess
value, the administrator may, in its discretion, cancel such awards.
● An option, stock appreciation right, stock award, stock unit award, or other stock-based award will be considered assumed or substituted for if, following the
change of control, the award confers the right to purchase or receive, for each share subject to the option, stock appreciation right, stock award, stock unit award,
or other stock-based award immediately prior to the change of control, the consideration (whether stock, cash, or other securities or property) received in the
transaction constituting a change of control by holders of shares for each share held on the effective date of such transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that, if such consideration received
in the transaction constituting a change of control is not solely shares of common stock of the successor company, the administrator may, with the consent of the
successor company, provide that the consideration to be received upon the exercise or vesting of an option, stock appreciation right, stock award, stock unit award,
or other stock-based award, for each share subject thereto, will be solely shares of common stock of the successor company with a fair market value substantially
equal to the per-share consideration received by holders of shares in the transaction constituting a change of control. The determination of whether fair market
value is substantially equal shall be made by the administrator in its sole discretion and its determination will be conclusive and binding.
53
Tax and Accounting Considerations
Among the factors it considers when making executive compensation decisions, the Compensation Committee considers the anticipated tax and accounting impact to
us (and to our executive officers) of various payments, equity awards and other benefits.
The Compensation Committee considers the impact of the provisions of Section 162(m) of the Internal Revenue Code, or the Code, as amended by the Tax Cuts and
Jobs Act, or the TCJA. That section generally limits the deductibility of compensation paid by a publicly held company to “covered employees” for a taxable year to $1.0
million. Effective for taxable years beginning on and after January 1, 2018, “covered employees” generally include our Chief Executive Officer, Chief Financial Officer and
other highly compensated executive officers. Effective for taxable years beginning prior to January 1, 2018, an exception to this deduction limit applied to “performance-based
compensation,” such as cash incentive and stock option awards, that satisfied certain criteria. This exception to the Section 162(m) deduction limit for “performance-based
compensation” was repealed by the TCJA. Thus, except for certain “performance-based compensation” payable pursuant to written contracts that were in effect on November 2,
2017 and that are not modified in any material respect on or after that date, effective for taxable years beginning on and after January 1, 2018 our tax deduction with regard to
compensation of “covered employees” is limited to $1.0 million per taxable year with respect to each executive officer. With respect to cash and equity awards that were in
effect on November 2, 2017, and that are not modified in any material respect on or after that date, the Committee is mindful of the benefit to us and our stockholders of the full
deductibility of compensation and have taken steps so that both the cash incentive and stock option awards that we granted may qualify for deductibility under Section 162(m)
of the Code. However, awards that we granted that were intended to qualify as “performance-based compensation” may not necessarily qualify for such status under Section
162(m) of the Code. With respect to cash incentive and equity awards that we may grant in the future, we do not anticipate that the $1.0 million deduction limitation set forth in
Section 162(m) of the Code will have a material impact on our results of operations.
The Compensation Committee also considers the impact of Section 409A of the Code, and in general, our executive plans and programs are designed to comply with
the requirements of that section so as to avoid possible adverse tax consequences that may result from noncompliance.
We account for equity awards in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification, or FASB ASC, Topic
718, Stock Compensation.
Our change-of-control and severance Agreements do not allow for excise tax gross up payments.
Amendment and Termination
The administrator may amend, alter, or discontinue the Incentive Plan or any award agreement, but any such amendment is subject to the approval of our stockholders
in the manner and to the extent required by applicable law. In addition, without limiting the foregoing, unless approved by our stockholders and subject to the terms of the
Incentive Plan, no such amendment shall be made that would (i) increase the maximum aggregate number of shares that may be subject to awards granted under the Incentive
Plan, (ii) reduce the minimum exercise price for options or stock appreciation rights granted under the Incentive Plan, or (iii) reduce the exercise price of outstanding options or
stock appreciation rights, as prohibited by the terms of the Incentive Plan without stockholder approval.
No amendment, suspension, or termination of the Incentive Plan will impair the rights of any participant with respect to an outstanding award, unless otherwise
mutually agreed between the participant and the administrator, which agreement must be in writing and signed by the participant and us, except that no such agreement will be
required if the administrator determines in its sole discretion that such amendment either (i) is required or advisable in order for us, the Incentive Plan, or the award to satisfy
any applicable law or to meet the requirements of any accounting standard or (ii) is not reasonably likely to diminish the benefits provided under such award significantly, or
that any such diminution has been adequately compensated, except that this exception shall not apply following a change of control. Termination of the Incentive Plan will not
affect the administrator’s ability to exercise the powers granted to it hereunder with respect to awards granted under the Incentive Plan prior to the date of such termination.
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth, for each named executive officer, certain information concerning outstanding restricted stock awards as of December 31, 2022:
Name
Rory J. Cutaia
Salman H. Khan(3)
Number of securities
underlying unvested
restricted stock awards
(#)
Fair Value
($)
88,207
235,849
238,262
404,432
278,406
300,601
142,043
1.36
1.06
1.69
1.19
0.22
0.99
0.22
Vest date
December 23, 2023(1)
July 29, 2024(1)
January 4, 2025(1)
January 20, 2026(1)
March 31, 2023(2)
March 30, 2026(1)
March 31, 2023(2)
(1) 25% vesting on the first, second, third, and fourth anniversaries from the grant date.
(2) 25% vesting at the end of each month starting on December 1, 2022.
(3) Mr. Khan was appointed as Chief Financial Officer and Treasurer on March 30, 2022.
The following table sets forth, for each named executive officer, certain information concerning outstanding option awards as of December 31, 2022:
Name
Rory J. Cutaia
Salman H. Khan(3)
Number of
securities
underlying
unexercised
options (exercisable)
(#)
Number of
securities
underlying
unexercised
options
(unexercisable) (#)
Option
Exercise
price ($)
16,667
235,848
75,000
-
-
-
225,000
100,000
Option expiration
date
January 8, 2024(2)
November 16, 2027(2)
May 20, 2026(1)
May 15, 2026(1)
4.35
0.22
1.15
0.30
(1) 25% vesting on the first, second, third, and fourth anniversaries from the grant date.
(2) All shares have fully vested.
(3) Mr. Khan was appointed as Chief Financial Officer and Treasurer on March 30, 2022.
Resignation, Retirement, Other Termination, or Change-of-Control Arrangements
Other than as disclosed below, we have no contract, agreement, plan, or arrangement, whether written or unwritten, that provides for payments to our directors or
executive officers at, following, or in connection with the resignation, retirement, or other termination of our directors or executive officers, or a change of control of our
company or a change in our directors’ or executive officers’ responsibilities following a change of control.
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Rory J. Cutaia
Pursuant to Mr. Cutaia’s employment agreement dated December 20, 2019, Mr. Cutaia is entitled to the following severance package in the event he is “terminated
without cause,” “terminated for good reason,” or “terminated upon permanent disability”: (i) monthly payments of $35,833 or such sum equal to his monthly base
compensation at the time of the termination, whichever is higher, for a period of 36 months from the date of such termination and (ii) reimbursement for COBRA health
insurance costs for 18 months from the date of such termination and, thereafter, reimbursement for health insurance costs for Mr. Cutaia and his family during the immediately
subsequent 18-month period. In addition, all of Mr. Cutaia’s then-unvested restricted stock awards or other awards will immediately vest, without restriction, and any unearned
and unpaid bonus compensation, expense reimbursement, and all accrued vacation, personal, and sick days, and related items shall be deemed earned, vested, and paid
immediately. For purposes of the employment agreement, “terminated without cause” means if Mr. Cutaia were to be terminated for any reason other than a discharge for cause
or due to Mr. Cutaia’s death or permanent disability. For purposes of the employment agreement, “terminated for good reason” means the voluntary termination of the
employment agreement by Mr. Cutaia if any of the following were to occur without his prior written consent, which consent cannot be unreasonably withheld considering our
then-current financial condition, and, in each case, which continues uncured for 30 days following receipt by us of Mr. Cutaia’s written notice: (i) there is a material reduction
by us in (A) Mr. Cutaia’s annual base salary then in effect or (B) the annual target bonus, as set forth in the employment agreement, or the maximum additional amount up to
which Mr. Cutaia is eligible pursuant to the employment agreement; (ii) we reduce Mr. Cutaia’s job title and position such that Mr. Cutaia (A) is no longer our Chief Executive
Officer; (B) is no longer our Chairman of the Board; or (C) is involuntarily removed from our board of directors; or (iii) Mr. Cutaia is required to relocate to an office location
outside of Orange County, California, or outside of a 30-mile radius of Newport Beach, California. For purposes of the employment agreement, “terminated upon permanent
disability” means if Mr. Cutaia were to be terminated because he is then unable to perform his duties due to a physical or mental condition for (i) a period of 120 consecutive
days or (ii) an aggregate of 180 days in any 12-month period.
Director Compensation Table
The table below summarizes the compensation paid to our non-employee directors for the fiscal year ended December 31, 2022 (in thousands):
Name(1)
Fees earned or paid in
cash
($)
Stock awards
($)
Total
($)
James P. Geiskopf
Philip J. Bond
Kenneth S. Cragun
Nancy Heinen(4)
Judith Hammerschmidt
Edmund C. Moy(6)
175
72
72
56
72
-
-(2)
-(3)
-(3)
-(5)
-(3)
-
175
72
72
56
72
-
(1) Rory J. Cutaia, our Chairman of the Board, Chief Executive Officer, President, and Secretary during the fiscal year ending December 31, 2022, is not included in this table
as he was an employee, and, thus, received no compensation for his services as a director. The compensation received by Mr. Cutaia as an employee is disclosed in the
section entitled “Executive Compensation – Summary Compensation Table” appearing elsewhere in this Annual Report.
(2) Represents a restricted stock unit totaling 101,658 shares of our common stock valued at $1.69 per share, which was the closing price reported on The Nasdaq Capital
Market. The restricted stock unit vested on the first anniversary from the grant date. On November 17, 2022, 101,658 shares of our common stock were returned and
replaced with 203,316 stock options, which vested on grant, with an exercise price of $0.22 per share.
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(3) Represents a restricted stock unit totaling 50,829 shares of our common stock valued at $1.69 per share, which was the closing price reported on The Nasdaq Capital
Market. The restricted stock unit vested on the first anniversary from the grant date. On November 17, 2022, 50,829 shares of our common stock were returned and
replaced with 101,658 stock options, which vested on grant, with an exercise price of $0.22 per share.
(4) Ms. Heinan did not seek re-election to the board and her term ended on October 21, 2022.
(5) Represents a restricted stock unit totaling 50,829 shares of our common stock valued at $1.69 per share, which was the closing price reported on The Nasdaq Capital
Market. The restricted stock unit vested on the first anniversary from the grant date. On November 17, 2022, 50,829 shares of our common stock were returned.
(6) Mr. Moy was elected to serve on the board of directors on October 21, 2022.
Narrative Disclosure to Director Compensation Table
The annual board fee payable in cash and our common stock for our Lead Director and directors is 175 and 75, respectively. In addition, we intend to provide a
restricted stock unit based on recommendations from our compensation consultants. Our directors are entitled to reimbursement for reasonable travel and other out-of-pocket
expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any
special services on their behalf other than services ordinarily required of a director.
James P. Geiskopf
Mr. Geiskopf earned total cash compensation for his services to us in the amount of $175 and $175 for fiscal years 2022 and 2021, respectively.
On January 20, 2022, the Company granted Mr. Geiskopf restricted stock units totaling $154 payable in 129,418 shares of its common stock. The restricted stock units
vest on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.19 and was used to calculate fair
market value.
On November 17, 2022, the Company granted Mr. Geiskopf restricted stock units totaling $29 payable in 132,572 shares of its common stock as part of the Company’s
Cost Savings Plan where executive officers and directors agreed to accept a 25% reduction in cash compensation over a four-month period. The restricted stock units vest on
the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $0.22 and was used to calculate fair market
value.
On November 17, 2022, Mr. Geiskopf returned to the Company 101,658 shares of common stock that were previously issued on January 4, 2022 as part of a restricted
stock unit grant that had vested. In exchange, Mr. Geiskopf was issued 203,316 stock options with an exercise price of $0.22 per share. The stock options vested on grant.
On January 4, 2021, the Company granted Mr. Geiskopf restricted stock units totaling $172 payable in 101,658 shares of our common stock. The restricted stock units
vest on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.69 and was used to calculate fair
market value.
Philip J. Bond
Mr. Bond earned total cash compensation for his services to us in the amount of $72 and $75 for the fiscal years ending December 31, 2022 and 2021, respectively.
On January 20, 2022, the Company granted Mr. Bond restricted stock units totaling $77 payable in 64,709 shares of its common stock. The restricted stock units vest
on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.19 and was used to calculate fair
market value.
On November 17, 2022, Mr. Bond returned to the Company 50,829 shares of common stock that were previously issued on January 4, 2022 as part of a restricted stock
unit grant that had vested. In exchange, Mr. Bond was issued 101,658 stock options with an exercise price of $0.22 per share. The stock options vested on grant.
57
On January 4, 2021, the Company granted Mr. Bond restricted stock units totaling $86 payable in 50,829 shares of its common stock. The restricted stock units vest on
the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.69 and was used to calculate fair market
value.
Kenneth S. Cragun
Mr. Cragun earned total cash compensation for his services to us in the amount of $72 and $75 for the fiscal years ending December 31, 2022 and 2021, respectively.
On January 20, 2022, the Company granted Mr. Cragun restricted stock units totaling $77 payable in 64,709 shares of its common stock. The restricted stock units vest
on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.19 and was used to calculate fair
market value.
On November 17, 2022, Mr. Cragun returned to the Company 50,829 shares of common stock that were previously issued on January 4, 2022 as part of a restricted
stock unit grant that had vested. In exchange, Mr. Cragun was issued 101,658 stock options with an exercise price of $0.22 per share. The stock options vested on grant.
On January 4, 2021, the Company granted Mr. Cragun restricted stock units totaling $86 payable in 50,829 shares of its common stock. The restricted stock units vest
on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.69 and was used to calculate fair
market value.
Nancy Heinen
Ms. Heinen did not seek re-election to the board and her term ended on October 21, 2022. Ms. Heinen earned total cash compensation for her services to us in the
amount of $56 and $75 for the fiscal years ending December 31, 2022 and 2021, respectively.
On January 20, 2022, the Company granted Ms. Heinen restricted stock units totaling $77 payable in 64,709 shares of its common stock. The restricted stock units vest
on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.19 and was used to calculate fair
market value.
