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, 2023
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
3024 Sierra Juniper Court
Las Vegas, Nevada
(Address of principal executive offices)
90-1118043
(I.R.S. Employer
Identification No.)
89138
(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(1)
(1) Nasdaq will suspend trading on all outstanding warrants at the close of business on April 5, 2024
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 $4,416,000.
As of March 28, 2024, there were 79,300,788 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 1C. CYBERSECURITY
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, 2023 (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;
● 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
2023 Overview
PART I
Through June 13, 2023, we operated three distinct lines of business through separate wholly owned subsidiaries: Verb Direct, LLC, a sales Software-as-a-Service
(“SaaS”) platform for the direct sales industry; Verb Acquisition Co., LLC, which was a sales SaaS platform for the Life Sciences industry and sports teams; and
verbMarketplace, LLC, which is a multi-vendor, multi-presenter, livestream social shopping platform known as MARKET.live that combines ecommerce and entertainment.
We determined that by focusing all of our resources solely on the development and operation of MARKET.live, our livestream shopping platform, over time we could
generate greater shareholder value than through the continued operation of our SaaS business platforms. Accordingly, after an extensive seven-month process, managed by a
prominent M&A advisory firm, to identify a buyer willing to pay the highest price on the most favorable terms for the assets of the SaaS business on June 13, 2023 we disposed
of all of the operating SaaS assets of Verb Direct, LLC and Verb Acquisition Co., LLC pursuant to an asset purchase agreement for aggregate consideration of $6.5 million,
$4.75 million of which was paid in cash by the buyer at the closing of the transaction. Additional payments in the aggregate of $1.75 million will be paid by the buyer if certain
profitability and revenue targets are met within each of the two-year periods following the closing date as set forth more particularly in the asset purchase agreement. During
the seven-month period of the sales process, virtually all of our resources were dedicated to facilitating the sale process and all operating budgets were suspended, including
sales and marketing budgets for MARKET.live, in order to preserve cash and minimize reliance on the capital markets until the asset sale process was complete.
Our MARKET.live Business
The Company’s MARKET.live platform is a multi-vendor, multi-presenter, livestream social shopping destination the leverages the current convergence of ecommerce
and entertainment, where hundreds of retailers, brands, creators and influencers can monetize their base of fans and followers across social media channels. Brands, retailers
and creators that join MARKET.live have the ability to broadcast livestream shopping events simultaneously on numerous social media channels, including TikTok, as well as
on MARKET.live, reaching exponentially larger audiences. The Company’s recent technological integrations with META, created a seamless, native, friction-free checkout
process for Facebook and Instagram users to purchase MARKET.live vendors’ products within each of those popular apps. This integration allows Facebook and Instagram
users to browse products featured in MARKET.live shoppable videos, place products in a native shopping cart and checkout – all without leaving Facebook or Instagram.
On September 5, 2023, the Company completed development work on a new MARKET.live capability that facilitated a deeper integration into the TikTok social
media platform, which could expose MARKET.live shoppable programming to tens of millions of potential viewers/purchasers. This new capability allows shoppers watching
a MARKET.live stream on TikTok to stay on that site and check out through that site, eliminating the friction or reluctance of TikTok users to leave their TikTok feed in order
to complete their purchase on MARKET.live. Our technology integration allows the purchase data to flow back through MARKET.live and to the individual vendors and stores
on MARKET.live seamlessly for fulfillment of the orders.
On March 27, 2024, the Company announced that it expanded its strategic relationship with TikTok and entered into a formal partnership with TikTok Shop pursuant
to which MARKET.live became a service provider for TikTok Shop and officially designated as a TikTok Shop Partner (TSP) . Under the terms of the partnership, TikTok Shop
refers consumer brands, retailers, influencers and affiliates leads to Market.live for a menu of MARKET.live paid services that include, among other things, assistance in
onboarding to TikTok and establishing a TikTok store, hosting training sessions and webinars for prospective TikTok Shop sellers, studio space rental in both the West Coast
and East Coast MARKET.live studios, content creation and production services, and TikTok Shop maintenance and enhancements for existing TikTok clients’ stores. The
partnership also contemplates TikTok Shop sponsored studio rentals, as well as a paid-for “day pass” for use of MARKET.live studio services by TikTok creators, influencers
and affiliates. MARKET.live is expected to generate revenue through fees, including monthly recurring fees, paid directly to MARKET.live by the brands, retailers, influencers
and affiliates referred to MARKET.live by TikTok. In addition, it is contemplated that MARKET.live will receive a percentage of monthly revenue generated through the
TikTok stores MARKET.live establishes for the brands, retailers, influencers and affiliates that TikTok Shop refers to MARKET.live.
The partnership also contemplates the use of MARKET.live studios as TikTok “Sample Centers” where TikTok creators will have access to product samples for use in
their TikTok Shop videos produced at MARKET.live studios. In addition to the compensation referenced above, TikTok will compensate MARKET.live directly for the
attainment of certain pre-established performance goals and objectives agreed to between the parties.
The Company’s recent drop ship and affiliate programs are currently being revised to incorporate the benefits and implications of the recent META integrations as well
as the new TikTok partnership. The Company is actively engaged in completing development on integrations into additional large social media platforms, as well as developing
partnerships and strategic alliances that it believes will help foster the growth of the Company’s business.
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Our Market
Revenue Generation
A description of our principal revenue generating activities is as follows:
1. MARKET.live 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. Drop Ship and Creator programs. MARKET.live is expected to generate recurring fee revenue from soon to be launched new drop ship programs for entrepreneurs
and its Creator program.
d. The Company’s recently launched TikTok stores and affiliate programs.
e. The MARKET.live site is designed to incorporate sponsorships and other advertising based on typical industry rates.
A performance obligation is a promise in a contract to transfer a distinct product. Performance obligations promised in a contract are identified based on the goods that
will be transferred that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other
promises in the contract. Performance obligations include establishing and maintaining customer online stores, providing access to the Company’s e-commerce platform and
customer service support.
The Company’s revenue is mainly commission fees derived from contractually committed gross revenue processed by customers on the Company’s e-commerce
platform as well as subscription-based fees and other fees and commissions for services rendered by the Company to clients referred to the Company by TikTok. Customers do
not have the contractual right to take possession of the Company’s software. Revenue is recognized in an amount that reflects the consideration that the Company expects to
ultimately receive in exchange for those promised goods, net of expected discounts for sales promotions and customary allowances.
Revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged primarily in an agency relationship with
its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers’ inventory or
any credit risks relating to the products sold.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the
consolidated statements of operations.
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 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.
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
2023 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 March 28, 2024, we had 20 full-time statutory employees, three part-time employees, and three 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.
Our Historical Background
Verb Technology Company, Inc. was 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.
On June 13, 2023, the Company disposed of all of its operating SaaS assets of Verb Direct and Verb Acquisition, (referred to collectively as the “SaaS Assets”)
pursuant to an asset purchase agreement in consideration of the sum of $6.5 million, $4.75 million of which was paid in cash by the buyer at the closing of the transaction.
Additional payments in the aggregate of $1.75 million will be paid by the buyer if certain profitability and revenue targets are met within each of the two-year periods following
the closing date as set forth more particularly in the asset purchase agreement. The sale of the SaaS Assets was undertaken to allow the Company to focus its resources on its
burgeoning MARKET.live business unit which it expects over time will create greater shareholder value.
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.
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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 $22.0 million for the year ended December 31, 2023, and $37.4 million for the year
ended December 31, 2022. 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 may raise substantial doubt as to our ability to continue as a going concern.
Our independent registered public accounting firm may raise 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 and Management’s Plan,” as well as Note 1 to
our consolidated financial statements included within this Annual Report.
Public health threats, 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. 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 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.
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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, 2023, the aggregate
outstanding balance of our notes payable was $2.9 million. As of March 28, 2024, the balance of our notes payable is $1.2 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 in the section entitled “Going Concern and Management’s Plan” 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 livestream shopping platforms is intensely competitive and rapidly changing, barriers to entry are relatively low, and many of our competitors, 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 platform that keep pace with rapid technological developments, 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 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 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
If we are not able to comply with the applicable continued listing requirements or standards of The NASDAQ Capital Market, The NASDAQ Capital Market could
delist 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”. We have in the past been, and may in the future be, unable to
comply with certain of the listing standards that we are required to meet to maintain the listing of our common stock on The NASDAQ Capital Market. 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 and a requirement that we maintain
stockholders’ equity of at least $2,500,000. On November 2, 2023, 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). 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 April 30, 2024. In order to satisfy this requirement, the Company intends to continue actively monitoring the bid price for its common stock between now and April 30,
2024 and will consider available options to resolve the deficiency and regain compliance with the minimum bid price requirement, including, but not limited to, seeking an
additional six-month extension from The NASDAQ Capital Market to do so.
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.
If we fail to maintain effective internal controls over financial reporting, we may be unable to accurately or timely report our financial condition or results of operations,
which may adversely affect our business.
As a public company, we have significant requirements for enhanced financial reporting and internal controls, and must maintain internal controls over financial
reporting to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The process of designing, implementing and maintaining effective internal controls is a
continuous effort that require us to anticipate and react to changes in our business and the economic and regulatory environments. In this regard, we continue to dedicate
internal resources, potentially engage outside consultants, implement a detailed work plan to assess and document the adequacy of internal control over financial reporting,
continue steps to improve control processes as appropriate, validate through testing whether such controls are functioning as documented, and implement a continuous reporting
and improvement process for internal control over financial reporting. If we are unable to maintain appropriate disclose controls or internal controls and procedures over
financial reporting, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and
adversely affect our operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
15
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect
the confidentiality, integrity, and availability of our data.
Managing Material Risks & Integrated Overall Risk Management
We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity
risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our management team works
closely with our IT department to continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs.
Oversee Third-party Risk
Because we are aware of the risks associated with third-party service providers, we have implemented stringent processes to oversee and manage these risks. We
conduct thorough security assessments of all third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards.
The monitoring includes annual assessments of the SOC reports of our providers and implementing complementary controls. This approach is designed to mitigate risks related
to data breaches or other security incidents originating from third-parties.
Risks from Cybersecurity Threats
We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing.
ITEM 2. PROPERTIES
Our corporate headquarters are located at 3024 Sierra Juniper Court, Las Vegas, Nevada 89138. We believe that our facility is sufficient to meet our current needs and
that suitable additional space will be available as and when needed.
We operate livestream studios at 10621 Calle Lee, Suite 153, Los Alamitos, California 90720.
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 March 28, 2024, there were approximately 81 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, 2023, 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.
16
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, 2023 and 2022, 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
Through June 13, 2023 of the year ended December 31, 2023, we operated three distinct lines of business through separate wholly owned subsidiaries. Verb Direct,
LLC, a sales Software-as-a-Service (“SaaS”) platform for the direct sales industry; Verb Acquisition Co., LLC, which was a sales SaaS platform for the Life Sciences industry
and sports teams; and verbMarketplace, LLC, which is a multi-vendor, multi-presenter, livestream social shopping platform known as MARKET.live that combines ecommerce
and entertainment.
We determined that by focusing all of our resources solely on the development and operation of MARKET.live, our livestream shopping platform, over time we could
generate greater shareholder value than we could through the continued operation of our SaaS business platforms. Accordingly, after an extensive, thorough seven-month
process to identify a buyer willing to pay the highest price on the most favorable terms for the assets of the SaaS business, managed by a prominent M&A advisory firm, on
June 13, 2023 we disposed of all of the operating SaaS assets of Verb Direct, LLC and Verb Acquisition Co., LLC pursuant to an asset purchase agreement in consideration of
the sum of $6.5 million, $4.75 million of which was paid in cash by the buyer at the closing of the transaction.
Additional payments in the aggregate of $1.75 million will be paid by the buyer if certain profitability and revenue targets are met within each of the two-year periods
following the closing date as set forth more particularly in the asset purchase agreement. During the seven-month period of the sales process, virtually all of our resources were
dedicated to facilitating the sale process and all operating budgets were suspended, including sales and marketing budgets for MARKET.live, in order to preserve cash and
minimize reliance on the capital markets until the asset sale process was complete.
17
Our MARKET.live Business
The Company’s MARKET.live platform is a multi-vendor, multi-presenter, livestream social shopping destination the leverages the current convergence of ecommerce
and entertainment, where hundreds of retailers, brands, creators and influencers can monetize their base of fans and followers across social media channels. Brands, retailers
and creators that join MARKET.live have the ability to broadcast livestream shopping events simultaneously on numerous social media channels, including TikTok, as well as
on MARKET.live, reaching exponentially larger audiences. The Company’s recent technological integrations with META, created a seamless, native, friction-free checkout
process for Facebook and Instagram users to purchase MARKET.live vendors’ products within each of those popular apps. This integration allows Facebook and Instagram
users to browse products featured in MARKET.live shoppable videos, place products in a native shopping cart and checkout – all without leaving Facebook or Instagram.
On September 5, 2023, the Company completed development work on a new MARKET.live capability that facilitated a deeper integration into the TikTok social
media platform, which could expose MARKET.live shoppable programming to tens of millions of potential viewers/purchasers. This new capability allows shoppers watching
a MARKET.live stream on TikTok to stay on that site and check out through that site, eliminating the friction or reluctance of TikTok users to leave their TikTok feed in order
to complete their purchase on MARKET.live. Our technology integration allows the purchase data to flow back through MARKET.live and to the individual vendors and stores
on MARKET.live seamlessly for fulfillment of the orders.
On March 27, 2024, the Company announced that it expanded its strategic relationship with TikTok and entered into a formal partnership with TikTok Shop pursuant
to which MARKET.live became a service provider for TikTok Shop and officially designated as a TikTok Shop Partner (TSP) . Under the terms of the partnership, TikTok Shop
refers consumer brands, retailers, influencers and affiliates leads to Market.live for a menu of MARKET.live paid services that include, among other things, assistance in
onboarding to TikTok and establishing a TikTok store, hosting training sessions and webinars for prospective TikTok Shop sellers, studio space rental in both the West Coast
and East Coast MARKET.live studios, content creation and production services, and TikTok Shop maintenance and enhancements for existing TikTok clients’ stores. The
partnership also contemplates TikTok Shop sponsored studio rentals, as well as a paid-for “day pass” for use of MARKET.live studio services by TikTok creators, influencers
and affiliates. MARKET.live is expected to generate revenue through fees, including monthly recurring fees, paid directly to MARKET.live by the brands, retailers, influencers
and affiliates referred to MARKET.live by TikTok. In addition, it is contemplated that MARKET.live will receive a percentage of monthly revenue generated through the
TikTok stores MARKET.live establishes for the brands, retailers, influencers and affiliates that TikTok Shop refers to MARKET.live.
The partnership also contemplates the use of MARKET.live studios as TikTok “Sample Centers” where TikTok creators will have access to product samples for use in
their TikTok Shop videos produced at MARKET.live studios. In addition to the compensation referenced above, TikTok will compensate MARKET.live directly for the
attainment of certain pre-established performance goals and objectives agreed-to between the parties.
The Company’s recent drop ship and affiliate programs are currently being revised to incorporate the benefits and implications of the recent META integrations as well
as the new TikTok partnership. The Company is actively engaged in completing development on integrations into additional large social media platforms, as well as developing
partnerships and strategic alliances that it believes will help foster the growth of the Company’s business.
18
Revenue Generation
A description of our principal revenue generating activities is as follows:
MARKET.live 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. Drop Ship and Creator programs. MARKET.live is expected to generate recurring fee revenue from soon to be launched new drop ship programs for entrepreneurs
and its Creator program.
d. The Company’s recently launched TikTok store and affiliate program.
e. The MARKET.live site is designed to incorporate sponsorships and other advertising based on typical industry rates.
A performance obligation is a promise in a contract to transfer a distinct product. Performance obligations promised in a contract are identified based on the goods that
will be transferred that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other
promises in the contract. Performance obligations include establishing and maintaining customer online stores, providing access to the Company’s e-commerce platform and
customer service support.
The Company’s revenue is mainly commission fees derived from contractually committed gross revenue processed by customers on the Company’s e-commerce
platform as well as subscription-based fees and other fees and commissions for services rendered by the Company to clients referred to the Company by TikTok. Customers do
not have the contractual right to take possession of the Company’s software. Revenue is recognized in an amount that reflects the consideration that the Company expects to
ultimately receive in exchange for those promised goods, net of expected discounts for sales promotions and customary allowances.
Revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged primarily in an agency relationship with
its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers’ inventory or
any credit risks relating to the products sold.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the
consolidated statements of operations.
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. 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.
Recent Developments
Nasdaq Deficiency Notices
August 18, 2023 Notice
On August 18, 2023, the Company received a notice from The Nasdaq Stock Market LLC (“NASDAQ”) indicating that it did not meet the minimum of $2.5 million in
stockholders’ equity required by NASDAQ Listing Rule 5550(b)(1) (the “Listing Rule”) for continued listing, or the alternatives of market value of listed securities or net
income from continuing operations. The notice was based upon the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, which reported
that the Company’s total stockholders’ equity as of June 30, 2023 was ($1.818 million).On October 9, 2023, the Company submitted a plan to regain compliance with the
Listing Rule and was given an extension until February 14, 2024 to evidence compliance through a public filing.
On February 5, 2024, the Company reported in a Current Report on Form 8-K (the “Form 8-K Filing”) that based on its unaudited balance sheet as of December 31,
2023, it believed it had regained compliance with the stockholders’ equity requirement of NASDAQ Listing Rule 5550(b)(1) for continued listing. On February 5, 2024, the
Company was informed that based upon the Form 8-K Filing, the Staff determined that the Company is in compliance with Listing Rule 550(b)(1).
19
November 2, 2023 Notice
On November 2, 2023, 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). 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 April 30, 2024. In order to
satisfy this requirement, the Company intends to continue actively monitoring the bid price for its common stock between now and April 30, 2024, and will consider available
options to resolve the deficiency and regain compliance with the minimum bid price requirement, including, but not limited to seeking a six-month extension from The
NASDAQ Stock Market in which to regain compliance.
Series C Preferred Stock Offering
On December 29, 2023, the Company entered into a securities purchase agreement with Streeterville Capital, LLC (the “Streeterville Purchase Agreement”), pursuant
to which the Company sold 3,000 shares of the Company’s newly designated non-convertible Series C Preferred Stock for proceeds of $3.0 million. The Series C Preferred
Stock receives a 10% stated annual dividend, has no voting rights and has a face value of $1,300 per share. The sale of the Series C Preferred Stock was consummated on
December 29, 2023.
ATM Offerings
On December 15, 2023, the Company entered into an At-the-Market Issuance Sales Agreement (the “Ascendiant Sales Agreement”) with Ascendiant Capital Markets,
LLC, as sales agent, to sell, from time to time, shares of its common stock having an aggregate offering price of up to $960 thousand, through an “at the market” offering
pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-264038), as supplemented by a prospectus supplement. On March 19, 2024, the Ascendiant Sales
Agreement was amended to increase the amount available from $960 thousand to approximately $6.3 million. On March 29, 2024, the Ascendiant Sales Agreement was
amended to increase the amount available from approximately $6.3 million to approximately $9.0 million. From December 15, 2023 to March 27, 2024, the Company issued
19,870,562 shares of its common stock and received $6.1 million of aggregate net proceeds in “at the market” offerings under the Ascendiant Sales Agreement.
On December 15, 2023, the Company terminated its At-The Market Issuance Sales Agreement, dated as of November 16, 2021, by and between the Company and
Truist Securities, Inc. (the “Truist Sales Agreement”). During the year ended December 31, 2023, the Company issued and sold an aggregate of 8,784,214 shares of common
stock for aggregate net proceeds of $2.6 million under the Truist Sales Agreement.
Public Offering of Common Stock – Regulation A
Subsequent to December 31, 2023, the Company entered into subscription agreements with certain institutional investors, pursuant to which the Company agreed to
issue and sell to the investors 27,397,258 shares of its Common Stock, par value $0.0001 per share of the Company at a price of $0.24 per share for gross proceeds to the
Company of $6.6 million.
The Shares to be issued in the offering were offered at-the-market under Nasdaq rules and pursuant to the Company’s Form 1-A, initially filed by the Company with
the Securities and Exchange Commission under the Securities Act of 1933, as amended, on February 14, 2024 and qualified on March 11, 2024.
Debt Financing
On October 11, 2023, the Company entered into a note purchase agreement with Streeterville Capital, LLC, pursuant to which the Company sold a promissory note in
the aggregate principal amount of $1.0 million (the “Note”). The Note bears interest at 9.0% per annum compounded daily. The maturity date of the Note is 18 months from the
date of its issuance. In connection with the sale of the Note, verbMarketplace, LLC, a wholly-owned subsidiary of the Company, entered into a Guaranty, dated October 11,
2023, pursuant to which it guaranteed the obligations of the Company under the Note in exchange for receiving a portion of the proceeds.
Issuance of common shares as payment on notes payable
During the year ended December 31, 2023, the Company issued 7,301,903 shares of its common stock pursuant to an exchange agreement in exchange for a reduction
of $5.1 million on the outstanding balance of the November Notes.
Subsequent to December 31 2023, the Company issued 11,484,403 shares of its common stock in exchange for a reduction of $1.7 million on the outstanding balance
of the November Notes. On March 18, 2024, the November Notes were paid in full.
Repayment of note payable – related party
On October 12, 2023, the Company repaid all of the outstanding principal and accrued interest amounting to $0.9 million from a December 2015 related party note
issued by Mr. Cutaia.
20
Results of Operations
Fiscal Year Ended December 31, 2023 Compared to Fiscal Year Ended December 31, 2022
The following is a comparison of the results of our operations for the years ended December 31, 2023 and 2022 (in thousands):
Revenue
Costs and expenses
Cost of revenue, exclusive of depreciation and amortization shown
separately below
Depreciation and amortization
General and administrative
Total costs and expenses
Operating loss from continuing operations
Other income (expense)
Interest expense
Financing costs
Other income, net
Change in fair value of derivative liability
Total other income (expense), net
2023
Years Ended December 31,
2022
Change
$
63
$
8
$
55
19
2,331
11,508
13,858
(13,795)
(1,193)
(1,239)
1,162
221
(1,049)
3
1,108
17,771
18,882
(18,874)
(1,410)
-
1,393
2,933
2,916
16
1,223
(6,263)
(5,024)
5,079
217
(1,239)
(231)
(2,712)
(3,965)
1,114
Net loss from continuing operations
$
(14,844)
$
(15,958)
$
Revenue
Our primary focus is on the growth of our MARKET.live business. Currently, the business is generating minimal revenues.
21
Operating Expenses
Depreciation and amortization expense was $2.3 million for the year ended December 31, 2023, as compared to $1.1 million for the year ended December 31, 2022.
The increase of $1.2 million in depreciation and amortization expense is primarily due to the full-year amortization of software development costs as compared to a partial year
of amortization in 2022. Amortization of software development costs began in July 2022.
General and administrative expenses for the year ended December 31, 2023 were $11.5 million, as compared to $17.8 million for the year ended December 31, 2022.
The decrease of $6.3 million or 35%, in general and administrative expenses is primarily due to decreased personnel expense associated with headcount reduction.
Other Income (Expense), net
Other income (expense), net, for the year ended December 31, 2023 was $(1.0) million, which was primarily attributable to interest expense of $(1.2) million and
financing costs of $(1.2) million both offset by other income and the change in fair value of derivative liability totaling $1.4 million.
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, share-based compensation, interest expense, financing costs, change in fair value of derivative liability, other (income)
expense, MARKET.live startup costs, loss from discontinued operations, net of tax, and other non-recurring charges.
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
Interest expense
Financing costs
Other income, net
Change in fair value of derivative liability
MARKET.live non-recurring startup costs*
Loss from discontinued operations, net of tax
Other non-recurring
Total EBITDA adjustments
Modified EBITDA
Years Ended December 31,
2023
2022
(21,994)
$
(37,437)
2,331
2,503
1,193
1,239
(1,162)
(221)
-
7,150
585
13,618
(8,376)
$
1,108
4,455
1,410
-
(1,393)
(2,933)
802
21,479
126
25,054
(12,383)
$
$
* 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 $4.0 million or 32% increase in Modified EBITDA for the year ended December 31, 2023, compared to the same period in 2022, resulted from a decrease in
operating expenses.
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.
22
Liquidity and Capital Resources
Going Concern and Management’s Plan
We have incurred operating losses and negative cash flows from operations since inception. During the fiscal year ended December 31, 2023, we incurred a net loss
from continuing operations of $14.8 million and used cash in operating activities from continuing operations of $8.7 million. As of December 31, 2023, the aforementioned
factors raised substantial doubt about our ability to continue as a going concern within one year after the date these financial statements were issued. Our continuation as a
going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flows from operations to meet our obligations. We intend to
continue to seek additional debt or equity financing, as well as certain strategic opportunities to continue our operations.
Equity financing:
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 901,275 shares of our common stock at a public offering price of $8.00 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 thousand, including legal fees. As a result of
this transaction, certain warrants which previously had an exercise price of $13.60 per share, had the exercise price reduced to $8.00 per share.
During September 2023, the Company restarted its at-the-market (“ATM”) issuance sales agreements with Truist Securities, Inc. (“Truist”) pursuant to the Company’s
Registration Statement on Form S-3 (File No. 333-252167). For the year ended December 31, 2023, the Company has issued 8,784,214 shares of the Company’s common stock
since the restart of this agreement, resulting in net proceeds of $2.6 million. The agreement with Truist was terminated on December 15, 2023.
During December 2023, the Company entered into an agreement with Ascendiant Capital Markets LLC to sell shares of its common stock pursuant to the Company’s
Registration Statement on Form S-3 (File No. 333-264038). For the year ended December 31, 2023, the Company has issued 687,304 shares of the Company’s common stock
under this agreement, resulting in net proceeds of $0.1 million.
Subsequent to December 31, 2023, the Company issued 19,183,258 shares of the Company’s common stock under this agreement, resulting in net proceeds of $6.0
million.
On December 29, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Streeterville Capital, LLC
(“Streeterville”), pursuant to which the Company sold and Streeterville purchased 3,000 shares of the Company’s newly designated non-convertible Series C Preferred Stock
(the “Series C Shares”) for a total purchase price of $3.0 million. The Shares have a 10% stated annual dividend, no voting rights and has a face value of $1,300 per share. The
sale of the Series C Shares was consummated on December 29, 2023.
Subsequent to December 31, 2023, the Company entered into subscription agreements with certain institutional investors, pursuant to which the Company agreed to
issue and sell to the investors 27,397,258 shares of its Common Stock, par value $0.0001 per share of the Company at a price of $0.24 per share for gross proceeds to the
Company of $6.6 million. No warrants were issued in connection with the transaction and no banker fees or expenses were incurred.
The Shares to be issued in the offering were offered at-the-market under Nasdaq rules and pursuant to the Company’s Form 1-A, initially filed by the Company with
the Securities and Exchange Commission under the Securities Act of 1933, as amended, on February 14, 2024 and qualified on March 11, 2024.
23
Debt financing:
On November 7, 2022, we entered into a note purchase agreement (the “November Note Purchase Agreement”) and promissory note with Streeterville 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. During the year ended December 31, 2023, the Company paid $375
thousand and issued 7,301,903 shares of its common stock to Streeterville pursuant to an exchange agreement in exchange for a reduction of $5.1 million on the outstanding
balance of the November Notes. Subsequent to December 31 2023, the Company issued 11,484,403 shares of its common stock in exchange for a reduction of $1.7 million on
the outstanding balance of the November Notes. On March 18, 2024, the November Notes were paid in full.
On October 11, 2023, the Company entered into a note purchase agreement with Streeterville pursuant to which Streeterville purchased a promissory note (the “Note”)
in the aggregate principal amount of $1.0 million (the “Note Offering”). The Note bears interest at 9.0% per annum compounded daily. The maturity date of the Note is 18
months from the date of its issuance. In connection with the Note Offering, verbMarketplace, LLC, entered into a Guaranty, dated October 11, 2023, pursuant to which it
guaranteed the obligations of the Company under the Note in exchange for receiving a portion of the proceeds. On October 12, 2023, the Company repaid all of the outstanding
principal and accrued interest of a related party note payable amounting to $879 thousand.
As of March 28, 2024, the Company had cash and cash equivalents of approximately $14.2 million and notes payable of approximately $1.2 million. We believe that
our enhanced cash position coupled with our substantially reduced current operating costs means our operations are fully funded for at least the next 14 months, and possibly
longer subject to revenue generation during that period. As a result, we have alleviated substantial doubt about the Company’s ability to continue as a going concern.
24
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, 2023, we had cash of $4.4 million.
The following is a summary of our cash flows from operating, investing, and financing activities for the years ended December 31, 2023 and 2022 (in thousands):
Cash used in operating activities – continuing operations
Cash used in operating activities – discontinued operations
Cash used in investing activities – continuing operations
Cash provided by (used in) investing activities – discontinued operations
Cash provided by financing activities – continuing operations
Cash used in financing activities – discontinued operations
Increase in cash
$
$
Years Ended December 31,
2023
2022
(8,742) $
(1,855)
(306)
4,750
10,692
(2,615)
1,924 $
(13,683)
(5,723)
(4,747)
(1)
29,723
(4,077)
1,492
Cash Flows – Operating
For the year ended December 31, 2023, our cash used in operating activities from continuing operations amounted to $8.7 million, compared to cash used in operating
activities from continuing operations for the year ended December 31, 2022 of $13.7 million. We generated $5.0 million of additional cash from operations primarily due to
cost savings in personnel expenses and reduced general and administrative expenses.
Cash Flows – Investing
For the year ended December 31, 2023, our cash provided by investing activities amounted to $4.4 million, primarily due to $4.8 million of proceeds received from the
sale of SaaS assets slightly offset by our investment in capitalized software development costs related to MARKET.Live.
Cash Flows – Financing
For the year ended December 31, 2023, our cash provided by financing activities for continuing operations amounted to $10.7 million, primarily due to $9.2 million of
net proceeds from the issuance of shares of our common stock, $3.0 million of net proceeds from the issuance of shares of our Series C Preferred Stock and $1.0 million of net
proceeds from a promissory note, all offset by the repayment of convertible notes of $(1.3) million, repayment of related party notes payable of $(0.8) million and repayment of
our November Notes of $(0.4) million.
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Notes Payable
We have the following outstanding notes payable as of December 31, 2023 (in thousands):
Note
Issuance Date
Maturity Date
Interest Rate
Original Borrowing
Balance at December
31, 2023
Note payable (A)
Promissory note payable (B)
Promissory note payable (C)
Debt discount
Debt issuance costs
Total notes payable
Non-current
Current
May 15, 2020
November 7, 2022
October 11, 2023
May 15, 2050
May 7, 2024
April 11, 2025
3.75%
9.0%
9.0%
$
150
5,470
1,005
$
137
1,179
1,005
(99)
(73)
2,149
(362)
1,787
(A) 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. As of December 31, 2023, the outstanding balance of the note amounted to $0.14 million.
(B) 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, 2023, the amount of unamortized debt discount and
debt issuance costs was $0.1 million and $0.1 million, respectively.
As of December 31, 2023, the outstanding balance of the Notes amounted to $1.7 million. Subsequent to December 31 2023, the Company issued 11,484,403 shares of
its common stock in exchange for a reduction of $1.7 million on the outstanding balance of the November Notes. On March 18, 2024, the November Notes were paid
in full.
26
(C) On October 11, 2023, we entered into a note purchase agreement with Streeterville pursuant to which they purchased a Note in the aggregate principal amount of $1.0
million.
We received $1.0 million in gross proceeds from the sale of the Note. The Note bears interest at 9.0% per annum compounded daily. The maturity date of the note is 18
months from the date of its issuance.
As of December 31, 2023, the outstanding balance of the Note amount to $1.0 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.
Significant estimates include assumptions made for 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 contingent 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 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:
MARKET.live 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. Drop Ship and Creator programs. MARKET.live is expected to generate recurring fee revenue from soon to be launched new drop ship programs for entrepreneurs
and its Creator program.
d. The Company’s recently launched TikTok stores and affiliate programs.
e. The MARKET.live site is designed to incorporate sponsorships and other advertising based on typical industry rates.
A performance obligation is a promise in a contract to transfer a distinct product. Performance obligations promised in a contract are identified based on the goods that
will be transferred that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other
promises in the contract. Performance obligations include establishing and maintaining customer online stores, providing access to the Company’s e-commerce platform and
customer service support.