On November 17, 2022, Ms. Heinen returned to the Company 50,829 shares of common stock that were previously issued on January 4, 2022 as part of a restricted
stock unit grant that had vested.
On January 4, 2021, the Company granted Ms. Heinen restricted stock units totaling $86 payable in 50,829 shares of its common stock. The restricted stock units vest
on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.69 and was used to calculate fair
market value.
Judith Hammerschmidt
Ms. Hammerschmidt earned total cash compensation for her services to us in the amount of $72 and $75 for the fiscal years ending December 31, 2022 and 2021,
respectively.
On January 20, 2022, the Company granted Ms. Hammerschmidt restricted stock units totaling $77 payable in 64,709 shares of its common stock. The restricted stock
units vest on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.19 and was used to calculate
fair market value.
On November 17, 2022, Ms. Hammerschmidt returned to the Company 50,829 shares of common stock that were previously issued on January 4, 2022 as part of a
restricted stock unit grant that had vested. In exchange, Ms. Hammerschmidt was issued 101,658 stock options with an exercise price of $0.22 per share. The stock options
vested on grant.
On January 4, 2021, the Company granted Ms. Hammerschmidt restricted stock units totaling $86 payable in 50,829 shares of its common stock. The restricted stock
units vest on the first anniversary from the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $1.69 and was used to calculate
fair market value.
Edmund C. Moy
Mr. Moy was elected to the board on October 21, 2022 and earned total cash compensation for his services to us in the amount of $0 for the fiscal year ending
December 31, 2022.
58
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth, for each non-employee director, certain information concerning outstanding restricted stock awards as of December 31, 2022:
Name
James P. Geiskopf
Philip J. Bond
Kenneth S. Cragun
Judith Hammerschmidt
Number of
securities
underlying
unvested restricted
stock units
(#)
Fair Value
($)
129,418(3)
99,429
64,709(4)
64,709(4)
64,709(4)
1.19
0.22
1.19
1.19
1.19
Vest date
January 20, 2023(1)
March 31, 2023(2)
January 20, 2023(1)
January 20, 2023(1)
January 20, 2023(1)
(1) Fully vests on the first anniversary from the grant date.
(2) 25% vesting at the end of each month starting on December 1, 2022.
(3) On January 20, 2023, the 129,418 restricted stock units were cancelled and replaced with a grant of 129,418 stock options. The stock options vested on grant date, have an
exercise price of $0.23 per share and expire in 10 years.
(4) On January 20, 2023, the 64,709 restricted stock units were cancelled and replaced with a grant of 64,709 stock options. The stock options vested on grant date, have an
exercise price of $0.23 per share and expire in 10 years.
The following table sets forth, for each non-employee director, certain information concerning outstanding option awards as of December 31, 2022:
Number of
securities
underlying
unexercised
options
(exercisable)
(#)
Number of
securities
underlying
unexercised
options
(unexercisable)
(#)
Option
exercise
price
($)
203,316
66,667
101,658
14,205
66,667
101,658
14,205
101,658
14,205
14,205
-
-
-
42,614
-
-
42,614
-
42,614
42,614
Option expiration
Date
November 16, 2027(1)
August 27, 2023(1)
November 16, 2027(1)
November 16, 2027(2)
August 27, 2023(1)
November 16, 2027(1)
November 16, 2027(2)
November 16, 2027(1)
November 16, 2027(2)
November 16, 2027(2)
0.22
7.50
0.22
0.22
7.50
0.22
0.22
0.22
0.22
0.22
Name
James P. Geiskopf
Philip J. Bond
Kenneth S. Cragun
Judith Hammerschmidt
Edmund C. Moy
(1) All shares have fully vested.
(2) 25% vesting at the end of each month starting on December 1, 2022.
59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of April 12, 2023, certain information with respect to the beneficial ownership of our common stock by (i) each of our current
directors and director nominees, (ii) each of our named executive officers, (iii) our directors, director nominees and named executive officers as a group, and (iv) each
stockholder known by us to be the beneficial owner of more than 5% of the outstanding shares of our outstanding common stock.
We have determined beneficial ownership in accordance with the rules of the SEC, which generally includes voting or investment power over securities. Except in
cases where community property laws apply or as indicated in the footnotes to this table, we believe, based on the information furnished to us, that each stockholder identified
in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Shares of common stock issuable
upon conversion of convertible notes, exercise of options or warrants, or settlement of restricted stock units, or that may become issuable within 60 days of April 12, 2023, are
considered outstanding and beneficially owned by the person holding the convertible notes, options, warrants or restricted stock units for the purpose of computing the
percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Verb Technology Company, Inc., 3401 N Thanksgiving Way, Suite 240,
Lehi, Utah 84043.
Name and Address of Beneficial Owner(1)
Rory J. Cutaia
James P. Geiskopf
Judith Hammerschmidt
Philip J. Bond
Kenneth S. Cragun
Salman H. Khan
Edmund C. Moy
All directors and executive officers as a group
*
Less than 1%.
Amount and Nature
of
Beneficial Ownership(2)
Percent
of
Class(3)
6,832,551(4)
1
1,289,497(5)
462,320(6)
445,280(7)
445,280(7)
454,294(8)
56,818(9)
9,986,040
4.4%
100%
*%
*
*
*
*
*
6.3%
Title of Class
Common
Series B Preferred
Common
Common
Common
Common
Common
Common
Common
60
(1) Messrs. Cutaia, Geiskopf, Bond, Cragun, and Moy and Mses. Hammerschmidt are current directors. Messrs. Cutaia and Khan are the named executive officers (and our
only executive officers).
(2) Unless otherwise indicated, the address of each beneficial owner listed in the table below is: c/o Verb Technology Company, Inc., 3401 North Thanksgiving Way, Suite
240, Lehi, Utah 84043.
(3) Percentage of common stock is based on 154,755,360 shares of our common stock outstanding as of April 12, 2023.
(4) Consists of (i) 5,286,158 shares of common stock held directly by Mr. Cutaia, (ii) 240,240 shares of common stock held by Cutaia Media Group Holdings, LLC (an entity
over which Mr. Cutaia has dispositive and voting authority), (iii) 54,006 shares of common stock held by Mr. Cutaia’s spouse (as to which shares, he disclaims beneficial
ownership), (iv) 4,500 shares of common stock held jointly by Mr. Cutaia and his spouse, (v) 252,515 shares of common stock underlying stock options exercisable within
60 days of April 12, 2023, (vi) 138,889 shares of common stock underlying warrants granted to Mr. Cutaia that are exercisable within 60 days of April 12, 2023, (vii) and
(viii) 856,243 shares of common stock underlying convertible notes previously issued to Mr. Cutaia, determined by dividing the aggregate amount of principal and accrued
interest as of April 12, 2023, which was $881,930, by the fixed conversion price of $1.03. This amount excludes 786,220 shares of common stock underlying restricted
stock units that will not vest within 60 days of April 12, 2023. For additional information about the convertible notes issued to Mr. Cutaia, refer to the section titled
“Certain Relationships and Related Transactions.”
(5) Consists of (i) 951,429 shares of common stock held directly, (ii) 5,334 shares of common stock held by Mr. Geiskopf’s children, and (iii) 332,734 shares of common stock
underlying stock options exercisable within 60 days of April 12, 2023.
(6) Consists of (i) 239,135 shares of common stock held directly, and (ii) 223,185 shares of common stock underlying stock options exercisable within 60 days of April 12,
2023.
(7) Consists of (i) 155,428 shares of common stock held directly, and (ii) 289,852 shares of common stock underlying stock options exercisable within 60 days of April 12,
2023.
(8) Consists of (i) 279,294 shares of common stock held directly, and (ii) 175,000 shares of common stock underlying stock options exercisable within 60 days of April 12,
2023.
(9) Consists of 56,818 shares of common stock underlying stock options exercisable within 60 days of April 12, 2023.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes certain information regarding our equity compensation plans as of December 31, 2022:
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
securities to be
issued upon
exercise
of outstanding
restricted stock
awards,
options, warrants
and rights
(a)
Weighted-average
exercise price of
outstanding
restricted stock
awards, options,
warrants and
rights (b)
Number of
securities
remaining
available for
future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
8,334,107
467,543
8,801,650
$
$
$
0.90
3.70
1.05
641,924
-
641,924
61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
Other than as set forth below and compensation arrangements, including employment, and indemnification arrangements, discussed, there have been no transactions
since January 1, 2021, in which the amount involved in the transaction exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets as at the
year-end for the last two completed fiscal years, and to which any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any
immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Notes Payable to Related Parties
The Company has the following outstanding notes payable to related parties on December 31, 2022 and 2021 (in thousands):
Note
Note 1(1)
Issuance Date Maturity Date
December 1,
2015
December 1,
2015
April 1, 2023
April 1, 2017
June 4, 2021
Note 2(2)
Note 3(3)
April 4, 2016
Total notes payable – related parties
Largest
Aggregate
Amount
Outstanding
Since
January 1,
2021
Amount
Outstanding
as of
December 31,
2022
Interest Paid
Since
January 1,
2022
Interest Paid
Since
January 1,
2021
Interest Rate
Original
Borrowing
12.0%
$
1,249
$
811
$
811
$
-
$
12.0%
12.0%
112
343
$
112
240
1,163
$
-
45
856
$
-
-
-
$
91
-
44
135
(1) On December 1, 2015, we issued a convertible note payable to Mr. Cutaia in the principal amount of $1,249 to consolidate all loans and advances made by Mr. Cutaia to us
as of that date. The note bears interest at a rate of 12% per annum, is secured by our assets, and initially matured on February 8, 2021. 30% of the original principal amount
of the note, or $375, was converted to common stock in 2018, while the remaining balance of $825 was not initially convertible. As of December 31, 2021, the outstanding
principal balance of the note was $725 and the accrued interest was $0.
In February 2021, Mr. Cutaia and the Company amended the note to extend the maturity date from February 8, 2021 to February 8, 2023. In exchange for the extension, the
Company issued Mr. Cutaia warrants to purchase 138,889 shares of common stock with a grant date fair value of $287. The warrants were fully vested upon issuance, are
exercisable at $2.61 per share, and have a term of three years. There were no other changes to the original terms of the note. On May 19, 2021, our Board approved the
ability to convert the note payable into equity of the Company at the discretion of the holder. The conversion price is the fair market value of our common stock on the day
of conversion.
On May 19, 2021, our Board approved an amendment to the note to allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price
of $1.03, which was the closing price of the common stock on the amendment date.
As of December 31, 2022, the outstanding balance of the note was $725 and the accrued interest was $86. Assuming all principal and interest owed under the note had
converted into common stock on that date, it would have converted into an aggregate of 787,499 shares, based on the fixed conversion price.
62
(2) On December 1, 2015, we issued a note payable to a former director in the principal amount of $112, representing unpaid consulting fees as of November 30, 2015. The
note was unsecured, bore interest at a rate of 12% per annum, and matured in April 2017.
On September 24, 2021, we settled all amounts owed under the note for $140.
(3) On April 4, 2016, we issued a convertible note to Mr. Cutaia, in the principal amount of $343 to consolidate all loans and advances made by Mr. Cutaia to us during the
period December 2015 through March 2016. The note bears interest at a rate of 12% per annum, is secured by our assets, and initially matured on June 4, 2021. 30% of the
original principal amount of the note, or $103, was converted to common stock in 2018, while the remaining balance of $240 was not initially convertible.
On May 19, 2021, our Board approved an amendment to the note to allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price
of $1.03, which was the closing price of the common stock on the amendment date. On the same date, $200 of the principal amount of the note was converted into 194,175
shares of common stock at the fixed conversion price.
As of December 31, 2022, the outstanding balance of the note amounted to $40 and the accrued interest was $5. Assuming all principal and interest owed under the note
had converted into common stock on that date, it would have converted into an aggregate of 43,852 shares, based on the fixed conversion price.
Series B Preferred Stock
On February 17, 2023, the Company entered into a Subscription and Investment Representation Agreement (the “Subscription Agreement”) with Rory J. Cutaia, its
Chief Executive Officer, who is an accredited investor (the “Purchaser”), pursuant to which the Company agreed to issue and sell one (1) share of the Company’s Series B
Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), to the Purchaser for $5,000.00 in cash. The sale closed on February 17, 2023.
The Certificate of Designation provides that the holder of the Series B Preferred Stock will have 700,000,000 votes and will vote together with the outstanding shares
of the Company’s common stock as a single class exclusively with respect to any proposal to amend the Company’s Articles of Incorporation, as amended, to effect a reverse
stock split of the Company’s common stock and to increase the number of authorized shares of common stock of the Company. The Series B Preferred Stock will be voted,
without action by the holder, on any such proposal in the same proportion, both For and Against, as shares of the common stock are voted. The Series B Preferred Stock
otherwise has no voting rights except as otherwise required by the Nevada Revised Statutes.
The Series B Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series B
Preferred Stock has no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale,
dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Series B Preferred Stock will not be entitled to receive dividends of any kind.
The outstanding share of Series B Preferred Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of Directors in
its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Articles of Incorporation implementing a reverse stock split and the increase in
authorized shares of common stock of the Company. Upon such redemption, the holder of the Series B Preferred Stock will receive the redemption price of $5,000.00 in cash.
63
Director Independence
The Board evaluates the independence of each nominee for election as a director of our Company in accordance with the Nasdaq Listing Rules. Pursuant to these rules,
a majority of our Board must be “independent directors” within the meaning of the Nasdaq Listing Rules, and all directors who sit on our Audit Committee, Nominating and
Corporate Governance Committee and Compensation Committee must also be independent directors.
Our Board is currently composed of six members. We have determined that the following five directors qualify as independent: James P. Geiskopf, Phillip J. Bond,
Kenneth S. Cragun, Judith Hammerschmidt, and Edmund C Moy. We determined that Mr. Cutaia, our Chairman of the Board, President, Chief Executive Officer and Secretary,
is not independent.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The following table sets forth the fees billed to us for the year ended December 31, 2022 and 2021 for professional services rendered by our independent registered
public accounting firm, Weinberg & Company, P.A. (in thousands):
Fees
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total Fees
$
$
2022
2021
213
2
52
27
294
$
$
224
2
44
50
320
For purposes of the preceding table, the professional fees are classified as follows:
● Audit Fees – These are fees performed for the audit of our annual financial statements and the required review of our quarterly financial statements and other
procedures performed by the independent auditors to form an opinion on our financial statements.
● Audit-Related Fees – These are fees for expenses by the independent auditors that are associated with the audit, but don’t fall within the above-described category.
● Tax Fees – These are fees for all professional services performed by professional staff in our independent auditor’s tax group, except those services related to the audit
of our financial statements.
● All Other Fees – These are fees for other permissible work, such as due diligence related to acquisitions and dispositions, audits related to acquisitions, attestation
services that are not required by statute or regulation, and for other permissible work performed that does not meet the above-described categories.
Pre-Approval Policies and Procedures
The Audit Committee has adopted policies and procedures to oversee the external audit process and pre-approves all services provided by our independent registered
public accounting firm. Prior to the addition of Mr. Bond and Mr. Cragun as members of the Audit Committee, the entire Board, consisting of Mr. Cutaia and Mr. Geiskopf
acted as our Audit Committee and were responsible for pre-approving all services provided by our independent registered public accounting firm. All of the above services and
fees were reviewed and approved by our Board or Audit Committee, as applicable, before the respective services were rendered.
64
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
Reference is made to the financial statements attached beginning on page F-2 of this Annual Report.
Report of Independent Registered Public Accounting Firms (PCAOB ID NO: 572)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
None.
(a)(3) Exhibits
Reference is made to the exhibits listed on the Index to Exhibits.
ITEM 16. FORM 10-K SUMMARY
None.
65
Page
F-1
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
Verb Technology Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Verb Technology Company, Inc. (the “Company”) as of December 31, 2022 and 2021, the related
consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring operating losses and used cash in operations since inception. These matters raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be
communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
F-1
Goodwill Impairment Assessment
As described in Notes 2 and 5 to the consolidated financial statements, the Company conducts its goodwill impairment testing on an annual basis as of December 31 or
whenever events or circumstances indicate that the carrying value of a reporting unit may exceed its fair value. Impairment of goodwill is determined by comparing the fair
value of the Company’s reporting unit to the carrying value of the underlying net assets in the reporting unit. If the fair value of the 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. In accordance with the “Segment Reporting” Topic of the Accounting Standards
Codification, the Company’s chief operating decision maker (the Company’s Chief Executive Officer) determined that there is only one reporting unit.
The Company’s annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing a
qualitative assessment, the Company reviewed events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value
of goodwill. As a result of this qualitative assessment, the Company determined that a triggering event had occurred to necessitate performing the quantitative impairment test.
After performing the quantitative impairment test, the Company determined that goodwill was impaired by $10,183. As a result of the impairment losses recognized, the
carrying amount of the Company’s goodwill was reduced to $9,581 as of December 31, 2022.
We identified the evaluation of goodwill impairment assessment as a critical audit matter because of the significant judgment by management when determining the fair value
of the reporting unit. This required a high degree of auditor judgment and increased auditor effort in auditing such assumptions.
The primary procedures we performed to address this critical audit matter included:
● We compared forecasts prepared by management used in its impairment analysis to historical revenues and costs for reasonableness.
● We performed procedures to verify the mathematical accuracy of the calculations used by management.
● We recalculated the impairment recorded for goodwill of $10,183 based on the excess of the carrying value of goodwill over its estimated fair value as of December
31, 2022.
● We assessed the appropriateness of the disclosures in the financial statements.
We have served as the Company’s auditor since 2017.
/s/ Weinberg & Company, P.A.
Los Angeles, California
April 17, 2023
F-2
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As of December 31,
2022
2021
ASSETS
Current assets
Cash
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Capitalized software development costs, net
ERC receivable
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued expenses
Accrued officers’ compensation
Advances on future receipts, net
Notes payable – related party, current
Notes payable, current
Convertible notes payable, current
Deferred incentive compensation to officers, current
Operating lease liabilities, current
Contract liabilities
Derivative liability
Total current liabilities
Long-term liabilities
Notes payable, non-current
Notes payable – related party, non-current
Operating lease liabilities, non-current
Total liabilities
Commitments and contingencies (Note 16)
Stockholders’ equity
Preferred stock, $0.0001 par value, 15,000,000 shares authorized:
Series A Convertible Preferred Stock, 6,000 shares authorized; 0 issued and outstanding as of
December 31, 2022 and 2021
Class A units, 100 shares issued and authorized as of December 31, 2022 and 2021
Class B units, 2,642,159 shares authorized, 0 issued and outstanding as of December 31, 2022 and
2021
Common stock, $0.0001 par value, 200,000,000 shares authorized, 116,720,671 issued and outstanding
as of December 31, 2022 and 72,942,948 issued and outstanding as of December 31, 2021
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
$
$
$
$
2,429
1,024
605
4,058
6,176
1,528
537
1,473
833
9,581
306
24,492
$
$
4,638
1,646
764
1,641
765
3,704
1,334
-
476
1,340
222
16,530
1,215
-
1,581
19,326
-
-
-
12
158,618
(153,464)
5,166
Total liabilities and stockholders’ equity
$
24,492
$
The accompanying notes are an integral part of these consolidated financial statements
F-3
937
1,382
875
3,194
4,348
-
702
2,177
3,953
19,764
293
34,431
3,751
3,500
1,209
4,181
40
-
-
521
592
986
3,155
17,935
150
725
2,299
21,109
-
-
-
7
129,342
(116,027)
13,322
34,431
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Years Ended December 31,
2022
2021
Revenue
Digital revenue
SaaS recurring subscription revenue
Other digital revenue
Total digital revenue
Non-digital revenue
Total revenue
Cost of revenue
Digital
Non-digital
Total cost of revenue
Gross margin
Operating expenses
Research and development
Depreciation and amortization
General and administrative
Impairment loss
Total operating expenses
Loss from operations
Other income (expense), net
Interest expense
Change in fair value of derivative liability
Other income, net
Debt extinguishment, net
Total other income (expense), net
Net loss
Deemed dividend to Series A preferred stockholders
Deemed dividend due to warrant reset
Net loss to common stockholders
Loss per share – basic and diluted
Weighted average number of common shares outstanding – basic and diluted
$
$
$
7,663
611
8,274
1,161
9,435
2,306
1,005
3,311
6,124
5,188
2,529
25,234
11,965
44,916
(38,792)
(2,947)
2,933
1,369
-
1,355
(37,437)
-
(246)
(37,683)
(0.39)
97,081,758
$
$
$
6,831
1,347
8,178
2,346
10,524
2,249
2,255
4,504
6,020
12,345
1,677
25,710
-
39,732
(33,712)
(2,575)
598
91
1,112
(774)
(34,486)
(348)
-
(34,834)
(0.55)
63,324,440
The accompanying notes are an integral part of these consolidated financial statements
F-4
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)
For the year ended December 31, 2022:
Balance as of December 31, 2021
Issuance of common stock in connection with public offering,
net
Issuance of common stock for commitment fee related to equity
line of credit agreement
Issuance of common stock upon exercise of options
Fair value of common shares issued to settle accrued expenses
Fair value of common shares issued for services
Fair value of vested restricted stock awards, stock options and
warrants
Fair value of common shares returned and replaced with stock
options
Net loss
Balance as of December 31, 2022
For the year ended December 31, 2021:
Preferred Stock
Shares
-
Amount
-
$
Class A Units
Class B Units
Common Stock
Additional
Paid-in
Shares
100
Amount
-
$
Shares
-
Amount
-
$
Shares
72,942,948
Amount
7
$
Capital
$ 129,342
Accumulated
Deficit
Total
$
(116,027) $
13,322
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
39,211,991
607,287
332,730
522,424
2,166,711
1,359,478
(422,898)
-
-
$
-
-
-
100
$
-
-
-
-
$
-
-
-
116,720,671
$
4
-
-
-
1
-
24,052
-
377
465
1,560
2,783
-
-
-
-
-
-
24,056
-
377
465
1,561
2,783
39
-
$ 158,618
-
12
$
(37,437)
(153,464) $
39
(37,437)
5,166
Preferred Stock
Class A
Class B
Common Stock
Additional
Paid-in
Amount Shares Amount
$
100 $
-
Shares
Amount
$ 3,065
- 2,642,159
47,795,009 $
5 $
89,216
$
(81,541) $
10,745
Shares
Amount Capital
Accumulated
Deficit
Total
Balance as of December 31, 2020
Issuance of common stock in connection with public offering,
net
Issuance of common stock upon exercise of warrants
Issuance of common stock upon exercise of options
Fair value of common shares issued upon conversion of note
payable – related party
Fair value of common shares issued to settle lawsuit
Conversion of Series A Preferred to common stock
Fair value of shares issued to Series A preferred stockholders
– deemed dividend
Fair value of common shares issued for services
Fair value of vested restricted stock awards
Fair value of vested stock options and warrants
Extinguishment of derivative liability upon exercise of
warrants
Fair value of common shares issued to settle accounts
payable and accrued expenses
Fair value of warrants issued to officer to modify note
payable
Conversion of Class B units to common shares
Net loss
Balance as of December 31, 2021
Shares
2,006
-
-
-
-
-
(2,006)
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,076,696
2,254,411
676,715
194,175
600,000
1,978,728
-
1,344,499
1,177,378
-
2
-
-
-
-
-
-
-
-
-
22,064
2,784
802
200
678
348
(348)
2,188
1,627
1,596
-
-
4,513
203,178
-
322
-
-
- (2,642,159)
-
-
-
-
$
-
-
(3,065) 2,642,159
-
72,942,948 $
-
-
287
-
3,065
-
-
-
7 $ 129,342
(34,486)
(116,027) $
$
-
-
-
-
-
-
-
-
-
-
-
-
-
22,066
2,784
802
200
678
348
(348)
2,188
1,627
1,596
4,513
322
287
-
(34,486)
13,322
The accompanying notes are an integral part of these consolidated financial statements
F-5
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Years Ended December 31,
2022
2021
$
(37,437)
$
(34,486)
Share-based compensation
Loss on impairment of goodwill and intangible assets
Amortization of debt discount
Amortization of debt issuance costs
Change in fair value of derivative liability
Debt extinguishment costs, net
Depreciation and amortization
Loss on lease termination
(Gain)/loss on disposal of property and equipment
Allowance for doubtful accounts
Effect of changes in assets and liabilities:
Accounts receivable
Operating lease right-of-use assets
Prepaid expenses and other current assets
ERC receivable
Other assets
Accounts payable, accrued expenses, and accrued interest
Contract liabilities
Deferred incentive compensation
Operating lease liabilities
Net cash used in operating activities
Investing Activities:
Proceeds from sale of property and equipment
Capitalized software development costs
Purchases of intangible assets
Purchases of property and equipment
Net cash used in investing activities
Financing Activities:
Proceeds from sale of common stock
Proceeds from notes payable
Advances on future receipts
Proceeds from exercise of options
Proceeds from exercise of warrants
Payment of advances of future receipts
Payment of notes payable
Payment for debt issuance costs
Net cash provided by financing activities
Net change in cash
Cash - beginning of period
Cash - end of period
4,455
11,965
1,799
566
(2,933)
-
2,529
22
10
613
(255)
372
261
(1,528)
(13)
716
354
(377)
(525)
(19,406)
3
(4,645)
(82)
(24)
(4,748)
24,056
11,020
2,725
377
-
(6,685)
(4,950)
(897)
25,646
1,492
937
$
2,429
$
5,668
-
2,461
-
(598)
(1,112)
1,677
-
(5)
300
(763)
553
(96)
-
(224)
1,218
714
(521)
(648)
(25,862)
11
(2,248)
-
(26)
(2,263)
22,066
-
12,778
802
2,784
(11,168)
-
(15)
27,247
(878)
1,815
937
The accompanying notes are an integral part of these consolidated financial statements
F-6
VERB TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(in thousands, except share and per share data)
1. DESCRIPTION OF BUSINESS
Our Business
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. Verb conducts its operations through various subsidiaries and was incorporated in 2012 in the state of
Nevada.
The Company is a Software-as-a-Service (“SaaS”) applications platform developer that offers three platforms, each designed for a specific target customer. Its SaaS
platform for the direct sales industry is comprised of a suite of interactive video-based sales enablement business software products marketed on a subscription basis.
Available in both mobile and desktop versions, its base SaaS product is verbCRM, a Customer Relationship Management (“CRM”) application, to which the Company’s
clients can add a choice of enhanced, fully integrated application modules that include verbLEARN, our gamified Learning Management System application; verbLIVE, a
Live Stream interactive eCommerce application; and verbPULSE, a business/augmented intelligence notification and sales coach application. verbTEAMS is a standalone,
self-onboarding, video-based CRM and content management application for life sciences companies, professional sports teams, small businesses, and solopreneurs, with
seamless one-button synchronization with Salesforce, that also comes bundled with verbLIVE. MARKET.live is the Company’s multi-vendor, multi-presenter, livestream
social shopping platform, that combines ecommerce and entertainment.
The Company also provides certain non-digital services to some of its enterprise clients such as printing and fulfillment services.
On April 12, 2019, the Company acquired Sound Concepts Inc. (“Sound Concepts”). The acquisition was intended to augment and diversify the Company’s internet
and Software-as-a-Service (“SaaS”) business. Sound Concepts is now known as Verb Direct, LLC.
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 the Company’s internet and SaaS business.
On October 18, 2021, the Company established verbMarketplace, LLC (“Market LLC”), a Nevada limited liability company. Market LLC is a wholly owned
subsidiary of the Company established for the MARKET.live platform.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the year ended December 31,
2022, the Company incurred a net loss of $37,437 and used cash in operations of $19,406. These factors raise substantial doubt about the Company’s ability to continue as
a going concern within one year after the date these financial statements were issued.
As of December 31, 2022, the Company had cash of $2,429.
Equity financing:
During the year ended December 31, 2022, the Company issued 39,211,991 shares of common stock which resulted in proceeds of $24,056, net of offering costs of
$1,731 (see Note 11). Subsequent to December 31, 2022, the Company issued 36,051,000 shares of the Company’s common stock which resulted in proceeds of
approximately $6,600, net of offering costs of approximately $600.
F-7
Debt financing:
During the year ended December 31, 2022, the Company received $11,020 from the issuance of two promissory notes in the aggregate principal amount of $11,770
(see Note 9). At December 31, 2022, the aggregate principal outstanding on these notes totaled $6,820, of which $1,350 was paid off in January 2023 (see Note 17). In
addition, in September 2022, the U.S. Small Business Administration approved a loan of $350, which, as of April 17, 2023, the Company has not received.