The Company’s revenue is mainly commission fees derived from contractually committed gross revenue processed by customers on the Company’s e-commerce
platform. Customers do not have the contractual right to take possession of the Company’s software. Revenue is recognized in an amount that reflects the consideration that the
Company expects to ultimately receive in exchange for those promised goods, net of expected discounts for sales promotions and customary allowances.
Revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged primarily in an agency relationship with
its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers’ inventory or
any credit risks relating to the products sold.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the
consolidated statements of operations.
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.
27
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. Forfeitures are accounted
for as they occur. 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 and was recognized as impairment loss during
the year ended December 31, 2022.
On June 13, 2023, the Company entered into a definitive agreement to sell all of the operating assets and liabilities of the SaaS business to SW Sales for $6.5 million,
including $4.75 million of cash paid upon closing. The operations of the SaaS business have been presented within discontinued operations. Upon completion of the sale of
assets to SW Sales, in which the buyer assumed all liabilities related to the SaaS business, the Company recorded an impairment of $5.4 million within loss from discontinued
operations as the carrying amount of the net assets exceeded the sale price, less selling costs.
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 that was recognized during the year ended December 31, 2022, 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.
28
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, 2023. 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, 2023.
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, 2023 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, 2023 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.
29
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Arrangement
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule
10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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,
Bill J. Rivard
James P. Geiskopf
Kenneth S. Cragun
Edmund C. Moy
Business Experience
Treasurer and Director
Chief Financial Officer and Treasurer
Lead Director
Director
Director
68
54
64
63
66
October 16, 2014
June 13, 2023
October 16, 2014
September 10, 2018
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.
30
Bill J. Rivard, Interim Chief Financial Officer and Treasurer
Bill J. Rivard was appointed Interim Chief Financial Officer effective June 13, 2023. He had served as Corporate Controller of the Company since November 2021
where he worked closely with the Company’s Chief Financial Officer in all accounting and finance matters. Mr. Rivard maintains an active CPA certification and has more than
30 years of experience serving various corporate accounting and finance management roles in companies including Minnesota Brewing Company, Innuity, Clean Energy
(NASDAQ: CLNE), and most recently, Palace Entertainment where he served as Director of Financial Reporting from March 2011 to April 2019 and then was promoted to
Executive Director of Finance in April 2019, serving in this capacity until March 2020. Mr. Rivard began his technical accounting and financial reporting experience at the
accounting firm McGladrey & Pullen LLP (now, RSM US LLP) where he served as an auditor, as well as the Securities and Exchange Commission where he served as a staff
accountant. Mr. Rivard earned his Bachelor’s of Accountancy at the University of North Dakota in 1992.
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 to the present. He also serves as our Lead Independent Director, as the Chairperson of the Compensation Committee, and as a member of the Audit
Committee, Governance and Nominating Committee and Risk Committee. 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.) (OTCQB: MWRK), a public company that trades on the OTCQB. From June 2013 to March 2017, Mr. Geiskopf served as a director of
Electronic Cigarettes International Group, Ltd. (“ECIG”), a Nevada corporation, an OTC listed company. 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.
We believe Mr. Geiskopf is qualified to serve on our Board because of his significant 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.
Kenneth S. Cragun, Director
Kenneth S. Cragun was appointed as one of our directors in September 2018, and also serves as the Chairperson of the Audit Committee, and as a member of the
Compensation Committee, Governance and Nominating Committee and Risk Committee. Mr. Cragun was appointed as Chief Financial Officer of BitNile Holdings, Inc.
(NYSE American: NILE) on August 19, 2020. Prior to his appointment as Chief Financial Officer, Mr. Cragun served as Chief Accounting Officer of BitNile Holdings, Inc.
since October 1, 2018. Mr. Cragun has served as the Chief Financial Officer of Ault Disruptive Technologies Corporation, an NYSE listed special-purpose acquisition company
(NYSE American: ADRT), since its incorporation in February 2021. Mr. Cragun has been the Senior Vice President of Finance or Chief Financial Officer of Alzamend Neuro,
Inc. (NASDAQ: ALZN), an early clinical-stage entity seeking to prevent, treat and cure Alzheimer’s Disease, since October of 2018. He served as a Chief Financial Officer
Partner at Hardesty, LLC, a national executive services firm since October 2016. His assignments at Hardesty, LLC included serving as Chief Financial Officer of CorVel
Corporation, a $1.1 billion market cap publicly traded company (NASDAQ: CRVL). Mr. Cragun is a three-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, from April 2009 to September 2016, which operated a U.S. top 100 website “Local.com” and, in June 2015, filed a voluntary petition seeking
relief under the provisions of Chapter 11 of Title 11 of the United States Code, and Modtech Holdings, Inc., from June 2006 to March 2009. Mr. Cragun serves on the board of
directors of The Singing Machine Company, Inc. (NASDAQ: MICS). Mr. Cragun earned his Bachelor of Science in Accounting from Colorado State University-Pueblo. Mr.
Cragun began his professional career at Deloitte.
We believe Mr. Cragun is qualified to serve on our Board due to his extensive experience with fast-growth businesses and building teams in more than 20 countries.
Mr. Cragun has also led multiple financing transactions, including IPOs, PIPEs, convertible debt offerings, term loans and lines of credit. We believe his experiences provide
additional breadth and depth to our Board.
31
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 13 times, including telephonic meetings, during fiscal year 2023. All Board members attended 100% of our Board meetings with the exception of Ms. Hammerschmidt, a
former Board member, who attended 90% of the meetings held during her term. All Board members attended 100% of the meetings held by committees of our Board on which
they served during that period.
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. All of our directors attended our 2023 annual meeting of stockholders.
32
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 can be found online
at https://www.verb.tech in the “Governance” section under the “Investor Relations” tab.
The Audit Committee charter requires that each member of the committee meet the independence requirements of Nasdaq, and requires the Audit Committee to have
at least one member that qualifies as an “audit committee financial expert.” Currently, Messrs. Geiskopf, Moy, and Cragun (Chairman) serve on the Audit Committee and each
meets the independence requirements of Nasdaq. In addition, Mr. Cragun qualifies as an “audit committee financial expert” under applicable SEC regulations.
In addition to the enumerated responsibilities of the Audit Committee in the charter, the primary function of the committee is to assist our Board in its general
oversight of our accounting and financial reporting processes, audits of our financial statements, and internal control and audit functions.
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), Cragun, and Moy 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,
2023. 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 2023 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 in the “Governance” section under the “Investor Relations” tab.
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, Cragun, and Moy (Chairman) 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 in the “Governance” section under the “Investor Relations” tab.
Risk and Disclosure Committee
In June 2021, our Board approved and adopted the Risk and Disclosure Committee charter. The charter of the Risk and Disclosure Committee may be found online at
https://www.verb.tech in the “Governance” section under the “Investor Relations” tab.
The Risk and Disclosure Committee charter requires that each member of the committee meet the independence requirements of Nasdaq. Currently, Messrs. Geiskopf,
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.
In addition to the enumerated responsibilities of the Risk and Disclosure Committee in the charter, the primary function of the 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.
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Nominations Process and Criteria
As of the filing of this Annual Report, 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 four members. We have determined that the following three directors qualify as independent: James P. Geiskopf, Kenneth S.
Cragun, 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, Moy and Cragun also serve on our Audit, Compensation, Governance and Nominating,
and Risk and Disclosure Committees. The Board evaluates the independence of each nominee for election as a director of our Company in accordance with the Nasdaq Listing
Rules.
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., 3024 Sierra Juniper Court, Las Vegas, Nevada
89138. 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.
34
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.
In December 2022, the Board implemented individual director assessments. The director assessments involve each director performing a self-assessment, as well as
each director individually assessing other members of the Board, taking into account each director’s contributions at Board meetings, service on committees, experience level,
and their general ability to contribute to one or more of our major growth areas.
Compensation Committee Interlocks and Insider Participation
As of the date of this Annual Report, no member of the Compensation Committee is serving, and during the past year no member of the Compensation Committee has
served, as an officer or employee of the Company or any of its subsidiaries. None of our executive officers currently serves, or during the past year has served, as a member of
the board of directors or compensation committee (or other committee serving a similar purpose) of any entity that has an executive officer serving on our Board or
Compensation Committee. In addition, none of the Compensation Committee members had any relationship, or participated in any transaction, with our Company during the
fiscal year ended December 31, 2023 that requires disclosure under SEC rules. We have entered into indemnification agreements with each of our directors, including each
member of the Compensation Committee.
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 in the “Governance” section under the “Investor Relations” tab.
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.
35
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 March 28, 2024:
Total Number of Directors
4
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
Non-
Binary
Did Not Disclose
Gender
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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;
36
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, 2023, 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
● Bill J. Rivard, our interim Chief Financial Officer and Treasurer; and
● Salman H. Khan, our former Chief Financial Officer and Treasurer.
Name and Principal Position
Year
Salary
($)
Bonus ($)
Stock
Awards(1)
($)
Option
Awards(2)
($)
All Other
Compensation
($)
Total ($)
Rory J. Cutaia(3)
Bill J. Rivard(4)
Salman H. Khan(13)
2023
2022
2023
2022
2023
2022
459(5)
480(5)
192(5)
-
107(5)
245(5)
-
-(7)
3(11)
-
-
31(14)
31(5)
563(8)
111(12)
-
16(5)
342(15)
486(6)
15(9)
-
-
-
27(16)
-
-
976(10)
1,058(10)
-
-
-
-
306
-
123
645
(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, “Summary of Significant Accounting Policies and Supplemental Disclosures,” in the notes to our
audited consolidated financial statements for the year ended December 31, 2023 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, 2023 and 2022 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) Mr. Rivard was appointed as interim Chief Financial Officer on June 13, 2023.
(5) 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. The cost reduction plan was extended in March 2023 to April 2023 resulting in the issuance of 27,590, 10,135, and 14,076
restricted stock units to Mr. Cutaia, Mr. Rivard, and Mr. Khan, respectively.
(6) On June 21, 2023, the Company granted 360,300 incentive stock options and 148,648 non-qualified stock options with a fair value of $0.955 per option.
(7) Due to the Company’s cost savings plan, Mr. Cutaia was not paid his annual incentive target bonus of $490 for 2022.
(8) Represents an annual incentive bonus of 10,111 restricted stock units with a fair market value of $47.60 per restricted stock unit. Represents 9,281 restricted stock units
with a fair market value of $8.80 per restricted stock unit associated with the 25% reduction in cash compensation.
(9) Represents the return of 2,949 vested restricted stock units with a fair market value of $6.60 per restricted stock unit that were replaced by a grant of 5,897 stock options
with an exercise price of $8.80 per share and a fair market value of $34.
(10) As of December 31, 2023 and 2022, Mr. Cutaia had accrued but unpaid compensation equal to $648 and $764, respectively.
37
(11) Represents a discretionary bonus of $3 paid in December 2023.
(12) Represents a grant of 136,986 restricted stock units on September 28, 2023 with a fair market value of $0.73 per restricted stock unit.
(13) 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 and (2) 7,516 restricted shares of the Company’s common stock
granted, 1,879 of which shall vest on March 30, 2023, 1,879 of which shall vest on March 30, 2024, 1,879 of which shall vest on March 30, 2025, and 1,879 of which shall
vest on March 30, 2026. Mr. Khan was also eligible to receive an annual performance bonus of up to 50% of his base salary. Mr. Khan resigned as Chief Financial Officer
and Treasurer of the Company effective June 13, 2023.
(14) 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 681
shares of common stock with a fair market value of $45.20 per share.
(15) Represents an annual incentive bonus of 7,516 restricted stock units with a fair market value of $39.92 per restricted stock unit. Represents 4,735 restricted stock units with
a fair market value of $8.80 per restricted stock unit associated with the 25% reduction in cash compensation.
(16) Represents a grant of 2,500 stock options.
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. The employment agreement was extended on January 1, 2024 for an additional four-year term. 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 $490, 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 $459 and $480 for the fiscal years ending December 31, 2023 and 2022, respectively.
The lower amount in fiscal 2023 includes a 25% reduction in the cash compensation component over a four-month period starting December 1, 2022.
On June 21, 2023, we granted Mr. Cutaia restricted stock units with an aggregate fair market value of $31, payable in 27,590 shares of our common stock. The
restricted stock units vested on the grant date. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.11 and was used to calculate fair
market value.
On June 21, 2023 we granted Mr. Cutaia stock options with an aggregate fair market value of $486, valued using the Black-Scholes option methodology, payable in
508,948 shares of our common stock. The stock options are subject to a four-year vesting period, with 25% of the award vesting on each of the first, second, third, and fourth
anniversaries from the grant date. The fair value per option of $0.955 was valued using the Black-Scholes option methodology.
On January 20, 2022, we granted Mr. Cutaia restricted stock units with an aggregate fair market value of $481, payable in 10,111 shares of our common stock. The
restricted stock units are subject to a four-year vesting period, with 25% of the award vesting on each of 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 $47.60 and was used to calculate fair market value.
38
On November 17, 2022, we granted Mr. Cutaia restricted stock units with an aggregate fair market value of $82, payable in 9,281 shares of our common stock. The
restricted stock units vested at the end of each month over a four-month period. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $8.80
and was used to calculate fair market value.
On November 17, 2022, Mr. Cutaia returned 2,949 shares that had been issued to him during the year. In exchange for those shares, we granted Mr. Cutaia 5,897 stock
options with an exercise price of $8.80 per share. The options vested on grant.
As of December 31, 2023 and 2022, Mr. Cutaia had accrued but unpaid compensation equal to $648 and $764, respectively.
Bill J. Rivard
Mr. Rivard was appointed as interim Chief Financial Officer on June 13, 2023. Mr. Rivard earned total cash compensation for his services to us in the amount of $195
for the fiscal year ending December 31, 2023.
In fiscal 2023, Mr. Rivard received a one-time incentive bonus of $3 which was paid in cash.
On June 21, 2023, we granted Mr. Rivard restricted stock units with an aggregate fair market value of $11, payable in 10,135 shares of our common stock. The
restricted stock units vested on the grant date. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.11 and was used to calculate fair
market value.
On September 28, 2023, we granted Mr. Rivard restricted stock units with an aggregate fair market value of $100, payable in 136,986 shares of our common stock.
The restricted stock units are 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 $0.73 and was used to calculate fair market value.
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
$107 and $245 for the fiscal years ending December 31, 2023 and 2022, respectively. The lower amount includes a 25% reduction in the cash compensation component over a
four-month period starting December 1, 2022. Mr. Khan resigned as Chief Financial Officer and Treasurer of the Company effective June 13, 2023.
On June 21, 2023, we granted Mr. Khan restricted stock units with an aggregate fair market value of $16, payable in 14,076 shares of our common stock. The
restricted stock units vested on the grant date. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.11 and was used to calculate fair
market value.
In fiscal 2022, Mr. Khan received a one-time incentive bonus of $31, which was paid in 681 shares of common stock with a fair market value of $45.20 per share.
On March 30, 2022, we granted Mr. Khan restricted stock units with an aggregate fair market value of $300, payable in 7,516 shares of our common stock. The
restricted stock units are 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 $39.92 and was used to calculate fair market value.
On May 15, 2022, we granted Mr. Khan 2,500 stock options that vest annually over four years. The options have an exercise price of $12.00 per share and an
aggregate fair market value of $27.
On November 17, 2022, we granted Mr. Khan restricted stock units with an aggregate fair market value of $42, payable in 4,735 shares of our common stock. The
restricted stock units vested at the end of each month over a four-month period. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $8.80
and was used to calculate fair market value.
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 200,000 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 200,000 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.
39
Term
The Incentive Plan became effective upon approval by our stockholders on December 20, 2019 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
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. As of March 28, 2024, subject to
the adjustment provisions included in the Incentive Plan, a total of 12,802,279 shares of our common stock are available for future issuances 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).
40
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 amount of all awards granted to any non-employee director during any single calendar year shall not exceed 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.
41
● 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.
42
● 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.
43
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.
44
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, 2023. Market
value was determined using the closing price of our common stock on December 29, 2023, which was $0.17.
Name
Rory J. Cutaia
Bill J. Rivard(2)
Salman H. Khan(3)
Number of Shares or Units
of Stock That Have Not
Vested
(#)
Market value (in
thousands) of shares of
units of stock that have not
vested
($)
2,949
3,972
7,584
136,986
-
1
1
1
23
-
Vest date
July 29, 2024(1)
January 4, 2025(1)
January 20, 2026(1)
September 28, 2027(1)
-
(1) 25% vesting on the first, second, third, and fourth anniversaries from the grant date.