Other:
The Company, through its Professional Employer Organization, filed for federal government assistance for the second and third quarters of 2021 in the aggregate
amount of approximately $1,500 through Employee Retention Credit (“ERC”) provisions of the Consolidated Appropriations Act of 2021. The purpose of the ERC is to
encourage employers to keep employees on the payroll, even if they are not working during the covered period due to the effects of the COVID-19 pandemic. As of
December 31, 2022, the Company recorded a receivable of $1,528 as the amended payroll tax returns have been filed with the IRS related to the quarterly periods ending
June 2021 and September 2021. Due to the uncertain timing of the receipt of this receivable, it is being classified as a long-term asset in the consolidated balance sheet.
In November 2022, a cost savings plan was approved and implemented to improve liquidity and preserve cash for operations (the “Cost Savings Plan”). This plan is
expected to further reduce expenses moving forward through such actions as a reduction in force, elimination of certain services provided by various vendors, and a 25%
reduction in cash compensation by senior management over a four-month period in exchange for shares of common stock.
If the Company is unable to generate sufficient cash flow from operations to operate its business and pay its debt obligations as they become due, it will need to seek to
raise additional capital, borrow additional funds, dispose of subsidiaries or assets, reduce or delay capital expenditures, or change its business strategy. However, in light of
the restrictive covenants imposed by certain of the Company’s prior financing arrangements, in combination with the recent decline in the trading price of the common
stock, the Company may be unable to raise additional capital in sufficient amounts when needed to operate its business, service its debt or execute on its strategic plans.
Further, notwithstanding such restrictions, there can be no assurance that debt or equity financing will be available in the amounts, on terms, or at times deemed acceptable
by the Company. The issuance of additional equity securities would result in significant dilution in the equity interests of the Company’s current stockholders and could
include rights or preferences senior to those of the current stockholders. Borrowing additional funds would increase the Company’s liabilities and future cash commitments
and potentially impose significant operational or financial restrictions and require the Company to further encumber its assets. If the Company is unable to obtain financing
in the amounts and on terms deemed acceptable, the Company may be unable to continue to operate its business or pay its obligations as they become due, and as a result
may be required to curtail or cease operations, which may result in stockholders or noteholders losing some or all of their investment.
Economic Disruption
Our business is dependent in part on general economic conditions. Many jurisdictions in which our customers are located and our products are sold have experienced
and could continue to experience unfavorable general economic conditions, such as inflation, increased interest rates and recessionary concerns, which could negatively
affect demand for our products. Under difficult economic conditions, customers may seek to cease spending on our current products or fail to adopt our new products,
which could negatively affect our financial performance. We cannot predict the timing or magnitude of an economic slowdown or the timing or strength of any economic
recovery. These and other economic factors could have a material adverse effect on our business, financial condition, and results of operations.
F-8
COVID-19
As of the date of this filing, there continues to be concern regarding the ongoing impacts and disruptions caused by the COVID-19 pandemic in the regions in which
the Company operates. Although the impacts of the pandemic on our business have not been material to date, a prolonged downturn in economic conditions as a result of
the pandemic could have a material adverse effect on our customers and demand for our products. At this time, it is not possible for the Company to predict the duration or
magnitude of the impacts of the pandemic, or other outbreaks of communicable diseases, on the Company’s business, financial condition and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and
include the accounts of Verb, Verb Direct, LLC, Verb Acquisition Co., LLC, and verbMarketplace, LLC. All intercompany accounts have been eliminated in the
consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation within the consolidated balance sheets and consolidated
statements of cash flows for the years ended December 31, 2022 and 2021.
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. Management bases these estimates and
assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has
considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its
business and operations.
Significant estimates include assumptions made in analysis of reserves for allowance of doubtful accounts, 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. Some of those assumptions can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions
or conditions.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) ASC 606, Revenue from Contracts with Customers (“ASC
606”). The Company derives its revenue primarily from providing application services through the SaaS application, digital marketing and sales support services.
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 the Company’s app products and platform services which include verbCRM, verbLEARN,
verbLIVE, verbTEAMS, and verbPULSE. The revenue is recognized straight-line over the subscription period.
b. Non-SaaS, non-recurring digital revenue, which is revenue generated by the use of 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, collectability is reasonably assured, and the app is delivered to the customer.
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 mobile applications. These fees are accounted for as part of contract liabilities and
amortized over the estimated life of the agreement. Revenue is measured as the amount of consideration expected to be received in exchange for transferring the
products or services to a customer.
F-9
2. Non-digital revenue, which is revenue the Company generates from non-app, non-digital sources through ancillary services provided as an accommodation to clients
and customers. These services include design, printing, fulfillment and shipping services. The revenue is recognized upon completion and shipment of products or
fulfillment to customers. Effective April 1, 2022, the Company entered into a customer referral agreement with a third party for its cart site and printing business.
Under the agreement, the Company earns a 10% commission for customer referrals and 8% on merchandise sales and certain cart site design fees, all of which are
recognized as non-digital revenue on a net basis.
Revenues during the years ended December 31, 2022 and 2021, were substantially all generated from clients and customers located within the United States of
America, though some utilize the Company’s applications outside the United States of America.
Cost of Revenue
Cost of revenue primarily consists of the salaries of certain employees and contractors, digital content costs, purchase price of consumer products, 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 its customers.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company considers certain internal sales commissions as incremental costs of obtaining the contract with customers. Internal sales commissions for subscription
offerings where the Company expects 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 in the consolidated balance sheets.
Contract Liabilities
Contract liabilities represent consideration received from customers under revenue contracts for which the Company has not yet delivered or completed its
performance obligation to the customer. Contract liabilities are recognized over the contract period.
The following table provides information about contract liabilities from contracts with customers, including significant changes in the contract liabilities balance
during the period:
Beginning balance
Increase due to deferral of revenue
Decrease due to recognition of revenue
Ending balance
Accounts Receivable, net
As of December 31,
2022
2021
$
$
986
$
3,357
(3,003)
1,340
$
272
2,755
(2,041)
986
Accounts receivable is recorded at the invoiced amount and is non-interest bearing. The Company estimates losses on receivables based on expected losses, including
its historical experience of actual losses. Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected in
accordance with the terms of the agreement. As of December 31, 2022 and 2021, the allowance for doubtful accounts balance was $1,218 and $615, respectively.
F-10
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 amortization.
Amortization begins once the project has been completed and is ready for its intended use. The Company will amortize 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.
Amortization expense related to capitalized software development costs are recorded in depreciation and amortization in the consolidated statements of operations.
Property and Equipment
Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives of approximately five years once the
individual assets are placed in service. Leasehold improvements are amortized over the shorter of the useful life or the remaining period of the applicable lease term.
Business Combinations
Pursuant to FASB ASC 805, Business Combinations (“ASC 805”), the Company allocates the fair value of purchase consideration to the tangible assets acquired,
liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the
fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially
with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from, acquired
technology, trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but
which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is the period needed to
gather all information necessary to make the purchase price allocation, not to exceed one year from the acquisition date, we may record adjustments to the assets acquired
and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Intangible Assets
The Company has certain intangible assets that were initially recorded at their fair value at the time of acquisition. The finite-lived intangible assets consist of
developed technology and customer contracts. Indefinite-lived intangible assets consist of domain names. Intangible assets with finite useful lives are amortized using the
straight-line method over their estimated useful life of five years.
The Company reviews 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, the Company recognizes an impairment loss for the excess carrying value over the fair value in our consolidated statements of
operations.
In December 2022, the Company recorded an impairment loss of $440 on its indefinite-lived intangible assets that had been recognized as part of the Sound Concepts
acquisition in 2019. The Company also recorded an impairment loss of $2 that had been recognized as part of the Solofire acquisition in 2020. As a result of the
impairment losses recognized, the carrying amount of the Company’s indefinite-lived intangible assets were reduced to $0 as of December 31, 2022.
The Company did not record any impairment charges related to indefinite lived intangible assets for the year ended December 31, 2021.
Goodwill
In accordance with FASB ASC 350, Intangibles-Goodwill and Other, the Company reviews goodwill and indefinite lived intangible assets for impairment 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). Impairment of goodwill and indefinite lived intangible assets is determined by comparing the fair value of the Company’s reporting unit to the carrying value of the
underlying net assets in the reporting unit. If the fair value of the 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. 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 there is only one reporting unit.
The Company’s annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing
a qualitative assessment, the Company reviewed events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying
value of goodwill. As a result of this qualitative assessment, the Company determined that a triggering event had occurred to necessitate performing the quantitative
impairment test. After performing the quantitative impairment test in accordance with ASC 350-20-35-3C, the Company determined that goodwill was impaired by
$10,183. As a result of the impairment losses recognized, the carrying amount of the Company’s goodwill was reduced to $9,581 as of December 31, 2022.
The following table provides a breakdown of the change in goodwill for the year ended December 31, 2022:
Beginning Balance
Impairment loss recognized during the period
Ending Balance
Sound Concepts
2022
Solofire
$
$
3,427
$
16,337
$
(1,665)
(8,518)
1,762
$
7,819
$
Total
19,764
(10,183)
9,581
The Company did not record any impairment charges related to goodwill for the year ended December 31, 2021.
F-11
Long-Lived Assets
The Company evaluates long-lived assets, other than goodwill and indefinite lived intangible 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.
In December 2022, the Company recognized an impairment loss of $1,340, net of accumulated amortization of $4,560, on its finite lived intangible assets that had
been recognized as part of the Sound Concepts acquisition in 2019. As a result of the impairment losses recognized, the carrying amount of the Company’s consolidated
definite lived intangible assets were reduced to $833 as of December 31, 2022.
The Company did not record any impairment charges related to finite lived intangible assets for the year ended December 31, 2021.
Leases
The Company leases certain corporate office space under lease agreements with monthly payments over a period of 18 to 94 months. The Company determines
whether a contract contains a lease at contract inception. A contract is or contains a lease if the contract conveys the right to control the use of the identified asset for a
period of time in exchange for consideration. Control is determined based on the right to obtain all of the economic benefits from use of the identified asset and the right to
direct the use of the identified asset. Operating lease right-of-use assets (“ROU”) for operating leases represent the right to use an underlying asset for the lease term, and
operating lease liabilities represent the obligation to make lease payments. Lease liabilities are recognized based on the present value of the future minimum lease
payments over the lease term at the commencement date. Operating lease expense is recognized on a straight-line basis over the lease term and is included in the general
and administrative line in the Company’s consolidated statements of operations.
Income Taxes
The Company accounts for income taxes under FASB ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are
recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carry-forwards for federal and state income tax purposes.
A full valuation allowance for deferred tax assets has been provided because the Company believes it is not more likely than not that the deferred tax asset will be realized.
Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods.
The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax
authority for all open tax years, as defined by the statute of limitations, based on their technical merits. The Company accrues interest and penalties, if incurred, on
unrecognized tax benefits as components of the income tax provision in the accompanying consolidated statements of operations. As of December 31, 2022, and 2021, the
Company has not established a liability for uncertain tax positions.
Fair Value of Financial Instruments
The Company follows the guidance of FASB ASC 820 (“ASC 820”) and FASB ASC 825 for disclosure and measurement of 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.
F-12
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 unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts payable, and accrued expenses
approximate their fair value due to their short-term nature. The carrying amount of the Company’s financial 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.
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 consolidated 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 Compensation
The Company issues stock options, warrants, shares of common stock and restricted stock units as share-based compensation to employees and non-employees. The
Company accounts for its share-based compensation in accordance with FASB ASC 718, Compensation – Stock Compensation. Share-based compensation cost is
measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. The fair value of restricted stock
units is determined based on the number of shares granted and the quoted price of its common stock and is recognized as expense over the service period. Recognition of
compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.
Research and Development Costs
Research and development costs included payroll and contractor costs involved in the development of new and existing products and technology. These costs primarily
represent the Company’s cloud-based, Verb interactive video CRM SaaS platform. Research and development costs are expensed as incurred.
F-13
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 or conversion.
As of December 31, 2022, and 2021, the Company had total outstanding options of 5,561,355 and 5,404,223, respectively, outstanding warrants of 38,104,741 and
10,984,740, respectively, outstanding restricted stock units of 3,595,544 and 1,821,833, respectively, the Notes that are convertible into 453,141 and 0 shares at $3.00 per
share, respectively, and convertible notes issued to a related party that are convertible into 831,351 and 742,278 shares at $1.03 per share, respectively, which were all
excluded from the computation of net loss per share because they are anti-dilutive due to the Company’s net loss position during the reported periods.
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.
The Company extends limited credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require
collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful
accounts and sales credits. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation
process, relatively short collection terms and the high level of credit worthiness of its customers.
The Company’s concentration of credit risk includes its concentrations from key customers and vendors. The details of these significant customers and vendors are
presented in the following table for the years ended December 31, 2022 and 2021:
Years Ended December 31,
2022
2021
The Company’s largest customers are
presented below as a percentage of the
aggregate
Revenues and Accounts receivable
No customers individually over 10%
No customers individually over 10%
The Company’s largest vendors are presented
below as a percentage of the aggregate
Purchases
Accounts payable
Two vendors that accounted for 55% and 13% of
its purchases individually and 68% in the
aggregate
Two vendors that accounted for 25% and 25% of
its purchases individually and 50% in the
aggregate
Two vendors that accounted for 47% and 33% of
its accounts payable individually and in the
aggregate
One vendor that accounted for 40% of its accounts
payable individually and in the aggregate
F-14
Supplemental Cash Flow Information
Supplemental disclosures of cash flow information
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of non-cash investing and financing activities
Fair value of derivative liability extinguished
Fair value of common shares issued to settle accounts payable and accrued expenses
Reclassification of Class B upon conversion to common stock
Fair value of common stock issued to settle notes payable – related party
Fair value of common stock received in exchange for employee’s payroll taxes
Fair value of common stock issued for future services
Fair value of debt forgiveness
Accrued capitalized software development costs
Fair value of common stock issued to settle lawsuit
Discount recognized from advances on future receipts
Discount recognized from convertible notes payable
Discount recognized from notes payable
Derecognition of operating lease right-of-use assets
Derecognition of operating lease liabilities
Recognition of operating lease right-of-use asset and related lease liability
$
$
$
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Years Ended December 31,
2022
2021
359
1
$
$
-
465
-
-
12
-
-
215
-
997
300
450
543
521
212
$
135
1
4,513
322
3,065
200
139
164
1,399
2,100
678
3,194
-
-
-
-
In August 2020, the 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. Effective January 1, 2022, the Company early adopted
ASU 2020-06 and that adoption did not have a material impact on the Company’s consolidated financial statements or the related disclosures.