(2) Mr. Rivard was appointed as interim Chief Financial Officer on June 13, 2023.
(3) Mr. Khan resigned as Chief Financial Officer and Treasurer of the Company effective June 13, 2023.
The following table sets forth, for each Named Executive Officer, certain information concerning outstanding option awards as of December 31, 2023:
Name
Rory J. Cutaia
Bill J. Rivard(3)
Salman H. Khan(3)
Number of
securities
underlying
unexercised
options (exercisable)
(#)
Number of
securities
underlying
unexercised
options (unexercisable)
(#)
417
5,897
-
-
1,875
-
-
-
360,300
148,648
1,875
-
Option
Exercise
price ($)
Option expiration
date
174.00
8.80
1.11
1.11
72.00
-
January 8, 2024(2)
November 16, 2027(2)
June 20, 2028(1)
June 20, 2028(1)
November 16, 2026(1)
-
(1) 25% vesting on the first, second, third, and fourth anniversaries from the grant date.
(2) All options have fully vested.
(3) Mr. Rivard was appointed as interim Chief Financial Officer on June 13, 2023.
(4) Mr. Khan resigned as Chief Financial Officer and Treasurer of the Company effective June 13, 2023.
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, 2023 (in thousands):
Name(1)
Fees earned
or paid in cash
($)
Stock awards
($)
Total
($)
James P. Geiskopf
Kenneth S. Cragun
Edmund C. Moy(5)
175
75
-
166(2)
78(3)
146(4)
341
153
146
(1) Rory J. Cutaia, our Chairman of the Board, Chief Executive Officer, President, and Secretary during the fiscal year ending December 31, 2023, 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 grant of stock options on June 21, 2023, totaling 162,883 shares of our common stock valued at $0.955 per option, which was valued using the Black-Scholes
option methodology. The stock options expire in five years and vest on the first anniversary of the grant date. On January 20, 2023, a grant of 3,236 stock options, which
vested on the grant date, with an exercise price of $9.20 per share were issued to replace forfeited restricted stock units.
46
(3) Represents a grant of stock options on June 21, 2023, totaling 81,441 shares of our common stock valued at $0.955 per option, which was valued using the Black-Scholes
option methodology. The stock options expire in five years and vest on the first anniversary of the grant date. On January 20, 2023, a grant of 1,618 stock options, which
vested on the grant date, with an exercise price of $9.20 per share were issued to replace forfeited restricted stock units.
(4) Represents a grant of stock options on June 21, 2023, totaling 81,441 shares of our common stock valued at $0.955 per option, which was valued using the Black-Scholes
option methodology. The stock options expire in five years and vest on the first anniversary of the grant date. On September 28, 2023, a grant of 102,740 stock options,
which vested on the grant date, with an exercise price of $0.73 per share were issued. The value per option of $0.661 was valued using the Black-Scholes option
methodology.
(5) 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 for our Lead Director is $175 and for the other independent directors is $75. In addition, we intend to provide a restricted stock
unit or stock options based on recommendations from our independent compensation consultant. 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 the fiscal years ending December 31, 2023 and 2022,
respectively.
On June 21, 2023, the Company granted Mr. Geiskopf 162,883 stock options, which expire in five years and vest on the first anniversary of the grant date, with an
exercise price of $1.11 per share. The fair value per option of $0.955 was calculated using the Black-Scholes option methodology.
On June 21, 2023, we granted Mr. Geiskopf restricted stock units with an aggregate fair market value of $11, payable in 9,854 shares of our common stock. The
restricted stock units vested on the grant date. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.11 and was used to calculate fair
market value.
On January 20, 2023, the Company granted Mr. Geiskopf 3,236 stock options, which vested on the grant date, with an exercise price of $9.20 per share and were
issued to replace forfeited restricted stock units that were issued on January 20, 2022.
On January 20, 2022, the Company granted Mr. Geiskopf restricted stock units with an aggregate fair market value of $154, payable in 3,236 shares of its common
stock. The restricted stock units vest on the first anniversary of the grant date. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $47.60
and was used to calculate fair market value.
On November 17, 2022, the Company granted Mr. Geiskopf 3,315 stock options 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 vested at the end of each month
over a four-month period. The price per share as reported by the Nasdaq Capital Market on the day of issuance was $8.80 and was used to calculate fair market value.
On November 17, 2022, Mr. Geiskopf returned to the Company 2,542 shares of common stock that were previously issued on January 4, 2021 as part of a restricted
stock unit grant that had vested. In exchange, Mr. Geiskopf was issued 5,083 stock options with an exercise price of $8.80 per share. The stock options vested on the grant date.
Kenneth S. Cragun
Mr. Cragun earned total cash compensation for his services to us in the amount of $75 and $72 for the fiscal years ending December 31, 2023 and 2022, respectively.
On June 21, 2023, the Company granted Mr. Cragun 81,441 stock options, which expire in five years and vest on the first anniversary of the grant date, with an
exercise price of $1.11 per share. The fair value per option of $0.955 was calculated using the Black-Scholes option methodology.
On January 20, 2023, the Company granted Mr. Cragun 1,618 stock options, which vested on grant, with an exercise price of $9.20 per share, to replace forfeited 1,618
restricted stock units that were issued on January 20, 2022.
On January 20, 2022, the Company granted Mr. Cragun restricted stock units totaling $77 payable in 1,618 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 $47.60 and was used to calculate fair
market value.
On November 17, 2022, the Company granted Mr. Cragun 1,421 stock options 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 stock options vested at the end of each month over a four-month period. The price per
share as reported by the Nasdaq Capital Market on the day of issuance was $8.80.
On November 17, 2022, Mr. Cragun returned to the Company 1,271 shares of common stock that were previously issued on January 4, 2021 as part of a restricted
stock unit grant that had vested. In exchange, Mr. Cragun was issued 2,542 stock options with an exercise price of $8.80 per share. The stock options vested on grant date.
47
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 and $0 for the fiscal years ending
December 31, 2023 and 2022, respectively.
On September 28, 2023, the Company granted Mr. Moy 102,740 stock options, which vested on January 2, 2024, with an exercise price of $0.73 per share. The fair
value per option of $0.661 was determined using the Black-Scholes option methodology.
On June 21, 2023, the Company granted Mr. Moy 81,441 stock options, which expire in five years and vest on the first anniversary of the grant date, with an exercise
price of $1.11 per share. The fair value per option of $0.955 was determined using the Black-Scholes option methodology.
On November 17, 2022, the Company granted Mr. Moy 1,421 stock options 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 stock options vested at the end of each month over a four-month period. The price per share as
reported by the Nasdaq Capital Market on the day of issuance was $8.80.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth, for each non-employee director, certain information concerning outstanding option awards as of December 31, 2023:
Name
James P. Geiskopf
Kenneth S. Cragun
Edmund C. Moy
Number of
securities
underlying
unexercised
options
(exercisable)
(#)
Number of
securities
underlying
unexercised
options
(unexercisable)
(#)
5,083
3,236
-
2,542
1,421
1,618
-
1,421
-
-
-
-
162,883
-
-
-
81,441
-
81,441
102,740
(1) All options have fully vested.
(2) Vesting on the first anniversary of the grant date.
(3) Vested on January 2, 2024
48
Option
exercise
price
($)
Option expiration
Date
January 19, 2028(1)
June 20, 2028(2)
8.80 November 16, 2027(1)
9.20
1.11
8.80 November 16, 2027(1)
8.80 November 16, 2027(1)
9.20
1.11
8.80 November 16, 2027(1)
1.11
0.73
June 20, 2028(2)
September 27, 2028(3)
January 19, 2028(1)
June 20, 2028(2)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of March 28, 2024, 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 March 28, 2024, 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.
Name and Address of Beneficial Owner(1)
Rory J. Cutaia
Kenneth S. Cragun
Bill J. Rivard
Edmund C. Moy
Salman H. Khan
All directors and executive officers as a group
*
Less than 1%.
Amount and Nature
of
Beneficial Ownership(2)
Percent
of
Class(3)
$
$
182,778(4)
9,467(6)
15,419(7)
104,161(8)
21,059(9)
353,918
*%
*
*
*
*
*%
Title of Class
Common
Common
Common
Common
Common
Common
49
(1) Messrs. Cutaia, Geiskopf, Cragun, and Moy are current directors. Messrs. Cutaia, Rivard and Khan are our Named Executive Officers and Messrs. Cutaia and Rivard are
our only current executive officers.
(2) Unless otherwise indicated, the address of each beneficial owner listed in the table below is: c/o Verb Technology Company, Inc., 3024 Sierra Juniper Court, Las Vegas,
Nevada 89138.
(3) Percentage of common stock is based on 79,300,788 shares of our common stock outstanding as of March 28, 2024.
(4) Consists of (i) 169,411 shares of common stock held directly by Mr. Cutaia, (ii) 6,006 shares of common stock held by Cutaia Media Group Holdings, LLC (an entity over
which Mr. Cutaia has dispositive and voting authority), (iii) 1,351 shares of common stock held by Mr. Cutaia’s spouse (as to which shares, he disclaims beneficial
ownership), (iv) 113 shares of common stock held jointly by Mr. Cutaia and his spouse, and (v) 5,897 shares of common stock underlying stock options exercisable within
60 days of March 28, 2024. This amount excludes 9,991 shares of common stock underlying restricted stock units and 508,948 shares of common stock underlying stock
options that will not vest within 60 days of March 28, 2024.
(5) Consists of (i) 33,640 shares of common stock held directly, (ii) 134 shares of common stock held by Mr. Geiskopf’s children, and (iii) 8,319 shares of common stock
underlying stock options exercisable within 60 days of March 28, 2024. This amount excludes 162,883 shares of common stock underlying stock options that will not vest
within 60 days of March 28, 2024.
(6) Consists of (i) 3,886 shares of common stock held directly, and (ii) 5,581 shares of common stock underlying stock options exercisable within 60 days of March 28, 2024.
This amount excludes 81,441 shares of common stock underlying stock options that will not vest within 60 days of March 28, 2024.
(7) Consists of (i) 13,544 shares of common stock held directly and (ii) 1,875 shares of common stock underlying stock options exercisable within 60 days of March 28, 2024.
This amount excludes 136,986 shares of common stock underlying restricted stock units that will not vest within 60 days of March 28, 2024.
(8) Consists of 104,161 shares of common stock underlying stock options exercisable within 60 days of March 28, 2024. This amount excludes 81,441 shares of common
stock underlying stock options that will not vest within 60 days of March 28, 2024.
(9) Consists of 21,059 shares of common stock held directly by Mr. Khan. Mr. Khan resigned as Chief Financial Officer and Treasurer of the Company effective June 13,
2023.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes certain information regarding our equity compensation plans as of December 31, 2023:
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)
2,239,831
417
2,240,248
$
$
$
1.09
174.00
1.12
12,787,279
236,326
13,023,605
50
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
General
Other than the transactions discussed below, and the executive compensation arrangements described in the section titled “Executive Compensation,” since January 1,
2022, 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 at the year-end for the
fiscal years ended December 31, 2023 and 2022, and in which any director, executive officer, holder of more than 5% of our common stock, or any member of the immediate
family of any of the foregoing, had or will have a direct or indirect material interest (any such transaction, a “related party transaction”).
Policies and Procedures for Approval of Related Party Transactions
If we contemplate entering into any transaction with a related party, regardless of the amount involved, the terms of such transaction are required to be presented to our
Board for approval in advance of the transaction. Any director, officer or employee who becomes aware of a transaction or relationship that could reasonably be expected to
give rise to a conflict of interest is required to disclose the matter promptly to our Board. Our Board must then either approve or reject the transaction and may only approve the
transaction if it determines, based on all of the information presented, that the related party transaction is not inconsistent with the best interests of the Company and its
stockholders.
Related Party Transactions
Unless otherwise specified, all dollar amounts in this section are in thousands except per share amounts and par values. All historical share and per-share amounts reflected
throughout this section have been adjusted to reflect a reverse stock split implemented on April 18, 2023.
Notes Payable to Related Parties
The Company has the following outstanding notes payable to related parties on December 31, 2023 and 2022 (in thousands):
Note
Issuance Date Maturity Date
December 1,
2015
April 1, 2023
June 4, 2021
Note 1(1)
Note 2(2)
April 4, 2016
Total notes payable – related parties
Largest
Aggregate
Amount
Outstanding
Since
January 1,
2022
Amount
Outstanding
as of
December
31,
2023
Interest Paid
Since
January 1,
2023
Interest Paid
Since
January 1,
2022
Interest Rate
Original
Borrowing
$
12.0%
12.0%
1,249
343
$
$
879
48
927
$
$
-
-
-
$
$
154
8
162
$
$
154
8
162
(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.
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 3,473 shares of common stock with a grant date fair value of $287. The warrants were fully vested upon issuance, are
exercisable at $104.40 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 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 $41.20, 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. On
October 12, 2023, the Company repaid all of the outstanding principal and accrued interest amounting to $879.
As of December 31, 2023, the outstanding balance of the note was $0.
51
(2) 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 $41.20, 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 4,855
shares of common stock at the fixed conversion price. On September 20, 2023, the Company repaid all of the outstanding principal and accrued interest amounting to $48.
As of December 31, 2023, the outstanding balance of the note was $0.
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. On April 20, 2023,
the Company redeemed the Series B Preferred Stock for $5,000 in cash.
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.
52
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 four members. We have determined that the following three directors qualify as independent: James P. Geiskopf, Kenneth S.
Cragun, 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, 2023 and 2022 for professional services rendered by our independent registered
public accounting firms, Grassi & Co., CPAs, P.C. (“Grassi”) and Weinberg & Company, P.A. (“Weinberg”) (in thousands):
Fees
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total Fees
2023
2022
Grassi
Weinberg
Grassi
Weinberg
$
$
257
31
51
-
339
$
$
168
59
5
1
233
$
$
-
-
-
-
-
$
$
213
24
52
5
294
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.
Fees for auditor consents for registration filings are included within this 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. Cragun as a member 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.
53
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.
Reports of Independent Registered Public Accounting Firms (PCAOB ID NO: 572 and 606)
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.
54
Page
F-1
F-4
F-5
F-6
F-7
F-8
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 sheet of Verb Technology Company, Inc. (the “Company”) as of December 31, 2022, the related consolidated
statement of operations, changes in stockholders’ equity, and cash flows for the year 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
the results of its operations and its cash flows for the year 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 audit. 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 audit 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 audit 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 audit 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 audit provides 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 served as the Company’s auditor from 2017 to 2023.
/s/ Weinberg & Company, P.A.
Los Angeles, California
April 17, 2023
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
Verb Technology Company, Inc.
Opinions on the Financial Statements
We have audited the accompanying consolidated balance sheet of Verb Technology Company, Inc. (the “Company”) as of December 31, 2023, the related consolidated
statement of operations, changes in stockholders’ equity, and cash flows for the year 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, 2023, and
the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
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 financial statements
based on our audit. 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 audit 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 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Capitalized Software Development Costs
Critical Audit Matter Description
As of December 31, 2023, the Company’s capitalized software development costs, net aggregated $4.0M.
The principal consideration for our determination that this was a critical audit matter is that capitalized software development costs, net are material to the financial statements
and auditing the valuation of this asset involved a high degree of subjective and complex auditor judgment.
How the Critical Audit Matter was addressed in the Audit.
Our audit procedures related to the evaluation of the capitalized software development costs included the following, among others:
a) We obtained an understanding of controls over the Company’s accounting and disclosures for capitalized software development cost.
b) We also obtained an understanding of the company’s history and development of the capitalized software through inquiries with management and review of
relevant agreements and other source documentation.
c) With respect to the Company’s valuation of capitalized software development costs:
i. We evaluated the methodology used by management to identify and assess potential impairment indicators against the criteria outlined in ASC 360-10-
35-21.
ii. We assessed the qualifications and expertise of management in evaluating the impairment indicators and the prospects of the business utilizing the
capitalized software.
iii. We obtained and evaluated the reasonableness of management’s undiscounted cash flow forecast related to supporting its valuation assertion with respect
to the capitalized software development cost. Specifically, we tested the mathematical accuracy of the forecast and evaluated the reasonableness of key
assumptions in the cash flow forecast.
iv. We evaluated the reasonableness of management’s assertion by reviewing evidence of the software’s continued use and functionality, activity, and related
agreements with suppliers and partners of the Company. Additionally, we reviewed both internal and external data related to user engagement in the
context of the software’s continued use.
d) We assessed the sufficiency of disclosures with respect to capitalized software development costs.