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. The Company adopted ASU 2021-04 effective January 1,
2022. The adoption of ASU 2021-04 did not have a material impact on the Company’s consolidated financial statements or the related disclosures.
F-15
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers. ASU 2021-08 will require companies to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a
business combination in accordance with ASC 606. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business
combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will
result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC
Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted ASU 2021-08 effective January
1, 2022 on a prospective basis and the adoption impact of the new standard will depend on the magnitude of future acquisitions. The standard did not impact acquired
contract assets or liabilities from business combinations occurring prior to the adoption date.
Recently Issued Accounting Pronouncements Not Yet Adopted
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, ASU 2020-06 will be effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method or a
fully retrospective method. Management is currently assessing the impact of adopting this standard on the Company’s consolidated financial statements or the related
disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and
the Securities and Exchange Commission (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. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In 2020, the Company began developing MARKET.live, a livestream ecommerce platform, and has capitalized $7,108 and $4,348 of internal and external
development costs as of December 31, 2022 and 2021, respectively. In October 2021, the Company entered into a 10-year license and services agreement with a third party
(the “Primary Contractor”) to develop on a work-for-hire basis certain components of MARKET.live. The Primary Contractor’s fees for developing such components,
including the license fee, is $5,750. The Primary Contractor was paid an additional $500 bonus in April 2022 for services rendered pursuant to the license and service
agreement. In addition, as of December 30, 2022 and 2021, the Company had paid or accrued $604 and $248, respectively, of other capitalized software development costs.
For the years ended December 31, 2022 and 2021, the Company amortized $932 and $0, respectively.
Capitalized software development costs, net consisted of the following:
Beginning balance
Additions
Amortization
Ending balance
As of December 31,
2022
2021
$
$
4,348
$
2,760
(932)
6,176
$
-
4,348
-
4,348
F-16
The expected future amortization expense for capitalized software development costs as of December 31, 2022, is as follows:
Year ending
2023
2024
2025
2026
Total amortization
Amortization
2,315
2,370
1,437
54
6,176
$
Option to Acquire Primary Contractor
In August 2021, the Company entered into a term sheet that provided the Company the option to purchase the Primary Contractor provided certain conditions are met.
In November 2021, the Company exercised this option. The Company and the Primary Contractor subsequently reached an agreement-in-principle on the terms for the
Company’s acquisition of the Primary Contractor, the final consummation of which is subject to the execution of a share purchase agreement (the “SPA”) and the
completion of an audit of the Primary Contractor that is satisfactory to the Company (the “Primary Contractor Audit”), as well as the fulfillment by the Primary Contractor
of certain other conditions set forth in the term sheet. The term sheet stipulates that if the Company had entered into the SPA and the Primary Contractor had the Primary
Contractor Audit successfully completed prior to May 15, 2022 (or a subsequent mutually agreed upon date) and the Company thereafter determines not to consummate the
acquisition of the Primary Contractor, the Company would have been liable for a $1,000 break-up fee payable to the Primary Contractor. However, as of May 15, 2022, the
SPA had not been executed and the Primary Contractor Audit was not completed. The parties are still working together and in discussions regarding the transaction. Based
on the term sheet, the purchase price for the Primary Contractor would have been $12,000, which could be paid in cash and/or stock, although the final terms of the
acquisition if pursued will be set forth in the final executed SPA. There can be no assurance that the acquisition will be completed on the terms set forth in the term sheet or
at all.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2022 and 2021:
Computers
Furniture and fixture
Machinery and equipment
Leasehold improvement
Total property and equipment
Accumulated depreciation
Total property and equipment, net
As of December 31,
2022
2021
$
$
47
61
50
1,024
1,182
(645)
537
$
$
29
75
49
1,058
1,211
(509)
702
Depreciation expense amounted to $177 and $181 for the years ended December 31, 2022 and 2021, respectively.
F-17
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill are as follows:
Beginning balance
Changes:
Impairment loss
Adjustment to provisional goodwill
Ending balance
As of December 31,
2022
2021
$
$
19,764
$
(10,183)
-
9,581
$
20,060
-
(296)
19,764
In December 2022, after performing the quantitative impairment test in accordance with ASC 350-20-35-3C, the Company determined that goodwill was impaired by
$10,183. The Company did not record any impairment charges for the year ended December 31, 2021.
In September 2021, the Company finalized the purchase price allocation of SoloFire which the Company acquired in September 2020. As a result, the Company
adjusted $296 from goodwill to finite-lived intangible assets.
Intangible assets
Intangible assets, net consisted of the following:
Amortizable finite-lived intangible assets
Accumulated amortization
Finite-lived intangible assets, net
Indefinite-lived intangible assets
Intangible assets, net
As of December 31,
2022
2021
$
$
$
1,499
(666)
833
-
833
$
7,317
(3,806)
3,511
442
3,953
Amortizable finite-lived intangible assets are being amortized over a period of three to five years. In December 2022, the Company recorded an impairment loss on
amortizable finite-lived and indefinite-lived intangible assets of $1,340, net of accumulated amortization of $4,560 and $442, respectively. No impairment loss was
recorded for the year ended December 31, 2021.
During the years ended December 31, 2022 and 2021, the Company recorded amortization expense of $1,420 and $1,496, respectively.
The expected future amortization expense for amortizable finite-lived intangible assets as of December 31, 2022, is as follows:
Year ending
2023
2024
2025
Total amortization
Amortization
311
308
214
833
$
F-18
6. OPERATING LEASES
The Company leases warehouse and corporate office space under certain operating lease agreements. The Company determines if an arrangement is a lease at
inception. Lease assets are presented as operating lease ROU assets and the related liabilities are presented as operating lease liabilities in the consolidated balance sheets
pursuant to ASC 842, Leases.
Operating ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent the
Company’s right to use an underlying asset for the lease term and lease liabilities represent its 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.
On January 3, 2022, the Company terminated the lease agreements relating to its office and warehouse leases in American Fork, Utah. In accordance with ASC 842,
the Company derecognized the ROU assets of $543 and the corresponding lease liabilities of $521, resulting in a loss on lease termination of $22.
On April 26, 2022, the Company entered into an office space sub-lease agreement. The agreement requires payments of $12 per month for an initial term of eighteen
months, which increases by 3% per annum after twelve months. In accordance with ASC 842, the Company recognized a ROU asset and the related lease liability of $212
on the commencement date of the lease.
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
$
$
$
$
$
Lease cost
Operating lease cost (included in general and administrative expenses in the Company’s
statement of operations)
Other information
Cash paid for amounts included in the measurement of lease liabilities
Weighted average remaining lease term – operating leases (in years)
Weighted average discount rate – operating leases
Operating leases
ROU assets
Short-term operating lease liabilities
Long-term operating lease liabilities
Total operating lease liabilities
Year ending
2023
2024
2025
2026 and thereafter
Total lease payments
Less: Imputed interest/present value discount
Present value of lease liabilities
F-19
Years Ended December 31,
2022
2021
$
$
496
608
3.85
4.2%
As of December 31,
2022
2021
598
667
4.34
4.0%
2,177
592
2,299
2,891
1,473
476
1,581
2,057
$
$
$
$
Operating Leases
583
472
484
705
2,244
(187)
2,057
7. ACCRUED OFFICERS’ COMPENSATION
Accrued officers’ compensation consists primarily of unpaid salaries and bonuses for the Company’s Chief Executive Officer, who is also the owner of approximately
5.4% of the Company’s outstanding shares of common stock as of December 31, 2022.
As of December 31, 2022, and 2021, accrued officers’ compensation amounted to $764 and $1,209, respectively.
8. ADVANCES ON FUTURE RECEIPTS
The Company has the following advances on future receipts as of December 31, 2022:
Note
Issuance Date
Maturity Date
Interest Rate
Original
Borrowing
Balance at
December 31,
2022
Balance at
December 31,
2021
Note 1
Note 2
Note 3
Note 4
Note 5
Total
Debt discount
Debt issuance costs
Net
Note 1
October 29, 2021
October 29, 2021
December 23, 2021
August 25, 2022
October 25, 2022
April 28, 2022
July 25, 2022
June 22, 2022
May 11, 2023
April 26, 2023
5%
28%
5%
26%
30%
$
$
2,120
3,808
689
3,400
322
10,339
$
$
-
-
-
1,782
207
1,989
(311)
(37)
1,641
$
$
1,299
2,993
689
-
-
4,981
(800)
-
4,181
On October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,015 for the purchase of future receipts/revenues of $2,120.
During the year ended December 31, 2022, the Company paid $1,270 and amortized $41 of the debt discount. The note was paid in full on April 28, 2022.
Note 2
On October 29, 2021, the Company received secured advances from an unaffiliated third party totaling $2,744 for the purchase of future receipts/revenues of $3,808.
During the year ended December 31, 2022, the Company paid $2,993 and amortized $694 of the debt discount. The note was paid in full on August 17, 2022.
Note 3
On December 23, 2021, the Company received secured advances from an unaffiliated third party totaling $651 for the purchase of future receipts/revenues of $689.
During the year ended December 31, 2022, the Company paid $689 and amortized $36 of the debt discount. The note was paid in full on June 22, 2022.
F-20
Note 4
On August 25, 2022, the Company received secured advances from an unaffiliated third party totaling $2,500 for the purchase of future receipts/revenues of $3,400,
resulting in a debt discount of $900. The Company also paid $100 of debt issuance costs. The debt discount and debt issuance costs will be amortized over the term of the
secured advance using the effective interest rate method. During the year ended December 31, 2022, the Company paid $1,618 and amortized $633 and $70 of the debt
discount and debt issuance costs, respectively. As of December 31, 2022, the outstanding balance of the note was $1,782 and the unamortized balance of the debt discount
and debt issuance costs were $267 and $30, respectively. On February 16, 2023, the Company agreed to extend the payment of the note over a period of 10 months,
reducing the repayment by approximately 50%. See Note 17 – Subsequent Events.
Note 5
On October 25, 2022, the Company received secured advances from an unaffiliated third party totaling $225 for the purchase of future receipts/revenues of $322,
resulting in a debt discount of $97. The Company also paid $16 of debt issuance costs. The debt discount and debt issuance costs will be amortized over the term of the
secured advance using the effective interest rate method. During the year ended December 31, 2022, the Company paid $115 and amortized $53 and $9 of the debt discount
and debt issuance costs, respectively. As of December 31, 2022, the outstanding balance of the note was $207 and the unamortized balance of the debt discount and debt
issuance costs were $44 and $7, respectively. On February 16, 2023, the Company modified the payment terms of the note, reducing the payments by approximately 50%.
See Note 17 – Subsequent Events.
9. CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
The Company has the following outstanding notes payable as of December 31, 2022 and 2021:
Note
Issuance
Date
Maturity
Date
Interest
Rate
Original
Borrowing
Balance at
December 31,
2022
Balance at
December 31,
2021
December 1, 2015 April 1, 2023
June 4, 2021
May 15, 2050
January 12, 2022
November 7,
2022
May 7, 2024
January 12, 2023
Related party
convertible note
payable (A)
Related party
convertible note
April 4, 2016
payable (B)
Note payable (C) May 15, 2020
Convertible Notes
Due 2023 (D)
Promissory note
payable (E)
Debt discount
Debt issuance
costs
Total notes
payable
Non-current
Current
12.0%
$
1,249
$
725
$
12.0%
3.75%
$
6.0%
9.0%
343
150
6,300
5,470
40
150
1,350
5,470
(408)
(309)
7,018
(1,215)
5,803
$
$
F-21
725
40
150
-
-
-
-
915
(875)
40
(A) On December 1, 2015, the Company issued a convertible note payable to Mr. Cutaia, the Company’s Chief Executive Officer and a director, to consolidate all loans
and advances made by Mr. Cutaia to the Company as of that date. On May 19, 2021, the Company amended the note to allow for conversion of the note at any time
at the discretion of the holder at a fixed conversion price of $1.03, which was the closing price of the common stock on the amendment date. On May 12, 2022, the
maturity date of the note was extended to April 1, 2023. As of December 31, 2022, and 2021, the outstanding balance under the note was $811 and $725,
respectively.
(B) On April 4, 2016, the Company issued a convertible note payable to Mr. Cutaia, in the amount of $343, to consolidate all advances made by Mr. Cutaia to the
Company during the period December 2015 through March 2016. On May 19, 2021, the Company amended the note to allow for conversion of the note at any time
at the discretion of the holder at a fixed conversion price of $1.03, which was the closing price of the common stock on the amendment date. As of December 31,
2022 and 2021, the outstanding balance under the note was $45 and $40, respectively.
(C) On May 15, 2020, the Company executed an unsecured loan with the SBA under the Economic Injury Disaster Loan program in the amount of $150. Installment
payments, including principal and interest, began on October 26, 2022. In September 2022, the SBA approved an additional loan of $350. As of April 17, 2023, the
Company has not received these funds. As of December 31, 2022, and 2021, the outstanding balance under the note was $150.
(D) On January 12, 2022, the Company entered into a securities purchase agreement (the “January Note Purchase Agreement”) with three institutional investors
(collectively, the “January Note Holders”) providing for the sale and issuance of an aggregate original principal amount of $6,300 in convertible notes due January
2023 (each, a “Note,” and, collectively, the “Notes,” and such financing, the “January Note Offering”). The Company and the January Note Holders also entered into
a security agreement, dated January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the
January Note Holders in substantially all of its assets. The January Note Purchase Agreement prohibits the Company from entering into an agreement to effect any
issuance of common stock involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain exceptions set forth therein.
The January Note Purchase Agreement also gives the January Note Holders the right to require the Company to use up to 15% of the gross proceeds raised from
future debt or equity financings to redeem the Notes, which redemptions have been elected by the January Note Holders. There are no financial covenants related to
these notes payable.
The Company received $6,000 in gross proceeds from the sale of the Notes. The Notes bear interest of 6.0% per annum, have an original issue discount of 5.0%,
mature 12 months from the closing date, and have an initial conversion price of $3.00, subject to adjustment in certain circumstances as set forth in the Notes.
In connection with the January Note Offering, the Company paid $461 of debt issuance costs. The debt issuance costs and the debt discount of $300 are being
amortized over the term of the Notes using the effective interest rate method. During the year ended December 31, 2022, the Company amortized $294 of debt
discount and $451 of debt issuance costs. As of December 31, 2022, the amount of unamortized debt discount and debt issuance costs was $6 and $10, respectively.
As of December 31, 2022 and 2021, the outstanding balance of the Notes amounted to $1,350 and $0, respectively. During the year ended December 31, 2022, the
Company repaid $4,950 in principal payments and $357 of accrued interest to January Note Holders pursuant to the terms of the Notes.
On January 26, 2023, the Company repaid in full all outstanding obligations under the January Note Offering dated January 12, 2022. See Note 17 - Subsequent
Events.
F-22
(E) On November 7, 2022, the Company entered into a note purchase agreement (the “November Note Purchase Agreement”) and promissory note with an institutional
investor (the “November Note Holder”) providing for the sale and issuance of an unsecured, non-convertible promissory note in the original principal amount of
$5,470, which has an original issue discount of $470, resulting in gross proceeds to the Company of approximately $5,000 (the “November Note,” and such
financing, the “November Note Offering”). The November Note matures eighteen months following the date of issuance. Commencing six months from the date of
issuance, the Company is required to make monthly cash redemption payments in an amount not to exceed $600. The November Note may be repaid in whole or in
part prior to the maturity date for a 10% premium. The November Note requires the Company to use up to 20% of the gross proceeds raised from future equity or
debt financings, or the sale of any subsidiary or material asset, to prepay the November Note, subject to a $2,000 cap on the aggregate prepayment amount. Until all
obligations under the November Note have been paid in full, the Company is not permitted to grant a security interest in any of its assets, or to issue securities
convertible into shares of common stock, subject in each case to certain exceptions. verbMarketplace, LLC entered into a guaranty, dated November 7, 2022, in
connection with the November Note Offering, pursuant to which it guaranteed the obligations of the Company under the November Note in exchange for receiving a
portion of the loan proceeds.
In connection with the November Note Offering, the Company incurred $335 of debt issuance costs. The debt issuance costs and the debt discount of $450 are being
amortized over the term of the November Notes using the effective interest rate method. As of December 31, 2022, the amount of unamortized debt discount and
debt issuance costs was $402 and $299, respectively.
As of December 31, 2022, the outstanding balance of the November Notes amounted to $5,470. See Note 17, Subsequent Events.
The following table provides a breakdown of interest expense for the periods presented:
Interest expense – amortization of debt discount
Interest expense – amortization of debt issuance costs
Interest expense – other
Total interest expense
Years Ended December 31,
2022
2021
$
$
$
1,799
566
582
2,947
$
2,461
-
114
2,575
Total interest expense for notes payable to related parties (see Notes A and B above) was $91 and $111 for the years ended December 31, 2022 and 2021, respectively.
The Company paid $0 and $135 in interest to related parties for the years ended December 31, 2022 and 2021, respectively.
10. 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 Company’s consolidated
statements of operations.
F-23
The derivative liabilities were valued using a Binomial pricing model with the following assumptions:
Stock Price
Exercise Price
Expected Life
Volatility
Dividend Yield
Risk-Free Interest Rate
Total Fair Value
As of December 31,
2022
2021
0.16
0.34
1.98
107%
0%
4.41%
222
$
$
$
1.24
1.11
2.97
119%
0%
0.97%
3,155
$
$
$
The expected life of the 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.
During the year ended December 31, 2022, the Company recorded other income of $2,933 to account for the decrease in the fair value of these derivative liabilities. As
of December 31, 2022, the balance of derivative liabilities was $222.
During the year ended December 31, 2021, the Company recorded other income of $598 to account for the decrease in the fair value of derivative liabilities. In
addition, the Company recorded a decrease in derivative liability of $4,513 related to derivative liabilities that were extinguished due to the exercise of 1,829,190 warrants
and the forfeiture of 33,334 warrants. The extinguishment was accounted for as an increase to equity. As of December 31, 2021, the balance of derivative liabilities was
$3,155.
The details of derivative liability transactions for the year ended December 31, 2022 and 2021 are as follows:
Beginning balance
Change in fair value
Extinguishment
Ending balance
11. COMMON STOCK
Years Ended December 31,
2022
2021
$
$
3,155
(2,933)
-
222
$
$
8,266
(598)
(4,513)
3,155
The Company’s common stock activity for the year ended December 31, 2022 was as follows:
Shares Issued as Part of Equity Line of Credit
On January 12, 2022, the Company entered into a common stock purchase agreement (the “January Purchase Agreement”) with Tumim Stone Capital LLC (the
“Investor”). Pursuant to the agreement, the Company has the right, but not the obligation, to sell to the Investor, and the Investor is obligated to purchase, up to $50,000 of
newly issued shares (the “Total Commitment”) of the Company’s common stock, par value $0.0001 per share (the “common stock”) from time to time during the term of
the agreement, subject to certain limitations and conditions. During the year ended December 31, 2022, the Company issued 11,096,683 shares of common stock pursuant
to the January Purchase Agreement, which resulted in proceeds of $9,836, net of offering costs of $197. In addition, the Company issued 607,287 shares of common stock
as a commitment fee in connection with the consummation of the transactions contemplated by the January Purchase Agreement. The Company terminated the equity line
of credit agreement on January 26, 2023. See Note 17 – Subsequent Events.
F-24
Shares Issued as Part of Registered Direct Offering
On April 20, 2022, the Company entered into a securities purchase agreement, which provides for the sale and issuance by the Company of an aggregate of (i)
14,666,667 shares of common stock, and (ii) warrants to purchase 14,666,667 shares of the common stock at an exercise price of $0.75 per share, for aggregate gross
proceeds of $11,000 before deducting placement agent commissions and other offering expenses (the “April Registered Direct Offering”). As a result of this transaction,
certain of the Company’s Series A warrants which previously had exercise prices ranging from $1.10 to $2.10 per share had the exercise prices reduced to $0.75 per share.
On April 20, 2022, the Company issued 14,666,667 shares of common stock as part of the April Registered Direct Offering, which resulted in proceeds of $10,242, net of
offering costs of $758. The Company used a portion of the proceeds from the April Registered Direct Offering to repay $1,650 in principal amount of the January Note
Purchase Agreement dated January 12, 2022.
Shares Issued as Part of Public Offering
On October 25, 2022, the Company entered into a securities purchase agreement (the “October Purchase Agreement”), which provides for the sale and issuance by the
Company of an aggregate of (i) 12,500,000 shares of common stock, at a purchase price of $0.32 per share, and (ii) warrants to purchase 12,500,000 shares of the common
stock at an exercise price of $0.34 per share, for aggregate gross proceeds of $4,000 before deducting placement agent commissions and other offering expenses (the
“October Registered Direct Offering”). As a result of this transaction, certain warrants which previously had an exercise price of $0.75 per share, had the exercise price
reduced to $0.34 per share. Further, in connection with the October Purchase Agreement, the Company is restricted from (i) issuing or filing any registration statement to
offer the sale of any common stock or securities convertible into or exercisable for shares of common stock until 75 days after the date thereof; and (ii) entering into an
agreement to effect any issuance of common stock involving a Variable Rate Transaction (as defined therein) during the term of the agreement, subject to certain
exceptions set forth therein. On October 25, 2022, the Company issued 12,500,000 shares of common stock pursuant to the October Purchase Agreement, which resulted in
proceeds of $3,601, net of offering costs of $399.
Shares Issued as Part of ATM Agreement
During the year ended December 31, 2022, the Company issued 948,641 shares of common stock pursuant to an at-the-market issuance sales agreement, which
resulted in proceeds of $377, net of offering costs of $28.
Shares Issued for Services
During the year ended December 31, 2022, the Company issued 2,166,711 shares of common stock to certain employees and vendors for services rendered and to be
rendered with an aggregate grant date fair value of $1,561. These shares of common stock were valued based on the closing price of the Company’s common stock on the
date of the issuance or the date the Company entered into the agreement related to the issuance.
Shares Issued to Settle Accrued Expenses
On February 14, 2022, the Company issued 227,136 shares of common stock to the Company’s former Chief Financial Officer as part of a separation agreement, with
an aggregate grant date fair value of $277 based on the closing price of the Company’s common stock on the date of issuance.
On May 19, 2022, the Company issued 189,394 shares of common stock to the Company’s Chief Executive Officer in lieu of the cash payment of a bonus accrued in a
prior year, with an aggregate grant date fair value of $100 based on the closing price of the Company’s common stock on the date of issuance.
During the year ended December 31, 2022, the Company issued 105,894 shares of common stock with a fair value of $88 to other employees and former employees to
settle certain unpaid amounts due them.
F-25
Shares Issued for Vested Restricted Stock Units
During the year ended December 31, 2022, the Company issued 475,700, 516,258, and 367,520 shares of common stock to certain officers, employees and directors,
respectively, associated with the vesting of restricted stock units. These issuances include 598,336 shares of common stock issued as part of the Cost Savings Plan.
Shares Returned and Replaced
On November 17, 2022, certain officers and directors returned 422,898 shares of common stock that had previously been issued during the year in exchange for stock
options in the Company. The aggregate fair value of this exchange was $39.
The Company’s common stock activity for the year ended December 31, 2021 was as follows:
Shares Issued as Part of Public Offering
On March 15, 2021, the Company completed a registered direct offering with institutional investors and sold 9,375,000 shares of common stock at a price of $1.60 per
share, which resulted in aggregate net proceeds of $14,129. Included in the $14,129 is a refund of $144 from the underwriter.
Shares Issued as Part of ATM Agreement
In August 2021 and November 2021, the Company entered into two separate at-the-market issuance sales agreements (the “August 2021 ATM” and the “November
2021 ATM”, respectively) with Truist Securities, Inc., pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-252167). The August 2021 ATM was
terminated in October 2021. In January 2022, the aggregate offering price of the shares of the Company’s common stock that may be sold under the November 2021 ATM
was reduced from $30,000 to $7,300. The August 2021 and November 2021 ATM offerings are 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 our designated sales agent at prevailing market
prices. During the year ended December 31, 2021, the Company received net proceeds of $7,937.
Shares Issued for Services
During the year ended December 31, 2021, the Company granted 1,546,599 shares of common stock to certain employees and vendors for services rendered and to be
rendered with an aggregate fair value of $2,541. The 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 and is being amortized over its vesting term. The Company recorded stock compensation
expense of $2,438 and issued 1,344,499 shares of common stock to account for common shares vested. In addition, 112,100 shares granted to employees that vested were
returned to the Company in exchange for the Company paying the corresponding income and payroll taxes of the employees amounting to $139. The Company accounted
for the return of the 112,100 shares and the payment of $139 for income and payroll taxes paid on behalf of the employees as a reduction in additional paid-in capital.
Accordingly, the net increase to additional paid-in capital related to shares issued for services in 2021 is $2,188.
Shares Issued from Conversion of Note Payable – Related Party
During the year ended December 31, 2021, the Company issued 194,175 shares of common stock upon a partial conversion of a note payable due to the Company’s
Chief Executive Officer totaling $200. The conversion price was $1.03, which was the closing price of the Company’s common stock on the day of conversion.
Shares Issued for Settlement of Accounts Payable and Accrued Expense
During the year ended December 31, 2021, the Company issued 192,678 shares of common stock to employees as settlement of $303 of previously recorded accrued
payroll as of December 31, 2020. 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.
F-26
During the year ended December 31, 2021, the Company issued 10,500 shares of its restricted common stock to a vendor for conversion of $19 of accounts payable.
Such issuance of securities was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Shares Issued for Settlement of Litigation
During the year ended December 31, 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. As of the settlement date the Company had previously accrued $585 and
as a result the Company recorded an additional $93 in general and administrative expenses to account for the difference between the fair value of the common shares issued
and amount accrued at December 31, 2020.
12. RESTRICTED STOCK UNITS
A summary of restricted stock unit activity for the years ended December 31, 2022 and 2021, is presented below:
Non-vested at January 1, 2021
Granted
Vested/ deemed vested
Forfeited and other
Non-vested at December 31, 2021
Granted
Vested/deemed vested
Forfeited and other
Non-vested at December 31, 2022
Shares
2,185,946
813,265
(1,177,378)
-
1,821,833
3,727,638
(1,359,478)
(594,449)
3,595,544
$
$
$
Weighted-
Average
Grant Date
Fair Value
1.17
1.69
1.15
-
1.41
0.56
0.94
1.31
0.73
During the year ended December 31, 2022, the Company granted 3,727,638 restricted stock units to certain officers, employees and directors. The restricted stock units
vest on various dates from January 2023 through March 2026. These restricted stock units were valued based on the closing price of the Company’s common stock on the
respective dates of issuance and had an aggregate grant date fair value of $2,088, which is being amortized as share-based compensation expense over the respective
vesting terms.
On November 17, 2022, the board of directors approved the Cost Savings Plan in which certain directors and senior level management agreed to accept a 25%
reduction in cash compensation over a four-month period commencing December 1, 2022 in exchange for shares of common stock. The shares were granted pursuant to
agreements entered into effective November 17, 2022. The shares vest monthly, at the end of each month, over the four-month period, ending on March 31, 2023. On
November 17, 2022, a total of 2,393,368 shares of restricted stock with a fair value of $527 was granted pursuant to the Cost Savings Plan. The total shares of restricted
stock include 560,598 granted to officers and 132,572 granted to directors.
The total fair value of restricted stock units that vested during the year ended December 31, 2022 was $1,273. As of December 31, 2022, the remaining share-based
compensation expense associated with previously issued restricted stock units was $1,781 which will be recognized in future periods as the units vest. When calculating
basic net loss per share, these shares are included in weighted average common shares outstanding from the time they vest.
During the year ended December 31, 2021, the Company granted 813,265 restricted stock units to officers and directors. The restricted stock units vest starting on
grant date through January 2024. These restricted stock units were valued based on the closing price of the Company’s common stock on the respective dates of issuance
and had aggregate grant date fair value of $1,374.
F-27
The total fair value of restricted stock units that vested during the year ended December 31, 2021 was $1,626. As of December 31, 2021, the remaining share-based
compensation expense associated with previously issued restricted stock units was $1,691 which was amortized over the remaining vesting periods.
13. STOCK OPTIONS
A summary of option activity for the years ended December 31, 2022 and 2021 are presented below.
Outstanding at January 1, 2021
Granted
Forfeited
Exercised
Outstanding at December 31, 2021
Granted
Forfeited
Exercised
Outstanding at December 31, 2022
Vested December 31, 2022
Exercisable at December 31, 2022
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
1.55
1.71
2.68
2.03
1.72
0.83
1.66
1.13
1.30
1.03
1.57
2.68
-
-
-
2.24
-
-
-
3.37
$
$
$
$
1,932
-
-
-
107
-
-
-
-
-
-
Options
6,031,775
2,494,333
(2,374,405)
(747,480)
5,404,223
3,774,965
(3,285,103)
(332,730)
5,561,355
2,985,167
2,611,723
$
$
$
$
As of December 31, 2022, the intrinsic value of the outstanding options was $0.