Grassi & Co., CPAs, P.C.
We have served as the Company’s auditor since 2023.
Jericho, NY
April 1, 2024
F-3
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As of December 31,
2023
2022
ASSETS
Current assets
Cash
Assets held for sale - current
Prepaid expenses and other current assets
Total current assets
Assets held for sale – non-current
Capitalized software development costs, net
ERC receivable
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Liabilities related to assets held for sale
Liabilities of discontinued operations
Accrued expenses
Accrued payroll
Accrued officers’ compensation
Notes payable – related party, current
Notes payable, current
Convertible notes payable, current
Accrued interest
Operating lease liabilities, current
Derivative liability
Total current liabilities
Long-term liabilities
Notes payable, non-current
Operating lease liabilities, non-current
Total liabilities
Commitments and contingencies (Note 16)
Stockholders’ equity
Series C Preferred Stock, $0.0001 par value, 5,000 shares authorized, 3,000 and 0 shares issued and
outstanding as of December 31, 2023 and 2022
Class A units, 3 shares issued and authorized as of December 31, 2023 and 2022
Common stock, $0.0001 par value, 400,000,000 shares authorized, 21,231,355 and 2,918,017 shares
issued and outstanding as of December 31, 2023 and 2022
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
$
$
$
$
4,353
-
331
4,684
-
3,990
1,528
43
218
117
259
10,839
$
$
1,408
-
-
2,324
420
648
-
1,787
-
533
67
1
7,188
362
164
7,714
2,980
-
2
175,765
(175,622)
3,125
Total liabilities and stockholders’ equity
$
10,839
$
The accompanying notes are an integral part of these consolidated financial statements
F-4
2,429
1,323
306
4,058
10,467
6,176
1,528
533
1,354
83
293
24,492
3,975
2,483
1,641
526
528
764
765
3,704
1,334
233
355
222
16,530
1,215
1,581
19,326
-
-
1
158,629
(153,464)
5,166
24,492
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Revenue
Costs and expenses
Cost of revenue, exclusive of depreciation and amortization shown separately below
Depreciation and amortization
General and administrative
Total costs and expenses
Operating loss from continuing operations
Other income (expense), net
Interest expense
Financing costs
Other income, net
Change in fair value of derivative liability
Total other income (expense), net
Net loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Deemed dividend due to warrant reset
Net loss to common stockholders
Loss per share from continuing operations– basic and diluted
Loss per share from discontinued operations– basic and diluted
Weighted average number of common shares outstanding – basic and diluted
Years Ended December 31,
2023
2022
$
63
$
8
19
2,331
11,508
13,858
(13,795)
(1,193)
(1,239)
1,162
221
(1,049)
(14,844)
(7,150)
(21,994)
(164)
(22,158)
(2.21)
(1.05)
6,798,972
$
$
$
3
1,108
17,771
18,882
(18,874)
(1,410)
-
1,393
2,933
2,916
(15,958)
(21,479)
(37,437)
(246)
(37,683)
(6.68)
(8.85)
2,427,044
$
$
$
The accompanying notes are an integral part of these consolidated financial statements
F-5
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)
Preferred Stock Class A Units
Shares Amount Shares Amount Shares Amount
3 $
Class B Units
Common Stock
Shares
- 2,918,017 $
- $
- $
-
-
Additional
Paid-in Accumulated
Amount Capital
Deficit
Total
-
-
3,000 2,980
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 10,372,793
-
-
-
-
202,567
-
-
31,195
-
128,204
276,676
1 $ 158,629 $
(153,464) $ 5,166
1
-
-
-
-
-
-
9,109
(180)
2,400
164
-
-
9,110
2,800
-
(164)
2,400
-
-
-
-
200
346
-
200
-
346
-
-
3,000 $ 2,980
-
-
3 $ -
7,301,903
-
-
- $ - 21,231,355 $
-
5,097
-
-
-
2 $ 175,765 $
-
5,097
(21,994) (21,994)
(175,622) $ 3,125
For the year ended December 31, 2023:
Balance as of December 31, 2022
Issuance of common stock in connection
with public offerings, net
Sale of preferred stock
Fair value of vested restricted stock
awards, stock options and warrants
Deemed dividend due to warrant reset
Issuance of shares for fractional
adjustments related to reverse stock split
Fair value of common shares issued for
services
Fair value of common shares issued to
settle accrued expenses
Fair value of common shares issued as
payment on notes payable
Net loss
Balance as of December 31, 2023
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
Preferred Stock Class A Units
Shares Amount Shares Amount Shares Amount
3 $
Class B Units
Common Stock
Shares
- 1,823,574 $
- $
- $
-
-
Amount Capital
Deficit
Total
1 $ 129,348 $
(116,027) $ 13,322
Additional
Paid-in Accumulated
-
-
-
-
-
-
980,300
-
24,056
- 24,056
-
-
-
-
-
-
-
-
-
-
15,182
-
-
-
-
-
8,318
-
-
-
-
-
13,061
-
-
-
-
-
-
377
465
-
377
-
465
-
-
-
-
-
54,168
-
1,561
-
1,561
-
-
-
-
-
33,986
-
2,783
-
2,783
-
- $
-
-
-
3 $
-
-
-
- $
(10,572)
-
-
- 2,918,017 $
39
-
-
1 $ 158,629 $
39
(37,437) (37,437)
(153,464) $ 5,166
The accompanying notes are an integral part of these consolidated financial statements
F-6
VERB TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2023
2022
Operating Activities:
Net loss
Loss from discontinued operations, net of tax
Adjustments to reconcile net loss used in operating activities, net of discontinued operations:
$
(21,994)
7,150
$
Depreciation and amortization
Share-based compensation
Amortization of debt discount
Amortization of debt issuance costs
Non-cash finance costs
Gain on lease termination
Loss on disposal of property and equipment
Change in fair value of derivative liability
Effect of changes in assets and liabilities, net of discontinued operations:
Prepaid expenses and other current assets
ERC receivable
Operating lease right-of-use assets
Other assets
Accounts payable, accrued expenses, and accrued interest
Deferred incentive compensation
Operating lease liabilities
Net cash used in operating activities attributable to continuing operations
Net cash used in operating activities attributable to discontinued operations
Investing Activities:
Capitalized software development costs
Purchases of property and equipment
Purchases of intangible assets
Net cash used in investing activities attributable to continuing operations
Net cash provided by (used in) investing activities attributable to discontinued operations
Financing Activities:
Proceeds from sale of common stock
Proceeds from sale of Series C Preferred Stock
Proceeds from notes payable
Proceeds from convertible notes payable
Payment of convertible note payable – related party
Payment of notes payable
Payment of convertible notes payable
Proceeds from option exercise
Payment for debt issuance costs
Net cash provided by financing activities attributable to continuing operations
Net cash used in financing activities attributable to discontinued operations
Net change in cash
Cash - beginning of period
Cash - end of period
2,331
2,503
310
241
1,239
(263)
-
(221)
85
-
195
13
(251)
-
(80)
(8,742)
(1,855)
(239)
(32)
(35)
(306)
4,750
9,215
2,980
1,000
-
(765)
(388)
(1,350)
-
-
10,692
(2,615)
1,924
2,429
(37,437)
21,479
1,108
4,455
341
487
-
-
14
(2,933)
(220)
(1,528)
342
-
983
(377)
(397)
(13,683)
(5,723)
(4,645)
(20)
(82)
(4,747)
(1)
24,056
-
5,020
6,000
-
-
(4,950)
377
(780)
29,723
(4,077)
1,492
937
2,429
The accompanying notes are an integral part of these consolidated financial statements
F-7
$
4,353
$
VERB TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
(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.
Through June 13, 2023, the Company was 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.
On June 13, 2023, the Company disposed of all of its operating SaaS assets of Verb Direct and Verb Acquisition, (referred to collectively as the “SaaS Assets”)
pursuant to an asset purchase agreement in consideration of the sum of $6,500, $4,750 of which was paid in cash by the buyer at the closing of the transaction. Additional
payments of $1,750 will be paid by the buyer if certain profitability and revenue targets are met within the next two years as set forth more particularly in the asset
purchase agreement. The sale of the SaaS Assets was undertaken to allow the Company to focus its resources on its burgeoning MARKET.live business unit which it
expects over time will create greater shareholder value.
Going Concern and Management’s Plan
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,
2023, the Company incurred a net loss from continuing operations of $14,844 and used cash in continuing operations of $8,742. As of December 31, 2023, the Company
had cash of $4,353 yet the aforementioned factors raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date these
financial statements were issued.
Equity financing during the year ended December 31, 2023:
On January 24, 2023, the Company issued 901,275 shares of the Company’s common stock which resulted in proceeds of $6,578, net of offering costs of $622.
During September 2023, the Company restarted its’ at-the-market (“ATM”) issuance sales agreements with Truist Securities, Inc. (“Truist”) pursuant to the Company’s
Registration Statement on Form S-3 (File No. 333-252167). For the year ended December 31, 2023, the Company has issued 8,784,214 shares of the Company’s common
stock since the restart of this agreement, resulting in net proceeds of $2,523, net of offering costs of $43. The agreement with Truist was terminated on December 15, 2023.
During December 2023, the Company entered into an agreement with Ascendiant Capital Markets LLC (“Ascendiant Sales Agreement”) to sell shares of its common
stock pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-264038). For the year ended December 31, 2023, the Company has issued 687,304
shares of the Company’s common stock under the Ascendiant Sales Agreement, resulting in net proceeds of $114. See Note 17 – Subsequent Events.
On December 29, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Streeterville Capital, LLC
(“Streeterville”), pursuant to which the Company sold and Streeterville purchased 3,000 shares of the Company’s newly designated non-convertible Series C Preferred
Stock (the “Series C Shares”) for a total purchase price of $3,000. The Shares have a 10% stated annual dividend, no voting rights and has a face value of $1,300 per share.
The sale of the Series C Shares was consummated on December 29, 2023.
F-8
Debt financing during the year ended December 31, 2023:
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. 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 the remaining principal balance of $1,350 and $208 of accrued interest under the
January Note Offering dated January 12, 2022.
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 Nine 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.
On May 16, 2023, the Company received a redemption notice under the terms of the November Note Purchase Agreement for $300. The Company missed two
payments resulting in a Payment Failure Balance Increase of 10% on the outstanding principal balance per occurrence pursuant to the terms of the agreement totaling
$1,205. These costs have been recorded as finance costs in the Company’s consolidated statement of operations for the year ended December 31, 2023.
During the year ended December 31, 2023, the Company paid $375 in cash and $5,097 in shares of its common stock. As of December 31, 2023 and December 31,
2022, the outstanding balance of the November Notes amounted to $1,692 and $5,544, respectively. Subsequent to December 31, 2023, the Company issued 11,484,403
shares of its common stock pursuant to an exchange agreement in exchange for a reduction of $1,720 on the outstanding balance of the November Notes. On March 18,
2024, the Company paid the November Notes in full.
On October 11, 2023, the Company entered into a note purchase agreement with Streeterville pursuant to which Streeterville purchased a promissory note (the “Note”)
in the aggregate principal amount of $1,005 (the “Note Offering”). The Note bears interest at 9.0% per annum compounded daily. The maturity date of the Note is 18
months from the date of its issuance.
On October 12, 2023, the Company repaid all of the outstanding principal and accrued interest of related party notes payable amounting to $879.
Equity financing subsequent to December 31, 2023:
The Company issued 19,183,258 shares of its common stock pursuant to the Ascendiant Sales Agreement and received $5,956 of net proceeds resulting from ATM
issuances.
Purusuant to a Regulation A offering, the Company entered into subscription agreements with certain institutional investors, pursuant to which the Company agreed to
issue and sell to the investors 27,397,258 shares of its Common Stock, par value $0.0001 per share of the Company at a price of $0.24 per share for gross proceeds to the
Company of $6,575.
The shares that were issued in the offering were offered at-the-market under Nasdaq rules and pursuant to the Company’s Form 1-A, initially filed by the Company
with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on February 14, 2024 and qualified on March 11, 2024.
As of March 28, 2024, the Company had cash of approximately $14,200 and approximately $1,200 of outstanding notes payable principal balance and accrued interest
with minimum monthly payments of $120 beginning in April 2024 related to the Note which has a maturity date of April 11, 2025. As a result of the aforementioned equity
financing that occurred subsequent to December 31, 2023, management has alleviated substantial doubt about the Company’s ability to continue as a going concern.
F-9
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES
Basis of Presentation
On April 18, 2023, we implemented a 1-for-40 reverse stock split (the “Reverse Stock Split”) of our common stock, $0.0001 par value per share (the “Common
Stock”). Our Common Stock commenced trading on a post Reverse Stock Split basis on April 19, 2023. As a result of the Reverse Stock Split, every forty (40) shares of
our pre-Reverse Stock Split Common Stock were combined and reclassified into one share of our Common Stock. The number of shares of Common Stock subject to
outstanding options, warrants, and convertible securities were also reduced by a factor of forty and the exercise price of such securities increased by a factor of forty, as of
April 18, 2023. All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial information in this Annual Report
have been adjusted to reflect the Reverse Stock Split. The par value per share of our Common Stock was not affected by the Reverse Stock Split.
On June 10, 2023, the board of directors approved the sale of the SaaS Assets to an unrelated third party, SW Direct Sales LLC (“SW Sales” or the “buyer”), for
$6,500 with $4,750 cash proceeds paid by buyer upon closing of the transaction. Additional payments of $1,750 will be paid by the buyer if certain profitability and
revenue targets are met within the next two years. The contingent payments were not recorded at the closing date of the sale, rather will be recognized as the cash is
received and the contingency resolved pursuant to ASC 450-30.
Accordingly, the Company’s consolidated financial statements are being presented pursuant to ASC 360-10-45-9 which requires that a disposal group be classified as
held for sale in the period in which all of the held for sale criteria are met. Accordingly, the Company’s consolidated balance sheet at December 31, 2022 has been
reclassified to reflect held for sale accounting. In addition to held for sale accounting, the Company has also met the criterion pursuant to ASC 205-20, Discontinued
Operations, as a strategic shift from operating and managing a SaaS business to operating and managing a live streaming shopping platform has occurred because of the
sale. The Company’s consolidated results of operations and statements of cash flows have been reclassified to reflect the presentation of discontinued operations. See Note
5 for details of the assets and liabilities related to the SaaS sale and discontinued operations.
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, 2023 and 2022.
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 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”). Revenue through June 13, 2023 of the year ended December 31, 2023 were derived primarily from providing application services through the SaaS application,
digital marketing and sales support services. During that period, the Company also derived revenue from the sale of customized print products and training materials,
branded apparel, and digital tools, as demanded by its customers. As a result of the sale of the SaaS business, revenue that was recorded historically from the SaaS business
has been reclassified as part of discontinued operations. See Note 5 for revenue disclosures related to the SaaS business.
A description of our principal revenue generating activities is as follows:
MARKET.live 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. Drop Ship and Creator programs. MARKET.live is expected to generate recurring fee revenue from soon to be launched new drop ship programs for entrepreneurs
and its Creator program.
d. The Company’s recently launched TikTok store and affiliate program.
e. The MARKET.live site is designed to incorporate sponsorships and other advertising based on typical industry rates.
A performance obligation is a promise in a contract to transfer a distinct product. Performance obligations promised in a contract are identified based on the goods that
will be transferred that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from
other promises in the contract. Performance obligations include establishing and maintaining customer online stores, providing access to the Company’s e-commerce
platform and customer service support.
The Company’s revenue is mainly commission fees derived from contractually committed gross revenue processed by customers on the Company’s e-commerce
platform. Customers do not have the contractual right to take possession of the Company’s software. Revenue is recognized in an amount that reflects the consideration that
the Company expects to ultimately receive in exchange for those promised goods, net of expected discounts for sales promotions and customary allowances.
F-10
Revenue is recognized on a net basis from maintaining e-commerce platforms and online orders, as the Company is engaged primarily in an agency relationship with
its customers and earns defined amounts based on the individual contractual terms for the customer and the Company does not take possession of the customers’ inventory
or any credit risks relating to the products sold.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the
consolidated statements of operations. Revenues during the years ended December 31, 2023 and 2022, were substantially all generated from clients and customers located
within the United States of America.