During the year ended December 31, 2022, the Company granted stock options to certain employees and consultants to purchase a total of 3,774,965 shares of
common stock for services rendered or to be rendered. The options have an average exercise price of $0.83 per share, terms between one and five years, and vest between
zero and four years from the respective grant dates. The total grant date fair value of these options was approximately $2,778 using the Black-Scholes option pricing
model. The total share-based compensation expense recognized relating to the vesting of stock options for the year ended December 31, 2022 was $1,652. As of December
31, 2022, the remaining share-based compensation expense associated with previously issued stock options was $1,532, which will be recognized in future periods as the
options vest. The granted stock options include 235,848 for its Chief Executive Officer and 508,290 for directors associated with the return of previously issued stock in
exchange for stock options. 227,272 stock options were granted to directors as part of the Cost Savings Plan.
During the year ended December 31, 2022, a total of 332,730 stock options were exercised. As a result of the exercise of the option, the Company issued 332,730
shares of common stock and received cash of $377.
During the year ended December 31, 2021, the Company granted stock options to employees and consultants to purchase a total of 2,494,333 shares of common stock
for services rendered. The options have an average exercise price of $1.71 per share, expire between zero and five years, vesting from zero and four years from grant date.
The total fair value of these options at grant date was approximately $3,927, determined using the Black-Scholes option pricing model. The total stock compensation
expense recognized relating to the vesting of stock options for the year ended December 31, 2021 amounted to $1,596. As of December 31, 2021, the total unrecognized
share-based compensation expense was $2,591, which is expected to be recognized as part of operating expense through December 2025.
F-28
The grant date fair value of option awards is estimated using the Black-Scholes option pricing model based on the following assumptions:
Risk free interest rate
Average expected term
Expected volatility
Expected dividend yield
Forfeiture rate
Years Ended December 31,
2022
2021
1.24% - 4.27%
5 years
141 - 150%
-
0.17% - 1.26%
1 to 5 years
230 – 271%
-
44.23 – 53.47%
25.56 – 39.66%
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 option awards 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.
14. STOCK WARRANTS
The Company has the following warrants as of December 31, 2022 and 2021 are presented below:
Outstanding at January 1, 2021
Granted
Forfeited
Exercised
Outstanding at December 31, 2021
Granted
Forfeited
Exercised
Outstanding at December 31, 2022
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
2.48
2.61
6.25
1.25
2.67
0.34
0.34
-
0.94
3.38
-
-
-
2.38
4.82
-
-
3.56
$
$
3,022
-
-
-
507
-
-
-
-
Warrants
13,351,251
138,889
(220,011)
(2,285,389)
10,984,740
27,166,667
(46,666)
-
38,104,741
$
$
In connection with the April Registered Direct Offering on April 20, 2022, the Company issued 14,666,667 warrants to purchase common stock with a vesting period
of six months and an exercise price of $0.75. As a result, 3,704,826 warrants, with exercise prices ranging from $1.10 to $2.10 per share, had the exercise prices reduced to
$0.75 per share. The change in fair value of such warrants as a result of the new exercise price is approximately $200 and the Company accounted for this change as part of
the change in fair value of derivative liability (see Note 10).
Further, as a result of the October Purchase Agreement, certain warrants which previously had an exercise price of $0.75 per share had the exercise price reduced to
$0.34 per share, which resulted in the Company recognizing a deemed dividend of $246 (see Note 11). As of December 31, 2022, the intrinsic value of the outstanding
warrants was $0.
F-29
On January 24, 2023, the Company entered into an underwriting agreement with Aegis relating to the January 2023 offering, issuance and sale of 36,051,000 shares of
the Company’s common stock at a public offering price of $0.20 per share. As a result of this transaction, certain warrants which previously had an exercise price of $0.34
per share, had the exercise price reduced to $0.20 per share. See Note 17 – Subsequent Events.
During the year ended December 31, 2021, the Company granted 138,889 warrants to an officer. The warrants are fully vested upon grant, have an exercise price of
$2.61 per share, expire in 3 years with an estimated fair value of $363.
During the year ended December 31, 2021, a total of 2,285,389 warrants were exercised into 2,254,411 shares of common stock at a weighted average exercise price of
$1.25. The Company received cash of $2,784 upon exercise of the warrants.
15. INCOME TAXES
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:
Statutory federal income tax rate
State taxes, net of federal benefit
Non-deductible items
Impairment loss
Change in valuation allowance
Effective income tax rate
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Net operating loss carry-forwards
Share based compensation
Non-cash interest and financing expenses
Other temporary differences
Less: Valuation allowance
Deferred tax assets, net
Years Ended December 31,
2022
2021
21.0%
6.9%
1.0%
(6.7)%
(22.2)%
0.0%
Years Ended December 31,
2022
2021
$
$
24,500 $
(322)
(344)
(388)
(23,446)
- $
21.0%
6.9%
1.0%
-
(28.9)%
0.0%
20,950
(422)
(358)
(388)
(19,782)
-
ASC 740 requires that the tax benefit of net operating loss carry-forwards be recorded as an asset to the extent that management assesses that realization is “more
likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry forward period. Because
of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is
currently not likely to be realized and, accordingly, has provided a 100% valuation allowance against the asset amounts.
Any uncertain tax positions would be related to tax years that remain open and subject to examination by the relevant tax authorities. The Company has no liabilities
related to uncertain tax positions or unrecognized benefits for the years ended December 31, 2022 and 2021.
F-30
As of December 31, 2022 and 2021, the Company had federal net operating loss carry-forwards of approximately $98.1 million and $79.2 million, respectively, and
state net operating loss carry-forwards of approximately $95.8 million and $76.9 million, respectively, which may be available to offset future taxable income for tax
purposes. These net operating loss carry-forwards begin to expire in 2034. This carry-forward may be limited upon the ownership change under IRS Section 382. IRS
Section 382 places limitations (the “Section 382 Limitation”) on the amount of taxable income which can be offset by net operating loss carry-forwards after a change in
control (generally greater than 50% change in ownership) of a loss corporation. Generally, after a change in control, a loss corporation cannot deduct operating loss carry-
forwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the net operating loss may be subject to an annual limitation
regarding their utilization against taxable income in future periods. The Company has not concluded its analysis of Section 382 through December 31, 2022 but believes
the provisions will not limit the availability of losses to offset future income.
The Company is subject to income taxes in the U.S. federal jurisdiction and the state of Nevada. The tax regulations within each jurisdiction are subject to
interpretation of related tax laws and regulations and require significant judgment to apply. As of December 31, 2022, tax years 2016 through 2021 remain open for IRS
audit. The Company has received no notice of audit from the IRS for any of the open tax years.
16. COMMITMENTS AND CONTINGENCIES
Litigation
a. Former Employee
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 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 the former
employee’s claims have any merit as they are contradicted by documentary evidence, and barred by the applicable statute of limitations, and barred by a release. 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 set a trial date of August 28, 2023. The Company believes the
resolution of this matter will not have a material adverse 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. The Company is seeking, amongst other things, compensatory damages from BH. On
October 5, 2021, BH filed a cross-complaint against the Company alleging, amongst other things, that the Company owes it approximately $915 in legal fees. The
Company disputes owing this amount to BH. The Company believes that the resolution of these matters will not have a material adverse effect on the Company or its
operations. On March 1, 2023, BH and the Company entered into an out of court settlement and the Company agreed to pay $25 on execution of the settlement agreement
and $6.25 per month over a period of 12 months with a total settlement amount of $100. The total settlement amount was accrued by the Company as of December 31,
2022. See Note 17 – Subsequent Events.
c. Dispute with Warrant Holder
The Company is currently in a dispute with Iroquois Capital Investment Group LLC and Iroquois Master Fund, Ltd (collectively, “Iroquois”) relating to a securities
purchase agreement (the “SPA”) entered between the Company, Iroquois and certain other investors. The Company filed a complaint in the Supreme Court of New York
for the County of New York on April 6, 2022, styled Verb Technology Company, Inc. v. Iroquois Capital Investment Group LLC, et al. (Index No. 651708/2022). The
Company’s complaint seeks a judicial declaration of its duties and obligations under the SPA. On May 5, 2022, Iroquois filed counterclaims against the Company for
declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing relating to the SPA. Iroquois alleges damages of $1,500. The
Company disputes Iroquois’ counterclaims and damages allegations. The Company intends to vigorously pursue its claims and to vigorously defend itself against the
counterclaims. The Company believes that the resolution of these matters will not have a material adverse effect on the Company or its operations.
F-31
From time to time, the Company is involved in various other legal proceedings, disputes or claims arising from or related to the normal course of its business activities.
Although the results of legal proceedings, disputes and other claims cannot be predicted with certainty, the Company believes it is not currently a party to any other legal
proceedings, disputes or claims which, if determined adversely to the Company, would, individually or taken together, have a material adverse effect on the Company’s
business, operating results, financial condition or cash flows. However, regardless of the merit of the claims raised or the outcome, legal proceedings may have an adverse
impact on the Company as a result of defense and settlement costs, diversion of management time and resources, and other factors.
Board of Directors
The Company has committed an aggregate of $475 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.
On November 17, 2022, the board of directors approved a cost savings plan to improve the Company’s liquidity and preserve cash for operations. In connection with
the cost savings plan, the board agreed to accept a 25% reduction in cash compensation over a four-month period. In consideration of the reduction in cash compensation,
the board will be compensated with equity award grants.
Total board fees expensed and paid in 2022 totaled $447. As of December 31, 2022, total board fees to be recognized in 2023 amounted to $455 and will be recognized
once the service has been rendered.
17. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through April 17, 2023, the date these consolidated financial statements were issued. There were no material events or
transactions that require disclosure in the financial statements other than the items discussed below.
Equity financing
Public Offering – Common Stock
On January 24, 2023, the Company entered into an underwriting agreement with Aegis relating to the offering, issuance and sale of 36,051,000 shares of the
Company’s common stock at a public offering price of $0.20 per share. The net proceeds for the offering were approximately $6,600, after deducting discounts,
commissions and estimated offering expenses. As a result of this transaction, certain warrants which previously had an exercise price of $0.34 per share, had the exercise
price reduced to $0.20 per share.
Termination of Equity Line of Credit Agreement
On January 26, 2023, the Company terminated the January Purchase Agreement dated January 12, 2022, which provided for the sale by the Company of up to $50,000
of newly issued shares.
Debt financing
Repayment of Convertible Notes Payable
On January 26, 2023, the Company repaid in full all outstanding obligations under the January Note Offering dated January 12, 2022.
F-32
Modification of Advance on Future Receipts
On February 16, 2023, the Company and the lender agreed to extend the payment of the notes over a period of 10 months. As a result, monthly payments were reduced
by approximately 50%.
November Notes
At a Special Meeting of Stockholders on April 10, 2023, the Company’s shareholders approved for purposes of Nasdaq Listing Rule 5635, the issuance of shares of
common stock in partial or full satisfaction of the November Note. However, there is no current agreement or understanding with the November Note holder with respect
to repayment of the November Note through the issuance of shares of common stock.
Settlement Agreement – Legal Malpractice Action
On March 1, 2023, BH and the Company entered into an out of court settlement and the Company agreed to pay $25 on execution of the settlement agreement and
$6.25 per month over a period of 12 months with a total settlement amount of $100.
Issuance of Series B Preferred Stock
On February 17, 2023, the Company entered into a subscription agreement with Rory J. Cutaia, its Chief Executive Officer, pursuant to which the Company agreed to
issue and sell one (1) share of the Company’s Series B Preferred Stock, par value $0.0001 per share, for $5 in cash.
The Certificate of Designation setting for the rights and preferences of the Series B Preferred Stock provides that the holder of the Series B Preferred Stock will have
700,000,000 votes and will vote together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to any proposal to amend
the Company’s Articles of Incorporation, as amended, to effect a reverse stock split of the Company’s common stock and to increase the number of authorized shares of
common stock of the Company. The Preferred Stock will be voted, without action by the holder, on any such proposal in the same proportion, both For and Against, as the
shares of common stock are voted. The Preferred Stock otherwise has no voting rights except as otherwise required by the Nevada Revised Statutes.
The Series B Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series B
Preferred Stock has no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale,
dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Series B Preferred Stock will not be entitled to receive dividends of any
kind.
The outstanding share of Series B Preferred Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of Directors in
its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split and the increase in
authorized shares of common stock of the Company. Upon such redemption, the holder of the Preferred Stock will receive the redemption price of $5,000.00 in cash.
Issuances of Common Stock
From January to March 2023, the Company issued 1,983,689 shares of common stock to officers, employees, and board members associated with the vesting of
Restricted Stock Units.
Issuances of Stock Options
From January to March 2023, the Company granted stock options to certain employees to purchase a total of 323,545 stock options for services to be rendered. The
options have an average exercise price of $0.23 per share, expire in five years, and vested on the grant date. The total grant date fair value of these options was $73 based
on the Black-Scholes option pricing model.
Reverse Split
At a Special Meeting of Stockholders on April 10, 2023, the stockholders of the Company approved a Certificate of Amendment to the Articles of Incorporation of the
Company to increase its authorized common stock from 200,000,000 shares to 400,000,000 shares and approved the grant of discretionary authority to the board of
directors of the Company to effect a reverse stock split of its outstanding shares of common stock at a specific ratio within a range of one-for-five (1-for-5) to a maximum
of a one-for-forty (1-for-40) split. As of April 17, 2023, the reverse stock split has not been approved by the board of directors.
Equity Incentive Plan
At the Special Meeting of Stockholders, the stockholders of the Company approved an amendment to the Company’s 2019 Incentive Compensation Plan to increase
the number of shares authorized under the plan by 15,000,000 shares of common stock to be authorized for awards granted under the plan.
F-33
INDEX TO EXHIBITS
Exhibit
Number
Description*
Where Located
Exhibit
Number
File
Number
Filing
Date
Filed
Herewith
Form
3.1
Articles of Incorporation as filed with the Secretary of State of the State of Nevada on November 27,
S-1
333-187782
3.1
04/08/2013
2012
3.2
Amended and Restated Bylaws of Verb Technology Company, Inc.