Cost of Revenue
Cost of revenue primarily consists of the purchase price of consumer products, packaging supplies, and customer shipping and handling expenses.
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, 2023.
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.
F-11
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
On June 13, 2023, the Company entered into a definitive agreement to sell all of the operating assets and liabilities of the SaaS business to SW Sales for $6,500,
including $4,750 of cash paid upon closing. The operations of the SaaS business have been presented within discontinued operations. Upon completion of the sale of assets
to SW Sales, in which the buyer assumed all liabilities related to the SaaS business, the Company recorded an impairment of $5,441 within loss from discontinued
operations as the carrying amount of the net assets exceeded the sale price, less selling costs.
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.
On June 13, 2023, the Company entered into a definitive agreement to sell all of the operating assets and liabilities of the SaaS business to SW Sales for $6,500,
including $4,750 of cash paid upon closing. The operations of the SaaS business have been presented within discontinued operations. Upon completion of the sale of assets
to SW Sales, in which the buyer assumed all liabilities related to the SaaS business, the Company recorded an impairment of $5,441 within loss from discontinued
operations as the carrying amount of the net assets exceeded the sale price, less selling costs.
Leases
The Company leases certain corporate office space under lease agreements with monthly payments over a period of 36 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, 2023, and 2022, the
Company has not established a liability for uncertain tax positions.
Reclassification for Discontinued Operations
Pursuant to ASC 740, Income Taxes, the 2022 tax footnote disclosure has been reclassified to reflect the presentation of continuing and discontinued operations
separately for the Company’s composition of its deferred tax balances and the rate reconciliation table. See Note 15 – Income Taxes.
Adjustment
During the preparation of the Company’s 2023 consolidated financial statements, the Company identified an adjustment with respect to its 2022 income tax accounting
footnote. Accordingly, we have adjusted the 2022 income tax footnote (See Note 15 – Income Taxes) for the increases to both the deferred tax asset and associated
valuation allowance by approximately $5.5 million. The adjustment had no impact to the Company’s consolidated balance sheet, statement of operations, or its statement of
cash flows.
F-12
Preferred Stock
The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock.
Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares
(including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events
not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as part of stockholders’ equity. Accordingly,
the Series C Preferred Stock offering on December 29, 2023 is classified as part of stockholders’ equity as of December 31, 2023.
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.
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. Forfeitures are
accounted for as they occur. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.
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, 2023, and 2022, the Company had total outstanding options of 2,086,882 and 139,054, respectively, outstanding warrants of 919,664 and 952,638,
respectively, outstanding restricted stock units of 153,366 and 89,898, respectively, the Notes that are convertible into 0 and 11,329 shares at $120.00 per share,
respectively, and convertible notes issued to a related party that are convertible into 0 and 20,784 shares at $41.20 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, 2023 and 2022:
Years Ended December 31,
2023
2022
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
One vendor that accounted for 20% of its
purchases individually and in the aggregate
One vendor that accounted for 22% of its
purchases 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 attributable to
continuing operations:
Fair value of common shares issued to settle accounts payable and accrued expenses
Fair value of common shares issued as payment on notes payable
Derecognition of operating lease right-of-use asset
Derecognition of operating lease liabilities
Derecognition of other assets and liabilities related to lease termination
Recognition of operating lease right-of-use asset and related lease liability
Fair value of common stock received in exchange for employee’s payroll taxes
Accrued capitalized software development costs
Discount recognized from convertible notes payable
Discount recognized from notes payable
Unpaid offering costs related to common stock offerings
Unpaid offering costs related to preferred stock offering
Supplemental disclosure of non-cash investing and financing activities attributable to
discontinued operations:
Discount recognized from advances on future receipts
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,
2023
2022
399
2
$
$
346
5,097
1,186
1,870
421
245
-
-
-
-
105
180
558
-
-
-
$
359
1
465
-
-
-
-
-
12
215
300
450
-
-
997
543
521
212
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.
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. The Company adopted
ASU 2016-13 effective January 1, 2023. The adoption of ASU 2016-13 did not have a material impact 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 $7,131 and $7,108 of internal and external
development costs as of December 31, 2023 and 2022, 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 31, 2023 and 2022, the Company had paid or accrued $605 and $604, respectively, of other capitalized software development costs.
For the years ended December 31, 2023 and 2022, the Company amortized $2,209 and $932, respectively.
Capitalized software development costs, net consisted of the following:
Beginning balance
Additions
Amortization
Ending balance
As of December 31,
2023
2022
$
$
6,176
$
23
(2,209)
3,990
$
4,348
2,760
(932)
6,176
F-16
The expected future amortization expense for capitalized software development costs as of December 31, 2023, is as follows:
Year ending
2024
2025
2026
2027
Total amortization
Amortization
998
$
998
997
997
3,990
$
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, 2023 and 2022:
Computers
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Total property and equipment
Accumulated depreciation
Total property and equipment, net
As of December 31,
2023
2022
$
$
51
-
51
15
117
(74)
43
$
$
46
57
50
1,024
1,177
(644)
533
Depreciation expense amounted to $122 and $176 for the years ended December 31, 2023 and 2022, respectively.
F-17
5. ASSETS AND LIABILITIES HELD FOR SALE
On June 13, 2023, the Company entered into a definitive agreement to sell all of its SaaS operating assets and liabilities to SW Sales for $6,500, including $4,750 of
cash due upon closing. The operations of the SaaS business have been presented within discontinued operations. Upon completion of the sale of assets to SW Sales, in
which the buyer assumed all liabilities related to the SaaS business, the Company recorded an impairment of $5,441 within loss from discontinued operations as the
carrying amount of the net assets exceeded the sale price, less selling costs.
The assets and liabilities held for sale were as follows as of December 31, 2022:
Assets:
Accounts receivable, net
Prepaids and other current assets
Goodwill
Other long-lived assets
Assets held for sale
Liabilities:
Accounts payable
Contract liabilities
Accrued liabilities
Liabilities related to assets held for sale
December 31, 2022
$
$
$
$
1,024
299
9,581
886
11,790
663
1,340
480
2,483
The following information presents the net revenues and net loss of the SaaS business for the years ended December 31, 2023 and 2022:
Net revenues
Net loss
Years Ended December 31,
2023
2022
$
$
3,814
(7,150)
$
$
9,427
(21,479)
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.
On June 13, 2023, the Company derecognized the Lehi lease as part of the sale of SaaS assets to SW Sales. As a result of the sale, the Company has eliminated any
lease-related information related to the SaaS business as part of its presentation of continuing operations.
On July 3, 2023, the Company entered into a lease termination agreement with its landlord related to the office lease in Newport Beach, California. Pursuant to terms
of the lease termination agreement, the Company vacated the property by August 15, 2023. A gain on lease termination of $263 was recorded within other income
(expense), net in the consolidated statement of operations for the year ended December 31, 2023.
On August 8, 2023, the Company entered into a studio office lease agreement for its office in California. The agreement requires the Company to pay $8 per month for
a term through September 30, 2026. In accordance with ASC 842, the Company recognized a right-of-use asset and the related lease liability of $245.
On November 1, 2023, the Company entered into a corporate office sublease agreement with Mr. Cutaia for its executive office in Las Vegas, Nevada. The lease is
cancellable by either party with 30 days advance written notice and the monthly rent amount is five hundred dollars due at the beginning of the month.
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
2024
2025
2026
2027
2028 and thereafter
Total lease payments
Less: Imputed interest/present value discount
Present value of lease liabilities
F-19
$
$
$
$
$
Years Ended December 31,
2023
2022
$
$
264
143
2.75
9.0%
As of December 31,
2023
2022
376
447
4.42
4.0%
1,354
355
1,581
1,936
218
67
164
231
$
$
$
$
$
Operating Leases
92
96
75
-
-
263
(32)
231
7. ACCRUED OFFICERS’ COMPENSATION
Accrued officers’ compensation consists primarily of unpaid compensation for the Company’s Chief Executive Officer, who is also the owner of approximately 0.9%
of the Company’s outstanding shares of common stock as of December 31, 2023.
As of December 31, 2023, and 2022, accrued officers’ compensation amounted to $648 and $764, respectively.
8. ADVANCES ON FUTURE RECEIPTS
As a result of the sale, the Company has eliminated any amounts related to advances on future receipts as part of its presentation of continuing operations. The
Company has the following advances on future receipts as of December 31, 2023:
Note
Issuance Date
Maturity Date
Interest Rate
Original
Borrowing
Balance at
December 31,
2023
Balance at
December 31,
2022
August 25, 2022
October 25, 2022
February 16, 2023
May 11, 2023
April 26, 2023
December 14,
2023
Note 1
Note 2
Note 3
Total
Debt discount
Debt issuance costs
Net
26%
30%
35%
$
$
3,400
322
$
2,108
5,830
$
$
-
-
-
-
-
-
-
$
1,782
207
-
1,989
(311)
(37)
1,641
F-20
Note 1
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 were being amortized over the term of
the secured advance using the effective interest rate method. 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. During the year ended December 31, 2023, the Company paid $643 and amortized $155 and $17 of
the debt discount and debt issuance costs, respectively. On February 16, 2023, the Company agreed to combine the unpaid balance with a new advance, see Note 3 below.
The unamortized amounts of debt discount and debt issuance costs of $112 and $13, respectively, were written off as part of the accounting for loss from discontinued
operations.
Note 2
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 were being amortized over the term of the
secured advance using the effective interest rate method. 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. During the year ended December 31, 2023, the Company paid $86 and amortized $28 and $4 of the debt
discount and debt issuance costs, respectively. On February 16, 2023, the Company agreed to combine the unpaid balance with a new advance, see Note 3 below. The
unamortized amounts of debt discount and debt issuance costs of $16 and $3, respectively, were written off as part of the accounting for loss from discontinued operations.
Note 3
On February 16, 2023, the Company modified and combined the unpaid balances of the previous two advances (see Notes 1 and 2 above) with a new advance from the
same third party totaling $1,550 for the purchase of future receipts/revenues of $2,108, resulting in a debt discount of $558. The Company received $290 and paid $87 of
debt issuance costs upon closing and an additional $3 on June 13, 2023. The debt discount and debt issuance costs are being amortized over the term of the secured
advance using the effective interest rate method. During the year ended December 31, 2023, the Company paid $2,086 and amortized $558 and $90 of the debt discount
and debt issuance costs, respectively. On November 6, 2023, the Company repaid in full all the advances on future receipts.
9. CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
The Company has the following outstanding notes payable as of December 31, 2023 and 2022:
Note
Issuance
Date
Maturity
Date
Interest
Rate
Original
Borrowing
Balance at
December 31,
2023
Balance at
December 31,
2022
December 1, 2015 April 1, 2023
June 4, 2021
May 15, 2050
January 12, 2022
November 7,
2022
May 7, 2024
January 12, 2023
October 11, 2023 April 11, 2025
Related party
convertible note
payable (A)
Related party
convertible note
payable (B)
April 4, 2016
Note payable (C) May 15, 2020
Convertible Notes
Due 2023 (D)
Promissory note
payable (E)
Promissory note
payable (F)
Debt discount
Debt issuance
costs
Total notes
payable
Non-current
Current
12.0%
$
1,249
$
-
$
12.0%
3.75%
$
6.0%
9.0%
9.0%
F-21
343
150
6,300
5,470
1,005
$
-
137
-
1,179
1,005
(99)
(73)
2,149
(362)
1,787
$
725
40
150
1,350
5,470
-
(408)
(309)
7,018
(1,215)
5,803
(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 $41.20, 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. On October 12, 2023, the Company repaid all of the outstanding principal and accrued interest amounting to
$879. As of December 31, 2023, and 2022, the outstanding balance under the note was $0 and $811, 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 $41.20, which was the closing price of the common stock on the amendment date. On September 20, 2023,
the Company repaid all of the outstanding principal and accrued interest amounting to $48. As of December 31, 2023 and 2022, the outstanding balance under the note
was $0 and $45, 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. As of December 31, 2023, and 2022, the outstanding balance under the note was $137 and
$150, respectively.
(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. As of December 31, 2022, the amount of unamortized debt discount and debt issuance
costs was $6 and $10, respectively. During the year ended December 31, 2023, the Company amortized the remaining amount of debt discount and debt issuance costs.
As of December 31, 2023 and 2022, the outstanding balance of the Notes amounted to $0 and $1,350, 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.
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.
During the year ended December 31, 2023, the Company paid $375 in cash and $5,097 in shares; amortized $304 of debt discount and $226 of debt issuance costs. As
of December 31, 2023, the amount of unamortized debt discount and debt issuance costs was $99 and $73, respectively.
As of December 31, 2023, the outstanding balance of the November Notes amounted to $1,692 which includes accrued interest of $513. See Note 17, Subsequent
Events.
(F) On October 11, 2023, the Company entered into a note purchase agreement with Streeterville pursuant to which Streeterville purchased the Note in the aggregate
principal amount of $1,005. The Note bears interest at 9.0% per annum compounded daily. The maturity date of the Note is 18 months from the date of its issuance.
As of December 31, 2023, the outstanding balance of the Note amounted to $1,025, which includes accrued interest of $20.
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,
2023
2022
$
$
$
310
241
642
1,193
$
341
487
582
1,410
Total interest expense for notes payable to related parties (see Notes A and B above) was $72 and $91 for the years ended December 31, 2023 and 2022, respectively.
The Company paid $162 and $0 in interest to related parties for the years ended December 31, 2023 and 2022, 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,
2023
2022
0.17
8.00
1.08
202%
0%
4.79%
1
$
$
$
6.40
13.60
1.98
107%
0%
4.41%
222
$
$
$
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, 2023, the Company recorded other income of $221 to account for the decrease in the fair value of these derivative liabilities. As
of December 31, 2023, the balance of derivative liabilities was $1.
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 derivative liabilities. As of
December 31, 2022, the balance of derivative liabilities was $222.
The details of derivative liability transactions for the year ended December 31, 2023 and 2022 are as follows:
Beginning balance
Change in fair value
Ending balance
11. CAPITAL STOCK
Common Stock
Years Ended December 31,
2023
2022
$
$
222
(221)
1
$
$
3,155
(2,933)
222
The Company’s common stock activity for the year ended December 31, 2023 was as follows:
Shares Issued as Part of Public Offering
On January 24, 2023, the Company entered into an underwriting agreement with Aegis Capital Corp. (“Aegis”) as underwriter relating to the offering, issuance and
sale of 901,275 shares of the Company’s common stock at a public offering price of $8.00 per share. The net proceeds for the offering were $6,578, after deducting
discounts, commissions and estimated offering expenses. As a result of this transaction, certain warrants which previously had an exercise price of $13.60 per share, had
the exercise price reduced to $8.00 per share.
Shares Issued as Part of ATM Agreements
During the year ended December 31, 2023, the Company sold 9,471,518 shares and received net proceeds of $2,637 net of offering costs of $43, resulting from all
ATM sales.
In August 2021 and November 2021, the Company entered into two separate ATM 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. Inan ATM offering, the Company sells newly issued shares into the trading market through our designated sales agent at prevailing
market prices.
In December 2023, the Company terminated the November 2021 ATM agreement and entered into a new issuance sales agreement (the “December 2023 ATM”) with
Ascendiant Captial Markets LLC, pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-264038) that was declared effective in April 2022. See
Note 17 – Subsequent Events.
Shares Issued for Services
During the year ended December 31, 2023, the Company issued 156,426 shares of common stock to officers, directors and employees associated with the vesting of
restricted stock units.
During the year ended December 31, 2023, the Company issued 1,925 shares of common stock to employees associated with a special incentive program. The shares
of common stock were valued based on the closing price of the Company’s common stock on the date of issuance. The aggregate fair value of $11 was recorded as share-
based compensation expense on the date of issuance.
During the year ended December 31, 2023, the Company issued 44,216 shares of common stock to Mr. Cutaia associated with the vesting of restricted stock units.
On September 5, 2023, the Company issued 128,204 shares of common stock to certain vendors for services rendered and to be rendered with an aggregate grant date
fair value of $200. 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 for Settlements of Accrued Expenses
During the year ended December 31, 2023, the Company issued 93,190 shares of common stock to settle accrued expenses. The fair market value of the shares issued
was based on the closing price of the Company’s common stock on the dates of each settlement, which amounted to $146.
Shares Issued for Settlement of Litigation
On September 19, 2023, the Company issued 183,486 shares to certain other investors to settle litigation, see Note 13. The fair market value of the shares issued was
based on the closing price of the Company’s common stock on the date of the settlement, which amounted to $200. A loss of $(200) was recorded within other income
(expense), net in the consolidated statement of operations for the year ended December 31, 2023. In exchange for the shares, 32,140 warrants were cancelled as part of the
settlement agreement.
F-24
Shares Issued as Payment on Notes Payable
During the year ended December 31, 2023, the Company issued 7,301,903 shares to Streeterville in exchange for a reduction on the Company’s note payable
outstanding balance with Streeterville amounting to $5,097 (See Note 9).
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.
Reverse Stock 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. On April 18, 2023, the Company implemented the 1-for-40 reverse stock split (the “Reverse Stock Split”) of its common stock. The
Company’s common stock commenced trading on a post- reverse stock split basis on April 19, 2023. As a result of the Reverse Stock Split, every forty (40) shares of the
Company’s pre-Reverse Stock Split common stock were combined and reclassified into one share of common stock. Any fractional shares were rounded up to a whole
share which resulted in the issuance of 31,195 shares of common stock. The number of shares of common stock subject to outstanding options, warrants, and convertible
securities were also reduced by a factor of forty and the exercise price of such securities increased by a factor of forty effective as of April 18, 2023.
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.
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 277,417 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 15,182 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.
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) 366,667
shares of common stock, and (ii) warrants to purchase 366,667 shares of the common stock at an exercise price of $30.00 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 $44.00 to $84.00 per share had the exercise prices reduced to $30.00 per share. On April
20, 2022, the Company issued 366,667 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) 312,500 shares of common stock, at a purchase price of $12.80 per share, and (ii) warrants to purchase 312,500 shares of the common
stock at an exercise price of $13.60 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 $30.00 per share, had the exercise price
reduced to $13.60 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 312,500 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 23,716 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 54,168 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 5,679 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 4,735 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 2,647 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 11,892, 12,906, and 9,188 shares of common stock to certain officers, employees and directors,
respectively, associated with the vesting of restricted stock units. These issuances include 14,959 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 10,572 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.
Preferred Stock
The Company’s preferred stock activity for the year ended December 31, 2023 was as follows:
Series B
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 in cash. The sale closed on February 17, 2023. On April 20, 2023, the
Company redeemed the Series B Preferred Stock for $5 in cash.
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.
Series C
On December 28, 2023,the Company filed a certificate of designation of preferences and rights (the “Certificate of Designation”) of Series C Preferred Stock (the
“Series C Preferred Stock”), with the Secretary of State of Nevada, designating 5,000 shares of preferred stock, par value $0.0001 of the Company, as Series C Preferred
Stock. Each share of Series C Preferred Stock shall have a stated face value of $1,300.00 (“Stated Value”). The Series C Preferred Stock is not convertible into common
shares of capital stock of the Company and as such is non-dilutive to current stockholders.
Each share of Series C Preferred Stock shall accrue a rate of return on the Stated Value at the rate of 10% per year, compounded annually to the extent not paid as set
forth in the Certificate of Designation, and to be determined pro rata for any factional year periods (the “Preferred Return”). The Preferred Return shall accrue on each
share of Series C Preferred Stock from the date of its issuance, and shall be payable or otherwise settled as set forth in the Certificate of Designation.
Commencing on the 1 year anniversary of the issuance date of each share of Series C Preferred Stock, each such share of Series C Preferred Stock shall accrue an
automatic quarterly dividend, based on three quarters of 91 days each and the last quarter of 92 days (or 93 days for leap years), which shall be calculated on the Stated
Value of such share of Series C Preferred Stock, and which shall be payable in additional shares of Series C Preferred Stock, based on the Stated Value, or in cash as set
forth in the Certificate of Designation (each, as applicable, the “Quarterly Dividend”). For the period beginning on the 1 year anniversary of the issuance date of a share of
Series C Preferred Stock to the 2 year anniversary of the issuance date of a share of Series C Preferred Stock, the Quarterly Dividend shall be 2.5% per quarter, and for all
periods following the 2 year anniversary of the issuance date of a share of Series C Preferred Stock, the Quarterly Dividend shall be 5% per quarter.
Subject to the terms and conditions set forth in the Certificate of Designation, at any time the Company may elect, in the sole discretion of the Board of Directors, to
redeem all, but not less than all, of the Series C Preferred Stock then issued and outstanding from all of the Series C Preferred Stock Holders (a “Corporation Optional
Redemption”) by paying to the applicable Series C Preferred Stock Holders an amount in cash equal to the Series C Preferred Liquidation Amount (as defined in the
Certificate of Designation) then applicable to such shares of Series C Preferred Stock being redeemed in the Corporation Optional Conversion (the “Redemption Price”).
F-26
The Series C Preferred Stock confers no voting rights on holders, except with respect to matters that materially and adversely affect the voting powers, rights or
preferences of the Series C Preferred Stock or as otherwise required by applicable law.
On December 29, 2023, the Company entered into a Securities Purchase Agreement with Streeterville, pursuant to which the Company sold and Streeterville
purchased 3,000 shares of the Company’s newly designated non-convertible Series C Preferred Stock (the “Series C Shares”) for a total purchase price of $3,000. The
Shares have a 10% stated annual dividend, no voting rights and has a face value of $1,300 per share. The sale of the Series C Shares was consummated on December 29,
2023.
12. RESTRICTED STOCK UNITS
A summary of restricted stock unit activity for the years ended December 31, 2023 and 2022 is presented below:
Non-vested at January 1, 2022
Granted
Vested/ deemed vested
Forfeited and other
Non-vested at December 31, 2022
Granted
Vested/deemed vested
Forfeited and other
Non-vested at December 31, 2023
Shares
Weighted-
Average
Grant Date
Fair Value
45,546
93,191
(33,987)
(14,852)
89,898
284,761
(200,642)
(20,651)
153,366
$
$
$
56.56
22.40
37.46
52.51
29.04
0.93
5.97
40.49
5.88
On June 21, 2023, a total of 145,268 shares of restricted stock with a grant date fair value of $161 was granted pursuant to the Cost Savings Plan that was extended
through April 30, 2023. These restricted stock units were valued based on the closing price of the Company’s common stock on the date of issuance and vested on the grant
date. The total shares issued for these vested restricted stock units include 51,801 granted to officers and 9,854 granted to directors.
On September 28, 2023, the Company granted 136,986 restricted stock units to its interim Chief Financial Officer. The restricted stock units vest annually through
September 2027. These restricted stock units were valued based on the closing price of the Company’s common stock on the date of issuance and had an aggregate grant
date fair value of $100, which is being amortized as share-based compensation expense over the vesting term.
The total fair value of restricted stock units that vested or deemed vested during the year ended December 31, 2023 was $1,197. The share-based compensation
expense recognized relating to the vesting of restricted stock units for the years ended December 31, 2023 and 2022 amounted to $1,103 and 1,245, respectively. As of
December 31, 2023, the amount of unvested compensation related to issuances of restricted stock units was $585 which will be recognized as an expense in future periods
as the shares vest. When calculating basic net loss per share, these shares are included in weighted average common shares outstanding from the time they vest. When
calculating diluted net loss per share, these shares are included in weighted average common shares outstanding as of their grant date.
During the year ended December 31, 2022, the Company granted 93,191 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 59,835 shares of restricted stock with a grant date fair value of $527 was granted pursuant to the Cost Savings Plan. The total shares issued
for vested restricted stock units include 14,015 granted to officers and 3,315 granted to directors.
F-27
13. STOCK OPTIONS
A summary of option activity for the years ended December 31, 2023 and 2022 is presented below.
Outstanding at January 1, 2022
Granted
Forfeited and other
Exercised
Outstanding at December 31, 2022
Granted
Forfeited
Exercised
Outstanding at December 31, 2023
Vested December 31, 2023
Exercisable at December 31, 2023
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
68.99
33.14
66.48
45.35
52.11
0.95
60.48
-
1.20
2.20
2.20
2.24
-
-
-
3.37
-
-
-
4.60
$
$
$
$
107
-
-
-
-
-
-
-
-
-
-
Options
135,106
94,374
(82,108)
(8,318)
139,054
2,058,425
(110,597)
-
2,086,882
320,372
320,372
$
$
$
$
As of December 31, 2023, the intrinsic value of the outstanding options was $0.
During the year ended December 31, 2023, the Company granted stock options to board members to purchase a total of 8,090 stock options as replacement awards
related to forfeited restricted stock units. The options have an average exercise price of $9.20 per share, expire in five years, and vested on the grant date. The total fair
value of these options at grant date was $66 using the Black-Scholes Option Pricing model.
On June 21, 2023, the Company granted stock options to board members to purchase a total of 997,595 stock options. The options have an average exercise price of
$1.11 per share, expire in five years, and vest one year from the grant date. The total grant date fair value of these options was $953 based on the Black-Scholes option
pricing model. On September 28, 2023, the Company granted stock options to a board member to purchase a total of 102,740 stock options. The options have an average
exercise price of $0.73 per share, expire in five years, and vested on the grant date. The total grant date fair value of these options was $68 based on the Black-Scholes
option pricing model.
On September 28, 2023, the Company granted stock options to employees to purchase a total of 920,000 stock options. The options have an average exercise price of
$0.73 per share, expire in five years, and vest annually over 4 years. The total grant date fair value of these options was $608 based on the Black-Scholes option pricing
model.
The share-based compensation expense recognized relating to the vesting of stock options for the years ended December 31, 2023 and 2022 amounted to $1,289 and
$1,652, respectively. As of December 31, 2023, the total unrecognized share-based compensation expense was $1,470, which is expected to be recognized as part of
operating expense through September 2027.
During the year ended December 31, 2022, the Company granted stock options to certain employees and consultants to purchase a total of 94,374 shares of common
stock for services rendered or to be rendered. The options have an average exercise price of $33.20 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
stock option grants include 5,896 for its Chief Executive Officer and 12,707 for directors associated with the return of previously issued stock in exchange for stock
options. 5,682 stock options were granted to directors as part of the Cost Savings Plan.
During the year ended December 31, 2022, a total of 8,318 stock options were exercised. As a result of the exercise of the option, the Company issued 8,318 shares of
common stock and received cash of $377.
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
Years Ended December 31,
2023
2022
3.56% - 4.62%
5 years
127 – 145%
-
1.24% - 4.27%
5 years
141 - 150%
-
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
A summary of warrant activity for the years ended December 31, 2023 and 2022 is presented below:
Outstanding at January 1, 2022
Granted
Forfeited
Exercised
Outstanding at December 31, 2022
Granted
Forfeited
Exercised
Outstanding at December 31, 2023
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
106.80
13.60
13.60
-
37.60
-
8.14
-
33.76
2.38
4.82
-
-
3.56
-
-
-
3.10
$
$
507
-
-
-
-
-
-
-
-
Warrants
274,638
679,167
(1,167)
-
952,638
-
(32,974)
-
919,664
$
$
As of December 31, 2023, the intrinsic value of the outstanding warrants was $0.
On January 24, 2023, the Company entered into an underwriting agreement with Aegis relating to the January 2023 offering, issuance and sale of 901,275 shares of the
Company’s common stock at a public offering price of $8.00 per share. As a result of this transaction, certain warrants which previously had an exercise price of $13.60 per
share, had the exercise price reduced to $8.00 per share, which resulted in the Company recognizing a deemed dividend of $164.
On September 19, 2023, the Company issued 183,486 shares of its common stock to certain other investors to settle litigation, see Note 16. In exchange for the shares,
32,140 warrants were cancelled as part of the settlement agreement.
In connection with the April Registered Direct Offering on April 20, 2022, the Company issued 366,667 warrants to purchase common stock with a vesting period of
six months and an exercise price of $30.00. As a result, 92,621 warrants, with exercise prices ranging from$44.00 to $84.00 per share, had the exercise prices reduced to
$30.00 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 $30.00 per share had the exercise price reduced to
$13.60 per share, which resulted in the Company recognizing a deemed dividend of $246.
F-29
15. INCOME TAXES
As of December 31, 2023 and 2022, the total current state tax expense is $2 and $1, respectively. There are no current federal taxes payable and no federal or state
deferred taxes.
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes attributable to continuing
operations were as follows:
Statutory federal income tax rate
State taxes, net of federal benefit
Non-deductible items
Change in valuation allowance
Prior year true up
Effective income tax rate
Years Ended December 31,
2023
2022
21.0%
2.2%
(1.0)%
(20.5)%
(1.7)%
0.0%
21.0%
2.3%
(1.1)%
(22.2)%
0.0%
0.0%
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes attributable to discontinued
operations were as follows:
Statutory federal income tax rate
State taxes, net of federal benefit
Goodwill and intangible assets
Change in valuation allowance
Prior year true up
Effective income tax rate
Years Ended December 31,
2023
2022
21.0%
2.2%
16.7%
(39.9)%
0.0%
0.0%
Significant components of the Company’s deferred tax assets and liabilities related to continuing operations are as follows:
Net operating loss carry-forwards
Share based compensation
Long-lived assets
Section 174 R&D amortization
Other temporary differences
Less: Valuation allowance
Deferred tax assets, net
Years Ended December 31,
2023
2022
$
$
30,863 $
1,385
115
1,837
426
(34,626)
- $
Significant components of the Company’s deferred tax assets and liabilities related to discontinued operations are as follows:
Net operating loss carry-forwards
Share based compensation
Long-lived assets
Section 174 R&D amortization
Other temporary differences
Less: Valuation allowance
Deferred tax assets, net
Years Ended December 31,
2023
2022
$
$
- $
-
-
-
-
-
- $
21.0%
2.3%
(13.0)%
(10.3)%
0.0%
0.0%
23,651
1,019
663
-
198
(25,531)
-
-
-
3,309
-
91
(3,400)
-
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, recorded a 100% valuation allowance against all deferred tax assets as of December 31, 2023 amounting to $34.6
million.
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, 2023 and 2022.
F-30
As of December 31, 2023 and 2022, the Company had federal net operating loss carry-forwards of approximately $127.5 million and $92.6 million, respectively, and
state net operating loss carry-forwards of approximately $83.3 million and $67.9 million, respectively, which may be available to offset future taxable income for tax
purposes. As of December 31, 2023, approximately $12.5 million of federal net operating loss carry-forwards begin to expire in 2034. While the remaining amount of
approximately $115.0 million does not expire, the Tax Cuts and Jobs Act of 2017 limits the amount of federal net operating loss utilized each year after December 31, 2017
to 80% of taxable income. As of December 31, 2023, approximately $31.7 million of state net operating loss carry-forwards begin to expire in 2031.
Net operating loss carryforwards 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, 2023 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, 2023, tax years 2019 through 2022 remain open for IRS
audit. The Company has not received any notice of audit from the IRS or state authorities 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 in
2015 he was entitled to approximately $300 in unpaid bonus compensation. 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 disputed the former employee’s
claims and interposed several affirmative defenses, including that the claims are contradicted by documentary evidence, barred by the applicable statute of limitations, and
barred by a written, executed 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 California court issued an order (i) denying the former employee’s motion for summary judgment on his
claims against the Company, but (ii) granting the former employee’s motion to dismiss the Company’s affirmative defenses, which ruling the Company contends was in
error. Under the rules, the Company is precluded from appealing the dismissal of its affirmative defenses until after a trial. On August 29, 2023 after a bench trial at which
the Company was precluded from introducing evidence of its affirmative defenses, the court found in favor of Plaintiff Meyerson; and judgment was entered in Meyerson’s
favor in the amount of $584 which included interest. Meyerson’s counsel thereafter submitted an untimely request for attorney’s fees and costs which the Company has
opposed. As of this date, that motion has yet to be decided. After the trial, the Company filed a timely appeal from the judgment (Meyerson v. Verb Technology Company,
Inc. (2023 2nd Appellate District) Case No.: B334777, seeking among other things, that the trial court’s finding be vacated and that the Company’s affirmative defenses be
reinstated. As of this date, the appeal has yet to be heard. The Company has accrued the liability at December 31, 2023 and believe the accrual is adequate pending the
outcome of the appeal process.
b. Legal Malpractice Action
The Company was involved 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 was 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 disputed owing this amount to BH. 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 remaining unpaid settlement amount of
$31 was accrued by the Company as of December 31, 2023.