8-K 001-38834
3.12
11/01/2019
3.3
Certificate of Change as filed with the Secretary of State of the State of Nevada on October 6, 2014
8-K 001-38834
3.3
10/22/2014
3.4
Articles of Merger as filed with the Secretary of State of the State of Nevada on October 6, 2014
8-K 001-38834
3.4
10/22/2014
3.5
Articles of Merger as filed with the Secretary of State of the State of Nevada on April 4, 2017
8-K 001-38834
3.5
04/24/2017
3.6
Certificate of Correction as filed with the Secretary of State of the State of Nevada on April 17, 2017
8-K 001-38834
3.6
04/24/2017
3.7
Certificate of Change as filed with the Secretary of State of the State of Nevada on February 1, 2019
10-K 001-38834
3.7
02/07/2019
3.8
Articles of Merger as filed with the Secretary of State of the State of Nevada on January 31, 2019
10-K 001-38834
3.8
02/07/2019
3.9
Certificate of Correction as filed with the Secretary of State of the State of Nevada on February 22,
S-1/A 333-226840
3.9
03/14/2019
2019
3.10
Articles of Merger of Sound Concepts, Inc. with and into NF Merger Sub, Inc. as filed with the Utah
10-Q 001-38834
3.10
05/15/2019
Division of Corporations and Commercial Code on April 12, 2019
3.11
Statement of Merger of Verb Direct, Inc. with and into NF Acquisition Company, LLC as filed with
10-Q 001-38834
3.11
05/15/2019
the Utah Division of Corporations and Commercial Code on April 12, 2019
3.12
Certificate of Withdrawal of Certificate of Designation of Series A Convertible Preferred Stock as
S-1
333-226840
4.28
08/14/2018
filed with the Secretary of State of the State of Nevada on August 10, 2018
66
Exhibit
Number
3.13
Description*
Certificate of Designation of Rights, Preferences, and Restrictions of Series A Convertible Preferred
Stock as filed with the Secretary of State of the State of Nevada on August 12, 2019
Form
File
Number
10-Q 001-38334
Where Located
Exhibit
Number
3.12
Filing
Date
08/14/2019
Filed
Herewith
3.14
Certificate of Designation of Series B Preferred Stock, dated February 17, 2023
8-K 001-38834
3.1
02/24/2023
4.1
Common Stock Purchase Warrant dated January 11, 2018 issued to EMA Financial, LLC
8-K 001-38834
10.3
01/26/2018
4.2
Form of Investor Common Stock Purchase Warrant
S-1/A 333-226840
4.34
04/02/2019
4.3
Form of Underwriter’s Common Stock Purchase Warrant
S-1/A 333-226840
4.35
04/02/2019
4.4
Form of Common Stock Purchase Warrant in favor of A.G.P./Alliance Global Partners
S-1/A 333-226840
4.36
04/02/2019
4.5
Form of Common Stock Purchase Warrant
10-Q 001-38834
4.37
08/14/2019
67
Exhibit
Number
4.6
Verb Technology Company, Inc. 2019 Omnibus Incentive Plan
Description*
File
Number
333-235684
Where Located
Exhibit
Number
4.13
Filing
Date
12/23/2019
Form
S-8
Filed
Herewith
4.7
Form of Common Stock Purchase Warrant (granted by the Company in February 2020 and March
8-K 001-38834
4.38
02/25/2020
2020)
4.8
Common Stock Purchase Warrant dated August 5, 2020 in favor of Iroquois Capital Investment
S-3
333-243438
4.18
08/10/2020
Group LLC
4.9
Common Stock Purchase Warrant dated August 5, 2020 in favor of Iroquois Master Fund Ltd.
S-3
333-243438
4.19
08/10/2020
4.10
Common Stock Purchase Warrant dated August 6, 2020 in favor of Kingsbrook Opportunities
S-3
333-243438
4.20
08/10/2020
Master Fund LP
4.11
Common Stock Purchase Warrant dated July 10, 2019 in favor of Meridian Newcastle Group, Inc.
S-3
333-243438
4.21
08/10/2020
4.12
Common Stock Purchase Warrant dated July 10, 2019 in favor of Meridian Newcastle Group, Inc.
S-3
333-243438
4.22
08/10/2020
4.13
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
10-K/A
001-38834
4.17
06/04/2020
4.14
Form of Common Stock Purchase Warrant
8-K 001-38834
4.1
4/22/2022
4.15
Form of Common Stock Purchase Warrant
8-K 001-38834
4.1
10/25/2022
10.1#
2014 Stock Option Plan
8-K 001-38834
10.1
10/22/2014
10.2#
Executive Employment Agreement dated December 20, 2019 by and between the Company and
10-K 001-38834
10.2
05/14/2020
Rory J. Cutaia
10.3
10.4
10.5
Agreement and Plan of Merger, dated November 8, 2018, by and among the Company, Sound
Concepts, Inc., NF Merger Sub, Inc., NF Acquisition Company, LLC, the shareholders of Sound
Concepts, Inc., and the shareholders’ representative
8-K 001-38834
10.1
11/14/2018
Letter Agreement dated November 8, 2018, by and among the Company, Sound Concepts, Inc., NF
Merger Sub, Inc., NF Acquisition Company, LLC, the shareholders of Sound Concepts, Inc., and the
shareholders’ representative
8-K 001-38834
10.2
11/14/2018
Letter Agreement dated November 12, 2018, by and among the Company, Sound Concepts, Inc., NF
Merger Sub, Inc., NF Acquisition Company, LLC, the shareholders of Sound Concepts, Inc., and the
shareholders’ representative
8-K 001-38834
10.3
11/14/2018
68
Exhibit
Number
Description*
Where Located
Exhibit
Number
File
Number
Filing
Date
Filed
Herewith
Form
10.6
Partner Application Distribution Agreement dated February 4, 2019, by and between the Company
10-K 001-38834 10.43 02/07/2019
and Salesforce.com, Inc.
10.7
Lease Agreement dated February 5, 2019 by and between the Company and NPBeach Marina LLC S-1/A 333-226840 10.45 02/19/2019
10.8
Warrant Agent Agreement dated April 4, 2019 by and between the Company and VStock Transfer,
8-K 001-38834
10.1
04/05/2019
LLC
10.9
First Amendment to Lease dated June 2, 2019 by and between the Company and NPBeach Marina
10-Q 001-38834 10.54 08/14/2019
LLC
10.10
Extension Letter from the Company to NPBeach Marina LLC dated March 26, 2019
10-Q 001-38834 10.55 08/14/2019
10.11
Securities Purchase Agreement dated August 14, 2019 between the Company and certain purchasers
10-Q 001-38834 10.56 08/14/2019
identified therein
10.12
10.13
Form of Omnibus Waiver and Acknowledgment Agreement, entered into as of February 7, 2020, by
and between the Company and certain purchasers of the Company’s Series A convertible Preferred
Stock and grantees of the Company’s common stock purchase warrants in August 2019
8-K 001-38834 10.58 02/25/2020
Form of alternative Omnibus Waiver And Acknowledgement Agreement, entered into as of
February7, 2020, by and between the Company and certain purchasers of the Company’s Series A
convertible Preferred Stock and grantees of the Company’s common stock purchase warrants in
August 2019
8-K 001-38834 10.58a 02/25/2020
10.14# Form of Indemnity Agreement between the Company and each of its Executive Officers and
10-K/A 001-38834 10.43 06/04/2020
Directors
10.15
Membership Interest Purchase Agreement, dated September 4, 2020, by and among Verb Acquisition
Co., LLC, Ascend Certification, LLC, the sellers party thereto and Steve Deverall, as the seller
representative
8-K 001-38834
10.1
09/10/2020
69
Exhibit
Number
Description*
Where Located
Exhibit
Number
File
Number
Filing
Date
Filed
Herewith
Form
10.16
Exchange Agreement, dated September 4, 2020, by and among Verb Acquisition Co., LLC, Verb
8-K 001-38834
10.4
09/10/2020
Technology Company, Inc. and the holders of Class B Units party thereto
10.17
Form of Contribution and Exchange Agreement, dated September 4, 2020, by and between Verb
8-K 001-38834
10.5
09/10/2020
Acquisition Co., LLC and the investors party thereto
10.18
Amended and Restated Operating Agreement of Verb Acquisition Co., LLC, dated September 4,
8-K 001-38834
10.6
09/10/2020
2020, by and among Verb Acquisition Co., LLC and the members party thereto
10.19
At-the-Market Issuance Sales Agreement, dated November 16, 2021, between the Company and
8-K 001-38834
1.1
11/16/2021
Truist Securities, Inc.
10.20
Common Stock Purchase Agreement, dated January 12, 2022, between the Company and Tumim
8-K 001-38834
10.1
1/13/2022
Stone Capital LLC
10.21
Securities Purchase Agreement, dated January 12, 2022, amongst the Company and certain
8-K
001-38834
10.2 1/13/2022
institutional investors identified therein
10.22
Form of Securities Purchase Agreement
8-K 001-38834
10.1
4/22/2022
10.23
Form of Securities Purchase Agreement
8-K 001-38834
10.1
10/28/2022
10.24
Note Purchase Agreement, dated November 7, 2022, between Verb Technology Company, Inc. and
10-Q 001-38834
10.1
11/14/22
Streeterville Capital, LLC
10.25
Promissory Note, dated November 7, 2022, issued by Verb Technology Company, Inc.
10-Q 001-38834
10.2
11/14/22
10.26
Underwriting Agreement, dated January 24, 2023, by and between the Company and Aegis Capital
8.K 001-38834
1.1
01/26/2023
Corp
10.27
Subscription and Investment Representation Agreement, dated February 17, 2023, by and between
8-K 001-38834
10.1
02/17/2023
the Company and purchaser signatory thereto
10.28#
2019 Stock Incentive Plan (amended September 2, 2020 and ratified by Stockholders October 16,
2020)
DEF
14A
001-38834
09/11/2020
10.29#
Amendment to 2019 Stock Incentive Compensation Plan
DEF
14A
001-38834
2/28/2023
X
14.1
Code of Ethics and Business Conduct for Directors, Senior Officers and Employees of Corporation
8-K 001-38834
14.1
10/22/2014
21.1
Subsidiaries of the Registrant
10-K 001-38834
21.1
05/14/2020
23.1
Consent of Independent Registered Public Accounting Firm
31.1
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934
31.2
Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-
14(a) of the Securities Exchange Act of 1934
32.1** Certification of Principal Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code
32.2** Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Section
1350 of Chapter 63 of Title 18 of the United States Code
70
X
X
X
Exhibit
Number
Description*
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
Where Located
Form
File
Number
Exhibit
Number
Filing
Date
Filed
Herewith
X
X
X
X
X
X
(#) A contract, compensatory plan or arrangement to which a director or executive officer is a party or in which one or more directors or executive officers are eligible to
participate.
(*) Certain of the agreements filed as exhibits contain representations and warranties made by the parties thereto. The assertions embodied in such representations and
warranties are not necessarily assertions of fact, but a mechanism for the parties to allocate risk. Accordingly, investors should not rely on the representations and warranties as
characterizations of the actual state of facts or for any other purpose at the time they were made or otherwise.
(**) The certifications attached as Exhibit 32 accompany this Annual Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s
filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing.
71
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Verb Technology Company, Inc.
By:
/s/ Rory J. Cutaia
Rory J. Cutaia
President, Chief Executive Officer, Secretary,
and Director
(Principal Executive Officer)
Date: April 17, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By:
/s/ Rory J. Cutaia
Rory J. Cutaia
President, Chief Executive Officer, Secretary,
and Director
Date: April 17, 2023
By:
/s/ James P. Geiskopf
James P. Geiskopf
Director
Date: April 17, 2023
By:
/s/ Salman H. Khan
Salman H. Khan
Chief Financial Officer and Treasurer
Date: April 17, 2023
By:
/s/ Philip J. Bond
Philip J. Bond
Director
Date: April 17, 2023
By:
/s/ Kenneth S. Cragun
Kenneth S. Cragun
Director
Date: April 17, 2023
By:
/s/ Edmund C. Moy
Edmund Moy
Director
Date: April 17, 2023
By:
/s/ Judith Hammerschmidt
Judith Hammerschmidt
Director
Date: April 17, 2023
72
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements (No. 333-235684) on Form S-8 and (No. 333-233797), (No. 333-243438), (No. 333-249564),
(No. 333-252167), (No. 333-262132) , and (333-264038) on Form S-3 of Verb Technology Company, Inc. of our report dated April 17, 2023 relating to our audit of the
financial statements of Verb Technology Company, Inc., for the years ending December 31, 2022 and 2021, (which report includes an explanatory paragraph relating to
substantial doubt about Verb Technology’s ability to continue as a going concern) which appear in this Annual Report on Form 10-K of Verb Technology Company, Inc. for the
year ended December 31, 2022.
Exhibit 23.1
/s/ Weinberg & Company, P.A.
Los Angeles, California
April 17, 2023
Exhibit 31.1
CERTIFICATION
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Rory J. Cutaia, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2022 of Verb Technology Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
April 17, 2023
/s/ Rory J. Cutaia
Rory J. Cutaia
President, Secretary, Chief Executive Officer, Director (Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Salman H. Khan, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2022 of Verb Technology Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
April 17, 2023
/s/ Salman H. Khan
Salman H. Khan
Chief Financial Officer, Principal Financial Officer (Principal Accounting Officer)
CERTIFICATION PURSUANT TO
SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
Exhibit 32.1
The undersigned, Rory J. Cutaia, hereby certifies, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, that
1.
2.
the annual report on Form 10-K of Verb Technology Company, Inc. (the “Company”) for the fiscal year ended December 31, 2022 (the “Annual Report”) fully complies
with the requirements of Section 13(a) or 15(d), as applicable of the Securities Exchange Act of 1934, as amended; and
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Verb Technology Company, Inc.
as of the dates and for the periods presented.
April 17, 2023
The preceding certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and shall not be deemed “filed” for purposes of Section 18 of the
Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any
general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Rory J. Cutaia
Rory J. Cutaia
President, Secretary, Chief Executive Officer, Director (Principal Executive Officer)
CERTIFICATION PURSUANT TO
SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
Exhibit 32.2
The undersigned, Salman H. Khan, hereby certifies, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, that
1.
2.
the annual report on Form 10-K of Verb Technology Company, Inc. (the “Company”) for the fiscal year ended December 31, 2022 (the “Annual Report”) fully complies
with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Verb Technology Company, Inc.
as of the dates and for the periods presented.
April 17, 2023
The preceding certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and shall not be deemed “filed” for purposes of Section 18 of the
Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any
general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Salman H. Khan
Salman H. Khan
Chief Financial Officer, Principal Financial Officer (Principal Accounting Officer)