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. On September 19, 2023, the Company and Iroquois agreed to a settlement of the matter and an
exchange of general releases. Pursuant to the settlement, the Company issued 183,486 shares to Iroquois and certain other investors. The fair market value of the shares
issued was based on the closing price of the Company’s common stock on the date of the settlement, which amounted to $200. In exchange for the shares, 32,140 warrants
were cancelled as part of the settlement agreement.
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 $250 in board fees to its three 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 2023 totaled $312.
17. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through April 1, 2024, 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
ATM Offering
Subsequent to December 31, 2023, the Company issued 19,183,258 shares of its common stock and received $5,956 of net proceeds resulting from ATM issuances. On
March 19, 2024, the Ascendiant Sales Agreement was amended to increase the amount available from $960 to $6,260. On March 29, 2024, the Ascendiant Sales Agreement
was amended to increase the amount available from $6,260 to $9,010.
Regulation A Public Offering
Subsequent to December 31, 2023, the Company issued 27,397,258 shares of its common stock and received $6,575 of net proceeds resulting from a Form 1-A public
offering of its common stock pursuant to Regulation A.
Debt financing
Issuance of common shares as payment on notes payable
Subsequent to December 31, 2023, the Company issued 11,484,403 shares of its common stock pursuant to an exchange agreement in exchange for a reduction of
$1,720 on the outstanding balance of the November Notes. On March 18, 2024, the Company paid the November Notes in full.
Issuances of Common Stock
Subsequent to December 31, 2023, the Company issued 4,514 shares of common stock to Mr. Cutaia associated with the vesting of restricted stock units.
Employment Agreement Extension
Subsequent to December 31, 2023, the Company extended Mr. Cutaia’s employment agreement for 4 years.
F-32
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
55
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
3.15
Certificate of Amendment to the Articles of Incorporation dated April 17, 2023
8-K 001-38834
3.1
04/18/2023
3.16
Certificate of Designation of Series C Preferred Stock
8-K 001-38834
3.1
01/04/2024
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
56
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
57
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
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
58
Exhibit
Number
Description*
Where Located
Exhibit
Number
File
Number
Filing
Date
Filed
Herewith
Form
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)
10.29# Amendment to 2019 Stock Incentive Compensation Plan
DEF
14A
DEF
14A
001-38834
09/11/2020
001-38834
2/28/2023
10.30
Asset Purchase Agreement dated June 13, 2023, between Verb Technology Company, Inc. and SW
8-K 001-38834
10.1
06/20/2023
Direct Sales, LLC.
10.31
Note Purchase Agreement dated October 11, 2023, between Verb Technology Company, Inc. and
8-K 001-38834
10.1
10/17/2023
Streeterville Capital, LLC
10.32
Promissory Note dated October 11, 2023, issued by Verb Technology Company, Inc.
8-K 001-38834
10.2
10/17/2023
10.33
ATM Sales Agreement by and between Verb Technology Company, Inc. and Ascendiant Capital
8-K 001-38834
1.1
12/15/2023
Markets, LLC, dated December 15, 2023
10.34
Securities Purchase Agreement, dated December 29, 2023, by and between the Company and
8-K 001-38834
10.1
01/04/2024
Streeterville Capital, LLC
10.35
Form of Subscription Agreement
1-A 024-12400
4.1
02/14/2024
10.36
Amendment to At-The-Market Issuance Sales Agreement, dated March 19, 2024, with Ascendiant
8-K 001-38834
10.1
03/19/2024
Capital Markets, LLC.
10.37
Amendment to At-The-Market Issuance Sales Agreement, dated March 29, 2024, with Ascendiant
8-K 001-38834
10.1
03/29/2024
Capital Markets, LLC.
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
23.2
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
X
X
X
X
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
97*
Clawback Policy, effective November 15, 2023
X
59
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.
60
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 1, 2024
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:
By:
/s/ Rory J. Cutaia
Rory J. Cutaia
President, Chief Executive Officer, Secretary,
and Director
/s/ Bill J. Rivard
Bill J. Rivard
Chief Financial Officer and Treasurer
Date: April 1, 2024
By:
/s/ James P. Geiskopf
James P. Geiskopf
Director
Date: April 1, 2024
By:
/s/ Kenneth S. Cragun
Kenneth S. Cragun
Director
Date: April 1, 2024
By:
/s/ Edmund C. Moy
Edmund Moy
Director
Date: April 1, 2024
61
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-3 (No. 333-252167), (No. 333-262132), and (333-264038), and in Offering
Statement on Form 1-A (No. 024-12400) of Verb Technology Company, Inc. of our report dated April 17, 2023 relating to the financial statements of Verb Technology
Company, Inc., for the year ended December 31, 2022, (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 for the year ended December 31, 2023.
Exhibit 23.1
/s/ Weinberg & Company, P.A.
Los Angeles, California
April 1, 2024
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements of Verb Technology Company, Inc. on Form S-3 (No. 333-252167), (No. 333-
262132), and (333-264038), and in the Offering Statement on Form 1-A (No. 024-12400) of our report dated April 1, 2024, with respect to our audit of the consolidated
financial statements of Verb Technology Company, Inc. as of and for the year ended December 31, 2023, which appear in this Annual Report on Form 10-K.
Exhibit 23.2
/s/ Grassi & Co., CPAs, P.C.
Jericho, New York
April 1, 2024
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, 2023 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 1, 2024
/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, Bill J. Rivard, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2023 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 1, 2024
/s/ Bill J. Rivard
Bill J. Rivard
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, 2023 (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 1, 2024
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, Bill J. Rivard, 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, 2023 (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 1, 2024
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/ Bill J. Rivard
Bill J. Rivard
Chief Financial Officer, Principal Financial Officer (Principal Accounting Officer)
VERB TECHNOLOGY COMPANY, INC.
CLAWBACK POLICY
EFFECTIVE November 15, 2023
Exhibit 97
1.
Purpose. The purpose of this Verb Technology Company, Inc. (the “Company”) Clawback Policy (this “Policy”) is to enable the Company to recover Erroneously
Awarded Compensation from Covered Executive Officers in the event that the Company is required to prepare an Accounting Restatement. This Policy is designed
to comply with, and shall be interpreted to be consistent with, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as codified
in Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated under the Exchange Act (“Rule 10D-1”) and
Listing Rule 5608 of the corporate governance rules of The Nasdaq Stock Market (“Nasdaq”) (the “Listing Standards”). Unless otherwise defined in this Policy,
capitalized terms shall have the meaning ascribed to such terms in Section 2.
2.
Definitions. As used in this Policy, the following capitalized terms shall have the meanings set forth below.
a. “Accounting Restatement” means an accounting restatement of the Company’s financial statements due to the Company’s material noncompliance with any
financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial
statements that is material to the previously issued financial statements (i.e., a “Big R” restatement), or to correct an error that is not material to the previously
issued financial statements, but that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current
period (i.e., a “little r” restatement).
b. “Accounting Restatement Date” means the earlier to occur of (i) the date the Board, a committee of the Board, or the officer or officers of the Company
authorized to take such action if the Board’s action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an
Accounting Restatement and (ii) the date a court, regulator, or other legally authorized body directs the Company to prepare an Accounting Restatement.
c. “Applicable Period” means, with respect to any Accounting Restatement, the three completed fiscal years immediately preceding the Accounting Restatement
Date, as well as any transition period (that results from a change in the Company’s fiscal year) within or immediately following those three completed fiscal
years (except that a transition period that comprises a period of at least nine months shall count as a completed fiscal year).
d. “Board” means the board of directors of the Company.
e. “Code” means the U.S. Internal Revenue Code of 1986, as amended. Any reference to a section of the Code or regulation thereunder includes such section or
regulation, any valid regulation or other official guidance promulgated under such section, and any comparable provision of any future legislation or regulation
amending, supplementing, or superseding such section or regulation.
f. “Covered Executive Officer” means an individual who is currently or previously served as the Company’s principal executive officer, principal financial officer,
principal accounting officer (or, if there is no such accounting officer, the controller), vice president of the Company in charge of a principal business unit,
division, or function (such as sales, administration, or finance), an officer who performs (or performed) a policy-making function, or any other person who
performs (or performed) similar policy-making functions for the Company or is otherwise determined to be an executive officer of the Company pursuant to Item
401(b) of Regulation S-K. An executive officer of the Company’s parent or subsidiary is deemed a “Covered Executive Officer” if the executive officer performs
(or performed) such policy- making functions for the Company.
g. “Erroneously Awarded Compensation” means, in the event of an Accounting Restatement, the amount of Incentive-Based Compensation previously received that
exceeds the amount of Incentive-Based Compensation that otherwise would have been received had it been determined based on the restated amounts in such
Accounting Restatement, and must be computed without regard to any taxes paid by the relevant Covered Executive Officer; provided, however, that for
Incentive-Based Compensation based on stock price or total stockholder return, where the amount of Erroneously Awarded Compensation is not subject to
mathematical recalculation directly from the information in an Accounting Restatement: (i) the amount of Erroneously Awarded Compensation must be based on
a reasonable estimate of the effect of the Accounting Restatement on the stock price or total stockholder return upon which the Incentive-Based Compensation
was received and (ii) the Company must maintain documentation of the determination of that reasonable estimate and provide such documentation to Nasdaq.
h. “Financial Reporting Measure” means any measure that is determined and presented in accordance with the accounting principles used in preparing the
Company’s financial statements and any measure that is derived wholly or in part from such measure. A Financial Reporting Measure is not required to be
presented within the Company’s financial statements or included in a filing with the U.S. Securities and Exchange Commission to qualify as a “Financial
Reporting Measure.”
i. “Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a Financial Reporting
Measure. Incentive-Based Compensation is deemed “received” for purposes of this Policy in the Company’s fiscal period during which the Financial Reporting
Measure specified in the Incentive-Based Compensation award is attained, even if the payment or grant of such Incentive-Based Compensation occurs after the
end of that period.
3.
4.
5.
Administration. This Policy shall be administered by the Board, the Compensation Committee of the Board (the “Compensation Committee”), the Audit Committee
of the Board (the “Audit Committee”) or a special committee comprised of members of the Compensation Committee and Audit Committee. For purposes of this
Policy, the body charged with administering this Policy shall be referred to herein as the “Administrator.” The Administrator is authorized to interpret and construe
this Policy and to make all determinations necessary, appropriate or advisable for the administration of this Policy, in each case, to the extent permitted under the
Listing Standards and in compliance with (or pursuant to an exemption from the application of) Section 409A of the Code. All determinations and decisions made by
the Administrator pursuant to the provisions of this Policy shall be final, conclusive and binding on all persons, including the Company, its affiliates, its stockholders
and Covered Executive Officers, and need not be uniform with respect to each person covered by this Policy.
In the administration of this Policy, the Administrator is authorized and directed to consult with the full Board or such other committees of the Board as may be
necessary or appropriate as to matters within the scope of such other committee’s responsibility and authority. Subject to any limitation at applicable law, the
Administrator may authorize and empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and
intent of this Policy (other than with respect to any recovery under this Policy involving such officer or employee). Any action or inaction by the Administrator with
respect to a Covered Executive Officer under this Policy in no way limits the Administrator’s decision to act or not to act with respect to any other Covered
Executive Officer under this Policy or under any similar policy, agreement or arrangement, nor shall any such action or inaction serve as a waiver of any rights the
Company may have against any Covered Executive Officer other than as set forth in this Policy.
Application of this Policy. This Policy applies to all Incentive-Based Compensation received by a person: (a) after beginning service as a Covered Executive Officer;
(b) who served as a Covered Executive Officer at any time during the performance period for such Incentive-Based Compensation; (c) while the Company had a
listed class of securities on a national securities exchange; and (d) during the Applicable Period. For the avoidance of doubt, Incentive-Based Compensation that is
subject to both a Financial Reporting Measure vesting condition and a service-based vesting condition shall be considered received when the relevant Financial
Reporting Measure is achieved, even if the Incentive-Based Compensation continues to be subject to the service-based vesting condition.
Recovery Erroneously Awarded Compensation. In the event of an Accounting Restatement, the Company must recover Erroneously Awarded Compensation
reasonably promptly, in amounts determined pursuant to this Policy. The Company’s obligation to recover Erroneously Awarded Compensation is not dependent on
the filing of restated financial statements. Recovery under this Policy with respect to a Covered Executive Officer shall not require the finding of any misconduct by
such Covered Executive Officer or such Covered Executive Officer being found responsible for the accounting error leading to an Accounting Restatement. In the
event of an Accounting Restatement, the method for recouping Erroneously Awarded Compensation shall be determined by the Administrator in its sole and absolute
discretion, to the extent permitted under the Listing Standards and in compliance with (or pursuant to an exemption from the application of) Section 409A of the
Code.
Recovery may include, without limitation, (i) reimbursement of all or a portion of any incentive compensation award, (ii) cancellation of incentive compensation
awards and (iii) any other method authorized by applicable law or contract.
The Company is authorized and directed pursuant to this Policy to recover Erroneously Awarded Compensation in compliance with this Policy unless the Compensation
Committee has determined that recovery would be impracticable solely for the following limited reasons, and subject to the following procedural and disclosure requirements:
a. The direct expenses paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered. Before reaching such conclusion, the
Administrator must make a reasonable attempt to recover such Erroneously Awarded Compensation, document such reasonable attempt(s) to recover, and provide
that documentation to Nasdaq;
b. Recovery would violate home country law where that law was adopted prior to November 28, 2022. Before reaching such conclusion, the Administrator must
obtain an opinion of home country counsel, acceptable to Nasdaq, that recovery would result in such a violation, and must provide such opinion to Nasdaq; or
c. Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet
the requirements of Section 401(a)(13) or Section 411(a) of the Code.
6.
7.
8.
9.
Prohibition on Indemnification and Insurance Reimbursement. The Company is prohibited from indemnifying any Covered Executive Officer against the loss of any
Erroneously Awarded Compensation. Further, the Company is prohibited from paying or reimbursing a Covered Executive Officer for the cost of purchasing
insurance to cover any such loss. The Company is also prohibited from entering into any agreement or arrangement whereby this Policy would not apply or fail to be
enforced against a Covered Executive Officer.
Required Policy-Related Disclosure and Filings. The Company shall file all disclosures with respect to this Policy in accordance with the requirements of the federal
securities laws, including disclosures required by U.S. Securities and Exchange Commission filings. A copy of this Policy and any amendments hereto shall be
posted on the Company’s website and filed as an exhibit to the Company’s annual report on Form 10-K.
Acknowledgement. Each Covered Executive Officer shall sign and return to the Company within thirty (30) calendar days following the later of (i) the effective date
of this Policy set forth below or (ii) the date such individual becomes a Covered Executive Officer, the Acknowledgement Form attached hereto as Exhibit A,
pursuant to which the Covered Executive Officer agrees to be bound by, and to comply with, the terms and conditions of this Policy.
Amendment; Termination. The Board may amend this Policy from time to time in its sole and absolute discretion and shall amend this Policy as it deems necessary
to reflect the Listing Standards or to comply with (or maintain an exemption from the application of) Section 409A of the Code. The Board may terminate this Policy
at any time; provided, that the termination of this Policy would not cause the Company to violate any federal securities laws, or rules promulgated by the U.S.
Securities and Exchange Commission or the Listing Standards.
10. Other Recovery Obligations; General Rights. The Board intends that this Policy shall be applied to the fullest extent of the law. To the extent that the application of
this Policy would provide for recovery of Incentive- Based Compensation that the Company already recovered pursuant to Section 304 of the Sarbanes-Oxley Act or
other recovery obligations, any such amount recovered from a Covered Executive Officer will be credited to any recovery required under this Policy in respect of
such Covered Executive Officer.
11. Effective Date. This Policy shall be effective as of November 15, 2023. The terms of this Policy shall apply to any Incentive- Based Compensation that is received by
Covered Executive Officers on or after October 2, 2023, even if such Incentive-Based Compensation was approved, awarded or granted to Covered Executive
Officers prior to such date.
This Policy shall not limit the rights of the Company to take any other actions or pursue other remedies that the Company may deem appropriate under the circumstances and
under applicable law, in each case, to the extent permitted under the Listing Standards and in compliance with (or pursuant to an exemption from the application of) Section
409A of the Code.
This Policy is binding and enforceable against all Covered Executive Officers and their beneficiaries, heirs, executors, administrators or other legal representatives.